P.C. Pantulu, Hyderabad, Hyderabad V. ACIT, Circle-1(2), Hyderabad, Hyderabad

ITA 278/HYD/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 4630 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 26-07-2018
• Assessment Year: 2003-2004
• Appeal Filed On: 20-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NILANJAN DEY
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Reopening of assessment; Depreciation; Salary income; Reasonable cause
• Section: 143(3); 147; 148; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B (SMC), HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. ASST. YEAR APPELLANT RESPONDENT 275/HYD/17 2001-02 P.C. PANTULU, HYDERABAD [PAN: AGEPP3005G] ACIT, CIRCLE-1(2), HYDERABAD 277/HYD/17 2002-03 DCIT, CIRCLE-1(2), HYDERABAD 278/HYD/17 2003-04 ACIT, CIRCLE-1(2), HYDERABAD FOR ASSESSEE : SHRI P. MURALI MOHAN RAO, AR FOR REVENUE : SHRI NILANJAN DEY, DR DATE OF HEARING : 26-07-2018 DATE OF PRONOUNCEMENT : 03-08-2018 O R D E R THESE THREE APPEALS ARE FILED BY ASSESSEE AGAINST THE RESPECTIVE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS)-1, HYDERABAD, DATED 17-05-2016. SINCE COM MON ISSUES ARE INVOLVED IN ALL THESE APPEALS, THESE ARE HEARD TOGETHER AND DECIDED BY THIS COMMON ORDER. I.T.A. NOS. 275, 277 & 278/HYD/2017 :- 2 - : 2. BRIEFLY STATED FACTS ARE THAT ASSESSEE IS AN INDIVIDUAL, HAS DECLARED INCOME FROM SALARY, LOSS F ROM BUSINESS AND LOSS FROM CAPITAL ON SALE OF SHARES. RE TURNS HAVE BEEN ACCEPTED ORIGINALLY U/S. 143(1) OF THE INCOME T AX ACT [ACT] IN AY. 2003-04. ASSESSING OFFICER (AO) MADE AN ADJUSTMENT U/S. 143(1)(A) OF THE ACT IN AY 2003-04 WHI CH ASSESSEE HAS OBJECTED TO. THE PROCEEDINGS U/S. 154 WE RE DROPPED AND ASSESSMENTS HAVE BEEN REOPENED IN ALL THE THREE ASSESSMENT YEARS. AO NOTICED THAT ASSESSEE HAS CLAIMED CAPITAL LOSS IN ALL THE YEARS FROM SALE OF SHARES AND SET OFF TO SALARY INCOME APART FROM BUSINESS LOSS. AS CAPITAL LO SS IS NOT ALLOWABLE FOR SET-OFF U/S. 71(3) OF THE ACT, PROCEEDI NGS U/S. 147 WERE INITIATED AND NOTICES U/S. 148 WERE ISSUED. IN RESPONSE TO THE NOTICES, ASSESSEE FILED SAME RETURNS OF INCOME HOWEVER, CLAIMING LOSS ON SALE OF SHARES AS BUSINESS LOSS, I NSTEAD OF CAPITAL LOSS. 2.1. AO IN THE CONSEQUENTIAL ASSESSMENTS HAS OPINED THAT THE CHANGE OF CAPITAL LOSS TO BUSINESS LOSS WAS AN AFTERTHOUGHT AND DISALLOWED THE AMOUNT OF RS. 5,25,000/ - IN AY. 2001-02; RS. 7,03,489/- IN AY. 2002-03 AND AN A MOUNT OF RS. 11,50,000/- IN AY. 2003-04. IN RE-ASSESSMENT PROCEEDINGS, AO ALSO RESTRICTED THE CLAIM OF INTEREST ON HOUSE PROPERTY TO AN AMOUNT OF RS. 30,000/- AND BALANCE OF THE CLAIM WAS DISALLOWED. THUS, HE DISALLOWED AN AMOUN T OF RS. 45,000/- IN THE AYS. 2001-02, 2002-03 AND 2003-04. ANOTHER ISSUE WHICH WAS CONSIDERED BY AO IS CLAIM OF INTERES T ON THE CAR LOAN, WHICH WAS DISALLOWED FOR WANT OF EVIDENCE. THERE I.T.A. NOS. 275, 277 & 278/HYD/2017 :- 3 - : WAS ONE MORE ISSUE OF DISALLOWANCE OF DEPRECIATION O N COMPUTERS, WHICH WAS NOT PRESSED IN THE COURSE OF PRE SENT PROCEEDINGS AND DISALLOWANCE OF EXTRA DEPRECIATION. 3. ASSESSEE QUESTIONED BEFORE THE LD.CIT(A) AND RAISED ISSUES ON REOPENING OF ASSESSMENT, CLAIM OF B USINESS LOSS, CLAIM OF INTEREST U/S. 24(1), INTEREST ON CAR LOA N AND DEPRECIATION, WHICH LD.CIT(A) DID NOT AGREE AND CONFI RMED THE ACTION OF AO. HENCE, THE PRESENT APPEALS. 4. IT WAS THE SUBMISSION OF LD. COUNSEL THAT ASSESSMENT WAS REOPENED WITHOUT THERE BEING ANY FRESH INFORMATION AND SO THE REOPENING ITSELF IS BAD IN LAW. 4.1. COMING TO THE MERITS OF THE ADDITION, IT WAS THE SUBMISSION THAT ASSESSEE IS DOING TRADING IN SHARES A ND HAS INCURRED LOSS IN THREE ASSESSMENT YEARS, THESE WERE SH OWN AS BUSINESS LOSSES IN THE STATEMENTS OF INCOME BUT AT THE TIME OF FILING THE RETURN WRONGLY SHOWN AS CAPITAL LOSS BUT WAS CORRECTLY SET-OFF TO OTHER INCOMES. IT WAS THE SUBMISS ION THAT THE PROVISIONS OF SECTION 71(3) DOES NOT APPLY TO THE F ACTS OF THE CASE. IT WAS FURTHER SUBMITTED THAT SECTION 71(2A) WAS INTRODUCED W.E.F. 01-04-2005, WHEREIN BUSINESS LOSS CANNOT BE SET-OFF TO SALARY INCOME BUT FOR THE IMPUGNED ASSESSME NT YEARS, THE BUSINESS LOSS CAN BE SET-OFF TO SALARY INC OME AND THEREFORE THE ACTION OF AO IN DISALLOWING THE BUSINESS LOSS IS NOT CORRECT. I.T.A. NOS. 275, 277 & 278/HYD/2017 :- 4 - : 4.2. COMING TO THE CLAIM OF INTEREST U/S. 24(1), IT WA S SUBMITTED THAT AO HAS NOT CORRECTLY APPLIED THE PROVISION S. FOR THE IMPUGNED ASSESSMENT YEARS EVEN THOUGH SECTION 24(2) OF THE ACT RESTRICTS THE AMOUNTS TO RS. 30,000/-, THERE W ERE FURTHER PROVISOS WHICH ALLOWS THE AMOUNTS UPTO RS. 1 LA KH, IF THE PROPERTY WAS PURCHASED AFTER 01-04-1999 AND CONSTRUCTION WAS COMPLETED BEFORE 01-04-2003. AO HAS NOT APPLIED THE PROVISIONS CORRECTLY. 4.3. COMING TO THE CLAIM OF INTEREST ON CAR, IT WAS THE SUBMISSION THAT ASSESSEE HAS CORRECTLY CLAIMED THE AMOU NT WHICH SHOULD BE ALLOWED AS HE IS PHYSICALLY HANDICA PPED AND THERE IS REQUIREMENT OF A CAR. LD. COUNSEL REFERRED TO PAPER BOOK PLACED ON RECORD THAT RETURNS FILED IN AY. 1999-2 000 ONWARDS TO SUBMIT THAT ASSESSEE WAS IN THE BUSINESS O F TRADING OF SHARES AND INTEREST WAS BEING ALLOWED ON THE HOUSE PROPERTY. 5. LD.DR, HOWEVER, RELIED ON THE ORDERS OF AO AND CIT(A) ON THE FACTS. 6. I HAVE CONSIDERED THE RIVAL CONTENTIONS. AS FAR AS THE REOPENING OF ASSESSMENT IS CONCERNED, I DO NOT FIN D ANY MERIT IN ASSESSEES CONTENTIONS. IT IS ADMITTED THAT ASSESS EE HAS SHOWN CAPITAL LOSS IN THE COMPUTATION AND FILED RETURN OF INCOME SETTING OFF THE CAPITAL LOSS TO THE SALARY INCOME. SINCE THE PROVISIONS OF SECTION 71(3) OF THE ACT ARE APPLICA BLE AND AO HAS REOPENED THE ASSESSMENT ONLY ON THAT REASON, I AM OF THE I.T.A. NOS. 275, 277 & 278/HYD/2017 :- 5 - : OPINION THAT THERE IS A REASONABLE CAUSE FOR REOPENING OF THE ASSESSMENT. MOREOVER, THE RETURNS WERE ACCEPTED U/S. 143(1) AND THERE WAS NO SCRUTINY U/S. 143(3) OF THE ACT. CONSEQUENTLY, THE PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF ACIT VS. RAJESH JHAVERI STOCK BROKERS P. LTD [291 ITR 500] (SC) WILL EQUALLY APPLY TO THE FACTS OF THE CASE. ACCORDINGLY, GROUNDS PERTAINING TO REOPE NING ARE DISMISSED. 6.1. COMING TO THE ISSUE OF BUSINESS LOSS, ADMITTEDL Y ASSESSEE HAS ORIGINALLY FILED RETURN OF INCOME SHOWI NG THE CAPITAL LOSS ON SALE OF SHARES, WHEREAS THE ENCLOSED STATEMENT INDICATES THAT ASSESSEE WAS TRADING IN THE SHARES AND TH E LOSS AROSE OF TRADING IN SHARES. THERE WAS OPENING STOCK AND ALSO CLOSING STOCK, WHICH INDICATE THAT ASSESSEE HAS SHOWN THE SHARES ONLY AS CURRENT ASSETS AND NOT AS INVESTMENTS . IN VIEW OF THAT AFTER VERIFYING THE EARLIER YEARS RETURN S ALSO WHICH WERE PLACED ON RECORD, IT IS VERY CLEAR THAT ASSESSEE IS CONSISTENTLY SHOWING THE TRANSACTIONS AS TRADING TRANSACTI ONS. CONSEQUENTLY, ANY LOSS ARISING IN THE SHARE TRANSACTIO NS HAS TO BE CONSIDERED AS BUSINESS LOSS. JUST BECAUSE, IT WAS WRONGLY MENTIONED IN THE COMPUTATION OF INCOME, THE ACTUAL NATURE OF TRANSACTION DOES NOT CHANGE AND THE OPINION OF AO THAT I T WAS AN AFTER THOUGHT CANNOT BE ACCEPTED, ON THE REASON THAT I N THE EARLIER YEARS IN WHICH RETURNS WERE FILED AND ALSO E NCLOSED STATEMENT FILED ALONG WITH RETURN DO INDICATE THAT THE SHARE S WERE SHOWN IN A TRADING FORMAT WITH OPENING STOCK, CL OSING STOCK AND SALES. IN VIEW OF THAT, I DIRECT THE AO TO ALLOW THE I.T.A. NOS. 275, 277 & 278/HYD/2017 :- 6 - : LOSS AS BUSINESS LOSS WHICH CAN BE SET-OFF TO OTHER INCOMES AS RESTRICTIONS U/S. 71(2A) OF THE ACT WERE APPLICABLE ON LY FROM AY. 2005-06 AND NOT BEFORE. IN VIEW OF THAT, GROUN DS ON THIS ISSUE ARE CONSIDERED ALLOWED. 6.2. NEXT ISSUE FOR CONSIDERATION IS THE CLAIM OF IN TEREST ON HOUSE PROPERTY. BY STATING THAT PROVISO TO SECTION 24 RESTRICTS THE AMOUNT TO RS. 30,000/-, THE EXCESS DEDUCTION OF RS. 45,000/- WAS DISALLOWED BY THE AO. LD.CIT(A) ALS O CONFIRMED THE SAME. HOWEVER, THE SECOND PROVISO CLEAR LY STATES THAT WHETHER THE PROPERTY IS ACQUIRED OR CONSTRUCTED WITH CAPITAL BORROWED ON AN ASSET AFTER FIRST DAY OF APRIL, 1999 AND SUCH ACQUISITION OR CONSTRUCTION IS COMPLETED BEFORE THE FIRST DAY OF APRIL, 2003, THE PROVISIONS OF FIRST PROVISO S HALL HAVE EFFECT AS IF FOR THE WORDS RS. 30,000/- THE WORDS RS. 1 LAKH HAD BEEN SUBSTITUTED. THIS PROVISO HAS NOT BEEN EXAM INED BY THE AO. THEREFORE, HE HAS RESTRICTED IT TO RS. 30,000 /- AS PER PROVISO-1. I AM OF THE OPINION THAT ASSESSEE IS ELIG IBLE FOR HIGHER AMOUNT IF THE PROPERTY WAS ACQUIRED BEFORE 01 -04- 2003. SINCE THE CLAIM WAS MADE IN AY. 2001-02 ALSO, THIS CONDITION IS SATISFIED BUT THE AMOUNT HAS TO BE BORROWE D AFTER 01-04-1999. THE SECOND ASPECT THAT THE AMOUNT WAS BORRO WED AFTER 01-04-1999 REQUIRES TO BE EXAMINED. NOT ONLY TH AT IN AY. 2000-01 IE. IN EARLIER YEAR , THE INTEREST CLAIMED WAS ONLY RS. 30,000/-. HOW THIS HAS BECOME RS. 75,000/- ALSO REQUIRE EXAMINATION. ASSESSEE IS DIRECTED TO FURNISH THE CER TIFICATE FROM THE RESPECTIVE PERSON OR WORKING OF THE INTEREST A ND DETAILS TO WHOM IT WAS PAID SO THAT AO CAN EXAMINE WHE THER I.T.A. NOS. 275, 277 & 278/HYD/2017 :- 7 - : THE CONDITIONS IN SECOND PROVISO HAVE BEEN SATISFIED OR NOT? SUBJECT TO VERIFICATION DIRECTED AS ABOVE, THE GROUND I S CONSIDERED ALLOWED FOR STATISTICAL PURPOSES. 6.3. ANOTHER ISSUE WHICH WAS RAISED IN THE GROUNDS OF APPEAL IS WITH REFERENCE TO DISALLOWANCE OF DEPRECIA TION ON COMPUTERS. THIS HAS NOT BEEN PRESSED. HOWEVER, THERE WERE DISALLOWANCE OF EXCESS DEPRECIATION IN AYS. 2002-03 AND 2003- 04, THE DETAILS OF WHICH ARE NOT FORTHCOMING EITHER IN TH E ORDER OF AO OR IN THE SUBMISSIONS MADE BY ASSESSEE. HOW TH E EXCESS DEPRECIATION HAS BEEN WORKED OUT, ON WHAT ASSETS IS NO T VERIFIABLE. THEREFORE, IN THE INTEREST OF JUSTICE, I SE T ASIDE THE ORDER ON THIS ISSUE AND DIRECT AO TO RE-EXAMINE THE CL AIM OF DEPRECIATION AND ALLOW THE CORRECT DEPRECIATION, AFTER GIVING DUE OPPORTUNITY TO ASSESSEE. ASSESSEE IS ALSO DIRECT ED TO FURNISH THE NATURE OF ASSETS, THE COST/WDV AND CLAIM OF DEPRECIATION ON EACH ASSET/BLOCK OF ASSETS, SO THAT THE SAME CAN BE VERIFIED BY AO AND ALLOW THE AMOUNT CORRECTLY, AS PER THE PROVISIONS OF LAW. WITH THESE OBSERVATIONS/DIRECTIO NS, THE GROUNDS ARE CONSIDERED ALLOWED FOR STATISTICAL PURPOS ES. 6.4. ONE MORE ISSUE RAISED AS GROUND NO. 10 IN AY. 2003-04 IS WITH REFERENCE TO INTEREST PAID OF AN AMOUNT OF RS. 2,40,000/- CLAIMED IN BUSINESS. BEFORE THE AO, NO D ETAILS WERE FURNISHED BY ASSESSEE AND ACCORDINGLY, THE SAME WAS DISALLOWED BY THE AO, WHILE WORKING OUT THE BUSINESS L OSS. BEFORE THE LD.CIT(A) ALSO NO INFORMATION HAS BEEN FUR NISHED AND NO INFORMATION FURNISHED EVEN BEFORE THE ITAT. S INCE THE I.T.A. NOS. 275, 277 & 278/HYD/2017 :- 8 - : CLAIM IS NOT SUBSTANTIATED, I AM OF THE OPINION THAT AO IS JUSTIFIED IN DISALLOWING THE AMOUNT. ACCORDINGLY, GR OUNDS ON THIS ISSUE ARE DISMISSED. 7. IN THE RESULT, APPEALS FOR THE AYS. 2001-02 & 2002-03 ARE CONSIDERED ALLOWED FOR STATISTICAL PURPOS ES AND APPEAL FOR THE AY. 2003-04 IS CONSIDERED PARTLY ALLOW ED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD AUGUST, 2018 SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER HYDERABAD, DATED 3 RD AUGUST, 2018 TNMM I.T.A. NOS. 275, 277 & 278/HYD/2017 :- 9 - : COPY TO : 1. SHRI P.C. PANTULU, C/O. P. MURALI & CO., CHARTER ED ACCOUNTANTS, 6-3-655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD. 2. DCIT, CIRCLE-1(2), HYDERABAD. 3. ACIT, CIRCLE-1(2), HYDERABAD. 4. CIT (APPEALS)-1, HYDERABAD. 5. PR.CIT-1, HYDERABAD. 6. D.R. ITAT, HYDERABAD. 7. GUARD FILE.