Alpana Phumra, Kolkata V. A.C.I.T. Cir-34, Kolkata, Kolkata

ITA 1951/KOL/2008

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75106 (ITAT-KOLKATA)
• Duration Of Justice: 5 year(s) 5 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2014
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 20-10-2008
• Court: TRIBUNAL
• Department Lawyers: RAVI JAIN
• Assessee Lawyers: V N PUROHIT
• Keywords: Business income; Transactions in derivatives; Earning of tax free income; Source of fund; Speculation loss; Difference of opinion; Assessment record; Change of opinion
• Section: 143(3); 142(1); 14A; 43(5); 263

Judgement Text

, B , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA () BEFORE , /AND , ! ) [BEFORE SHRI MAHAVIR SINGH, JM & SHRI SHAMIM YAHYA, AM] ' / I.T.A NO.1951/KOL/2008 #$ %&/ ASSESSMENT YEAR: 2005-06 ALPANA PHUMRA VS. ASSISTANT COMMISSIONER OF IN COME-TAX, (PAN: AFOPP5564M) CIRCLE-34, KOLKATA (() /APPELLANT ) (*+()/ RESPONDENT ) DATE OF HEARING: 26.03.2014 DATE OF PRONOUNCEMENT: 26.03.2014 FOR THE ASSESSEE: SHRI V. N. PUROHIT FOR THE REVENUE : SHRI RAVI JAIN, CIT, DR / ORDER PER SHRI MAHAVIR SINGH, JM : THIS APPEAL BY ASSESSEE IS ARISING OUT OF REVISION ORDER OF CIT, KOLKATA IN M. NO. CIT- XII/KOL/263/08-09/600-632 DATED 27.08.2008. ASSESS MENT WAS FRAMED BY ACIT, CIRCLE-34, KOLKATA U/S. 143(3) OF THE INCOME-TAX ACT, 1961 (HE REINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEAR 2005-06 VIDE HIS ORDER DATED 28.11. 2007. 2. THE ONLY ISSUE IN THIS APPEAL OF ASSESSEE IS AGA INST THE REVISION ORDER PASSED BY CIT U/S. 263 OF THE ACT. THE ASSESSEE HAS RAISED THE ISSUE THAT THE CIT HAS ERRED IN DIRECTING THE AO TO MAKE FOLLOWING ADDITIONS: A) TO DISALLOW LOSS IN FORWARD & OPTION TRANSACTI ONS OF RS.13,63,368.82 AND TREAT IT AS SPECULATION LOSS. B) TO MAKE ADDITION U/S. 14A OF RS.7,34,376/- C) TO DISALLOW PRO RATA EXPENSES FOR SHORT TERM CAP ITAL GAIN AND INTEREST TO THE EXTENT OF RS.5,97,571/-. 3. BRIEFLY STATED FACTS ARE THAT FOR THE RELEVANT ASSE SSMENT YEAR 2005-06 ASSESSEE FILED HER RETURN OF INCOME ON 31.10.2005 DULY SUPPORTED BY AU DITED STATEMENT OF ACCOUNTS. SUBSEQUENTLY, NOTICES U/S. 143(2) AND 142(1) OF THE ACT WERE ISSUED AND COMPLIED WITH. AO FRAMED ASSESSMENT U/S. 143(3) OF THE ACT MAKING CER TAIN DEDUCTION/DISALLOWANCE AND ADDITIONS. SUBSEQUENTLY, CIT-XII, KOLKATA ISSUED SHOW CAUSE NO TICE NO. CIT/KOL-XII/TECH./263/08- 2 ITA NO. 1951/K/2008 ALPANA PHUMRA, AY 2005-06 09/233 DATED 19.06.2008 FOR REVISING THE ASSESSMENT FRAMED U/S. 143(3) OF THE ACT DATED 28.11.2007. THE RELEVANT SHOW CAUSE NOTICE READS A S UNDER: FROM ASSESSMENT ORDER & ASSESSMENT RECORD FOR A.Y. 2005-06, IT IS OBSERVED THAT THE ORDER PASSED U/S. 143(3) IS PRIMA-FACE ERRONEOUS A ND PREJUDICIAL TO THE INTEREST OF THE REVENUE IN VIEW OF THE FOLLOWING FACTS; AS PER FORM NO. 3CD, THE NATURE OF BUSINESS OR PROF ESSION OF THE ASSESSEE IS STOCK BROKING AND DEALING IN SHARE ETC. DURING THE PREVI OUS YEAR 2004-05 THERE WAS NO BROKING ACTIVITY. CLOSING STOCK AND OPENING STOCK ARE NOT REFLECTED I N THE P/L A/C. THERE IS NEITHER ANY TRADING ACCOUNT NOR GROSS PROFIT DISCLOSED. FROM TH E DETAILS AVAILABLE IT IS SEEN TOTAL PURCHASE WAS RS. 10,42,43,954.09 WHILE TOTAL SALES WAS RS. 11,22,81,017.17. THE OPENING STOCK WAS RS. 1,59,88,258.52 WHILE CLOSING STOCK RS. 1,09,94,074.84. YOU HAVE REDUCE THE LOSS ON ACCOUNT OF F&O TRADING OF RS. 13 ,63.368.82 WHICH IS CONTRARY TO THE CIRCULAR OF THE BOARD ACCORDING TO WHICH F&O TRADIN G IS CONSIDERED SPECU1ATION. YOU HAVE SHOWN REPAYMENT OF LOANS TO THE TUNE OF RS .1,53,33,585.37 THROUGH A BANK STATEMENT WHICH THE AO ACCEPTED WITHOUT ANY VERIFIC ATION. THE STATEMENT OF PURCHASE AND SALES OF SHARES REFLE CTED THE NUMBER OF OPENING AND CLOSING STOCK OF SHARES TOGETHER WITH THEIR RESPECT IVE VALUES ON THE RELEVANT DATES. IT APPEARS THAT THE AO HAVE NOT VERIFIED THE CORRECTNE SS OR OTHERWISE OF THESE VALUES, PARTICULARLY THE VALUES OF CLOSING STOCK AS ON 31. 03.2005. THE CONTRACT NOTES AND OTHER DETAILS AVAILABLE IN THE RECORD INDICATE THAT YOU H AVE BEEN PURCHASING VARIOUS SHARES AND SCRIPS OF VARIOUS COMPANIES OVER A PERIOD OF TI ME REPEATEDLY AND ALSO SOLD SUCH SHARES AND SCRIPS OVER A PERIOD OF TIME REPEATEDLY WITHIN VERY SHORT SPAN OF TIME IN LESS THAN A YEAR WHILE CLAIMING SHORT TERM CAPITAL GAIN . THE A.O DOES NOT APPEAR TO HAVE EXAMINED THESE ISSUED IN VIEW OF FREQUENCIES, THE VOLUME AND SHORT SELLS WHETHER THESE WOULD BE TRADING IN NATURE. YOU HAVE SUBSTANTIAL AMOUNT OF DIVIDENDS WHICH HAS BEEN CLAIMED AS EXEMPT AND THE A.O. HAS NOT INVOKED THE PROVISIONS OF SECTION 14A TO DISALLOW EXPENDITURE ON PRO RATA BASIS ON ACCOUNT OF EXEMPTED INCOME AND FORMING PAR T OF THE TOTAL INCOME. THE ASSESSEE FILED WRITTEN SUBMISSIONS DATED 18.08. 2008, IN RESPONSE TO THIS SHOW CAUSE NOTICE, ALONG WITH RELEVANT DETAILS. THE CIT-XII, KOLKATA DIRECTED THE AO TO MAKE ADDITION OF THE FOLLOWING THREE ITEMS: A) TO DISALLOW LOSS IN FORWARD & OPTION TRANSACT IONS OF RS.13,63,368.82 AND TREAT IT AS SPECULATION LOSS. B) TO MAKE ADDITION U/S. 14A OF RS.7,34,376/- C) TO DISALLOW PRO RATA EXPENSES FOR SHORT TERM CAP ITAL GAIN AND INTEREST TO THE EXTENT OF RS.5,97,571/-. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE TRIBUNA L. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. FIRST OF ALL, IT IS TO BE BROUGHT TO THE NOTICE THA T THE LAST DISALLOWANCE I.E. DISALLOWANCE OF PRO 3 ITA NO. 1951/K/2008 ALPANA PHUMRA, AY 2005-06 RATA EXPENSES FOR SHORT TERM CAPITAL GAIN AND INTER EST WAS NEVER THE SUBJECT MATTER OF REVISION PROCEEDINGS U/S. 263 OF THE ACT AND NO SHOW CAUSE NOTICE QUA THIS ITEM WAS ISSUED BY CIT. HENCE, ON THIS ISSUE, REVISION CANNOT BE DONE BECAU SE LACK OF OPPORTUNITY QUA THIS DISALLOWANCE THE REVISION ORDER OF CIT U/S. 263 OF THE ACT IS BAD IN LAW. 5. COMING TO THE FIRST ISSUE I.E. TREATMENT OF FUTU RE & OPTION (F&O) OF TRADING LOSS I.E. TRADING LOSS OF RS.13,63,368/-. LD. COUNSEL FOR TH E ASSESSEE BEFORE US STATED THAT THE COMPLETE DETAILS IN RESPECT TO F&O TRADING I.E. F&O PREMIUM AND F&O MARKETS WAS SUBMITTED AND EXPLAINED TO THE AO VIDE LETTER DATED 27.11.2007 WI TH REFERENCE TO THE PROVISION OF SECTION 43(5) OF THE ACT. EVEN THIS FACT IS RECORDED IN TH E ASSESSMENT ORDER THAT COMPLETE DETAILS WERE FILED BY THE ASSESSEE AS RECORDED IN THE ASSESSMENT ORDER AND RELEVANT RECORDING IN THE ASSESSMENT ORDER READS AS UNDER: DURING THE ASSESSMENT YEAR, THE ASSESSEE HAD MULTI PLE SOURCES OF INCOME AS FOUND IN THE COMPUTATION OF INCOME TRADING IN SHARES, CAPITAL GA INS, DIVIDEND ETC. IN COURSE OF HEARING THE A/R APPEARED FROM TIME TO TIME AND FURNISHED VA RIOUS DETAILS WITH CLARIFICATIONS WHEREVER CALLED FOR THE QUERIES RAISED WERE DULY EX PLAINED AND VERIFIED WITH BOOKS OF A/CS ALONG WITH RELATED EVIDENCES. BOOKS OF ACCOUNTS INCLUDING CASH BOOK AND BANK STAT EMENT, SAUDA LEDGER, SOUDA KHATA DEMAT ACCOUNTS, CONTRACT NOTES WERE PRODUCED AND EX AMINED. DURING THE A/Y THE ASSESSEE HAS SHOWN BOTH SHORT TE RM AND LONG TERM CAPITAL GAIN ON SALE OF SHARES. THE EVIDENCE RELEVANT SUCH AS CONTACT N OTE DP STATEMENT BANK STATEMENT FOR PURCHASE AND WERE PRODUCED AND VERIFIED WITH THE B OOK AS AND BANK STATEMENT ETC. OTHER POINTS ALSO LOOKED INTO. LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE AOS LETTER NO.CIR-34/AFOPP5564M/07- 08/691 DATED 22.11.2007, WHICH IS ENCLOSED IN ASSES SEES PAPER BOOK AT PAGES 18 TO 20 AND THE RELEVANT QUERY AT POINT NO. 1 READS AS UNDER: 1. YOU HAVE CLAIMED A SHARE TRADING LOSS OF RS.13, 63,368/- WHICH YOU HAVE SET OFF AGAINST SHARE TRADING PROFIT OF RS.33,43,178.87. SINCE THE LOSS SUFFERED FROM F&O (VARIOUS SEGMENTS) TREATED IN F&O, PREMIUM A/C AND MARK TO M ARKET A/CS REPRESENT SPECULATION LOSS, WHICH FURTHER CONSISTS OF INTRA-DAY TRANSACTI ONS. THIS IS PURELY A CASE OF SPECULATION CONSEQUENTLY THE LOSS SUFFERED TO BE TERMED AS SPEC ULATION LOSS. THE SAME CANNOT BE SET OFF AGAINST THE SHARE DEALING PROFIT WHICH YOU HAV E CLAIMED TO HAVE EARNED AN AMOUNT OF RS.33,63,368/-. THE CLAIM OF SETTING UP TO LOSS IS NOT ELIGIBLE AS PER PROVISIONS OF SECTION 73 OF THE I. T. ACT, 1961 UNDER CIRCUMSTANCES WHY THE LOSS OF RS.13 ,63,368/- SHOULD NOT BE TREATED AS SPECULATION LOSS AND DISALLOWED ACCORDINGLY (PLEASE COMMENT). 4 ITA NO. 1951/K/2008 ALPANA PHUMRA, AY 2005-06 THE ASSESSEE REPLIED VIDE LETTER DATED 27.11.2007, THE COPY OF WHICH IS ENCLOSED AT PAGE 21 AND 22, WHEREIN ASSESSEE EXPLAINED THE COMPLETE POSITIO N VIDE POINT NO. 1 AS UNDER: 1. TREATMENT OF RS.13,63,368/- AS SPECULATIVE LOSS U/S 73 - SIR, IT IS ON RECORD THAT THE ASSESSEE IS INVESTOR/TRADER CUM DEALER IN SHARES SECURITIES ETC. AND ALSO DEAL IN FUTURE AND OPTION MARKET. IT HAS BEEN PROPOSED WHY A SUM OF RS. 13,63,368/- W HICH IS NET RESULT OF ALL ACTIVITIES CARRIED OUT IN FUTURE AND OPTION MARKET SHOULD BE D ISALLOWED AS SPECULATIVE LOSS U/S 73 OF THE INCOME-TAX ACT. SIR, YOUR ATTENTION IS DIVERTED TO SECTION 43 OF TH E ACT WHICH DEFINES CERTAIN TERMS RELEVANT TO INCOME FROM PROFIT AND GAINS OF BUSINES S OR PROFESSION. SECTION 43 (5) IS REPRODUCED BELOW: [SPECULATIVE TRANSACTION MEANS A TRANSACTION IN W HICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY, INCLUDING STOCKS AND SHARES, IS PERIODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OF TRANSFER OF THE COMMODITY OR SCRIPS: PROVIDED THAT FOR THE PURPOSES OF THIS CLAUSE (A) A CONTRACT IN RESPECT OF RAW MATERIALS OR MERCHANDI SE ENTERED INTO BY A PERSON IN THE COURSE OF HIS MANUFACTURING OR MERCHANTING B USINESS TO GUARD AGAINST LOSS THROUGH FUTURE PRICE FLUCTUATIONS IN RESPECT OF HIS CONTRACTS FOR ACTUAL DELIVERY OF GOODS MANUFACTURED BY HIM OR MERCHANDISE SOLD BY HIM ; OR B) A CONTRACT IN RESPECT OF STOCKS AND SHARES ENTER ED INTO BY A DEALER OR INVESTOR THEREIN TO GUARD AGAINST LOSS IN HIS HOLDINGS OF STOCKS AND SHARES THROUGH PRICE FLUCTUATIONS; OR C) A CONTRACT ENTERED INTO BY A MEMBER OF A FORWARD MARKET OR A STOCK EXCHANGE IN THE COURSE OF ANY TRANSACTION IN THE NATURE OF JOBBING OR ARBITRAGE TO GUARD AGAINST LOSS WHICH MAY ARISE IN THE ORDINARY COURSE OF HIS BUSIN ESS AS SUCH MEMBER]. SHALL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION . IN THE LIGHT OF ABOVE AND AS THE ASSESSEE IS DEALER CUM INVESTOR IN SHARES AND STOCK ETC THE TRANSACTION DONE IN FUTURE AND OPTION MARKET BY THE ASSESSEE TO HEDGE THE POSITION, CANNOT BE TERMED AS SPECULATIVE TRANSACTION. HENCE, SECTIO N 73 DOES NOT APPLY TO THE ASSESSEE. 6. WE FIND FROM THE ABOVE FACTS AND CIRCUMSTANCES T HAT THE AO DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS HAS CALLED FOR THE DETAILS WITH REGARD TO F&O TRANSACTIONS AND HAS GONE INTO THESE DETAILS AND ALLOWED THE CLAIM O F THE ASSESSEE. WE FIND THAT THE ASSESSMENT ORDER PASSED U/S. 143(3) OF THE ACT BY THE AO IS NE ITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF REVENUE AND IT IS CLEAR FROM THE ASSESSMENT ORDE R THAT THE SAME IS IN ACCORDANCE WITH LAW. WE ARE OF THE VIEW THAT IF AN AO ACTING IN ACCORDAN CE WITH LAW MAKES CERTAIN ASSESSMENTS, THE SAME CANNOT BE BRANDED AS ERRONEOUS BY THE COMMISSI ONER SIMPLY BECAUSE, ACCORDING TO HIM, THE ORDER DOES NOT SPEAK ABOUT THE ISSUE OR THE ORD ER SHOULD HAVE BEEN WRITTEN ELABORATELY. THE 5 ITA NO. 1951/K/2008 ALPANA PHUMRA, AY 2005-06 ORDER OF THE AO MAY BE BRIEF OR CRYPTIC BUT THAT BY ITSELF IS NOT SUFFICIENT TO BRAND THE ASSESSMENT ORDER AS ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF REVENUE. WRITING AN ORDER IN DETAILED MAY BE A LEGAL REQUIREMENT BUT THE ORDER N OT FULFILLING THIS REQUIREMENT CANNOT BE SAID TO BE ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF R EVENUE REASONS BEING THE AO HAS ALREADY MADE ENQUIRIES BY ISSUING A QUESTIONNAIRE ON THIS PARTIC ULAR ASPECT AND REPLY IS SOLICITED FROM THE ASSESSEE. IN THE PRESENT CASE THE COMMISSIONER OF INCOME-TAX COULD NOT POINT OUT AS TO WHAT WAS THE ERROR COMMITTED BY THE AO IN HAVING REACHED TO THE CONCLUSION THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION OF LOSS. THE CIT HAVING FAI LED TO POINT OUT ANY ERROR, NO ERROR CAN BE INFERRED FROM THE ORDER OF THE AO FOR THE SIMPLE RE ASONS THAT THE SAME IS BEREFT OF DETAILS. ACCORDINGLY, WE ARE OF THE VIEW THAT, IN THE PRESEN T CASE, THE ASSESSMENT FRAMED BY THE AO IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST O F REVENUE. HENCE, WE ALLOW THE APPEAL OF THE ASSESSEE. 7. COMING TO SECOND ISSUE OF DISALLOWANCE U/S. 14A OF THE ACT. THE CIT(A) HAS NOTICED THAT THE ASSESSEE HAS CLAIMED TOTAL EXEMPT INCOME A T RS.35,39,453/- I.E. DIVIDEND, LONG TERM CAPITAL GAIN AND MUTUAL FUND AS AGAINST TOTAL EXPEN SES DEBITED IN THE P&L ACCOUNT AT RS.17,88,108/-. THE NET PROFIT COMES TO RS.86,18,9 58/-. THE EXEMPT INCOME CONSTITUTES 41.07% OF THE TOTAL INCOME AND 34.01% OF THE GROSS PROFIT. ACCORDING TO CIT, THE PROVISIONS OF SECTION 14A OF THE ACT IS ATTRACTED AND HE MADE FURTHER DISALLOWANCE BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT AT RS.7,34,376 /- AND DIRECTED THE AO ACCORDINGLY TO MAKE ADDITION. LD. COUNSEL FOR THE ASSESSEE BEFORE US S TATED THAT THE AO WHILE FRAMING ASSESSMENT AND COMPUTING INCOME OF THE ASSESSEE HAS CONSIDERED THIS ASPECT THAT ASSESSEE HAS EXEMPTED INCOME I.E. DIVIDEND INCOME, LONG TERM CAPITAL GAIN AND INCOME FROM MUTUAL FUND WHICH IS EXEMPTED AND THIS FACT IS NARRATED IN THE ASSESSMEN T ORDER IN THE PART OF COMPUTATION OF TOTAL INCOME. ACCORDING TO LD. COUNSEL, THE AO HAS GONE INTO COMPLETE DETAILS OF SHAREHOLDING PATTERN, INVESTMENTS PATTERN DURING THE COURSE OF A SSESSMENT PROCEEDINGS AS DETAILS FILED BEFORE HIM BY THE ASSESSEE. THE ASSESSEE HAS FILED COMPLE TE BALANCE SHEET OF SHARE BUSINESS WITH DETAILS OF HOLDINGS AND INVESTMENTS. EVEN OTHERWISE THE LD. COUNSEL FOR THE ASSESSEE STATED THAT FOR THE PURPOSE OF DISALLOWANCE OF EXPENSES BY INVO KING SECTION 14A OF THE ACT, THERE WILL BE DEFINITE FINDING THAT THE EXPENDITURE IS INCURRED I N RELATION TO SUCH INCOME, NO SUCH FINDING HAS BEEN GIVEN BY CIT IN ITS REVISION ORDER RATHER HE I S ONLY ESTIMATED ON PRO RATA BASIS. 8. WE FIND THAT THE CIT HAS NO WHERE HELD THAT WHIC H EXPENDITURE IS RELATABLE TO THE EXEMPTED INCOME. ONCE THE AO HAS ACCEPTED THIS POS ITION AND CONSIDERED THE SAME IN THE 6 ITA NO. 1951/K/2008 ALPANA PHUMRA, AY 2005-06 ASSESSMENT ORDER, IT MEANS THAT THE AO HAS FORMED A N OPINION AND FOR CHANGE OF OPINION REVISION PROCEEDING IS NOT POSSIBLE. HENCE, WE QUA SH THE REVISION PROCEEDINGS AND ALLOW THE APPEAL OF ASSESSEE. 9. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. 10. ORDER IS PRONOUNCED IN THE OPEN COURT. SD/- SD/- , ! , (SHAMIM YAHYA ) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 26TH MARCH, 2014 ./ #01 2 JD.(SR.P.S.) 3 *4 5 4%6- COPY OF THE ORDER FORWARDED TO: 1 . () / APPELLANT SMT. ALPANA PHUMRA, C/O V. N. PUROHIT & CO. CHARTERED ACCOUNTANTS, 32B, GANESH CHANDRA AVENUE, KOLKATA-700 013. 2 *+() / RESPONDENT ACIT, CIRCLE-34, KOLKATA. 3 . # ( )/ THE CIT(A), KOLKATA 4. 5. # / CIT KOLKATA 4:; *# / DR, KOLKATA BENCHES, KOLKATA +4 */ TRUE COPY, #