M/S. NOPANY & SONS,KOLKATA vs ITO, WARD-56(4), KOLKATA, KOLKATA

Income Tax Appellate Tribunal, BENCH ‘B’ KOLKATA

Before: Hon’ble Shri N.V.Vasudevan, JM & Shri M.Balaganesh, AM ]

per share and 1,00,000 shares purchased from Sri B.K.Nopany @ Rs.137.07 per share). On the holding of 3,00,000 shares the Assessee received bonus shares on 7.7.2006 of 7,20,000 shares from M/S.Hanuman Sugar & Indusstries Ltd., which by mistake was recorded instead 7,20,000 as 7,02,000 in the books. It was further argued that as regards addition of Rs. 4,25,650/-, the AO had made such addition by wrongly assuming the cost price of 1,00,000 shares sold during the year by dividing cost of acquisition of Rs.14,95,000 by 10,01,000 shares to arrive at average cost of shares of Rs.1.4935 Ps. per share to arrive at a cost of Rs.1,49,350 and treated the difference between the actual sale price of Rs.5.75Ps. and Rs.1.493 5 Ps. as profit on sale of shares. The Assessee pointed out that after the amendment of section 55 and introduction of section 55(aa)(B)(iiia) of the Act, the cost of acquisition of bonus shares have to be treated as nil. The Assessee further pointed out that bonus shares were not sold during the previous year and therefore the profit on sale of shares at best would be the difference in the cost of acquisition of the shares viz., Rs.4.98 Ps. Per share and sale price of Rs.5.75 Ps. per share. The same works out to Rs.77,000 on sale of 100000 shares. In view of the aforesaid facts and circumstances, the Assessee prayed that the addition of Rs.4,25,650/- may kindly be deleted.

As far as addition of Rs. 1,80,000/- on account of unexplained investment in acquiring 18,000 shares of M/s Shree Hanuman Sugar & Industries Ltd. @ Rs. 10/- per share, the Assessee pointed out that it had already explained in connection with grounds No. 1 that the Assessee received Bonus shares of 7,20,000 in respect of 3,00,000 shares held by the firm as on 7.7 .2006 (during the year ended 31.3.2007). In support of the same, the Assessee filed copy of letter from M/s Shree Hanuman Sugar & Industries Ltd., certifying that 7,20,000 shares had been allotted as Bonus shares to Sri Bimal Kumr Nopany as partner of M/s Nopany & Sons (Assessee). The Assessee also enclosed a copy of the Demat Account for the year ended 31.3 .2007 . Perusal of the same shows that 7,20,000 shares had been credited to the account of the firm through the demat account of the partner, Sri Bimal Kumar Nopany. Shares cannot be held in the name of firm and therefore were held in the name of partner. The Assessee ITA No.1248/Kol/2012-M/s. Nopany & Sons, A.Y.2008-09 again pointed out that in the books of the firm instead of 7,20,000 being credited as Bonus shares, through mistake and oversight only 7,02,000 shares had been credited. The Assessee thus pleaded that addition for unaccounted purchase of 18,000 shares in A. Y 2008-09 is wholly bad, illegal, unjustified and uncalled for.

Without prejudice it was contended that 18,000 shares (7,20,000 shares received as Bonus from the Company less 7,02,000 shares wrongly credited in the books) having been received by the firm during the year ended 31.3.2007 relevant to A.Y 2007-08, question of treating such amount as income in A.Y 2008-09 did not arise at all even otherwise also.

10.

The CIT(A) however did not find any merit in the aforesaid submissions made by the assessee and he observed as follows :- “As regards the addition of Rs.4,25,650/- in respect or sale of 1,00,000 shares of M/s. Shree Hanuman Sugar & Industries Ltd. it was observed that the appellant has failed to reconcile the shareholding before the A.O. Even in the reconciliation filed before me during the appellate proceedings it was submitted that Bonus shares have received by the appellant were shown at Rs.7,02,000/- instead of Rs.7,20,000/-. However, the appellant failed to submit the shareholder register of M/s. Shree Hanuman Sugar & Industries Ltd., or a copy of annual return of M/s. Shree Hanuman Sugar & Industries Ltd. as filed before ROC in such respect and mere letter from such company will not serve; the purpose. Hence, this ground of the appellant is being dismissed.”

11.

Since the receipt of bonus shares was not believed by CIT(A) he held that the investments in 18,000 shares of M/s. Shree Hanuman Sugar & Industries Ltd. Was not properly explained by the assessee and he sustained the addition of Rs.1,80,000/- made by AO.

12.

Aggrieved by the order of CIT(A) assessee has raised ground nos. 1 and 2 before the Tribunal.

13.

We have heard the submissions of the learned counsel for the assessee, who reiterated the stand of the assessee as was put forth before CIT(A). Our attention was ITA No.1248/Kol/2012-M/s. Nopany & Sons, A.Y.2008-09 also drawn to the Demat account of the assessee with ICICI Bank, a copy of which is placed at page 54 of the assessee’s paper book. He drew our attention to the fact that on 07.07.2006 bonus shares of 7,20,000 has been issued by M/s. Shree hanuman Sugar & Industries Ltd in favour of the assessee. Our attention was also drawn to the confirmation given by M/s. Shree hanuman Sugar & Industries Ltd with regard to the issue of bonus shares to the assessee. It was submitted by him in the light of the documentary evidence CIT(A) was not justified in this conclusion that the assessee has failed to prove that there was issue of bonus shares by M/s. Shree Hanuman Sugar & Industries Ltd. The learned DR relied on the order of CIT(A).

14.

We have given a very careful consideration to the rival submissions. In our opinion the fact that the demat account with ICICI bank shows credit of 7,20,000 bonus shares of M/s. Shree Hanuman Sugar & Industries Ltd., in favour of the assessee is sufficient to establish the fact that the assessee received 7,20,000 bonus shares. It cannot be disputed that there can be no cost of acquisition of bonus shares. The CIT(A)’s conclusion that production of share of register of M/s. Shree Hanuman Sugar & Industries Ltd., and copy of annual return of M/s. Shree hanuman Sugar & Industries Ltd filed before ROC will alone establish the factum of issue of bonus shares by M/s. Shree Hanuman Sugar & Industries Ltd is not correct. We therefore hold that the assessee had received bonus shares of 7,20,000 for which there was no cost of acquisition. The shares sold by the Assessee during the previous year were original shares and not bonus shares. The cost of acquisition original shares cannot be spread over as the cost of acquisition of bonus shares and original shares as has been done by the AO. The cost of acquisition of the original shares was Rs.4.98 Ps. The shares were sold for Rs.5.75 Ps. per share, resulting in an profit of Rs.77,000/-. Only this sum ought to have been added by the AO to the total income of the Assessee as profit on sale of shares. We direct the AO accordingly to make the addition of Rs.77,000/- instead of the sum of RS.4,25,650/-. -M/s. Nopany & Sons, A.Y.2008-09

15.

As far as the addition of value of 18,000 shares of M/s. Shree Hanuman Sugar & Industries Ltd is concerned it has been duly explained by the assessee in the annexed reconciliation filed before CIT(A) that instead of showing receipt of bonus shares of 7,20,000, the assessee had shown owing typographical error, the receipt of 7,02,000 shares. The AO however held that the assessee failed to explain the source of fund for having purchased 18,000 shares of M/s. Shree Hanuman Sugar & Industries Ltd. And made addition of Rs.1,80,000/- to the total income of the assessee. In view of the evidence available on record that the bonus shares issued by M/s. Shree Hanuman Sugar & Industries Ltd of 7,20,000, we are of the view that the plea of the assessee that there was a typographical error in the share holding in M/s. Shree Hanuman Sugar & Industries Ltd as disclosed in the Balance Sheet has to be accepted. Consequently the addition of Rs.1,80,000/- made by AO is without any basis and the same is directed to be deleted.

16.

In the result ground nos. 1 and 2 raised by the assessee are allowed.

17.

As far as ground nos. 3 and 4 are concerned the same relate to disallowance made u/s 14A of the Act read with Rule 8D (2)(iii) of the Rules. It is not in dispute before us that the assessee earned dividend income of Rs.3,06,000/- and share income from a partnership firm of Rs.5,79,779/-. The AO disallowed a sum of Rs.6,68,037/- as other expenses disallowable u/s 14A of the Act r.w. Rule 8D(2)(iii). The CIT(A) confirmed the action of AO. Before us the plea of the learned counsel for the assessee was that while applying rule 8D(2)(iii), AO should consider only the investments which yielded dividend income during the previous year and not the entire investments as appearing in the balance sheet. This submission is made by the assessee keeping in view of the decision of the Tribunal rendered in the case of REI Agro Ltd. Vs DCIT in wherein it was held that the only investments yielding dividend income during the previous year are to be considered in computation of disallowance u/s 14 A read with Rule 8D of the Rules. Assessee has given a ITA No.1248/Kol/2012-M/s. Nopany & Sons, A.Y.2008-09 computation of disallowance to be made under Rule 8D(2)(iii) of the Rules which are as follows :- “Applying the above in the present case the maximum disallowance u/s 14A is worked out as under : = 0.5% of the average value of investment (yielding dividend income) = 0.5% of (Rs.1495000/- + Rs.920000/-) 2 = 0.5% of Rs.1207500/- = Rs.6,037/-“

18.

The learned DR relied on the order of CIT(A).

19.

After considering the rival submissions we are of the view that in the light of the decision referred to by the learned counsel for the assessee the plea of the assessee for restricting the disallowance u/s 14A of the Act is found to be justified. The AO is accordingly directed to consider the average value of investments only by considering the investments which yield tax free income during the previous year. These grounds of appeal are partly allowed.

20. As far as ground no.5 raised by the assessee is concerned the facts are as follows : In the course of assessment proceedings the AO noticed that the value of jewellery as per the books of accounts of the assessee was Rs.47,99,054/- as on 31.03.2008. The book value of jewellery as on 31.03.2007 was Rs.42,31,144/-. The assessee was asked to explain the difference of Rs.5,63,910/- . In reply the assessee produced bill issued by one M/s. Super Scanes & System Pvt. Ltd which evidenced purchase of sovereign for a sum of Rs.5,63,910/-. The director of M/s. Super Scans & Systems Pvt. Ltd., has also given an affidavit that it had sold items of jewellery to the assessee on 31.03.2008.The AO held that the bill produced by the assessee did not have a bill number and other registration number and therefore treated the difference of Rs.5,63,910/- as not satisfactory explanation and added the said sum to the total income of the assessee. -M/s. Nopany & Sons, A.Y.2008-09

21. Before CIT(A) the assessee raised a plea that despite an affidavit and particulars of M/s. Super Scans & Systems Pvt. Ltd being available on record, the AO has drawn adverse inference without examining the concerned party and hence addition was not justified. Since the affidavit of the director of M/s. Super Scans and Systems Pvt. Ltd., was filed before CIT(A), he called for remand report from the AO. In his remand report, the AO has without examining the director submitted that the affidavit did not contain rate and weight etc of the sovereign gold. CIT(A) taking note of this remand report of the AO confirmed the action of AO.

22. Aggrieved by the order of CIT(A) assessee has raised ground no.5 before the Tribunal.

23.

We have heard the rival submissions. The learned counsel for the assessee reiterated the submissions made before CIT(A). The learned DR relied on the order of CIT(A). We are of the view that additions sustained by CIT(A) deserves to be deleted. Admittedly director of M.s. Super Scans & Systems Pvt. Ltd had filed an affidavit confirming the transactions. AO did not make any attempt to examine the deponent of the affidavit and has drawn inference purely on assumption and surmises. In the light of the documentary evidence, we are of the view that the addition cannot be made. We may also add that since this item has already been recorded in the books of account no addition whatsoever can be made u/s 69 of the Act or any other provision of the act. The addition so made is therefore deleted..

24.

In the result the appeal of the assessee is partly allowed. Order pronounced in the Court on 11.05.2016.

M/S. NOPANY & SONS,KOLKATA vs. ITO, WARD-56(4), KOLKATA, KOLKATA