VINOD KHIMJI DEDHIA,MUMBAI vs. ITO 13(2)-3, MUMBAI

This appeal by the assessee is directed against the order of the CIT(A)- 24, Mumbai dated 01.11.2013 for A.Y. 2003-04.

Shri Vinod Khimji Dedhia 2.2.2 Aggrieved by the order of assessment for A.Y. 2003-04 dated 16.12.2010 passed under section 143(3) r.w.s. 254 of the Act, the assessee preferred an appeal before the CIT(A)-24, Mumbai. The learned CIT(A) disposed off the assessee’s appeal vide the impugned order dated 01.11.2013, wherein, inter alia, the learned CIT(A) upheld the AO’s action in assessing the income of `15,03,799/- as assessee’s undisclosed income from other sources.

In the Facts, Circumstances and in Law the CIT(A)-XXIV of Income Tax eared in confirming the assessing officer's order and also confirmed additions of Rs. 15,03,799/- made U/s. 68 of the Income Tax Act 1961 by the Assessing officer Wd.13(2) (3) Your appellant submits that the CIT(A)-XXIV failed to appreciate and consider the (a) Grounds of Appeal, (b). Additional Grounds of appeal and (c). Written submissions moved, wherein all the factual situation has been submitted namely all the evidences in respect of the receipt of the Speculation profit, confirmation of the Broker, Bank Statement and all the other relevant papers and evidences in respect of the subject matter of the appeal. Your appellant submits that the actual application of provision of Section 68 is erroneous and irrelevant and hence the conclusion arrived by the CIT Appeal as well as the assessing officer is incorrect and hence the same is deserved to be deleted. In the facts and circumstances of your appellant's case your appellant submits that the said additions confirmed with regard to the Sec. 68 in the total income of your appellant to the extent of Rs. 15,03,799/- may please be deleted in full. Your appellant craves leave to add, to amend and / or to alter the Grounds of Appeal.”

4. The hearings in this case were fixed on many occasions but they were adjourned as either none was present on behalf of the assessee or since the assessee sought adjournments of hearing. On one occasion the Bench did not function, the case was adjourned through intimation on the Notice Board. On 20.09.2016 when the case was called for hearing, again none was present to represent the assessee but the learned D.R. for Revenue was present and prepared to present Revenue’s case. In these circumstances, we are of the view that the assessee is not interested in Shri Vinod Khimji Dedhia pursuing this appeal seriously and therefore proceed to dispose off the same with the assistance of the learned D.R. for Revenue and the material on record. 4.1 According to the learned D.R. for Revenue, the crux of grounds of appeal raised by the assessee is that the learned CIT(A) erred in upholding the AO’s order by confirming that `15,03,799/-, which was shown as speculation profit by the assessee, was to be brought to tax in the assessee’s hands under section 68 of the Act without taking into account the submissions and details failed by the assessee in this regard. It was submitted that all submissions/details put forth by the assessee, including the additional grounds raised in this regard by the assessee before the learned CIT(A) had been duly considered by the learned CIT(A) before rendering his decision in the impugned order. The learned D.R. contends that the facts on record clearly indicate, as held by the learned CIT(A), that the assessee had not earned any speculation profits but had merely laundered his undisclosed income of `15,03,799/- for speculation profits by entering into dubious transactions with M/s. Falgun Finvest, Mumbai in order to set off the same against brought forward unabsorbed speculation losses. 4.2 In respect of the additional grounds raised before the learned CIT(A) and also referred to in the grounds raised in this appeal (supra), the learned D.R. for Revenue submitted that the assessee’s contentions/ allegations that he was not afforded proper opportunity to cross examine Sri Niraj Sanghvi and that Shri Sanghvi’s statement being given only to save his skin and therefore the statement of Shri Niraj Sanghvi should not be relied on has also been addressed by the learned CIT(A) at para 4.5.3 of the impugned order and were rightly rejected. The learned D.R. prayed that in the factual matrix of the case, as laid out above, and also since the assessee has failed to bring on record any material evidence to controvert the findings of the authorities below, the impugned order of the learned CIT(A) be upheld.

Shri Vinod Khimji Dedhia 4.3.1 We have heard the learned D.R. for Revenue and perused and carefully considered the material on record. The issue before us in this appeal is in respect of the learned CIT(A) upholding the AO’s order in holding that `15,03,799/- shown as speculation profit was to be brought to tax in the assessee’s hands as income from undisclosed sources. It would be in the fitness of things, at this stage, to extract hereunder the relevant portion of the order of assessment under section 143(3) r.w.s. 254 of the Act for A.Y. 2003-04 dated 16.12.2010 in respect of the manner in which this issue at para 5 thereof: - “5. In order to give effect to the said order of the Hon'ble I.T.A.T, notices U/s. 143(2) / 142(1) were issued on 08/09/2009 and duly served on the assessee. Further notice U/s. 142(1) was issued to the assessee on 18/11/2010 requesting to produce necessary evidence in connection with the share transactions like original contracts and demat statements, proof of amount received by cheque including Bank statement along with the Books of Accounts. In response to the same, the assessee’s representative submitted that, the said details have been already furnished to your office. It was further requested to provide the copy of statement on oath U/s. 131 of the I.T. Act of Mr. Niraj Sanghvi made before the A.D.I.T (Inv) Unit IX(2) on 07/03/2006. Accordingly, the assessee vide this office letter dated 08/12/2010 was provided with the copy of statement of Mr. Niraj Sanghvi made before the A.D.I.T. (Inv) and also the copy of submission dated 22/03/2006 filed by Mrs. Charu Sanghvi Prop. MIs. Falgun Finvest. Thereafter, summons U/s. 131 of the I.T. Act dated 08/12/2010 was issued to Mr. Niraj Sanghvi asking him to attend this office on 15/12/2010 at 3.00 p.m. and to allow himself to cross examine to Mr. - I Vinod K. Dedhia. Accordingly, the following statement of Mr. Niraj Sanghvi, individual as well as authorized representative of Mrs. Charu Sanghvi, Prop. Falgun Finvest was recorded. Q.1. Please identify yourself and confirm that, oath has been administered to you and you have been made aware of the consequences for giving false statement on oath. Ans. I am Niraj H. Sanghvi, aged 36 year, residing at J/103, Vardhaman Nagar, Dr. R.P.Road, Mulund (West), Mumbai - 80. Presently, 1 am working as a Director of. Equilink Capital Management Services Ltd., Office No. 20, Khatau Building, 44, Bank Street, Fort, Mumbai - 400 023. I further confirm that, oath has been administered to me and made aware of the consequences for giving false statement on oath. Q 2. Please produce your Authority letter and the details/ information called for vide notice U/s. 131 dated 2/12/2010 and 13/12/2010.

Shri Vinod Khimji Dedhia Ans. I am the husband and Authorized Representative of Mrs. Charu N. Sanghvi. I am producing here with the authority letter and the details called for have been submitted in your office on 13/12/2010 which may please be taken on record. Q3. I am showing you the statement given by yourself on 07/03/2006 before the A.D.I.T.,(Inv), Unit D 2, Mumbai. Please go through the statement and confirm the same. Ans. Yes. I do confirm the same. Q 4. I am further showing you the submission dated 22/03/2006 filed by M/s. Falgun Finvest during the course of assessment proceedings for A.Y. 2003-04 wherein it is submitted that, the transactions which were done through me with Mr. V.K.Dedhia are not chanlised through main broker, Ventura Securities Ltd and the said transactions are merely an adjustment as per requirement of said Mr. V.K.Dedhia as he is intending to show some profits in his regular income tax return. Ans. I confirm that, the said transactions have not been routed through any of the Authorised Exchange or Brokers. Q 5. Do you want to say anything else? Ans. No. Please. Whatever stated above is true to the best of my knowledge and belief. I have gone through the statement and I confirm that, the statement is recorded correctly without any favour coercion or undue influence. Thereafter, Mr. T.S. Gada, CA, Authorised representative of the assessee was allowed to cross examine Mr. Niraj Sanghvi the extract, of the statement is as under. Q.1. Do you confirm the copy of accounts and transaction and information given by you in your letter dated 13/12/2010. Ans. Yes. Q.2. Do you confirm that, all transactions are in ordinary course of business? Ans. Yes. In view of the forgoing it is crystal clear that, the alleged transaction of sale of shares claimed by the assessee is only a paper transaction designed to evade payment of tax on legitimately due from him. There is no truth in the sale transaction claimed by the assessee as per the submission made by the sub broker M/s. Falgun Finvest during the original assessment proceedings vide letter dated 22/03/2006 and also confirmed by the Authorized representative as above. There is also no truth in the claim that, the amount of Rs. 15,03,799/ was received on purchase / sale of share i.e. speculation profit. Therefore, the amount claimed by the assessee as accruing out Shri Vinod Khimji Dedhia of the share transaction is in reality nothing but self owned unaccounted fund laundered by the assessee. Under the circumstances, the said amount of Rs. 15,03,799/- is treated as undisclosed source of the assessee U/s. 68 of the l.T. Act.” 4.3.2 In the impugned order, the learned CIT(A), after considering the submissions of the assessee and additional grounds raised, has confirmed the order of the AO in bringing to tax the amount of `15,03,799/- as undisclosed income in the assessee’s hands holding as under at paras 4.3 and 4.4 and 4.5.1 to 4.5.4 thereof: - “4.3 Decision:- I have considered the facts of the case and the submissions made by the assessee. 4.3.1 Assessee's advocate, M/s Kshatriya & Co. vide letter dated 12/12/2012 have filed additional grounds of appeal numbered as 1.1 to 1.7 which are as follows and have submitted that "the additions made on account of sec. 68 in the total income to the extent of Rs. 15,03,799/- be deleted in full as the provisions laid down in the said section are not applicable. 4.3.2 Crux of the original grounds of appeal including the statement of facts and the additional grounds of appeal is that Assessing Officer erred making additions of Rs. 15,03,799/- to the total income u/s. 68 of I.T. Act, 1961 which is not applicable to the facts of the case and has requested for deletion of the same. 4.3.3 Assessee's advocates, M/s. Kshatriya & Co. has filed letters dated 18/09/2013, 12/12/2012 and 09/03/2012 enclosing details and documents and assessee has also furnished his explanations in the form of statement of facts and grounds of appeal and these are taken in consideration while deciding the appeal. 4.3.4 The facts in nutshell emerging from the grounds of assessment order, grounds of appeal and assessee's/advocate's submissions that (1) assessee had available with him unabsorbed speculation loss of Rs. 15,03,798/- at the beginning of the year and the same is claimed to have been set off against the speculation income of Rs. 15,03,798/- by the assessee, (2) assessee started entering into speculative transactions of purchase and sale of shares on 23/10/2002 and last transaction took place on 21/01/2003, (3) by and large assessee has continuously made profits except a marginal loss in these transactions, (4) assessee did not deposit any moneys as advance and/or deposit with the broker Falgun Finvest, Mumbai before or after entering any of the transactions, (5) the broker did not pay any security transaction tax even though the value of total transactions ran into lakhs of rupees entered into by the assessee, (6) assessee stopped making these speculative transactions after reaching a figure of Rs. 15,03,798/- on 21/01/2003 and did not enter into a single Shri Vinod Khimji Dedhia speculative transaction after 21/01/2003, (7) entries in the pass book of Falgun Finvest, Mumbai indicate credits of several lakhs of rupees from four current accounts maintained in the same branch of the bank before issue of payment cheques to assessee and other parties, (8) assessee has traded in speculation activity only on three days in October 2002, three days in November 2002 and five days in January 2003 and has not carried on any speculative activity on other days in these months and also prior to and later than this four months period, (9) assessee has traded both ways while entering into speculative transactions in different shares of several companies on the same A day, that is, he has sold shares first and purchased later on in the evening and simultaneously purchased shares of some companies first and sold them later in the evening/afternoon and that also in odd lots and purchase and sales taking place within seconds and/or minutes, (10) assessee has earned a profit of only Rs. 1,55,676/- in his regular business of packing material business on a turnover of Rs. 30,21,440/- and Rs. 1,37,490/- by way of share of profit from firms and Rs. 13,822/- as income from other sources. 4.3.5 An analysis of these transactions reveals that assessee was some kind of a wizard in dealing in shares in share markets having in depth knowledge of several blue chip companies like Infoways, Digital, MERCK, ACC, CMC, IFLEX, etc. and traded in them with the finesse of market player which gave him huge speculation profits of Rs. 15,03,798/-. Then the next question that arises is why should the assessee who had so much expertise in earning speculation profits in shares and had earned profits continuously in only nine sessions of trading on nine days abandon the same and revert back to normal business activity especially when he had a winning streak and was not even making losses? This is the odd part of the speculation activity claimed to have been carried out by the assessee. Assessee could have earned little more by carrying on the same activity for the balance two and a half months of the same financial year to earn something more where he was not even required to deposit with the sub broker and without paying any statutory security transaction tax as done in other transactions. But that was not done. It may be mentioned here that assessee has not recorded any of these transactions in his books of account and has not got his accounts audited even though assessee claims to have carried out speculation business activity and the total turnover in this business of speculating in shares along with other normal business activity of packing exceeded the statutory limit of Rs. 40,00,000/- prescribed in section 44AB of I.T. Act, 1961. When the facts of the case are juxtaposed with other incidental facts like the nature of business activity carried on by the assessee with the sub broker Falgun Finvest which had admitted that "it was engaged in the business of giving hawala entries for a fee and had closed its business after March 2003”, it dearly leads me to a conclusion that assessee had exchanged his undisclosed income through sub broker Falgun Finvest, Mumbai for "speculation income/profits in shares". It may be mentioned here that Mr. Niraj Shri Vinod Khimji Dedhia Sanghavi husband of Charu N. Sanghvi proprietor of Falgun Finvest, Mumbai was a power of attorney holder of Charu N. Sanghavi and thus had all the authority to furnish all details about the business activity of his wife who had given him the power of attorney and therefore all the statements given by Mr. Niraj Sanghvi as power of attorney holder of Charu N. Sanghavi, proprietor of Falgun Finvest are valid and legally binding statements. It is also worth mentioning here that ITAT, Mumbai in paragraph 8 of its order dated 09/03/2009 has very clearly directed the Assessing Officer to give an opportunity to the assessee to cross examine Mr. Niraj Sanghvi whose statement was heavily relied upon by the Assessing Officer and to submit any additional evidence to justify his (assessee's) claim. And this opportunity was given by the Assessing Officer to the assessee on 15/12/2010 and assessee's Authorized Representative Mr. T. S. Gada - CA availed of the opportunity on 15/12/2010 and cross examined Mr. Niraj Sanghavi on 15/12/2010. 4.3.6 M/s. Falgun Finvest in his letter dated 13/12/2010 had confirmed that "it had issued Bills to Mr. Vinod K. Dedhia in respect of certain transactions which took place in the financial year 2002-03 and these transactions were done through 'off market transaction' and were not routed through the main broker Ventura Securities Ltd. 4.3.7 All these facts clearly indicate that assessee had not earned any speculation profits but had merely exchanged his undisclosed income of Rs. 15,03,799/- for speculation profits by entering in dubious transactions with M/s. Falgun Finvest, Mumbai to avail off its set off against the brought forward unabsorbed speculation losses of Rs. 15,30,016/- and, therefore, action of the Assessing Officer in assessing the income of Rs. 15,03,799/- as income from other sources is confirmed and assessee's appeal is rejected on this ground. However, assessee is entitled to carry forward this speculation loss of Rs. 15,03,799/- to next assessment year as per law and its set off may be allowed for later assessment years subject to fulfillment of other conditions as per law. 4.4 Decision on Additional Grounds:- …………. 4.5.1 Crux of ground numbers 1.1 to 1.6 and renumbered ground 1.5 deal with the issue of application of section 68 of I.T. Act, 1961 while making additions of Rs. 15,03,799/- as income from undisclosed sources and has been submitted that these transactions are merely reflected in the bank pass book and computation of total income and, therefore, provisions of section 68 of I.T. Act, 1961 are not applicable to the facts of the assessee's case. Prima facie the submissions of the assessee appear to be correct and provisions of section are not applicable to assessee's case and correct provisions of law applicable are section 69 of I.T. Act, 1961. In any case, not applying the correct section does not vitiate the proceedings or addition, if the substance is in conformity or according to the intent and purpose of the Act.

Shri Vinod Khimji Dedhia Therefore, the additional ground raised by the assessee is dismissed. 45.2 Crux of the argument is that (1) actual opportunity to examine Mrs. Charu N. Sanghvi proprietor of Falgun Finvest was not given, (2) evidence of Falgun Finvest is not an evidence against the assessee but evidence given to save their own skin and (3) reliance should be placed on the primary evidence furnished by the assessee and not the secondary evidence furnished by the sub broker Falgun Finvest, Mumbai. These grounds of appeal are dealt with in following paragraphs: 4.5.3 Assessing Officer in the original assessment had relied on the statement furnished by Mr. Niraj Sanghavi husband of Charu N. Sanghavi proprietor of Falgun Finvest, Mumbai and ITAT, Mumbai in para 8 of its order dated 09/03/2009 had specifically dealt with and directed that an opportunity be provided to assessee to examine Mr. Niraj Sanghvi husband of Charu N. Sanghvi proprietor of Falgun Finvest and, therefore, these directions have been followed by the Assessing Officer and an opportunity to cross examine has been given to the assessee and availed of by the assessee's CA on 15/12/2010. Therefore, AO's action in following ITAT's directions in the assessment order is fully justified and upheld. Moreover, paragraphs 5.4 and 5.5 mainly highlight the primary evidence of the transactions entered into by the assessee and the treatments given by the assessee in his accounts, pass book and computation of total income on these basic details and documents furnished by the assessee and only partial reliance is placed on the secondary evidence of statement and transactions of Falgun Finvest, Mumbai to substantiate the main evidence of the transactions entered into by the assessee and other relevant factors like setting off of unabsorbed speculation loss to arrive at and draw conclusions. Therefore, the submissions made in ground of appeal 1.7 of additional grounds are also taken into consideration while deciding the appeal. In short, assessee's appeal is rejected on all the seven grounds 1.1 to 1.7 and another ground renumbered as 1.5 are rejected and Assessing Officer's action is upheld. 4.5.4 In nutshell, assessee's appeal in respect of ground numbers 1.1 to 1.5 of the original appeal memo and ground numbers 1.1 to 1.7 and renumbered/repeated ground 1,5 are dismissed and rejected.” 4.3.3 From an appreciation of the orders of the authorities below (as extracted supra) and the material on record, it is seen that the learned CIT(A) has comprehensively considered the grounds raised and contentions put forth by the assessee in the impugned order. The sum and substance of the issue in the grounds raised before us is that the learned CIT(A) erred in confirming the AO’s action in bringing to tax in the assessee’s hands as Shri Vinod Khimji Dedhia undisclosed income of `15,03,799/-, which the assessee claimed were speculation profits. Briefly, the assessee’s claim was that the assessee had unabsorbed speculation loss of `15,03,799/-, which is claimed to have been set off against speculation income of `15.03,799/- by the assessee arising from speculative transactions of purchase and sale of shares from 23.10.2002 to 21.01.2003 in only nine sessions of trading, on nine days through sub-broker M/s Falgun Finvest, Mumbai. The learned CIT(A), on examination of the details thereof, observed that the assessee had not recorded any of the these transactions in his books of accounts; had not made any deposit with the sub-broker and not paid security transaction tax, had not got his accounts audited even though the turnover in this ‘speculation’ business activity was in excess of `40,00,000/- as required under section 44AB of the Act. 4.3.4 The learned CIT(A) further observed that the sub-broker M/s. Falgun Finvest, with whom the assessee entered into these alleged speculative transactions, admitted that it was engaged in the business of giving havala entries for a fee and concluded that in view of the facts on record, it is clear that the assessee laundered his undisclosed income through this sub-broker M/s. Falgun Finvest as speculation profit/income in shares. That Shri Niraj Sanghvi, husband and POA holder of his wife Smt. Charu Sanghvi, Prop. Falgun Finvest admitted to the same, both in his statement dated 07.03.2006 before the ADIT (Inv), Unit D-2, Mumbai and also in his statement before the AO on 15.12.2010 and confirmed the same when confronted in cross examination by the assessee’s A.R. Shri T.S. Gada, CA, is a fact on record that has not been controverted by the assessee. The copy of Shri Niraj Sanghvi’s statement sated 07.03.2006 given before the ADIT (Inv) relied on by the AO in the first round of assessment and opportunity to cross examination of Shri Niraj Sanghvi on 15.12.2010 were both duly given to the assessee as per the directions of the Coordinate Bench of this Tribunal in its order dated 09.03.2009 in the assessee’s case. We find that the learned CIT(A) observed that M/s. Falgun Finvest in letter dated 13.12.2010 has confirmed that it had issued bills to the assessee in respect of certain transactions that took place in Financial year