Niranjan Jata, Bhubaneswar V. DCIT,Salary Circle-3(1), Bhubaneswar

ITA 185/CTK/2019

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 0179 (ITAT-CUTTACK)
• Duration Of Justice: 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2016-2017
• Appeal Filed On: 07-06-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transactions in derivatives; Speculation loss; Capital Gains
• Section: 28; 44AD; 43(5); 201; 73(1); 73

Judgement Text

P A G E 1 | 8 IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK SMC BENCH, CUTTACK BEFORE SHRI CHANDRA MOHAN GARG , JUDICIAL MEMBER ITA NO . 185 /CTK/201 9 ASSESSMENT YEAR : 201 6 - 17 NIRANJAN JATA, AL - 117, VSS NAGAR, SAHEED NAGAR, BHUBANESWAR. VS. DCIT, SALARY CIRCLE 3(1), BHUBANESWAR. PAN/GIR NO. ADCPJ 5711 A (APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY : SHRI P.R.MOHANTY , AR REVENUE BY : SHRI SUBHENDU DUTTA, DR DATE OF HEARING : 19 / 1 2 / 201 9 DATE OF PRONOUNCEMENT : 31 / 1 2 / 201 9 O R D E R THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A), 2 , BHUBANESWAR DATED 15.4.2019 FOR THE ASSESSMENT YEAR 2016 - 17. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1.FOR THAT, THE ORDER OF THE FORUM BELOW IS ARBITRARY, ILLEGAL, UNJUSTIFIED AND ERRONEOUS AND HAS BEEN PASSED ON IMPROPER APPLICATION OF MIND, BEING DEVOID OF MERIT AS SUCH DESERVES TO BE QUASHED IN LIMINE. 2. FOR THAT, THE ESTIMATION OF INCOME OF TRADING TRA NSACTION IN DERIVATIVES U/S 44AD WITHOUT ACCEPTING THE RETURNED LOSS, CONVERTING A LOSS INTO ESTIMATED PROFIT NOT ONLY IS UNJUSTIFIED ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AS CONTRARY TO LEGISLATIVE INTENTIONS BUT ALSO, UNWARRANTED AS PER THE S TATUTORY PROVISIONS AND THE LOSS FROM TRADING TRANSACTION IN DERIVATIVES DESERVES TO BE WELL RECOGNIZED, ACCEPTED AND HAS TO BE ALLOWED. ITA NO.185/CTK/2019 ASSESSMENT YEAR : 2016 - 17 P A G E 2 | 8 3.FOR THAT, DISALLOWANCE OF SET OFF OF BUSINESS LOSS U/S 71 IS UNJUSTIFIED AND UNWARRANTED AND DEVOID OF ANY MERIT, BEING LEGITIMATE SET OFF ALLOWED BY STATUTE, DESERVES TO BE ALLOWED IN TOTO. 3. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS A SALARIED EMPLOYEE IN OIL INDIA LIMITED. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS TRANSACTED LARGE VALUE SALE OF FUTURES (DERIVATIVES) IN A RECOGNIZED STOCK EXCHANGE REPORTED IN SECURITIES TRANSACTION TAX RETURN (STT CODE 5). ON VERIFICATION OF DOCUMENTS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS SUBMITTED TRAD ING TRANSACTION STATEMENT FOR RS.30,00,098/ - . HOWEVER, TAX AUDIT REPORT AND RELEVANT BOOKS OF ACCOUNT HAVE NOT BEEN SUBMITTED BEFORE HIM. A CCORDING TO THE AO, AS PER SECTION 44AD OF THE ACT, A SUM EQUAL TO 8% OF THE TOTAL TURNOVER SHALL BE CONSIDERED AS INCOME FROM BUSINESS AND PROFESSION AND , THEREFORE, HE ESTIMATED THE TURNOVER @ 8% OF RS.30,00,098/ - AND ADDED RS.2,40,008/ - TO THE INCOME OF THE ASSESSEE. 4. ON APPEAL, THE CIT(A) CONFIRMED THE ADDITION. HENCE, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. GROUND NOS.1 & 4 ARE GENERAL IN NATURE, HENCE, REQUIRES NO SEPARATE ADJUDICATION. 6. APROPOS GROUND NO.2 OF APPEAL, LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS SUFFERED LOSS DURING TRADING IN DERIVATIVES, THEREFORE, THE QUESTIO N OF INCOME DOES NOT ARISE. LD COUNSEL SUBMITTED THAT THE ASSESSEE IS A SALARIED EMPLOYEE AND THE TURNOVER IN DERIVATIVE ITA NO.185/CTK/2019 ASSESSMENT YEAR : 2016 - 17 P A G E 3 | 8 TRANSACTION IS LESS THAN RS.1 CRORE, THEREFORE, HE IS NOT LIABLE TO CONDUCT TAX AUDIT. LD A.R. REFERRED TO PAPER BOOK PAGES 1 & 2 CO NTAINING AFFIDAVIT BY THE ASSESSEE AND SUBMITTED THAT ALL THE DOCUMENTS I.E. CERTIFIED COPY OF CONSOLIDATED LEDGER FROM BROKER, ALL BANK STATEMENT (UCO BANK, SBI, ICICI AND IOB) AND CERTIFIED GAIN & LOSS STATEMENT FROM BROKER AND REPLY TO SHOW CAUSE NOTIC E AND EXPLAINING EVERY QUERY RAISED IN RELATION TO LOSS, WERE SUBMITTED BEFORE THE ASSESSING OFFICER . 7. REPLYING TO ABOVE, LD DR SUBMITTED THAT SINCE THE ASSESSEE HAS NOT MAINTAINED BOOKS OF ACCOUNTS, THE ESTIMATION DONE BY THE LOWER AUTHORITIES IS CORR ECT. 8. HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD OF THE CASE. IN THIS CASE, THE ASSESSEE, IN THE RELEVANT ASSESSMENT YEAR, WAS IN THE TRADING TRANSACTIONS IN DERIVATIVES OF RS.30,00,098/ - BUT HAS NOT MAINTAINED BOOKS OF ACCOUNT U/S.44AD OF THE A CT. THEREFORE, THE ASSESSING OFFICER ESTIMATED THE PROFIT @ 8% OF THE TOTAL TRANSACTION WHICH IS CONFIRMED BY THE LD CIT(A). 9,. THE CONTENTION OF LD A.R. IS THAT THE ASSESSEE HAS INCURRED LOSS IN DERIVATIVE TRANSACTIONS AND, THEREFORE, NO INCOME HAS ARISEN OUT OF THIS TRANSACTION. 10. I FIND THAT S ECTION 44AD(1), STARTS WITH NON - OBSTANTE CLAUSE WITH REGARDS TO SECTION 28 TO SECTION 43C, PROVIDES THA T A SUM EQUAL TO 8% OF THE TOTAL TURNOVER OR A SUM HIGHER THAN THE 8% CLAIMED TO HAVE BEEN EARNED BY THE ELIGIBLE ASSESSEE SHALL BE DEEMED TO BE THE PROFIT AND GAINS ITA NO.185/CTK/2019 ASSESSMENT YEAR : 2016 - 17 P A G E 4 | 8 OF SUCH BUSINESS AND CHARGEABLE UNDER THE HEAD PGBP. EXPLANATION TO SECTION 44AD DOESNT SPECIFICALLY EXCLUDE TRANSACTIONS IN DERIVATIVES F&O AS NOT ELIGIBLE BUSINESS. IN THE PRESENT CASE, THERE IS NO DISPUTE TO THE FACT THE ASSESSEE HAS INCURRED LOSS IN TRADING IN DERIVATIVES . FROM THE RELEVANT PARA 2 AT PAGE 2 OF THE ASSESSMENT ORDER, I OBSERVE THAT THE ASSESSING OFFICER, BY NOTICING THE TRADING TRANSACTION STATEMENT FOR THE FINANCIAL YEAR 2015 - 16, ESTIMATED THE NET INCOME OF THE ASSESSEE U/S. 44AD OF THE INCOME TAX ACT (IN SHORT THE ACT) @ 8%. REGARDING THE ESTIMATION, IT IS THE CONTE NTION OF LD COUNSEL FOR THE ASSESSEE THAT CONVERTING A LOSS INTO ESTIMATED PROFIT NOT ONLY IS UNJUSTIFIED BUT ALSO CONTRARY TO LEGISLATIVE INTENTIONS AND UNWARRANTED AS PER THE STATUTORY PROVISIONS OF THE ACT. HE FURTHER SUBMITTED THAT THE LOSS FROM DERI VATIVE TRANSACTION DESERVES TO BE WELL RECOGNISED AND HAS TO BE ALLOWED. LD COUNSEL HAS PLACED RELIANCE ON THE ORDER DATED 20.9.2013 OF ITAT DELHI B BENCH IN THE CASE OF ITO VS FELEX ENTERPRISES PVT LTD IN ITA NO.5129/DEL/2012 FOR ASST.YEAR: 2007 - 08 AND SUBMITTED THAT SPECULATION LOSS FROM DERIVATIVE TRANSACTION SHOULD BE ADJUSTED AGAINST PROFIT BY APPLYING SECTION 43(5) (C) & (D) INSTEAD OF SECTION 73 R.W.S 73(1) OF THE ACT. HE ALSO DREW MY ATTENTION TOWARDS RELEVANT LAST PARA AT PAGE 4 OF THE ORDER AND SUBMITTED THAT THE LOSS INCURRED ON ACCOUNT OF TRANSACTION IN SHARE FUTURES ON A RECOGNIZED STOCK EXCHANGE IS NORMAL BUSINESS LOSS AND SAME CANNOT BE TREATED AS SPECULATIVE LOSS. LD A. R. ALSO DREW MY ATTENTION TOWARDS PAGE 3 OF THE PAPER BOOK AND SUBMITTED THAT ITA NO.185/CTK/2019 ASSESSMENT YEAR : 2016 - 17 P A G E 5 | 8 THIS KIND OF LOSS STATEMENT HAS BEEN ISSUED BY PORTFOLIO MANAGER DOING TRANSACTION ON BEHALF OF THE ASSESSEE, WHEREIN, LOSS OF EQUITY SHOWN AS RS.3,37,599.56 HAS BEEN ACCEPTED BY THE ASSESSING OFFICER. HOWEVER, THE ASSESSING OFFICER DECLINED TO ACCEPT THE LOSS ON SHARE TRADING, WHICH HAS BEEN SHOWN AS LOSS AT RS.22,30,251.19 SHOWN BY THE SAID PORT FOLIO MANAGER AS OTHERS IN THE CASE OF THE ASSESSEE. LD COUNSEL SUBMITTED THAT ALL THE TRANSACTIONS HAVE BEEN DONE ON A RECOGNIZED STOCK EXCHANGE THROUGH A REGISTERED BROKER. THEREFORE, THE LOSS FROM SUCH TRANSACTION HAS TO BE ALLOWED AS NORMAL BUSINESS LOSS. 11. ON THIS CONTENTION, LD D.R. STRONGLY SUPPORTED THE ACTION OF THE ASSESSIN G OFFICER IN ESTIMATING THE NET PROFIT @ 8%. HOWEVER, HE COULD NOT ASSIST THE TRIBUNAL THAT FROM WHERE AND ON WHAT BASIS THE AO HAS TAKEN THE AMOUNT OF TURNOVER AS RS.30,00,098/ - FOR THE FINANCIAL YEAR 2015 - 16 AS STATED IN PARA 2 AT PAGE 2 OF THE ASSESSME NT ORDER. 12. ON CAREFUL CONSIDERATION OF THE RIVAL SUBMISSIONS, I AM OF THE CONSIDERED VIEW THAT WHEN THE ASSESSING OFFICER WITHOUT DISPUTING THE AMOUNT OF EQUITY LOSS HAS STATED IN THE SAID GAIN/LOSS STATEMENT ISSUED BY THE SHARE BROKER AS ON 31.3.2016, THEN THE AMOUNT OF LOSS FROM OTHER SHARE TRANSACTION CANNOT BE DISALLOWED OR DISBELIEVED. ON ESTIMATION OF PROFIT @ 8% BY THE AO, I AM OF THE VIEW THAT THIS ACTION IS BASELESS, MEANINGLESS AND HAS NOT BEEN SUPPORTED BY ANY DOCUMENTS OR CORROBORATIVE EVIDE NCE. ITA NO.185/CTK/2019 ASSESSMENT YEAR : 2016 - 17 P A G E 6 | 8 THEREFORE, SUCH KIND OF ESTIMATION CANNOT BE HELD AS SUSTAINABLE AND THUS, I DEMOLISH THE SAME. 13. RESPECTFULLY FOLLOWING THE PROPOSITION RENDERED BY ITAT DELHI IN THE CASE OF FELEX ENTERPRISES PVT LTD (SUPRA), I DIRECT THE ASSESSING OFFICER THAT TH E AMOUNT OF RS.22,30,251.19 SHOULD BE ALLOWED TO THE ASSESSEE AS NORMAL BUSINESS LOSS. HENCE, GROUND NO.2 OF THE ASSESSEE IS ALLOWED. 14. APROPOS GROUND NO.3 OF THE APPEAL, LD COUNSEL SUBMITTED THAT THE ASSESSING OFFICER HAS DENIED SET OFF OF BUSINESS LOSS BEING LEGITIMATE SET OFF ALLOWED BY THE STATUTE. THEREFORE, SAME MAY KINDLY BE ALLOWED. LD COUNSEL SUBMITTED THAT SINCE THE TRANSACTION CARRIED OUT BY THE ASSESSEE IS A NON - SPECULATIVE TRANSACTION, PROVISIONS OF SECTION 43(5) OF THE ACT IS NOT ATTRACTED TO THE FACTS OF THE INSTANT CASE AND LIKEWISE THE ASSESSEE WAS TRADING IN DERIVATIVES AND NOT IN SHARES, SO THE LOSS SUFFERED BY THE ASSESSEE IN TRADING IN DERIVATIVES IS EXCL UDED FROM THE AMBIT OF EXPLANATION TO SECTION 73 OF THE ACT AND HENCE, SUCH LOSS IS REQUIRED TO BE ALLOWED FOR SET OFF AGAINST REGULAR INCOME OF THE ASSESSEE FROM OTHER HEADS OF INCOME. LD COUNSEL FOR THE ASSESSEE DREW MY ATTENTION TO SECTION 71(1) OF THE ACT AND SUBMITTED THAT THE ASSESSEE IS ENTITLED TO HAVE THE AMOUNT OF LOSS SET OFF AGAINST HIS INCOME, IF ANY, ASSESSABLE FOR THAT ASSESSMENT YEAR UNDER ANY OTHER HEAD. LD COUNSEL FOR THE ASSESSEE RELIED ON THE DECISION OF MUMBAI BENCHES OF THE TRIBUNA L IN THE CASE OF BABULAL ENTERPRISES VS ACIT IN ITA ITA NO.185/CTK/2019 ASSESSMENT YEAR : 2016 - 17 P A G E 7 | 8 NO. 6031/MUM/1996 ORDER DATED 12.2.1997, WHEREIN, THE TURNOVER IS DEFINED THAT WHERE THE ACTUAL DELIVERY WAS NOT TAKEN AND DIFFERENCE IN PRICE WAS SETTLED ON THE BASIS OF CONTRACT NOTE, THE TURNOVER CANNOT INCLUDE THOSE TRANSACTIONS VALUE. HE ALSO SUBMITTED THAT SIMILAR VIEW HAS BEEN EXPRESSED BY MUMBAI TRIBUNAL IN THE CASE OF GROWMORE EXPORTS LTD VS ACIT, 78 ITD 95 (MUM). 15. REPLYING TO ABOVE, LD D.R. SUBMITTED THAT THE ASSESSING OFFICER RIGHTLY ALLOWED SHORT TERM CAPITAL LOSS OF RS. 3,37,599.56 INCURRED BY THE ASSESSEE TO BE CARRIED FORWARD TO NEXT YEAR UNDER SECTION 74 OF THE ACT AND HE WAS RIGHT IN DENYING SET OFF OF LOSS SUFFERED BY THE ASSESSE E FROM TRADING OF DERIVATIVE TRANSACTION. 16. ON CAREFUL CONSIDERATION OF THE RIVAL SUBMISSIONS, FIRST OF ALL, I NOTE THAT WHILE ALLOWING GROUND NO.2 OF APPEAL OF THE ASSESSEE, I HAVE REACHED TO A LOGICAL CONCLUSION THAT THE ASSESSING OFFICER HAS WRONGLY E STIMATED THE NET INCOME OF THE ASSESSEE AND WAS NOT CORRECT IN TREATING THE LOSS AS SPECULATIVE LOSS AND SAME HAS TO BE TREATED AS NORMAL BUSINESS LOSS. THEREFORE, AS PER PROVISIONS OF SECTION 71( 1 ) OF THE ACT, WHERE IN RESPECT OF ANY ASSESSMENT YEAR, TH E NET RESULT OF THE COMPUTATION OF INCOME UNDER ANY HEAD OF INCOME, OTHER THAN CAPITAL GAINS, IS A LOSS AND THE ASSESSEE HAS INCOME ASSESSABLE UNDER THE HEAD CAPITAL GAINS SUCH LOSS MAY, SUBJECT TO THE PROVISIONS OF THE CHAPTER - VI, BE ENTITLED TO, IF THE AMOUNT OF SUCH ITA NO.185/CTK/2019 ASSESSMENT YEAR : 2016 - 17 P A G E 8 | 8 LOSS SET OFF AGAINST HIS INCOME, IF ANY, ASSESSABLE FOR THAT ASSESSMENT YEAR UNDER ANY HEAD OF INCOME. THEREFORE, KEEPING IN VIEW THE SAID SUB - SECTION( 1 ) OF SECTION 71 OF THE ACT, I DIRECT THE ASSESSING OFFICER TO ALLOW SET OFF THE LOS S INCURRED BY THE ASSESSEE FROM TRADING TRANSACTION IN DERIVATIVES FROM OTHER HEADS OF INCOME. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO RECALCULATE THE TAXABLE INCOME OF THE ASSESSEE. GROUND NO.3 IS ALLOWED. 17. IN THE RESULT, APPEAL OF THE ASSE SSEE IS ALLOWED. ORDER PRONOUNCED ON 31 / 1 2 /201 9 . S D/ - ( CHANDRA MOHAN GARG) JUDICIAL MEMBER CUTTACK; DATED 31 / 1 2 /20 1 9 B.K.PARIDA, SPS COPY OF THE ORDER FORWARDED TO : BY ORDER SR . PVT. S ECRETARY ITAT, CUTTACK 1. THE APPELLANT : NIRANJAN JATA, AL - 117, VSS NAGAR, SAHEED N AGAR, BHUBANESWAR. 2. THE RESPONDENT. DCIT, SALARY CIRCLE 3(1), BHUBANESWAR 3. THE CIT(A) - 2 , BHUBANESWAR 4. PR.CIT - 2 , BHUBANESWAR 5. DR, ITAT, CUTTACK 6. GUARD FILE. //TRUE COPY//