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Shri Monal Y. Thakkar, Ahmedabad and SMT. REETABEN R. THAKKAR Versus ACIT, Cent. Cir. 1 (3) , Ahmedabad and others

2015 (7) TMI 913 - ITAT AHMEDABAD

Profit resulted to the assessee on share transactions through IPOs, - whether is to be assessed as "business income" or under the head “Capital Gains”? - Held that:- From the findings of the SEBI, it is implicit clear that both the assessees have indulged in violation of SEBI regulations, while making investments in IPOs. Whatever amounts they have illegally earned, which could be assessed as their income, has been taken away from them. They have already disgorged the amount, though, the payment .....

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ltimately no income has resulted to the assessees, out of these share transactions. The income of ₹ 30,98,785/- and ₹ 29,17,331/- is to be excluded from the hands of Smt.Reetaben R. Thakkar and Shri Monal Y. Thakkar respectively in the Asstt.Year 2006- 07.

As far as the claim of the assessee with regard to settlement charges are concerned, we find that there is no corresponding income against this expenditure. The income, which we have already excluded, therefore, the asse .....

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ssees have financed certain fictitious entities and benami persons to apply for IPOs. There modus operandi is against SEBI regulatons, particularly, Section 12A of the SEBI Act, and therefore, the payment was on account of violation of provisions of SEBI. The assessees cannot claim that these payments are compensatory in nature. For these reasons we do not find any force in the contentions of the assessees.

As far as the appeal of the Revenue in the case of Smt.Reetaben R. Thakkar is .....

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as a simple investment. The ld.CIT(A) has rightly treated the assessees as investor qua the surplus amount of ₹ 5,48,385/-. Therefore, we do not find force in the appeal of the Revenue. - ITA No.573/Ahd/2010,ITA No.554/Ahd/2013,ITA No.574/Ahd/2010,ITA No.555/Ahd/2013,ITA No.786/Ahd/2010 - Dated:- 24-7-2015 - Shri G.D. Agrawal and Shri Rajpal Yadav, JJ. For the Petitioner : Shri Ankit Talsania For the Respondent : Smt.Sonia Kumar, Sr.DR ORDER PER RAJPAL YADAV, JUDICIAL MEMBER: In this bunc .....

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rs of the CIT(A) dated 16.11.2009 and 24.4.2012 for the Asstt.Years 2006-07 and 2009-10 respectively. 2. Before we carve out specific grievance of the appellants, we deem pertinent to take note, a brief background of the case. 3. In October, 2005, Securities and Exchange Board of India (SEBI for short) noticed large scale off market transactions of shares of Yes Bank Ltd. On detailed examination of data collected from the depositories and Registrar to the Issue, SEBI found that many demat accoun .....

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who in turn transferred the shares to the persons (the financiers) who made available fund for making subscription to the respective IPOs., through off-market transactions prior to the date of listing on the stock exchange. The financiers have also sold the said shares immediately on the date of listing and made huge profit. The SEBI examined the dealings in IPOs. of Yes Bank and IDFC Ltd., where it was found that certain persons including Smt. Rupal Naresh Panchal and Sugandh Estate and Invest .....

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es. The assessee, Smt. Reetaben R. Thakkar had acquired 1,80,000 shares from Sugandh Estate & Investment P. Ltd., and Shri Monal Y. Thakkar had acquired 85,600 shares from Sugandh Estate & Investment P. Ltd. 4. In the above background, let us note the facts in the appeal. 5. The assessee, Smt. Reetaben R. Thakkar has filed her return of income for the Asstt.Year 2006-07 on 28.12.2006 declaring total income of ₹ 51,50,280/-. She has disclosed capital gain of ₹ 36,16,736/- whic .....

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ins . 8. In the Asstt.Year 2009-10, the grievance of both the assessees is that the SEBI has passed orders in the case of both the assessees, vide which, the amounts earned by the assessees through this IPOs. Issue have been directed to be disgorged, and accordingly, assessees have remitted this amount to the SEBI. Therefore, they have not earned any income and the alleged assessment of business income in the Asstt.Year 2006-07 is to be allowed as business expenditure in the year in which the as .....

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e case of Reetaben R. Thakkar, solitary issue is that the ld.CIT(A) has erred in accepting a sum of ₹ 5,48,385/- out of the total alleged capital gain of ₹ 36,16,736/- as assessable under the head capital gains . 10. With the assistance of learned representative, we have gone through the record carefully. Before we embark upon an inquiry, as to assessability of ₹ 36,16,736/- and ₹ 30,78,423/- in the hands of Smt. Reetaben R. Thakkar and Shri Monal Y. Thakkar, in the Asstt .....

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reby, Smt. Reetaben R. Thakkar was directed to disgorge a sum of ₹ 30,98,785/- as well as settlement charge of ₹ 6,20,215/-. The order of the SEBI reads as under: CO/ISD/ 86 /2008 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA, MUMBAI CONSENT ORDER ON THE APPLICATION SUBMITTED BY SHRI MONAL Y. THAKKAR IN THE MATTER OF IRREGULARITIES RELATING TO INITIAL PUBLIC OFFERINGS (CONSENT APPLICATION NO.21/2007) 1. As a part of its on going surveillance, SEBI had launched an investigation un .....

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as applicant), provided money for making IPO applications in fictitious/ benami names. The applicant was, therefore, alleged to have violated Section 12A of the SEBI Act 1992, Regulation 3 of the SEBI (Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 and the provisions of the SEBI (Disclosure and Investor Protection) Guidelines, 2000 and to have made an unlawful gain of ₹ 30,98,785 in the process. 2. Based on these findings, SEBI passed an ad interim e .....

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reply to the Adjudicating Officer vide letters dated July 22, 2006 and December 15, 2006. 3. While further proceedings in the matter were in progress, the applicant, vide letter dated July 12, 2007 proposed settlement of the pending proceedings through a consent order. The High Powered Advisory Committee, constituted by SEBI, considered the consent terms proposed by the applicant and after considering the period of prohibition on buying, selling or dealing in securities undergone by the applican .....

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of applicant to the findings of fact or conclusion of law, the applicant has remitted a total sum of ₹ 37,19,000 (Rupees thirty seven lakh nineteen thousand only) comprising of ₹ 30,98,785 (Rupees thirty lakh ninety eight thousand seven hundred and eighty five only) towards disgorgement and ₹ 6,20,215 (Rupees six lakh twenty thousand two hundred and fifteen only) towards settlement charges vide demand drafts No. 982666 (Rs. 8,00,000), 982668 (Rs. 8,00,000), 982669 (Rs. 8,00,00 .....

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order is without prejudice to the right of SEBI to take enforcement actions, including commencing / reopening of the pending proceedings against the applicant, if: a. any representation made by the applicant in this consent proceedings is subsequently discovered to be untrue; b. the applicant breaches any of the consent terms or undertakings filed in this consent proceedings. 7. This consent order is passed on this day, the 5th November, 2008 and shall come into force with immediate effect. Sd/- .....

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was found to be assessed as business income, ultimately not resulted in any income to the assessees, because, they have disgorged that amount to the SEBI. With regard to the question that the moment exclusion of the amount made would bring their return of income lower than the one disclosed by them, they, on the strength of the Hon ble Gujarat High Court decision in the case of Gujarat Gas Co. Ltd. Vs. CIT, 245 ITR 84 contended that the AO has to compute the income as per the provisions of the .....

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of the appellant and I have also perused the copy of the order passed by the SEBI on 05.11.2008. In the SEBI order, supra, it has been clearly - mentioned that the appellant, vide letter dated 12.07.2007, proposed settlement of the pending proceedings. Thereafter, SEBI constituted one high power advisory committee, which considered the consent terms proposed by the appellant and recommended the case for settlement. As per the terms of settlement, the appellant shall disgorge ₹ 30,98,785/-, .....

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ons :- (a) The SEBI's order has been passed on 05.11.2008, whereas the previous year in the impugned assessment orders ended on 31.03.2006. Therefore, the SEBI's order has been passed after the end of the previous year of the assessment year under consideration. (b) As mentioned in the instant appellate order, the appellant has acquired certain shares in the IPOs by fraudulent and illegal methods. Therefore, 'payment made or any expenditure incurred for the settlement of such fraudul .....

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, can not be allowed as deduction in Income tax proceedings. 16. In view of the above, the additional ground of appeal is treated as dismissed. In the result, the appeal is treated as partly allowed. 17. In the result, the appeal is treated as partly allowed. 12. In view of the above discussions, four issues emerge out for our adjudication, namely, (a) Whether the gain arisen to both the assessees on purchase and sale of shares is to be assessed under the head capital gains or business income ? .....

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8377; 29,17,331/- paid by Shri Monal Y. Thakkar along with settlement charges of ₹ 6,20,215/- and ₹ 5,83,669/- paid by these assessees is to be allowed as business loss ? (d) That even if income of ₹ 30,98,785/- and ₹ 29,17,331/- is to be excluded from the hands of both these assesses, being not received in view of SEBI orders, then whether the settlement charges of ₹ 6,20,215/- and ₹ 5,83,669/- are to be allowed to the assessees, viz. Smt.Reetaben R. Thakkar .....

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the assessments of both these assessees, respectively in the Asstt.Year 2006-07. He further contended that capital gain is assessed under the head business income by the ld.CIT(A). Consequently, loss on account of repayment of this income to the SEBI is to be allowed to the assessees. The payment has been made in the Asstt.Year 2009-10, therefore, this amount is to be allowed to the assessees in the Asstt.Year 2009-10. 14. As far as the settlement charges are concerned, he contended that paymen .....

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lied upon the orders of the Revenue authorities below. She contended that SEBI order was passed after the end of the accounting period, and therefore, before the SEBI order, the income had resulted to both the assessees. Assessees have made investment of ₹ 4 crores and ₹ 2.8 crores by financing benami investors. This shows their modus operandi and how they have undertaken the activity in an organized manner. It is to be assessed as business income. She further contended that as far a .....

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mplicit clear that both the assessees have indulged in violation of SEBI regulations, while making investments in IPOs. Whatever amounts they have illegally earned, which could be assessed as their income, has been taken away from them. They have already disgorged the amount, though, the payment was made after the close of accounting year, and even after passing of the assessment order. But these payments related to same share transactions, which have given rise to the alleged income in the hand .....

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d Shri Monal Y. Thakkar respectively in the Asstt.Year 2006- 07. 17. As far as the claim of the assessee with regard to settlement charges are concerned, we find that there is no corresponding income against this expenditure. The income, which we have already excluded, therefore, the assessees cannot claim the expenditure, because, the expenditure has to be incurred for earning some income. Once the income is not form part of the total income, then against that activity, how the assessee can cla .....

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felony; a cause of transgression. As per Blacks Law Dictionary, it means,-a violation of the law; a crime, often a minor one. As per Illustrated Oxford Dictionary, it means-illegal act or a transgression. A perusal of the above definitions clearly shows that if there is a breach or violation of law or rule then it is to be treated as offence. 21. In the present case, admittedly, the assessee is governed by the provisions of SEBI Act. Certain Regulations were made under this Act which arc called .....

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7 would amount to violation of law or the rule which, in turn, would amount to an offence. Therefore, if any payment is to be made by way of penalty under the provisions of s. 15 A of SEBI Act, then such payment cannot be allowed as deduction under s. 37 r/w Explanation. 18. In the case of Kaira Can Company Ltd. (supra), the Tribunal recorded a finding that the payment was by the company to regularize default, which had occurred on account of oversight and lack of knowledge. The SEBI has issued .....

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ssees cannot claim that these payments are compensatory in nature. For these reasons we do not find any force in the contentions of the assessees. 19. As far as the appeal of the Revenue in the case of Smt.Reetaben R. Thakkar is concerned, the ld.First Appellate Authority has held that amount of ₹ 5,48,385/- is to be assessed as short term capital gain. We find that the ld.CIT(A) has recorded a specific finding that investment to this is a bona fide investment of the assessees, and it has .....

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