ITO, BANSWARA V. Shri Shanti Lal Jain, BANSWARA

ITA 153/JODH/2013

• Counselvise Citation: 15323314 RSA 2013
• Duration Of Justice: 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 06-12-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 14-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N A JOSHI
• Assessee Lawyers: U C JAIN
• Keywords: Rejection of books of accounts; Capital asset; Business income; Transactions in derivatives
• Section: 43(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER ITA NO. 153/JODH/2013 ASST. YEAR: 2008-09 INCOME TAX OFFICER, VS. SHRI SH ANTI LAI JAIN, BANSWARA. PROP. DIGAMBAR MARBLE, BANSWARA, (PAN: ABDPJ5383R) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI N.A. JOSHI, D.R. RESPONDENT BY : SHRI U.C. JAIN DATE OF HEARING : 06.12.2013 DATE OF PRONOUNCEMENT : 26.02.2014 ORDER PER HARI OM MARATHA, JUDICIAL MEMBER : THIS APPEAL OF THE REVENUE FOR A.Y. 2008-09 IS DIR ECTED AGAINST THE ORDER OF ID. CIT(A), UDAIPUR DATED 13.12.2012. 2 2. THE SOLE GROUND RAISED IN THIS APPEAL READ S AS UNDER :- 'ON THE FACTS AND IN THE PRESENT CIRCUMSTANCES OF T HE CASE, THE LD, CIT(A) HAS ERRED IN ALLOWING THE LOSS CLAIM ED BY THE ASSESSEE WITHOUT APPRECIATING THE FACTS THAT THE AS SESSEE HAS FAILED TO JUSTIFY THE ANOMALIES POINTED OUT IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND THE ASSESSING OFFICER' S CATEGORICAL OBSERVATIONS ON THE OPENING STOCK, LAST YEARS ENTRY IN THE BOOKS OF ACCOUNTS, NON-SUBMISSION OF D ETAILS OF HOLDING IN THE POOL ACCOUNT OF RELIGARE, NON-MAINTE NANCE OF STOCK REGISTER FOR SHARES AND F&O AND RELEVANT ISSU ES MENTIONED IN THE SHOW CAUSE FOR REJECTION OF BOOKS OF ACCOUNTS U/S 145(3) HAVE NOT BEEN ADDRESSED AND EXP LAINED BY THE ASSESSEE. ' 3 . FACTS APROPOS THIS GROUND ARE THAT THE ASSESSEE D ERIVED INCOME FROM MARBLE MANUFACTURING AND ITS TRADING, BESIDES DOING SHARE TRADING AND F & O TRADING BUSINESS. THE BOOKS OF ACCOUNT C ONSISTING OF CASH BOOK, JOURNAL, BANK BOOK, LEDGER OF SHARES AND F & O BUSINESS AND CASH BOOK, BANK BOOK LEDGER AND BILL BOOKS OF MARBLE BUS INESS WERE PRODUCED AND EXAMINED ON TEST CHECK BASIS BY THE A.O. REGAR DING SHARE BUSINESS, THE A.O. DEMANDED PRODUCTION OF DEMAT ACCOUNT HOLDI NGS IN POOL ACCOUNT OF RELIGARE. HOWEVER, THESE WERE NOT PRODUCED. FR OM THE JOURNAL 3 ENTRIES PERTAINING TO EARLIER F.YS, IT WAS NOTICED THAT CONVERSION OF CAPITAL ASSETS INTO STOCK IN TRADE HAD NOT BEEN DON E. THE INTRA-DAY TRANSACTIONS WERE TREATED AS BUSINESS INCOME AS AGA INST SPECULATIVE PROFIT. ACCORDINGLY, THE A.O. ISSUED A SHOW CAUSE NOTICE DATED 20.12.2010 AS UNDER: ' IN THIS REGARD, IT IS SUBMITTED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS IN YOUR CASE FOR THE A. Y . 2008-09, THE FOLLOWING POINTS WERE NOTICED: 1. IN THE JOURNAL REGISTER FOR 01.04.2007, YOU HAV E CLAIMED THE FOLLOWING TWO ENTRIES. (I) DATED 01.04.2007 PURCHASE RS.1,33,56 7.80 RELIGARE RS. 82,027.00 SECURITIES LTD. (PREVIOUS YEAR DIFFERENCE IN PURCHASE) (II) DATED 01.04.200 7 SALES A/C RS. 82,027 . PURCHASE RS. 82,027. (PREVIOUS YEAR DIFFER ENCE IN SALES) SINCE THESE PERTAIN TO THE EARLIER FINANCIAL YEAR, THEY SHOULD NOT HAVE BEEN ENTERED IN THE BOOKS OF ACCOUNTS IN T HIS FINANCIAL YEAR. 4 2. YOU HAVE CLAIMED THAT THIS YEAR YOU STARTED TH E BUSINESS OF DEALING IN SHARES, F&O. FOR (HIS YOU HAVE SHOWN ON OPENING STOCK OF RS. 25,15,865/-. SINCE YOU WERE NOT DEALIN G IN SHARES IN THE FINANCIAL YEAR PRIOR TO THIS, I.E. IN F.Y. 2 006-07, THEREFORE, THERE HAS TO BE A BASIS OF THE FIGURE CO NSIDERED FOR OPENING STOCK. YOU HAVE STATED THAT THE OPENING STO CK IS TAKEN ON THE BASIS OF THEIR PURCHASE VALUE IN EARLI ER YEARS. THIS IS NOT ACCEPTABLE. THE SHARE HELD BY YOU IN YO UR HANDS HAVE TO BE VALUED ON THE BASIS OF THE MARKET VALUE PREVALENT ON THAT DATE AND ON THAT BASIS, YOU HAVE TO COMPUTE THE VALUE OF THE SHARES AND CONVERT THEM INTO STOCK IN TRADE. NEITHER HAVE YOU DONE THIS AND NOR HAVE YOU PRODUCE D ANY STOCK REGISTER OF SHARES, F&O AND COMMODITY TRANSAC TIONS AND DEMAT ACCOUNT FOR VERIFICATION AND DETERMINATION OF THE STOCK IN TRADE. 3. YOU HAVE NOT SEGREGATED THE INTER DAY AND INTR A-DAY TRANSACTIONS IN YOUR BOOKS OF ACCOUNTS. THE INTRAD AY SALE AND PURCHASE OF SHARES CANNOT BE TREATED AS BUSINESS IN COME AND AS PER PROVISIONS OF SECTION 43(5) THE I.T. ACT, 19 61, IT IS SPECULATIVE GAIN. THIS SPECULATIVE GAIN HAS TO BE T AXED SEPARATELY AND NOT AS BUSINESS PROFIT. 4. YOU HAVE NOT PRODUCED YOUR COPIES OF DEMAT ACC OUNTS HELD BY YOU WITH RELIGARE AND OTHER STOCK EXCHANGE TERMINALS/BROKERS. SIMILARLY, YOU HAVE ALSO NOT PRO DUCED COPY 5 OF DEMAT ACCOUNT MAINTAINED WITH YOUR BROKER. 5. MOREOVER, IN THE AUDIT REPORT IN FORM NO. 3 CD OF YOUR AUDITOR SURENDER JAIN & CO. AT POINT NO. 8 (A) AND 8(B), THE CHANGE IN THE NATURE OF BUSINESS OF THIS SHARE AND F&O TRADING IS NOT MENTIONED. SIMILARLY AT POINT NO. 12 A, IT IS CATEGORICALLY MENTIONED THAT NO CAPITAL ASSET WAS C ONVERTED INTO STOCK IN TRADE. MOREOVER, IN COLUMN NO. 28 PER TAINING TO A TRADING CONCERN, NO QUANTITATIVE DETAILS HAVE BEE N GIVEN WHICH CLEARLY SHOWS THAT THE BOOKS OF ACCOUNTS MAIN TAINED BY YOU ARE NOT COMPLETE AND CORRECT. 6. AS PER THE REPLY DATED 20/12/2010 OF YOUR A/R S H. S.K. JAIN, CA, THE INTRADAY PROFIT FROM SHARES WAS RS. 2 14087.96 ON TOTAL SALES OF RS. 8536601.71 AND TOTAL PURCHASE OF RS. 8322513.75. THIS SUM OF RS. 2,14,088/- HAS TO BE TA XED AS SPECULATION PROFIT AS PER SECTION 43(5) OF THE I. T . ACT, 1961. 7. YOU HAVE NOT MAINTAINED STOCK REGISTER FOR SHARE S AND F&O AND HAVE NOT PRODUCED DEMAT ACCOUNT COPY AND POOL A CCOUNT COPY. YOUR BOOKS OF ACCOUNT IN THE ABSENCE OF STOCK REGISTER, DEMAT ACCOUNT, THE OBSERVATIONS OF THE AUDITORS AND ON THE BASIS OF DISCUSSION ABOVE, CANNOT BE RELIED UPON. H ENCE, I PROPOSE TO REJECT YOUR BOOKS OF ACCOUNTS U/S 145(3) OF THE IT. ACT, 1961 AS YOUR BOOKS OF ACCOUNTS CANNOT BE CONSI DERED COMPLETE AND CORRECT. HENCE, AFTER REJECTING YOUR B OOKS OF 6 ACCOUNTS, I PROPOSE TO ASSESS YOUR INCOME AS BELOW: - (I) PROFIT FROM MARBLE BUSINESS RS. 1,81,158/- (II) PROFIT FROM SPECULATION BUSINESS RS. 2,14,088/- TOTAL RS. 3,95,246/- NO CLAIM OF LOSS, AS CLAIMED IN THE RETURN OF INCOM E IS TO BE ALLOWED TO YOU BEING NOT SUPPORTED BY DOCUMENTARY E VIDENCE. KINDLY SHOW CAUSE THAT AS DISCUSSED ABOVE, WHY NOT YOUR BOOKS OF ACCOUNTS BE REJECTED U/S 145(3) OF THE INC OME TAX ACT,1961 AND ASSESSMENT DONE AS PROPOSED ABOVE. 4. THE ASSESSEE REPLIED TO THIS NOTICE VIDE LETTER DATED 22.12.2010 AS UNDER: 'FOR REPLY OF ABOVE STATED NOTICE YOU HAVE GIVEN TI ME ON DATED 22.12.2010 BUT PLEASE ACCEPT MY REPLY TO DAY WHICH IS AS FOLLOWS:- 1. THERE WAS SOME DIFFERENCE IN ACCOUNTS OF RELIG ARE, COMING IN PREVIOUS YEARS SO TO FIND OUT CORRECT POS ITION WITH OUR BROKER RELIGARE WE HAVE PASSED THIS ENTRIES. PR EVIOUS YEAR BOOKS HAS BEEN CLOSED SO WE HAVE GIVEN EFFECT IN TH IS YEAR TO FIND OUT TRUE POSITION OF OUR ACCOUNT. 7 2. WE ARE REGULAR ASSESSEE OF YOUR DEPARTMENT AND FILING FINANCIAL STATEMENT EVERY YEAR IN YOUR DEPARTMENT. THE CLOSING STOCK OF RS. 25,15,865/- OF LAST YEAR 2006- 07 IS BECOME OPENING STOCK OF FINANCIAL YEAR 2007-08. WE HAVE T AKEN STOCK ON COST BASIS AS MARKET PRICE IS LESSER THAN COST P RICE. THE DETAIL STATEMENT OF OPENING STOCK IS ALREADY SUBMIT TED TO YOU. OUR EQUITY STOCK IS MAINTAINED BY RELIGARE IN HIS POOL ACCOUNT. THE DETAIL OF STOCK WITH MARKET RATE VALUA TION OF RS. 19,21,421/- RECEIVED FROM RELIGARE IS ENCLOSED HERE WITH. THE DIFFERENCE WITH RELIGARE ACCOUNT IS DUE TO VALUATIO N BY HIM ON MARKET PRICE AND WE HAVE VALUED ON COST PRICE. Y OU MY VERIFY THE SAME FROM RELIGARE LTD. 3. AS WE ARE DEALING IN EQUITY AND F&O AS BUSINESS TRANSACTION. EVERY DAY WE ARE DEALING IN STOCK MARK ET. SO THIS IS A BUSINESS GAIN/ LOSS AND SAME HAS BEEN DEALT IN HEAD 'BUSINESS & PROFESSION.' 4. WE ARE ENCLOSING COPY OF DEMAT ACCOUNT WITH M/S RELIGARE LTD. (A) DEMAT POSITION AS ON 01-04-2007 (OPENING STOCK) (I) HOTEL LEELA - 1000 (QUANTITY) (B) DEMAT POSITION AS ON 31.03.2008 (CLOSING STOCK) (I) MCDOW ELL LTD.- 60 (QUANTITY) 8 THIS MCDOWELL SHARE WE HAVE RECEIVED FROM COMPANY D UE TO DEMERGER SCHEME WITHOUT ANY PAYMENT OF COST SO WE H AVE TREATED 'NIL' VALUE IN CLOSING STOCK AS ON 31.03.20 08. THE SHARE IN POOL ACCOUNT AS ON 01.04.2007 WITH REL IGARE LTD. IS ENCLOSED HEREWITH. YOU MAY CONFIRM THE SAME FROM THE COMPANY. THE CLOSING STOCK ARE ONLY THREE SCRIPT MENTIONED I N COPY OF 'ARBITRATION AGREEMENT' WITH HIM (COPY SUBMITTED). YOU MAY ALSO CONFIRM THE SAME FROM RELIGARE LTD. 5,6 & 7: WE HAVE PRODUCED BOOKS ACCOUNT WITH ALL BI LLS AND EVIDENCE AND STATEMENT OF OPENING STOCK CLOSING STO CK, INTRADAY AND NON INTRADAY DEALING IN EQUITY AND F&O AS REQUIRED BY YOU AND ON THE BASIS OF SAME PLEASE DO THE NEEDFUL IN THE MATTER & OBLIGE. HOPE YOU WILL CONSI DER OUR REQUEST SYMPATHETICALLY. HOWEVER, THE A.O. WAS NOT SATISFIED AND ASSESSED TH E PROFIT FROM SPECULATIVE BUSINESS AT RS. 2,14,088/- AND PROFIT F ROM MARBLE BUSINESS AT RS. 1,88,158/- AFTER REJECTING BOOKS OF ACCOUNT UND ER THE PROVISIONS OF SECTION 145(3) OF THE ACT. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL AND THE LD. CIT(A) HAS DELETED THE ENTIRE ADDITION. 9 5. BEFORE US, BOTH THE PARTIES HAVE TAKEN THEIR SAM E STANDS. AFTER EXAMINING THE RECORDS VIS A VIS THE ORAL SUBMISSION S OF THE PARTIES, WE HAVE FOUND THAT THERE IS NO DEFECT IN THE BOOKS OF ACCOUNT, MUCH LESS ANY MATERIAL DEFECT THEREIN AND WHATEVER ANOMALIES WERE POINTED OUT THROUGH SHOW CAUSE NOTICE CLEARLY STAND COVERED BY THE AFORE EXTRACTED REPLY OF THE ASSESSEE. THE ASSESSEE HAS NOT GIVEN ANY SPECIFIC FINDING REGARDING ANY DEFECT IN THE BOOKS OF ACCOUNT. SIMP LY BECAUSE THERE IS SOME DIFFERENCE IN THE OPENING AND CLOSING STOCK OF THE PREVIOUS YEAR, THIS CANNOT BE TREATED AS ANY DEFECT IN THE BOOKS O F ACCOUNT OF ANY YEAR. THEREFORE, WE UPHOLD THE FINDING OF THE LD. CIT(A) IN HOLDING THAT THE PROVISIONS OF SECTION 145(3) OF THE ACT ARE NOT ATT RACTED IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE. AS FAR AS LOSS CLAI MED BY THE ASSESSEE IS CONCERNED, IT IS CLEARLY FOUND TO HAVE BEEN SUFFERE D BY THE ASSESSEE IN THE F & O TRADING AT RS. 10,94,729/-. THE ASSESSEE HAS PAID A SUM OF RS. 5,50,000/- AGAINST TOTAL LOSS OF 10,94,729/-. THIS FACT HAS NOT BEEN CONTROVERTED OR DISPROVED BY THE A.O. ON RECORD. T HE A.O. MADE DIRECT ENQUIRIES FROM SHARE BROKER AND THEY CONFIRMED IT. THUS, HOW CAN THIS LOSS IS NOT TREATED AS GENUINE. THEREFORE, RESULTA NT TOTAL INCOME ARRIVED AT RS. 3,95,246/- CANNOT BE TREATED AS CORRECT INCO ME. IN THE LIGHT OF THE ABOVE FACTS AND BY TREATING THE LOSS AS GENUINE, NO TAX CAN BE IMPOSED ON 10 THE ASSESSEE IN THIS YEAR. ACCORDINGLY, WE FIND NO INFIRMITY IN THE APPELLATE ORDER AND THEREFORE, DISMISS THE APPEAL. 6. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH FEBRUARY, 2014. SD/- SD/- (N.K. SAINI) (HARI OM MARATHA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 26 TH FEBRUARY, 2014. VL/ COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT (APPEALS) CONCERNED 4. CIT CONCERNED 5. D.R., ITAT, JODHPUR BENCH, JODHPUR 6. GUARD FILE. BY ORDER ASSISTANT REGISTRAR INCOME-TAX APPE LLATE TRIBUNAL, JODHPUR