Muthian Sivathanu, CHENNAI V. ITO Non Corporate Ward 10(4), CHENNAI

ITA 278/CHNY/2019

AI Insights

The case involves three appeals filed by two different assessees, Muthian Sivathanu and Subbulakshmi Sivathanu, against the orders of the Commissioner of Income-tax (Appeals) for the assessment years 2015-16 and 2016-17. The primary issues in the appeals were the disallowance of late payment charges under section 40(a)(ia) of the Income-tax Act for failure to deduct TDS under section 194A, and the classification of profits/losses from share trading activities as speculative income rather than business income. The Tribunal consolidated the appeals due to the similarity in facts and issues and decided to remand the matter back to the AO for further examination and evidence collection.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 134916 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 01-01-2023
• Assessment Year: 2015-2016
• Appeal Filed On: 03-02-2019
• Other Referred Cases: PCIT vs West Bengal Housing Infrastructure Development Corporation Ltd [2018] 257 Taxman.570, ITO vs T. Rajendran in ITA No. 745/2015, Central India Spinning & Weaving Manufacturing Co. vs Municipal Commissioner Wardah (AIR) 1958 SC 341
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Speculative transactions; TDS; Set aside
• Section: 143(3); 40(a)(ia); 43(5); 194A; 13

Judgement Text

आयकर अपीलीय अिधकरण, ‘बी ’ ᭠यायपीठ, चे᳖ई IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI ᮰ी महावीर ᳲसह, उपा᭟यᭃ एवं एवं ᮰ी जी. मंजुनाथ, लेखा सद᭭य के समᭃ BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENT AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./ITA Nos.: 278/Chny/2019 & 334/Chny/2020 िनधाᭅरण वषᭅ / Assessment Years: 2015-16 & 2016-17 Muthian Sivathanu, 19/136 Babanagar 6 th Street, Villivakkam Chennai – 600 049. [PAN: AALPS-4719-F] v. Income Tax Officer, Non Corporate Ward 10(4), Income Tax Department, Chennai – 6. (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) आयकर अपील सं./ITA No.: 293/Chny/2019 िनधाᭅरण वषᭅ / Assessment Year: 2015-16 Subbulakshmi Sivathanu, 19/136 Babanagar 6 th Street, Villivakkam Chennai – 600 049. [PAN: APZPS-2667-H] v. Income Tax Officer, Non Corporate Ward 10(4), Income Tax Department, Chennai – 6. (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) अपीलाथᱮ कᳱ ओर से/Appellant by : Shri. Muthian Sivathanu, Assessee ᮧ᭜यथᱮ कᳱ ओर से/Respondent by : Shri. D. Hema Bhupal. JCIT सुनवाई कᳱ तारीख/Date of Hearing : 02.01.2023 घोषणा कᳱ तारीख/Date of Pronouncement : 11.01.2023 आदेश /O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: These three appeals filed by two different assessee’s are directed against separate but identical orders of learned Commissioner of Income-tax (Appeals), dated 28.11.2018 & :-2-: ITA. Nos:278, 293/Chny/2019 & 334/Chny/2020 29.11.2019 and relevant to assessment years 2015-16 & 2016-17. Since, facts are identical and issues are common, for the sake of convenience, these appeals were heard together and are being disposed off, by this consolidated order. 2. Both the assessee’s have filed common grounds of appeal in their respective Memorandum of appeal and also many times amended the grounds of appeals. From the grounds of appeals of both assessee’s, two issues are emanating for adjudication viz. (i) disallowance of delayed payment charges u/s. 40(a)(ia) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for failure to deduct TDS u/s. 194A of the Act (ii) assessment of profit/loss derived from purchase and sale of shares under the head speculative income/loss as against assessee’s admission under the head income from business or profession. Therefore, we deem it not necessary to reproduce grounds of appeals filed by both the assessee’s. :-3-: ITA. Nos:278, 293/Chny/2019 & 334/Chny/2020 ITA No: 293/Chny/2019: 3. The brief facts of the case are that, the assessee is engaged in the business of trading in shares, filed her return of income for the assessment year 2015-16 on 21.09.2015, declaring total loss of Rs. 3,59,77,647/-. The assessment has been completed u/s. 143(3) of the Act on 28.12.2017 and determined total loss at Rs. 3,45,69,885/-, by making addition towards disallowance of late payment charges u/s. 40(a)(ia) of the Act at Rs. 14,07,762/-. Further, the AO has assessed loss from share trading activity as speculative in nature. The assessee carried the matter in appeal before the first appellant authority, but could not succeed. The Ld. CIT(A), for the reasons stated in their appellant order dated 28.11.2018 rejected arguments of the assessee and sustained additions made by the AO. Aggrieved by the Ld. CIT(A) order, the assessee is in appeal before us. 4. The first issue that came up for our consideration from assessee appeal is disallowance of late payment charges u/s. 40(a)(ia) of the Act. The AO has disallowed a sum of Rs. 14,07,762/- towards late payment charges paid to broker on the ground that said payment is in the nature of interest as :-4-: ITA. Nos:278, 293/Chny/2019 & 334/Chny/2020 defined u/s. 2(28A) of the Act and thus, the assessee ought to have deducted TDS u/s. 194A of the Act. Since, the assessee has failed to deduct TDS u/s. 194A of the Act, the AO has disallowed 30% on total expenditure incurred by the assessee amounting to Rs. 46,92,543/- and made addition of Rs. 14,07,762/- u/s. 40(a)(ia) of the Act. 5. The Ld. Counsel for the assessee, referring to various judicial precedence including the decision of Hon’ble Calcutta High Court in the case of PCIT vs West Bengal Housing Infrastructure Development Corporation Ltd [2018] 257 Taxman.570, submitted that in order to bring any payment within the ambit of interest as defined u/s. 2(28A) of the Act, there should be borrower and lender relationship. In this case, the assessee has paid late payment charges for delayed payment to broker for share trading activity which cannot be considered as interest to disallow said payment u/s. 40(a)(ia) of the Act for failure to deduct TDS u/s. 194A of the Act. 6. The Ld. DR, on the other hand referring to decision of ITAT, Mumbai, submitted that the definition of interest as per section 2(28A) of the Act is of widest amplitude which includes any charges for delayed payment and thus, the assessee :-5-: ITA. Nos:278, 293/Chny/2019 & 334/Chny/2020 ought to have deducted TDS on impugned payment u/s. 194A of the Act and thus, the AO has rightly disallowed said payment u/s. 40(a)(ia) of the Act and their order should be upheld. 7. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The provisions of section 2(28A) of the Act, defined the term interest, which means interest payable in any manner in respect of any money borrowed or debt incurred (including deposits, claims or other similar rights or obligation) and includes any service fee or other charges in respect of the money borrowed or debit incurred or in respect of any credit facility which has not been utilized. From the definition of interest as per section 2(28A) of the Act, it is very clear that in order to bring any payment within the ambit of the term interest, there should be lender and borrower relationship. In this case, the assessee has paid some charges for delayed payment of amount towards purchase and sale of shares to a broker, without there being any contractual obligation or other terms and conditions applicable to borrowing. Therefore, we are of the considered view that, said payment cannot be :-6-: ITA. Nos:278, 293/Chny/2019 & 334/Chny/2020 considered as interest for the purpose of section 194A of the Act and consequently, the question of deduction of TDS does not arise. This view is fortified by various judicial precedence, including the Hon’ble Calcutta High Court in the case of PCIT vs West Bengal Housing Infrastructure Development Corporation Ltd (Supra), where it has been clearly held that since, there is neither any borrowing of money nor incurring of debts on the part of the assessee, interest as defined u/s. 2(28A) of the Act can have no application to said payment. The ITAT, Chennai benches in the case of ITO vs T. Rajendran in ITA No. 745/2015 had considered an identical issue and held that, when the impugned payment had a direct link with the trade liability, then same cannot fall within the category of interest as defined u/s. 2(28A) of the Act for the purpose of deduction of tax at source u/s. 194A of the Act. 8. In this view of the matter and consistent with the view taken by the co-ordinate bench, we are of the considered view that provisions of section 194A has no application to delayed payment charges on trade liability and thus, the assessee does not require to deduct TDS u/s. 194A of the Act. Consequently, impugned payment cannot be disallowed u/s. 40(a)(ia) of the :-7-: ITA. Nos:278, 293/Chny/2019 & 334/Chny/2020 Act. Hence, we direct the AO to delete additions made towards disallowance of late payment charges u/s. 40(a)(ia) of the Act. 9. The next issue that came up for our consideration from assessee appeal is assessment of profit/loss derived from share trading activity under the head speculative income. The facts with regard to the impugned dispute are that, the assessee is engaged in the business of purchase and sale of shares. During the course of assessment proceedings, the AO noticed that as per the ITS statement available in records, the assessee has entered into purchase and sale transactions under code 03, which is applicable to speculative transactions. The AO called upon the assessee to file necessary evidences to justify her stand in offering income/loss under the head profit/gain from business. The assessee, in response submitted that, it is difficult to submit script wise purchase and sale details, however claimed that she had transacted with derivatives which is outside the scope of provisions of section 43(5) of the Act. In order to verify the claim of the assessee, the Assessing Officer has issued letter to ICICI Securities Ltd, calling for the details of transactions, including position of :-8-: ITA. Nos:278, 293/Chny/2019 & 334/Chny/2020 settlement, delivery status etc. Since, there was no reply from ICICI Securities Ltd and also the assessee could not furnish necessary evidences, the AO has treated loss derived from trading activity as speculative in nature. However, he made it clear that the issue could be revised on receipt of any material evidence from ICICI Securities Ltd. 10. The Ld. Counsel for the assessee, referring to various documents submitted that, the details called for by the AO cannot be furnished at all. He further, submitted that there is no dispute that, she was trading in derivatives and derivative trading is outside the scope of speculative transactions as defined u/s. 43(5) of the Act. The Ld. Counsel for the assessee, further referring to Circular no. 03/2006 dated 27.02.2006, submitted that the Board itself has excluded trading in derivatives on recognized stock exchanges from the ambit of speculative transactions. Therefore, he submitted that the AO as well as the Ld. CIT(A) have clearly erred in assessing profit/loss under the head speculative income. In this regard, he relied upon certain judicial precedence on the principles of assessment of income including the decision of Hon’ble Supreme Court in the case of Central India Spinning & :-9-: ITA. Nos:278, 293/Chny/2019 & 334/Chny/2020 Weaving Manufacturing Co. vs Municipal Commissioner Wardah (AIR) 1958 SC 341. 11. The Ld. DR, on the other hand supporting the order of the Ld. CIT(A) submitted that, the assessee could not file any evidence to justify share trading in derivatives. Further, the AIR data base clearly shows that she had trading in speculative transactions. Therefore, the AO in absence of necessary evidences has rightly assessed profit/loss under the head speculative transactions and their order should be upheld. 12. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. There is no dispute with regard to the fact that the assessee was engaged in share trading activity on the recognized stock exchange. It was also not in dispute that ICICI Securities Ltd, a stock broker reported transactions of the assessee under STT code no. 03 which is exclusively for speculative transactions as claimed by the Assessing Officer. The assessee claims that she was trading in derivatives, but not in future and options trading which comes under :-10-: ITA. Nos:278, 293/Chny/2019 & 334/Chny/2020 speculative transactions. Therefore, said transactions cannot bring under the purview of provisions of section 43(5) of the Act. We find that trading in derivatives on recognized stock exchanges cannot bring within the ambit of speculative transactions. Further, as per section 43(5) of the Act, speculative transactions means, a transaction in which a contract for the purchase or sale of any commodity including stock and shares is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrip. From the above, what we understand is that, if a share and stock are traded intra-day, other than actual delivery, then said transaction comes within the ambit of speculative transactions. If assessee traded in derivatives as claimed by her, then same cannot be brought within the ambit of speculative transactions. But fact remains that, in order to decide whether transactions of the assessee are come under derivatives or speculative, necessary details needs to be analyzed. In this case, the assessee could not furnish any evidences except summary of statement issued by the stock broker to verify the claim of the assessee to ascertain whether said transactions are derivatives or speculative. Further, broker, ICICI Securities Ltd., also could not furnish any details :-11-: ITA. Nos:278, 293/Chny/2019 & 334/Chny/2020 when the AO has called for certain details from them. In absence of necessary details, the nature of transactions of the assessee cannot be ascertained. In fact, the AO never held that these transactions are speculative in nature, however arrived at a reasonable conclusion on the basis of ITR information and non-availability of information to verify the claim of the assessee. Therefore, we are of the considered view that, the issue needs to go back to the file of the AO for further verification to ascertain the nature of transactions. As regards, the arguments of the ld. Counsel for the assessee in light of various judicial precedence, we find that the ratios laid down by courts and tribunals cannot be read in isolation with context under which said ratio has been rendered. Further, there is no dispute with regard to ratio laid down by the court on a particular issue, however when facts are contradicting to the ratio laid down by the courts, then blindly judgment of any court or tribunal cannot be followed. Therefore, we reject case laws relied upon by the assessee. 13. In this view of the matter and considering the facts and circumstances of the case, we are of the considered view that the issue needs to go back to the file of the AO and thus, we :-12-: ITA. Nos:278, 293/Chny/2019 & 334/Chny/2020 set aside the issue to the file of the AO and direct the AO to verify the issue in light of various evidences, including obtaining necessary evidence from broker, ICICI Securities Ltd. The assessee is also directed to furnish necessary evidence to justify her claim. 14. In the result, appeal filed by the assessee is treated as allowed for statistical purposes. ITA Nos: 278/Chny/2019 & 334/Chny/2020: 15. The first issue that came up for our consideration from both these appeals filed by the assessee is disallowance of late payment charges u/s. 40(a)(ia) of the Act for failure to deduct TDS u/s. 194A of the Act. We find that an identical issue had been considered by us in ITA No. 293/Chny/2019 for assessment year 2015-16 in the case of Subbalakshmi Sivathanu, where we have deleted addition made by the AO towards late payment charges u/s. 40(a)(ia) of the Act, for non-deduction of TDS u/s. 194A of the Act. The reasons given by us in preceding para no. 7 and 8 in ITA No. 293/Chny/2019, shall mutandis mutatis apply to these, :-13-: ITA. Nos:278, 293/Chny/2019 & 334/Chny/2020 appeals as well. Therefore, for similar reasons, we direct the AO to delete addition made towards late payment charges u/s. 40(a)(ia) of the Act for failure to deduct TDS u/s. 194A of the Act for assessment years 2015-16 & 2016-17. 16. The next issue that came up for our consideration from assessee’s appeal for both assessment years is assessment of profit/loss from share trading activity under the head speculative transactions as against the claim of the assessee under the head profit from business. We find that an identical issue had been considered by us in ITA No. 293/Chny/2019 for assessment year 2015-16 in the case of Subbalakshmi Sivathanu, where we have set aside the issue to the file of the AO for reconsideration. The reasons given by us in preceding para no. 12 & 13 in ITA No. 293/Chny/2019 shall mutandis mutatis, apply to these, appeals as well. Therefore for similar reasons, we set aside the issue for both assessment years to the file of the AO and direct the AO to re-examine the issue in light of various evidences and if necessary obtain evidence from the broker ICICI Securities Ltd. The assessee is also directed to file necessary evidence to justify his claim. :-14-: ITA. Nos:278, 293/Chny/2019 & 334/Chny/2020 17. In the result, appeal filed for both assessment years are treated as allowed for statistical purposes. Order pronounced in the court on 11 th January, 2023 at Chennai. Sd/- (महावीर ᳲसह ) (MAHAVIR SINGH) उपा᭟यᭃ /Vice President Sd/- (जी. मंजुनाथ) (G. MANJUNATHA) लेखासद᭭य/Accountant Member चे᳖ई/Chennai, ᳰदनांक/Dated, the 11 th January, 2023 JPV आदेश की Ůितिलिप अŤेिषत/Copy to: 1. अपीलाथŎ/Appellant 2. ŮȑथŎ/Respondent 3. आयकर आयुƅ (अपील)/CIT(A) 4. आयकर आयुƅ/CIT 5. िवभागीय Ůितिनिध/DR 6. गाडŊ फाईल/GF