COMMISSIONER OF INCOME TAX vs. VIRGIN SECURITIES & CREDITS PVT. LTD.

Whether Reporters of Local newspapers may be allowed to see the Judgment? 2. To be referred to the Reporter or not? 3. Whether the Judgment should be reported in the Digest?

Following two additions, inter alia, were made by the Assessing Officer (AO) while completing the assessment of the respondent assessee herein, which pertains to the Assessment Year 2002-03: (i) Addition of `55,56,620 by disallowing the loss claimed by the assessee on account of sale of shares of M/s. Doogar & Associates (Pvt.) Ltd. (hereinafter referred to as ‘Doogar’); and (ii) Addition of `9,13,081 on account of expenses debited to Profit and Loss account under Section 41(1) of the Income Tax Act (‘the Act’ for brevity).

Insofar as first addition is concerned, the assessee had shown in Profit & Loss account the decrease/increase in stock of shares `2,02,19,778. It was explained by the assessee before the AO that opening share stocks of Doogar was 20,35,000 and purchased the same @ `10 per share and the same was sold @ `2.23 per share on 30.03.2002. The assessee filed a copy of HDFC bank’s depository services statement to support the sale of shares. The AO found that the said bank statement showed the sale rate of the shares @ `3.35 instead of `2.23 paise per share as disclosed by the assessee. On being asked to give explanation about the discrepancies, the assessee vide letter dated 14.02.2005 had explained that the said 20,35,000 shares were sold @ `2.23 paise per share, which was as per the prevailing rate in Bombay Stock Exchange (BSE) on the date of transaction, i.e. 22.03.2002. It was also explained that the rate of `3.35 per share mentioned in the bank statement was the rate as per the DEMAT statement of HDFC bank, which takes the transaction rate of that particular script prevailing at the end of the month in which transaction took place. Since no other documents were furnished in support of this plea, the AO adopted the sale rate of `3.35 paise per share and on that basis concluded the loss thereby allowing the loss for sale of shares @ `1,58,13,028 instead of `2,02,19,778 claimed by the assessee and disallowing the balance of `55,56,628.

Insofar as disallowing of the expenses are concerned, the Assessing Officer was of the view that the expenses claimed were excessive in nature. The expenses were on account of travelling and conveyance, postage and telegram, telephone, salary and

Before the CIT (A), the assessee had produced requisite material, though for the first time justifying both the claims. The CIT (A) called for remand report from the AO and thereafter deleted the addition, inter alia, observing that the AO, in his remand report, has not specifically commented upon the additional evidence submitted by the assessee. The additional evidence which was submitted by the assessee was in the form contract note from

Insofar as the claim of expenses of `9,40,782, the CIT (A) was of the opinion that there was no bar in outsourcing a part of administrative work to a sister concern and reimbursing the said concern with the expended amount. Since the employees were in the pay rolls of the service provider, the liability to pay PF and other dues rests squarely on the provider, viz., M/s Goyal M.G. Gases Pvt. Ltd. and therefore, the AO was not right in disallowing the expenses on extraneous ground that the assessee had not produced employees register or had not shown that the TDS was not deducted.

The Income Tax Appellate Tribunal (hereinafter referred to as ‘the Tribunal’) dismissed the appeal of the Revenue preferred against the order of the CIT (A). This is how the Revenue is in appeal before us under Section 260A of the Act.

Insofar as the issue relating to the extent of losses for the sales of shares is concerned, the main contention is that the CIT (A) erred

The aforesaid contention appears to be devoid of any merit. It is a matter of record that before admitting the additional evidence, the CIT (A) had obtained remand report from the AO. While submitting his report, the AO had not objected to the admission of the additional evidence, but had merely reiterated the contentions in the assessment orders. It is only after considering the remand report, the CIT (A) had admitted the additional evidence. It cannot be disputed that this additional evidence was crucial to the disposal of the appeal and had a direct bearing on the quantum of claim made by the assessee. Plea of the assessee which was taken before the AO remains the same. The AO had taken adverse note because of non-production of certain documents to

We may also note at this stage that Ms. Prem Lata Bansal, learned counsel appearing for the Revenue, had sought to contend that the sale of shares in fact had taken place on 22.03.2002, which was stated by the assessee itself before the AO. However, as per the additional evidence filed by the assessee, the date of sale of share was shown as 20.03.2002. This anomaly was not thrashed out by the CIT (A) or by the Tribunal, was the contention of the learned counsel which, according to her, amounted to an error of orders. We are not inclined to accept this submission as well.

Before the CIT (A) it was submitted that the shares sold by the assessee were identifiable, i.e., shares which were held in DEMAT form and, therefore, the gain/loss had to be worked out with reference to the sale of such shares only. It was pointed out that the shares were sold on 20.03.2002 at the price ruling on the stock exchange on that date, i.e., @ `2.23 per share. Once the shares are identifiable, the date of sale of which is 20.03.2002, merely because by mistake the assessee mentioning the date of 22.03.2002, would not mean that the assessee was precluded from showing that that was an error and documentary evidence

Therefore, no question of law arises in this regard as well.

Coming to the second issue relating to allowing the expenses of `9,40,782 debited by the assessee to the Profit and Loss Account incurred by M/s. Goyal M.G. Gases Pvt. Ltd., again we find that the finding of fact is recorded that the work was outsourced to the sister concern and the expenses for undertaking that the work was allocated, in proportionate to the assessee. The only contention raised by the learned counsel for the appellant is that the assessee had not offered any explanation as to on which basis this expenditure had been allocated and the burden was on the assessee to prove the same and further that the assessee had not explained as to what services had been rendered by M/s. Goyal M.G. Gases Pvt. Ltd. We find from the order of the CIT (A) that the assessee had furnished an explanation, which was found to be satisfactory by the CIT (A) and the same is as under:

The CIT (A) as well as the Tribunal were not persuaded by the aforesaid explanation and accepting the same recorded finding of fact. Hence, no question of law arises. This appeal is bereft of any merit. We accordingly dismiss this appeal.