Shri Alok Garg, Indore V. The Assistant Commissioner of Income Tax 4(1), Indore

CO 17/IND/2010

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 6626 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 3 month(s) 9 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 04-11-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2001-2002
• Appeal Filed On: 26-07-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KESHAV SAXENA
• Assessee Lawyers: H P VERMA
• Keywords: Business income; Business expenditure; Search and seizure; Salary income; Speculation loss
• Section: 143(3); 153A; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARM A, A.M. PAN NO. : ABIPG3675J I.T.(SS).A.NO. 61/IND/2010 A.Y. : 2001-02 ACIT, SHRI ALOK GARG, 4(1), VS 12/5, CHHOTI GWALTOLI, INDORE INDORE. APPELLANT RESPONDENT C.O.NO, 17/IND/2010 (ARISING OUT OF I.T.(SS).A.NO. 61/IND/2010) A.Y. : 2001-02 SHRI ALOK GARG, ACIT, 12/5, CHHOTI GWALTOLI, VS 4(1), INDORE. INDORE CROSS OBJECTOR RESPONDENT I.T.(SS).A.NO. 77/IND/2010 A.Y. : 2001-02 SHRI ALOK GARG, ACIT, 12/5, CHHOTI GWALTOLI, VS 4(1), INDORE. INDORE APPELLANT RESPONDENT I.T.(SS).A.NO. 76/IND/2010 A.Y. : 2002-03 SHRI ALOK GARG, ACIT, 12/5, CHHOTI GWALTOLI, VS 4(1), INDORE. INDORE -: 2: - 2 APPELLANT RESPONDENT DEPARTMENT BY : SHRI KESHAV SAXENA, CIT DR ASSESSEE BY : SHRI H.P.VERMA AND SHRI ASHISH GOYAL, ADVOCATES DATE OF HEARING : 2.11.2011 DATE OF PRONOUNCEMENT : 04.11.2011 O R D E R PER R. C. SHARMA, A.M. THESE ARE CROSS APPEALS AND CROSS OBJECTION FILED B Y THE ASSESSEE AND REVENUE AGAINST THE ORDER OF CIT(A) DA TED 3.3.2010 FOR ASSESSMENT YEAR 2001-02 AND 2002-03 IN THE MATTER OF ORDER PASSED BY THE ASSESSING OFFICER U/S 153A READ WITH SECTION 143(3) OF THE INCOME-TAX ACT, 1961. 2. FACTS IN BRIEF ARE THAT THE SEARCH AND SEIZURE OPERATION U/S 132 OF THE INCOME-TAX ACT, WAS CONDUC TED IN THE BUSINESS PREMISES OF EXPLORER MARKETING PVT.LTD., 1 2/5, CHHOTI GWALTOLI ON 27.2.07. THE AO NOTED THAT EARLI ER RETURN WAS FILED DECLARING LOSS OF RS. 22,56,070/-. THE AO NOTICED THAT THE ASSESSEE HAS STARTED SHARE TRADING BUSINES S DURING -: 3: - 3 THE ASSESSMENT YEAR UNDER CONSIDERATION AND HE HAS EXTRACTED THE NOTE APPENDED BY THE AUDITOR IN THIS BEHALF IN THE ASSESSMENT ORDER. IT WAS EXPLAINED BEFORE AO THAT T HE SHARE TRADING WAS DONE BY THE ASSESSEE ON HIS OWN AS ALO K GARG SHARE TRADING DIVISION WHILE SOME SHARES WERE HELD IN INVESTMENT ACCOUNT. THE AO NOTICED THAT THE ASSESSE E HAS SUFFERED A LOSS OF RS. 25,23,374/- IN SHARE TRADING DIVISION. IT WAS EXPLAINED BEFORE AO THAT TRANSACTIONS WHICH RES ULTED IN PROFIT WERE NOT DELIVERY BASED, BUT THE TRANSACTION S WHICH RESULTED IN LOSS, THE DELIVERY HAD BEEN TAKEN BY TH E ASSESSEE. THE AO HELD THAT SHARE TRADING BUSINESS WAS DONE BY THE ASSESSEE MAINLY EYEING ON THE GAINS ARISING OUT OF PRICE FLUCTUATIONS AND ACCORDINGLY THE SAME WAS ESSENTIAL LY SPECULATIVE IN NATURE AND HE ACCORDINGLY HELD THE L OSS OF RS. 25,23,374/- AS A SPECULATIVE LOSS DENYING THE CLAIM OF SET-OFF AGAINST REGULAR INCOME. BUT, ALLOWING BENEFIT OF CA RRY FORWARD OF THE SAID SPECULATIVE LOSS TO LATER YEARS AS RETU RN WAS FILED ON 31.10.01. THE AO FURTHER DISALLOWED THE CLAIM OF DE DUCTION OF INTEREST AT RS. 89,566/- CLAIMED U/S 57 FROM INCOME FROM OTHER SOURCES AS HE FOUND THAT THE LOAN WAS TAKEN F OR -: 4: - 4 BUSINESS PURPOSES AND INCOME FROM OTHER SOURCES DEC LARED RELATED TO SAVINGS BANK ACCOUNT, INTEREST ETC., ONL Y. 3. BY THE IMPUGNED ORDER, THE LD. CIT(A) DELETED THE ADDITION OF RS. 11,23,375/- IN RESPECT OF LOSS ATTR IBUTABLE TO DELIVERY BASED TRANSACTIONS OUT OF TOTAL ADDITION O F RS. 25,23,375/- MADE BY THE ASSESSING OFFICER, BY ALLOW ING SET OFF OF LOSSES AGAINST REGULAR INCOME CLAIMED BY THE ASS ESSEE. AGAINST THIS ORDER OF CIT(A), BOTH THE REVENUE AND ASSESSEE ARE IN APPEAL BEFORE US. 4. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AN D FOUND FROM RECORD THAT DURING THE COURSE OF SCRUTINY ASSE SSMENT U/S 143(3), THE AO FOUND THAT THE ASSESSEE HAS CLAIMED LOSS OF RS. 25.23 LAKHS IN RESPECT OF SHARE TRANSACTIONS ENTERE D DURING THE YEAR UNDER CONSIDERATION THE LOSS WAS CLAIMED BY THE ASSESSEE AS INCURRED IN RESPECT OF DELIVERY BASED T RANSACTIONS IN THE NORMAL COURSE OF SHARE TRADING BUSINESS, ACC ORDINGLY, THE SAME WAS CLAIMED AS SET OFF AGAINST THE NORMAL BUSINESS INCOME. HOWEVER, WITHOUT ASSIGNING ANY REASON, THE AO DECLINED ASSESSEES CLAIM OF LOSS. THE LD. CIT(A) A LLOWED -: 5: - 5 ASSESSEES CLAIM TO THE EXTENT OF RS. 11,07,747/- B Y OBSERVING THAT THE ASSESSEE HAS PRODUCED VARIOUS BILLS ISSUED BY THE BROKERS TO INDICATE THAT THESE LOSSES WERE ARISING OUT OF DELIVERY BASED TRANSACTION. IT WAS CONTENDED BY THE LD. CIT DR THAT THE OBSERVATION OF THE CIT(A) IS FACTUALLY INC ORRECT IN SO FAR AS ASSESSEE HIMSELF BEFORE THE CIT(A) CONTENDED THAT BILLS/CONTRACT NOTES OF THE BUDDHIDHAN CAPITAL INVE STMENT PRIVATE LIMITED WERE NEITHER TRACEABLE NOR MAY BE O BTAINED AS THE FIRM HAS CLOSED DOWN ABOUT FIVE YEARS BACK DUE TO DISPUTE BETWEEN THE PARTNERS AND, THEREFORE, NO RECORDS ARE AVAILABLE FROM THE FIRM. THE LD. CIT DR ALSO INVITED OUR ATTE NTION TO THE REPLY FILED BEFORE THE LOWER AUTHORITIES TO THE EFF ECT THAT EVEN THE NATIONAL STOCK EXCHANGE (NSE FOR SHORT ) TO WHO M THE ASSESSEE HAS ALLEGED TO APPLY COPIES OF BILLS WERE NOT FURNISHED BY THE NSE. OUR ATTENTION WAS FURTHER DRAWN TO THE FOLLOWING SUBMISSIONS OF ASSESSEE BEFORE THE CIT(A) WHICH FIN D PLACE IN HIS APPELLATE ORDER :- THAT BILLS/ CONTRACT NOTES OF BUDDHIDHAN CAPITAL INVESTMENTS PVT.LTD. ARE NEITHER TRACEABLE NOR MAY BE OBTAINED AS THE FIRM HAS CLOSED DOWN ABOUT 5 YEARS -: 6: - 6 BACK DUE TO DISPUTE BETWEEN THE PARTNERS AND THEREFORE NO RECORDS ARE AVAILABLE FORM THE FIRM. T HE APPELLANT HAS ALSO WRITTEN TO NSE(NATIONAL STOCK EXCHANGE OF INDIA ) TO FURNISH COPIES OF BILLS WITH NO RESPONSE ( COPY OF LETTER ENCLOSED). THAT SOME OF T HE DELIVERY CHARGES DEBIT NOTES AND FEW D-MAT SLIPS AR E AVAILABLE AS ABOVE. HOWEVER, DUE TO NON-TRACEABILIT Y OF RECORDS OF BUDDHIDHAN CAPITAL INVESTMENTS LIMITED, IT IS REQUESTED THAT PRESUMPTION MAY BE MADE ABOUT BUSINESS LOSS (REGULAR) AND BUSINESS LOSS (SPECULATION). THUS THE LOSS SO INCURRED THROU GH BUDDHIDHAN CAPITAL INVESTMENT LIMITED MAY BE APPROPRIATED, FOR THE PURPOSE OF TREATMENT TO BE GI VEN FOR BUSINESS LOSS (REGULAR) AND BUSINESS LOSS (SPECULATION). IN THE SAME RATIO OF BUSINESS LOSS (REGULAR)/BUSINESS LOSS SPECULATION) AS DETERMINED IN THE CASE OF PUMA INVESTMENT/PUMARTH CREDIT & CAPITAL LTD. HOWEVER, A SUMMARY ADOPTING THE RATIO OF LOSS RELATED TO DELIVERY BASE AND NON-DELIVERY B ASE IN TWO BROKER FIRMS HAS BEEN PREPARED, FOR -: 7: - 7 DETERMINATION AND APPROPRIATION OF LOSS ON TRANSACTIONS THROUGH BUDDHIDHAN CAPITAL INVESTMENTS LTD. ACCORDINGLY, LOSS RELATED TO DELIV ERY BASE AND NON-DELIVERY BASE TRANSACTIONS COME TO RS. 404257/- AND RS. 501337/- RESPECTIVELY. IT IS, THEREFORE, PRAYED THAT THE LOSS SO ASSESSED BY THE LD. AO TREATING THE ENTIRE LOSS AS SPECULATI ON LOSS, MAY PLEASE BE TREATED AS BUSINESS LOSS (REGUL AR) AND BUSINESS LOSS (SPECULATIVE) AS CALCULATED AND STATED PARA (G) HEREINABOVE. 5. ON THE OTHER HAND, CONTENTION OF LD. AUTHORIZED REPRESENTATIVE WAS THAT ASSESSEE HAD FURNISHED COMP LETE DETAILS OF LOSS OCCASIONED ON DELIVERY BASED TRANSA CTIONS THROUGH THREE BROKERS. HE INVITED OUR ATTENTION TO CONTRACT NOTE, BILLS ETC. AS PLACED IN PAPER BOOK INDICATING LOSS ON DELIVERY BASED TRANSACTIONS. OUT ATTENTION WAS ALSO INVITED TO THE ANNEXURE A FORMING PART OF CIT(A)S ORDER DUL Y INDICATING THE LOSS OCCASIONED ON DELIVERY BASED AND NON-DELIV ERY BASED TRANSACTIONS. HE FURTHER CONTENDED THAT ONLY IN RES PECT OF TRANSACTION ENTERED THROUGH BUDDHIDHAN CAPITAL INVE STMENT -: 8: - 8 PVT.LTD., COMPLETE CONTRACT NOTES WERE NOT AVAILABL E, HOWEVER, ALL THE BILLS RAISED FOR DELIVERY OF SHARES WERE PL ACED ON RECORD AVAILABLE, IT IS REASONABLE TO PRESUME THAT SOME OF THE TRANSACTIONS WERE DELIVERY BASE, KEEPING IN VIEW TH E RATIO OF SUCH TRANSACTIONS ENTERED BY THE ASSESSEE WITH OTHE R BROKER. 6. AFTER GOING THROUGH THE DOCUMENTS PLACED ON RECORD, WE FOUND THAT WHILE DISALLOWING THE LOSS ON SALE OF SHARES, THE AO HAS NOT ASSIGNED ANY REASON NOR IT IS ALLEGATION OF THE AO THAT THE ASSESSEE HAS NOT PRODUCED NECESSARY EVIDEN CE TO SUBSTANTIATE ITS CLAIM OF LOSS. HOWEVER, BEFORE THE CIT(A), THE ASSESSEE HAS PRODUCED DETAILS OF ALL THE TRANSACTIO NS ENTERED INTO WITH VARIOUS SHARE BROKERS, NAMELY, PUMA INVES TMENT /PUMARTH CREDIT AND CAPITAL LIMITED AND BUDDHIDHAN INVESTMENT. IN RESPECT OF PUMA/PUMARTH CREDIT AND C APITAL LIMITED, THE ASSESSEE HAS SUBMITTED FULL DETAIL OF THE LOSS OCCASIONED ON DELIVERY BASED SHARES. HOWEVER, ONLY IN RESPECT OF BUDDHIDHAN INVESTMENT, THE ASSESSEE COULD NOT PR ODUCE COMPLETE DETAILS AS THE SHARE BROKERS HAVE ALREADY CLOSED THEIR BUSINESS FIVE YEARS BACK. HOWEVER, THE ASSESSEE HAS DULY FURNISHED VARIOUS BILLS RAISED BY THE BROKER IN RES PECT OF -: 9: - 9 DELIVERY BASED TRANSACTIONS FOR CHARGING DELIVERY B ROKERAGE FROM THE ASSESSEE. THESE BILLS ARE PLACED AT PAGE 1 24 TO 137 OF THE PAPER BOOK. IT IS PERTINENT TO NOTE HERE THAT R EVENUE HAS NOT RAISED ANY GROUND WITH REGARD TO ADDITIONAL EVI DENCE HAVING BEEN ACCEPTED BY THE LD. CIT(A) IN CONTRAVEN TION OF RULE 46A. WE, ACCORDINGLY, PROCEED WITH THE PRESUMPTION THAT ALL THE DOCUMENTS PLACED IN THE PAPER BOOK ALSO FIND PL ACED BEFORE THE AO. THE LD. CIT(A) HAS ANALYZED THE LOSS OCCASIONED THROUGH VARIOUS TRANSACTION ON DELIVERY AND NON DEL IVERY BASE SHARES IN RESPECT OF EACH OF THE BROKER. IN RESPECT OF TRANSACTIONS ENTERED THROUGH PUMA INVESTMENT/PUMART H CREDIT CAPITAL LIMITED, THE LD. CIT(A) REACHED TO T HE FINAL CONCLUSION THAT OUT OF TOTAL LOSS OF RS. 15,75,724/ --69 INCURRED A SUM OF RS. 7,03,458-30 WAS ATTRIBUTABLE TO DELIVERY BASE TRANSACTION, WHEREAS LOSS OF RS. 8,72,266-39 R ELATES TO NON DELIVERY BASE TRANSACTIONS. ON THE BASIS OF RAT IO OF THESE LOSSES, THE AO ALSO DIVIDED THE TOTAL LOSS INCURRED IN RESPECT OF TRANSACTIONS ENTERED THROUGH BUDDHIDHAN INVESTMENT AMOUNTING TO RS. 9,05,593-66 IN THE RATIO OF 44.64: 55.36, WHICH RESULTED INTO LOSS OF RS. 4,04,288-50 IN RESP ECT OF -: 10: - 10 DELIVERY BASE TRANSACTIONS, WHEREAS LOSS OF RS. 5,0 1,305.16 WAS IN RESPECT OF NON DELIVERY BASE TRANSACTIONS. T HUS, THE TOTAL LOSS AS WORKED OUT BY THE LD. CIT(A) IN RESPE CT OF DELIVERY BASE TRANSACTION WAS RS. 11,07,746-80 WHEREAS NON-D ELIVERY BASE TRANSACTION WAS RS. 13,73,571/-. THE OBJECTION OF THE LD. CIT DR WAS ONLY THAT THE ASSESSEE COULD NOT PRODUCE CONTRACT NOTE IN THE CASE OF BUDDHIDHAN INVESTMENT, BUT WE F OUND THAT THE ASSESSEE HAS PLACED BILLS RAISED FOR DELIVERY O F SHARES EVEN BY BUDDHIDHAN INVESTMENT. THESE BILLS INDICATE DELI VERY OF SHARES, WHEREIN LOSS WAS OCCASIONED AND CLAIMED BY THE ASSESSEE. ON A VERY REASONABLE BASIS, THE LD. CIT(A ) HAS WORKED OUT LOSS OCCASIONED IN RESPECT OF TRANSACTIO N ENTERED THROUGH BUDDHIDHAN INVESTMENT. HOWEVER, THERE IS NO DISPUTE TO THE FIGURE OF LOSS ARRIVED AT BY THE LD. CIT(A) AT RS. 7,03,458.30 IN RESPECT OF TRANSACTIONS ENTERED THRO UGH OTHER BROKER. WE, THEREFORE, DO NOT FIND ANY REASON TO IN TERFERE IN THE FINDINGS RECORDED BY THE LD. CIT(A), WHICH WAS ALSO MADE PART OF HIS APPELLATE ORDER AS PER ANNEXURE A 7. IN THE RESULT, THE GROUND TAKEN BOTH BY THE REVENUE AND ASSESSEE ARE DISMISSED. -: 11: - 11 8. WITH RESPECT TO THE GROUND TAKEN FOR DISALLOWANCE O F INTEREST IN THE ASSESSMENT YEAR 2001-02, AMOUNTING TO RS. 89566/-, WE FOUND THAT IN THE REGULAR RETURN, THE A SSESSEE HAS OFFERED INTEREST INCOME OF RS. 1,859/- RECEIVED FRO M M/S. EXPLORER MARKETING PRIVATE LIMITED, WHEREIN THE ASS ESSEE IS A DIRECTOR. AT THE VERY SAME TIME, THE ASSESSEE HAS C LAIMED INTEREST EXPENDITURE OF RS. 89,566/- HAVING BEEN PA ID FOR EARNING THE INTEREST INCOME, WHICH RESULTED INTO LO SS OF INCOME UNDER THE HEAD OTHER SOURCES AT RS. 87,706-54. TH E LIST OF PERSONS FROM WHOM LOAN HAS BEEN TAKEN AND GENUINENE SS OF PAYMENT OF INTEREST WAS NOT DOUBTED. FURTHER, NOTHI NG WAS FOUND IN SEARCH TO SHOW THAT INTEREST EXPENDITURE H AS NO NEXUS WITH THE BUSINESS. ACCORDINGLY, WE DIRECT THE AO TO ALLOW ASSESSEES CLAIM OF INTEREST EXPENDITURE AMOU NTING TO RS. 89,566/-, AS BUSINESS EXPENDITURE. 9. IN THE ASSESSMENT YEAR 2002-03, ASSESSEE IS AGGRIEV ED FOR DISALLOWANCE OF INTEREST OF RS. 79,016/-. THIS ISSUE IS SQUARELY COVERED BY OUR DISCUSSION MADE HEREINABOVE IN -: 12: - 12 ASSESSMENT YEAR 2001-02. RESPECTFULLY FOLLOWING THE SAME, THE AO IS DIRECTED TO ALLOW INTEREST AS BUSINESS EXPEND ITURE. 10. NEXT GRIEVANCE OF THE ASSESSEE RELATES TO DISALLOWA NCE OF STANDARD DEDUCTION AGAINST INCOME FROM SALARY. 11. FROM THE RECORD, WE FOUND THAT THE ASSESSEE HAD EARNED A SALARY OF RS. 2.40 LAKHS FROM EXPLORER MAR KETING PRIVATE LIMITED AGAINST WHICH THE ASSESSEE IS ELIGI BLE FOR CLAIM OF STANDARD DEDUCTION OF RS. 25000/-. MISTAKENLY, T HE ASSESSEE HAS CLAIMED STANDARD DEDUCTION OF RS. 20,0 00/- IN THE ORIGINAL RETURN, BUT IN SUCH RETURN ASSESSEE HA S CLAIMED CORRECT AMOUNT OF RS. 25,000/- WHICH IS STATUTORILY ALLOWABLE. ACCORDINGLY, THE AO IS DIRECTED TO ALLOW STANDARD D EDUCTION OF RS. 25000/- AGAINST THE SALARY INCOME IN THE ASSESS MENT YEAR 2002-03. 12. IN THE RESULT, THE APPEAL OF THE REVENUE FOR ASSESS MENT YEAR 2001-02 IS DISMISSED WHEREAS APPEAL AND CROSS OBJECTION FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2001-02 & 2002-03 ARE ALLOWED IN PART IN TERMS INDICATED HEREINABOVE. -: 13: - 13 THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 4 TH NOVEMBER, 2011. SD/- SD/- (JOGINDER SINGH) ( R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 4 TH NOVEMBER, 2011. CPU* 3411