HARI BHOJA SHETTY, MUMBAI V. ASST CIT 20(1), MUMBAI

ITA 1868/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88559 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 03-12-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 19-03-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: LOVE KUMAR
• Assessee Lawyers: MUNIR MERCHANT
• Keywords: Business income; Depreciation; Opportunity of being heard; Transactions in derivatives; Capital receipt; Revised return
• Section: 43(5); 139(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H, MUMBAI , ,, , !' !' !' !'#$ #$ #$ #$ $$$ $$$ $$$ $$$% %% %!' !' !' !' & & & & BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO. : 1868/MUM/2012 (ASSESSMENT YEAR: 2007-08) HARI BHOJA SHETTY, D-9, BIMA NAGAR, SIR M V ROAD, ANDHERI (EAST), MUMBAI - 400 069 .: PAN: AAFPS 8877 A VS ASST. COMMISSIONER OF INCOME TAX-20(1), MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MUNIR MERCHANT RESPONDENT BY : SHRI LOVE KUMAR /DATE OF HEARING : 07-01-2015 ! / DATE OF PRONOUNCEMENT : 04-03-2015 ! ! ! ! ORDER $$$ $$$ $$$ $$$ , , , , : :: : PER VIVEK VARMA, JM: THE APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) 31, MUMBAI, DATED 17.01.2012, WHEREIN THE FOLLOWING GROUNDS HAVE BEEN RAISED: 1. ASSESSMENT ORDER BAD IN LAW SINCE REASONABLE OPPORTUNITY OF BEING HEARD NOT GRANTED TO THE APPEL LANT: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED COMMISSIONER OF INCOME-TAX APPEALS - 31 ('CIT(A)'), IN PASSING THE APPEAL ORDER ERRED IN NOT AFFORDING A REASONABLE OPPORTUNITY OF BEING HEARD T O THE APPELLANT AND THUS VIOLATED THE PRINCIPLES OF NATUR AL JUSTICE. 2. DISALLOWANCE OF REPAIRS AND MAINTENANCE EXPENSES AMOUNTING TO RS. 15,326/-: WITHOUT PREJUDICE TO GROUND NO. 1 ABOVE, ON THE FAC TS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LE ARNED CIT(A) ERRED IN CONFIRMING THE AD-HOC DISALLOWANCE OF RS. 15,326 MADE BY THE LEARNED ASST. COMMISSIONER OF HARI BHOJA SHETTY ITA 1868/M/2012 2 INCOME-TAX 20(1) ('AO') BEING 20% OF THE EXPENDITUR E INCURRED BY THE APPELLANT TOWARDS REPAIRS AND MAINTENANCE EXPENSES. 3. DISALLOWANCE OF CONVEYANCE EXPENSES OF SUM OF RS. 14,519/-: WITHOUT PREJUDICE TO GROUND NO. 1 ABOVE, ON THE FAC TS AND IN CIRCUMSTANCES OF THE CASE, THE HON'BLE CIT(A) ER RED IN CONFIRMING THE AD-HOC DISALLOWANCE OF RS. 14,519/- MADE BY THE LEARNED AO BEING 20% OF THE EXPENDITURE INCURRED BY THE APPELLANT TOWARDS CONVEYANCE EXPENSES. 4. DISALLOWANCE OF DEPRECIATION DEDUCTION OF RS. 19,23 2/-: WITHOUT PREJUDICE TO GROUND NO. 1 ABOVE, ON THE FAC TS AND IN CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ER RED IN CONFIRMING THE AD-HOC DISALLOWANCE OF RS. 19,232/- MADE BY THE LEARNED AO BEING 20% OF THE DEPRECIATIO N ON MOTOR CAR CLAIMED BY THE APPELLANT. 5. DISALLOWANCE OF TELEPHONE EXPENSES AMOUNTING RS. 4,374/-: WITHOUT PREJUDICE TO GROUND NO. 1 ABOVE, ON THE FAC TS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN CONFIRMING THE AD-HOC DISALLOWANCE OF RS. 4,374/- M ADE BY AO, BEING 10% OF THE EXPENDITURE INCURRED BY THE APPELLANT TOWARDS TELEPHONE EXPENSES. 6. ADDITION OF RS. 25,000/- TO THE TOTAL INCOME IN REL ATION TO OTHER INCOME OF THE ASSESSEE: WITHOUT PREJUDICE TO GROUND NO. 1, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS. 25,000/- AS INCOME F ROM OTHER SOURCES TO THE RETURNED INCOME OF THE APPELLA NT 7. DISALLOWANCE OF SET-OFF AND CARRY FORWARD OF LOSS A RISING FROM F & 0 DERIVATIVES TRANSACTION AMOUNTING RS. 39,00,801/-: THE HONBLE CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF DERIVATIVE LOSS AMOUNTING TO RS. 39,00,801 ARISING FROM F & 0 TRANSACTIONS CARRIED O UT BY THE APPELLANT DURING THE YEAR. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR WITHDRAW ALL OR ANY OF THE GROUNDS OF APPEAL HEREIN AND TO SUBMIT SUCH STATEMENTS, DOCUMENTS AND PAPERS AS MAY BE CONSIDERED NECESSARY EITHER AT OR BEFORE THE APPEAL HEARING. 2. THE FACTS ARE THAT THE ASSESSEE AN INDIVIDUAL, ENGAGED IN THE BUSINESS OF SHARE TRADING AND SECURITIES AND EXPORTE R OF DYES AND POWDER, UNDER THE NAME OF LYNX TECHNOLOGIES INC. 3. IN THE YEAR UNDER CONSIDERATION, THE AO PICKED UP TH E FOLLOWING EXPENSES AND MADE AD HOC DISALLOWANCE AS FOLLOWS: HARI BHOJA SHETTY ITA 1868/M/2012 3 S.NO. HEAD OF EXPENSE EXPENSE DEBITED TO P&L A/C. % OF DISALLOWANCE QUANTUM OF DISALLOWANCE 01 REPAIRS & MAINTENANCE 76,632 20% 15,326 02 CONVEYANCE 72,594 20% 14,519 03 DEPRECI ATION ON CAR 95,159 20% 19,232 04 TELEPHONE EXPENSES 43,748 10% 4,374 4. THE AO FURTHER ADDED BACK RS. 25,000/-, WHICH WAS TREATED AS A CAPITAL RECEIPT. THE AO DISALLOWED THE CLAIM OF THE ASSESSEE, AS NO DETAILS WERE PROVIDED. HE, THEREFORE, ADDED RS. 25,000/- AND TREATED THE SAME AS INCOME FROM OTHER SOURCES. 5. IN THE RETURN OF INCOME, THE ASSESSEE HAD CLAIMED LOSS ON F & O DERIVATIVES AT RS. 39,00,801/-. THE ASSESSEE HAD FILE D A REVISED RETURN CLAIMING THE SET OFF OF THE LOSS AGAINST OT HER BUSINESS INCOME. 6. THE AO HELD THE SAME TO BE SPECULATIVE AND DISALLOWED THE LOSS AS BUSINESS LOSS, AS CLAIMED. CONSEQUENTIALLY, HE DISALLOWE D THE SET OFF OF BUSINESS LOSS. 7. THE ASSESSEE APPROACHED THE CIT(A), BEFORE WHOM, THE ASSESSEE REITERATED HIS SUBMISSIONS, BUT THE CIT(A), SUSTAIN ED THE ORDER OF THE AO, SUSTAINING ALL THE DISALLOWANCES MADE. 8. AGAINST THIS ORDER OF THE CIT(A), THE ASSESSEE IS NOW BEFORE THE ITAT. 9. BEFORE US THE AR SUBMITTED THAT THE AD HOC DISALLOWANCES OF EXPENSES AS MADE BY THE AO AND SUSTAINED BY THE CI T(A) ARE INFIRM BECAUSE ALL THE EXPENSES PERTAIN TO THE BUSINESS, WHICH IN ANY CASE ARE EXCESS. 10. THE DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 11. WE HAVE HEARD THE ARGUMENTS AND HAVE PERUSED TH E ORDERS OF THE REVENUE AUTHORITIES. IT IS SEEN THAT THE R EVENUE AUTHORITIES HAVE NOT DENIED THE INCURRING OF THESE EXPENS ES AND HARI BHOJA SHETTY ITA 1868/M/2012 4 PERTAINING TO THE BUSINESS, BUT BEING A CASE OF AN INDIVID UAL, ELEMENT OF PERSONAL NATURE DOES CREEP IN. WE THEREFORE AR E OF THE VIEW THAT AN AD HOC DISALLOWANCE @ 5% WOULD BE QUITE REASONABLE ON THE AGGREGATE OF THE EXPENSES TAKEN UP BY THE AO, WITHOUT ACTUALLY ASSIGNING THE EXPENSE HEAD. 12. WE THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) ON TH ESE DISALLOWANCES AND DIRECT THE AO TO COMPUTE THE DISALLOWANC E @ 5% ON RS. 2,88,133/- (BEING THE AGGREGATE OF EXPENSES DISALLOWED). 13. GROUND NO. 2 TO 5 ARE THEREFORE PARTLY ALLOWED. 14. GROUND NO. 6 PERTAINS TO ADDITION OF RS. 25,000/- UND ER THE HEAD INCOME FROM OTHER SOURCES. 15. THE REASON FOR DISALLOWANCE OF THE 25,000/- AS CAPITAL RECEIPT AND TREATING THE SAME TO BE INCOME FROM OTHER S OURCES IS THAT THE ASSESSEE DID NOT FILE ANYTHING IN EVIDENCE TO S TRENGTHEN HIS CLAIM. 16. SINCE NO EVIDENCE HAS BEEN FILED EVEN BEFORE US, WE SUSTAIN THE OBSERVATIONS OF THE REVENUE AUTHORITIES AND TREAT THE RECEIPT AS INCOME FROM OTHER SOURCES. 17. GROUND NO. 6 IS THEREFORE, REJECTED. 18. GROUND NO. 7 PERTAINS TO SET OFF AND CARRY FORWARD OF LOSS ON F & O DERIVATIVES DISALLOWED BY THE REVENUE AUTHORITIES. 19. THE REVENUE AUTHORITIES TREATED THE F&O TRANSACTIO NS AS SPECULATIVE IN NATURE AND THEREFORE, THEY WERE OF THE VIEW THAT THE LOSS COULD NOT BE TREATED AS BUSINESS LOSS AND ALSO IT COULD NOT BE ALLOWED TO BE CARRIED FORWARD AS BUSINESS LOSS, SINC E LOSS ON SPECULATION CAN BE ALLOWED AGAINST SPECULATIVE GAINS ONL Y. IT HARI BHOJA SHETTY ITA 1868/M/2012 5 WAS ALSO HELD THAT SINCE THE ASSESSEE FAILED TO PROVIDE AN Y DOCUMENTARY PROOF TO SUBSTANTIATE HIS CLAIM. 20. AGAINST THESE OBSERVATIONS, THE ASSESSEE BEFORE THE ITAT. 21. BEFORE US, THE AR SUBMITTED THAT LEGISLATURE IS CLEAR IN DEFINING AS TO WHAT IS SPECULATION/SPECULATIVE TRANSACTION A ND ITS EXCLUSIONS. THE AR SUBMITTED THAT AS PER SECTION 43(5) , THE LEGISLATURE HAS ITSELF DRAWN THE FINE LINE OF DISTINCTION. 22. THE AR THEREFORE, SUBMITTED THAT THE LOSS OF F&O DERIVATIVES CANNOT BE TREATED AS SPECULATION. 23. WE HAVE HEARD THE ARGUMENTS AND HAVE PERUSED TH E ORDERS OF THE REVENUE AUTHORITIES. 24. AT THE OUTSET, THE LOSS AS CLAIMED ON F&O DERIVATIVES SQUARELY FALL IN THE EXCLUSIONS AS MENTIONED U/S 40(5), HENC E WE HOLD THE LOSS TO BE BUSINESS LOSS, ELIGIBLE TO BE CARRIED FORWARD. 25. THE OTHER GRIEVANCE OF THE REVENUE AUTHORITIES HAD BEEN THAT THE CLAIM BACKED BY DETAILS WAS MADE IN THE REVISED RETURN, IN SUCH A CIRCUMSTANCE THE LOSS CANNOT BE ALLOWED. WE FIND FROM THE SYNOPSIS SUBMITTED BY THE ASSESSEE THAT IN THE CA SE OF KARNATAKA FOREST DEVELOPMENT CORP. LTD VS DCIT, REPORTED IN 54 SOT 76 (BANG ITAT) THAT FOR MAKING THE CLAIM OF LOSS TO BE CARRIED FORWARD, WHICH WAS OMITTED TO HAVE BEEN CLAIMED ORIGINALLY, BUT THE SAME IS CLAIMED IN THE REVISED RETURN FILED U/S 139(5) IS NOT ALLOWED. THIS ACCORDING TO THE RATIO LAID DOWN BY CO-ORDINATE BENCH OF BANGALORE ITAT IN KARNATAKA FOREST ( SUPRA ) IS NULL AND VOID , AS HELD, THE ASSESSEE HAS FILED ITS ORIGINAL RETURN OF INCO ME SHOWING POSITIVE TAXABLE INCOME, WHILE IN THE REVIS ED RETURN OF INCOME THE ASSESSEE CLAIMED LOSS TO BE CA RRIED FORWARD. THE MAIN REASON FOR HOLDING THAT THE REVIS ED RETURN WAS NON EST IS THAT A LOSS HAS TO BE FILED W ITHIN THE TIME SPECIFIED IN SUB-SECTION (3) OF SECTION 13 9. HARI BHOJA SHETTY ITA 1868/M/2012 6 FROM A LITERAL READING OF SECTION 139(3), IT IS TO BE SEEN THAT WHERE ANY PERSON CLAIMS A LOSS FOR ANY PREVIOU S YEAR AND ALSO CLAIMS THAT THE LOSS OR ANY PART THER EOF SHOULD BE CARRIED FORWARD, THEN THE RETURN HAS TO B E FURNISHED WITHIN THE TIME ALLOWED UNDER SUB-SECTION (1) OF SECTION 139. IN THE INSTANT CASE, ORIGINAL RETUR N FILED BY THE ASSESSEE WAS UNDER SECTION 139(1), BUT THERE WAS NO CLAIM OF LOSS OR LOSS TO BE CARRIED FORWARD. THE REFORE, IT CANNOT BE TREATED AS A RETURN UNDER SECTION 139( 3). THE ASSESSEE HAS FILED REVISED RETURN UNDER SUB-SECTION (5) OF SECTION 139. UNDISPUTEDLY, THE ASSESSEE HAS FILED ORIGINAL RETUR N UNDER SUB-SECTION (1) OF SECTION 139. IN THE SAID R ETURN OF INCOME, THE ASSESSEE HAS NOT CLAIMED THE LOSS. SUB- SECTION (5) PROVIDES THAT WHERE THE ASSESSEE DISCOV ERS ANY OMISSION OR A WRONG STATEMENT, THEN HE CAN FILE A REVISED RETURN. WHERE THE WRONG STATEMENT OR OMISSI ON RESULTS IN THE CLAIM OF LOSS, WHEN THE RETURN FILED UNDER SECTION 139(5) IS TO BE CONSIDERED OR NOT, IS TO BE NOW SEEN. WHETHER OMISSION OF SUCH A CLAIM OF LOSS IN T HE ORIGINAL RETURN OF INCOME IS BONA FIDE OR NOT IS AL SO TO BE SEEN. FROM THE REVISED RETURN OF INCOME. IT IS NOTI CED THAT THE ASSESSEE HAS NOT ONLY CLAIMED THE LOSS OF THE Y EAR 2003-04 TO BE CARRIED FORWARD. THUS, IT IS TO BE PRESUMED THAT THE ASSESSEE WAS HAVING THE KNOWLEDGE OF THE LOSS FOR THE ASSESSMENT YEAR 2003-04 WHICH W AS TO BE CARRIED FORWARD AND CLAIMED IN THE ASSESSMENT YEAR 2004-05. THEREFORE, WHEN IT FILED THE RETURN U NDER SECTION 139(1), IT SHOULD HAVE TAKEN THIS LOSS INTO CONSIDERATION AND SHOULD HAVE FILED THE RETURN UNDE R SECTION 139(3). HAVING FILED THE ORIGINAL RETURN OF INCOME UNDER SECTION 139(1), THE ASSESSEE CANNOT LATER ON FILE THE REVISED RETURN OF INCOME CLAIMING THE LOSS ON T HE GROUND THAT IT WAS DISCOVERED SUBSEQUENTLY THIS ARGUMENT OF THE ASSESSEE IS NOT ACCEPTABLE. IN VIEW OF THE SAME, THE FINDINGS OF THE COMMISSIONER (APPEALS ) WERE TO BE AGREED WITH THAT WHEN THE ASSESSEE WAS CLAIMING THE LOSS FOR RELEVANT ASSESSMENT YEAR AND ALSO CLAIMING THE LOSS TO BE CARRIED FORWARD OF THE LOSS OF 2003-04 AND 2004-05, RESPECTIVELY, THEN THE ASSESSE E WAS REQUIRED TO FILE RETURN UNDER SECTION 139(3) AN D, THEREFORE, THE REVISED RETURN FILED UNDER SECTION 1 39(5) COULD NOT BE ACCEPTED AND HAD TO BE TREATED AS NULL AND VOID. 26. READING THE DECISION OF THE CO-ORDINATE BENCH, WE FIND THAT THE ENTIRE CRUX LAY IN FILING OF THE REVISED RETURN UN DER THE CORRECT PROVISION, AS PRESCRIBED BY THE STATUTE. THE STA TUTE HAS PROVIDED SECTION 139(3) AS THE SPECIFIC PROVISION FOR CLAIMING T HE LOSS TO BE CARRIED FORWARD. IN THE INSTANT CASE IN HAND, THE ASSESSEE FILED THE REVISED RETURN U/S 139(5), WHEREIN THE P ERSON IS ALLOWED TO REVISE AN OMISSION OR A WRONG STATEMENT IN T HE ROI HARI BHOJA SHETTY ITA 1868/M/2012 7 FILED U/S 139(1). BUT WHEN THE CASE OF CARRY FORWARD OF LOSS IS CONCERNED, IT CAN ONLY BE DONE EITHER U/S 139(1) OR AT T HE MOST U/S 139(3). WE, THEREFORE, RESPECTFULLY, FOLLOWING THE DECISION OF CO-ORDINATE BENCH AT BANGALORE, HOLD THAT THE LOSS CANNO T BE ALLOWED TO BE CARRIED FORWARD, CONSEQUENTIALLY, WE REJECT THE GROUND AS TAKEN. 27. GROUND NO. 7 IS THEREFORE REJECTED. 28. IN THE RESULT, THE APPEAL AS FILED BY THE ASSESSEE IS TREATED AS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 04/03/2015. SD/- SD/- ( ) ( $$$ $$$ $$$ $$$ ) % % % % & & & & % % % % (R C SHARMA) ( VIVEK VARMA ) ACCOUNTANT MEMBER J UDICIAL MEMBER MUMBAI, DATE: 04/03/2015 '/ COPY TO:- 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) THE CIT(A) -31, MUMBAI. 4) THE CIT-20, MUMBAI/CIT -20, MUMBAI. 5) / THE D.R. H BENCH, MUMBAI. 6) ()* + COPY TO GUARD FILE. ,%- / BY ORDER / / TRUE COPY / / . / / 0 , '1! , 2 3 DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN, SR.PS