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2016 (1) TMI 447 - ITAT MUMBAI

2016 (1) TMI 447 - ITAT MUMBAI - TMI - Disallowance of D-mat charges - Held that:- gone through the orders of authorities below and found that the D-mat charges were paid by the assessee to various banks. The income arising from application of share in IPO was taxed by the A.O. as business income. However, making payment to the bank for D-mat charges does not amount to any illegal payment nor such payment is in contravention of any law. Accordingly, we do not find any merit in disallowance of D- .....

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n was threatened by them. Under these circumstances, mere on a plea that M/s Viraj Investment written off the amount in its books of account will not empower the A.O. to add the income in assessee’s hands unless it is proved that assessee is not going to pay the amount. In the interest of justice and fair play, we restore this issue to the file of the A.O. to verify the actual payment made by the assessee in the subsequent assessment years and if it is found that the amount was not actually been .....

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ter considering the statement recorded by the AO as well as confirmation filed by the financiers, the CIT(A) recorded a finding to the effect that the shares were transferred by the assessee to the financiers at an issue price in accordance with the arrangement entered into between the assessee and the financiers. As the statement recorded by the AO from the financiers corroborated the stand of the assessee that the assessee had transferred 50% of shares allotted in IPO to the financiers at issu .....

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on was made by the AO merely on the plea that M/s Viraj Investments to whom assessee was to make payment has written off amount in its books of account. However, at the very same time, M/s Viraj Investments has written a letter to the assessee asking for the repayment and threatened to take legal course of action in case of non-repayment. In these circumstances, it cannot be taken that assessee has earned any income u/s.41(1). The CIT(A) has deleted the penalty by observing that assessee has not .....

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e revenue is dismissed. - Decided in favour of assessee. - I.T.A. No.302/Mum/2012, I.T.A. No.202/Mum/2012, I.T.A. No.303/Mum/2012, I.T.A. No.203/Mum/2012, I.T.A. No.304/Mum/2012, I.T.A. No.204/Mum/2012, I.T.A. No.205/Mum/2012 - Dated:- 21-10-2015 - SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER For The Assessee : Shri Gurumukh Singh Purswani For The Revenue : Shri Deepkant Prasad(D.R.) ORDER PER R.C. SHARMA, A.M. : Out of these seven appeals, three appeals filed by the .....

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his premises. Thereafter, assessment was framed wherein the A.O. did not allow D-Mat charges, new issue expenses while computing profit from investment in shares. By the impugned order, the ld. CIT(A) confirmed both the additions against which the assessee is in further appeal before us. 3. From the record we found that the A.O. has disallowed De-mat charges which are as under:- A.Y. Amount 2004-05 Rs.1,26,688/- 2005-06 ₹ 3,06,942/- 2006-07 Rs.6,07,564/- The A.O. has taken a stand that sin .....

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Supreme Court in Maddi Venkatraman and Co. P.L. vs. CIT 229 ITR 534 wherein the Hon ble Supreme Court ruled that where the entire business of the assessee is illegal and that the income is sought to be taxed by the ITO then the expenditure incurred in the illegal activities will also have to be allowed as deductions. In my case you have mentioned that entire modus operandi of making multiple IPO applications is illegal and at the same time you have taxed the income earned from the said activity .....

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usiness loss. 4. By the impugned order, the ld. CIT(A) confirmed the A.O. s action by holding that expenditure was not allowable in view of Explanation to section 37(1) of the Act. 5. We have considered the rival contentions, gone through the orders of authorities below and found that the D-mat charges were paid by the assessee to various banks. The income arising from application of share in IPO was taxed by the A.O. as business income. However, making payment to the bank for D-mat charges does .....

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ng such income cannot be disallowed. The A.O. is directed to delete the disallowance so made. 7. In A.Y. 2006-07, the A.O. has also made an addition of ₹ 47,53,110/- in assessee s income. Facts in brief are that the assessee owed ₹ 47,53,110/- to one M/s Viraj Investments as on 31st March, 2006 which was shown by the assessee as his liability payable to the creditor. During the course of 133(6) proceedings the said M/s Viraj Investments furnished copy of account of the assessee as ap .....

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of the assessee as he obtained the benefits accruing to him. By the impugned order the CIT(A) confirmed the AO s action against which assessee is in furhter appeal before us. 8. We have considered the rival contentions and found that during the year the assessee has not written off the amount payable to M/s Viraj Investments and further more M/s Viraj Investments has also wrote letter to the assessee asking repayment of dues payable by the assessee and failing which court action was threatened b .....

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at liberty to add the same in the income of the assessee. To the extent of interest expenditure, if claimed by assessee during the year under consideration with respect to this amount, same is liable to be added. We direct accordingly. 9. In the result, appeals of the assessee are allowed in part as indicated above. 10. Now, we shall decide the appeals filed by the revenue for the assessment years 2004-05 to 2006-07, wherein the revenue is aggrieved by the action of CIT(A) in deleting the addit .....

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iers, which were available before the A.O. during the assessment proceedings have been perused. It is clear from the confirmation letters as well as the statements recorded from, for instance, Shri Dushyant N Dalal, Shri L.L.Fulwani etc (page no.36 to 47 of the paper book - A.Y.2004-05) that the shares transferred by the appellant to the financiers were at issue price, in accordance with the arrangement entered into between the appellant and the financiers. The statements recorded by the A.O fro .....

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to the extent of 50% of the funds made available by the financiers and the was borne by the financiers themselves since they were entitled to the transfer of 50% of the shares allotted. A.O has not brought any material on record to dispute this important factual position. 7.4 It is clear from the facts of the case and the evidences gathered that the basic incentive for the financiers to provide funds to the appellant to make a large number of applications during IPOs was in the nature of a commi .....

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t the stand taken by the appellant that 50% of the IPO shares were transferred by the appellant to the financiers at issue price is found to be corroborated. In the paper book submitted by the appellant, a consent proposal preferred by the appellant before SEBI is taken note of. Gist of the proposal is as under:- "After having considered my aforesaid requests / conditions practical difficulties J herein enclosed (Exhibit I) the statement giving detailed calculation of gain realised by me fr .....

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e. I, therefore, propose to meet the aforesaid amount mentioned by me (towards consent term) by allowing you to sell the seized shares of IDFC Limited on my behalf in the market and to realise the sale proceeds and adjust the same towards the amount suggested as indicated above." The above proposal clearly establishes that the appellant had accepted his role in market manipulation and had submitted before SEBI to pay a sum of ₹ 2 crores to settle the matter amicably. 7.6 In this case, .....

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ly corroborate his stand that the appellant had earned certain undisclosed additional incomes while transferring the shares allotted in the IPOs to the financiers. On the contrary, the statements recorded from the financiers by the A.O during the assessment proceedings have corroborated the version of the appellant. On a careful examination of all the materials on record, it is seen that the methodology adopted by the A.O. to make additions to the returned incomes are nothing but estimations of .....

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have considered rival contentions and found from the record that confirmation letters have been filed by the financiers before the AO with regard to the price paid by them. After considering the statement recorded by the AO as well as confirmation filed by the financiers, the CIT(A) recorded a finding to the effect that the shares were transferred by the assessee to the financiers at an issue price in accordance with the arrangement entered into between the assessee and the financiers. As the st .....

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dition made on account of transfer of 50% of IPO shares to the financiers. 13. Similar finding has been given by CIT(A) in the assessment years 2005-06 & 2006-07. Following the same reasoning as given hereinabove, we do not find any reason to interfere in the order of the CIT(A) for deleting the disallowance so made in all the years under consideration. 14. The revenue has also filed an appeal (i.e. ITA No.205/Mum/2012), against the order of CIT(A) dated 28-9-2011, in the matter of impositio .....

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to this extent does not survive. Resultantly, this appeal of the revenue is dismissed. 16. The AO has also levied penalty with regard to addition made in respect of amount due from M/s Viraj Investments amounting to ₹ 47,53,110/-. The penalty levied with respect to this addition was deleted by the CIT(A) by observing as under :- 7.0 The facts of the case and the written submissions of the appellant have been carefully examined. It is seen from the written submissions that the appellant ha .....

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r furnished any inaccurate particulars of income in the return of income filed. 7.1 For the reasons stated therein, it is held in the quantum appellate order that the amounts written off by the creditor is the income of the appellant in terms of section 41(1) of the Act. However, it is seen that the appellant had not concealed any particulars of income and therefore the same cannot be termed as concealment of income within the meaning of section 271 (1)( c) of the Act. It is also apparent that t .....

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