SMT. JYOTI H MEHTA,MUMBAI vs. ACIT, CC-4(1), MUMBAI

1. Whether on the facts and in the circumstances of the case, the Ld.CIT (A) was justified in restricting the addition to Rs.6, 83, 95,324/- and granting relief of Rs.49, 86, 64,659/- made on account of profit earned on unexplained sale of shares, whereas assessee had failed to explain the source of acquiring the shares satisfactorily and the books of accounts produced by the assessee are unreliable?

2. Whether on the facts and in the circumstances of the case, the Ld.CIT(A) was justified directing the A.O to ascertain the stock-in-trade and allow such expenditure on a proportional basis, made on account of interest expense which was claimed by the assessee disregarding the fact that the assessee failed to show that the respective entities have charged interest on the amounts paid by the respective parties.

3. Whether on the facts and in the circumstances of the case, the Ld.CIT(A) was justified directing the A.O to ascertain the stock-in-trade and allow such expenditure on a proportional basis, made on account of interest expense which was claimed by the assessee disregarding the fact that the assessee has claimed the deduction u/s 57 of the Income Tax Act, 1961 and in that case, the assessee must prove that the interest expenditure was incurred wholly and exclusively for the purpose of earning of interest income. 4. "Whether on the facts and in the circumstances of the case, the Ld.CIT(A) was justified in treating the speculative loss incurred by the assessee of Rs. 2,47,59,074/- as normal business loss to be adjusted against other heads of income of the assessee. 5. "Whether on the facts and in the circumstances of the case, the Ld.CIT(A) was correct in directing the AO to verify and grant relief of Rs. 1,13,90,573/- on account of oversold position in the capital market."

6. The appellant craves to leave, to add, to amend and/or to alter any of the ground of appeal, if need be.

3. Against the additions /disallowances made in the assessment order the assessee approached the office of the Ld. CIT (A)-9, Mumbai. The Ld. CIT (A) passed order after considering the contentions, submissions, additional evidences filed by the assessee and remand report submitted by the A.O.

4. While disposing the appeal, the Ld. CIT (A) after taking into account the material available on record and evaluating the judicial precedents granted partial relief and sustained the following additions made by the A.O.

a) Addition to the tune of Rs. 88, 78,044/- on account of dividend/debenture interest. b) Addition of Rs 6, 83, 95,324/- on account of share market trading profit. c) Addition of Rs. 26,65,106/- on account of share market oversold position d) Addition of Rs. 2,89,250/- on account of profit on sale of shares in shortage e) Addition of Rs. 2, 08,453/- on account of income from Badla Transactions. f) Partial allowance of interest expenditure to the extent of Rs. 11, 49,540/- as against total interest expenditure of Rs. 1, 02, 00,000/- claimed by the assessee. g) Other expenses claimed in books but disallowed.

5. The Ld. CIT (A) also enhanced income of the assessee by issuing notice u/s. 251(1A) dated 24.01.2013. After considering the reply filed by the assessee, the Ld. CIT (A) made addition of Rs. 7, 97, 23,030/- on account of the valan transactions explained and admitted by the assessee.

6. The CIT(A) also granted relief to the assessee with respect to following heads of additions/disallowances:

(i) Relief for differential amount of Rs. 2,32,51,916/- which arose due typo error by determining income at Rs. 3,21,29,960/- as against total income determined as per para 4.1 of assessment order at Rs. 88,78,044/-. (ii) Relief in relation to the addition of Rs. 56,70,59,983/- made on account of unexplained income from sale of shares net relief of Rs. 49,70,91,591/- and further Rs. 15,73,068/- in respect of two scripts the profit of which was already offered to tax by the assessee. For balance Rs. 6, 83, 95,324/- the Ld. CIT (A) rejected the submission of the assessee that 50% relief should be granted and confirmed that addition. (iii) Relief for speculative loss of Rs. 2,47,59,074/- not allowed by the A.O. to set off against other income by relying on order passed by the predecessor Ld. CIT(A) in A.Y.1992-93 which order was approved by the Tribunal earlier in vide order dated 14.01.2019.

(iv) Relief of Rs. 1,13,90,573/- in respect of addition of Rs. 1,40,55,678/- made by the A.O. on account of oversold position in the capital market. (v) Relief of Proportionate Interest expenditure quantified at Rs. 11, 49,540/- related to share trading business out of total interest expenditure of Rs. 1, 02, 00,000/- claimed by the assessee. Balance interest expenditure claimed by the assessee was disallowed as it related to earning of capital gains / dividends and held to be not allowable on the basis of provisions analyzed by the Ld. CIT (A). (vi) Relief in respect of arithmetical errors of Rs. 2, 90, 07,672/- while computing assessed income.

The events and circumstances related to appeal basically evolve around following the well settled principles of natural justice and both parties have rival claims in support of their arguments. Needless to say that principles of natural justice have to be followed but it is equally imperative that the exchequer should not be put to loss in realizing its revenue without loss of time and for that it is high time to put an end to disputes by exercising powers vested under the law and gain the finality of the demand taken into account peculiar facts and circumstances of the case instead of keeping alive the rounds of litigation even after almost thirty years have lapsed from the end of the assessment year under consideration.

1 “The Ld.CIT(A) erred in law and in facts in confirming the addition on account of dividend and interest income at Rs. 88,78,044/- on account of dividend and interest income estimated by the Ld. A.O. in the assessment order.

2. “The Ld. CIT (A) has erred in law and in facts in confirming the addition to the tune of Rs. 6, 83, 95,324/- on account of alleged share market trading profit.

4- “The Ld. CIT (A) has erred in law and in facts in confirming the addition of Rs. 2, 89,250/- on account of alleged profit on sale of shares in shortage.

5. “The Ld. CIT (A) has erred in law and in facts in confirming the addition of Rs. 2,08,453/- on account of alleged income from Badla transactions.

6. “The Ld. CIT(A) has erred in law and in facts in allowing interest expenditure to the tune of Rs. 11,49,540/- only out of the aggregate interest expense claimed by appellant at Rs. 1,02,00,000/-.

7.”The Ld. CIT (A) has erred in law and in facts in allowing deduction of various expenses claimed by the appellant and record in the books of accounts.

8. “The Ld. CIT(A) has erred in law and in facts in making enhancement of income to the tune of Rs. 7,97,23,030/- on account of the alleged difference

in the balance of the Late Mr. Harshad S. Mehta in the books of the appellant and the balance of the appellant in the books of Late Mr. Harshad S. Mehta.

9. “The Ld. CIT (A) has erred in law and in facts in not appreciating that the interest u/s. 234A and 234B of the Act was not computed in accordance with law.

10. the appellant craves leave to add to, amend, alters or deletes all or any of the foregoing grounds of appeal.”

14. Ground no. 1 filed by the assessee deals with the confirmation of the addition by the CIT (A) of Rs. 88, 78,044/-.

15. The A.O., based on shares/debenture holdings determined by him, worked out the dividend/interest income of the assessee at Rs. 88,78,044/- as stated in para 4.1 at page 29 of the assessment order. However, while computing total income of the Appellant, the A.O. added Rs. 3, 21, 29,960/- as dividend /interest income of the assessee. This factual discrepancy was brought to the notice of the Ld CIT (A) in appeal filed. This being genuine error apparent from record, the Ld. CIT(A) confirmed the addition only to the extent of Rs. 88,78,044/- considering it as reasonable determination, it being just 1.54% of total shareholding of the assessee amounting to Rs. 57,70,64,581/- and deleted the balance amount. Being aggrieved, the assessee has filed appeal before us challenging the confirmation of the addition on account of dividend/interest income.

a) The assessee had not questioned the determination of dividend/interest income in the Grounds of appeal / Form 35 filed before the CIT(A) b) The new figures had not been submitted to the A.O. / Ld. CIT (A). c) Unless A.O. verifies details with custodian / company list, this ground needs to be dismissed.

18. The AR has countered the objections by arguing that a) The grounds filed before the Ld. CIT (A), assessee very much challenges the determination of dividend/interest income made by the AO. In fact, specific submission was made to the effect that the income should be quantified at Rs. 71, 91,271/-. b) The new figures were not available in first round of litigation and in the second round, the A.O. had called for bank account/statement details from RBI and the same is available on record. c) Book of account had been submitted before the Ld. CIT (A) and remand report from the A.O. had been called for. Thus, opportunity was provided to the A.O. at appellate proceedings to cause verification.

d) The income from dividend/interest was computed by presuming holdings as on June 1992 and at that relevant time, the A.O. had not received any information from Custodian/companies.

“7.11 In the year under consideration, the relief has been granted to the appellant on factual basis. The addition which stands confirmed is Rs. 6, 83, 95,324/-. Although the appellant had claimed that 50% relief should be given for this as well, no such relief is possible. As all possible reliefs has been granted on factual basis. Thus, no more relief is required on any estimation basis. The appellant cannot blow hot and cold at the same time.

7.12 In view of the above, this ground is PARTLY ALLOWED.”

31. We find that in submissions filed before us the assessee has sought relief on the basis of order of the Tribunal passed in the assessee’s own case for A.Y. 1992- 93 in (supra). The DR in his submissions has objected to it on the ground that cost of acquisition is out of undisclosed income as there is no source of acquisition explained before the Ld. CIT (A).

“11.2 I found the above contentions of the appellant to be without any basis. The AO has clearly mentioned that the details of badla income are annexed in Annexure S-5. Even the appellant’s reply is couched in a way that the transactions are “largely undertaken”, thereby indicating that other transactions are also undertaken. Hence, this ground is DISMISSED.”

My submission is whether on factual issues whether a group case be considered as covered. I do submit that legal issues can be considered to certain extent as covered. But factual issues facts and figures have to be verified in each and every case. Even in assessee’s own case on factual issues my humble submission is the figures and circumstances vary from year to year and hence it cannot be considered as a covered issue at all. The Courts have held that every case is decided on the basis of facts and law of that case. It is usually not comparable to any other case except the ratio of that decision. My humble submission is that on factual issues, for different assessment years, an issue decided in earlier year cannot be treated as covered issue.

During the relevant period the assessee has earned income from Badla amounting to Rs. 2, 08,453/-. The details of Badla Income annexed in annexure no. S-5.

“30. We have considered the submissions of both sides and perused the material available on record. From the perusal of the computation of total income, forming part of the paper book on pages 464-466, we find that the assessee claimed interest on bank loans of Rs. 2, 46, 33,261/- against the income under the head “income from other sources”. It is evident from the record that the learned Ld. CIT (A) placed reliance upon the decision of the Hon’ble jurisdictional High Court in CIT v/s Jagmohandas J. Kapadia, [1966] 61 ITR 663 (Bom.), in order to support the conclusion that unless the interest expenditure was incurred solely for the purposes of making or earning dividend income, no deduction as possible under section 57 of the Act. The relevant findings of the Hon’ble jurisdictional High Court in the aforesaid decision, as relied upon in the impugned order, are as under:-

“It would be noticed that what is allowable as expenditure under the said sub-section is only the expenditure incurred solely for the purpose of making or earning dividend income. Emphasis thus appears to be on the object or purpose of incurring of the expenditure. The exclusive object of incurring the expenditure has to be the making or earning of the dividend income. The mere fact that income by way of dividend has accrued and that the expenditure incurred is in some manner or other related to the accrual of the dividend income is not sufficient.”

45. Ground no. 7 is not pressed by the assessee and as such the same stands dismissed.

46. Ground no. 8 pertains to enhancement of Rs. 7, 97, 23,030/- made by the Ld. CIT (A) on account of difference noticed in the ledger accounts.

47. We notice that the assessee had submitted during appellate proceedings the reconciliation statement and balanced the amounts appearing in the books of the assessee and ledger of the assessee appearing in the books of Harshad S. Mehta. It was noticed by the Ld. CIT (A) that the entry for Rs. 7, 97, 23,030/- was not duly explained. Therefore, the Ld. CIT (A) added the same to the income of the assessee. This amount basically represents the amount receivable from stock exchange/counter party clients and payable to Harshad S. Mehta. In the books of Harshad S. Mehta corresponding entry inadvertently was not made and hence the discrepancy had arisen. Similarly, although no expenditure is claimed on account of this interest in the Profit & Loss account, placed at page 800 of the paper book filed before us, it was wrongly submitted before the Ld. CIT (A) that the same needs to be disallowed in the hands of the assessee. It is accepted position that the assessee is the stock broker and Harshad S. Mehta had entered into transactions through the assessee. It is the case of the assessee that this transaction has no impact on her income whereas Harshad S. Mehta is supposed to account for the income in his books of account. It has been pointed out to us that the appellate proceedings are pending in the case of Harshad S. Mehta before the Ld. CIT(A) and this issue can be decided after due verification of accounts of counterpart i.e. Harshad S. Mehta.

48. The DR has objected to raising of this ground and the contentions made by the assessee for the reason that no arguments related to such inadvertent error were ever pleaded before the Ld. CIT (A). But at the same time, the DR has not dealt with the alternate submission of taking decision after due verification during pending appellate proceedings.

49. Taking into account the facts and circumstances of the case and the materiality of issue involved, in our opinion the facts are unclear. It is undisputed that the assessee carried on transactions on behalf of her client. But the contention of the assessee that it had not claimed deduction for interest payable to Harshad S. Mehta in her P & L account placed at page 800 of the paper book seems to be prima facie correct. Further, the appellate proceedings in the case of Harshad S. Mehta are pending before the Ld. CIT (A) and if it is established that Harshad S. Mehta has offered this income for A.Y.1993-94 the same needs to be deleted from the total income of the assessee. This relief to the assessee is subject to addition in the hands of Harshad S. Mehta. In the result, ground no. 8 raised by the assessee is allowed for statistical purposes.

50. Ground no 9 pertains to the levy of interest u/s. 234A and 234B of the Act. In our opinion, the A.O. is duty bound to levy interest u/s. 234A and 234B of the Act as per the provisions of the Act. We accordingly direct the A.O. to levy interest as per the law. This ground of the assessee has no merit and stands dismissed.

51. Ground no. 10 pertains to general prayer to add/amend, etc. the grounds. The assessee has not exercised any option referred in the prayer clause and the same stands dismissed.

ITA No. 1186/Mum/2023 (A.Y. 1993-94) 54. Revenue being aggrieved against relief given by Ld. CIT(A) , referred hereinabove, has raised the following grounds of appeal in for A.Y. 1993-94:

“1. Whether on the facts and in the circumstances of the case, the Ld.CIT (A) was justified in restricting the addition to Rs.6.83,95,324/- and granting relief of Rs. 49, 86, 64,659/- made on account of profit earned on unexplained sale of shares, whereas assessee had failed to explain the source of acquiring the shares satisfactorily and the books of accounts produced by the assessee are unreliable?

2 Whether on the facts and in the circumstances of the case, the Ld.CIT(A) was justified directing the A.O to ascertain the stock-in-trade and allow such expenditure on a proportional basis, made on account of interest expense which was claimed by the assessee disregarding the fact that the assessee failed to show that the respective entities have charged interest on the amounts paid by the respective parties.

3 Whether on the facts and in the circumstances of the case, the Ld.CIT(A) was justified directing the A.O to ascertain the stock-in-trade and allow such expenditure on a proportional basis, made on account of interest expense which was claimed by the assessee disregarding the fact that the assessee has claimed the deduction u/s 57 of the Income Tax Act, 1961 and in that case, the assessee must prove that the interest expenditure was incurred wholly and exclusively for the purpose of earning of interest income.

4 "Whether on the facts and in the circumstances of the case, the Ld.CIT(A) was justified in treating the speculative loss incurred by the assessee of Rs. 2,47,59,074/- as normal business loss to be adjusted against other heads of income of the assessee.

55. Ground No.1 filed by the Revenue pertains to restricting the addition to Rs.6.83,95,324/- and granting relief of Rs. 49, 86, 64,659/- in respect of the addition made on account of profit earned on unexplained sale of shares.

56. It is apparent that on this issue, the assessee has raised corresponding ground no. 2 of her appeal which has been disposed in favour of the assessee.

57. In addition to reasons recorded while disposing ground no. 2 of the assessee’s appeal, we would like to refer to the brief written submissions and counter comments filed by the Ld. DR of the Revenue in support of its ground no.1. The main objection of the Revenue is that the assessee has not furnished source of acquisition of shares. The relevant portion of the submission and counter comments on behalf of the Revenue is extracted below for ready reference :

“Besides, during the assessment stage there was complete non- cooperation from the assessee as per the Assessing Officer. Hence the assessee cannot raise the issue now after almost 30 years that the materials collected behind the back of the assessee. Besides the assessee has not supplied any details at the assessment stage and no RETURN OF INCOME was filed by the assessee.

The Learned CIT (A) at page 22 to 27 of the appellate Order (Para 7) granted relief to the assessee of Rs. 49, 70, 91,591/- and additional relief of Rs. 15, 73,068/-. The remaining amount sustained is Rs. 6, 83, 95,324/-. The learned

CIT(A) also considered that in the assessment year 1992-93 the Hon. Tribunal in ITA/4204/M/2017 dated 14.01.2019 held that considering the time taken and various factors the tribunal reduced by 50% of Rs. 12,34,59,337/- and sustained Rs. 6,17,29,668/-.

However the learned CIT (A) at page 27 of the appellate order held as this is a factual issue and relief has been granted to the assessee on the basis of evidences available. The learned CIT (A) sustained an amount of Rs. 6, 83, 95,324/-. The assessee claimed before the learned CIT (A) to allow 50% of the said relief which is not granted to the assessee, as the Ld. CIT (A) arrived at the issue on a factual basis.

The Department submits that the assessee is not entitled even to Rs. 49, 86, 64,659/- as the assessee has not given the source of acquisition of shares. As the sources are not explained even now, it is submitted that the relief granted by the CIT(A) may kindly be withdrawn and the addition sustained be Rs. 56,70,59,986/- as income of the appellant.”

60. Ground no. 2 and 3 are interrelated and hence disposed of jointly. Ground no. 2 pertains to directions given by the Ld. CIT (A) to ascertain stock in trade and allow interest expenditure on proportional basis which was claimed by the assessee. It is the case of the Revenue that the directions are issued without considering fact that the assessee failed to show that the respective entities had charged interest on amounts paid by the respective parties. Ground no. 3 pertains to objection raised by the Revenue that the assessee had claimed deduction u/s. 57 of the Act hence; it is for the assessee to prove that the interest expenditure was incurred wholly and exclusively for the purpose of earning interest income.

61. Thus, it is apparent that the allowability of interest has been covered by cross appeal filed by the assessee in the ground no. 6 discussed at length hereinabove. This issue has been decided in favour of the assessee. Having held that the assessee is entitled to claim deduction for interest expenditure, these grounds filed by the Revenue become infructuous and hence, ground nos. 2 & 3 are dismissed.

62. Ground no. 4 raised by the Revenue is against relief granted to the assessee of Rs. 2, 47, 59,074/-. The Ld. CIT (A) has directed the A.O. to allow the loss of Rs. 2, 47, 59,074/- as normal business loss to be adjusted against other heads of income as against denial of such set off by the A.O. by considering it as speculative loss.

63. The A.O. had disallowed the said loss claimed by the assessee by treating the same as speculative loss. The relevant observations made by the A.O. on page 30 of the assessment are reproduced below :

“1.4 The assessee carried out speculative transaction in shares. The details are obtained from the clients of the assessee and others. Such details are enclosed herewith as annexure S-2. It shows that assessee had made a speculative loss of Rs. 2, 47, 59,074/-. The loss speculation is not allowed to be set off against other income.”

“The Ld. CIT (A) at page 27 & 28 at para 8 has detailed discussion of the above grounds of appeal. It is submitted that the Ld. CIT (A) followed his predecessor’s order. It is submitted that this relief may kindly be withdrawn and the Departments appeal be allowed on this issue as the learned A.O has brought out at page 30 para 1.4 that the transaction carried out here is speculative transaction. It is therefore prayed that this GOA of the Deptt be allowed.”

65. In the facts and circumstances the case, it is apparent that the A.O. has not adduced any material to show that the transactions captured are speculative in nature. It is apparent that the entire working or the basis of working (listed in annexure S-2, which is filed at pages 41 to 44 of the paper book filed before us) is arbitrary. Similarly, the Tribunal in assessee’s own case for A.Y. 1992-93 has upheld the view taken by the predecessor first appellate authority. No decision to the contrary has been brought to our attention by the Revenue. Therefore, the facts being identical, respectfully following the view taken by the Tribunal in earlier assessment year, we find no merit in the submissions made by the Revenue. Therefore, this ground no. 4 filed by the Revenue is dismissed.

66. In the ground no. 5, the Revenue has challenged the direction given by the Ld. CIT (A) to the A.O. to verify and grant relief of Rs. 1, 13, 90,573/- on account of oversold position in capital market.

67. It is apparent that the issue related to over-sold position in the capital market has also been raised in ground no. 3 of appeal filed by the assessee and the said issue has been decided in favour of the assessee for the reasons discussed hereinabove. As such, this ground filed by the Revenue has become infructuous and hence, dismissed.

68. Ground no. 6 pertains to general prayer to add/amend, etc. the grounds. The Revenue has not exercised any option referred in the prayer clause and the same stands dismissed.