Income Tax Appellate Tribunal Chandigarh has upheld that there was no requirement for maintaining a separate DEMAT account when shares/securities were held by portfolio manager in a pool and assessee produced required and supporting documents.

Case Details:
ITA No. 961/CHD/2014, ITA No. 148/CHD/2014 and ITA No. 882/CHD/2014
Assessment Year :2008-09
Mrs Harjinder Dhiman vs ACIT/DCIT
Date of Order: 10-09-2015

Brief Facts of the Case:
The assessee had adjusted short term capital loss of Rs. 1,41,33,145/- against long term capital gain. The short term capital loss was on account of investment in Portfolio Management Scheme (hereinafter refer red to as 'PMS) of M/s BNP Paribas Investment Services India (P) Ltd. The Assessing Officer called for information from M/s BNP. M/s BNP supplied profit and loss account and balance sheet of PMS account of the assessee. However, Assessing Officer was of the view that the loss claimed could be verified from the DEMAT statement only and so he asked the assessee to give a copy of DEMAT statement, which the assessee was unable to produce and Assessing Officer holding that only the DEMAT account could authenticate the purchase and sale of shares disallowed the loss claimed.

Before CIT(A), assessee has submitted that the assessee had suffered loss of Rs. 1.41 crores, details of which were as per Audit Financial Statement of assessee's portfolio with M/s BNP. It was also been submitted that the assessee had used portfolio management services from M/s BNP under which securities were held in a pool account by the Portfolio Manager for its clients and there was no requirement for maintaining a separate DEMAT account. Reliance was placed the decision of ITAT, Pune Bench in the case of M/s ARA Trading and Investments (P) Ltd. (47 SOT 172). CIT(A) deleted the addition and allowed appeal.

Excerpts from the ITAT Order:
We have considered rival submissions and do not find any merit in this ground of appeal of the revenue. The assessee produced complete details before Assessing Officer. The Assessing Officer has also obtained information from M/s BNP Paribas Investment Services India (P) Ltd. under sect ion 133(6) of the Income Tax Act. The Portfolio Manager also filed detailed reply before Assessing Officer. The assessee also produced Profit & Loss Account and other details to show that genuine transactions were conducted through Pool Securities Account of Portfolio Manager. The complete details through audited financial statement of PMS Portfolio of the assessee with M/s BNP Paribas Investment Services India (P) Ltd. were produced on record which shows that M/s BNP Paribas Investment Services India (P) Ltd. Had its PMS operations through a Pool Bank Account and Pool Securities Account. The said Pool Bank Account and Pool Securities Account were opened and maintained by M/s BNP with BNP Paribas Bank which is a scheduled commercial bank and is a depository participant of NSDL. SEBI regulations noted above also support explanation of assessee. Al l the transact ions were received and delivered through Pool Securities Account. M/s BNP has confirmed that all the transactions in their account on behalf of the assessee were delivery based. The Assessing Officer disallowed claim of assessee because DEMAT account was not filed but reason given by the Assessing Officer was incorrect because there was no requirement to maintain separate DEMAT account by assessee. The ld. CIT(Appeals) rightly relied upon decision of Pune Bench in the case of M/s ARA Trading & Investments (P) Ltd. for the purpose of deleting the addition. No material is produced before us to contradict finding of fact recorded by ld. CIT(Appeals). Thus, assessee has been able to prove that it has incurred loss on shares/securities handled by Portfolio Manager. No errors have been pointed out in the order of the ld. CIT(Appeals) . We, therefore, do not find any justification to interfere with the order of ld. CIT (Appeals) in deleting the addition. The ground No. 1 of appeal of revenue is thus, dismissed.

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