Sri Bankapur Channabasappa Umapathy , Davangere V. The Income Tax Officer Ward-1(5), Davangere

ITA 112/BANG/2019

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4908 (ITAT-BANGALORE)
• Duration Of Justice: 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-11-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 18-01-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GANESH R GHALE TO D EPT
• Assessee Lawyers: V SRINIVASAN
• Keywords: Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC, B BENCH : BANGALORE BEFORE SHRI B.R BASKARAN , ACCOUNTANT MEMBER ITA NO.112/BANG/2019 ASSESSMENT YEAR : 2014-15 SRI BANKAPUR CHANNABASAPPA UMAPATHY, PR. M/S B SC TEXTILES, KALIKADEVI ROAD, DAVANGERE 577 001. PAN AACPU 6919J VS. THE INCOME-TAX OFFICER, WARD-1(5), DAVANGERE. APPELLANT RESPONDENT APPELLANT BY : SHRI V SRINIVASAN, ADVOCATE RESPONDENT BY : SHRI GANESH R GHALE, ADVOCATE STANDING COUNSEL TO D EPT. DATE OF HEARING : 05.11.2019 DATE OF PRONOUNCEMENT : 05.11.2019 O R D E R PER B.R BASKARAN, ACCOUNTANT MEMBER THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 04-10-2018 AND IT RELATES TO THE ASSESSMENT YEAR 20 14-15. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN CONFIRMING THE ORDER OF THE AO IN ESTIMATING THE INCOME FROM F & O OPERATIONS IN SHARES. 2. THE LD A.R SUBMITTED THAT THE ASSESSEE FILE D HIS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WITHOUT DIS CLOSING HIS INCOME FROM SHARE TRANSACTIONS, WHICH WAS NOTICED B Y THE AO FROM ITA NO.112 /BANG/2019 PAGE 2 OF 5 AIR INFORMATION. BEFORE AO, THE ASSESSEE SUBMITTED THAT HE HAS UNDERTAKEN F & O TRANSACTIONS IN SHARES WITH FOUR B ROKERS AND MADE INCOME IN THE TRANSACTIONS ENTERED WITH THREE BROKERS AND INCURRED LOSS IN THE TRANSACTIONS ENTERED WITH ONE BROKER. THE NET RESULT WAS LOSS AND ACCORDINGLY PRAYED THAT THE LOS S MAY BE SET OFF AGAINST THE TOTAL INCOME DECLARED BY HIM. THE AO, HOWEVER, TOOK THE VIEW THAT THE ASSESSED INCOME CANNOT BE LOWER T HAN THE RETURNED INCOME. HE FURTHER HELD THAT THE GAIN/LOS S ARISING FROM F & O TRANSACTIONS CONSTITUTE TURNOVER OF THE ASSESSE E, WHICH WAS WORKED OUT BY THE AO AT RS.1,03,63,813/-. BY APPLY ING THE PROVISIONS OF SEC.44AD OF THE ACT, THE AO ESTIMATED THE INCOME @ 8% OF RS.1,03,63,813/-. THE SAME WAS CONFIRMED BY LD CIT(A). 3. THE LD A.R SUBMITTED THAT THERE WAS NO NECES SITY TO APPLY THE PROVISIONS OF SEC.44AD OF THE ACT, WHEN THE ASSESSE E IS ABLE TO COMPUTE GAIN/LOSS FROM F & O TRANSACTIONS. HE SUBM ITTED THAT THE AO MAY BE DIRECTED TO COMPUTE THE INCOME BY DULY CO NSIDERING THE GAIN/LOSS. 4. ON THE CONTRARY, THE LD D.R SUBMITTED THAT TH E ASSESSEE HAS NOT DISCLOSED THE F & O TRANSACTIONS IN THE RETURN OF INCOME. THE AO CAME TO KNOW OF THE SAME THROUGH AIR INFORMATION . THE ASSESSEE HAS CLAIMED THAT THE NET RESULT OF THE F & O TRANSACTIONS WAS LOSS AND ACCORDINGLY CLAIMED TO SET OFF THE SAM E AGAINST THE INCOME RETURNED BY HIM. THE AO DID NOT ACCEPT THE SAME, SINCE IT WILL REDUCE THE TOTAL INCOME BEFORE THE INCOME RETU RNED BY THE ASSESSEE. THE LD D.R SUBMITTED THAT THE F & O TRAN SACTIONS ARE THE BUSINESS ACTIVITIES OF THE ASSESSEE AND HENCE T HE AO HAS ITA NO.112 /BANG/2019 PAGE 3 OF 5 ESTIMATED THE INCOME BY APPLYING THE PROVISIONS OF SEC.44AD OF THE ACT. 5. I HEARD RIVAL CONTENTIONS AND PERUSED THE RE CORD. THE DETAILS OF F & O TRANSACTIONS ARE GIVEN IN PAGE 3 OF THE AS SESSMENT ORDER. IT IS NOTICED THAT THE ASSESSEE HAS MADE NET LOSS I N THE F & O TRANSACTIONS. IT IS ALSO AN ADMITTED FACT THAT THE ASSESSEE DID NOT DISCLOSE THE SAME IN THE RETURN OF INCOME ORIGINALL Y FILED. 6. THE AO HAS APPLIED THE PROVISIONS OF SEC.44AD IN ORDER TO ESTIMATE THE INCOME. THE PROVISIONS OF SEC.44AD PR ESCRIBE A MODALITY TO ESTIMATE INCOME ON THE BASIS OF TURNOVE R. THERE SHOULD NOT BE ANY DISPUTE THAT THE NET RESULT OF F & O TRA NSACTIONS ITSELF CONSTITUTES INCOME, I.E., EITHER IT MAY BE PROFIT O R LOSS. HENCE THERE IS NO NECESSITY OF DETERMINING INCOME ON ESTIMATE B ASIS AGAIN. IN MY VIEW, THE AO HAS MISGUIDED HIMSELF BY REFERRING TO THE MEANING OF TURNOVER EXPLAINED IN THE CONTEXT OF SEC.44AB OF THE ACT, WHICH HAS ALSO BEEN UPHELD BY LD CTI(A). IN VIEW OF THE FOREGOING DISCUSSIONS, THE QUESTION OF APPLYING THE PROVISI ONS OF SEC.44AD WOULD NOT ARISE IN THE FACTS OF THE CASE. ACCORDIN GLY, THE NET RESULT OF F & O TRANSACTIONS IS REQUIRED TO BE TAKEN INTO ACCOUNT BY THE AO FOR DETERMINING THE TOTAL INCOME OF THE ASSESSEE . 7. THE NEXT POINT THAT ARISES IS IN THE INSTANT CASE IS THAT, IF THE NET RESULT OF F & O TRANSACTIONS IS TAKEN FOR DETER MINING THE TOTAL INCOME, THEN THE ASSESSED INCOME SHALL GO BELOW THE RETURNED INCOME, SINCE THE NET RESULT OF F & O TRANSACTION W AS LOSS. I HAVE NOTICED EARLIER THAT THE ASSESSEE HAS NOT DISCLOSED THE INCOME/LOSS ITA NO.112 /BANG/2019 PAGE 4 OF 5 FROM F & O TRANSACTIONS IN THE RETURN OF INCOME AND THE SAME WAS DISCLOSED DUE TO AIR REPORT. SINCE I HAVE SET ASIDE THE METHODOLOGY ADOPTED BY THE AO FOR DETERMINING INCOME FROM F & O TRANSACTIONS, I FEEL IT PROPER TO RESTORE THIS ISSUE TO THE FILE OF AO. ACCORDINGLY I RESTORE THIS ISSUE TO THE FILE OF AO. ACCORDINGLY, THE ORDER OF LD CIT(A) WOULD STAND MODIFIED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH NOVEMBER, 2019. SD/- (B.R BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED, THE 5TH NOVEMBER, 2019. /VMS/ COPY TO: 1. APPELLANT (S) / CROSS OBJECTOR(S) 2. RESPONDENT(S) 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE