Siddharth Kajaria, Kolkata V. ITO, Ward - 36(3), Kolkata, Kolkata

CO 25/KOL/2011

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7037 (ITAT-KOLKATA)
• Duration Of Justice: 10 month(s) 5 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 24-02-2012
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 19-04-2011
• Court: TRIBUNAL
• Department Lawyers: RANADHIR GUPTA
• Assessee Lawyers: M SATNALIWALA
• Keywords: Income from undisclosed sources; Speculation loss; Bogus loan; Speculative transactions
• Section: 43(5)

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL, BEN CH B, KOLKATA () BEFORE . .. . , ,, , !, SHRI N.VIJAYAKUMARAN, JUDICIAL MEMBER. ' ' ' ' /AND . .. .#$ #$#$ #$. .. . , %& ! SHRI C.D.RAO, ACCOUNTANT MEMBER '( '( '( '( ') ') ') ') / ITA NO . 2297/KOL/2010 *+ ,-/ ASSESSMENT YEAR : 2006-07 (/0 / APPELLANT ) I.T.O., WARD-36(3), KOLKATA. - - - VERSUS - . (23/0/ RESPONDENT ) SIDDHARTH KAJARIA, KOLKATA (PAN: AFVPK 0984 K) 4 ( 4 ( 4 ( 4 ( /C.O. NO.25/KOL/2011 ') ') ') ') / A/O ITA NO.2297/KOL/2010 *+ ,-/ ASSESSMENT YEAR : 2006-07 (/0 / APPELLANT ) SIDDHARTH KAJARIA, KOLKATA (PAN: AFVPK 0984 K) - - - VERSUS - . (23/0/ RESPONDENT ) I.T.O., WARD-36(3), KOLKATA. /0 5 6 %/ FOR THE DEPARTMENT: SHRI RANADHIR GUPTA 23/0 5 6 %/ FOR THE ASSESSEE : SHRI M.SATNALIWALA 7 5 $& /DATE OF HEARING : 09.12.2011. 8, 5 $& /DATE OF PRONOUNCEMENT : 24.02.2012. %9 / ORDER ( (( ( . .. .#$ #$#$ #$. .. . ) )) ), , , , %& ! PER SHRI C.D.RAO, AM THE ABOVE TWO APPEALS ONE FILED BY THE REVENUE AND THE CROSS OBJECTION FILED BY THE ASSESSEE ARE AGAINST ORDERS DATED 15.09.201 0 OF THE CIT(A)-XX, KOLKATA PERTAINING TO A.YR. 2006-07. 2 2. IN THIS APPEAL THE REVENUE HAS TAKEN THE FOLLOWI NG GROUNDS :- 1. THE LD.CIT(A)-XX, KOLKATA HAS ERRED IN DELETING THE ADDITION OF RS.5,80,000/- MADE ON ACCOUNT OF BOGUS LOAN WITHOUT CONSIDERING T HE JUDGEMENT OF THE HONBLE HIGH COURT, CALCUTTA IN THE CASE OF C.KANT & CO.V C IT[1980] 126 ITR 63 (CAL.) 2. THE LD. CIT(A)-XX, KOLKATA HAS ERRED IN DELETING THE ADDITION OF RS.10,13,390/- MADE ON ACCOUNT OF BOGUS SPECULATIVE PROFIT WITHOUT PROPER APPRECIATION OF FACTS. 2.1. IN THIS APPEAL THE ASSESSEE HAS TAKEN THE FOL LOWING GROUND IN CROSS OBJECTION :- 1. THAT THE LD. CIT(A) XX WAS NOT JUSTIFIED IN CON FIRMING THE LOSS OF RS.14,84,825/- FROM DERIVATIVE TRANSACTION AS SPECULATION LOSS INS TEAD OF BUSINESS LOSS. 3. AT THE TIME OF HEARING BEFORE US THE LD. COUNSE L APPEARING ON BEHALF OF ASSESSEE HAS RELIED ON THE ORDERS OF THE LD. CIT(A) IN RESPE CT OF THE REVENUES APPEAL. AS REGARDING ASSESSEES CROSS OBJECTION HE CONTENDED T HAT THE LD.CIT(A) IN TREATING THE LOSS FROM DERIVATIVES AS SPECULATION LOSS INSTEAD O F BUSINESS LOSS IS NOT IN ACCORDANCE WITH THE PROVISIONS OF IT ACT. THEREFORE HE REQUEST ED TO SET ASIDE THE ORDERS OF THE REVENUE AUTHORITIES ON THIS ISSUE AND DIRECT THE AO TO TREAT THE LOSS FROM DERIVATIVES AS BUSINESS LOSS. 4. ON THE OTHER HAND, THE LD. DR APPEARING ON BEHA LF OF THE REVENUE HAS RELIED ON THE ORDERS OF ASSESSING OFFICER AS WELL AS THE LD. CIT(A) IN RESPECT OF INCOME FROM DERIVATIVES. 5. THE RELEVANT FACTS AND THE REASONINGS FOR ALLOW ING/CONFIRMING AOS ORDER ON THIS ISSUE RAISED BY THE REVENUE AS WELL AS THE CRO SS OBJECTION RAISED BY THE ASSESSEE AS OBSERVED BY THE LD. CIT(A) ARE AS UNDER :- 5 I HAVE PERUSED THE ASSESSMENT ORDER. I HAVE ALS O CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND THE MATERIAL ON RECORD. CLAUSE (D) TO SECTION 43(5) WAS INSERTED BY THE FINANCE ACT 2005 WITH EFFECT FROM 01-04-2006 THEREB Y PROVIDING THAT ELIGIBLE TRANSACTION IN RESPECT OF TRADING IN DERIVATIVES CA RRIED OUT IN A RECOGNIZED STOCK EXCHANGE SHALL NOT BE DEEMED TO BE A SPECULATIVE TR ANSACTION. HOWEVER, THE RECOGNIZED STOCK EXCHANGE WAS NOTIFIED ON 25-01-200 6 BY THE CBDT VIDE NOTIFICATION NO. 2 OF 2006 SO 89 (E) DATED 25-01-20 06. IN THIS FACTUAL BACKGROUND, THE TRANSACTIONS IN RESPECT OF TRADING IN DERIVATIV ES UP TO 24-01-2006 CANNOT BE TREATED AS COVERED BY CLAUSE (D); AND, SHALL CONTINUE TO BE TREATED AS SPECULATIVE TRANSACTIONS. I HAVE PERUSED THE DECISION OF THE HONBLE ITAT JAIPU R A BENCH IN THE CASE OF P S KAPUR VS ACIT. HOWEVER, THE SAME STANDS OVERRULED B Y THE DECISION OF THE HONBLE 3 ITAT, SPECIAL BENCH, KOLKATA IN THE CASE OF SHREE C APITAL SERVICES LTD VS ACIT IN HA NO. 1294 (KOL) OF 2008, WHEREIN IT WAS HELD THAT CLAUSE (D) TO SECTION 43(5) IS PROSPECTIVE IN NATURE. THE CASE PERTAINED TO THE AS SESSMENT YEAR 2004-05; AND, THE ISSUE BEFORE THE HONBLE SPECIAL BENCH WAS WHETHER THE PROVISIONS CONTAINED IN CLAUSE (D) TO SECTION 43(5) ARE CLARIFICATORY IN NA TURE, AND HENCE, RETROSPECTIVE IN OPERATION. THE HONBLE SPECIAL BENCH HELD THAT CLAU SE (D) TO SECTION 43(5) IS PROSPECTIVE IN NATURE, AND, SHALL BE APPLICABLE FRO M THE ASSESSMENT YEAR 2006-07 ONWARDS. HOWEVER, THE HONBLE BENCH DID NOT ADJUDIC ATE ON THE ISSUE OF WHETHER THE TRANSACTIONS IN RESPECT OF TRADING IN DERIVATIVES W ERE TO BE BIFURCATED WITH REFERENCE TO THE DATE OF NOTIFICATION ISSUED BY THE CBDT, AS THE SAME WAS NOT BEFORE THEM. IN VIEW OF THE ABOVE, THE VIEW TAKEN BY THE AO IS UPHELD. G ROUND NO. I IS DISMISSED. 8 I HAVE PERUSED THE ASSESSMENT ORDER AND THE JUD ICIAL PRONOUNCEMENT. I FIND MERIT IN THE CONTENTIONS OF THE APPELLANT. THE CONF IRMATION OF LOAN CREDITORS WAS FILED. THE LOAN CREDITORS ARE REGULARLY ASSESSED TO TAX; A ND, THEIR IT ACKNOWLEDGEMENT, P&L A/C AND BALANCE SHEET AND BANK STATEMENT WAS ALSO F ILED. THE APPELLANT THUS DISCHARGED HIS ONUS IN ESTABLISHING THE IDENTITY AN D CREDITWORTHINESS OF THE LOAN CREDITORS AND GENUINENESS OF TRANSACTIONS. I FIND S UBSTANCE IN THE ARGUMENT THAT IT WAS NOT FOR THE APPELLANT TO EXPLAIN THE SOURCE OF DEPO SITS IN THE BANK ACCOUNT OF THE LOAN CREDITOR. THE DECISION OF THE HONBLE RAJASTHAN HIG H COURT ALSO SUPPORTS THE CONTENTIONS OF THE APPELLANT. THE ASSESSMENT OF TWO LOAN CREDITORS WAS MADE U/S 143(3); AND, THERE IS NO FINDING OF THE AO THAT THE CASH DEPOSITS IN THE BANK ACCOUNT ARE NOT DISCLOSED. ALL THE LOAN CREDITORS ARE ASSES SED TO TAX, AND, THE LOANS ARE DULY REFLECTED IN THEIR BALANCE SHEET. IF THE AO WAS NOT SATISFIED WITH THE EXPLANATION REGARDING SOURCE OF DEPOSITS IN THE BANK ACCOUNTS O F THE LOAN CREDITORS, APPROPRIATE ACTION COULD BE INITIATED AGAINST SUCH LOAN CREDITO RS. BUT, WITHOUT BRING POSITIVE MATERIAL ON RECORD TO SHOW ANY NEXUS, THE AO CANNOT PRESUME THAT THE DEPOSITS IN THE BANK ACCOUNT OF THE LOAN CREDITORS WAS UNACCOUNTED MONEY OF THE APPELLANT, IN FACT, THERE IS NO MATERIAL ON RECORD TO SHOW THAT THE APP ELLANT EARNED UNACCOUNTED INCOME WHICH WAS PASSED ON TO THE LOAN CREDITORS, AND THEN , FLEW BACK IN THE FORM OF LOANS. IN VIEW OF THE ABOVE, THE ADDITION OF RS.5,80,000/- IS NOT JUSTIFIED. GROUND NO. 2 IS ALLOWED. 9 GROUND NO. 3 RELATES TO ASSESSMENT OF SPECULATIO N PROFIT OF RS.10,13,390/- AS INCOME FROM OTHER SOURCES. THE APPELLANT HAS SHOWN SPECULATION PROFIT OF RS.L0,13,390/-, THE AO HAS MENTIONED IN THE ASSESSM ENT ORDER THAT THE SPECULATIVE TRANSACTIONS WERE NOT CONFIRMED BY THE STOCK EXCHAN GE; MOREOVER, NO DOCUMENTARY EVIDENCE WAS FILED TO SHOW THAT THE APPELLANT HAS P AID MARGIN MONEY. THE AO OBSERVED THAT THE SOURCE OF THE PROFIT WAS NOT ASCE RTAINABLE; AND SO, THE SAME HAS TO BE ASSESSED AS INCOME FROM OTHER SOURCES. THE LD. AR C ONTENDED THAT BOOKS OF ACCOUNT, TAX AUDIT REPORT AND RELEVANT DETAILS WERE PRODUCED AT THE ASSESSMENT STAGE. COPY OF CONTRACT NOTES SHOWING SPECULATION PROFITS WERE ALS O PRODUCED. MERELY BECAUSE THE STOCK EXCHANGE DID NOT REPLY TO THE AO, IT DOES NOT CHANGE THE NATURE OF THE TRANSACTIONS. THE APPELLANT HAS DEPOSITED MARGIN MO NEY OF RS.10,20,000/- WHICH IS DULY REFLECTED IN THE BALANCE SHEET. I FIND MERIT I N THE CONTENTIONS OF THE APPELLANT. I ALSO FIND SUBSTANCE IN THE ARGUMENT THAT THE AO HAS BROUGHT NO POSITIVE MATERIAL ON RECORD TO DISPROVE THE GENUINENESS OF THE SPECULATI VE TRANSACTIONS. THE TRANSACTIONS ARE EVIDENCED BY CONTRACT NOTES, AND, MARGIN MONEY WAS ALSO PAID WHICH STANDS REFLECTED IN THE BALANCE SHEET. THE ACTION OF THE A O IS NOT SUPPORTED BY ANY MATERIAL ON RECORD. GROUND NO. 3 IS ALLOWED. 4 6. AFTER HEARING THE RIVAL SUBMISSIONS AND ON CARE FUL PERUSAL OF MATERIALS AVAILABLE ON RECORD, AS REGARDING GROUND NO.1 RAISE D BY THE REVENUE IT IS OBSERVED THAT THE CASH DEPOSITS IN THE BANK ACCOUNT ARE NOT DISCL OSED. ALL THE LOAN CREDITORS ARE ASSESSED TO TAX, AND, THE LOANS ARE DULY REFLECTED IN THEIR BALANCE SHEET. IF THE AO WAS NOT SATISFIED WITH THE EXPLANATION REGARDING SOURCE OF DEPOSITS IN THE BANK ACCOUNTS OF THE LOAN CREDITORS, APPROPRIATE ACTION COULD BE INI TIATED AGAINST SUCH LOAN CREDITORS. BUT, WITHOUT BRING POSITIVE MATERIAL ON RECORD TO S HOW ANY NEXUS, THE AO CANNOT PRESUME THAT THE DEPOSITS IN THE BANK ACCOUNT OF TH E LOAN CREDITORS WAS UNACCOUNTED MONEY OF THE APPELLANT THEREFORE, WE FIND NO INFIRM ITY IN THE ORDERS OF THE LD. CIT(A) AND WE CONFIRM THE SAME AND DISMISS THIS ISSUE OF T HE REVENUES APPEAL. 6.1. AS REGARDING THE SECOND ISSUE IT IS OBSERVED THAT THAT THE AO HAS BROUGHT NO POSITIVE MATERIAL ON RECORD TO DISPROVE THE GENUINE NESS OF THE SPECULATIVE TRANSACTIONS. THE TRANSACTIONS ARE EVIDENCED BY CONTRACT NOTES, A ND, MARGIN MONEY WAS ALSO PAID WHICH STANDS REFLECTED IN THE BALANCE SHEET. THEREF ORE, WE FIND NO INFIRMITY IN THE ORDERS OF THE LD. CIT(A) AND WE CONFIRM THE SAME AN D DISMISS THIS ISSUE OF THE REVENUES APPEAL. 7. IN THE RESULT THE APPEAL OF THE REVENUE IS DISM ISSED. 8. AS REGARDING CROSS OBJECTION RAISED BY THE ASSE SSEE, THIS TRIBUNAL HAS HELD IN PARAS 6 AND 6.1 OF ITS ORDER VIDE ITA NO.1010/KOL/2 011 IN THE CASE OF ITO- WARD.4(3)/KOL VS M/S.ARION COMMERCIAL PVT.LTD. DATE D 29.12.2011 WHICH ARE AS UNDER :- 6. AFTER HEARING THE RIVAL SUBMISSIONS AND ON CAR EFUL PERUSAL OF MATERIALS AVAILABLE ON RECORD, WE ARE OF THE VIEW THAT TRADIN G OF SHARES WHICH IS DONE BY DELIVERY TRANSACTIONS ARE NOT HIT BY SEC.43(5) AS S PECULATION. SIMILARLY, DERIVATIVE TRANSACTION IN SHARES PROFIT/LOSS IS ALSO NOT HIT B Y SEC.43(5) OF THE I. T. ACT, WHICH DEALS ABOUT SPECULATION TRANSACTION. AS SUCH, BOTH PROFIT/LOSS FROM ALL THE SHARE DELIVERY TRANSACTIONS AND DERIVATIVE TRANSACTIONS A RE HAVING THE SAME MEANING, SO FAR AS, SEC.43(5) OF THE I. T. ACT IS CONCERNED. 6.1. WHEN ONCE WE HELD THAT THE TRANSACTIONS DONE BY DELIVERY AS WELL AS THE TRANSACTIONS OF DERIVATIVES ARE NOT HIT BY SECTION 43(5) OF THE ACT IT IS IN OUR CONSIDERED VIEW THAT THE AGGREGATION OF THE SHARE T RADING LOSS AND PROFIT FROM DERIVATIVE TRANSACTIONS SHOULD BE DONE BEFORE THE A PPLICATION OF THE EXPLANATION TO SECTION 73 OF THE IT ACT IS APPLICABLE. 5 8.1. KEEPING IN VIEW OF THE ABOVE FINDINGS OF THIS TRIBUNAL AND RESPECTFULLY FOLLOWING THE SAME, WE SET ASIDE THE ORDERS OF THE REVENUE AUTHORITIES ON THIS ISSUE AND DIRECT THE AO TO TREAT THE LOSS ARISING OUT OF THE DERIVATIVES AS BUSINESS LOSS OF THE ASSESSEE. 9. IN THE RESULT THE CROSS OBJECTION OF THE ASSESS EE IS ALLOWED. 10. IN THE RESULT THE REVENUES APPEAL IS DISMISSED AND CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE COURT ON 24.02.2012. SD/- SD/- . .. . , , , , * * * * ! ! ! ! N.VIJAYAKUMARAN, JUDICIAL MEMBER . .. .#$ #$#$ #$. .. . , ,, , %& %& %& %& ! ! ! !, C.D.RAO, ACCOUNTANT MEMBER. ( (( ($& $& $& $&) )) ) DATE: 24.02.2012. %9 5 2** :%,;- COPY OF THE ORDER FORWARDED TO: 1. SIDDHARTH KAJARIA, 28, AMARTOLLA STREET, KOLKATA-70 0001. 2 THE I.T.O., WARD-36(3), KOLKATA. 3. THE CIT, 4. THE CIT(A)-XX, KOLKATA. 5. DR, KOLKATA BENCHES, KOLKATA 3 2*/ TRUE COPY, %9/ BY ORDER, DEPUTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES R.G.(.P.S.) 6