The ITO, Ward-1(3), RAJKOT-GUJARAT V. Shri Jitendra Chhotalal Popat, Veraval

ITA 182/RJT/2014

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7750 (ITAT-RAJKOT)
• Duration Of Justice: 4 year(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-04-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 11-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: USHA N SHROTE
• Assessee Lawyers: MJ RANPURA
• Keywords: Business income; Business expenditure; Transactions in derivatives; Speculation loss; Speculative transactions
• Section: 43(5); 37

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT [CONDUCTED THROUGH E COURT AT AHMEDABAD] BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ./ ITA.NO.182/RJT/2014 / ASSTT. YEAR: 2008-2009 THE ITO, WARD - 1(3) VERAVAL. VS SHRI JITENDRA CHHOTALAL POPAT PROP. OF KRISHNA SECURITIES KRISHNANAGAR VERAVAL. ! / (APPELLANT) '# ! / (RESPONDENT) REVENUE BY : SMT.USHA N. SHROTE, SR.DR ASSESSEE BY : SHRI M.J. RANPURA, AR / DATE OF HEARING : 15/01/2018 / DATE OF PRONOUNCEMENT: 10 /04/2018 $%/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST OR DER OF LD.CIT(A)-IV RAJKOT DATED 6.12.2013 PASSED FOR THE ASSTT.YEAR 20 08-09. 2. BEFORE ADVERTING TO THE GROUNDS OF APPEAL TAKEN BY THE REVENUE, WE WOULD LIKE TO PREFER TO MAKE DISCUSSION BRIEFLY FRO M THE ASSESSMENT ORDER. ASSESSEE IS A BROKER AND COMMISSION AGENT DEALING I N SHARES AND SECURITIES. HE HAS FILED HIS RETURN OF INCOME 29.9.2008 DECLARI NG TOTAL INCOME AT RS.2,23,500/-. ON SCRUTINY OF THE ACCOUNTS, IT REV EALED TO THE AO THAT THE ASSESSEE HAS SHOWN COMMISSION RECEIPT OF RS.29,56,5 44/- WHEREAS COMMISSION RECEIPTS AS PER FORM NO.16A ARE RS.70,49 ,320/-. THERE WAS A ITA NO.182/RJT/2014 2 DIFFERENCE OF RS.40,92,776/-. THE LD.AO SOUGHT EXP LANATION OF THE ASSESSEE. ASSESSEE CONTENDED THAT HE HAS CLAIMED THE FOLLOWIN G EXPENDITURE: EXPENDITURE INCURRED DURING A.Y.2008-09 BUT NOT SHO WN IN ROI: (A) COMMISSION PAID TO AGENTS : RS.18,21,373/- (B) SERVICE TAX PAID : RS. 7,66,553/- (C) COMMISSION PAID TO CLIENTS : RS. 14,833/- (D) LOSS FROM TRADING IN SHARES : RS.14,92,839/- TOTAL : RS.40,95,598/- THE LD.AO HAS EXAMINED THE DETAILS AND IN A VERY C URSORY LOOK DISALLOWED THIS EXPENDITURE BY RECORDING FOLLOWING FINDING: REGARDING (A), COMMISSION PAID TO AGENTS, THE RATE OF COMMISSION PAID IS 3-6% WHILE THE RATE OF COMMISSION CHARGED/R ECEIVED BY THE ASSESSEE IS MERELY 0.1-0.2% OF THE TURNOVER (AS EVI DENT FROM ENTRIES DATED 31.03.2008 ON PAGE NO. 28/41 OF BROKERAGE A/C . NO. 999001 IN GENERAL LEDGER), WHICH IS HIGHLY UNPRACTICAL. FURTH ER, IN RESPONSE TO THE SHOW-CAUSE DATED 23.12.2010, THE ASSESSEE ON 28 .12.2010 COULD SUBMIT ONLY THE COPY OF CENTRA-ACCOUNTS SHOWING THE PAYMENTS OF COMMISSION TO AGENTS BUT FAILED TO JUSTIFY THE HUGE DIFFERENCE IN COMMISSION RATES AND ALSO THE REASON FOR NOT CLAIMI NG/SHOWING THIS EXPENDITURE IN EITHER ROL. OR AUDIT REPORT. THEREFO RE, THE SAME CAN'T BE ALLOWED U/S. 69C. REGARDING (B) . SERVICE TAX PAID, THE ASSESSEE CAN'T BE ALLOWED THIS EXPENDITURE BECAUSE THE SAME HAS NOT BEEN CLAI MED EITHER IN RETURN OF INCOME OR SHOWN IN AUDIT REPORT FOR THE R ELEVANT A.Y. MOREOVER, THE ASSESSEE HAS ALSO NOT FILED ANY REVIS ED RETURN OF INCOME IN THE PRESCRIBED TIME LIMIT AS PER IT ACT, 1961. H ENCE, IT CAN'T BE ALLOWED U/S. 69C. REGARDING (C) . COMMISSION PAID TO CLIENTS, THE SAME CAN'T BE ALL OWED AS IT HAS NEITHER BE CLAIMED IN RETURN OF INCOME NOR S HOWN IN AUDIT REPORT FOR THE RELEVANT A.Y. REGARDING (D) . LOSS FROM TRADING IN SHARES, THE SAME CAN'T BE AL LOWED SINCE IT IS ARISING FROM SPECULATIVE BUSINESS AND C ANNOT BE SET OFF ITA NO.182/RJT/2014 3 AGAINST INCOME FROM 'PROFITS AND GAINS OF BUSINESS OR PROFESSION U/S. 73 OF THE IT ACT. FURTHER, THE BILLS PRODUCED BY TH E ASSESSEE ON 13.12.2010 IN FAVOUR OF HIS ABOVE CLAIM SHOWS THAT THE CONTRACTS FOR PURCHASE OR SALE OF SHARES HAVE BEEN SETTLED ON THE VERY SAME DATE WITHOUT ACTUAL DELIVERY OR TRANSFER OF SUCH SHARES, WHICH ARE CLEARLY SPECULATIVE TRANSACTIONS U/S. 43(5) OF IT ACT. ON T HE CONTRARY, THE ACTUAL BUSINESS OF THE ASSESSEE IS OF BROKERING/COM MISSION ON PURCHASE AND SALE OF SHARES/SECURITIES/DERIVATIVES ETC AND N OT OF SPECULATION. 3. ON APPEAL, THE LD.CIT(A) DELETED DISALLOWANCE EX CEPT FROM ITEM NO.(D). UNDER THIS HEAD OUT OF RS.14,92,839/-, THE LD.CIT(A ) HAS CONFIRMED LOSS TO THE EXTENT OF RS.5,91,594/- AND GRANTED RELIEF OF RS.9, 01,245/-. ALL THESE DELETIONS HAVE BEEN IMPUGNED BY REVENUE IN FOUR GRO UNDS OF APPEAL. 4. WITH THE ASSISTANCE OF LD.REPRESENTATIVES, WE HA VE GONE THROUGH THE RECORD CAREFULLY. THE LD.FIRST APPELLATE AUTHORITY HAS DEALT WITH THE ISSUE ELABORATELY AND RECORDED THE FOLLOWING FINDING WHIL E DELEING THE ADDITION: 6.1 I HAVE VERIFIED THE AUDITED ACCOUNTS AND OTHER DOCUMENTS, WHICH FORMS PART OF THE WRITTEN SUBMISSION OF THE AR OF T HE APPELLANT. IT IS SEEN THAT, ALL THE CLAIMS OF EXPENDITURE AND LOSSES ARE DULY SUPPORTED BY DOCUMENTARY EVIDENCES. SO FAR AS COMMISSION EXPE NDITURE IS CONCERNED, THE APPELLANT HAS PRODUCED LIST OF PAYEE S SHOWING THEIR PAN, AMOUNT OF COMMISSION PAID, TAX DEDUCTED AT SOU RCE FROM THE COMMISSION, THEIR RETURNS OF INCOME, ETC. AS PER TH E INCOME TAX ACT, ANY BUSINESS EXPENDITURE INCURRED FOR THE PURPOSE O F EARNING BUSINESS INCOME IS TOTALLY AND FULLY ALLOWABLE. THE AO MADE THE DISALLOWANCE OF COMMISSION INCOME BECAUSE (A) THE SAME WERE NOT ' C LAIMED AND (B) THERE IS NO SYNERGY BETWEEN THE COMMISSION RECEIPT AND COMMISSION EXPENDITURE IN PERCENTAGE TERMS. SO FAR AS CLAIM OF EXPENDITURE IN, THE BOOKS OF ACCOUNTS ARE CONCERNED, SINCE THE COMMISSI ON INCOME OFFERED IS NET OF COMMISSION EXPENDITURE, THERE IS NO WAY T HAT THE APPELLANT CAN CLAIM IT AGAIN. SECONDLY, THE COMMISSION EXPENDITUR E IS FULLY AND TOTALLY RECORDED IN THE APPELLANT'S PRIMARY BOOKS O F ACCOUNTS AND INDIVIDUAL LEDGER ACCOUNTS OF EACH PERSONS TO WHOM THE COMMISSION HAS BEEN PAID AS IS APPARENT FROM THE DATA SUBMITTE D TO THE AO AND UNDERSIGNED. HENCE, IT IS NOT A CASE WHERE NO EXPEN DITURE HAS BEEN RECORDED IN THE BOOKS. SO FAR AS AO'S CONTENTION TH AT THE COMMISSION PAYMENT RANGES FROM 3 TO 6% WHEREAS THE COMMISSION RECEIPT IS ONLY ITA NO.182/RJT/2014 4 IN THE RANGE OF 0.1 TO 0.2%, I AM IN AGREEMENT WITH THE CONTENTION OF THE AR THAT, THE APPELLANT HAD RECEIVED COMMISSION FROM HIS PRINCIPALS ON THE GROSS TURNOVER, WHEREAS THE COMMISSION PAYME NT WAS MADE TO THE INDIVIDUAL SUB-BROKERS ON THE BROKING BUSINESS CARRIED OUT THROUGH THEM. IT IS AN ACCEPTED FACT THAT, THE RANGE OF COM MISSION RECEIVED BY THE MAIN DEALER FROM THEIR PRINCIPALS ARE ALWAYS LE SS IN VIEW OF THE HUGE TURNOVER INVOLVED. WHEREAS, THE RETAIL SUB-DEA LERS ARE GIVEN MORE COMMISSION, .IN VIEW OF THE LESS QUANTUM OF TURNOVE R INVOLVED. THEREFORE, SUCH AN ADVERSE INFERENCE CAN NEVER GO A GAINST THE APPELLANT WHILE DISALLOWING THE CLAIM OF COMMISSION EXPENDITURE, PARTICULARLY WHEN NOTHING HAS BEEN BROUGHT ON RECOR D BY THE AO THAT THE EXPENDITURE IS NOT ALLOWABLE AS PER PROVISIONS, OF SECTION 37 OF THE I T ACT. THEREFORE, AS THE COMMISSION EXPENDITURE INC URRED IS PART OF THE BUSINESS ACTIVITY OF THE APPELLANT AND DULY SUPPORT ED BY DOCUMENTARY EVIDENCE, IT IS HELD THAT THE SAME IS ALLOWABLE BUS INESS EXPENDITURE. AND THEREFORE THE DISALLOWANCE MADE AT RS.18,21,373 ON ACCOUNT OF COMMISSION PAID TO AGENTS IS HEREBY DELETED. THE AO HAD DISALLOWED SERVICE TAX PAYMENT OF RS.7,6 6,553 AND COMMISSION PAID TO CLIENTS AT RS. 14,833 ON THE SOL E GROUND THAT THE APPELLANT HAD NOT CLAIMED THE SAME IN HIS BOOKS OF ACCOUNTS. HOWEVER, AS DISCUSSED SUPRA, SINCE THE APPELLANT HAD OFFERED NET INCOME, AFTER DEDUCTING ALL EXPENDITURE AND AS THE PAYMENT OF SER VICE TAX AND COMMISSION TO CLIENTS, WERE DULY SUPPORTED BY DOCUM ENTARY EVIDENCE AND AS THE AO HAS NOT BROUGHT ANYTHING ON RECORD TO PROVE THAT THERE IS INFRINGEMENT OF PROVISIONS OF SECTION 37 OF THE IT ACT, THE DISALLOWANCE FAILS TO STAND. THEREFORE, THESE TWO ADDITIONS ARE ALSO DELETED. 6.4 THE ASSESSING OFFICER HAS DISALLOWED SHARE TRAD ING LOSSES OF RS. 14,92,839 ON THE GROUND THAT THE SAME WERE NOT RECO RDED IN THE BOOKS AND ALSO DUE TO THE FACT THAT THE SHARE TRADING LOS SES WERE SPECULATIVE IN NATURE. IN THIS REGARD, ON VERIFICATION OF THE D OCUMENTS FORMING PART OF THE WRITTEN SUBMISSION, IT IS SEEN THAT, THE APP ELLANT HAD CLAIMED THREE TYPES OF LOSSES; (A) LOSS OF TRANSACTIONS IN F&O; (B) LOSS IN TRANSACTIONS WHERE THE DELIVERY OF THE SHARES WERE TAKEN AND GIVEN (C) LOSS DUE TO DENIAL OF TRANSACTIONS ENTERED ON THE D IRECTION OF THE CLIENTS. THE AO HAD MADE A BLANKET OBSERVATION THAT SUCH CLA IMS ARE NOT ALLOWABLE DUE TO ITS SPECULATIVE NATURE. ON THE OTH ER HAND, IT CAN BE SAID THAT THE TRANSACTIONS ENTERED INTO F&O TRADE A RE BUSINESS IN NATURE IN VIEW OF THE EXEMPTIONS PROVIDED IN SECTIO N 43. THEREFORE, AS THE ISSUE IS SQUARELY COVERED BY STATUTE, THE CLAIM OF APPELLANT OF LOSSES FROM F&O TRANSACTIONS, ARE TREATED AS BUSINESS LOSS AND NOT SPECULATIVE LOSS, AS HELD BY THE AO. SO FAR AS THE LOSS INCURRED ON ITA NO.182/RJT/2014 5 DELIVERY IS CONCERNED, SINCE THE FREQUENCY OF TRANS ACTIONS ARE NUMEROUS AND AS THE APPELLANT IS INTO SHARE TRADING ACTIVITI ES, THE SAME ARE TREATED AS ADVENTURE IN THE NATURE OF TRADE AND HEN CE, ALLOWABLE. SO FAR AS LOSS INCURRED FOR TRANSACTIONS ENTERED ON BEHALF OF THE CLIENTS ARE CONCERNED, THE CONTENTION OF THE APPELLANT IS NOT A CCEPTABLE. ACCORDING TO THE APPELLANT, IT ENTERS INTO TRANSACTIONS ON BE HALF OF ITS CLIENTS, WHO SUBSEQUENTLY DENIES TAKING RESPONSIBILITY OF THE SA ID TRANSACTION, WHICH IS SQUARED OFF BY THE APPELLANT, WHICH RESULTED INT O LOSS. THIS GROUND FAILS TO SURVIVE BECAUSE, THERE IS NO EVIDENCE IN S UPPORT OF THIS ARGUMENT. SECONDLY, WHILE SUBSCRIBING A CLIENT, SOM E MINIMUM EXPOSURE MARGIN IS ALWAYS TAKEN TO TAKE CARE OF THE CONTINGENCIES SO DESCRIBED BY THE APPELLANT. IT IS NOT THAT ANY PERS ON CAN COME AND TRADE FOR SHARES AND WHEN THEY EARN PROFIT CLAIM SUCH PRO FITS AND WHEN THEY INCUR LOSS, SHED THEIR RESPONSIBILITIES. THEREFORE, THIS GROUND HAS NO CREDENCE. IN VIEW OF THE ABOVE, THE CLAIM OF LOSS T O THE EXTENT OF RS.5,91,594/- OUT OF RS. 14,92,839/- IS NOT ALLOWED AND THE DISALLOWANCE MADE TO THIS EXTENT IS UPHELD. THE APP ELLANT GETS A RELIEF OF RS.9,01,245 ON THIS COUNT. 5. IF WE WEIGH THE FINDING RECORDED BY THE AO EXTRA CTED (SUPRA) VIS--VIS WITH DETAILED REASONING GIVEN BY THE LD.CIT(A), THE N IT WOULD REVEAL THAT THE LD.AO HAS NOT CONSIDERED ANY DETAILS OR POSITION OF LAW ON THE ISSUES. HE MADE DISALLOWANCE IN A SWEEPING MANNER. FOR EXAMPL E, FIRST EXPENDITURE CLAIMED BY THE ASSESSEE WAS OF A COMMISSION PAYMENT AMOUNTING TO RS.18,21,373/-. THIS CLAIM OF THE ASSESSEE WAS DIS ALLOWED BY THE AO SIMPLY FOR REASONS THAT RATE OF COMMISSION PAID BY THE ASS ESSEE IS HIGHER THAN THE COMMISSION EARNED BY THE ASSESSEE. IN OTHER WORDS, THE ASSESSEE HAS PAID COMMISSION AT THE RATE OF 3% TO 6% WHEREAS HE HAS R ECEIVED IN THE RANGE OF 0.12% TO 0.2%. THE AO FAILED TO COMPREHEND THAT RE CEIPT AS WELL AS PAYMENT OF COMMISSION COULD BE IN TWO DIFFERENT SITUATIONS; HOW THE RECEIPT AT A LOWER RATE WOULD JUSTIFY THE DISALLOWANCE OF COMMISSION P AYMENT AT AN HIGHER RATE. HIS ORDER IS WITHOUT ANY LOGIC. SIMILAR IS THE POS ITION WITH REGARD TO OTHER DISALLOWANCES. THUS, AFTER CONSIDERING ORDER OF TH E LD.CIT(A), WE ARE OF THE VIEW THAT THE LD.CIT(A) EXAMINED THE ISSUE WITH ALL POSSIBLE ANGLES AND IN ITA NO.182/RJT/2014 6 DETAIL. WE DO NOT SEE ANY REASON TO INTERFERE IN T HE ORDER OF THE LD.CIT(A) ON THESE ISSUES. IT IS UPHELD. APPEAL OF THE REVENUE IS DISMISSED. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE COURT ON 10 TH APRIL, 2018 AT AHMEDABAD. SD/- SD/- (AMARJIT SINGH) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER