Sameer Mulabagal , Bangalore V. The Income Tax Officer Ward-4(3)(4), Bangalore

ITA 2785/BANG/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 6125 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 05-10-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JDIT
• Assessee Lawyers: ANOOP KUMAR AGARWAL
• Keywords: Transactions in derivatives; Earning of tax free income; Futures and options
• Section: 201; 44AB; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT ITA NO. 2785/BANG/2018 ASSESSMENT YEAR : 2015 - 16 SHRI SAMEER MULBAGAL, S/O. MR. MR. M.K. MULBAGAL, # 9062, SOBHA DAFFODIL, 24 TH MAIN, HSR LAYOUT, SECTOR 2, BENGALURU 562 102. PAN: AKBPM 5993R VS. THE INCOME TAX OFFICER, WARD 4(3)(4), BANGALORE. APP ELLANT RESPONDENT APP ELLANT BY : SHRI ANOOP KUMAR AGARWAL, CA RESPONDENT BY : SHRI S. VENKATESH, JDIT DATE OF HEARING : 22 .0 1.2019 DATE OF PRONOUNCEMENT : 2 5 .01 . 201 9 O R D E R THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE OR DER DATED 20,07,2018 OF THE CIT(APPEALS)-4, BANGALORE RELATIN G TO ASSESSMENT YEAR 2015-16. 2. THE ASSESSEE IS AN INDIVIDUAL. DURING THE PREVI OUS YEAR RELEVANT TO AY 2014-15, HIS SOURCE OF INCOME WAS LONG TERM CAPI TAL GAIN (LTCG) ON SALE OF SHARES AND INTEREST INCOME OF RS.67,31,553 AND RS.4,41,880/- RESPECTIVELY. SUCH LTCG AND INTEREST INCOME WAS CL AIMED AS EXEMPT INCOME AND ACCEPTED BY THE AO AND THERE IS NO DISPU TE ON THIS. THE ASSESSEE HAD CARRIED OUT TRANSACTIONS IN FUTURES AN D DERIVATIVE AND SALE OF ITA NO. 2785/BANG/2018 PAGE 2 OF 4 OPTION IN SECURITIES. IN FACT, THE CASE OF THE ASS ESSEE WAS TAKEN UP FOR SCRUTINY ASSESSMENT ONLY BECAUSE OF HUGE VOLUME OF SUCH TRANSACTIONS. 3. IT IS NOT IN DISPUTE THAT THE ASSESSEE SUFFERED A LOSS OF RS.18,89,097 ON SUCH TRANSACTIONS IN FUTURES AND OPTIONS. THE PU RCHASE VALUE OF SUCH TRANSACTION WAS RS.76,18,741 AND SALE VALUE OF SUCH TRANSACTIONS WAS RS.57,68,418. IN THE RETURN OF INCOME, THE ASSESSE E HAD TREATED TRANSACTIONS IN FUTURES AND OPTIONS AS GIVING RISE TO SHORT TERM CAPITAL GAIN. SINCE SUCH LOSS OF RS.18,89,097 COULD NOT BE SET OF F AGAINST ANY INCOME AGAINST WHICH IT COULD BE SET OFF, THE ASSESSEE CLA IMED THAT THE SAID LOSS SHOULD BE CARRIED FORWARD FOR SET OFF AGAINST INCOM E IN FUTURE IN ACCORDANCE WITH LAW. 4. THE AO HELD THAT SINCE THE ASSESSEE HAD VOLUMINO US TRANSACTIONS IN FUTURES AND OPTIONS, HE HAD TO BE REGARDED AS HA VING CARRIED ON BUSINESS IN FUTURES AND OPTIONS AND THE INCOME FROM SUCH BUSINESS OUGHT TO HAVE BEEN OFFERED TO TAX UNDER THE HEAD INCOME FROM BUSINESS. U/S.44AA AND 44AB OF THE INCOME TAX ACT, 1961 (ACT) , IF A PERSON CARRYING ON BUSINESS IN WHICH THE TURNOVER IS MORE THAN RS.1 CRORES, THEN HE HAS TO KEEP AND MAINTAIN BOOKS OF ACCOUNTS IN THE MANNER S PECIFIED AND HAS ALSO TO GET HIS BOOKS OF ACCOUNTS AUDITED. THE AO HELD THAT AS PER GUIDANCE NOTE PARAGRAPH 15.5 OF GUIDANCE NOTE ON TAX AUDIT U /S.44AB OF THE ACT ISSUED BY INSTITUTE OF CHARTERED ACCOUNTANTS OF IND IA (ICAI), TURNOVER INDICATES AGGREGATE PRICE OF COMMODITIES RECEIVED B Y AN ASSESSEE DURING THE COURSE OF HIS TRADING OR BUSINESS ACTIVITIES AN D THEREFORE THE VALUE OF PURCHASES AND SALES HAS TO BE REGARDED AS TURNOVER. SINCE THE VALUE OF PURCHASES AND SALES IN THE CASE OF THE ASSESSEE WAS RS.1,33,87,159/- (PURCHASE VALUE 76,18,741 + 57,68,418 SALE VALUE), HE HELD THAT THE ASSESSEE OUGHT TO HAVE MAINTAINED BOOKS OF ACCOUNTS AND GOT THE SAME AUDITED. SINCE THE ASSESSEE DID NOT MAINTAIN ANY B OOKS OF ACCOUNTS, THE AO HELD THAT THE LOSS SHOWN BY THE ASSESSEE HAS TO BE DISREGARDED AND HE ITA NO. 2785/BANG/2018 PAGE 3 OF 4 ESTIMATED INCOME FROM BUSINESS OF ASSESSEE AT 8% OF RS.1,33,87,159/-. THEREBY THE TOTAL INCOME OF ASSESSEE WAS DETERMINED AT RS. 10,70,970/- AS AGAINST NIL INCOME DECLARED BY THE ASSESSEE. TH E ACTION OF THE AO WAS CONFIRMED BY THE CIT(A). AGGRIEVED BY THE ORDER CI T(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. I HAVE HEARD THE RIVAL SUBMISSIONS. IT IS UNDIS PUTED THAT THE RESULT OF DEALINGS IN DERIVATIVES, FUTURES AND OPTIONS BY THE ASSESSEE RESULTED IN A LOSS OF RS.18,89,097/-. EVEN ASSUMING THE AO WAS R IGHT IN ESTIMATING INCOME OF THE ASSESSEE, HE COULD NOT HAVE IGNORED T HE REALITY OF THE RESULT OF THE TRANSACTION AND ESTIMATE INCOME WHEN THERE I S A LOSS SUFFERED BY THE ASSESSEE. THE LAW IS WELL SETTLED THAT EVEN IN A B EST JUDGMENT ASSESSMENT, THE AO HAS TO MAKE A REASONABLE ESTIMAT E AND HIS ESTIMATE CANNOT BE ON THE BASIS OF ANY GUESS WORK OR CONTRAR Y TO THE MATERIAL BEFORE HIM. I AM THEREFORE OF THE VIEW THAT THE ADDITION OF RS.10,70,970 AS INCOME OF THE ASSESSEE IN TRANSACTIONS IN DERIVATIVES, FUT URES AND OPTIONS CANNOT BE SUSTAINED AND THE SAME IS DIRECTED TO BE DELETED . 6. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS ALL OWED. PRONOUNCED IN THE OPEN COURT ON THIS 25 TH DAY OF JANUARY, 2019. SD/- ( N.V. VASUDEVAN ) VICE PRESIDENT BANGALORE, DATED, THE 25 TH JANUARY, 2019. / D ESAI S MURTHY / ITA NO. 2785/BANG/2018 PAGE 4 OF 4 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD F ILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.