Fairgrowth Enterprises(P)Ltd, Kolkata V. I.T.O. Wd - 5(4),Kolkata, Kolkata

ITA 1875/KOL/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 5020 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 2 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-03-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 24-02-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 20-12-2012
• Court: TRIBUNAL
• Department Lawyers: AMITAVA BHATTACHARYA
• Assessee Lawyers: S M SURANA LD
• Keywords: Business expenditure; Transactions in derivatives
• Section: 143(3)

Judgement Text

ITA NO. 1875/KOL/2012-C-AM M/S. FAIRGROWTH ENTERPRISES P.LTD ITA NO.1876/KOL/2012-C-AM M/S. HARI FINANCE & TRADE P.LTD 1 IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH, KOLKATA BEFORE : SHRI MAHAVIR SINGH, JUDICIAL MEMBER, A ND SHRI M. BALAGANESH, ACCOUNTANT MEMBER I.T.A NO. 1875/KOL/2012 A.Y 2008-09 M/S. FAIRGROWTH ENTERPRISES PVT. LTD VS. I.T.O WA RD 5(4), KOLKATA PAN: AAACF 3597L (APPELLANT) (RE SPONDENT) I.T.A NO. 1876/KOL/2012 A.Y 2008-09 M/S. HARI FINANCE & TRADE PVT. LTD VS. I.T.O WARD 5(4), KOLKATA PAN: AAACH 6601B (APPELLANT) (RE SPONDENT) FOR THE APPELLANT/ASSESSEE: SHRI S.M SURANA , ADVOCATE, LD.AR FOR THE RESPONDENT/DEPARTMENT : SHRI AMITAVA BHATTACHARYA, JCIT, SR.DR DATE OF HEARING: 24-02-2016 DATE OF PRONOUNCEMENT: 09 -03-20 16 ORDER SHRI M.BALAGANESH, AM THESE APPEALS OF THE ASSESSEE ARISE OUT OF SEPARATE ORDERS OF THE LEARNED CIT(A)-VI, KOLKATA IN APPEAL NO. 136/CIT(A)-VI, WD . 5(4)/10-11/KOL DATED 12.10.2012 FOR THE ASSESSMENT YEAR 2008-09 IN THE C ASE OF M/S FAIR GROWTH ENTERPRISES PVT LTD AND APPEAL NO.137/CIT(A)-VI, WD . 5(4)/10-11/KOL DATED 12.10.2012 FOR THE ASSESSMENT YEAR 2008-09 IN THE CASE OF M/S HARI FINANCE & TRADE PVT LTD AGAINST THE SEPARATE ORDERS OF ASSESSMENT F RAMED U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). ITA NO. 1875/KOL/2012-C-AM M/S. FAIRGROWTH ENTERPRISES P.LTD ITA NO.1876/KOL/2012-C-AM M/S. HARI FINANCE & TRADE P.LTD 2 2. THE ISSUE INVOLVED IN BOTH THE APPEALS ARE IDE NTICAL AND AS ASSESSES ARE DIFFERENT , THEY ARE TAKEN UP TOGETHER AND DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 3. THE ONLY ISSUE TO BE DECIDED IN BOTH THE APPEAL S IS AS TO WHETHER THE DISALLOWANCE COULD BE MADE IN THE FACTS AND CIRCUMSTANCES OF THE CASE TOWARDS LOSS ON COMMODITY TRANSACTIONS. 4. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS I N ITA NO. 1876/KOL/2012 :- 1. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDING THE LOSS FROM COMMODITY TRADING BUSINESS AMOUNTING TO RS.626 1870/- AS FICTITIOUS AND NON GENUINE THEREBY REFUSING TO ALLOW TO BE SET OFF AGAINST ANY OTHER INCOME OR TO BE ALLOWED TO BE CARRIED FORWARD FOR F UTURE SET OFF AGAINST THE INCOME FROM SPECULATION BUSINESS. 2. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL) SHOULD HAVE HELD THAT THE LOSS SUFFERED BY THE APPELLANT IN COMMODITY TRADING BUSINESS WAS A GENUINE LOSS AS HELD BY THE ASSESSING OFFICER AND T HE SAME SHOULD HAVE BEEN ALLOWED TO BE SET OFF AGAINST OTHER INCOME. 3. FOR THAT THE LEARNED CIT (A) SHOULD HAVE HELD T HAT THE LOSS ARISING FROM COMMODITY TRADING BUSINESS AMOUNTING TO RS.626 1870/- FELL WITHIN EXPLANATION TO SECTION 73 OF I T ACT 1961 AND ACCOR DINGLY WAS LIABLE TO BE SET OFF AGAINST OTHER INCOME. 4. FOR THAT THE APPELLANT CRAVES LEAVE TO PUT IN A DDITIONAL GROUNDS BEFORE OR AT THE HEARING OF APPEAL. THE SAME GROUNDS HAS BEEN RAISED BY THE ASSESSEE IN ITA NO. 1875/KOL/2012 EXCEPT CHANGE IN DISALLOWANCE OF LOSS ON COMMODITY TRANSAC TIONS AMOUNTING TO RS. 46,62,796/-. WE PROCEED TO ADJUDICATE THE ISSUE IN THE CASE OF ITA NO. 1876/KOL/2012 ITA NO. 1875/KOL/2012-C-AM M/S. FAIRGROWTH ENTERPRISES P.LTD ITA NO.1876/KOL/2012-C-AM M/S. HARI FINANCE & TRADE P.LTD 3 AND THE DECISION RENDERED THEREON WOULD APPLY WITH EQUAL FORCE TO ITA NO. 1875/KOL/2012 ALSO. 5. THE BRIEF FACTS OF THE CASE IN ITA NO. 1876/KOL /2012 IS THAT THE ASSESSEE HAD INCURRED A LOSS OF RS. 62,61,870/- IN COMMODITY TRA NSACTIONS WHICH WAS SET OFF AGAINST INCOME ARISING FROM PURCHASE AND SALE OF SHARES. T HE ASSESSEE CLAIMED THAT IT IS ENGAGED IN THE SPECULATION BUSINESS OF PURCHASE AND SALE OF SHARES AND ALSO DEALING IN COMMODITIES BUSINESS. HENCE LOSS INCURRED ON COMMO DITY TRANSACTIONS IS ELIGIBLE FOR SET OFF AGAINST PROFIT FROM SALE OF SHARES. THE L EARNED AO OBSERVED THAT THE ASSESSEE HAS GOT INTEREST INCOME FROM LENDING ACTIVITIES ALS O WHICH IS MORE THAN THE INCOME FROM SHARE TRADING ACTIVITIES AND ACCORDINGLY HELD THAT THE ASSESSEE FALLS UNDER THE EXCEPTION CLAUSE PROVIDED IN EXPLANATION TO SECTION 73 OF THE ACT. THEN HE PROCEEDED TO DISALLOW THE CLAIM OF LOSS ON COMMODITY TRANSACT IONS IN THE ASSESSMENT. ON FIRST APPEAL, THE LEARNED CIT(A) CONFIRMED THE DISALLOWAN CE MADE BY THE LEARNED AO BUT BY STATING THAT THE ENTIRE LOSS ON COMMODITY TRANSA CTIONS CLAIMED BY THE ASSESSEE IS FICTITIOUS IN NATURE. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US BY RAISING THE AFORESAID GROUNDS. 6. THE LEARNED AR ARGUED THAT THE LEARNED AO AGREE D TO THE FACT THAT THE LOSS ON COMMODITY TRANSACTIONS IS NORMAL BUSINESS LOSS OUGH T TO HAVE ALLOWED TO BE SET OFF AGAINST INCOME FROM SHARE TRADING AND OTHER INCOME AND OUGHT NOT TO HAVE MADE A SEPARATE DISALLOWANCE. HE FURTHER STATED THAT THE LEARNED AO HAD ERRONEOUSLY STATED THAT THE ASSESSEES CASE FALLS UNDER THE EXCEPTION TO EXPLANATION TO SECTION 73 OF THE ACT AS INTEREST INCOME FROM LENDING ACTIVITY IS MOR E THAN INCOME FROM SHARE TRADING. ACCORDING TO HIM, THE LEARNED AO OUGHT TO HAVE CONS IDERED THE INTEREST PAYMENT ALSO AND THEN DECIDE WHETHER THERE IS RESULTANT PROFIT T HEREON AND THE PROFIT , IF ANY, FIGURE SO ARRIVED NEEDS TO BE COMPARED WITH INCOME FROM SH ARE TRADING. IF THAT IS DONE, THERE IS ONLY A NET LOSS AFTER REDUCING INTEREST PAID ON LOANS WHICH WOULD AUTOMATICALLY LEAD TO A SITUATION THAT INCOME FROM SHARE TRADING MORE THAN THE INTEREST INCOME (NET) AND ITA NO. 1875/KOL/2012-C-AM M/S. FAIRGROWTH ENTERPRISES P.LTD ITA NO.1876/KOL/2012-C-AM M/S. HARI FINANCE & TRADE P.LTD 4 HENCE IT WOULD NATURALLY FOLLOW THAT ASSESSEE WOULD FALL UNDER EXPLANATION TO SECTION 73 AND HENCE THE SHARE TRADING ACTIVITY WOULD BE SP ECULATION INCOME. ONCE THIS IS DONE, THEN THE LOSS ON COMMODITY TRANSACTIONS (SILV ER) IS ELIGIBLE FOR SET OFF AGAINST SPECULATION INCOME. HE FURTHER ARGUED THAT THE LEA RNED CIT(A) HAD TREATED THE ENTIRE LOSS ON COMMODITY TRANSACTIONS AS BOGUS BASED ON IR RELEVANT CONSIDERATIONS. HE FURTHER ARGUED THAT THE RELIANCE PLACED ON THE DECI SION OF KOLKATA TRIBUNAL, BY THE LEARNED CIT(A) IN THE CASE OF ITO VS M/S ELLENBARRIE EXIM LTD IN I TA NO. 1871/KOL/2008 DATED 21.7.2011 IN SUPPORT OF HIS CONCLUSION THAT THE LOSS ON COMMODITY TRANSACTION IS BOGUS AND COLOURABLE DEVIC E TO EVADE THE TAXES, IS TOTALLY MISPLACED AS THE FACTS IN THAT CASE ARE TOTALLY DIF FERENT FROM THE FACTS OF THE INSTANT CASE. IN RESPONSE TO THIS, THE LEARNED DR VEHEMENT LY SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE CERTIFIED COPY OF THE PAPER BO OK FILED BY THE ASSESSEE CONTAINING THE DETAILS OF LOSS IN COMMODITY BUSINESS TRANSACTI ON AT PAGE 36 OF THE PAPER BOOK AND CONTRACT NOTES AND INVOICES GIVEN BY THE BROKER FOR DEALING IN SILVER (COMMODITY TRADING) AT PAGES 37 TO 44 OF THE PAPER BOOK AMONG OTHERS. FROM THE PAGES 36 TO 44 OF THE PAPER BOOK, WE FIND THAT THE ASSESSEE WAS INVOL VED IN PURCHASE AND SALE OF SILVER IN ITS COMMODITY TRADING ACTIVITIES DURING THE ASSESSM ENT YEAR UNDER APPEAL. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAD CARRIED OUT THIS COMM ODITY TRADING ACTIVITY THROUGH A RECOGNIZED AND REGISTERED COMMODITY BROKER VIZ KSHI TIZ COMMOTRADE PVT LTD, 205, RABINDRA SARANI, 4 TH FLOOR, ROOM NO. 139, KOLKATA 700007 HAVING FMC C ODE : MCX/TCM/CORP/1266 DULY MENTIONING ITS PAN AND SERVI CE TAX REGISTRATION NUMBER IN THE CONTRACT NOTES. IT IS NOT IN DISPUTE THAT M/S KSHITIZ COMMOTRADE PVT LTD IS A MEMBER OF MULTI COMMODITY EXCHANGE OF INDI A LTD AND THE PURCHASE AND SALE OF SILVER HAVE BEEN CARRIED OUT ON MARK TO MARKET B ASIS BY DULY SUFFERING SERVICE TAX AT APPLICABLE RATES WHICH ARE CLEARLY REFLECTED IN THE CONTRACT NOTES AND IN THE INVOICES GIVEN BY THE SAID COMMODITY BROKER. WE FIND THAT T HERE IS NO BASIS FOR THE LEARNED ITA NO. 1875/KOL/2012-C-AM M/S. FAIRGROWTH ENTERPRISES P.LTD ITA NO.1876/KOL/2012-C-AM M/S. HARI FINANCE & TRADE P.LTD 5 CIT(A) TO TREAT THE LOSS ON COMMODITY TRANSACTIONS TO BE FICTITIOUS LOSS. THE AFORESAID DOCUMENTS WERE DULY FILED BEFORE THE LEARNED AO AND HENCE THERE IS NO NEED TO REACH A CONTRARY CONCLUSION ABOUT THE GENUINENESS OF THE TRANSACTION. WE HOLD THAT THE LEARNED CITA HAD MERELY GONE BY SURMISE AND SUSPICI ON BY MAKING BASELESS ALLEGATIONS IN HIS ORDER TO REACH TO A PRE-DETERMIN ED CONCLUSION. THE LEARNED CIT(A) AGREES THAT ASSESSEE HAD FILED CONTRACT NOTES. BEC AUSE HE USES THE SAME WHILE MAKING ONE ALLEGATION AGAINST THE ASSESSEE. THE LEARNED CIT(A) NOWHERE CONCLUDES THAT THE LOSS ON COMMODITY TRANSACTIONS IS NON-GENUINE. HE O NLY STATES IN PG 20 PARA 15 OF HIS ORDER THAT THE GENUINENESS OF THE LOSS FROM COMMODI TY TRADING COULD NOT BE EXAMINED AND VERIFIED BY HIM. THE LEARNED CIT(A) IN ORDER T O JUSTIFY HIS SUSPICION OUGHT TO HAVE MADE ADEQUATE ENQUIRIES WITH KSHITIZ COMMOTRAD E PVT LTD BY USING HIS UNFETTERED POWERS PROVIDED IN THE STATUTE. ABSOLUT ELY NO ENQUIRY WAS CARRIED OUT BY THE LEARNED CITA WITH REGARD TO THESE TRANSACTIONS WITH THE BROKER BY EITHER REFERRING THIS ISSUE TO THE AO OF THE BROKER OR BY DIRECTLY S UMMONING THE BROKER TO UNDERSTAND THE IMPUGNED TRANSACTIONS AND THE BENEFICIARIES IN THE SAID TRANSACTIONS. WE ALSO FIND THAT THE CASE LAW OF THIS TRIBUNAL RELIED UPON BY T HE LEARNED CIT(A) IN THE CASE OF ITO VS M/S ELLENBARRIE EXIM LTD IN ITA NO. 1871/KOL/200 8 DATED 21.7.2011 IN SUPPORT OF HIS CONCLUSION THAT THE LOSS ON COMMODITY TRANSA CTION IS BOGUS AND COLOURABLE DEVICE TO EVADE THE TAXES, IS TOTALLY MISPLACED. I N THE SAID CASE, THE ISSUE INVOLVED WAS WITH REGARD TO ALLOWABILITY OF COMMISSION EXPENDITU RE TO CERTAIN PARTIES WHICH ARE SUPPORTED BY COMMISSION AGREEMENT. THIS TRIBUNAL I N THE FACTS AND CIRCUMSTANCES OF THE CASE HAD HELD THAT MERELY BECAUSE PAYMENT IS MA DE PURSUANT TO AN AGREEMENT WOULD NOT MAKE THE PAYMENT OF COMMISSION AS A GENUI NE BUSINESS EXPENDITURE. BUT THE FACTS IN THE INSTANT CASE ARE TOTALLY DIFFERENT AND DISTINGUISHABLE FROM THE FACTS OF THE CASE RELIED UPON BY THE LEARNED CIT(A). WE HOLD THAT WITHOUT CARRYING OUT REQUISITE ENQUIRIES AS PROVIDED IN THE ACT , MERELY TREATING THE LOSS CLAIMED TO BE A FICTITIOUS LOSS BASED ON SURMISE AND SUSPICION AND BY MAKING GENERAL BASELESS ALLEGATIONS WITHOUT BRINGING ANY EVIDENCE ON RECORD , THE ACTION OF THE LEARNED CIT(A) IS UNJUSTIFIED. ITA NO. 1875/KOL/2012-C-AM M/S. FAIRGROWTH ENTERPRISES P.LTD ITA NO.1876/KOL/2012-C-AM M/S. HARI FINANCE & TRADE P.LTD 6 7.1. HENCE THE ONLY POINT TO BE ADDRESSED IN THIS ISSUE IS AS TO WHETHER THE ACTIVITY OF TRADING IN COMMODITY TRANSACTIONS BY THE ASSESSEE C OULD BE CONSTRUED AS SPECULATION ACTIVITY IN THE FACTS AND CIRCUMSTANCES OF THE CASE IN THE CONTEXT OF SECTION 73 OF THE ACT READ WITH ITS EXPLANATION THEREON. WE FIND TH AT THE LEARNED AO HAD TREATED THE ASSESSEES ACTIVITY OF SHARE TRADING TO BE NORMAL B USINESS AS ACCORDING TO HIM THE PRINCIPAL BUSINESS OF ASSESSEE IS GRANTING OF LOANS AND ADVANCES. HE HAD REACHED THIS CONCLUSION ON THE GROUND THAT INTEREST INCOME ON LO ANS OF RS. 35,21,584/- IS MORE THAN THE INCOME FROM SHARE TRADING OF RS. 13,62,106/-. ACCORDINGLY HE HELD THAT THE ASSESSEES CASE FALLS UNDER THE EXCEPTION TO EXPLAN ATION TO SECTION 73 OF THE ACT. HAVING CONCLUDED SO, HE OUGHT TO HAVE TREATED THE L OSS ON COMMODITY TRANSACTIONS AS A NORMAL BUSINESS LOSS AND ALLOWED TO BE SET OFF AGAI NST THE SPECULATIVE INCOME AS ADMITTEDLY IN THE INSTANT CASE THE PROFIT FROM TRAD ING IN SHARES HAS BEEN ACCEPTED AS ARISING FROM SPECULATIVE BUSINESS. HENCE THERE WA S NO NEED TO MAKE ANY ADDITION TOWARDS LOSS ON COMMODITY TRANSACTIONS. 7.2. IN VIEW OF THE AFORESAID FACTS AND FINDINGS , WE HAVE NO HESITATION IN DIRECTING THE LEARNED AO TO DELETE THE ADDITIONS MADE IN THE SUM OF RS. 62,61,870/- IN ITA NO. 1876/KOL/2012 AND RS. 46,62,796/- IN ITA NO. 1875/K OL/2012. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE IN THIS REGARD ARE A LLOWED. 8. IN THE RESULT, THE APPEALS OF THE RESPECTIVE ASSESSEE ARE ALLOWED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON 09 -03- 2016 SD/- ( MAHAVIR SINGH, JUDICIAL MEMBER ) SD/- (M. BALAGANESH, ACCOUNTANT MEMBER) DATE: DATE 09 -03-2016 ITA NO. 1875/KOL/2012-C-AM M/S. FAIRGROWTH ENTERPRISES P.LTD ITA NO.1876/KOL/2012-C-AM M/S. HARI FINANCE & TRADE P.LTD 7 1.. THE APPELLANT: M/S. FAIRGROWTH ENTERPRISES PVT . LTD/ M/S. HARI FINANCE & TRADE PVT. LTD 18 NETAJI ROAD, KOLKATA-700001. 2 THE RESPONDENT- THE INCOME TAX OFFICER, WARD 5(4 ), P-7 CHOWRINGHEE SQUARE KOLKATA-700 069. 3 /THE CIT, 4.THE CIT(A ) 5. DR, KOLKATA BENCH 6. GUARD FILE. TRUE COPY, BY ORDER, ASSTT REGISTRAR **PRADIP SPS COPY OF THE ORDER FORWARDED TO:-