THE DCIT, CIRCLE-1(1)(2),, SURAT vs. M/S. GROWTH AVENUES LTD.,, SURAT

PER SUDHANSHU SRIVASTAVA, J.M. This appeal is preferred by the department against the order passed by the Ld. Commissioner of Income Tax (Appeals)-4, Surat {CIT (A)} vide order dated 8.4.2016 for assessment year 2003-04. 2.0 Brief facts of the case are that the assessee company, during the year under consideration, was a broker and was also a member broker of National Stock Exchange. The return of income was filed declaring a loss of Rs. 3,03,050/-. The

ITA 1868/AHD/2016 Assessment year: 2003-04 assessee’s case was selected for scrutiny and notices were issued from time to time requiring various details from the assessee. However, there was no compliance on the part of the assessee and, therefore, the Assessing Officer proceeded to frame the assessment u/s 143(3) r/w section 144 of the Income Tax Act, 1961 (hereinafter referred to as "the Act") based on the details available on record. The assessment was completed at an income of Rs. 2,55,00,140/- after making the following additions/disallowances:- a) Claim of deduction u/s 43B - Rs.38,25,261/- b) SEBI turnover charges written back - Rs. 38,03,475/- c) Expenditure with respect to information - Rs.12,07,500/- and dissemination charges d) Expenditure on monitoring & - Rs.15,27,193/- Surveillance charges e) Claim regarding erosion in value - Rs. 7,34,415/- of shares f) Transaction charges - Rs. 44,38,411/- g) Equipment charges - Rs. 29,19,102/- h) Depreciation on assets - Rs. 3,86,511/- i) Cash credits added back u/s 68 - Rs. 66,26,600/- j) Penalty - Rs. 3,34,721/-

2.1 Aggrieved, the assessee approached the Ld. First Appellate Authority and challenged these disallowances/additions. The assessee’s appeal was partly 2

ITA 1868/AHD/2016 Assessment year: 2003-04 allowed inasmuch as some of the additions and disallowances were completely deleted and some were partially sustained. Now the department is in appeal before this Tribunal (ITAT) challenging the deletion made by the Ld. CIT(A) on account of information and dissemination charges and monitoring and surveillance charges, erosion in value of shares and stock, partial sustenance of disallowance with respect to transaction charges, deletion of equipment charges and deletion of addition on account of cash credits.

2.2 The following grounds have been raised by the department:-

“ [1] On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition made on account of Information& Dissemination charges & Monitoring & Surveillance Charge as the same were paid to sister concern as per the meaning of section 40(A)(2)(b) of the I.T. Act . On the facts and circumstances of the case and in [2] law, the Ld. CIT(A) has erred in deleting the addition made on account of Erosion in value of share and stock of Rs. 7,34,415/-as the assessee did not submit any documentary evidences to support its claim. On the facts and circumstances of the case and [3] in law, the Ld. CIT(A) has erred in restricting the addition to Rs. 10 lac made on account of Transaction Charges as assessee has totally failed to furnish copies of the relevant document that can be proved the genuineness of the expenditure . 3

ITA 1868/AHD/2016 Assessment year: 2003-04

On the facts and circumstances of the case and [4] in law, the Ld. CIT(A) has erred in deleting the addition made on account of equipment Charges of Rs. 29,19,102 as the assessee has totally failed to furnish copies of the relevant document that can be proved the genuineness of the expenditure .

On the facts and circumstances of the case and [5] in law, the Ld. CIT(A) has erred in deleting the addition made on account Cash Credits u/s 68 of Rs. 66,26,600/- erred in observing the fact that sufficient enquiry were not conducted by AO but had not remanded the matter to A.O. u/s 250(4) of the Act for conducting enquiries which he may have deemed fit to bring out the truth. On the facts and in the circumstances of the case, [6] the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. It is, therefore, prayed that the order of the CIT (A) [7] may be set aside and that of Assessing Officer may be restored to the above extent.” 3.0 The Ld. Senior Departmental Representative (Sr. DR) submitted that it is a matter of fact and record that the assessee had not made any compliance before the Assessing Officer (AO) and no details had been filed before the Assessing Officer and, therefore, the Assessing Officer had no option but to proceed u/s 144 of the Act on the basis of the details available with him. With respect to ground no. 1 relating to the deletion of disallowance of information and dissemination charges and

ITA 1868/AHD/2016 Assessment year: 2003-04 monitoring and surveillance charges, it was submitted that in respect of both these two items of expenditure, there had been a substantial increase in the expenditure as compared to immediately preceding assessment year and that the assessee had been required to show cause as to the reason for increase in the expenditure along with the nature of expenditure but the assessee had chosen not to respond. It was further submitted that the Ld. CIT (A) had deleted the disallowances on the ground that similar expenditure in assessee’s sister concern, which had been disallowed as being excessive, were decided in favour of that assessee in the first appeal. Our attention was drawn to Para 10.3 of the CIT (A)’s order and it was submitted that the addition had been deleted on the ground that the genuineness of expenditure was not doubted. The Ld. Sr. DR submitted that no opportunity was allowed to the Assessing Officer to verify the genuineness of the claim while deleting the disallowance.

3.1 With respect to ground no. 2 pertaining to the deletion of addition made on account of erosion in value of shares of stock to the tune of Rs. 7,34,415/- , it was submitted that in this case also, there was no response by the assessee to the queries raised by the Assessing Officer and that the Ld. CIT (A) had summarily

ITA 1868/AHD/2016 Assessment year: 2003-04 allowed the claim by noting that the expenditure was a trading loss in respect of this particular line of business and also on the ground that the quantum was not unreasonable.

3.2 With respect to ground no. 3 pertaining to disallowance of transaction charges amounting to Rs. 44,38,411/-, which had been restricted to Rs. 10 lakh by the Ld. CIT(A), it was submitted that even as per the observation of the Ld. CIT (A), the evidences available towards this head of expenditure were only to the tune of Rs. 24,82,730/- and, therefore, the Ld. CIT(A) could have allowed relief to the assessee only to the extent of this amount.

3.3 With respect to ground no. 4 pertaining to deletion of addition of Rs. 29,19,102/- pertaining to equipment charges, the Ld. Sr. DR submitted that no details were filed by the assessee before the Assessing Officer with respect to this expenditure also and that the Assessing Officer had objected to the various submissions of the assessee before the Ld. CIT (A) in his remand report which were not duly considered by the Ld. CIT (A).

3.4 With respect to ground no. 5 pertaining to deletion of addition of Rs. 66,26,600/- made on account of cash credits, the

ITA 1868/AHD/2016 Assessment year: 2003-04 Ld. Sr. DR submitted that the Assessing Officer had issued notice/s u/s 133(6) of the Act to the creditors but the same remained un-responded. It was submitted that the Ld. CIT (A) had deleted the addition on the ground that since the assessee had submitted confirmations from the creditors, copy of their PANs, amount of loan taken and repaid, details of interest, details of TDS etc. and also copies of the bank accounts, the assessee’s primary onus stood discharged and further, because the Assessing Officer had not made any further inquiries, there was no justification for making the addition u/s 68 of the Act. It was submitted that these observations of the Ld. CIT (A) were contrary to the facts on record because no details had been filed by the assessee in this regard before the Assessing Officer.

4.0 In response, the Ld. Authorised Representative (AR) placed reliance on the order of the Ld. CIT (A) and vehemently argued that the impugned additions had been rightly deleted by the Ld. CIT (A).

5.0 We have heard the rival submissions and have perused the material available on record. As far as ground no. 1 pertaining to disallowance with respect to information and dissemination charges and monitoring and surveillance charges 7

ITA 1868/AHD/2016 Assessment year: 2003-04 is concerned, it is seen that although the assessee had not filed any details before the Assessing Officer, the required details were submitted before the Ld. CIT (A) and the Ld. CIT (A) had called for a remand report from the Assessing Officer on these two additions. The Assessing Officer in his remand report has accepted that as far as information and dissemination charges were concerned, the relevant details were verifiable from the details submitted. Thus, the Assessing Officer has given a positive remand report on this head of expenditure. With respect to the expenditure on monitoring and surveillance charges, it is seen that an identical issue in assessee’s own case for assessment year 2001-02 had been decided by the ITAT Ahmedabad Bench in assessee’s own case wherein the Tribunal had upheld the deletion of similar disallowance by the Ld. CIT (A). Therefore, it is our considered opinion that in view of the categorical findings recorded by the Ld. CIT (A) regarding favourable remand report by the Assessing Officer and an identical issue being held in favour of the assessee by ITAT, Ahmedabad Bench, there is no reason to interfere with the findings of the Ld. CIT (A) on these two additions and we hold that they have been rightly deleted by the Ld. CIT (A).

ITA 1868/AHD/2016 Assessment year: 2003-04 Accordingly, ground no. 1 of the department’s appeal stands dismissed.

5.1 Ground no. 2 pertains to deletion of addition on account of erosion in value of shares and stock of Rs. 7,34,415/- and in this regard, it is seen that there was no response from the assessee when the Assessing Officer had required him to furnish the details. The Ld. CIT (A), while deleting the disallowance, has observed in Para 11.4 that the expenditure claimed is a trading loss which is normal in this particular business and even the quantum does not look unreasonable. Apart from this, the Ld. CIT (A) has not given any cogent reason for deleting the disallowance. Thus, apparently, the deletion has been made without recording any reason and without passing a speaking order on the issue. Accordingly, it is our considered opinion that the issue requires re-adjudication by the Ld. CIT (A). This ground is allowed for statistical purposes and is restored to the file of the Ld. CIT (A) with a direction to adjudicate it afresh and pass a speaking order after giving due opportunity to the assessee.

5.2 In respect of ground no. 3 challenging the action of the Ld. CIT (A) in restricting the addition of Rs. 44,38,411/-, in 9

ITA 1868/AHD/2016 Assessment year: 2003-04 respect of transaction charges to Rs. 10 lakh, it is seen that during the course of remand proceedings, the assessee could only produce bills to the extent of Rs. 24,82,730/- and the remaining expenditure could not be verified. However, the Ld. CIT (A) restricted the disallowance to Rs. 10 lakh after duly noting the fact that the assessee could produce bills only to the extent of Rs. 24,82,730/- by observing that looking into the totality of facts and circumstances, requirement of business and reasonableness of expenses, the disallowance is directed to be restricted to Rs. 10 lakh. Thus, the Ld. CIT (A) gave relief of Rs. 34,38,411/- although the assessee could produce bills only to the tune of Rs. 24,82,730/-. In our considered opinion, this issue has also not been examined and adjudicated upon in the correct perspective by the Ld. CIT (A), specially because the assessee had failed to produce all the relevant bills in this regard, pleading that all the bills could not be produced due to lapse of time. It is our considered opinion that the Ld. CIT (A) needs to examine the issue and, thereafter, after verification and after recording cogent reasoning, pass appropriate orders in accordance with law after giving due opportunity to the assessee. Accordingly, ground no. 3 stands allowed for statistical purposes.

ITA 1868/AHD/2016 Assessment year: 2003-04 5.3 Coming to ground no. 4 challenging the action of the Ld. CIT (A) in deleting the addition of Rs. 29,19,102/- pertaining to equipment charges, it is seen that although the assessee had not filed any details before the Assessing Officer, relevant details were filed before the Ld. CIT(A) and even the Assessing Officer, in his remand report, has accepted that the bills and copies of ledger accounts along with bank account reflecting payments on this account were furnished. Thereafter, after considering the totality of facts of the case, the Ld. CIT (A) has deleted the impugned addition. The Ld. Sr. DR also could not point out any infirmity in the said adjudication by the Ld. CIT (A) inasmuch as the factual matrix and the observations of the Assessing Officer were concerned. Accordingly, we find no reason to interfere with the findings of the Ld. CIT (A) on this issue and we dismiss ground no. 4 of the department’s appeal.

5.4 With respect to ground no. 5 pertaining to deletion of addition of Rs. 66,26,600/- on account of cash credits added back u/s 68 of the Act, it is seen that the Assessing Officer has noted in his assessment order that no details had been furnished before him. The Assessing Officer had issued notice/s u/s 133 (6) of the Act which had gone un-responded. However, the Ld.

ITA 1868/AHD/2016 Assessment year: 2003-04 CIT (A) has deleted the addition by observing that the assessee had duly furnished confirmations, copies of PAN cards, bank statement etc. of the concerned parties. Thus, observations of the Assessing Officer and the Ld. CIT (A) are contradictory and it is also not clear as to whether the Ld. CIT (A) had admitted these documents as additional evidences and had thereafter given relief to the assessee. Accordingly, it will be in the fitness of things if this issue is also re-examined by the Ld. CIT (A) after giving due opportunity to the assessee. Thus, ground no. 5 also stands allowed for statistical purposes with the direction that the Ld. CIT (A) should re-examine this issue and pass an order in accordance with law after providing proper opportunity to the assessee.

6.0 In the result, the appeal of the department stands partly allowed for statistical purposes.

Order pronounced in the open court on 31st July, 2019.

Sd/- Sd/- (VIKRAM SINGH YADAV) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated: 31st JULY, 2019 ‘GS’ Copy forwarded to: - 12

ITA 1868/AHD/2016 Assessment year: 2003-04 1) Appellant 2) Respondent 3) CIT(A) 4) CIT 5) DR True Copy By Order

ASSTT. REGISTRAR