ACIT 25(2), MUMBAI v. SHEELA D. SHAH, MUMBAI

ITA 5254/MUM/2011 | 2008-2009
Pronouncement Date: 26-10-2016 | Result: Dismissed

Appeal Details

RSA Number 525419914 RSA 2011
Assessee PAN AKMPS8855M
Bench Mumbai
Appeal Number ITA 5254/MUM/2011
Duration Of Justice 5 year(s) 3 month(s) 15 day(s)
Appellant ACIT 25(2), MUMBAI
Respondent SHEELA D. SHAH, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 26-10-2016
Appeal Filed By Department
Order Result Dismissed
Bench Allotted E
Tribunal Order Date 27-07-2016
Date Of Final Hearing 28-07-2015
Next Hearing Date 28-07-2015
Assessment Year 2008-2009
Appeal Filed On 11-07-2011
Judgment Text
INCOME - TAX APPELLATE TRIBUNAL - E BENCH MUMBAI . . BEFORE S/SHRI RAJENDRA ACCOUNTANT MEMBER AND C.N. PR ASAD JUDICIAL MEMBER / ITA NO. 5254 /MUM/20 1 1 : / ASSESSMENT YEAR - 20 0 8 - 09 ACIT - 25(2) BANDRA (E) MUMBAI. VS. SHEELA D. SHAH B - 106 NIRMAL SAGAR DEVIDAS LANE OFF. S.V. ROAD BORIVALI (W) MUMBAI 400 103 PAN : AKMPS 885 5 M (APPELLANT) (RESPONDENT) REVENUE BY : SHRI R.K. SAHU DR ASSESSEE BY : SHRI SANJAY R. PARIKH - CA / DATE OF HEARING: 27/ 0 7/ 2016 / DATE OF PRONOUNCEMENT : 26/10 / 2016 1961 254 ( 1 ) ORDER U/S.254(1)OF THE INCOME - TAX ACT 1961(ACT) / PER RAJENDRA A.M. - CHALLENGING THE ORDER DATED 28/04/2011 OF THE CIT (A) - 35 MUMBAI THE ASSESSING OFFICER (AO) HAS FILED THE PRESENT APPEAL.ASSESSEE AN INDIVIDUAL FILED HER RETURN OF INCOME ON 31/07/2008 DECLARING TOTAL INCO ME OF RS. 24.60 LAKHS. THE AO COMPLETED THE ASSESSMENT UNDER SECTION 143 (3) OF THE ACT ON 20/12/2010 DETERMINING HER INCOME AT RS. 1.96 CRORES. 2. EFFECTIVE GROUND OF APPEAL IS ABOUT RESTRICTING THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF THE DIVERTI NG THE INCOME ARISING OUT OF FUTURE & OPTIONS(F&O) PROFIT.DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF DEALING IN F&O TRANSACTIONS THAT SHE HAD SHOWN INCOME UNDER THE SAID HAD AT RS. 25.14 LAKHS THAT SHE H AD DIVERT - ED 80% OF THE PROFIT OF THE BUSINESS TO DEEPAK SHAH (DS) AND 1% OF THE PROFIT TO EACH OF THE THREE OTHER ENTITIES THAT THE PROFIT WAS TRANSFERRED BEFORE PAYING THE TAX. HE DIRECTED THE ASSESSEE TO FILE EXPLANATION IN THAT REGARD. THE ASSESSEE S UBMITTED THAT THE PROFIT WAS SHARED AS PER THE MEMORANDUM OF UNDERSTANDING (MOU) ENTERED INTO BY THE ASSESSEE WITH OTHER ENTITIES.AFTER CONSIDERING THE AVAILABLE MATERIAL THE AO ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE THE AO HELD THAT IN THE REPLY TO THE SHOW CAUSE NOTICE IT WAS CLAIMED THAT ASSESSEE WAS A HOUSEWIFE HAVING NOT MUCH KNOWLEDGE/ EXPERIENCE IN THE STOCK MARKET THAT IN THE MOU IT WAS MENTIONED THAT SHE HAD FOREKNOWLEDGE OF SECURITIES MARKETS AND DERIVATIVE TRADING THAT SHE HAD CONTRADICT - ED HER OWN STAND THAT THE ASSESSEE HAD CLAIMED THAT ALL THE TRANSACTIONS WERE MADE BY HER HUSBAND USING HIS OWN EXPERTISE AND MARGIN MONEY THAT IN THE MOU IT WAS STATED THAT SHE HAD TO MAINTAIN SUFFICIENT MARGIN ITA NO. 5254/MUM/2011 - (A.Y. 2008 - 09) 2 MONEY FOR DOING TRANSACTION THAT LOAN TRA NSACTIONS ENTERED INTO WITH HER HUSBAND PROVE THAT THE ASSESSEE HAD USED HER OWN FUNDS FOR THE F&O TRANSACTIONS THAT SHE HAD NOT USED THE FUNDS OWNED BY HER HUSBAND THAT THE PERSONS TO WHOM SHE HAD DIVERTED PROFITS BEFORE PAYING TAXES WERE HAVING THEIR I NDIVIDUAL DEMET ACCOUNTS AND THAT THEY WERE INDULGED IN THE SHARE TRADING ACTIVITIES THAT THE ENTIRE ARRANGEMENT MADE BY THE ASSESSEE WAS NOTHING BUT A COLOURABLE DEVICE TO TRANSFER THE BOOK PROFIT TO OTHER PERSONS TO REDUCE PROFIT AND TO EVADE TAXES ON S UCH PROFIT THAT SHE HAD TAKEN LOAN FROM DIFFERENT PERSONS SHE HAD NOT USED THE FUNDS RECEIVED BY HER AS LOAN FROM HER HUSBAND THAT THE PROVISIONS OF THE ACT DID NOT ALLOW ANY PERSON TO TRANSFER/DIVERT ANY INCOME BEFORE PAYMENT OF TAX BY ANY MANNER TO AN Y OTHER PERSON THAT THE ASSESSEES HUSBAND HAD A LOSS FROM F&O THAT THE ASSESSEE HAD PROFIT FROM SUCH TRANSACTIONS THAT BOTH OF THEM ENTERED INTO A COLOURABLE DEVICE TO TRANSFER THE PROFIT TO THE HUSBAND SO AS TO SET OFF THE LOSSES THAT THE DATE OF ENTERI NG INTO MOU ALSO INDICATED THE INTENTION OF THE PARTYS IS THAT SEBI HAD ASKED ALL THE SHARE BROKERS AND DEALERS TO ENTERED INTO AN AGREEMENT WITH THE CLIENT AND REGISTER THE SAME WITH SEBI BEFORE ENTERING INTO A SINGLE TRANSACTION THAT NO PROOF OF REGIST RATION OF THE MOU WAS PROVIDED THAT SHE HAD NOT EXPLAINED AS TO WHY THE INCOME HAD BEEN DIVERTED TO OTHER ENTITIES THAT THE MOU DID NOT SPECIFY ANYTHING ABOUT SUCH TRANSACTIONS. FINALLY HE HELD THAT INCOME ARISING OUT OF F&O TRANSACTIONS AMOUNTING TO RS . 2.04 CRORES WAS TO BE TAXED IN THE HANDS OF THE ASSESSEE. AS THE ASSESSEE HERSELF HAD OFFERED RS. 34.41 LAKHS SO THE AO ADDED THE DIFFERENCE OF RS. 1.70 CRORES TO HER TOTAL INCOME. 3. AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE PREFERRED AN APPEAL BE FORE THE F IRST APPELLATE AUTHORITY (FAA).BEFORE HIM IT WAS ARGUED THAT THE ASSESSEE HAD ENTERED INTO MOU DATED 01/04/2006 WITH DS THAT ACCORDING TO UNDERSTANDING SHE PAID 50% OF THE GROSS INCOME FROM F&O SEGMENT TO DS THAT SUCH AN ARRANGEMENT CONTINUED WI TH EFFEC T FROM 01/04/2007 WITH CHANGES THAT ONE OF THE SENSES WAS THAT DS WAS TO BE PAID 80% OF THE GROSS INCOME INSTEAD OF 50% THAT THE REVISED TERMS WERE INCORPORATED BY EXHIBITING MOU ON 30/11/2007 THAT THE MOU WAS EFFECTIVE FROM 01/04/2007 THAT SHE U NMEASURED PROFIT IN THE MONTH OF JANUARY 2008 THAT THE QUESTION OF MOU BEING A COLOURABLE DEVICE TO DIVERT THE TAXABLE INCOME OF THE ASSESSEE IN FAVOUR OF HUSBAND WAS FACTUALLY INCORRECT THAT THE SECOND MOU WAS NOTHING BUT A CONTINUITY/EXTENSION OF THE E ARLIER MOU TO INCORPORATE THE REVISED RETURNS THAT THERE WAS NO DIVERSION OF INCOME THAT THERE WAS SOME DIFFERENCE IN THE EARLIER AND SUBSEQUENT MOU THAT IN THE FIRST MOU THE ASSESSEE WAS THE FIRST PARTY THAT DS WAS THE FIRST SIGNATORY IN THE SECOND MO U THAT NECESSARY CHANGES WERE MADE IN THE SECOND DOCUMENT THAT THE AO HAD CONFUSED THE MOU THAT SHARING OF EXPENSES OF THE BUSINESS WAS A ITA NO. 5254/MUM/2011 - (A.Y. 2008 - 09) 3 MATTER TO BE AGREED BETWEEN TWO PARTIES AND SUCH AN AGREEMENT COULD NOT BE REGARDED AS SHAM JUST BECAUSE THE EXPENSES WERE AGREED TO BE SHARED BY ONE OF THE PARTIES OF THE CONTRACT THAT THE MOU WAS IN EXISTENCE FOR THREE YEARS AND NOT ONLY FO R THE YEAR UNDER CONSIDERATION THAT THE ASSESSEE AND HER HUSBAND WERE ASSESSED AT MAXIMUM RATE OF TAXATION THAT THERE WAS NO DIVER SION OF INCOME THAT SAME INCOME HAD BEEN TAXED TWICE THAT DS HAD KNOWLEDGE AND EXPERIENCE IN THE STOCK MARKET THAT SHE WOULD OPERATE THE T ERMINAL PROVIDED BY THE BROKER THAT THE LETTER FROM THE BROKER WAS ALSO SUBMITTED DURING THE COURSE OF ASSESSMENT P ROCEEDINGS THAT THE AO IGNORED THE SAID LETTER THAT DS HAD MADE ARRANGEMENT FOR FUNDS WHENEVER REQUIRED BY THE ASSESSEE THAT SHE HAD OBTAINED OVERDRAFT FACILITY FROM CITIBANK TO THE TUNE OF RUBY 60 LAKHS AGAINST THE FD.S OWNED BY DS THAT THE ASSESSEE AN D HER HUSBAND WERE ASSESSED BY DIFFERENT AO .S THAT THE AO OF DS HAD ACCEPTED THE INCOME OFFERED BY HIM WHILE PASSING ASSESSMENT ORDER UNDER SECTION 143 (3) OF THE ACT THAT THE ASSESSMENT OF THE HUSBAND OF THE ASSESSEE WAS NOT ON PROTECTIVE BASIS. AFTER CO NSIDERING THE SUBMISSION OF THE ASSESSEE AND THE ASSESSMENT ORDER THE FAA HELD THAT IN THE EARLIER YEAR THE ASSESSEE AND HER HUSBAND HAD SHOWN THE INCOME ARISING FROM F&O SEGMENTS IN THEIR RESPECTIVE RETURNS OF INCOME THAT SHE HAD ALSO LIMITED FUNDS TO T HE OTHER PARTIE S OF THE IMAGE YOU THAT SHE HAD ALSO RECOVERED FROM DS FUNDS WHEN THE LOSSES HAD BEEN INCURRED THAT THE COPY OF LEDGER ACCOUNT AND BANK STATEMENT OF DS CLEARLY PROVED THAT ASSESSEE HAD RECOVERED THE DUE MONEY FROM HER HUSBAND THAT THERE WA S DIFFERENCE IN THE MOU AS FAR AS FIRST SIGNATORY IS CONCERNED THAT MAJOR FUNDING OF THE TRANSACTIONS WAS DONE BY DS INDIRECTLY BY ALLOWING HIS FIXED DEPOSITS WITH CITIBANK AS SECURITY AGAINST THE LOAN TAKEN BY THE ASSESSEE THAT OHM STOCK - BROKER PRIVATE LTD HAD PROVIDED ONE DEDICATED TERMINAL TO DS THAT THE ASSESSEE HAD SUBMITTED A LETTER TO THE AO THAT BOTH THE PARTIES WERE PAYING TAX AT MAXIMUM RATE OF TAXATION THAT THE CONTENTION OF THE AO THAT THERE WAS DIVERSION OF INCOME TO SAVE TAX HAD NO FORCE THAT THERE WAS VERY LESS EXPENSES CLAIM AGAINST THE TOTAL INCOME BY THE ASSESSEE THAT ARM OF HEARING EXPENSES COULD NOT BE HELD AGAINST THE ASSESSEE FOR DRYING ANY CONCLUSION THAT ASSESSEE HAD EARNED MAJOR PROFIT FROM F&OS ACTIVITIES IN THE MONTH OF JA NUARY 2008 AND MARCH 2008 THAT DS SUFFERED LOSS IN THE MONTH OF MARCH 2008 THAT THE ALLEGATION THAT PROFIT WAS DIVERTED TO DEEPAK SHAH TO COVER THE LOSSES WAS INCORRECT THAT THE ASSESSEE AND HER HUSBAND HAD TRADED IN DIFFERENT SCRIPTS THAT MOU WAS NOT A COLOURABLE DEVICE.HE FURTHER HELD THAT THE ASSESSEE AND HER HUSBAND SHARE PROFIT/LOSS FROM F&O ACTIVITIES IN THE RATIO OF 50: 50 DURING THE EARLIER ASSESSMENT YEAR THAT THE ASSESSEE FAILED TO SUBSTANTIATE WITH ANY REASON FOR INCREASE IN THE PROFIT RATIO OF DS FROM 50% TO 80% AND ALSO SHARE PROFIT GIVEN TO OTHER PARTIES THAT NO CONVINCING REASON WAS SUBMITTED TO INCREASE THE SHARE OF PROFIT. ITA NO. 5254/MUM/2011 - (A.Y. 2008 - 09) 4 INVOKING THE PROVISIONS OF SECTION 40 A (2) (A) OF THE ACT HE HELD THAT 50% OF PROFIT TO DS WAS REASONABLE.HE UPH ELD THE DISALLOWANCE OF PAYMENT OF SHARE PROFIT MADE TO 3 OTHER PARTIES.HE ALSO HELD THAT THE DISALLOWANCE MADE BY THE AO RESULTED IN DOUBLE TAXATION OF THE SAME INCOME - ONCE IN THE HANDS OF THE ASSESSEE AND AGAIN IN THE HANDS OF HER HUSBAND THAT THE RETU RN FILED BY HER HUSBAND PROVED THAT PAYMENTS MADE BY HER TO DS WERE ALREADY OFFERED AND ASSESS IN THE HANDS OF HER HUSBAND DURING THE SCRUTINY ASSESSMENT THAT DS AT SUFFERED LOSS OF 58.86 LAKHS THAT IF THAT DISALLOWANCE WAS RESTRICTED TO 50% THERE WOULD BE NO LOSS OF REVENUE.FINALLY HE DIRECTED THE AO TO REST THE DISALLOWANCE TWO RS. 67.52 LAKHS. 4. BEFORE US THE DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDER OF THE AO AND ARGUED THAT DS WAS HAVING A SEPARATE THE MATTER ACCOUNT IN HIS OWN NAME THAT THE INTENTION OF EVADING TAX WAS CLEAR FROM THE MOU ENTERED INTO THAT THERE WAS BENEFIT IN SLABS OF TAX - RATES THAT MAIN PURPOSE WAS TO SET OFF LOSSES THAT APPLICATION OF INCOME COULD NOT BE CLAIMED AS REVENUE EXPENDITURE. HE RELIED UPON THE CASE OF SUM ATI DAYAL(214 ITR 810) AND DURGA PRASAD MORE. THE AUTHORISED REPRESENTATIVE(AR) CONTENDED THAT ASSESSEE HAD SIMILAR AGREEMENT WITH DS FOR THE EARLIER YEAR AND HAD PAID 50% OF THE PROFIT THAT THE DEPARTMENT HAD ACCEPTED THE PROFIT SHARING RATIO IN THE HAND S OF THE ASSESSEE AND HUSBAND IN THAT YEAR THAT THE AO OF HER HUSBAND HAD ACCEPTED THE PROFIT SHOWN BY DS ON SUBSTANTIVE BASIS THAT F&O INCOME OF RS. 1.63 CRORES HAD BEEN TAXED IN THE HANDS OF DS THAT TAXING THE SAME ONCE AGAIN IN THE HANDS OF THE ASSESS EE WOULD AMOUNT TO DOUBLE TAXATION.HE RELIED UPON THE CASES OF LAXAMIPAT SINGHANIA(72 ITR 291) AND SMT.J P SIDHWA(131 ITR 840). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT THE ASSESSEE HAD ENTERED INTO MOUS WITH HER HUSBAND IN THE EARLIER YEAR THAT THE MOU WAS REVISED IN THE YEAR UNDER CONSIDERATION AND THE PROFIT SHARING RATIO WAS ALSO ALTERED THAT SHE HAD ENTERED INTO F&O TRANSACTIONS DURING THE MONTH OF JANUARY AND MARCH WHICH RESULTED IN PROFIT THAT AS PER TH E TERMS OF THE MOU SHE TRANSFERRED 80% OF THE PROFIT TO HER HUSBAND THAT HER HUSBAND SUFFERED LOSSES IN THE F&O SEGMENT IN THE MONTH OF MARCH THAT BOTH HAD PAID TAXES AT THE MAXIMUM MARGINAL RATE I.E.@30% THAT SHE HAD USED FD OF HER HUSBAND TO AVAIL THE L OAN FOR CARRYING OUT F&O SEGMENT BUSINESS THAT THE AO HAD TREATED THE TRANSACTION AS A COLOURABLE DEVICE TO EVADE THE PAYMENT OF TAX THAT THE FAA HAD PARTIALLY ALLOWED THE APPEAL FILED BY THE ASSESSEE.WE FIND THAT AO HAD NOT DOUBTED THE GENUINENESS OF THE MOU.HE HAS NOT ALLEGED THAT IT WAS BACKDATED WAS NOT ENTERED INTO.HIS ONLY OBJECTION IS THAT DS HAD SUFFERED LOSSES AND PROFIT TRANSFERRED BY THE ASSESSEE TO HER HUSBAND WAS SET OFF AGAINST THE ITA NO. 5254/MUM/2011 - (A.Y. 2008 - 09) 5 LOSSES SUFFERED BY HIM.IN OUR OPINION ONCE THE MOU WAS NOT F OUND TO BE NON - GENUINE IT COULD NOT BE HELD THAT IT WAS A COLOURABLE DEVICE. HAD THE HUSBAND OF THE ASSESSEE NOT SUFFERED LOSSES WOULD THE AO TREAT THE MOUS NON - GENUINE. EXECUTION OF THE MOU BEFORE THE TRANSACTIONS ENTERED INTO BY THE HUSBAND AND WIFE IS N OT IN DOUBT.IT IS ALSO A FACT THE DS OFFERED THE INCOME RECEIVED FROM THE ASSESSEE IN HIS RETURN OF INCOME AND HAS PAID TAXES ON IT.WE FURTHER FIND THAT THE FAA MADE THE DISALLOWANCE OF 30% OF THE PROFIT TRANSFERRED BY THE ASSESSEE TO HER HUSBAND. CONSIDER ING THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE WE ARE OF THE OPINION THAT THE ORDER OF THE F AA DOES NOT SUFFER FROM ANY LEGAL OR FACTUAL INFIRMITY. THEREFORE UPHOLDING HIS ORDER WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. AS A RESULT APPEAL FILED BY THE AO STANDS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH OCTOBER 2016. 2016 SD/ - SD/ - DS S D/ - SD/ - ( . . / C.N. PRASAD ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEM BER MUMBAI ; DATED : 26/10/ .2016. V R / - / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ 4. THE CONCERNED CIT / 5. DR E BENCH ITAT MUMBAI / . . . 6. GUARD FILE/ . //TRUE COPY// / BY ORDER / DY ./ASST. REGISTRAR / ITAT MUMBAI.