Shri Hemendra Chandulal Shah, Ahmedabad V. The ITO, Ward-1(2)(2), Ahmedabad

ITA 133/AHD/2020

AI Insights

The case involves Hemendra Chandulal Shah, an individual engaged in advertising and share trading, who appealed against the assessment order passed by the Income Tax Officer (ITO) for the Assessment Year 2015-16. The ITO had treated certain incomes from share trading and speculative transactions as undisclosed income and disallowed claims of bad debts and other expenses. The Commissioner of Income Tax (Appeals) upheld some of these decisions, leading to further appeals by both the assessee and the Revenue. The Tribunal's decision focused on the jurisdiction of the ITO under the limited scrutiny provisions and the admissibility of the claimed deductions.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 134522 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-02-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 29-11-2022
• Assessment Year: 2015-2016
• Appeal Filed On: 03-02-2020
• Other Referred Cases: CIT vs. Gopal Purohit, TRF Ltd. vs. CIT, CIT vs. Carbo Ind Hold Ltd, Rajesh Jain vs. ITO
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Transactions in derivatives; Bad and doubtful debts; Speculative transactions; Set aside
• Section: 271(1)(c); 143(3); 142(1); 133(6); 37(1); 143(2); 271B; 44AB; 119

Judgement Text

आयकर अपीलीय अिधकरण, अहमदाबाद ᭠यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, ‘’ B’’ BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER And Ms. MADHUMITA ROY, JUDICIAL MEMBER आयकर अपील सं./ITA No.133/AHD/2020 िनधाᭅरण वषᭅ/Asstt. Year: 2015-16 Hemendra Chandulal Shah, 2/B, Paraskunj Society, Opp. Munciapl School, Navrangpura, Ahmedabad-380009. PAN: AFDPS6617R Vs. Income Tax Officer, Ward-1(2)(2), Ahmedabad. And आयकर अपील सं./ITA No.137/AHD/2020 With C.O No.68/Ahd/2020 िनधाᭅरण वषᭅ/Asstt. Year: 2015-16 Income Tax Officer, Ward-1(2)(2), Ahmedabad. Vs. Hemendra Chandulal Shah, 2/B, Paraskunj Society, Opp. Munciapl School, Navrangpura, Ahmedabad-380009. PAN: AFDPS6617R (Applicant) (Respondent) Assessee by : Shri Anil Kshatriya, A.R Revenue by : Shri Rakesh Jha, Sr.D.R सुनवाई कᳱ तारीख/Date of Hearing : 30/11/2022 घोषणा कᳱ तारीख /Date of Pronouncement: 03/02/2023 ITA nos.133/Ahd/2020 & 137/Ahd/2020 with C.O No.68/Ahd/2020 A.Y. 2015-16 2 आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeals have been filed at the instance of the assessee, Revenue and CO filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)-10, Ahmedabad of even dated 12/12/2019 arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2013-14. First, we take up the ITA No. 133/Ahd/2020 for AY 2015-16, an appeal by the assessee 2. The assessee has raised the following grounds of appeal: On the facts and in the circumstances of the case as well as in law the CIT(A) has grossly erred in rejecting the contention of the appellant and sustaining impugned addition of Rs.18,50,000/- on account of appellant’s claim of bad debt, when the same is wholly unwarranted. 3. The facts in brief are that the assessee in the present case is an individual and claimed to be engaged in the activity of advertisement under the name and style of ‘ADCOM advertising. Besides this, the assessee also claimed that he has been engaged in the business activity of share trading, future and options and speculative business. As per the assessee, he was maintaining separate books of accounts for both the activities. However, the assessee in the return of income filed and statement of income furnished has classified the income from the share trading/future and options/speculative activities under the head other sources along with the other income. ITA nos.133/Ahd/2020 & 137/Ahd/2020 with C.O No.68/Ahd/2020 A.Y. 2015-16 3 3.1 Nevertheless, the assessee during the assessment proceedings has submitted: i. That the activities of share trading/future and options/speculative transaction represents the business activity of the assessee and therefore the same should not be treated as income from other sources. ii. He (the assessee) is not well versed with the income tax matters but his tax consultant has wrongly classified the impugned income under the head other sources. But the assessee cannot be penalized for the mistake committed by the tax consultant. iii. There will not be any difference on the total income of the assessee whether the income from the activity of share trading/future and options/speculative transactions are taken under the head other sources or the business income. It is for the reason that the rate of tax in either of the case is same. The expenses incurred against the business income are eligible for deduction and likewise, the same expenses are also eligible for deduction under section 57 of the Act. iv. The assessee also filed the profit and loss account depicting the income from share trading/future and options/speculative transaction and other transaction along with the expenses. 4. However, the AO during the assessment proceedings found that the case of the assessee was selected under scrutiny for the limited purpose of large value of sale of futures. On taking the information under section 133(6) of the Act from the broker namely M/s Edelweiss Financial Advisors Ltd., the AO found that the assessee has made certain incomes which were not disclosed in the income tax return. The details of the same stand as under: Gain from intraday Transaction ( Transaction without delivery) Rs.7,14,784/- STCG (Gain from delivery based transaction, stock held for less than 1 year) Rs.1,34,12,254/- Gain from F & O Transaction Rs.1,64,51,747/- ITA nos.133/Ahd/2020 & 137/Ahd/2020 with C.O No.68/Ahd/2020 A.Y. 2015-16 4 Total Gain Rs.3,05,78,785/- 4.1 The AO was of the view that the above income cannot be classified as income under the head business and profession. It is for the reason that the assessee has been carrying on the activity of share trading since many years and the income thereon was classified as income from other sources. Therefore, the assessee cannot take a different stand in the year under consideration. 4.2 The AO further found that the assessee claimed to have earned short-term capital gain amounting to ₹ 1,34,12,254.00 which was also shown in the profit and loss account but the same was not offered to tax in the income tax return. 4.3 The AO also found that the assessee against the income from the future and option and speculative transaction has claimed the deduction of the following items: i. Bad Debts written off ₹ 18,50,000.00 ii. Other expenses ₹ 13,53,121.00 iii. MCX trading loss ₹ 2,73,39,075.00 4.4 As per the AO, the bad debts are representing only the money transactions without having any business relation. Likewise, the loss i.e. MCX trading loss of ₹ 2,73,39,075.00 has been shown by the assessee just to avoid tax liability on the income and to match the amount of profits shown in the income tax return. Accordingly, the AO rejected the claim of the assessee and framed the assessment in the manner as detailed below: The income of the assessee is, therefore, determined on the basis of information collected from the share brokers through whom the assessee has made share transaction. During the year under account the assessee has derived the income of Rs. 3,05,78,785/- from share trading under different categories which is treated as his undisclosed income. Separate penalty proceedings u/s. 271(1)(c) for concealment of income is initiated. Separate penalty proceedings u/s. 271B of the Income-tax Act, 1961 is also initiated for failure of the part of the assessee to get his books of accounts audited u/s. 44AB of the Act. Since the turnover of the assessee in share transaction exceeds Rs. 1,00,00,000/-. 7. Subject to the details made available, total income of the assessee is computed as under: Business income as per ITR-4 Rs.23,862/- ITA nos.133/Ahd/2020 & 137/Ahd/2020 with C.O No.68/Ahd/2020 A.Y. 2015-16 5 Income from other sources as per ITR-4 Rs.5,55,970/- Income from share trading Rs.3,05,78,785/- Less: Shown in the ITR Rs.3,58,981/- Rs.3,02,19,804/- Less: Deduction Chapter-VI A as per ITR-4 Rs.40,000/- Assessed total income Rs.3,07,59,636/- 5. Aggrieved assessee preferred an appeal to the learned CIT-A. 6. The assessee before the learned CIT-A contended that his case was selected under scrutiny for limited purpose so as to verify whether investment in the income relating to securities (derivatives) transactions are duly disclosed. The assessee in response to such notice has filed the profit and loss account wherein all the income with respect to intraday transactions, short-term capital gains and F and O transactions were duly reflected. However, the AO has proceeded to frame the assessment treating the case as of complete scrutiny which is against the instructions issued by the CBDT on different dates. 6.1 As per the assessee, the income under the head capital gain of ₹ 1,34,13,680 has been treated as income under the head business and profession though he has shown the transaction of purchase and sale of securities under the head investment. Furthermore, the shares purchased in the earlier year was classified as investment and any addition/ subtraction thereto on account of purchase/ sale was also classified under the investment activity. Therefore, the impugned gain should be treated under the head short-term capital gain instead of business income. 6.2 The assessee regarding the bad debts of ₹18.50 lakhs submitted that he has advanced/loaned money to the parties on interest at the rate of 3% per month. The assessee earned interest income from these parties for ₹ 3 Lacs in the year under consideration which was offered to tax and the same was accepted by the Revenue. However, on a later date the parties have stopped giving interest to the assessee and the money advanced to them became irrecoverable. Therefore, the assessee ITA nos.133/Ahd/2020 & 137/Ahd/2020 with C.O No.68/Ahd/2020 A.Y. 2015-16 6 has written off the same as bad debts in the books of accounts. The assessee in support of his contention has furnished the necessary details of the parties which are available on pages 11 and 12 of the ld. CIT-A order. 6.3 The other charges amounting to ₹ 15,25,765.00 were incurred by the assessee in the course of the business. All these expenses were duly disclosed in the profit and loss account. The copies of the ledgers of the brokers were also furnished during the assessment proceedings. As such, these expenses are allowable under the provisions of section 37(1) of the Act. 6.4 It was also submitted that there was a loss of ₹ 2,73,39,075.00 on account of the transactions carried out on the national multi-commodity exchange which are representing the future and option transaction. The confirmation from the broker was also furnished during the assessment proceedings. However, the AO without issuing any show cause notice or cross verification has not allowed the same as deduction while computing the income under the head business and profession from the activity of F and O transaction/speculative transactions. 6.5 The assessee also filed the reconciliation of the income declared by him viz a viz the income computed by the AO and accordingly claimed that all the transactions, as noted by the AO in the assessment order, were duly disclosed in the income tax return. 7. The learned CIT-A on the issue of limited scrutiny has held that the transaction for the investment in the shares fall in the category of securities and for this purpose the proceedings under section 143(3) of the Act were initiated. Therefore, it cannot be said that the AO has exceeded his jurisdiction beyond the scope of assessment proceedings. ITA nos.133/Ahd/2020 & 137/Ahd/2020 with C.O No.68/Ahd/2020 A.Y. 2015-16 7 7.1 The learned CIT-A after considering the submission of the assessee and remand report of the AO concluded that the short-term capital gain of ₹ 1,34,13,680.00 should be classified as income under the head capital gain and not as business income. The view of the learned CIT-A was based on the fact that the assessee has shown investment in the shares in the books of accounts. The relevant finding of the learned CIT-A reads as under: The appellant has also submitted the details of scrip wise transactions vide submission dated 10.12.2019, Annnexure-2, which reveals true and correct affairs of the nature of the appellant’s claim. I have carefully gone through the relevant details so placed on record. I have carefully gone through the relevant details so placed on record. Therefore, the frequency and holding period could not be sole criteria to consider or otherwise the investment activity of the appellant. Such contention cannot be out rightly rejected in view of ratio laid down by Apex court in the case of CIT vs. Gopal Purohit 228 CTR (BOM) in my opinion, the contention raised to treat the surplus as Short Term Capital Gain is logical hence, accepted. 7.2 The learned CIT-A with respect to the bad debts claimed by the assessee for ₹18,50,000 has confirmed the order of the AO by observing as under: (c) It is argued that the interest is being charged at the rate of 3% and interest income is being shown to the department hence the same is business activity. However it is noticed that the appellant has no money lending business and largely is trading in shares and securities. There is opening balance in the case of two parties. It is also transpired that certain such amounts have been recovered in subsequent years which have been offered for taxation. Hence, it is a case of current year's debtors which has been claimed as bad debt, appears to be pre-mature claim. The AR argued that the main person in the above four creditors is in jail, therefore, the amount has been shown as bad debt. Notwithstanding this oral fact brought on record, it is the case of current debtor as already discuss and the appellant would not get benefit of the case of TRF Ltd. 323 ITR 397(SC) atleast in this year. v In my opinion, none of the four amounts claimed as bad debt can be held as bad debt as per criteria approved by different judicial orders. The contention of the appellant is rejected. The Ground No.3 is dismissed. 7.3 The learned CIT-A with respect to the other expenses of ₹ 15,27,765.00 has allowed the ground of appeal of the assessee by observing as under: From these details available on record, it is noticed that the amount Of™* * Rs.15,25,765/- is debited towards other charges/indirect expenses which are charged by the respective brokers and reflected in the report & ledger A/c issued by respective brokers which are on record (PBP Nos.116 to 119). The appellant has also submitted the details of entity wise transactions under his subsequent submission dated 10.12.2019, vide Annexure-4, which reveals true and correct affairs of the nature of the appellant's claim. I have carefully gone through the relevant details so placed on record. It is my opinion that the impugned expenditure has been incurred wholly and exclusively for the purpose of business, therefore, the appellant's claim is admissible as deduction u/s 37(1) of the Act, and the AO is directed accordingly. ITA nos.133/Ahd/2020 & 137/Ahd/2020 with C.O No.68/Ahd/2020 A.Y. 2015-16 8 7.4 The learned CIT-A with respect to the loss of Rs. 2,73,39,075.00 has allowed the ground of appeal of the assessee by observing as under: (a) From the assessment order it is noticed that during the course of the assessment proceedings, the AO issued a show cause notice dated 29/11/2017 the appellant was asked to show cause as to why addition of Rs.3,05,78,785/- should not be made to the income of the appellant relying upon alleged information called for u/s 133(6) of the Act from a broker. In response to which the appellant submitted a fairly detailed explanation dated 05/12/2017, through which the appellant explained each and every item on the basis of books of account and other data available. As submitted before the Assessing Officer, the appellant incurred loss of Rs.2,73,39,075/- in NMCEX transactions (PBP No. 105). During the course of the proceedings, the appellant explained the nature of transaction and produced books of account and corresponding details with regard to such business loss. No further query was raised, was argued. Moreover, the appellant can't be punished for default, if any, of related party as it has been held in CIT Vs, Carbo Ind Hold Ltd 244 !TR 0422 (Cal) such as "if share broker, oven after issue of summons does not appear, for that reason, the claim of assessee should not be denied, especially in the cases when the existence of broker is not in dispute, nor the payment is in dispute. Merely because some broker fai'td to appear, assessee should not be punished for the default of a broker and on mere suspicion the claim of assessee should not be denied." The evidential value of credible evidences such as contract notes and bank account details can not be ignored. The appellant has also submitted details of entity wise transacting under his further submission dated 10.12.2019, vide Annexure-5, which reveals true and correct affairs of the nature of the appellant's claim. The contention of the appellant regarding derivatives (F&O) has been analyzed with reference to explanation to section 43(5)(d) which has been amended in A.Y. 2006-07 and further A.Y. 2014-15 declaring such profit/loss as non-speculative or income/loss from business and profession. I have carefully gone through the relevant details so placed on record. It is seen that the AO has rejected the claim solely for reasons that it was not claimed unequivocally in original return of income. The claim of appellant however is duly supported by regularly maintained books of account. Full details are placed on record before the Assessing Officer and the Assessing Officer without carrying out any independent enquiry has rejected the claim saying that it was after thought. The decision of the AO is not formed on correct facts brought on record. The claim of the appellant is logical and legal in the eyes of law. The AO is therefore, directed to allow the claim of bad debt of Rs.2,37,39,075/-. The ground no. 5 is allowed. 8. Being aggrieved by the order of the learned CIT-A, both the assessee and the Revenue are in appeal before us. The assessee is in appeal against the confirmation of the disallowance of Rs. 18,50,000.00 only whereas the revenue is in appeal against the relief granted by the ld. CIT-A in ITA 137/AHD/2020. The relevant grounds in the appeal of the Revenue stand as under: The Ld.CIT(A) has erred in law and in facts and in circumstances of the case by deleting the addition of Rs.3,02,19,804/- by allowing loss of Rs.2,73,39,075/- in Multi Commodity Trading (MCX) and by allowing other expenses of Rs.13,53,121/- ITA nos.133/Ahd/2020 & 137/Ahd/2020 with C.O No.68/Ahd/2020 A.Y. 2015-16 9 9. The assessee is also in the CO. bearing No. 68/AHD/2020, raising the objections as detailed under: 1. On facts and circumstances of the case and in law, the Ld. CIT(A) has erred in dismissing the ground no.l of appeal raised by the appellant, on legality and validity without considering "substantiated merits" under the scope of 'limited scrutiny' as emerging from appellant's written submission being reproduced at para 3 of the appellate order and also as crystallized in para 4.1 of the said order and therefore, such items cannot form part of the assessment order as such the order passed to such extent is bad in law, illegal, invalid and is perverse on these counts of having taken up and decided the issues related to (i) claim of bad debt of Rs. 18,50,OOO/-, (ii) Claim of other charges of Rs.15,25,765/- (in accurately stated by A.O.as Rs. 13,53,121/-) & (iii) Claim of business loss of Rs.2,73,39,075/- are without jurisdiction and the action of CIT(A) in not allowing the claim of bad debt out of it. Therefore it is liable to be quashed and set aside for these items. 10. The learned AR before us filed a paper book running from pages 1 to 327 and contended that the case of the assessee was selected under limited scrutiny only with respect to the examination of investment and income relating to securities (derivatives) but the AO has gone beyond his jurisdiction by giving his findings on the short-term capital gain, Bad Debts, other expenses and the business loss. According to the learned AR, the scope of the assessment proceedings was limited to the extent of examination of derivative activities of the assessee. 10.1 The learned AR, further, without prejudice to the above also contended that the bad debts and the other expenses were incurred in the course of the business. Therefore, the same should be allowed as deduction. It was also contended that all the necessary details with respect to the MCX loss was furnished during the assessment proceedings. But the AO without pointing out any defect in such loss has disallowed the same. 11. On the contrary the learned DR contended that the activity of the assessee showing the income under the head short-term capital gain is related to the securities only and therefore the AO has verified the same during the assessment proceedings. Accordingly the learner DR, the AO has not exceeded the jurisdiction in the assessment proceedings. ITA nos.133/Ahd/2020 & 137/Ahd/2020 with C.O No.68/Ahd/2020 A.Y. 2015-16 10 12. Both the learned AR and the DR before us vehemently supported the order of the authorities below to the extent favourable to them. 13. We have heard the rival contentions of both the parties and perused the materials available on record. In the present case, the AO received the information from Edelweiss Broking Ltd. wherein it was found that there were certain incomes received by the assessee which was not disclosed in the income tax return whereas the assessee has filed the profit and loss account to demonstrate that all the incomes as discussed above have been shown therein. However, the assessee has claimed certain expenses as reflected in the profit and loss account against the alleged income added by the AO. The net result of such income shown in the profit & loss account was ₹ 5,13,057.13 which was also inclusive of interest income. Out of such income, a sum of ₹ 3,58,981.00 only was representing from the share activities/derivative which was duly admitted by the AO and therefore, he was pleased to reduce the amount of ₹ 3,58,981.00 against the so-called alleged undisclosed income as discussed above. 13.1 At this juncture, it is important to note that one of the component of the so- called/alleged undisclosed income which was shown in the profit and loss account represents the short-term capital gain on the sale, purchase of the shares amounting to ₹ 1,34,13,680.00 only. If such amount is excluded from the profit and loss account being short-term capital gain, then there would be a loss mainly on account of the expenses claimed against the income from speculative profit/future and option activities i.e. ₹ 7,34,949.93 and 1,66,05,190.00 respectively. These, expenses mainly and broadly are classified as under: i. Bad debts written off ₹18,50,000.00 ii. Other expenses ₹13,53,121.00 iii. MCX loss ₹ 2,73,39,075.43 ITA nos.133/Ahd/2020 & 137/Ahd/2020 with C.O No.68/Ahd/2020 A.Y. 2015-16 11 13.2 Now, the 1 st controversy arises for our adjudication whether the authorities below have exceeded their jurisdiction by making the addition of short-term capital gain on the purchase and sale of shares amounting to ₹1,34,13,680.00 in the given facts and circumstances as the case on hand was under the category of limited scrutiny. In this connection we have referred the notice issued under section 143(2) of the Act placed as exhibit-2 of the paper book and find that case of the assessee was selected for limited scrutiny to examine the following: “ i. Whether the investment and income relating to securities(derivative) transactions are duly disclosed.” 13.3 As per the CBDT instruction No. 20/2015 dated 29/12/2015 and instruction no. 05/2016 dated 14-07-2016 and F. No. DGIT (Vig.)/ HQ/SI/2017-18 dated 30- 11-2017, the Assessing Officer in case of “Limited Scrutiny” can only examine those issues for which the case has been selected or the issue mentioned therein. If the AO is of the view that there is a potential escapement of income, he may convert the “Limited Scrutiny” into “Complete Scrutiny” but such view should be reasonable view based on credible information or material available on record. Furthermore, there should be direct nexus between such view and information/material. The relevant portion of the instruction stands as under: “3. As far as the returns selected for scrutiny through CASS-2015 are concerned, two type of cases have been selected for scrutiny in the current Financial Year-one is 'Limited Scrutiny' and other is 'Complete Scrutiny'. The assessees concerned have duly been intimated about their cases falling either in 'Limited scrutiny' or 'Complete Scrutiny' through notices issued under section 143(2) of the Income-tax Act, 1961 (‘Act’). The procedure for handling 'Limited Scrutiny' cases shall be as under: a. In 'Limited Scrutiny' cases, the reasons/issues shall be forthwith communicated to the assessee concerned. b. The Questionnaire under section 142(1) of the Act in ‘Limited Scrutiny' cases shall remain confined only to the specific reasons/issues for which case has been picked up for scrutiny. Further, the scope of enquiry shall be restricted to the 'Limited Scrutiny' issues? " c. These cases shall be completed expeditiously in a limited number of hearings. d. During the course of assessment proceedings in 'limited Scrutiny' cases, if it comes to the notice of the Assessing Officer that there is potential escapement of income exceeding Rs. five lakhs (for metro charges, the monetary limit shall be Rs. ten lakhs) requiring substantial verification on ITA nos.133/Ahd/2020 & 137/Ahd/2020 with C.O No.68/Ahd/2020 A.Y. 2015-16 12 any other issue(s), then, the case may be taken up for 'Complete Scrutiny' with the approval of the Pr.CIT/CIT concerned. However, such an approval shall be accorded by the Pr.CIT/CIT in writing after being satisfied about merits of the issue(s) necessitating 'Complete Scrutiny' in that particular case. Such cases shall be monitored by the Range Head concerned. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX “2. In order to ensure that maximum objectivity is maintained in converting a case falling under 'Limited Scrutiny' into a 'Complete Scrutiny' case, the matter has been further examined and in partial modification to Para 3(d) of the earlier order dated 29.12.2015, Board hereby lays down that while proposing to take up 'Complete Scrutiny' in a case which was originally earmarked for 'Limited Scrutiny', the Assessing Officer ('AO') shall be required to form a reasonable view that there is possibility of under assessment of income if the case is not examined under 'Complete Scrutiny'. In this regard, the monetary limits and requirement of administrative approval from Pr. CIT/CIT/Pr. DIT/DIT, as prescribed in Para ?(d) of earlier Instruction dated 29.12.2015, shall continue to remain applicable. 3. Further, while forming the reasonable view, the Assessing Officer would ensure that: a. there exists credible material or information available on record for forming such view; b. this reasonable view should not be based on mere suspicion, conjecture or unreliable source; and c. there must be a direct nexus between the available material and formation of such view.” 13.4 In the light of the above stated discussion, we need to see whether the short-term capital gain and speculative profit/future and option transactions fall under the same bracket for which the proceedings under section 143(3) were initiated as discussed above. 13.5 The activity of trading/dealing in shares refers to the purchase and sale of the shares over the period of time. In the activity of share trading/dealing, it is necessary to have the delivery of the shares otherwise the activity without delivery shall be termed as speculative in nature. The income from the share trading/dealing can be classified as business income or capital gain at the case may be depending upon the facts and circumstances. But it is not so in the case of speculative transaction. It is classified generally as the business activity. Likewise, the activity of trading/ dealing in derivatives involves buying and selling of the contracts that grants the right and the obligation to the party to purchase and sale the underlying assets before the expiry of the specific time mentioned therein. Generally, such activity is qualified as business activity with the sub- division of speculative and non- ITA nos.133/Ahd/2020 & 137/Ahd/2020 with C.O No.68/Ahd/2020 A.Y. 2015-16 13 speculative category. In the trading/ dealing of derivative, no delivery is taken by either of the party. Thus it has to be classified as speculative in nature but certain exceptions have been provided under the provisions of section 43(2)(d) of the Act wherein certain transactions have been classified, though of derivative nature, as non-speculative activities. Thus, it appears that the transactions in dealing of shares/securities and derivatives are distinct and independent to each other. Therefore, it cannot be said that the short-term capital gain shown by the assessee is in the category of derivative transaction for which the proceedings under section 143(3) of the Act were initiated. In other words, we note that the scope of the proceedings in the instant set of facts was limited to the examination of the investment and income thereon with respect to derivative transactions. Consequently, we hold that the authorities below have exceeded their jurisdiction by disturbing and making the addition of the short-term capital gain to the total income of the assessee as the same was not subject matter of dispute in the scope of Limited scrutiny. 13.6 However, with respect to the other contentions raised by the assessee i.e. other expenses and the MCX loss, we note that these items have direct connection with the activities of derivative and therefore the same fall within the scope of assessment proceedings in the given set of facts. 13.7 With respect to the bad debts, we note that these bad debts were not connected with the activity of derivative and therefore the same cannot fall within the scope of limited scrutiny as discussed above. The Ld. DR before us has not brought anything on record justifying that the “Limited Scrutiny” was converted by the Assessing Officer under normal scrutiny after obtaining necessary approval from the appropriate authority. In holding so we draw support and guidance from the order of the Hon’ble Chandigarh Tribunal in case of Rajesh Jain vs. ITO reported in 162 taxman 212 where it was held as under: ITA nos.133/Ahd/2020 & 137/Ahd/2020 with C.O No.68/Ahd/2020 A.Y. 2015-16 14 The jurisdiction of the Assessing Officer in such cases where the notices are issued for limited scrutiny is confined to the claims he has set out in the notice for verification. This position of law was further elaborated by the CBDT in its Circular No. 8/2002, dated 27-8-2002. The CBDT Circular clarifies that the Assessing Officer does not have the powers to make the entire assessment of income in limited scrutiny cases. Now question had to be decided when the Assessing Officer does not have the powers while making limited scrutiny assessment to decide such issues which are not covered by the limited scrutiny notice, the Commissioner (Appeals) on appeal against limited scrutiny assessment can exercise the powers in excess of the power vested with the Assessing Officer. There is no doubt that the power of the Commissioner (Appeals) is co-terminus with the power of the Assessing Officer. So, however, in the instant case, when the Assessing Officer did not have the power to make a full-fledged assessment in limited scrutiny cases, the Commissioner (Appeals)’s power could not be enlarged beyond the power of the Assessing Officer in limited scrutiny cases. So, it was considered appropriate to remit the issue relating to allowance of depreciation in respect of the plinth to the file of the Assessing Officer for the purpose of fresh decision in accordance with law. Since the notice under section 143(2)(i ) was issued for limited scrutiny, the Assessing Officer was precluded from considering any other issue while making the assessment under section 143(3) under limited scrutiny. The decision of the Commissioner (Appeals) in considering the other claim of the assessee not covered in the notice issued under section 143(2)(i) for limited scrutiny was contrary to the provisions of the Act and, accordingly, was set aside. 13.8 In view of the above and after considering the facts in totality as discussed above, we are not convinced with the finding of the authorities below. As such the entire issue should have been limited to the extent of the dispute raised in the notice under section 143(2) of the Act for the limited scrutiny but the AO in the present case has exceeded his jurisdiction as discussed above. Thus, the issue raised by the assessee in the CO is partly allowed. 13.9 With respect to the issue raised by the assessee for the deduction of ₹18,50,000 on account of bad debts written off, from the preceding discussion, we note that the assessee has advanced money to certain parties on interest which was shown as income in the year under consideration amounting to ₹3 Lacs. However, the amount of bad debts written off by the assessee has been disallowed on the reasoning that these were premature and furthermore there was the part recovery in the subsequent year against such bad debts which was offered to tax. It was the observation of the learned CIT-A that the debtors pertains to the current period. Therefore, the same cannot be allowed as deduction. We are not convinced with the finding of the learned CIT-A for the reason that there is no prohibition under ITA nos.133/Ahd/2020 & 137/Ahd/2020 with C.O No.68/Ahd/2020 A.Y. 2015-16 15 the provisions of the Act to deny the deduction of the bad debts on the reasoning that it pertains to the current period. Admittedly, the bad debts has actually been written off in the books of accounts of the assessee and part recovery was made in the later year which was offered to tax. Furthermore, if any addition is made in the year under consideration then it would lead to the double addition which is not warranted under the provisions of law. Accordingly we hold that the order passed by the learned CIT-A is unsustainable. Thus the ground of appeal of the assessee is allowed. 13.10 With respect to the disallowance of the expenses of ₹ 15,25,765.00 representing the indirect expenses, we note that the AO has made the disallowance of entire expenses which were deleted by the learned CIT-A in the entirety. However, the Revenue is before us in the appeal for the amount of ₹ 13,53,121.00 only representing the other expenses (inclusive of turnover charges, stamp duty, SEBI fees etc.). In this regard we have referred to the ledger of the other expenses placed on pages 116 to 119 which was duly supported by the statements of Edelweiss Broking Limited placed on pages 120 to 127 of the paper book. Thus, it is transpired that the expenses were incurred in the course of the business of the assessee. However, we find that as per the ledger account furnished by the assessee, the expenses stand at ₹ 13,53,121.69 whereas as per the statement of Edelweiss Broking Ltd. stand at ₹ 13,22,308 leading to the difference of Rs. 30,813.00 only which is of negligible value. Thus it cannot be said that the expenses were not incurred for the purpose of the business. Accordingly we do not find any infirmity in the order of the learned CIT-A. Hence, the ground of appeal of the Revenue is dismissed. 13.11 With respect to the MCX loss of Rs. 2,73,35,194.73, we note that the assessee has shown loss of Rs. 2,92,81,122.12 and the income of ₹ 19,45,927.39 leading to the net loss of ₹ 2,73,35,194.00 which has been disallowed by the AO. ITA nos.133/Ahd/2020 & 137/Ahd/2020 with C.O No.68/Ahd/2020 A.Y. 2015-16 16 This fact can be verified from the ledger maintained by the broker in the name of the assessee which is placed on page 178 of the paper book. The necessary details were available with the AO during the assessment proceedings. To our mind, the AO before rejecting the contention of the assessee could have verified from the broker who is registered with the exchange. In the absence of any verification by the AO, genuineness of the loss claimed by the assessee cannot be doubted. As such, the AO without pointing out any defect in the loss claimed by the assessee has rejected the same. Accordingly, we do not find any infirmity in the order of the learned CIT-A. Hence the ground of appeal of the revenue is hereby dismissed. 14. In the result, appeal filed by the assessee is allowed, appeal filed by the Revenue is hereby dismissed and the CO filed by the assessee is partly allowed. Order pronounced in the Court on 03/02/2023 at Ahmedabad. Sd/- Sd/- (MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 03/02/2023 Manish