DEPUTY COMMISSIONER OF INCOME TAX 4(2)(1), MUMBAI vs. PARSOLI CORPORATION LTD., MUMBAI

Appearance For the Appellant/Department : None For the Respondent/Assessee : Shri Brajendra Kumar Date Conclusion of hearing : 06.04.2023 Pronouncement of order : 25.04.2023

O R D E R

Per Rahul Chaudhary, Judicial Member:

The Revenue has raised the following grounds of appeal (ITA No. 2. 7465/Mum/2017) : “1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to delete the addition of Rs. 3,05,36,878/- made towards unexplained cash credit u/s 68 of the I.T. Act, 1961 through M/s A.J. Traders.”

The Assessee has raised following grounds in the cross-objection

3. (CO.No.35/Mum/2019) filed by the Assessee in appeal preferred by the Revenue: “1 For that the original assessment was completed u/s 143(3) and the notice u/s 148 was issued beyond 4 years of the original assessment and therefore the assessment completed u/s 2 ITA No.7465Mum/2017 (AY 2009-10) CO No.35/Mum/2019 (AY 2009-10) Mum/2018 (AY 2009-10) 147/143(3) is barred by limitation. Hence, the assessment is liable to be cancelled.

2. The original assessment was completed under Section 143(3) and the AO was highly unjustified in re-opening of the case beyond a period of 4 years. The learned CIT(A) was not justified in rejecting the claim of your appellant.

3. On the facts and in the circumstances of the case the learned CIT(A) was not justified in accepting the information of the third party for issue of the notice u/s 148 by the Assessing Officer.

4. The CIT(A) was highly unjustified in treating the addition for loss on sale of Mutual Funds directly transferred in the Demat Account of the Company amounting to Rs. 9,50,304/- and Rs. 23,01,466/-.

5. The CIT(A) was highly unjustified in disallowing the loss of Rs. 1,090,69,957/- on account of sale of Mutual Funds which was appearing as opening stock in the hands of the company as capital loss instead of business loss.

6. The CIT(A) was not at all justified in directing the AO for further verification of the cash balances appearing in the accounts of the company amounting to Rs. 1,02,76,149/- as the AO himself has stated that this relates to the travel division of your appellant.

7. The CIT(A) was not at all justified in confirming the addition of 99,00,000/- for transfer of Mutual Fund in the Demat Account of the company maintained with the broker. The provision of ITA No.7465Mum/2017 (AY 2009-10) CO No.35/Mum/2019 (AY 2009-10) Mum/2018 (AY 2009-10) Section 68 has been wrongly applied as the amount has not been credited in the books of your appellant. Moreover the AO has failed to give the details of the transaction and provide a copy of the bank account on the information from third party.” The relevant facts in brief are the Assessee filed return of income for 5. the Assessment Year 2009–10 on 31.03.2011 declaring loss of INR 5,67,17,553/-. The case of the Assessee was selected for scrutiny and notice under Section 142(1) of Act was issued requesting the Assessee to appear for hearing on 20/09/2011. However the Assessee failed to comply with the aforesaid notice and therefore, a show cause notice was issued under section 271(1)(b) of the Act on 02/11/2011 asking the Assessee to appear for the hearing fixed on 08/11/2011. However, the Assessee did not appear in response to the aforesaid notice and therefore, penalty under Section 271(1)(b) of the Act was levied on the Assessee on 14/11/2011. Again notice under Section 142(1) of the Act was issued on 21/11/2011 requiring the Assessee to appear for hearing on 25/11/2011. However, no compliance was made by the Assessee in response to the aforesaid notice. Therefore, the Assessing Officer was constrained to issue show cause notice, dated 8/12/2011, giving the Assessee a final opportunity to represent its case on hearing fixed for 14/12/201 failing which, the Assessee was informed, that the Assessee shall be proceeded ex-parte. Thereafter, 15/12/2011, the Assessee filed part- submissions into Tapal and failed to furnish details/information as specified in Section 142(1) of the Act. Under these facts and circumstances assessment under Section 144 of the Act was framed on the Assessee vide order dated 19/12/2011. Subsequently, on the basis of information received from Income Tax Officer (Inv.) – Unit 2, Ahmedabad regarding deposit of cash of INR 42,00,000/- in the bank account of the Assessee and the transaction of purchase of ITA No.7465Mum/2017 (AY 2009-10) CO No.35/Mum/2019 (AY 2009-10) Mum/2018 (AY 2009-10) units of ‘HDFC Income Fund – Growth’ of INR 99,00,000/- in the name of the Assessee by M/s AJ Traders, reassessment were proceedings are initiated against the Assessee under Section 147 of the Act as notice, dated 31/03/2016, was issued to the Assessee under Section 148 of the Act. In response to the aforesaid notice, the Assessee vide letter, dated 27/08/2016, adopted the original return filed by the Assessee as the return filed in response to notice issued under Section 148 of the Act. The Assessee was provided reasons recorded for re-opening for assessment wherein it was stated that the Assessing Officer has reasons to believe the income chargeable to tax has escaped assessment on account of failure of the part of the Assessee for disclose fully and truly all material facts on account of three issues (a) cash deposit of INR 42,00,000/- in the bank account of the Assessee, (b) purchase of units of mutual fund of INR 99,999/- by M/s AJ Traders in the name of the Assessee and (c) observation by Auditor that the auditors were not able to express opinion regarding conversion of 29,98,058/- fully convertible debentures into equity shares at a premium of INR 262. After receiving the reasons recorded in writing for reopening the assessment, the Assessee filed objections, vide letter dated 17/10/2016, which were disposed of by the Assessing Officer, vide order dated 18/11/2016, rejecting the challenge to the validity of the reopening of the assessment. Thereafter, the Assessing Officer proceeded to pass Assessment Order, dated 30/12/2016, under Section 143(3) read with Section 147 of the Act (Hereinafter referred to as ‘the Reassessment Order') computing the total income of the Assessee at INR 3,33,33,657/- after making following additions/disallowances: (a) addition of INR 2,67,58,534/- under Section 68 of the Act holding investment in mutual fund as ITA No.7465Mum/2017 (AY 2009-10) CO No.35/Mum/2019 (AY 2009-10) Mum/2018 (AY 2009-10) unexplained cash credit, (b) additional of INR.2,38,65,491/- holding that the Assessee is not entitled to claim the aforesaid amount as loss arising from redemption of units of mutual fund, (c) addition of INR 1,44,76,149/- under Section 68 of the Act holding the same to be unexplained cash deposit in the bank account, (d) addition of INR 4,04,36,878/- under Section 68 of the Act holding the same to be unexplained cash credit pertaining to transactions undertaken through M/s AJ Traders, and (e) addition of INR 1,10,22,326/- and INR 1,10,22,270/- under Section 68 of the Act on account of unexplained increase in share premium and share capital, respectively.

Since, both, the Assessee as well as the Revenue felt aggrieved by 7. the order passed by the CIT(A), the present cross appeals were preferred. The Assessee has also preferred a Cross-Objection in appeal preferred by the Revenue.

We would first take up the appeal preferred by the Assessee since 8. the Assessee has challenged the validity of reassessment proceedings. We note that the Revenue has, in its appeal, raised only one ground challenging the order passed by CIT(A) to the extent the ITA No.7465Mum/2017 (AY 2009-10) CO No.35/Mum/2019 (AY 2009-10) Mum/2018 (AY 2009-10) CIT(A) deleted the addition of INR 3,05,36,878/- (out of the addition of INR 4,04,36,878/-) made by the Assessing Officer under Section 68 of the Act in respect of transactions undertaken by M/s AJ Traders. Since the said ground raised by the Revenue is connected to Ground No. 7 raised by the Assessee, it would be taken up along with Ground No. 7 raised by the Assessee in its appeal.

When the matter was taken up for hearing, none appeared on behalf 9. of the Assessee. On perusal of record we find that the Assessee has filed paper book (running into 89 pages) which also contains the submissions filed by the Assessee before CIT(A). Accordingly, we proceed to examine and adjudicate the issues raised in the present cross-appeals and cross objection on merits after hearing the Learned Departmental Representative and after taking into consideration the material on record. Ground No. 1 to 3 raised by the Assessee challenged the validity of 10. the reassessment proceedings. We find that the Assessee had objected to reopening of assessment before Assessing Officer and CIT(A) on the ground that the reassessment proceedings, which were initiated after the expiry of 4 years from the end of relevant assessment year, were barred by limitation. According to the Assessee there was no failure on the part of the Assessee to disclose fully and truly all material facts. Further, the Assessing Officer was not justified in issuing notice under section 148 of the Act on the basis of information received from a third-party. It was contended on behalf of the Assessee that the cash deposit of INR 42,00,000/- was reflected in the bank account of the Assessee and that on the relevant date the Assessee had sufficient cash balance to justify the 7

ITA No.7465Mum/2017 (AY 2009-10) CO No.35/Mum/2019 (AY 2009-10) Mum/2018 (AY 2009-10) aforesaid cash deposit. Similarly, transaction related to convertible debentures and conversion thereof was also reflected the books of accounts, and the same, in any case, did not pertain to the Assessment Year 2009-10 as the conversion had taken place during the previous year relevant to the Assessment Year 2007-08 and no money was received during the Assessment Year 2009-10. As regards transactions pertaining purchase of mutual fund units of INR 99,00,000/- by M/s AJ Traders in the name of the Assessee, it was contended by the Assessee that no such transactions were undertaken by the Assessee and that the Assessee was not aware of M/s AJ Traders, or to transactions undertaken by it. However, the aforesaid contentions did not find favour with the Assessing Officer and the CIT(A). Therefore, the Assessee is in appeal before us on this issue.

Having perused the material on record and the orders passed by the 11. authorities below, we also do not find any merit in the contentions raised by the Assessee. The original assessment was framed on the Assessee under Section 144 of the Act. Even while passing the Assessment Order, dated 19.12.2011, the Assessing Officer had stated that the Assessee had failed to comply with the notices issued during the assessment proceedings and had failed to furnish the details/information required in full. Thus, there was clearly failure on the part of the Assessee to disclose fully and truly all material facts for framing assessment. The issued on which reassessment proceedings have been initiated were, in any case, not examined by the Assessing Officer. In our view, the Assessing Officer had fresh tangible material in the form of information/documents received from the investigation wing relating to deposit of cash of INR 42,00,000/- in the bank account of the Assessee as well as the details furnished 8

ITA No.7465Mum/2017 (AY 2009-10) CO No.35/Mum/2019 (AY 2009-10) Mum/2018 (AY 2009-10) by Shri Vinayak Sahakari Bank Ltd. pertaining to account held by M/s AJ Traders which reflected purchase of units of mutual fund (i.e HDFC income Fund - Growth) of INR 99,00,000/- in the name of the Assessee which were not disclosed in the books of accounts of the Assessee. We agree with the CIT(A), that for initiating the reassessment proceedings it is not necessary that the assessing officer must have a clinching evidence that income chargeable to tax has escaped assessment. Existence of link between the tangible material and the formation of belief that income chargeable to tax has escaped Assessment sufficient for initiation of reassessment proceedings under Section 147 read with Section 148 of the Act. In our view, the above information/details available with the Assessing Officer was in the nature of fresh tangible material which was sufficient for the Assessing Officer to form a belief that income chargeable to tax had escaped assessment. Accordingly, Ground No. 1 to 3 raised by the Assessee are dismissed.

Ground No. 4 raised by the Assessee is directed against the order of 12. CIT(A) holding that the Assessee is not entitled to claim loss of INR 23,01,466/- arising on account of redemption of units of mutual fund purchased by the director of the Assessee and transferred directly to the DMAT account of the Assessee.

During the assessment proceedings, the Assessing Officer obtained 13. details of transactions pertaining to the Assessee from HDFC Asset Management Company Ltd. which showed that the Assessee had purchased units of mutual funds during the relevant previous year whereas the Ledger maintained by the Assessee showed that no investments were made by the Assessee during the relevant previous year. In ledger account the entire amount of mutual funds held by ITA No.7465Mum/2017 (AY 2009-10) CO No.35/Mum/2019 (AY 2009-10) Mum/2018 (AY 2009-10) the Assessee were shown having brought forward from the immediately preceding assessment year. Further, the Assessee had sold some of the aforesaid mutual funds and had claimed losses in respect of the same. On conducting further enquiry, the Assessing Officer got to know that the payment of INR 1,47,30,000/- for purchase of units of mutual funds was made by Mr. Zafar Yunus Sareshwala, Director of the Assessee vide Cheque No. 718529 for INR 86,80,000/-) and Cheque No. 718530 for INR 60,50,000/-, both, dated 17/02/2009. Similarly, for purchase of units of mutual fund payment of INR 1,43,30,000/- was made by Mr. Zafar Yunus Sareshwala, Director of the Assessee vide Cheque No. 718527 for INR 27,00,000/-), Cheque No. 718530 for INR 62,50,000/-, and Cheque No. 718537 for INR 63,80,000/-, all, dated 18/02/2009. The aforesaid unit were transferred to the account of the Assessee and thereafter, redeemed. Units of mutual fund purchased for INR 1,47,30,000/- were redeemed for INR 1,37,79,696/- at loss of INR 9,50,304/-, and whereas units of mutual fund purchased for INR 1,43,30,000/- were redeemed for INR 1,29,78,838/- at a loss of INR 13,51,162/-. The Assessing Officer had made addition of the aggregate redemption value of INR 2,67,58,534/- (INR 1,37,79,696/- plus 1,29,78,838/-) in the hands of the Assessee under Section 68 of the Act holding the same to be unaccounted cash introduced in books by the Assessee. However, in appeal preferred by the Assessee, the CIT(A) concluded that the payments for purchase of the units of the mutual fund as well amount received from redemption of the aforesaid units was explained by the Assessee. Since the Assessee was able to provide explanation about the identity & creditworthiness of the party involved, and the also about the genuineness of the transaction of purchase and ITA No.7465Mum/2017 (AY 2009-10) CO No.35/Mum/2019 (AY 2009-10) Mum/2018 (AY 2009-10) redemption of units of mutual fund, the addition under Section 68 of the Act could not have been made in the hands of the Assessee. Accordingly, the CIT(A) deleted the addition of INR 2,67,58,534/- made by the Assessing Officer under Section 68 of the Act. However, the CIT(A) held that the Assessee was not entitled to claim the benefit of loss of 23,01,466/- (INR 9,50,304/- + INR 13,51,162/-) arising on account of redemption of units of mutual fund since the investment was made by the director of the Assessee and not by the Assessee. Being aggrieved the Assessee is in appeal before us on this issue.

We have considered the submissions advanced by the Ld.

ITA No.7465Mum/2017 (AY 2009-10) CO No.35/Mum/2019 (AY 2009-10) Mum/2018 (AY 2009-10) the same has been routed through the D-mat Account of the Assessee. Accordingly, we confirm the order passed by the CIT(A) in this regard and dismiss Ground No. 4 raised by the Assessee.

Ground No. 5 raised by the Assessee is directed against the order of 15. CIT(A) holding that the Assessee is entitled to claim net loss of INR 1,90,69,957/- arising on account of purchase and sale of units of mutual fund as capital loss and not as business loss as contended by the Assessee.

During the relevant previous year, the Assessee suffered a loss of 16. INR 1,90,69,957/- on account of purchase/sale of units of mutual fund. While framing assessment, the Assessing Officer made an addition of INR 2,38,65,491/- holding the same to be loss arising from purchase/sale of units of mutual funds which the Assessee was not entitled to claim. In appeal preferred by the Assessee the CIT(A) concluded that the Assessee had suffered loss of INR 1,90,69,957/-. However, the CIT(A) rejected the contention of the Assessee that the Assessee was entitled to claim the said loss as a business loss. According to the CIT(A) the units of mutual funds were held by the Assessee as ‘Investments’ and therefore’ the Assessee was entitled to claim the aforesaid loss as a ‘capital loss’ only. Being aggrieved by the aforesaid conclusions of the CIT(A), the Assessee is in appeal before us on this issue.

Having considered the submissions advanced by the Ld. 17. Departmental Representative and perused the material on record, we are of the view that the CIT(A) was justified in holding that the loss of INR 1,90,69,957/- suffered by the Assessee was in the nature of capital loss. On perusal of Schedule 6 forming part of the Balance

ITA No.7465Mum/2017 (AY 2009-10) CO No.35/Mum/2019 (AY 2009-10) Mum/2018 (AY 2009-10) Sheet of the we find that Assessee as on 31/03/2009 (placed at page 9 of the paper book), we find that the mutual funds held by the Assessee are shown as ‘Investments’. At the same time, the shares in Indian listed companies and foreign currency are shown as ‘Inventories’ is in Schedule 7. Accordingly, we do not find any infirmity in the order passed by CIT(A) in this regard. Ground No. 5 raised by the Assessee is, therefore dismissed.

Ground No. 6 raised by the Assessee is directed against the 18. directions given by the CIT(A) to the Assessing Officer for further verification of the cash balances of INR 1,02,76,149/- appearing in the accounts of the Assessee pertaining to travel division.

During the assessment proceedings the Assessee was asked to 19. provide details of cash deposits of INR 42,00,000/- in the bank account of the Assessee maintained with Axis Bank. In response to the same, the Assessee filed relevant details and copy of the cash book to substantiate that sufficient cash was available with the Assessee at the relevant time to make the aforesaid deposits, and therefore, no addition could be made in the hands of the Assessee in respect of aforesaid cash deposit of INR 42,00,000/-. During assessment proceedings, the Assessee also filed bank account pertaining to Travel Division of the Assessee wherein cash deposits aggregating to INR 1,02,76,149/- were reflected. The Assessing Officer, while faming the assessment, concluded that the Assessee had failed to give explanation regarding source and nature of the cash deposits in the bank accounts and proceeded to make an addition of INR 1,44,76,149/- (INR 1,02,76,149/- plus INR 42,00,000/-).

ITA No.7465Mum/2017 (AY 2009-10) CO No.35/Mum/2019 (AY 2009-10) Mum/2018 (AY 2009-10) In appeal preferred by the Assessee, the CIT(A) examined the cash 20. book furnished by the Assessee, and found merit in the contention of the Assessee that sufficient cash balance was available with the Assessee for making the cash deposits. However, the CIT(A) directed the Assessing Officer to verify the existence of sufficient cash for making the cash deposits. Being aggrieved by the directions given by CIT(A) the Assessee in appeal before us.

We have perused the order passed by CIT(A) in this regard as well as 21. the material on record. We find that the Assessing Officer had recorded that the Assessee had failed to provide any explanation regarding nature and source of cash. The CIT(A) accepted the explanation provided by the Assessee regarding nature and source of cash and issued directions to the Assessing Officer for verification. The CIT(A) has merely directed to the Assessing Officer to verify from cash book, bank book and Balance Sheet that sufficient cash was available with the Assessee at the relevant time to make cash deposits. In our view, the directions issued by the CIT(A) do not call for any interference given the facts and circumstances of the present case. Accordingly, Ground No. 6 raised by the Assessee is dismissed.

Ground No. 6 raised by the Assessee is directed against the order of 22. CIT(A) confirming the addition of INR 99,00,000/- out of addition of INR 4,04,36,878/- made by the Assessing Officer in relation to transaction undertaken by M/s AJ Traders.

The Assessing Officer had received information that a bank account 23. with Vinayak Sahakari Bank Ltd. was fraudulently opened in the name of M/s AJ Traders through which transactions to the tune of ITA No.7465Mum/2017 (AY 2009-10) CO No.35/Mum/2019 (AY 2009-10) Mum/2018 (AY 2009-10) INR 4,04,36,878/- were routed which included transaction of purchase of units of mutual fund (HDFC Mutual Fund – Growth) in the name of the Assessee. The Assessing Officer concluded that the bank account maintained in the name of M/s AJ Traders with Vinayak Sahakari Bank Ltd. was used by the Assessee for route its accounted money and therefore, the Assessing Officer made addition of INR 4,04,36,878/-. In appeal the CIT(A) restricted the addition of INR 99,00,000/- being transaction of purchase of units of mutual fund (HDFC Mutual Fund – Growth) in the name of the Assessee as the Assessing Officer had failed to disclose details of the other transaction or return any findings in relation to the same. Being aggrieved, by the Assessee has challenged the order of the CIT(A) confirming addition of INR 99,00,000/-.

We have heard the Learned Departmental Representative and 24. perused the material in record. The Assessing Officer and CIT(A) have returned concurrent finding that units of mutual fund (HDFC Mutual Fund – Growth) of INR 99,00,000/- purchased by M/s AJ Traders were credited to the Dmat Account of the Assessee. While the Assessee has denied any knowledge of M/s AJ Traders or any transaction with it, the fact remains that there existed credit in the Dmat account of the Appellant as noted by the Assessing Officer and CIT(A). There is nothing on record to show that the Assesee had taken any steps for rectification or reversal of credit made to its Dmate account. In the facts and circumstances of the case, we do not find any infirmity in the order passed by the CIT(A). Accordingly, we confirm the additions of INR 99,00,000/- under Section 68 of the Act in the hands of the Appellant. Ground No. 6 raised by the Assessee it, therefore, dismissed.

ITA No.7465Mum/2017 (AY 2009-10) CO No.35/Mum/2019 (AY 2009-10) Mum/2018 (AY 2009-10) ITA No.244/ Mum/2018 Ground No. 1 raised by the Revenue in its appeal is connected to 25. Ground No. 6 raised by the Assessee. Revenue is aggrieved by the order of CIT(A) deleting the addition of INR 3,05,36,878/- and confirming only addition of INR 99,00,000/-. We do not find any merit in the ground raised by the Revenue. There is nothing on record, to connect the Assessee with the other transaction aggregating to INR 3,05,36,878/- routed through the bank account maintained in the name of M/s AJ Traders with Vinayak Sahakari Bank Ltd. The Assessing Officer has not provided details of these transaction or returned any finding in relation to the same while making the addition. The CIT(A) was correct in restricting the addition to INR 99,00,000/- only. Accordingly, Ground No. 1 raised by the Revenue is dismissed.

CO No.35/Mum/2019 We would now take up the grounds raised and Cross Objection 26. preferred by the Assessee in the appeal preferred by the Revenue.

Ground No. 1 and 2 of the Cross Objection pertain to validate of 27. reassessment proceedings under Section 147 read with Section 148 of the Act. While adjudicating Ground No. 1 to 3 raised by the Assessee in its appeal, we have upheld the validity of the reassessment proceedings. Accordingly Ground No. 1 and 2 raised by the Assessee are dismissed.

Ground No. 3 raised of the Cross Objections supports the order 28. passed by CIT(A) deleting the addition of INR 3,05,36,878/- made by the Assessing Officer in relation to transactions routed through bank account maintained in the name of M/s AJ Traders with Vinayak

ITA No.7465Mum/2017 (AY 2009-10) CO No.35/Mum/2019 (AY 2009-10) Mum/2018 (AY 2009-10) Sahakari Bank Ltd. We have dismissing Ground No. 1 raised by the Revenue and in the process upheld the order passed by the CIT(A) deleting the aforesaid addition of INR 3,05,36,878/-. Thus, Ground No. 3 raised in Cross Objection is disposed off as being infructuous.

In result, both the appeals and the cross objection are dismissed.

Order pronounced on 25.04.2023.