DCIT, Circle - 35, Kolkata, Kolkata v. Kedar Nath Agarwal (HUF), Kolkata

ITA 2094/KOL/2009 | 2004-2005
Pronouncement Date: 09-04-2010

Appeal Details

RSA Number 209423514 RSA 2009
Bench Kolkata
Appeal Number ITA 2094/KOL/2009
Duration Of Justice 3 month(s) 30 day(s)
Appellant DCIT, Circle - 35, Kolkata, Kolkata
Respondent Kedar Nath Agarwal (HUF), Kolkata
Appeal Type Income Tax Appeal
Pronouncement Date 09-04-2010
Appeal Filed By Department
Bench Allotted B
Tribunal Order Date 09-04-2010
Date Of Final Hearing 30-03-2010
Next Hearing Date 30-03-2010
Assessment Year 2004-2005
Appeal Filed On 10-12-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : KOLKATA [BEFORE HONBLE SRI D. K. TYAGI JM & HONBLE SRI C . D. RAO AM] I.T.A. NO. 2094/KOL/2009 ASSESSMENT YEAR :2004-05 DEPUTY COMMISSIONER OF INCOME-TAX -VS- KEDAR NAT H AGARWAL (HUF) CIRCLE-35 KOLKATA. (PA NO.AAFHK 0647 E) (APPELLANT) (RESPONDENT) APPELLANT BY : SRI M. K. SINGHANIA & SMT. JYOTI KU MARI RESPONDENT BY : SRI R. SALARPURIA O R D E R PER D. K. TYAGI JM : THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AG AINST THE ORDER OF THE LD. CIT(A) KOLKATA DATED 30.10.2009 FOR ASSESSMENT YEA R 2004-05 ON THE FOLLOWING SOLE GROUND : LD. CIT(A) ERRED BOTH IN FACTS AND IN LAW IN ALLO WING THE DISALLOWANCE OF RS.15 29 049/- WITHOUT PROPER APPRECIATION OF OBSER VATION OF AO AND THE MATERIALS BROUGHT ON RECORD DURING THE COURSE OF ASSESSMENT. 3. BRIEF FACTS OF THE CASE ARE THAT THE KARTA OF T HE ASSESSEE IS A SHARE BROKER AND WAS A MEMBER OF THE CSE/NATIONAL STOCK EXCHANGE DURING THE RELEVANT YEAR. THE ASSESSEE EARNED INCOME FROM HOUSE PROPERTY CAPITAL GAIN AND INCOME FROM OTHER SOURCES. THE ASSESSEE FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME OF RS.22 47 450/-. THE AO COMPLETED THE ASSESSMENT AT TOTAL INCOME OF RS.37 68 500/- BY MAKING DISALLOWANCE OF RS.15 29 049/- BEING THE SHORT TERM CAPITAL LOSS. AT THE TIME OF ASSESSMENT THE AO FOUND THAT DURING THE RELEVANT PREVIOUS YEAR THE ASSESSEE HAS INCURRED CAPITAL LOSS TO THE TUNE OF RS.15 29 049/- ON SALE OF 12 SCRIPS LIS TED BOTH ON CSE & BSE/NSE. AND OUT OF THE SHORT TERM CAPITAL LOSS THE LOSS OF RS. 11 37 975/- WAS ON SALE OF ONLY 3 SCRIPS LISTED ON CSE. IN SUCH CAPITAL LOSS LONG TERM CAPI TAL LOSS OF RS.1 05 294/- WAS ALSO INCLUDED. IN ORDER TO VERIFY THE GENUINENESS OF THE TRANSACTIONS IN THE CASE OF SHARES LISTED AT CALCUTTA STOCK EXCHANGE THE AO HAS ISSUE D A LETTER TO THE EXCHANGE ALONG WITH COPIES OF CONTRACT NOTES OF PURCHASE AND SALES SUBM ITTED BY THE ASSESSEE. ON RECEIPT OF INFORMATION FROM THE EXCHANGE IT WAS OBSERVED BY T HE AO THAT THERE WERE SEVERAL DISCREPANCIES AS PER THE DETAILS AND CONTRACT NOTES SUBMITTED BY THE ASSESSEE VIS--VIS THE INFORMATION FORWARDED BY THE STOCK EXCHANGE. IT WAS OBSERVED BY THE AO THAT WITH REGARD TO INVESTMENT IN THE CASE OF NAGESHWAR INVES TMENT THE STOCK EXCHANGE HAS 2 INFORMED THAT THE CONCERNED BROKER HAS NOT CARRIED OUT TRANSACTION ON THE ON-LINE SYSTEM OF THE EXCHANGE. IT WAS FURTHER OBSERVED BY THE AO THAT IN THE CASES OF ONE SCRIP THE CONCERNED BROKERS HAVE ENTERED INTO CROSS DEALS AND IN AN OTHER SCRIP THE BROKER HAS TRANSACTED ON HIS OWN CODE. THE DISCREPANCIES NOTED BY THE AO WERE COMMUNICATED TO THE ASSESSEE FOR ITS EXPLANATION IN RESPONSE THE A SSESSEE HAS FILED ITS EXPLANATION BY LETTER DATED 15-12.2006 WHEREIN IT WAS SUBMITTED BY HIM THAT HE HAS SUBMITTED COPIES OF CONTRACT NOTE ISSUED BY THE RESPECTIVE BROKER THROU GH WHOM TRANSACTIONS OF PURCHASE AND SALES WERE CARRIED OUT AND THAT HE WAS NOT AWAR E OR CONCERNED ABOUT THE FATE OF THE TRANSACTION OR THE MANNER IN WHICH BROKERS HAVE COM PLETED THE TRANSACTIONS. IT WAS ALSO SUBMITTED BEFORE THE AO THAT THE ASSESSEE HAS PURCH ASED SHARES WHICH WERE CREDITED IN THE DEMAT ACCOUNT AND THE PAYMENTS WERE MADE THROUG H ACCOUNT PAYEE CHEQUES. SIMILARLY THE SHARES WERE DELIVERED ON SALE THROUGH DEMAT ACCOUNT AND THE CONSIDERATION WAS RECEIVED BY CHEQUE. HOWEVER THE AO WAS NOT CONVINCED WITH THE SUBMISSION OF THE ASSESSEE AND AFTER MAKING SEVERAL OBSERVATION HE DISALLOWED THE CAPITAL LOSS TO THE EXTENT OF RS.15 29 049/- BY OBS ERVING AS UNDER : (I) IN THE CASE OF SCRIP OF NAGESHWAR INVESTMENT T HE TRANSACTION WAS NOT CARRIED OUT ON THE ON-LINE SYSTEM OF THE EXCHANGE. THE SHAR E OF EASUM CAPITAL WAS PURCHASED IN CROSS DEAL AND THE SHARES OF MANDYA FI NANCE WERE PURCHASED THROUGH SELF CODE OF THE BROKER. II) A BROKER CANNOT AND SHOULD NOT TRADE ON BEHALF OF HIS CLIENT THROUGH HIS OWN CODE AS IT ITSELF GIVES INDICATION OF OTHER INTENTI ON BEHIND IT. IT IS NOT PERMISSIBLE IN LAW THAT A BROKER PURCHASES SHARES IN HIS OWN NA ME BY USING HIS OWN CODE AND THEN TRANSFERS THE SAME TO HIS CLIENTS ACCOUNT SHO WING THE ORIGINAL PURCHASE AS HAVING BEEN MADE BY THE CLIENT. (III) THE SHARES OF THE COMPANIES IN WHICH THE ASSE SSEE HAS INVESTED WERE NOT WORTH INVESTING AS THOSE COMPANIES HAD SMALL LOSS/P ROFIT AND SMALL CAPITAL BASE AND THE ASSESSEE COULD HAVE PURCHASED SHARES OF BET TER COMPANIES AT THE PRICES AT WHICH HE HAS PURCHASED PENNY STOCKS. THUS IN VIEW OF ABOVE MENTIONED OBSERVATIONS IT W AS HELD BY THE AO THAT THE PURCHASE AND SALE TRANSACTIONS OF SCRIPS LISTED IN CSE IN W HICH THE ASSESSEE HAD INCURRED THE LOSS OF RS.15 29 049/- WERE NOT GENUINE. HENCE THE LOSS INCURRED BY THE ASSESSEE WAS DISALLOWED BY THE AO. 3.1. IN APPEAL THE LD. CIT(A) DELETED THIS DISALLO WANCE AS MADE BY THE AO. AGGRIEVED BY THE SAID ORDER NOW THE REVENUE IS IN APPEAL BEFORE US. 4. AT THE TIME OF HEARING BEFORE US THE LD. DR REL IED ON THE ORDER OF THE AO AND SUBMITTED THAT IN THIS CASE THE ASSESSEE WAS A STO CK BROKER AND MEMBER OF CALCUTTA 3 STOCK EXCHANGE BOMBAY STOCK EXCHANGE (BSE) NATION AL STOCK EXCHANGE (NSE). DURING THE COURSE OF HEARING AFTER ELABORATE EXPLI CIT DISCUSSION CONSIDERING ALL THE MATERIALS ON RECORD AND AFTER CONFRONTING THE ASSE SSES ARGUMENT HAS DISALLOWED CAPITAL LOSS OF RS.15 29 049/- . THE LD. CIT(A) ON THE OTH ER HAND WITHOUT PROPER APPRECIATION OF THE ARGUMENT PUT FORWARD BY THE AO DURING PASSIN G THE ORDER U/S. 143(3) HAS HELD THAT THE LOSS INCURRED BY THE ASSESSEE ON SALE OF S HARES LISTED ON CSE WAS A GENUINE TRADING LOSS AND DIRECTED TO DELETE THE ADDITIONS. HE LASTLY URGED BEFORE THE BENCH TO SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THAT OF AO. 5. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSES SEE RELIED ON THE ORDER OF THE LD. CIT(A) AND URGED BEFORE THE BENCH TO CONFIRM THE SA ME. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS PERUSED THE MATERIAL AVAILABLE ON RECORD AND THE ORDERS OF THE LOWER AUTHORITIES. WE FIND T HAT THE LD. CIT(A) WHILE GIVING RELIEF TO THE ASSESSEE HAS GIVEN FOLLOWING FACTUAL FINDING : 4.3. I HAVE CONSIDERED THE SUBMISSION OF THE APPE LLANT AS WELL AS THE DOCUMENTS FILED BY HIM. I HAVE ALSO GONE THROUGH THE ASSESSMENT ORD ER. THE JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE APPELLANT ARE ALSO CONSIDERED. I N THE ASSESSMENT ORDER THE AO HAS DISALLOWED THE CAPITAL LOSS OF RS.15 29 049/- SUFFE RED BY THE APPELLANT ON ACCOUNT OF SHARES INVESTED BY THE APPELLANT. OUT OF THESE SCRI PS 3 SCRIPS WERE LISTED ON CALCUTTA STOCK EXCHANGE AND OTHERS ON BSE/NSE. DURING THE CO URSE OF ASSESSMENT PROCEEDINGS THE APPELLANT HAS SUBMITTED COPIES OF PURCHASE AND SALE CONTRACT NOTES ISSUED BY THE BROKERS ALONG WITH THE COPIES OF DEMAT ACCOUNT AS W ELL AS THE COPIES OF HIS BANK STATEMENTS. IN ORDER TO VERIFY THE GENUINENESS OF P URCHASE AND SALE TRANSACTION OF THE SHARES THE AO HAS CALLED FOR CERTAIN INFORMATION F ROM CALCUTTA STOCK EXCHANGE AND HE HAS ALSO FORWARDED THE COPIES OF CONTRACT NOTES TO THE STOCK EXCHANGE SUBMITTED BY THE APPELLANT. ON RECEIPT OF INFORMATION FROM THE STOCK EXCHANGE IT WAS OBSERVED BY THE AO THAT THERE WERE MANY ANOMALIES IN THE SHARE TRAN SACTIONS CARRIED OUT BY THE APPELLANT AS PER THE CONTRACT NOTES VIS--VIS THE I NFORMATION SUBMITTED BY THE STOCK EXCHANGE. ON BEING CONFRONTED THE APPELLANT SUBMIT TED THAT HE HAS CARRIED OUT ALL THE TRANSACTIONS OF PURCHASE AND SALE OF THESE SHARES T HROUGH REGISTERED SHARE BROKERS OF CALCUTTA STOCK EXCHANGE AND THEY HAVE ISSUED THE CO NTRACT NOTE WHICH HAVE ALREADY BEEN SUBMITTED. THE CONSIDERATION FOR THE PURCHASE AND SALE OF THESE SHARES HAS BEEN PAID/RECEIVED THROUGH THE BANKING CHANNELS. THE COP IES OF BANK STATEMENTS HAVE ALSO BEEN SUBMITTED. FURTHER ON PURCHASE OF THESE SHARE S THE DELIVERY WAS TAKEN IN DEMAT ACCOUNT AND SIMILARLY WHEN SHARE WAS SOLD THE DELIV ERY TO THE RESPECTIVE BROKERS HAS ALSO BEEN GIVEN THROUGH THE DEMAT ACCOUNT THE COPY OF DEMAT ACCOUNT WAS ALSO SUBMITTED DURING ASSESSMENT PROCEEDINGS. HOWEVER T HE SUBMISSION OF THE APPELLANT WAS NOT ACCEPTABLE TO THE AO AND AFTER MAKING SEVER AL OBSERVATIONS IN THE ASSESSMENT ORDER HE HAS DISALLOWED THE CAPITAL LOSS ON SALE O F THESE SHARES AMOUNTING TO RS.15 29 049/- ACCORDING TO THE AO THE APPELLANT H AS INCURRED LOSS IN THOSE SHARES WHICH WERE LISTED ON THE CALCUTTA STOCK EXCHANGE. H OWEVER I DO NOT AGREE WITH THIS OBSERVATION OF THE AO BECAUSE THE APPELLANT HAS SUF FERED TOTAL LOSS OF RS.15 29 049/- ON SCRIPS WHICH WERE LISTED BOTH ON BSE/NSE. THUS IT WOULD BE WRONG TO CONCLUDE THAT THE APPELLANT HAS INCURRED LOSSES ONLY IN THOSE SHARES WHICH WERE LISTED AT CSE. THE AO HAS OBSERVED IN HIS ORDER THAT IN THE CASES OF SOME SCRIPS THE RESPECTIVE BROKERS HAVE CARRIED OUT THE CROSS DEAL I.E. THE SELLING PARTY A S WELL AS BUYING PARTY WERE THE CLIENT OF 4 THE SAME SHARE BROKER. IT WAS ALSO OBSERVED BY THE AO THAT IN SOME OF THE CASES THE BROKER HAS NOT CARRIED OUT THE TRANSACTION ON THE C LIENTS CODE BUT ON HIS OWN CODE. ACCORDING TO THE AO A BROKER CANNOT AND SHOULD NOT TRADE ON BEHALF OF HIS CLIENT THROUGH HIS OWN CODE AS IT IS NOT PERMISSIBLE UNDER THE LAW AND HAS SCOPE OF MANIPULATION. I FIND IN THE ASSESSMENT ORDER THAT T HE AO HAS NOT BROUGHT ANYTHING ON RECORD TO PROVE THAT UNDER WHICH LAW SUCH TRANSACTI ONS ARE PROHIBITED AND BY EXECUTING SUCH TRANSACTIONS HOW THE MANIPULATION IN THE SHARE TRANSACTIONS HAS BEEN DONE BY THE BROKER AND THE APPELLANT. IN MY OPINION AS FAR AS APPELLANT IS CONCERNED HE HAS ENTERED INTO TRANSACTIONS OF PURCHASE AND SALE THRO UGH THE BROKERS AND HE IS NOT RESPONSIBLE FOR THE MANNER IN WHICH THE BROKER HAS CARRIED OUT THE TRANSACTION. THE APPELLANT IS CONCERNED ONLY ABOUT THE RECEIPT OF SH ARES ON PURCHASE AND DELIVERY OF SHARES TO THE BROKER ON THEIR SALE. THE AO HAS NOT BROUGHT ANYTHING ON RECORD TO PROVE THAT THERE WAS ANY CONNIVANCE BETWEEN THE APPELLANT AND SHARE BROKERS. THE AO HAS FURTHER OBSERVED THAT THE COMPANIES IN W HICH THE APPELLANT HAS INVESTED WERE NOT WORTH INVESTING AS THOSE COMPANIE S HAD SMALL PROFIT/LOSS AND SMALL CAPITAL BASE. THE APPELLANT IN PLACE OF BUYING THES E SHARES COULD HAVE PURCHASED SHARES OF BETTER COMPANIES AT THE PRICES AT WHICH H E HAD PURCHASED SHARES OF SMALL COMPANIES. IN THIS REGARD I INTEND TO AGREE WITH T HE APPELLANT THAT THE AO CANNOT DICTATE HIS TERMS OR IMPOSE HIS THOUGHTS ON THE APP ELLANT THAT WHAT HE SHOULD HAVE DONE AND WHAT NOT. FROM THE ASSESSMENT ORDER IT IS APPAR ENT THAT THE AO HAS DISALLOWED THE CAPITAL LOSS OF RS.15 29 049/- ONLY ON THE BASIS OF INFORMATION SUBMITTED BY THE STOCK EXCHANGE. THE AO HIMSELF HAS NOT BROUGHT ANYTHING O N RECORD TO PROVE THAT THE TRANSACTIONS OF PURCHASE AND SALE OF THE SHARES IN WHICH THE APPELLANT HAS SUFFERED THE LOSS WERE NOT GENUINE TRANSACTIONS. ON THE OTHER HA ND THE APPELLANT HAS SUBMITTED THE COMPLETE DOCUMENTARY EVIDENCES TO PROVE HIS TRANSAC TIONS OF PURCHASE AND SALE OF THESE SHARES. THE AO HAS NOT PROVED THAT THE EVIDENCES SU BMITTED BY THE APPELLANT WERE FALSE OR FICTITIOUS. THE SUSPICION CANNOT REPLACE THE REA L EVIDENTIARY DOCUMENTS. THE APPELLANT HAS PURCHASED AND SOLD THE SHARES THROUGH THE REGISTERED SHARE BROKERS OF THE CSE THE DELIVERY OF SHARES WAS RECEIVED / GIVEN TH ROUGH THE DEMAT ACCOUNT AND THE PAYMENTS WERE MADE /RECEIVED THROUGH THE ACCOUNT PA YEE CHEQUES. THE AO HAS NOT DOUBTED ABOUT THE CORRECTNESS OF THESE DOCUMENTS SU BMITTED BY THE APPELLANT BEFORE HIM. THE AO HAS ALSO FAILED TO EXAMINE ANY OF THE S HARE BROKERS IF HE WAS HAVING ANY DOUBT ABOUT THE .TRANSACTIONS CARRIED OUT BY THE AP PELLANT. HIS ENTIRE OBSERVATIONS AND CONCLUSIONS IN ASSESSMENT ORDER ARE BASED SOLELY ON THE INFORMATION SUBMITTED BY THE CSE. IAM OF THE OPINION THAT THE LOSS SUFFERED BY T HE APPELLANT ON SALE OF SCRIPS INCLUDING 3 LISTED ON CSE CANNOT BE DISALLOWED MERE LY BY OBSERVING CERTAIN ANOMALIES REPORTED BY THE STOCK EXCHANGE AND THAT TOO ONLY IN THE CASE OF 3 SCRIPS. I FIND THAT NOWHERE THE STOCK EXCHANGE HAS MENTIONED THAT THE T RANSACTIONS IN THESE SCRIPS WERE NOT CARRIED OUT BY THE BROKERS WHO HAVE ISSUED THE CONTRACT NOTES TO THE APPELLANT. IN VIEW OF THE ABOVE I AM OF THE OPINION THAT THE AO WAS NOT JUSTIFIED IN DISALLOWING THE CAPITAL LOSS OF RS.15 29 049/-. SUBSEQUENTLY THE LD. CIT(A) DISCUSSED THE FOLLOWIN G CASE LAWS : I) ITO VS- RAJ KUMAR AGARWAL ITA NO. 1130/KOL/2 007 (KOL) II) MUKESH R. MAROLIA VS- ACIT (2006) 6 SOT 247 (M UM) III) ACIT VS- SWAPAN KUMAR BISWAS ITA NO.121/KOL/ 2008 IV) DCIT VS- SHRI BHAGWATI PRASAD AGARWAL ITA NO. 1230/KOL/2008. V) SHRI JAYWANT HIMANI VS- ITO ITA NO.340/KOL/20 07 VI) SHRI ACCHYALAL SHAW VS- ITO ITA NO.1977/KOL/2 008 VII) ANUP KUMAR JAYASWAL ITA NOS. 1678 & 1679/KOL /2004 5 VIII) ACIT VS- RITU KAKRANIA ITA NO.939/KOL/2008 IX) ITO VS- KANTA KANCHAN RANI ITA NO.238/KOL/200 7 X) ITO VS- NIDHI TREXIM LTD. ITA NO. 1414./KOL/200 6 XI) CIT VS- KUNDAN INVESTMENT LTD. 130 TAXMAN 689 XII) CIT VS- JANKI TEXTILES & INDUSTRIES LTD. (GAU ) 186 CTR 84 XIII) CIT VS- KUNDAN INVESTMENT LTD. (CAL) 179TAX MAN 647 XIV) CIT VS- DHAWAN INVESTMENT & TRADING CO. LTD. 100 TAXMAN 562 (CAL) XV) CIT VS- CARBO INDUSTRIAL HOLDINGS LTD. 244 ITR 422 (CAL) XVI) CIT VS- JANKI TEXTILES & INDUSTRIES LTD. 186 CTR 84 (GAU) AND XVII) DUDHORIA CONSTRUCTION CO. LTD. VS- ITO 43 T TJ 280 (CAL). AND HELD THAT THE CAPITAL LOSS INCURRED BY THE ASSE SSEE ON SALE OF SHARES LISTED ON CSE AND OTHERS WAS A GENUINE LOSS. SINCE THE ABOVE FIN DING OF FACTS OF THE LD. CIT(A) REMAINED UNCONTROVERTED BEFORE US AND THE LD. CIT(A ) HAS PLACED RELIANCE ON THE CASE LAWS DECIDED BY THE COORDINATE BENCH OF THIS TRIBUN AL ON SIMILAR FACTS WE FIND NO INFIRMITY IN THE ORDER PASSED BY HIM DELETING THE A DDITION OF RS.15 29 049/-. THEREFORE THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 7. IN THE RESULT THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 9.4.2010 SD/- SD/- (C. D. RAO) ( D. K. TYAGI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 9TH APRIL 2010 COPY FORWARDED TO THE :- 1) DCIT CIRCLE-35 KOLKATA. 2) KEDAR NATH AGARWAL (HUF)/ SRI KEDARNATH AGARWAL 405 TODI CHAMBER 2 LAL BAZAR STREET KOLKATA-1. 3) CIT(A) KOLKATA 4) CIT KOLKATA. 5) D. R. ITAT KOLKATA. (TRUE COPY) BY ORDER DEPUTY REGISTRAR JD. (SR. P.S.) I.T.A.T. KOLKATA