SRESTHA ARTS & COMMODITIES P.LTD, MUMBAI V. DCIT (OSD) 2(3), MUMBAI

ITA 2936/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100702 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 27-07-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 16-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMIT KUMAR
• Keywords: Business income; Opportunity of being heard; Speculation loss
• Section: 43(5); 131

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI , , , BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI N.K . BILLAIYA, A CCOUNTANT M EMBER / I .T.A. NO . 2936/MUM/2013 ( / ASSESSMENT YEAR : 2008 - 09 M/S. SRESTHA ARTS & COMMODITIES PVT. LTD., UNIT NO. 34, C - BLOCK, 3 RD FLOOR, FILM CENTRE, 68, TARDEO ROAD, MUMBAI - 400 034 / VS. THE DY. CIT (OSD) - 2(3), AAYAKAR BHAVAN, MUMBAI - 400 020 ./ ./ PAN/GIR NO. : AABCT 4238P ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY: SHRI NISHIT GANDHI / RESPONDENT BY : SHRI SUMIT KUMAR / DATE OF HEARING : 17 . 0 8 .2015 / DATE OF PRONOUNCEMENT : 21 .0 8 .2015 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST THE ORDER OF THE LD. CIT(A) - 6, MUMBAI DT. 28.3.2013 PERTAINING TO ASSESSMENT YEAR 2008 - 09. ITA. NO . 2936/M/2013 2 2. THE ASSESSEE HAS RAISED 3 SUBSTANTIVE GROUNDS OF APPEAL. AT THE VERY OUTSET, THE LD. COUNSEL FOR THE ASSESSE E STATED THAT HE IS NOT PRESSING GROUND NO.1 ALONGWITH ITS SUB - GROUNDS, THE SAME IS DISMISSED AS NOT PRESSED. 3. GROUND NO. 2 & 3 WITH SUB - GROUNDS READ AS UNDER: 2.1. THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO IN MAKING ADDITION OF RS. 2.6 1 CRORES, ON A GROUND DIFFERENT FROM THE GROUND ON WHICH THE ADDITION WAS MADE. 2.2. IT IS SUBMITTED THAT IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE, AND IN LAW, SUCH ACTION WAS BAD IN LAW. 3.1. WITHOUT PREJUDICE TO THE ABOVE, THE LD. CIT(A) ERRED IN HOLDING THAT THE LOSS OF RS. 2.61 CRORES INCURRED BY THE APPELLANT WAS SPECULATION LOSS AND CONSEQUENTLY, THE SAME WAS NOT ELIGIBLE FOR SET OFF AGAINST THE BUSINESS INCOME OF THE APPELLANT. 3.2. IT IS SUBMITTED THAT IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW NO SUCH ACTION WAS CALLED FOR AND THE LOSS OF RS. 2.61 CRORES WAS REQUIRED TO BE HELD AS FULLY ALLOWABLE AS NORMAL BUSINESS LOSS. 4. THE ASSESSEE IS DEALING IN COMMODITIES AND PROVIDING CONSULTANCY IN PROSPECTING OF MINERALS. THE RETURN WAS SELECTED FOR SCRUTINY UNDER CASS. ACCORDINGLY, STATUTORY NOTICES WERE ISSUED AND SERVED UPON THE ASSESSEE. WHILE SCRUTINIZING THE RETURN OF INCOME QUA THE BOOKS OF ACCOUNT, THE ASSESSING OFFICER OBSERVED THAT IN THE GOLD TRADING ACCOUNT, THE ASSESSEE COMPANY HAS PURCHASED 1419 KGS. O F GOLD FOR RS. 164,45,69,043/ - AND SOLD THE SAME QUANTITY OF GOLD FOR RS. 161,94,67,226/ - THEREBY INCURRING A LOSS OF RS. 2,51,01,817/ - . THE AO FURTHER NOTICED THAT THE ASSESSEE HAS SOLD THE GOLD IM MEDIATELY ON ITA. NO . 2936/M/2013 3 PURCHASE AT A LOSS. THE ASSESSEE COMPANY WAS ASKED TO EXPLAIN THE CREDIBILITY AND THE GENUINENESS OF SUCH TRANSACTION AND WHY THIS CLAIM OF RS. 2.51 CRORES SHOULD NOT BE ADDED BACK TO THE TOTAL INCOME. IN ITS REPLY DATED 23.12.2010, THE ASS ESSEE EXPLAINED THAT IN ORDER TO GET DIRECT SUPPLY FROM MMTC, THE ASSESSEE IS REQUIRED TO HAVE HUGE TURNOVER IN BULLION FOR FIVE YEARS. IN ORDER TO ACHIEVE THAT THE ASSESSEE NEGOTIATED WITH SEVERAL PARTIES AND DECIDED TO PURCHASE BULLION. IT WAS FURTHER EXPLAINED THAT THE ASSESSEE WAS NOT HAVING THAT MUCH OF CAPITAL OR BANK FACILITY TO LEFT THE COMMODITY AND STORE IT BECAUSE OF THESE PECULIAR FACTORS THESE TRANSACTIONS WERE DONE. THE ASSESSEE FILED THE COPIES OF THE CONTRACT. 4.1. THE SUBMISSIONS MADE BY THE ASSESSEE DID NOT FIND ANY FAVOUR WITH THE AO. ACCORDING TO THE AO, NO PRUDENT BUSINESSMAN WOULD INDULGE IN SUCH TRANSACTIONS. ACCORDING TO THE AO, THE WHOLE GOLD TRADING ACCOUNTS IS A SHAM. THE AO ACCORDINGLY ADDED RS. 2.51 C RORES TO THE TOTAL INCOME OF THE ASSESSEE. 5. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. HOWEVER, WHILE DISMISSING THE APPEAL, THE LD. CIT(A) OBSERVED THAT THE IMPUGNED TRANSACTIONS WERE OF SPECULATIVE IN NATURE AS PE R SEC. 43(5) OF THE ACT. INFACT THE FIRST APPELLATE AUTHORITY ALLOWED AN OPPORTUNITY TO THE ASSESSEE TO EXPLAIN WHY THE TRANSACTION SHOULD NOT BE TREATED AS SPECULATIVE IN NATURE. THE LD. CIT(A) OBSERVED THAT NO EVIDENCE WHATSOEVER WAS FURNISHED AS TO HOW AND WHEN THE DELIVERY WAS TAKEN. THE LD. CIT(A) FINALLY CONCLUDED BY DISMISSING THE APPEAL AND HOLDING THAT THE LOSS OF RS. 2.61 CRORES IS A SPECULATIVE LOSS. 6. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. ITA. NO . 2936/M/2013 4 7. THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. THE LD. COUNSEL FURTHER DREW OUR ATTENTION TO THE RELEVANT DOCUMENTARY EVIDENCES FILED BEFORE US IN THE FORM OF A PAPER BOOK. THE LD. COUNSEL FURTHER REFE RRED TO THE RELEVANT PURCHASE INVOICES AND SALE INVOICES. THE LD. COUNSEL DREW OUR ATTENTION TO THE DECISION OF THE TRIBUNAL IN THE CASE OF M /S. MOBILE TRADING & INVESTMENT PVT. LTD. IN ITA NO. 4926/M/12. IT IS THE SAY OF THE LD . COUNSEL THAT ON IDENTIC AL SET OF FACTS AND TRANSACTIONS WITH SOME PARTIES, THE TRIBUNAL HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 8. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORDERS OF THE AUTHORITIES BELOW. THE UNDISPUTED FACT IS THAT TH E AO TREATED THE ENTIRE TRANSACTION AS A SHAM TRANSACTION WHEREAS THE FIRST APPELLATE AUTHORITY HAS CONFIRMED THE FINDINGS OF THE AO TREATING THE LOSS AS A SPECULATIVE LOSS WHICH MEANS THAT NOW THE GENUINENESS OF THE TRANSACTION IS NOT IN DISPUTE BEFORE US AS REVENUE IS NOT IN APPEAL. 8.1. ALL THAT WE HAVE TO DECIDE IS WHETHER THE IMPUGNED TRANSACTION IS OF SPECULATIVE IN NATURE OR NOT ? ONE OF THE TESTS TO DETERMINE WHETHER THE TRANSACTION IS DONE WITH AN INTENTION TO SPECULATE AND MAKE PROFIT FROM THE R ATE FLUCTUATION IS TO SEE WHETHER THE ASSESSEE HAS SUFFICIENT FUNDS TO MAKE THE PAYMENT FOR PURCHASES. IF THE ASSESSEE DOES NOT HAVE MONEY TO MAKE THE PAYMENT FOR PURCHASES, THEN THE CONDUCT OF THE ASSESSEE IS SUGGESTIVE OF SPECULATION. UNDISPUTEDLY , TH E PURCHASE AND SALES ARE SUPPORTED BY RESPECTIVE INVOICES. THE TRANSACTIONS HAVE ALSO BEEN CONFIRMED BY THE RESPECTIVE PARTIES. HOWEVER, AT THE SAME TIME WE FIND THAT THE IMPUGNED TRANSACTION S HAVE NOT BEEN VERIFIED BY THE AO FROM THE RESPECTIVE PARTIES WHICH IS A CLEAR DISTINGUISHING FACTOR FROM THE FACTS OF THE DECISION RELIED UPON BY THE LD. COUNSEL IN THE CASE OF MOBILE TRADING ITA. NO . 2936/M/2013 5 & INVESTMENT PVT. LTD. (SUPRA). IN THAT CASE THE PARTIES WERE PRODUCED BEFORE THE AO AS MENTIONED AT PAGE - 8 OF THE ORDER OF THE TRIBUNAL. WE ALSO FIND THAT IN THAT CASE THE AO HAS ISSUED SUMMONS U/S. 131 OF THE ACT TO THE DEALERS FROM WHOM THE ASSESSEE CLAIMED TO HAVE PURCHASE S AND SALES , SUCH INVESTIGATIONS ARE NOT MADE IN THE PRESENT CASE. THEREFORE, IN THE INTEREST OF JUST ICE AND FAIR PLAY, WE RESTORE THIS ISSUE TO THE FILE OF THE AO. THE AO IS DIRECTED TO VERIFY THE IMPUGNED TRANSACTIONS FROM THE RESPECTIVE PARTIES BY MAKING VERIFICATIONS FROM THEIR END AS PER THE PROVISIONS OF THE LAW . THE AO IS ALSO DIRECTED TO VERIFY WHETHER THE ASSESSEE WAS HAVING SUFFICIENT FUNDS TO MAKE THE FIRST PURCHASE AND DECIDE THE ISSUE AFRESH AFTER GIVING REASONABLE AND FAIR OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. OR DER PRONOUNCED IN THE OPEN COURT ON 21 ST AUGUST , 2015 SD/ - SD/ - ( VIJAY PAL RAO ) (N.K. BILLAIYA) /JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 21 ST AUGUST , 2015 . . ./ RJ , SR. PS ITA. NO . 2936/M/2013 6 / 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