Shri Nilesh Jitendra Kothari, Ahmedabad V. The Income tax Officer,Ward-10(3), Ahmedabad

ITA 1345/AHD/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 2170 (ITAT-AHMEDABAD)
• Duration Of Justice: 9 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-02-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 29-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S N DIVATIA
• Keywords: Business income; Transactions in derivatives; Speculation loss; Non passing of speaking order; Reason to believe; Reassessment proceedings; Speculative transactions
• Section: 43(5); 147; 148

Judgement Text

ITA. 1345/AHD/2010 A.Y.05- 06. 1 IN THE INCOME_TAX APPELLATE TRIBUNAL B BENCH, A HMEDABAD BEFORE SHRI SHRI MAHAVIR SINGH AND SHRI D.C. AGRAWA L ITA NO. 1345 /AHD/2010 (ASSESSMENT YEAR: 2005-06) SHRI NILESH JITENDRA KOTHARI 9 SAFFORN, AMBAWADI CIRCLE, AMBAWADI, AHMEDABAD. (APPELLANT) VS. INCOME TAX OFFICER, WARD 10(3), NARAYAN CHAMBER, NR. PATANG HOTEL, NEHRU BRIDGE, AHMEDABAD. (RESPONDENT) PAN: ABIPK 6436 D APPELLANT BY : SHRI S.N.DIVATIA. RESPONDENT BY : SHRI K. MADHUSUDAN, D.R. ( (( ( )/ )/)/ )/ ORDER PER: SHRI D.C. AGRAWAL, ACCOUNTANT MEMBER. THIS IS AN APPEAL FILED BY THE ASSESSEE RAISING THE FOLLOWING GROUNDS :- 1.1 . THE ORDER PASSED U/S. 250 ON 2-3-2010 FOR A.Y.2005-06 BY THE CIT(A) XVI,AHMEDABAD IS WHOLLY ILLEGAL, UNLAWFUL AND AGAINST THE PRINCIPLES OF NAT URAL JUSTICE. 1.2. THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND OR ON FACTS IN NOT CONSIDERING FULLY AND PROPERLY THE ITA. 1345/AHD/2010 A.Y.05- 06. 2 EXPLANATIONS FURNISHED AND THE EVIDENCE PRODUCED BY THE APPELLANT WITH REGARD TO THE IMPUGNED DISALLOWA NCE OF FUTURE TRADING LOSS. 2.1. THE PROCEEDINGS INITIATED U/S.147 AS WELL AS NOTICE ISSUED U/S.148 BOTH BY AO ARE WHOLLY ILLEGAL , UNLAWFUL AND WITHOUT JURISDICTION. 2.2. . THE PROCEEDINGS INITIATED U/S.147 ARE BAD IN LAW BE CAUSE THE REASONS RECORDED BY AO DOES NOT MENTION ANY MAT ERIAL ON THE BASIS OF WHICH THE BELIEF WAS FORMED THAT FUTUR E TRADING LOSS CANNOT BE SET OFF AGAINST THE OTHER INCOME. THERE S HOULD BE A LIVE LINK BETWEEN THE MATERIAL AND BELIEF FORMED. 3.1. THE LD. AO HAS GRIEVOUSLY ERRED IN LAW AND OR ON FACTS IN HOLDING THAT THE FUTURE TRADING LOSS OF RS.19,00,63 6 WAS SPECULATION LOSS AND THEREBY REJECTING SET OFF AGA INST BUSINESS INCOME. 3.2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CAS E AS WELL AS IN LAW, THE LD. AO HAS GRIEVOUSLY ERRED IN HOLDING THAT TRANSACTIONS IN DERIVATIVES WERE SPECULATIVE TRANSA CTION U/S. 43(5) OF THE ACT. 3.3. THE LD. AO HAS GRIEVOUSLY ERRED IN HOLDING THA T THE SUB- SECTION (D) INSERTED TO SECTION 43(5) AS WELL AS NO TIFICATION OF RECOGNIZED STOCK EXCHANGE WERE PROSPECTIVE IN NATUR E. 4.1. THE ABOVE GROUNDS OF APPEAL ARE IN THE ALTERNA TIVE AND WITHOUT PREJUDICE TO EACH OTHER. 4.2. IT IS THEREFORE, PRAYED THAT THE LOSS OF RS.19 ,00,636 FROM DERIVATIVE TRANSACTIONS MAY PLEASE BE TREATED AS NO N- ITA. 1345/AHD/2010 A.Y.05- 06. 3 SPECULATIVE BUSINESS LOSS AND ALLOWED AS SET OFF AG AINST OTHER INCOME. 2. THE FACTS OF THE CASE ARE THAT ASSESSEE IS CARRY ING ON THE BUSINESS OF TRADING IN SHARES AND SECURITIES ETC. T HE ASSESSEE HAD FILED RETURN OF INCOME SHOWING NIL INCOME. IT HAS D ECLARED A BUSINESS LOSS OF RS.9,29,970/- AND CLAIMED SET OFF OF LOSS A GAINST OTHER BUSINESS INCOME. IN THE RETURN, IT WAS FURTHER CLAI MED THAT ASSESSEE HAD EARNED A LOSS OF RS.19,00,636/- WHILE TRADING I N SHARES AND SECURITIES. THIS LOSS AND ITS SET OFF WAS ACCEPTED BY THE ASSESSING OFFICER U/S. 143 (1). LATER, THE ASSESSING OFFICER REALIZED THAT SUCH SET OFF IS NOT PERMISSIBLE. ACCORDINGLY, SHRI R.R. NAIR , ITO WARD 10(3), AHMEDABAD DREW FOLLOWING SATISFACTION NOTE:- IN THIS CASE THE RETURN OF INCOME WAS FILED BY THE ASSESSEE ON 31-8-2005 SHOWING TOTAL INCOME OF RS. N IL AND CLAIMING REFUND OF RS.9,215/-. 2. ON VERIFICATION OF THE RETURN OF INCOME, IT IS NOTICED THAT THE ASSESSEE IS CARRYING ON BUSINESS O F MANUFACTURING AND SALE OF JEWELLERY IN THE NAME AND STYLE OF M/S. SHANTILAL CHANDULAL & CO., AND ALSO CARRYING ON THE BUSINESS OF SHARE TRADING IN HIS INDIVIDUAL NAME. DURING THE PREVIOUS YEAR RELEVANT TO A.Y. 2005-06 THE ASSESSEE HAS CLAIMED LOSS OF RS.19,00,636.64 UNDER THE HEAD FUTURE TRADING LOSS SAND THE SAME HAS BEEN DEBITED TO THE PROFIT AND LO SS ACCOUNT. AS PER THE PROVISIONS OF THE INCOME TAX ACT,1961 FUTURE TRADING LOSS IS NOT ALLOWABLE TO SE T OFF AGAINST ANY OTHER INCOME FOR THE A.Y,. 2005-06. HEN CE, THE CLAIM MADE BY THE ASSESSEE WHICH HAS BEEN ALLOWED AS PER THE INTIMATION U/S. 143(1) OF THE AC T IS REQUIRED TO BE WITHDRAWN. MOREOVER, THE ASSESSEE HA S ITA. 1345/AHD/2010 A.Y.05- 06. 4 ALSO CARRIED FORWARD THE LOSS TO THE A.Y. 2006-07 WHEREIN THE REMAINING LOSS OF RS.8,63,514/- HAS BEE N SET OFF AGAINST THE INCOME FOR THAT YEAR. IN VIEW O F THE ABOVE, THE ASSESSEES CASE FOR A.Y. 2005-06 AND 200 6- 07 REQUIRED TO BE RE-OPENED U/S. 147 OF THE ACT TO BRING THE ESCAPED INCOME TO TAX. 2. IN VIEW OF THE ABOVE FACTS OF THE CASE, THE ASSESSE E HAS CLAIMED AND ALLOWED FUTURE TRADING LOSS AS STATED I N PARA-2 ABOVE, THE SAME IS REQUIRED TO BE WITHDRAWN. I HAVE, THEREFORE, REASON TO BELIEVE THAT THE INCOME TO THE EXTENT OF FUTURE TRADING LOSS AMOUNTING TO RS.19,00,636.64 HAS ESCAPED ASSESSMENT AND THE SAME IS REQUIRED TO BE BROUGHT TO TAX AND THE SET O FF OF LOSS CLAIMED BY THE ASSESSEE IS REQUIRED TO BE WITHDRAWN. ACCORDINGLY, THIS IS A FIT CASE TO RE-OP EN UNDER SECTION 147 OF THE INCOME TAX ACT,1961. AND DIRECTED TO ISSUE NOTICE UNDER SECTION 148. THI S SATISFACTION NOTE WAS DRAWN ON 15-4-2008. THE LD. A. R. POINTED OUT THAT NOTICE WAS ISSUED BY SHRI G. D. VY AS, ITO OF THAT WARD. THE ASSESSMENT WAS LATER COMPLETED BY SH RI B.D. WAGHELA, ITO OF THE SAME WARD BY TREATING A SUM OF RS.19,00,636/- AS SPECULATIVE LOSS AND DENYING THE BENEFIT OF SET OFF OF THE SAME AGAINST OTHER BUSINESS INCOM E. THE LD. AR POINTED OUT THAT HE HAS RAISED A SPECIFIC GRO UND. BEFORE THE LD. CIT (A) AGAINST REOPENING OF THE ASSE SSMENT WHICH ARE CONTAINED IN GROUND NO.1 AND 2 BEFORE THE TRIBUNAL. 3. THE LD. CIT(A) HAS HOWEVER, DISPOSED OF THE ISSUE THROUGH A VERY SHORT NON SPEAKING ORDER AS UNDER:- ITA. 1345/AHD/2010 A.Y.05- 06. 5 IN SHORT, THE ASSESSING OFFICER WAS JUSTIFIED IN REOPENING THE ASSESSMENT BY ISSUE OF NOTICE U/S.148 AS THE TRANSACTIONS IN FUTURE AND OPTIONS FOR THE RELE VANT ASSESSMENT YEAR IS SPECULATIVE TRANSACTIONS AS HELD BY SPECIAL BENCH OF ITAT, KOLKATA. 4. HE POINTED OUT THAT EVEN ON MERITS LD. C.I.T.(A) HAS NOT DECIDED THE ISSUE THROUGH A DETAILED ORDER BUT ONLY FOLLOWED THE DECISION OF SPECIAL BENCH OF ITAT KOLK ATA IN THE CASE OF SHRI CAPITAL SERVICE LTD., 121 ITD 498 (CAL) (SB) AND IN P.S. KAPOOR 120 TTJ-422. HE POINTED OUT THAT INI TIATION OF THE ASSESSMENT PROCEEDINGS IS BAD IN LAW ON TWO COU NTS (1) THAT SATISFACTION NOTE AS ABOVE DOES NOT SPEAK AS T O WHAT IS MISTAKE ASSESSEE HAS DONE AND HOW THE INCOME HAS ES CAPED ASSESSMENT. SECONDLY, THE NOTICE U/S.148(1) WAS ISS UED BY A DIFFERENT OFFICER AND SATISFACTION NOTE HAS BEEN DRAWN BY A DIFFERENT OFFICER. HE DREW OUR ATTENTION TO THE DEC ISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF HYNOUP FO OD & OIL INDUSTRIES LTD., VS. ACIT (2008) 307 ITR 115 (GUJ) W HEREIN IT IS HELD THAT AO RECORDING THE REASONS FOR ASSESS MENT AND AO ISSUING NOTICE U/S. 148 MUST BE THE SAME PERSON. SUCCESSOR AO CANNOT ISSUE NOTICE U/S.148 ON THE BAS IS OF REASONS RECORDED BY THE PREDECESSOR AO. 5. THE LD. D.R. POINTED OUT THAT EVEN NEW SUCCESSOR OFFICER HAS RECORDED THE REASONS AND THEREFORE, IT CANNOT BE SAID THAT OFFICER RECORDING SATISFACTION NOTE AND I SSUING ITA. 1345/AHD/2010 A.Y.05- 06. 6 NOTICE WERE DIFFERENT. IN ANY CASE, THIS ARGUMENT W AS TAKEN BEFORE THE LD. CIT(A) AND HE HAD NO OCCASION TO ADJU DICATE ON THIS ISSUE. HAD IT BEEN RAISED BEFORE HIM HE COU LD HAVE CARRIED OUT INQUIRY AND ASCERTAINED THE FACTS. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THE ORDE R PASSED BY LD. CIT(A) IS VERY SHORT AND DOES NOT DETAIL OUT THE REASONS FOR REJECTING THE ASSESSEES GROUND THAT IN ITIATION OF RE-ASSESSMENT PROCEEDINGS IS BAD IN LAW. WE ACCORDI NGLY, RESTORE THE MATTER TO THE FILE OF THE LD. CIT (A) TO DECIDE THE ISSUE OF INITIATION OF REASSESSMENT PROCEEDINGS AFT ER CARRYING OUT NECESSARY INQUIRIES AND APPLYING THE RATIO OF T HE HONBLE GUJARAT HIGH COURT IN THE CASE OF HYNOUP FOOD AND O IL INDUSTRIES LTD., (SUPRA). IN CASE, A FRESH SATISFACT ION IS DRAWN BY THE SUCCESSOR A.O. THEN HE WILL DECIDE THE ISSUE OF REOPENING THE ASSESSMENT BY EXAMINING THE CONTENTS OF REASONS RECORDED BY SUCCESSOR OFFICER AND ALSO WILL RE-DECIDE THE ISSUE ON MERITS AFTER GIVING DETAILED REASONS. IN CASE, NO NEW SATISFACTION IS DRAWN BY THE SUCCESSOR AO AND H E HAS SIMPLY ISSUED NOTICE U/S. 148(1) ON THE BASIS OF SA TISFACTION DRAWN BY A PREDECESSOR AO THEN HE WILL DECIDE IN ACCORDANCE WITH THE RATIO OF THE HONBLE GUJARAT HI GH COURT IN THE CASE OF HYNOUP FOOD & OIL INDUSTRIES LTD., CA SE (SUPRA). ITA. 1345/AHD/2010 A.Y.05- 06. 7 7. AS A RESULT, THIS APPEAL IS ALLOWED BUT FOR STAT ISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 4 / 2 /2011. SD/- SD/- (MAHAVIR SINGH) (D.C. AGRAWAL) JUDICIAL MEMBER. ACCOUNTANT MEMBER. AHMEDABAD. DATED: 4/ 2 /2011. S.A.PATKI. COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)-XVI,AHMEDABAD. 4. THE CIT CONCERNED. 5. THE DR.,ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD. ITA. 1345/AHD/2010 A.Y.05- 06. 8 1.DATE OF DICTATION 29/1/2011 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 1/2/ 2011 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S 4-2-2011. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 4-2-2011 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 4-2-2011 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 4- 2-2011. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..