DEVEN A PATEL, MUMBAI V. DCIT CC 15(1), MUMBAI

ITA 2236/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7884 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 22-11-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 02-04-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D MUMBAI BEFORE SHRI SAKTIJIT DEY (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 2236/MUM/2014 ASSESSMENT YEAR: 2007-08 SHRI DEVAN A PATEL VS. DCIT CC 15(1) 5 TH FLOOR, PARSWANATH BHAVAN, MUMBAI GULALWADI, MUMBAI 400003 PAN NO. AFZPP3416K (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE REVENUE BY: SHRI PURUSHOTTAM KUMAR DATE OF HEARING : 17/01/2 017 DATE OF PRONOUNCEMENT: 31/03/2017 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVA NT ASSESSMENT YEAR IS 2007-08. THE APPEAL IS DIRECTED AGAINST THE ORDE R OF THE COMMISSIONER (APPEALS) 26, MUMBAI AND ARISES OUT OF ASSESSMENT MADE U/S 143(3)(II) OF THE INCOME TAX ACT, 1961 (THE ACT). 2. THE GROUNDS OF APPEAL FILED BY THE ASSESSEE READ AS UNDER: I. IN LAW & IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE, THE HONB LE CIT(A) ERRED IN CONFIRMING THE ADDITION OF THE PROF IT EARNED FROM TRADING IN THE SHARES OF NISSAN COOPER OF RS. 2,29,54,541/- MADE BY THE LD. A.O. ESPECIALLY, WHEN SUCH GAINS HAVE BEEN WITHHELD BY TH E SEBI (THE SUPREME GOVERNMENT BODY TO REGULATE TRANSACTIONS IN CAPITAL MARKET) PENDING FURTHER INVESTIGATION. HENCE, THE PROFIT ON SALE OF NISSAN COPPER SHARES CANNOT BE TREATED AS ACCRUED TO THE APPELLANT IN THE RELEVANT A SSESSMENT YEAR. ITA NO. 2236/MUM/2014 2 II. IN LAW & IN THE FACTS AND CIRCUMSTANCES OF THE A PPELLANTS CASE, THE HONBLE CIT(A) GROSSLY FAILED TO UNDERSTAND THE FACT THAT THE TRANSACTION OF SALE OF SHARES WERE CONCLUDED BETWEEN THE PARTIES, HOWEVER, BY INTERFERENCE OF SEBI TO INVESTIGATE IN THE MATTER, THE GAIN WAS WIT HHELD, HENCE, UNLESS THE SAME IS APPROVED BY THE SAID AUTHORITY, THE ACCRUAL OF INCOME IN THE HANDS OF APPELLATE IS UNJUST, UNREASONABLE AND UNLAWFUL. ALSO , IT IS DOUBLE JEOPARDY TO THE APPELLANT AS FOR INCOME WHICH IS NOT EARNED AT A LL; HE IS EXPECTED TO PAY TAXES. THE THEORY OF REAL INCOME ALSO FALLS IN THE PRESENT CASE AND HENCE, THE ADDITION CONFIRMED BY CIT(A) MUST BE DELETED. III. IN LAW & IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE, THE HONBLE CIT(A) SHOULD HAVE APPRECIATED THAT IN SUBSEQUENT YEA RS WHENEVER THE FUNDS WERE RELEASED BY SEBI, THE SAME WAS OFFERED FOR TAXATION. THUS, THERE IS NO LOSS TO REVENUE AND HENCE, THE ADDITION CONFIR MED BY HONBLE CIT(A) MUST BE DIRECTED TO BE DELETED. IV. IN LAW AND AS PER THE FACTS AND IN THE CIRCUMSTAN CES OF THE APPELLANTS CASE, THE HONBLE CIT(A) FAILED TO CONSIDER THE STAND TAKEN BY VARIOUS JUDICIAL BODIES OF INDIA IN VARIOUS CASES, HIGHLIGHTED IN APPE LLATE PROCEEDINGS REGARDING THE ACCRUAL OF INCOME, MERCANTILE SYSTEM O F ACCOUNTING AND REVENUE RECOGNITION. HENCE, THE CASES NEED TO BE CON SIDERED AND THE ADDITION MADE AGAINST THE PRINCIPLES OF NATURAL JUSTIC E SHOULD BE ANNULLED. 3. BRIEFLY STATED THE FACTS ARE THAT DURING THE FIN ANCIAL YEAR 2006-07 RELEVANT TO THE ASSESSMENT YEAR 2007-08, TH E ASSESSEE SOLD SHARES OF NISSAN COPPER FOR A PROFIT OF RS. 2, 29,54,541/-. HE DID NOT OFFER THE ABOVE AMOUNT TO TAX ON THE GROUND THAT HE HAD NOT RECEIVED THE SAID AMOUNT BECAUSE THE SAME WAS U NDER INVESTIGATION BY SEBI. THE ASSESSING OFFICER (AO) H AS OBSERVED THAT SINCE THE ASSESSEE FOLLOWS MERCANTILE SYSTEM O F ACCOUNTING, THE ABOVE AMOUNT SHOULD HAVE BEEN OFFERED TO TAX DU RING THE IMPUGNED ASSESSMENT YEAR. SINCE THE ASSESSEE IS A T RADER IN SHARES AS PER THE INCOME AND EXPENDITURE ACCOUNT FU RNISHED ALONG WITH THE RETURN OF INCOME, THE AO BROUGHT TO TAX TH E AMOUNT OF RS. 2,29,54,541/- AS BUSINESS INCOME. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE F ILED AN APPEAL BEFORE THE LEARNED CIT(A). WE FIND THAT THE LEARNED CIT(A) HELD AS UNDER: ITA NO. 2236/MUM/2014 3 IT IS AN UNDISPUTED FACT THAT THE APPELLANT IS A TRADE R IN SHARES AND IT HAS MADE A CLAIM OF PROFIT OF RS. 2,29,54,541/- ON SALE OF SHA RES OF M/S. NISAN COPPERS. SIMPLY BECAUSE THIS TRANSACTION WAS A DOUBTFUL TRANSACTION , WHICH WAS UNDER SEBI INVESTIGATION, THE APPELLANT CANNOT BE ALLOWED TO DEF ER THIS INCOME TILL THE FINAL OUTCOME OF THE DISPUTE. I ALSO AGREE WITH THE PLEA O F THE AO IN THE REMAND REPORT THAT THE ORDER OF THE SEBI, WHICH HAS ALSO ALLOWED PART OF THE INCOME OF THE APPELLANT TO BE TRANSFERRED TO HIM IS AN APPEALABLE ORDER AND THERE IS A POSSIBILITY THAT THE REST OF THE AMOUNT WHICH HAS BEEN RETAINED BY THE SEBI IN ITS ORDER DATED 30.12.2009 MAY BE RELEASED TO THE ASSESSEE BY THE HIGHER COURT S. THE APPELLANT HAS ALSO NOT SHOWN ANY UNDERTAKING THAT HE DOES NOT HAVE ANY INTEN TION OF RELEASE OF REMAINING AMOUNTS. THEREFORE, EVEN THE ORDER OF SEBI, WHICH HA S RETAINED THE PART AMOUNT, HAS ALSO NOT REACHED FINALITY. UNDER THESE CIRCUMSTANCES, FOR AN ASSESSEE FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THE INCOME ACCRUED TO HIM IS TAXABLE ON ACCRUAL BASIS. IF IN ANY LATER YEAR BY ANY SUBSEQUENT ORDER , THE ACCRUED INCOME IS DIRECTED TO BE DIVERTED TO SOME OTHER PERSON, THEN IT CAN CLAIM T HE APPROPRIATE DEDUCTION OF THAT AMOUNT. ACCORDINGLY, IT IS HELD THAT THE AO HAS CORRE CTLY TAXED THE ACCRUED INCOME OF THE APPELLANT. THIS GROUND OF APPEAL IS DISMISSED. 5. NONE APPEARED ON BEHALF OF THE ASSESSEE. THE LEA RNED DR SUPPORTS THE ORDER PASSED BY THE LEARNED CIT(A). 6. WE HAVE PERUSED THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE TRADES IN SHARES AND FOLLOWS MERCANTILE SY STEM OF ACCOUNTING. IT IS A SETTLED POSITION OF METHOD OF A CCOUNTING THAT MERCANTILE SYSTEM BRINGS INTO CREDIT WHAT IS DUE, IMMEDIATELY IT BECOMES DUE AND BEFORE IT IS ACTUALLY RECEIVED, AND IT BRINGS INTO DEBIT EXPENDITURE THE AMOUNT FOR WHICH A LEGAL LIAB ILITY HAS BEEN INCURRED BEFORE IT IS ACTUALLY DISBURSED. THIS POS ITION HAS BEEN REITERATED BY THE HONBLE SUPREME COURT IN MORVI INDUSTRIES LTD. VS. CIT (1971) 82 ITR 835 (SC), POONA ELECTRIC SUPPLY CO. LTD. VS. CIT (1965) 57 ITR 521 (SC), CIT VS. SWADESHI COTTON & FLOUR MILLS PVT. LTD. (1964) 53 ITR 134 (SC), CIT VS. KRISHNASWAMI MUDALIAR (A) (1964) 53 ITR 122 (SC), CIT VS. GAJAPATHY NAIDU (A) (1964) 53 ITR 114 (SC), CALCUTTA CO. LTD. VS. CIT (1959) 37 ITR 1 (SC) AND INTERMANI JATIA VS. CIT (1959) 35 ITR 1 (SC). IN VIEW OF THE ABOVE POSITION OF LAW, WE CONFIRM THE ORDER OF THE LEARNED CIT(A). ITA NO. 2236/MUM/2014 4 7. IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31/03/2017 SD/- SD/- (SAKTIJIT DEY) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBE R MUMBAI DATED: 31/03/2017 BISWAJIT, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI