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ITA 3098/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61755 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 1 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 02-07-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 10-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S GILLCIT
• Assessee Lawyers: SAMEER KAPOORCA
• Keywords: Unexplained cash credit; Speculation loss; Revised return; Futures and options; Speculative transactions
• Section: 143(3); 43(5)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C : NEW DELHI) BEFORE SHRI J.SUDHAKAR.REDDY,ACCOUNTANT MEMBER AND SHRI C.M GARG,JUDICIALMEMBER ITA NO.4041 /DEL/ 2009 (ASSESSMENT YEAR :2006-07) ITO HOTLINE CAPITAL SERVICEPVT.LTD. WARD 12(4), 302, 5 PUSSAROAD, NEW DELHI. NEW DELHI. VS PAN:AAACH9013M (APPELLANT) (RESPONDENT) ASSESSEE BY :SH.SAMEER KAPOOR,CA. REVENUE BY :SH.R.I.S GILL,CIT. ORDER PER J. SUDHAKER. REDDY,JUDICIAL MEMBER: THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED AG AINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS-) XV, NEW DELHI DATED 9.7.2009. 2. THE ASSESSEE IS A COMPANY AND IS ENGAGED IN THE BUSINESS OF SHARE-BROKING. IT IS A MEMBER OF THE NATIONAL STOCK EXCHANGE. IT FILED ITS RETURN OF INCOME ON 29.10.2006, DECLARING TOTAL INCOME OF RS. 6,99,740/-.SUBSQUENTL Y REVISED RETURN OF INCOME WAS FILED ON 16.11.2006, DECLARING TOTAL INCOME OF RS.22,11,1 10/-.THE ASSESSING OFFICER COMPLETED ASSESSMENT U/S. 143(3) OF THE ACT ON 15.12.2008, DE TERMINING TOTAL INCOME AT2,67,45,404/-. HE MADE CERTAIN DISALLOWANCES AND ADDITIONS. ON APPEAL, THE FIRST APPELLATE AUTHORITY GRANTED PART RELIEF. FURTHER AG GRIEVED, THE ASSESSEE HAS FILED AN APPEAL BEFORE US ON THE FOLLOWING GROUNDS: 2 (A) WHETHER LD. CIT(A) WAS CORRECT ON FACTS AND CIRCUMS TANCES OF THE CASE AND IN LAW IN DELETING THE DISALLOWANCES OF RS . 58,26,886/- MADE BY THE AO ON ACCOUNT OF LOSS OF DERIVATIVES. (B) WHETHER LD. CIT(A) WAS CORRECT ON FACTS AND CIRCUMS TANCES IF THE CASES AND IN LAW IN DELETING THE ADDITION OF RS.1,7 6,59,296/- MADE BY THE AO ON ACCOUNT OF UNEXPLAINED CREDIT BALANCES. (C) WHETHER LD. CIT (A) WAS CORRECT ON FACTS AND CIRCUM STANCES OF THE CASE AND IN LAW IN DELETING THE DISALLOWANCE OF RS. 3,76,025/- MADE BY THE AO ON ACCOUNT OF INTEREST ON OVER DRAFT LIMI T. (D) THE APPELLANT CRAVES LEAVE, TO ADD, ALTER OR AMEND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF THE HEARING. 3. THE LEARNED DEPARTMENT REPRESENTATIVE SH. R.I.S GILL SUBMITTED THAT THE ASSESSING OFFICER AND THE CIT (A) DEALT WITH THE FIRST ISSUE OF LOSS ON DERIVATIVES AT PAGE 8. HE SUBMITTED THAT THE LOSS INCURRED BY THE ASSESSEE ON DERIVATIVE TRANSACTIONS, PRIOR TO NOTIFICATION ISSUED BY THE CENTRAL GOVT. U/S 43(5) READ WITH RULE 6 DDA, AND 6 DDB, ON 25.1.2006, IT IS TO BE TREATED AS SPECULATIVE LOSS . HE SUPPORTED THE ORDER OF THE AO. 4. ON GROUND NO.2 THE LEARNED DR SUBMITTED THAT THE ASSESSEE HAS FAILED TO PRODUCE EVIDENCE BEFORE THE ASSESSING OFFICER, SO AS TO EXP LAIN CREDIT BALANCES IN ITS ACCOUNT. HE POINTED OUT THAT THE CIT(A) HAS NOT GIVEN AN OPPORT UNITY TO THE ASSESSING OFFICER, AND ARRIVED AT CONCLUSIONS. THUS, HE SUBMITS THAT THE I SSUE SHOULD BE SET ASIDE TO THE FILE OF THE AO FOR FRESH ADJUDICATION . ON GROUND NO.3, THE LEA RNED DR SUBMITTED THAT THERE WAS DIVERSION OF FUNDS FROM THE OVERDRAFT ACCOUNT FOR A DVANCING AMOUNTS FOR NON BUSINESS PURPOSES TO THE DIRECTORS AND HENCE THE DISALLOWANC E WAS RIGHTLY MADE BY THE ASSESSING OFFICER. HE ARGUED THAT THE ASSESSEE HAD HUGE BANK BALANCES OF RS. 2.57 CRORES AS ON 31.3.2005, AND RS. 3.54 CRORES AS ON 31.3.2006. HE POINTED OUT THAT THERE IS DEBIT BALANCE 3 OF MORE THAN RS. 60 LACS AGAINST THE DIRECTORS. THU S HE SUBMITS THAT THE OD FACILITY SHOULD NOT HAVE BEEN AVAILED BY THE COMPANY AND THE ASSESS EE FAILED TO EXPLAIN THE REASONS FOR TAKING AN OVERDRAFT WHEN THERE IS SUFFICIENT FUNDS AVAILABLE. 5. THE LEARNED COUNSEL FOR THE ASSESSEE SH. SAMEER KAPOOR ON THE OTHER HAND SUPPORTED THE ORDER OF THE CIT (A) AND SUBMITTED TH AT PRIOR TO 21.5.2006, THE ASSESSEE HAD NET GAIN FROM SPECULATIVE TRANSACTIONS AND HENCE TH ERE CAN BE NO QUESTION OF DISALLOWANCE ON THE GROUND THAT THERE IS SPECULATION LOSS. HE S UBMITTED CALCULATIONS AND ARGUED THAT THE CIT (A) HAS VERIFIED THE SAME. ALTERNATIVELY, H E SUBMITTED THAT THE TRIBUNAL IN THE CASE OF G.K.ANAND BROS.BUILDWELL (P) LTD. VS . I.T. O. - (2009) 34 SOT 439 (DEL), HAS HELD THAT THE LOSS EMANATING FROM FUTURES AND OPTIO NS TRANSACTIONS IS TO BE TREATED SPECULATION LOSS FROM 1.4.2006. HE ALSO RELIED ON T HE DECISION OF PRADEEP KUMAR HARLAKA VS. ACIT REPORTED IN (2012) 65 DTR 157 /143 TTJ 446 (MUM.)(TRIB.). 6. ON GROUND NO. 2 HE STRONGLY OPPOSED THE SUGGESTI ON OF THE LEARNED DR FOR SETTING ASIDE OF THE MATTER TO THE AO, ON THE GROUND THAT T HE ENTIRE EVIDENCES WERE FILED BEFORE THE AO AND THE AO HAD IN A VERY CASUAL MANNER MADE THE ADDITIONS RESULTING IN HUGE INCONVENIENCE TO THE ASSESSEE. HE TOOK US THROUGH T HE ORDER OF THE CIT (A) AND SUBMITTED THAT EACH AND EVERY EVIDENCE WAS CONSIDERED BY THE COMMISSIONER AND ON APPRECIATION OF EVIDENCES CONCLUSIONS WERE DRAWN. ON GROUND NO. 2 H E RELIED ON THE TESTS LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF SA BUILDER S AND SUBMITTED THAT THE BORROWING WAS FOR THE PURPOSE OF BUSINESS AND HENCE NO DISALL OWANCE CAN BE MADE. HE ALSO SUBMITTED THAT THE ASSESSEE HAD UNDISTRIBUTED PROFI TS OF THE EARLIER YEARS OF RS.1.01 CRORES 4 AND THE CURRENT YEARS PROFIT WAS 18 LACS. THUS, HE SUBMITS THAT THE ASSESSEE HAS SURPLUS FUNDS AND THERE IS NO NEXUS BETWEEN THE BANK BORROW INGS AND THE DEBIT BALANCES IN ACCOUNTS OF THE DIRECTORS. 7. ON THE CROSS OBJECTIONS THE LEARNED COUNSEL SUBM ITTED THAT GROUND NOS. 1 TO 3 ARE IN SUPPORT OF THE ORDER OF CIT(A). HE FURTHER, SUBM ITTED THAT HE IS NOT RAISING GROUND NOS. 4 TO 8. THE LEARNED DR AGREED WITH THESE SUBMISSION S OF THE LEARNED AR. 8. RIVAL CONTENTIONS HEARD. ON A CAREFUL EXAMINATIO N OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND A PERUSAL OF THE PAPERS ON RECORD A ND THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS CASE LAW CITED, WE HOLD AS FOLLOWS: ON THE FIRST ISSUE WE FIND THAT THE CIT (A) HAS EXA MINED THE ISSUE AS TO WHETHER THE ASSESSEE HAS LOSS FROM DERIVATIVE TRANSACTIONS BETWEEN 1.4.2005 TO 25 TH JANUARY,2006. HE HAS COME TO A CONCLUSION THAT THE ASSESSEE DID NOT INCUR NET LOSS DURING THIS PERIOD. IT WAS A CASE WHERE THE ASSESSEE RECEI VED NET GAIN FROM TRANSACTIONS IN FUTURES AND OPTIONS, DONE BETWEEN 1.4.2005 TO25.01.2006.THI S FACTUAL FINDING IS NOT FOUND FAULT WITH BY THE LD. DR. AO HAS NO BASIS FOR ARRIVING AT A DERIVATIVE TRADIN G LOSS OF RS. 58,26,886/-. THUS, ON FACTS WE UPHOLD THE ORDER THE LEARNED CIT(A) ON THIS ISSUE. EVEN OTHERWISE THE DECISIONS IN THE CASE OF G.K.ANAND BROS.BUILDWELL(P ) LTD. VS. INCOME TAX OFFICER (2009) 34 SOT 439(DEL) AND PRADEEP KUMAR H ARLAKA VS. ACIT(2012) 65 DTR 157/143TTJ 446 (MUM.)(TRIB.) ARE IN FAVOUR OF T HE ASSESSEE. IN THE RESULT GROUND NO. 1 IS DISMISSED. 5 GROUND NO. 2 IS AGAINST THE DELETION OF AN ADDITION MADE ON THE GROUND THAT THE ASSESSEE HAS UNEXPLAINED CASH CREDITS. THE DETAILS OF THE CREDITS ARE GIVEN AT PARA 5.3 (A) AT PAGE 13 OF THE CIT(A) ORDER. THE CIT(A) FROM PAR A 5.4 (A) TO PARA 5.4 (C) HAS CONSIDERED EACH OF THE TRANSACTIONS, THE EVIDENCE F ILED BY THE ASSESSEE AND HAS COME TO A CONCLUSION THAT THE ADDITION IS NOT SUSTAINABLE. TH E LEARNED DEPARTMENT REPRESENTATIVE HAS NOT POINTED OUT ANY FACTUAL ERROR IN THE FINDINGS O F THE FIRST APPELLATE AUTHORITY. HE ARGUED THAT THE ISSUE SHOULD BE SET ASIDE TO THE FILE OF T HE AO. WE CANNOT ACCEPT THIS REQUEST FOR THE REASON THAT, THE ASSESSEE HAS FILED ALL THESE E VIDENCE BEFORE THE AO. THE ASSESSING OFFICER AT PARA 6 OF HIS ORDER HAS IN A VERY CASUAL MANNER, WITHOUT GIVING ANY REASONS AS TO WHY THE EVIDENCE FURNISHED BY THE ASSESSEE WAS NOT ACCEPTABLE, MADE THE ADDITION. THIS IS ILLEGAL. THE CIT(A) HAS EXAMINED THE EVIDENCES AND COME TO A CONCLUSION. UNDER THESE CIRCUMSTANCES WE DO NOT FIND ANY REASON AS TO WHY T HE ISSUE IS TO BE SET ASIDE TO THE FILE OF THE ASSESSING OFFICER. IN THE RESULT, WE UPHOLD THE ORDER OF THE CIT(A) AND DISMIS THIS GROUND OF THE REVENUE. GROUND NO. 2 IS ON THE ISSUE OF DISALLOWANCE OF IN TEREST. THE BANK GRANTED OVERDRAFT FACILITIES FOR BUSINESS PURPOSES. WHEN TH E LOAN HAS BEEN GRANTED FOR THE BUSINESS PURPOSE, NO DISALLOWANCE CAN BE MADE AS HE LD BY THE HONBLE SUPREME COURT IN THE CASE OF SA BUILDERS LIMITED VS. CIT(A) - 288 I TR 1. EVEN OTHERWISE WE FIND THAT THE ASSESSEE HAS SURPL US FUNDS IN THE FORM OF UNDISTRIBUTED PROFITS OF THE EARLIER YEAR AMOUNTING TO RS. 1.01 CRORES AND SURPLUS PROFITS OF THE CURRENT YEAR RS.18 LACS. THUS, THE PRESUMPTI ON IS THAT THE SURPLUS FUNDS HAVE TO BE HELD AS USED FOR GIVING MONEY TO DIRECTORS. THIS PR OPOSITION IS LAID DOWN BY THE SUPREME COURT IN THE CASE OF MUNJAL SALES CORPORATION VS. C OMMISSIONER OF INCOME TAX AND 6 ANOTHER 298 ITR 298 (S.C). THE HONBLE BOMBAY HIGH COURT HAS IN THE CASE OF RELIANCE UTILITIES LIMITED 313 ITR 340 (BOMBAY) HELD THAT WH ERE THE ASSESSEE HAS OWN FUNDS AS WELL AS BORROWED FUNDS AND IT ADVANCED FUNDS TO THE SISTER CONCERN FOR ALLEGEDLY NON BUSINESS PURPOSES, THEN A PRESUMPTION CAN BE MADE T HAT THE ADVANCES FOR NON-BUSINESS PURPOSES HAVE BEEN MADE OUT OF OWN FUNDS. HENCE WE UPHOLD THE ORDER ON THIS ISSUE AND DISMISS THIS GROUND OF REVENUE. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. 9. COMING TO THE CROSS OBJECTIONS, WE DISMISSED THE SAME AS INFRUCTUOUS FOR THE REASON THAT GROUND NOS. 1 TO 3 ARE IN SUPPORT OF TH E ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) ON THE ISSUES THAT ARE RAISED BY THE REVENUE IN THE APPEAL DECIDED BY US. THE BALANCE OF THE GROUNDS ARE DISMISSED AS NOT PRE SSED . IN THE RESULT, BOTH THE APPEAL OF THE REVENUE AS W ELL AS THE CROSS-OBJECTION FILED BY THE ASSESSEE, ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 11 TH /06/ 2012. SD/- SD/- (C.M.GARG) (J. SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 11 TH DAY OF JUNE 2012 S.SINHA.. COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. CIT(ITAT), NEW DELHI. AR,ITAT NEW DELHI.