M/S MANOJ KUMAR DAMANI,KOLKATA vs. ACIT(IT), CIR-44, KOLKATA, KOLKATA

Assessment Year: 2008-09 M/s. Manoj Kumar Damani.……………………..……………………………………………….…..Appellant 11B, Kalakar Street Kolkata – 700 007 [PAN : ADTPD 8356 N ] ACIT, Circle-44,Kolkata………..…………………………………………....Respondent Appearances by: Shri Rakesh Jain, AR, appeared on behalf of the assessee. Shri Saurabh Kumar, Addl. CIT, appearing on behalf of the Revenue. Date of concluding the hearing : March 28th, 2018 Date of pronouncing the order : May 23rd , 2018 ORDER Per Dr. A.L. Saini, AM :-

By way of this appeal, the assessee/appellant has challenged the correctness of the order dated 3rd October, 2016, passed by the ld. Commissioner of Income Tax (Appeals)-13, Kolkata, in the matter of assessment u/s 143(3)/263 of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’), for the Assessment Year 2008- 09.

1.That in the facts and circumstances of the case,the Ld. Commissioner of Income Tax (Appeals)-13, Kolkata, erred in confirming the disallowance made by the ld. Assessing Officer on loss in F & O amounting to Rs.45,32,817/- which is bad in law and on facts. 2.That in the facts and circumstances of the case, the Ld. Commissioner of Income Tax (Appeals)-13, Kolkata erred in confirming the addition made by the ld. Assessing Officer for a sum of Rs.8,88,000/- towards salary which is bad in law and on facts. 3.That in the facts and circumstances of the case, the Ld. Commissioner of the Income Tax (Appeals)-13, Kolkata erred in confirming the disallowance made by the ld. Assessing Officer on account of consultancy charges amounting to Rs.12,36,500/- which is bad in law and on facts. 4.That in the facts and circumstances of the case, the Ld. Commissioner of the Income Tax (Appeals)-13, Kolkata erred in confirming the action of the ld.

Assessment Year: 2008-09 M/s. Manoj Kumar Damani Assessing Officer in not granting rebate claimed u/s 88E of the I.T. Act, 1961 amounting to Rs.12,75,452/- which is bad in law and on facts. 5.That in the facts and circumstances of the case, the appellant craves leave to add, alter, modify and/or submit further or more ground(s) of appeal either before or at any time during the hearing of the appeal.

3.The first ground raised by the assessee relates to disallowance made by the Assessing Officer on account of transactions done by assessee in Future and Option(F&O) segment, amounting to Rs.45,32,817/-

5.Aggrieved by the stand of the Assessing Officer, assessee carried the matter in appeal before the CIT(A) but without any success. The assessee is aggrieved, and is in further appeal before this Tribunal.

6.The Learned counsel for the assessee begins by pointing out that during the assessment proceedings, assessee has submitted all the contract notes, vouchers and other details to substantiate the transactions and all the transactions were settled through account payee cheques. The assessee also submitted before us the detail of the transactions with K. M. Damani Securities Pvt. Ltd. (PB 6 to 17). The assessee also submitted before us details of the transactions entered into by him with M/s Sunchan Securities Ltd and stated that these transactions were done through stock exchange. (PB 74 to 91). With help of these documents, the ld. Counsel for the assessee submitted before us that assessee has every kind of evidence in his possession and he does not have any control over Client Code Modification (CCM) and the broker (M/s Sunchan Securities Ltd) has not done CCM at the instance of the assessee. The fact that M/sSunchen Securities Ltd. is black listed by SEBI, does not mean that the transactions undertaken with him are bogus. Subsequent cancellation of registration of M/s. Sunchen Securities Ltd. does not impact the genuineness of the transactions of the assessee under consideration. The Counsel stated that the Department has accepted the nature of business of the assessee and on similar lines the assessment was completed u/s 143(3) of the Act, in the previous years and subsequent Assessment Years. The assessee has submitted the details of the purchase of shares, contract notes and other relevant

Assessment Year: 2008-09 M/s. Manoj Kumar Damani documents and the fact that all the transactions were carried out through banking channels, therefore, by no stretch of logic, the transactions of the assessee can be held as bogus.

8.We have given a careful consideration to the rival submissions and perused the material available on record. We note that the assessee under consideration has done the transaction through recognised stock exchange and produced before us the contract notes, details of the transactions, and details of payment through account payee cheques. We note that transactions have been carried out through proper banking channels/account payee cheques, through the existence of the brokers and stock exchangeand these facts were not disputed by the ld DR for the Revenue. In the assessee’s case, the Assessing Officer treated the transactions as bogus only on the basis that the broker,M/s. Sunchen Securities Ltd., has been blacklisted by SEBI and its registration was cancelled subsequently. The fact that the registration has been cancelled subsequently does not mean that the transactions are invalid. The assessee cannot be punished for the default of the brokers and therefore the share transactions cannot be held to be bogus. For this we rely on the judgement of the Co-ordinate Bench of the Kolkata Tribunal in the case of Rahul Vasisht vs. Income Tax Officer in Assessment Year 2005-06, order dated 20th November, 2009, wherein it was held as follows:- “8…..Further the fact that M/s. Ahilya Commercial Pvt. Ltd., through whom the shares are sold, has been barred from entering into transactions w.e.f. September, 2005 whereas these transactions entered by the assessee are entered much prior to the date of suspension of the share broker i.e. on 24.12.2004. Therefore, there is no reason to disbelieve this transaction….”

In addition to this, we also rely on the judgments of jurisdictional, Hon’ble Calcutta High Court in the case of Commissioner of Income-tax v. Emerald Commercial Ltd. [2002] 120 Taxman 282 (Calcutta), wherein it was held that where the details of purchase and sale of shares were furnished. The payment and receipt were by account payee cheque. The identity of seller and purchaser was not in dispute. The Assessment Year: 2008-09 M/s. Manoj Kumar Damani disallowance should not be made by assessing officer merely because the assessee failed to produce the brokers for verification of the transaction.

Based on the above facts and circumstances, we note that when purchase and sale of shares are supported by proper Contract Notes, deliveries of shares were received through demat accounts maintained with various agencies, the shares were purchased and sold through recognised broker and the sale considerations were received by Account Payee Cheques, hence the transactions cannot be treated as bogus. Therefore, we are of the view that addition made by the Assessing Officer and confirmed by the ld. CIT(A) needs to be deleted. Accordingly, we delete the addition made by the Assessing Officer and allow this ground of the assessee.

11.Ground No.2 raised by the assessee relates to an addition of Rs.8,88,000/-, on account of salary paid to specified persons u/s 40A(2)(b) of the Act.

Assessment Year: 2008-09 M/s. Manoj Kumar Damani NawneetBhattar and Rs.1,21,100/- to Smt. Lata Devi Bhattar, both of whom were specified persons u/s 40A(2)(b) of the Act. The Assessing Officer noted that the salary of Shri NawneetBhattar has increased by 300% over the year. During the assessment proceedings, the assessee submitted before the Assessing Officer that Shri NawneetBhattar, is a tax-payer and has filed his return of income.The assessee filed the details salary paid. The assessee also submitted a comparative statement of increase in salary of the staff before the Assessing Officer and stated that payments were made for services rendered by them, in their individual capacity for the business purpose. However, the Assessing Officer noted that the assessee has not filed any cogent reasons for making payment to persons staying in Surat. Since the assessee’s business has been found to be trading in shares with K. Damani Securities Pvt. Ltd., ICICI Brokerage Services Ltd. and Sunchen Securities Pvt. Ltd., therefore payments made to the above said persons in Surat was found to be irrelevant and without any reasonable cause of service rendered, therefore, the Assessing Officer disallowed Rs.8,88,000/-.

Assessment Year: 2008-09 M/s. Manoj Kumar Damani business. It is the assessee’s prerogative to decide how much salary is to be paid to the particular staff. The Department cannot sit on an arm chair and dictate the assessee what is reasonable expenditure and what in unreasonable expenditure. However, the Revenue has power to interfere only when the excess salary is paid to the specified persons u/s 40A(2)(b) i.e. in excess of the fair market value of goods and services and except to this, the Revenue does not have power to interfere in the assessee’s business to decide how much amount has to be paid to a particular person for his services. All the payments have been made by the assessee for commercial expediency and to run the business smoothly, therefore, these expenses are allowed u/s 37(1) of the Act. We note that the Assessing Officer has not disputed that these payments are bogus or fictitious and not paid to the concerned person. The only grievance of the Assessing Officer was that the assessee has paid excessive amount to some persons without their entitlements.We note that the Assessing Officer failed to bring any cogent evidence on record to show that salary payments made by the assessee is excessive as compared to the fair market value of services. The AO failed to bring on record the comparative fair market value of similar services from external market or from competitors of similar business to establish that payment of salary by the assessee is more than the fair market value of similar services in the open market. Hence, addition made by the assessing officer and confirmed by the ld CIT(A) needs to be deleted. Accordingly, we delete the addition of Rs.8,88,000/-

Assessment Year: 2008-09 M/s. Manoj Kumar Damani not be established by the assessee and, therefore, he added Rs.12,36,500/-, to the income of the assessee.

18.Aggrieved by the stand of the Assessing Officer, assessee carried the matter in appeal before the CIT(A) but without any success. The assessee is not satisfied and is in further appeal before this Tribunal.

19.The ld. Counsel for the assessee submitted before us that during the Assessment Year under consideration, the assessee has paid the consultancy fee amounting to Rs.12,36,500/-, to various persons for the purpose of his business. The persons to whom the consultancy fee paid, were having knowledge and expertise of the share market and they were helping the assessee in the share transactions. Therefore, the payment made to these persons towards consultancy fee are for the purpose of the business of the assessee and should be allowed u/s 37 (1) of the Act.

Assessment Year: 2008-09 M/s. Manoj Kumar Damani returns. We note that the Assessing Officer has failed to bring any cogent evidence to establish the fact that the consultancy fee paid by the assessee was not genuine, therefore, considering the factual position explained above, the addition needs to be deleted. Accordingly, we delete the addition of Rs.12,36,500/-.

Assessment Year: 2008-09 M/s. Manoj Kumar Damani debited in the profit and loss account and submitted the Form 10BB, therefore, the claim of the assessee by no stretch of imagination can be a false claim as the transaction were done through recognised stock exchange and payments were made through proper banking channels. The assessee has also produced before us the statement of computation of income wherein he has shown the total STT to the tune of Rs.61,22,142/-. We note that the Assessing Officer has disallowed the STT Rebate of the assessee based on conjectures and surmises without bringing any evidence on record that the assessee’s claim in respect of STT is not genuine. The assessee has submitted Form No. 10BB and all the transactions were carried through recognised stock exchanges and settled through proper banking channels, therefore, the claim of the assessee for STT u/s 88E of the Act, should be allowed.

Considering the factual position explained above, we are of the view that the disallowance made by the Assessing Officer u/s 88E of the Act, is not justified and, therefore, we delete the disallowance made by the Assessing Officer and direct the AO to provide the rebate u/s 88E of the Act, to the tuneof Rs.12,75,462/-, after due verification and in accordance with law. Therefore, we allow this ground of the assessee for statistical purposes.