ACIT-CENTRAL CIRCLE -2(1), NAGPUR vs. SHRI NANDKUMAR KHATTUMAL HARCHANDANI , NAGPUR

4 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 xxi) On the facts and circumstances of the case & in law, the Ld. CIT(A) failed to appreciate the decision of the Hon‟ble ITAT Bombay Bench “B” (ITA No. 614/Bom/87 A.Y. 1983-84) in the case of M/s. Mont Blanc Properties and Industries Pvt. Ltd. which was upheld by the Hon‟ble Supreme Court where what constitute evidence under tax jurisprudence is clearly explained. xxii) On the facts and circumstances of the case & in law, the Ld. CIT(A) failed to appreciate that the assessee never asked for cross- examination at the time of assessment proceedings. xxiii) On the facts and circumstances of the case & in law, the Ld. CIT(A) failed to appreciate that strict principles of Indian Evidence Act are not applicable in Income tax Act and denial of opportunity of cross examination does not render the decision void ipso jure as held by Hon‟ble Supreme Court in State Bank of Patiala Vs. S.K. Sharma. xxiv) On the facts and circumstances of the case & in law, the Ld. CIT(A) erred in deleting the addition on technical grounds while failing to appreciate that CIT(A)‟s power is coterminous with AO and she could have corrected the impugned error of AO clearly propounded in the decision of Hon‟ble Supreme Court in Kanpur Coal Syndicate. II. On the facts and circumstances of the case & in law, the Ld. CIT(A) erred in deleting the addition of Rs. 15,75,789/- on account of disallowance u/s. 14A, failing to appreciate the fact that the assessee has failed to prove that investments has been made not out of borrowed fund when the accounts are tangible and not separate accounts for investments are maintained. xxv) Any other question of law and fact to be raised at the time of appeal. xxvi) It is humbly prayed to set aside the order of the CIT(A) and restore the order of the assessing officer”

3. Fact in Brief :- The facts, as culled out from the impugned order passed by the learned CIT(A) are that, on 14/01/2015, the assessee filed its return of income electronically declaring net taxable income at `32,63,962. The assessee had purchased 4,22,500 shares on 16/03/2012, physically at the rate of `10 per share and the same were duly reflected in the books of account of the assessee as well as shown in Balance Sheet as investment during the assessment year 2012-13. The aforesaid shares were sold during the during the assessment year 2014-15. The period of holding of the shares

5 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 is more than twelve months. The capital gain transaction were long term capital transaction and the assessee has claimed exemption under section 10(38) of Income Tax Act,1961 (“the Act”).

6 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 by the Principal Director of Income Tax (Investigation), Kolkata, in the case where the provisions of section 10(38) were being misused by the beneficiaries of bogus long term capital gain and to avoid paying the taxes, which is not related in the case of the assessee. The Assessing Officer relied on statement recorded behind the back of the assessee and no opportunity to cross examine has been granted to the assessee. The Assessing Officer has not accepted the contention of the assessee and made addition under section 68 of the Act at ` 2,84,35,115.

5. The assessee made investment in shares amounting to ` 20,61,59,037. The assessee has borrowed fund of `12,89,09,181, on which interest amounting to ` 17,07,742, has been paid. The assessee received dividend amounting to ` 48,899, which was claimed exempt under section 10(34) of the Act and claimed expenditure at ` 15,75,789, in the return of income. The Assessing Officer has made disallowance under section 14A at ` 15,75,789, though the assessee is not liable for the same. Being aggrieved the assessee preferred appeal before the first appellate authority.

6. During the proceedings before the learned CIT(A), the assessee made a detailed submission which was recorded by the learned CIT(A) in its impugned order vide Page-4 to 14, is also reproduced below for ready reference:– “5. The Authorised Representative of the assessee has made the following written submission: The assessee has e-filed return of income on 14/01/2015 declaring net taxable income at Rs. 32,63,962/-. In the return of income assessee has shown income from Salary, income from house property, income from business and 7 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 income from other sources. The assessee has also shown income from exempt capital gains from transfer of equity shares. The assessee has purchased 422500 shares of Swift IT Infrastructure and Services Ltd. by cheque on 16/03/2012 during the previous year relevant to Asstt. Year 2013-2014 and the same were shown in the balance sheet of the assessee as investment. The assessee has received physical delivery of the share of Swift IT Infrastructure & Services Limited on 16/03/2012 at the rate of Rs. 10 each. The assessee has submitted the copies of share certificate during the course of assessment proceeding before the assessing officer. The assessee encloses herewith copies of share certificates, which is on Page-9 To 98 of the Paper Book. Thereafter, Later on the aforesaid shares were transferred to MPSE Securities Limited from where the sales of shares were affected on 06/03/2014 onwards. The assessee has submitted the letter regarding deliver slip for share transfer to “Mittal Share Brokers Pvt. Ltd.” alongwith statement of accounts of Karvy Stock Broking Ltd and transaction statement of MPSE Securities Ltd. during the course of assessment proceeding before the assessing officer. The assessee submitted herewith details of the same which is on Page-101 To 110 of the Paper Book. The assessee is having Client ID issued by MPSE Securities Limited, which is clearly showing the name, address, bank details. The assessee has also submitted details of Client ID during the course of assessment proceedings, which is on Page-111 of the Paper Book. The assessee has sold the aforesaid shares for total consideration of Rs. 2,84,34,115/- during the previous year relevant to Asstt. Year 2014-2015 and shown book profit at Rs. 2,79,05,115/-. Since the period of holding of the shares is more than one year the capital gain transaction were long term capital of the assessee and exempted U/s. 10(38) of the Income Tax Act, 1961. The assessee has submitted chart of capital Gain working and profit on sale of shares account during the course of assessment proceedings as well as in the return of income, which is on Page-8 of the Paper Books. All the transaction of sale purchase of shares was made through proper banking channel and duly reflected in the books of account of the assessee. During the course of assessment proceedings details were called and the assessee attended from time to time and filed the reply the copy of the reply on Page-150 To 156 of the Paper Book. The learned assessing officer has not considered the contention of the assessee as well as documents submitted by the assessee on the basis of a massive investigation was carried out by Pr. Director of Income Tax (Investigation), Kolkatta in the cases where the provisions of section 10(38) were being misused by the beneficiaries of bogus long term capital gain and to avoid paying taxes and have also been forwarded the details of transactions entered into by the assessee. The learned assessing officer has not any provided the details forwarded by Investigation Wing, Kolkatta as well as statement of persons, whose statement were recorded during the course of investigation made by the Pr. Director of Income Tax (Investigation), Kolkatta. Even the learned assessing officer has not granted opportunity to being cross examine to the persons, whose statement were recorded during the course of assessment proceeding to the assessee. The investments made in shares

8 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 were also accepted by the assessing officer during the previous year relevant to Asstt. Year 2013-2014 in the scrutiny proceedings U/s. 143(3). The assessee encloses herewith copy of assessment order which is on Page-158 To 160 of the Paper Book. The learned assessing officer has relied on the judgments which are not pertains to the fact of case of the assessee and made various observation which were not related to the assessee. The addition made U/s. 68 unexplained cash credit is unjustified, unwarranted and excessive, when the assessee has submitted each and every detail with respect of sale purchase of shares. The assessee submitted herewith brief history of purchase of shares of Swift IT Infrastructure and Services Ltd., which are as under The assessee is assessed to income tax vide PAN AATPH2594R. The assessee regularly files return of Income. The assessee encloses herewith copy of Acknowledgment Return of Income, Computation of Income, Balance Sheet and Profit and loss account alongwith group Summary of Investment in securities for A.Y. 2010-11 to A.Y. 2014-15, which is on Page-1 To 42 of Paper Book Part-II. The assessee has given sum of Rs. 1,00,00,000/- (Rs. One Crores) to MPSC Securities Limited, who is a member of Madhya Pradesh Stock exchange Ltd. through RTGS on 15/03/2010 by Oriental Bank of Commerce, Kingsway A/c No. 01342010034880. The assessee encloses herewith bank statement reflecting the transfer of funds to MPSC Securities Ltd. alongwith bank book, which is on Page-43 To 48 of Paper Book Part-II. The assessee instructed for purchase of share of Well Pack Papers And Containers Ltd. through Bombay Stock Exchange Trading Terminal. The assessee purchased 3,50,000 shares of Well Pack Papers and Containers Ltd. The amount paid for purchase of shares was Rs.1,00,07,295.84/-. The assessee encloses herewith Copy of account of MPSC Securities Ltd. alongwith contract-note of purchase and sale of shares, which is on Page-48 To 69 of Paper Book Part-II. Later on aforesaid shares were sold at Rs. 42,43,735/-. The assessee further invested sum of Rs.42,46,550/- for purchase of 2,26,000 shares of Shree Ganesh Spinners Limited through bolt of Bombay Stock Exchange Trading Terminal. The assessee encloses herewith Shares account for the period from 01/04/2009 to 31/03/2015 which is on Page-70 To 75 of Paper Book Part-II and Credit Note Scan Infrastructure Limited, which is on Page-76 of Paper Book Part-II. The same were duly reflected in the books of accounts of assessee. The assessee already submitted copies Balance sheet alongwith Investment in securities ledger account. Later on shares of Shree Ganesh Spinner Ltd. were given to Scan Infrastructure Limited for purchase of shares of Swift IT Infrastructure & Services Limited (None Listed Company). The assessee encloses herewith debit note by Scan Infrastructure Limited, which is on Page-77 of Paper Book Part-II. Thereafter, the assessee has received physical delivery of 4,22,500 shares of Swift IT Infrastructure And Services Ltd. on 16/03/2012. Swift IT Infrastructure was none listed company and does not come under the preview of SEBI (ACT). The aforesaid shares were dematerialized with Karvy Stock Broking Limited on 11/03/2013. Later on Company Swift IT Infrastructure Pvt. Ltd was amalgamated with “Parag Shilpa IT Infrastructure and Services

9 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 Limited”. The assessee encloses the order of Hon‟ble High Court of Judicature at Bombay sanctioning a scheme of amalgamation of Swift IT Infrastructure & Services Limited with Parag Shilpa Investments Limited & New Name is Parag Shipla IT Infrastructure And Services Ltd., which is on Page-78 to 83 of Paper Book Part-II. As per the order of amalgamation of Hon‟ble High Court of Judicature at Bombay, Bench at Mumbai dated 03/05/2013. The assessee has already submitted letter of demat of physical share certificates alongwith acknowledgement of receipt of shares from Karvy Stock Broking Ltd. (Page- 101 To 110 PB Part-I). Later on the aforesaid shares were transferred to MPSE Securities Limited from where the sales of shares were affected on 06/03/2014 onwards. The assessee already submitted the letter regarding deliver slip for share transfer to “Mittal Share Brokers Pvt. Ltd.” alongwith statement of accounts of Karvy Stock Broking Ltd and transaction statement of MPSE Securities Ltd. Since the assessee was having physical delivery of shares on 16/03/2012 there is no dought that the assessee is owner of shares on 16/03/2012. The learned assessing officer has not considered the contention of the assessee as well as documents submitted by the assessee and on the basis of a massive investigation was carried out by Pr. Director of Income Tax (Investigation), Kolkatta. The learned assessing officer has not provided the details forwarded by Investigation Wing, Kolkatta as well as statement of persons, whose statement were recorded during the course of investigation made by the Pr. Director of Income Tax (Investigation), Kolkatta. The learned assessing officer has not granted opportunity to being cross examine to the persons, whose statement were recorded during the course of investigation. The investments made in shares were also accepted by the assessing officer during the previous year relevant to Asstt. Year 2013-2014 in the scrutiny proceedings U/s. 143(3). The assessee encloses herewith copy of assessment order which is on Page-171 To 173 of the Paper Book. The learned assessing officer has relied on the judgments which were not related to the fact of case of the assessee and addition made U/s. 68 as unexplained cash credit as per plain reading of aforesaid provision of section 68 is not at all applicable in the case of the assessee, when the assessee has submitted each and every detail with respect of sale purchase of shares. The assessee also respectfully submitted that claim made by the assessee may kindly be allowed on account of following reasons i. It was wrong on the point of the learning assessing officer purchase and sale transaction of shares was treated as unexplained credit U/s. 68 of the Income Tax Act; ii. The assessee has furnished contract not for purchase and sale of shares and each and every details, bank statement showing receipt of sale proceed amount and demat account statement for holding of shares; iii. The whole assessment is based on suspicion and enquiry made by the Principal Director of Income Tax (Investigation) Kolkatta and on the basis of statement which were not confronted to the assessee; 10 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 iv. The order of the assessing officer is arbitrary and without affording the reasonable opportunity to the assessee. There is violation of principles of natural justice to the assessee; v. Suspicion cannot be a good evidence for the purpose of assessment unless it is corroborated by clinching evidence brought on record after affording reasonable opportunity to the assessee; vi. Payment for purchases and sales both have been made by cheque and duly reflected in the bank statement; vii. The sale of shares has been done through MPSE Securities Limited on screen based trading system; viii. The shares were held by the assessee for more than one year and security transactions tax has been paid on this transaction; ix. These facts which emerge from the assessment order in no way have been disputed by the assessing officer. No direct evidence has been brought on record by the assessing officer to show that the transaction was an arranged/bogus transaction; x. There is no evidence on record to show that the money was assessee‟s own money which has been received back by it through this transaction; xi. The assessing officer has not been able to bring any evidence on record to show that the sale and purchases made by the assessee are factious; xii. The factum of purchases and sales both being reflected in the banks statement as well as books of account of the assessee in no way can be disputed; xiii. Identity of the company will not in dispute; xiv. Burden of proof was on the department to prove that the amount belongs to the assessee. The assessee has already submitted copies of shares transfer in the name of assessee on 16/03/2012 (PB Part-I, Page-9 To 98); xv. The transaction is delivery based transaction and physical shares were delivered and transferred in the name of assessee on 16/03/2012; (PB Part-I, Page-9 To 98); xvi. Purchase and sale of shares having been regularly accounted in the books of account of assessee. This fact has been confronted by the assessing officer; xvii. Documents furnished by assessee proves beyond any doubt that the transaction of purchase and sale of shares is a genuine on following a. The assessee has purchased of shares by cheque; b. The purchase of shares were through registered stock broker; 11 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 c. The assessee transferred the shares and same were duly recorded in the name of assessee; d. The shares were appearing in demat account of the assessee; e. The period of holding of shares were more than 1 year; f. Assessee is having Client ID of MPSE Security Limited. g. Delivery of shares from demat account h. Sale proceeds received from stock broker by cheque and the transaction were duly recorded in the Bombay Stock Exchange; i. Sale proceed of shares deposited in assessee‟s own bank account by cheque only j. The assessee has paid STT on sale transaction; On the above mentioned preposition assessee placed reliance on– 1.

(ITAT KOL) Chainroop Bohra Vs Deputy Commissioner of Income Tax 2. (ITAT, Mumbai) Shri Kamlesh Mundra Vs. Income Tax Officer We also hold that in the present case by virtue of independent documents as referred in paper book the assessee proved the genuineness of the share transaction and there was no justification to disallow the claim of the assessee in respect of long term capital gain merely on the basis of information received from DDIT which is based on admission of Shri Mukesh Chokshi. Therefore accordingly, we direct the AO to assess the long term capital gain declared by assessee as such and accept the same.

3. I.T.A. No. 3801/Mum/2011 (ITAT, Mumbai) Ms. Farrah Marker –Vs- Income Tax Officer In this factual and legal matrix of the case, as discussed above, we find that the addition under section 68 of the Act made and confirmed by the authorities below to be unsustainable and therefore, directed the AO to deleted the said addition and accept the LTCG income shown as exempt under section 10(38) of the Act. 4. (2015) 281 CTR 241 (SC) Andaman Timber Industries –Vs- Commissioner Of Central Excise Not allowing assessee to cross-examine witnesses by adjudicating authority though statements of those witnesses were made as basis of impugned order, amounted in serious flaw which make impugned order nullity as it amounted to violation of principles of natural justice 5. (ITAT, Mumbai) Smt. Durgadevi Mundra –Vs.- Income Tax Officer 6. (2010) 329 ITR 110 (High Court, Delhi) Sarthak Securities Co. (P) Ltd. –Vs- Income Tax Officer 12 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 Reassessment-Reason to believe-Absence of material or rational belief- AO was made aware of the situation by the Investigation Wing and there is no mention that the companies who had invested shares in petitioner company were fictitious-What is mentioned is that these companies were used as conduits-Assessee in his objections had clearly stated that the companies had bank accounts and payments were made to the assessee company through banking channel-Identity of companies was not disputed-It would not be appropriate to required the assessee to go through the entire gamut of reassessment proceedings- Neither the reasons in the initial notice nor the communication providing reasons remotely indicate independent application of mind by AO-Notice under S. 148 quashed. 7. (1980) 125 ITR 713 (Supreme Court of India) Kishinchand Chellaram –Vs.- Commissioner of Income Tax Income from undisclosed sources-Chargeability-T, an employee of Madras office of assessee making a telegraphic transfer of an amount of Rs. 107350 to N, an employee of assessee Bombay Office-On enquiry made by ITO from Madras bank, manager of bank informing ITO that telegraphic transfer of Rs. 107350 sent by assessee from Madras was receive by bank at Bombay and the amount was paid to N-ITO treating the amount as undisclosed income of assessee-Not justified-Burden of proof was on the Department to prove that the amount belonged to assessee-Letters of manager, in the absence of same being supplied to the assessee, could not be used against assessee-Manager also not examined by the Department-There was no evidence for the conclusion that the amount belonged to assessee.

8. Order of the Commissioner of Income Tax (Appeals)-I, Nagpur dated 21/04/2014 vide appeal No. CIT(A)-I/296/2009-10 in case of Smt. Kiran Balani –Vs.- Income Tax Officer, Ward-2(1), Nagpur 9. Order of the Commissioner of Income Tax (Appeals)-I, Nagpur dated 21/04/2014 vide appeal No. CIT(A)-I/406/2010-11 in case of Shri Suresh Balani (HUF) –Vs.- Income Tax Officer, Ward-2(2), Nagpur 10.

(ITAT, Mumbai) Dharmesh Manibhai Patel –Vs- Income Tax Officer 11. (2011) 336 ITR 287 (High Court, Bombay) Commissioner of Income Tax -Vs- Gopal Purohit Capital gains-Vis-à-vis business income-Transactions in shares-Tribunal has entered a pure finding of fact that the assessee is engaged in two different types of transactions namely, investment in shares and dealing in shares for the purposes of business-It held that the delivery based transactions are to be treated as investment transactions and the profit received therefrom is to be treated as short-term or long-term capital gain depending on the period of holding of shares-Tribunal has correctly held that though the principle of res judicata is not attracted since each assessment year is separate in itself, there ought to be uniformity in treatment and consistency when the facts and circumstances are 13 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 identical-This approval of the Tribunal has to be upheld as the Revenue did not furnish any justification for adopting a divergent approach for the assessment year in question-Tribunal having applied the correct principle in arriving at the decision on the facts of the case, no substantial question of law arises 12. (2009) 20 DTR 0099 (ITAT, Mumbai) Gopal Purohit –Vs- Joint Commissioner of Income Tax Assessee‟s claim of short-term and long-term capital gains from transactions in shares having been allowed on identical facts in earlier assessment year, could not be disallowed merely because in the year under consideration, the Finance Act, 2004, had conferred certain benefits on the assessee on such transaction; modus operandi of assessee remaining the same, assessee‟s claim deserved acceptance by following rule of consistency. 13. (2007) 11 SOT 627 (ITAT, Mumbai) Janak S. Rangwalla –Vs- Assistant Commissioner of Income Tax Capital gains-Vis-à-vis business income-Transactions in shares held as investment-Give rise to capital gains notwithstanding magnitude of transactions-Assessee holding large number of shares as investments and transactions in shares all along treated in part under the head „Capital Gains‟, assessee could not be treated as trader in shares for the year under consideration-Assessee was eligible for set off of long-term capital loss against short-term capital gains. 14.

(ITAT, Nagpur) Plastic Surge Industries Pvt Ltd –Vs- Asstt Commissioner of Income Tax 15. (ITAT, Mumbai) Assistant Commissioner Of Income Tax –Vs- Naishadh V. Vachharajani 16. I.T.A. No. 961/Mum/2010 (ITAT, Mumbai) Nagindas P. Sheth (HUF) –Vs- ACIT 17. (2006) 6 SOT 0247 (ITAT, Mumbai) Mukesh R. Marolia –Vs- Additional Commissioner Of Income Tax Purchase and sale of shares having been regularly accounted for by the assessee in its books and this fact having been confirmed in survey conducted by the Department, addition of sale proceeds of share under s. 69 could not be made solely on the basis of fact that transactions were not routed through stock exchange; assessee is consequently entitled to benefit of s. 54F 18. I.T.A. No. 1442/Ahd/2013 (ITAT, Ahmedabad)P-II ACIT –Vs.- Vineet Sureshchandra Agrawal & Others.

20. I.T.A. No. 5068/Mum/2009 (ITAT, Mumbai) P-II Shri Jafferali K. Rattonsey –Vs- DCIT 21. (1983) 141 ITR 0067 (Bom. HC)P-II Commissioner of Income Tax –Vs.- Bhaichand H. Gandhi 22. Order of the Commissioner of Income Tax (Appeals)-4, Nagpur dated 27/03/2017 vide appeal No. CIT(A)-4/ 128/16-17 in case of Smt. Santosh Ramprasad Agrawal -Vs.- Income Tax Officer, Ward-4(2), NagpurP-II 23. Order of the Commissioner of Income Tax (Appeals)-4, Nagpur dated 31/03/2017 vide appeal No. CIT(A)-4/ 183/16-17 in case of Shri Suresh Rochaldas Kewalramani –Vs.- ITO, Ward-4(2), Nagpur, P–II 24. Order of the Commissioner of Income Tax (Appeals)-4, Nagpur dated 24/03/2017 vide appeal No. CIT(A)-4/ 350/10-11 in case of Shri Vishwas Shridhar Kukde –Vs.- ITO, Ward-4(2), NagpurP-II In view of the above assessee humbly request that claimed made by the assessee is true and correct and same may kindly be allowed. Ground No. 10 & 11 : The assessee has made investment in shares amounting to Rs. 20.61 crore and same were duly reflected in the books of account and also shown in the Balance Sheet as Investment. The assessee having its own capital is at 30.84 crore as well as loans at Rs. 12.89 crore out of which sum of Rs. 11.70 crore interest free loan. Thus the assessee was having sum of Rs. 42.54 interest free funds which is more than investment made in tax free securities i.e. Rs. 20.61 crore. The assessee has also possessed excess interest free fund at Rs. 21.93 crore sufficient than the investment made by the assessee in tax free securities. Therefore the assessee has claimed interest expenses at Rs. 17,07,743/- only, which is on Page-6 of Paper Book. The assessee has paid interest of LIC at Rs.14,86,720/-, interest on vehicle loan at Rs. 2,19,536 and bank commission and charges at Rs.1,486/- and same were duly reflected in the books of account of the assessee and also shown in the Profit & Loss Account of the assessee. Since the own fund available with the assessee 30.84 crore for investment in tax free securities the assessee is liable for allowing deduction in respect of expenditure incurred by the assessee in relation to income, which does not form part of the total income. The learned assessing officer has not considered the contention of the assessee and made addition U/s. 14A disallowing claim of the assessee. In the circumstances assessee humbly request that expenditure disallowed by the assessing officer may kindly be allowed. On the above mentioned preposition assessee placed reliance on: 1. (2014) 41 CCH 0286 (Mum. Trib) P-II HDFC Bank Ltd. –Vs.- Deputy Commissioner of Income Tax. Expenditure incurred in relation to income not includible in total income- Applicability of Rule 8D-Assessee a Scheduled bank carrying on banking 15 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 business made investment-AO made disallowance U/s. 14A on account of investment made-Assessee submitted tht disallowance U/s. 14A was not warranted since investments was made out of its own funds and reliance was placed on assessee‟s own case and there is no requirement to make any disallowance, if the investment made are strategic in nature-That securities were held as stock in trade-That quantum of disallowance should be scaled down in between 2% to 20% of exempt income-Revenue submitted that provisions of Rule 8D were applicable from AY 2008-09 onwards and hence disallowance to be made U/s. 14A was required to be examined in terms of Rule 8D-Held, provisions of Rule 8D are applicable from AU 2008-09 and onwards-AO can determine amount of disallowance in terms of Rule 80D only if he is not satisfied with correctness of claim of the assessee, that too, after having regard to accounts of assessee-In instant cases, assessee is putting forth its contention against disallowance from different angles-Some of contentions were raised for first time before Tribunal-Contentions of assessee can be appreciated only if relevant facts are available-All relevant facts are not available before Tribunal-Availability of assessee‟s own funds on date of making investments also required to be verified-Matter remitted to AO 2. Judgment of Hon‟ble Income Tax Appellate Tribunal, Bengalore Bench „B‟, Bangalore dated 20/02/2015 vide (Bang) 2013 in case of Deputy Commissioner of Income Tax –Vs.- M/s. Subramanya Construction & Development Co. Ltd.P-II 3. (2013) 218 Taxman 0142 (Guj. HC)P-II CIT–Vs.- Gujarat Industrial Development Corporation Ltd. Tribunal was satisfied in affirming deletion of disallowance under section 14A when revenue failed to establish that assessee had incurred any expenses for earning dividend income from the amount borrowed, therefore, tribunal was justified in affirming deletion of disallowance under section 14a. On appeal CIT(A) deleted the additions. 4. (2010) 323 ITR 0158 (Guj. HC) P-II Commissioner of Income Tax –Vs.- Hero Cycles Ld. Income-Expenditure incurred in relation to income not includible in total income-Disalolwance-Validity-Assessee had dividend income under category of exempted income-No expenses against earning of such income had been showed in return-AO made disallowance U/s. 14A applying Rule 8D-CIT(A) deleted addition-ITAT confirmed deletion-Held, despite notices by AO to give details of expenditure made on earning of exempted income in nature of dividend, version of assessee was that he had not made any expenditure on earning such income-AO as per Section 14A(2) was to proceed further to collect material or evidence to determine expenditure, if any, incurred by assessee-But AO instead, relying on Rule 8D applied a formula applicable to assessee who has incurred expenditure by way of interest which is not directly attributable to any particular income or receipt which was not case of present assessee-Tribunal had observed that before only disallowance is made, essentially there has to be certain expenditure which much have been incurred by assessee, which in present case was missing-AO had not brought on record any expenses having been incurred by assessee to earn non-exempt or exempt income-In absence of same, it could not be said that assessee had 16 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 actually incurred any expenditure-In view of above, no substantial question of law arose for adjudication 5. (2013) 361 ITR 0131 (P&H HC) P-II Commissioner of Income Tax –Vs.- Deepak Mittal Business expenditure-Disallowance under s. 14A-Apportionment of expendi– ture-Disallowance under s. 14A required finding of incurring of expenditure- Where it is found that for earning exempted income no expenditure has been incurred, disallowance under s. 14A cannot stand-In view of finding of the Tribunal, it is clear that the expenditure on interest was set off against he income from interest and the investment in the share and funds was out of the dividend proceeds-In view of this finding of fact, disallowance under s. 14A was not sustainable. In view of the fact claim made by the assessee is true and correct and same may kindly be allowed.”

7. The learned CIT(A), while considering the submissions of the assessee emphatically, held that the addition made by the Assessing Officer is factually as well as legally incorrect and the disallowance of exemption under section 10(38) of the Act was directed to be deleted. The relevant portion of the findings of the learned CIT(A), vide Page–14 to 38, of the impugned order are hereby reproduced herein below for ready reference:– “7 Ground Nos. 2 To 9 : The appellant has challenged the addition made by AO of Rs. 2,84,35,115/- as sale proceeds on sale of shares u/s. 68 of the I.T. Act. I have gone through the assessment order, the grounds of appeal

, the submission made by the appellant and the relevant judicial pronouncements of the Hon‟ble Courts on the subject and the facts of the case are examined on the basis of supporting evidences that were produced before the Assessing Officer. 7.1 The assessee has filed e-return of income on 14/01/2015 declaring net taxable income at Rs. 32,63,962/-. The case was selected for scrutiny and notices u/s. 143(2) & 142(1) were issued to the assessee. In response to notices, the counsel for the assessee attended from time to time and submitted the details called and explained the return. The assessee had purchased 422500 shares of Swift IT Infrastructure & Services Limited (SITSL) on 16/03/2012 physically at the rate of Rs. 10/- and same were duly reflected in the books of account of the assessee as well as shown in balance sheet as investment during the previous year relevant to A.Y. 2012-13. The aforesaid shares were sold during the previous year relevant to Asstt. Year 2014-2015. The period of holding of the share is more than twelve months, and the said Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 transaction were treated as long term capital transaction on which the assessee has claimed exemption u/s. 10(38) of Income Tax Act, 1961. 7.2 The assessing officer has not accepted the claim of the long term capital gains. The reason for the same is the report of investigation carried out by Pr. Director of Income Tax (Investigation), Kolkata in certain cases where the provisions of section 10(38) were being misused by the beneficiaries of bogus long term capital gain (LTCG) to avoid paying the taxes on such profits earned. The assessing officer has relied on certain statements recorded of persons indulging in similar modus operandi and the LTCG earned by him was non-genuine. The AR of the assessee has refuted this and furnished documentary evidences to prove the genuineness of the transactions which are as under 1. The assessee had purchased 422500 share of Swift IT Infrastructure & Services Limited (SITIT) at the rate of Rs. 10 each, the physical delivery of which were received on 16/03/2012.

3. Thereafter, the foresaid shares were transferred to MPSE Securities Limited from where the sales of share were affected during the previous year relevant to Asstt. Year 2014-15 onwards. The assessee sold part of the share held during the previous year relevant to A.Y. 2014-15.

4. The assessee has submitted all the details of sale purchase of shares i.e. name of company, amalgamation of company, details of sanction order of amalgamation from the Hon‟ble Bombay High Court, new name of company, details of dematerialization, details of transfer of shares and submitted each & every details as & when called by the assessing officer during the course of assessment proceedings. 7.3 The submission of appellant were sent to the Assessing Officer on remand on 26.05.2017, the report of which was received on 30.03.2017. Further clarifications and the report of Investigation wing were again called for on 29.08.2017. The same was received on with annexures 28.09.2017. These were perused. The appellant has furnished his rebuttal of the issues reiterated in the Remand Report and on the basis of all the documents available on record the matter was heard. 7.4. Further, the assessee has also contested the remand report (which is based on the Investigation Report of Kolkata) by making some very compelling arguments as under 1. As per Para-1 – “It is seen that the name of Shri Nandkumar Khattumal Harchandani son of Shri Khattumal Harchandani also features in the list of cases who availed bogus LTCG and claimed exemption from tax as per provision of Section 10(38) of the I.T. Act, 1961”. The assessee strongly objects to the said allegation made in the report. As the list of paper companies, list of dummy directors and even the statements of Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 persons involved in providing accommodation entries provided, no where the name of assesse or company “Parag Shilpa Infrastructure Ltd.” features in the list. The assessee is merely an individual who has invested the said amount as an investment and later on sold the same. The assessee has invested the amount as an investment and sold the share. The assessee has made all the transaction through BSE through proper banking channel and paid STT as well as these transactions were legally valid transaction. The entire amount was received through proper banking channel and credited the books of account of the assessee. The Sale amount mentioned in the report were also incorrect. Therefore, the assessee respectfully submits that the assessing officer has committed gross error by making addition in assessee‟s case on the basis of just information received from the Pr. Director of Income Tax (Inv.) Kolkata, which were not related to the assessee at all.

Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 Modus operandi as described by the learned AO in his order is totally different and irrelevant in the case of the assessee as - No evidence on record approaching to the Entry Operator by the assessee. - No nexus of any nature has been established between the Assessee and Entry Operators, Brokers, Sub-Brokers and other entities. - No purchases of share by the Assessee through private placement. - No evidence of delivering cash to the entry operator. - No evidence of routing cash in the books of bogus companies. - The script Parag Shilpa Investment Ltd. is not classified as penny stock by SEBI and was not barred from trading on stock exchange any time. As per Para-3.3 “the learned A.O. described the transaction as beneficiary sold a fixed number of shares at a nominal rate by offline trading done to save STT”. But in the case of assessee, the transactions were online transaction done through BSE & assessee has paid the STT on entire transaction. As per Para-3.3.3 “the learned assessing officer mentioned that the beneficiary provides the required amount of cash which is routed through some of the paper companies of the entry operator and is finally parked in one company which will buy the share from beneficiary. The paper company issues cheque to the beneficiary”. The assessee denies all such allegations and entire allegations were incorrect. The assessee has made whole transaction through proper banking channel and same were duly reflected in the books of account of the assessee. There is no movement of cash in the assessee transaction. The assessee has made whole transaction through Bombay Stock Exchange and on entire sale and purchase STT was paid on entire transaction, which was deposited in government account through stock exchange and entire transaction was duly reflected in the Bombay Stock Exchange. The assessee has already submitted all the details with respect to share transaction during the course of assessment proceedings before the assessing officer and thus proved the genuineness of the transaction beyond doubts. On the contrary the assessing officer has neither pointed out any defect in books of account nor in any documents submitted by the assessee to negate the claim made by the assessee and failed to provide any evidence on record showing the said transactions were made for providing accommodation entries. The ld. AO has failed to substantiate that the assessee has brought back his own unaccounted money under the grab of LTCG as no evidence was produced in this regard. Further, nothing has been brought on record to prove that unaccounted money was involved in the said transaction of the assessee. The learned AO completed the assessment proceedings in an arbitrary manner based on certain assumption, suspicions and surmises. Further, no evidence of any movement of cash have been found by the ld. AO showing that the share were purchased for obtaining accommodation entry. The learned assessing officer have as well failed to provide any direct or corroborative evidence against the assessee to prove this allegation. Therefore allegation made with respect of bogus LTCG or accommodation entry is factually incorrect and denied in toto. Relevant Case Law : • Recently Hon‟ble ITAT Delhi in the case of Chander Prakash v. ITO in dated 12.03.2018 held that 2018 deleting addition on same facts of the assessee under No addition u/s 68 on account of penny stock if assessee submitted all evidences in support of sale and purchase and entire transaction was through Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 banking channel. The AO made an addition of Rs. 31,10,915/- holding that the long-term capital gain earned by the assessee on its investment in the shares of M/s. HPC Biosciences Ltd. was not genuine and represented the unaccounted income of the assessee. The CIT(A) stated that the rise in value of the share was abnormal over a period of 13 to 14 months, ad realization of such capital gain without any past experience in trading of shares raised a very strong suspicion so as to question the authenticity of the transaction. Thus, the CIT(A) also confirmed the addition made by the AO holding that the transaction was against human probability. The Tribunal took note of the fact that the assessee has shown LTCG from sale of 6000 shares of M/s. HPC Biosciences Limited and the same has been claimed as exempt u/s. 10(38) of the Act. Tribunal further observed that the assessee had submitted all documentary evidences in support of sale and purchase of shares. The ITAT also took note of the fact that the entire transaction was through banking channel and the rejection by the AO as well as the CIT(A) treating the transaction as bogus long-term capital gain was without any basis. ITAT further noted that the AO and the CIT(A) relied upon the statement recorded by the Investigation Wine, Kolkata, which had no nexus with the case of assesse. Therefore, relying upon the recent judgment of Hon‟ble High Court of Punjab & Haryana in the case of Pr. CIT v. Prem Pal Gandhi in of 2017 dated 18.01.2018, the Tribunal concluded that considering the fact and circumstances in the case of assessee the ratio laid down by the said judgment, the addition made by the AO and sustained by the CIT(A) was to be deleted. The assessee has purchased 422500 shares of Swift IT Infrastructure and Services Ltd. by cheque on 16/03/2012 during the previous year relevant to Asstt. Year 2013-2014 and the same were shown in the balance sheet of the assessee as investment and entire investment were duly accepted by the assessing officer during the previous yer relevant to Asstt. Year 2013-2014 in the scrutiny assessment and assessment were completed U/s. 143(3). The assessee has already submitted copy of assessment order for A.Y. 2013-14 with earlier reply. The assessee has received physical delivery of the share of Swift IT Infrastructure & Services Limited on 16/03/2012 at the rate of Rs. 10 each. The assessee has submitted the copies of share certificate during the course of assessment proceeding before the assessing officer. The assessee encloses herewith copies of share certificates, which is on Page-9 To 98 of the Paper Book (Part-I). Thereafter, Later on the aforesaid physical shares were dematerialized with Karey Stock broking Limited on 11/03/2013. In support of the contention the assessee has submitted letter of demat of physical share certificates alongwith acknowledgment of receipt of share from Karve Stock Broking Ltd. Later on these shares were amalgamated to Parag Shilpa Infrastructure Limited. Thereafter the share were transferred to MPSE Securities Limited from where the sales of shares were affected on 04/03/2014 onwards. In support of contentions, the assessee has submitted the letter regarding deliver slip for share transfer to “Mittal Share brokers Pvt. Ltd.” alongwith statement of accounts of Karvey Stock Broking Ltd and transaction statement of MPSe Securities Ltd. during the course of assessment proceedings before the assessing officer. In support of its contention the assessee has submitted details of the same which is on Page-101 To 110 of the Paper Book (Part-I). The assessee is having Client ID issued by MPSE Securities Limited, which is clearly shows the name, address, bank details. The assessee has also submitted details of Client ID during the course of assessment proceedings, which is on Page-111 of the Paper Book (Part-I). The assessee has sold the aforesaid shares for total consideration of Rs. 2,84,34,115/- during the previous year relevant to Asstt. Year 2014-2015 and 21 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 shown book profit at Rs. 2,79,05,115/-. Since the period of holding of the shares is more than one year the capital gain transaction were long term capital of the assessee and exempted U/s. 10(38) of the Income Tax Act, 1961. The assessee has submitted chart of capital Gain working and profit on sale of shares account during the course of assessment proceedings as well as in the return of income, which is on Page-8 of the Paper Book (Part-I) . All the transaction of sale purchase of shares was made through proper banking channel and duly reflected in the books of account of the assessee. 5. “In Para-4.1 the A.O. referred that the assessee has indulged in merger method.” The assessee respectfully submitted that in the case of assessee on line trading for sale is through Bombay Stock Exchange and not through any paper company. There is no involvement of any paper companies in the case of assessee. Entire trading was made through Bombay Stock Exchange. In the report Assessing Officer has mentioned, that “Purchasing/loss booking companies in the Script PS IT infrastructure & Services Ltd./Parag Shilpa Investments Ltd, the most purchases were at abnormally higher rates done by paper companies”. The assessing officer has mentioned the names and details of paper companies in the report. But the same were not the assessee company and not the companies in which assesse has invested. Even the assessee do not know the companies and have not entered into any transactions with such paper companies as mentioned by the assessing officer. The assessee has nothing to do with such paper companies and there was no name of the assesse and no name of company “Parag Shilpa Infrastructure Ltd.” in the details of companies. It is mentioned in the Para-4.3 of the report by the assessing officer that “statement of Operators were recorded by the Kolkata Directorate wherein they have admitted their statements that they have indulged in providing accommodation entries for Long term capital gains”. The assessee respectfully submitted that nowhere in the statement or the report it is stated that assesse or the companies in which assessee invested were involved in any such bogus transactions and there is neither name of assessee nor name of the company “Parag Shilpa Infrastructure Ltd.” in the entire report. As per Para 4.6, the assessing officer stated that “the assessee has purchased the share of M/s. PSIT Infrastructure Ltd. for a very low price”. The assessee has actually not purchased PS IT Infrastructure shares, but assessee has purchased Swift IT Infrastructure Ltd. was amalgamated with Parag Shilpa IT Infrastructure Ltd. Therefore, information given with respect of market movement of shares of Parag Shilpa Investment Ltd. which the assessee received by virtue of amalgamation order of Hon. High Court, was beyond the control of the assessee and assessee cannot influence the same. The learned assessing officer has not proved that assessee has influenced the same and no evidence was brought on record. The assessee also respectfully submitted that share market behaves in a unique manner. Further, each script generates its own unique return and has its own behaviour pattern. There are innumerable cases of such companies wherein the share prices increases so many times. This sometimes results in investor earning less than market return and sometime more than market return. In the instant case, the assessee has earned good returns on the said 22 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 investments and just like any other prudent investor encashed the same where he felt it was the right opportunity to do so. Merely because the share prices have fluctuated so much, the transaction of the assessee cannot be treated as non-genuine without furnishing any evidence in its support to prove the involvement of the assessee. We may also submit that this is not a one time transaction of the assessee and assessee is a regular investor in stocks since many years and undertakes share transactions through registered stock brokers and have made profits and losses from his investments in shares. The assessee has purchased these share on the suggestion of Sanjay Jalani who is family friend of assessee. Now in this situation it is baseless to say that shares transaction are aimed only to bring unaccounted money in the guise of exempted long term capital gain and paper work has been got up and done merely to give the colour of authenticity to the transactions and creating façade of legitimate transactions and so allegation made against the assessee is denied in toto. It is pertinent to note that the assessee has purchased the shares of Unlisted Company named Swift IT Infrastructure & Services Limited about 14 months before amalgamation. The assessee has received the share of Parag Shilpa Investments Limited by virtue of amalgamation of two companies by approved order of Hon‟ble Bombay High Court. Relevant Case law : • Hon‟ble ITAT, Jodhpur in the case of DCIT vs. Smt. Hansa Choudhary [2012] 23 taxmann.com 302 (Jodhpur-Trib) was clearly seen that assesse purchased shares in earlier year. They were shown in the balance sheet which was filed alongwith the return of income. The payments were made through books of account which had not been doubted. The shares belonged to a listed company which was also not in doubt. The company itself had issued certificate that all those shares had been demated, copy of the same was placed on record. Once the purchase of shares was not doubted, then the same of same shares should not have been doubted. Further, the payment was received through cheque. The assessing officer had failed to discharge his onus to prove that assessee had invested his own money except relying on statement of a third persons who had given a general statement that he was issuing accommodation entries to some persons. Accordingly, addition made by the Assessing Officer was to be deleted.

6. As per Para 5.1, 5.2 of report : In the case of the assessee, he has got the shares pursuant to the scheme of Amalgamation of Swift IT Infrastructure & Services Limited with Parag Shilpa Investments Limited as approved by the shareholders and sanctioned by Hon‟ble High Court. It is also pertinent to note that the assessee has received the shares by virtue of the amalgamation, and the assessee have not invested directly in the said stock. Further the assessing officer in Para 5.2, mentioned that “assessee wrote letter to Karvy on 26/02/2014 for share transfer but tis letter does not mention the name of Parag Shilpa or Swift Infra”. The assesse respectfully submits that since the Karvy stock broking Ltd. were not giving proper response and not giving the delivery slips of shares to assessee and creating 23 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 routine nuisance, the assessee has decided to transfer all the shares with Karvy Stock broking Ltd. to Mittal Share brokers Pvt. Ltd. It was the personal business problem faced by the assessee as an investor due to which the assessee transferred the shred from Karvy Stock broking Ltd. to Mittal Share brokers Pvt. Ltd. Hence the said issue is no way connected with the said transaction as mentioned in the report.

7. As per Para 6.1 & 6.2 “the assessee has adopted a very old modus operandi of showing of investment for purchasing shares of Shri Ganesh Spinners Ltd”. The assessee denies the Modus operandi mentioned by the assessing officer in the report. Assessee denied that any back dated purchase bill been issued. There was not cash transaction. All the transactions were through proper banking channel itself. “Assessing officer stated that there is no actual delivery of shares takes place because the entire purchases are fraudulently shown to have taken place on an earlier dated”. The entire story stated above were denied by the assessee. As there was actually physical delivery of share of Swift IT Infrastructure Ltd. on 16/03/2012 and same were also dematerialized with Karvey Stock Exchange Pvt. Ltd. “Assessing officer mentioned that some minor balance lying the ledger account is transferred to the discount account” but in the case of assessee there is no such minor balance and there is no such discount account maintained by the assessee. “The Assessing Officer mentioned in the report that shares were transferred to the demat account of the client (Off Market) generally around a few days before the date when the client wished to avail the gain”. But in the case of assessee the shares of Swift IT Infrastructure Ltd. were dematerialized with Karvey Stock exchange Pvt Ltd. on 11/03/2013 itself which is more than one year before the share were sold. The Assessing Officer have further mentioned in the report that “Many Clients ask for Holding letters, which re basically letters issued from the entry providers that they have purchased “X” amount of shares on behalf of such clients on a particular date and these companies are holding them in their pool account on behalf of these clients. These letter is usually produced before various authorities to prove that the alleged purchase of share has taken place over a year ago. All these action are in violation of the provisions of the securities contract (Regulations) Act 1956 and hence are illegal”. The assessee respectfully submitted that assessee has never violates any of the provisions of Securities Contract (Regulations) Act, 1956. The assesse has never issued or received any holding letters ever. Hence the said allegations is totally denied. The assessee always follow due procedure of law and provisions laid down in SEBI for purchase and sale of shares. Swap of Shares The assessee has purchased the share of Well Pack Containers‟ Pvt. Ltd., which were sold at the loss of Rs. 57,46,180/-, the entire loss has been taken in the return of income filed by the assessee and accepted by the department and against the sale proceedings the assessee has invested the amount for purchase of 226000 share of Shri Ganesh Spinners. Entire transaction were 24 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 took place through registered broker through Bombay Stock Exchange. This 226000 share were sold to Scan Infrastructure Pvt. Ltd. for an amount of Rs. 42,6,200/- on 19/09/2011. Scan Infrastructure Pvt. Ltd has not paid the sale proceeds for Shree Ganesh Spinners and requested to assessee to take the share of Swift Infrastructure Ltd. which were physically delivered on 16/03/2012, hence this manner how share of Swift IT Infrastructure Ltd. were purchased by the assessee. After that being the shares of limited non listed company the same is not necessary to be dematerialized hence the assessee had not dematerialized the same. The assessee also draw attention that so far as section 16 of Security Contract (Regularization) Act 1956 i.e. SCRA, the same were not applicable for non listed companies. The SEBI is applicable for only listed companies. As per para 6.3 “Here also assessee has shown purchase of 350000 shares of Wellpack Papers & Containers Ltd. for Rs. 1,00,07,296/- from MPSE Securities Ltd. on 15/03/2010. The contract note is produced. This was sold for Rs. 42,43,735/- and this amount is claimed as source of investment for purchase of shares of Ganesh Spinners”. The assessee has submitted all the documents, Share statements, contract notes, and all other documents related to Wellpack Paper & Containers Ltd., Ganesh Spinners and even Parag Shilpa Infrastructure Ltd. during the course of assessment proceedings. The assessee draw attention that entire loss were accepted by the department in the order passed U/s. 143(3). The assessee has already submitted copy of the assessment order with its earlier reply.

2. The physical share were got dematerialized with Karvey Stock broking Limited on 11/03/2013. As evidence for the same, the assessee has submitted letter requesting demat of physical shares certificates alongwith acknowledge– ment of receipt of shares from Karvy Stock Broking Ltd. However, the company Swift IT Infrastructure was amalgamated with Parag Shilpa IT Infrastructure & Services Limited. Thereafter, the aforesaid share were transferred to MPSE Securities Limited from where the sales of shares were affected on 06/03/2014 onwards. The assessee has submitted the letter confirming deliver slip for shares transfer to “Mittal Share Brokers Pvt. Ltd.” alongwith statement of accounts of Karvey Stock Broking Ltd and transaction statement f MPSE Securities Ltd. These evidence were before the AO, during the course of assessment proceedings. The assessee had Client ID issued by MPSE Securities Limited, which clearly shows the assessee‟s name, address and bank details. The assessee has also submitted details of Client ID during the course of assessment proceedings. I find that these evidence have not been controverted and neither has the AO falsified these documents, or proved them non-genuine.

3. The assessee has sold the aforesaid shares for a total consideration of Rs. 2,84,34,115/- during the previous year relevant to Asstt. Year 2014-2015 and shown book profit at Rs. 2,79,05,115. The sale consideration was received through proper banking channel and are duly recorded in the books of accounts of the assessee. Since the period of holdingof the shares is more than one year (purchased on 16.3.2012 and sold on 6.3.2014), the capital gain transaction were longterm capital of the assessee and exempt u/s. 10(38) of the Income Tax Act, 1961. The assessee has already submitted chart of capital gain working and profit on sale of shares account during the course of appellate proceedings. All the transactions of sale/purchase of shares were made through banking channel and duly reflected in the books of account of the assessee. I find that these evidence have not been controverted and neither have the AO falsified these documents, or proved them non-genuine.

4. The A.O. has alleged that the assessee has indulged in the merger method for obtaining high valume of shares, and sale thereof. I find this allegation quite glaringly untrue. That the shares of Swift IT Infrastructure and Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 Services Ltd. was merged with some other companies was an independent event and the assessee‟s hand in this merger was not found, and hence the question of indulgences did not arise. In the case of assessee, the sale of the shares (renamed as Parag Shilpa by the order of Bombay High Court) was through Bombay Exchange and not to any shell company as stated in the assessment order. After examining all the documents in the present case, there is found no involvement of any shell companies in the case of assessee. The entire trading was made through Bombay Stock Exchange, and the company Parag Shilpa is still an active company in the records of ROC.

8. So far as statement two persons recorded by the Investigation Wing are concerned, the assesse has himself stated in the statement recorded by the Investigation Wing, Nagpur/AO that he was not acquainted with Shri Praveen Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 Agarwal or Shri Devesh Upadhyaya and was not aware on their business dealings. The assessee has categorically denied knowing any of the family members of Shri Praveen Kumar Agarwal and Shri Devesh Upadhyaya as mentioned in the statement recorded on various dates. The assessee also had no dealing with the companies in which Shri Praveen Agarwal and Shri Devesh Upadhyaya were the Directors. During the course of statement recorded by DDIT (Investigation) Kolkata, Shri Praveen Kumar Agarwal and Shri Devesh Upadhyaya had accepted the list of companies formed by them for providing accommodation entry. The assessee has categorically stated that in the aforesaid list of companies there is neither the name of assesse nor the name of company “Parag Shilpa Infrastructure Ltd.” in which assessee had invested in shares. Similarly, the assesse had no connection with Shri Jagdish Prasad Purohit and was unaware of his business operations. The assessee also drew attention to the fact that Shri Praveen Kumar Agarwal and the other two named persons had themselves stated during the course of investigation that few of their listed companies were genuine companies. Since in these listed o companies as mentioned in their statements, there is neither the mention of the name of the assessee nor the name of company “Parag Shilpa Infrastructure Ltd.” in which assessee has invested, there is no justification for relying on such statements recorded by the Investigation Wing, Kolkata to make the impugned addition. I find that the AO has not brought in direct evidences to show that the two/three above named persons were connected with business dealings with the assessee in any way. I also find that such reliance on statements of unrelated third parties that did not contain direct accusations against the assessee, makes the addition untenable and unsustainable. It is settled law that the third party statement is not binding and cannot be used against the assessee unless and until the same were confronted to the assessee and opportunity to cross examine has been granted to the assessee.

Since the learned CIT(A) decided the aforesaid issue in favour of the assessee, the Revenue being aggrieved filed appeal before the Tribunal.

33 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 Ground no. I(i) to (xxiv)

8. The learned Departmental Representative assailing the impugned order passed by the learned CIT(A), vehemently argued on the issue while supporting the assessment order passed by the Assessing Officer. The learned Departmental Representative seriously objected to the contents of the impugned order passed by the learned CIT(A) and prayed that the assessment order passed by the Assessing Officer be upheld.

9. The learned Counsel for the assessee while reiterating the submissions made before the authorities below, strongly relied on the impugned order passed by the learned CIT(A).

35 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 Keeping in view the overall facts and circumstances of the case and legal matrix of the case, we are thus in agreement with the learned Counsel for the assessee that the issue for our adjudication is covered from the following case laws:– i) PCIT v/s Indravadan Jain (HUF), of 2018, judgment dated 12/07/2023 (Bom.); ii) PCIT v/s Kishore Kumar Mohapatra, of 2022, judgment dated 09/02/2022 (Cuttack); iii) PCIT v/s Divyaben Prafulchandra Parmar, ITA no.812 of 2023, judgment dated 02/01/2023 (Guj.); and iv) Chirag Tejprakash Dangi v/s ITO, ITA no.3256/Mum./2022, order darted 22/02/2024 (Mum.Trib.).

37 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15

Ground no. II

, the appellant has challenged the addition of Rs. 15,75,789/- by working out the disallowable expenditure under section 14A of Income Tax Act 1961 r.w. Rule 8D of Income Tax Rules, 1962. The A.O. has discussed the addition in Para-12 of the assessment order. 7.1 The facts in brief leading to the dispute are that the assessee has made investment in share amount to Rs. 20,61,59,037/-. The assessee has borrowed fund of Rs. 12,89,09,181/- and on which interest amounting to Rs. 17,07,742/- has been paid. The assessee has received dividend amounting to Rs. 48,899/- which was claimed exempt u/s. 10(34) of the Act and claimed expenditure at Rs. 15,75,789/- in the return of income. The assessing officer has made disallowances u/s. 14A at Rs. 15,75,789/- through according to the assessee, he is not liable for the same. 7.2 The Balance Sheet of the assessee was examined. The assessee has made investment in shares amount to Rs. 20.61 crore and same were duly reflected in the books of account and also shown in the Balance Sheet as investment. The assessee had own capital is at Rs. 30.84 crore, as well as loans at Rs. 12.89 crore out of which loan amount of Rs. 11.70 crore was interest free loan. Thus the assesse had available with him a total sum of Rs. 42.54 crores as interest-free fund which is more than the investment made in tax free securities i.e. Rs. 20.61 crore. The assessee also possessed excess interest free fund at Rs. 21.93 crore which was sufficient to make such investments. Hence, the assessee has claimed interest expenses at Rs. 17,07,743/- only. Further examination of the interest paid show that the assessee paid interest to LIC at Rs. 14,86,720/-, interest on vehicle loan at Rs. 2,19,536/- and bank commission and charges at Rs. 1,486/- and same were duly reflected in the books of account of the assessee and also shown in the Profit & Loss Account of the assessee. It is clear therefore, that the interest expenses claimed were not related to funds that were invested in shares and securities. It is also obvious that since his own funds/capital available was Rs. 30.84 crore, these were utilized in making investment in tax free securities. Any disallowance under section 14A required finding of incurring of expenditure. Where it is found that for earning exempted income, no expenditure has been incurred, disallowance under s. 14A cannot stand. This is the ratio of the decision of High Court of Punjab & Haryana (2013) 361 ITR 0131 (P&H HC) in the case of Commissioner of Income Tax –Vs.- Deepak Mittal. 7.3 The AR has also argued that the assessee has own funds more than the average investment yielding exempt income, and when the same is considered, the position of law is settled by decision of Hon. High Court Gujarat in PCIT Vs. Sintex Industries Ltd.

82. Taxmann.com 428, which is confirmed by Hon. SC. The Hon. High Court is Sintex Industries Ltd. (supra), has held that, where assessee is having interest free own surplus funds which is more than average investment, there was no question making any disallowances of expenditure in respect of interest and administrative expenses under section 14A, and hence, there was no question of estimation of expenditure in respect of interest & administrative expenses under Rule 8D of the Rules. The SLP filed by I.T. Department against this decision was dismissed vide order dtd. 23.03.2018,

93. Taxmann.com

24. (SC). In instant assessee‟s case too thee are no interest bearing borrowed funds which were 40 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 used for making investment and the total of own funds is more than the average investment yielding exempt income. The above decisions of the High Court & Hon‟ble Supreme Court are squarely applicable and have binding precedents. 7.4 It can be seen that, same view has been taken by the jurisdictional High Court of Bombay.Once the surplus/interest free funds are excess of investment made, then in view of the ratio and principle laid down by Hon‟ble Bombay High Court in Reliance Utilities (2009) 313 ITR 340 (Bom) and HDFC Bank (2014) 366 ITR 505 (Bom) as relied upon by the Ld. Counsel, no disallowance under section 14A on account of interest expenditure should be made. Their Lordships have clearly opined that, once in the Balance Sheet, the assessee has reflected surplus/own funds and also interest bearing funds, then presumption is that, investments must have been made out of interest free funds only and once that is so, then no disallowance of interest should be made.”