DCIT 29(2), MUMBAI V. SHRI KIRTI RAMJI KOTHARI, MUMBAI

ITA 3341/MUM/2019

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 3428 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2015-2016
• Appeal Filed On: 16-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BHARTI SINGH
• Keywords: Business income; Transactions in derivatives; Bogus
• Section: 68; 69; 37; 56; 69C; 69B; 143(2); 64

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “H” BENCH, MUMBAI BEFORE SHRI AMARJIT SINGH, JM AND SHRI S. RIFAUR RAHMAN, AM आयकर अपील सं/ I.T.A. No.3341/Mum/2019 (निर्धारण वर्ा / Assessment Year: 2015-16) DCIT-29(2) Room No.422, 4 th Floor, Kautilya Bhavan, B.K.C. Bandra (E), Mumbai- 400051. बिधम/ Vs. Kirti Ramji Kothari A/7, Maheh Krupa Devi Dayal Cross Road, Mulund (W), Mumbai-400080. स्थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AAEPK3216C (अपीलाथी /Appellant) .. (प्रत्यथी / Respondent) सुनवाई की तारीख / Date of Hearing: 05/04/2022 घोषणा की तारीख /Date of Pronouncement: 28/04/2022 आदेश / O R D E R PER AMARJIT SINGH, JM: The revenue has filed the present appeal against the order dated 14.02.2019 passed by the Commissioner of Income Tax (Appeals) -40 Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2015- 16. 2. The revenue has raised the following grounds: - "1. On the facts and circumstances of the case, the Id. CIT(A) erred in allowing the assessee’s claim that the profit of Rs. 5,75,40,478/- from F & O trading was to be assessed either as business income or under either of the heads of income A to F of section 14 of the LT. Act without appreciating the fact that the investigation and analysis of the Revenue by: Shri Bharti Singh (Sr. AR) Assessee by: Shri Mandar Vaidya ITA No. 3341/Mum/2019 A.Y.2015-16 2 facts as borne out by the A.O. in the assessment order clearly establish that the profit was bogus and sham earned through synchronized trading in illiquid stock option and accordingly the same was correctly assessed u/s 68 of the IT Act. 2. On the facts and circumstances of the case, the ld. CIT(A) erred in allowing assesse’s claim that the profit of Rs. 5,75,40,478/- from F&O trading was to be assessed either as business income or under either of the heads of income A to F of section 14 of the IT. Act merely by relying upon the decisions of the Hon’ble ITAT Mumbai and Calcutta without appreciating the fact that the facts of the aforesaid cases were quite different to that of the assesse. 32. On the facts and circumstances of the case, the ld. CIT(A) erred in deleting the addition of Rs. 14,38,512/- being the brokerage and commission u/s 69C of the I.T. Act on the ground that the A.O.’s finding of treating the profit was not bogus without appreciating the fact the investigation and analysis of the facts as borne out by the A.O. in the assessment order clearly establish that the profit was bogus and sham earned through synchronized trading in illiquid stock option and therefore the Assessing Officer had correctly held that in order to arrange the transactions the assessee had incurred aforesaid expenditure. ?" 3. The brief facts of the case are that the assessee filed his return of income on 24.09.2015 declaring a total income to the tune of Rs.31,00,380/- for the A.Y.2015-16. The return of income was selected for „Limited Scrutiny‟ under CASS. Notices u/s 143(2) (142(1) of the Act were issued and served upon the assessee. The assessee was engaged in trading in shares, F & O and Commodity. The assessee also showed the income ITA No. 3341/Mum/2019 A.Y.2015-16 3 under the head of house property. The assessee showed the net profit of Rs.5,75,40,478.00/- from F & O transaction through the Broker M/s. MKB Securities. The transaction was not found genuine the same was disallowed and added to the income of the assessee u/s 68 of the Act. The assessee also claimed the expenditure to the tune of Rs.14,38,512/- which was also found fictitious, therefore, the same was also disallowed and added to the income of the assessee u/s 69C of the Act. The total income of the assessee was assessed to the tune of Rs.5,89,78,990/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) and the CIT(A) allowed the claim of the assessee but the revenue was not satisfied, therefore, filed the present appeal before us. ISSUE Nos.1 & 2 4. We have heard the arguments advanced by the Ld. Representative of the parties and perused the record. Under these issues the revenue has challenged the allowance of the claim of Rs.5,75,40,478/- from F & O trading. Before going further, we deem it necessary to advert the finding of the CIT(A) on record: - “I have carefully considered the arguments and submissions filed during the appellate proceedings by the AR of the appellant. Ground No. 1: The first ground of the Appeal is against the applicability of Sec. 68 r.w.s. 115BBE of the Act. The facts of the case are summarized above and relevant arguments mentioned along with the case laws are duly considered. The contention of the appellant is that sec. 68 of the Act is ITA No. 3341/Mum/2019 A.Y.2015-16 4 not applicable to the present case, since he has duly declared credit(s) to be his Income. The text of the Sec. 68 is reproduced below: Cash credits. 68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year: The plain reading of the Sec. 68 clearly suggest that if the explanation offered by the Assessee is not satisfactory in the opinion of the Assessing Officer, the sum so credited may be charged as the Income of the Assessee of that previous year. In the present case, the Assessee has offered his explanation on the nature & source of the sum credited. However, the said explanation was no 0 the satisfaction of the AO and by applying the provision of Sec. 68 the AO added the said sum under Income from undisclosed sources. The issue arises here when the Assessee himself has declared the same to be his Income from Business & offered for Taxation in Return of Income as such, then whether the same can be treated as income from undisclosed sources. The AR of the Appellant referred to the various Citations. However, I have considered only two of them which are close to the present issue. The First one being the citation in the case of Margaret’s Hope Tea Co. Ltd. 71 Taxman 574 (Calcutta)(1990), wherein Para 7 the Bench observed as follows: ITA No. 3341/Mum/2019 A.Y.2015-16 5 A similar question came up before this Court in C/T v. Hasimara Industries Ltd. [IT Reference No. 5 of 1984, dated 25-7-1983]. There, the bench, after considering the decision in Daulatram Rawatmull v. CIT 1967 64 ITR 593 Cal. observed as follows: "There is no dispute as to the fact that the cash credit account was appearing in the assessee’s tea garden books of account, ie., business books of account. The cash credits continued throughout the accounting period. The assessee’s main activity was the cultivation, manufacture and sale of tea. For the assessment year 1974-75, the Tribunal on an identical set of facts upheld the view of the Commissioner of Income-tax (Appeals) that, in such circumstances, the amount included as undisclosed income under section 68 of the Act should be treated as business income. The _ principles laid down by this court in Daulatram Rawatmull's case 1967 64 ITR 593 will apply to the facts of the case too." In the above case, the court held that the said credits are to be taken as Business Income only. Another citations referred by the AR of the Appellant which is also nearing to the present case is of M/s Rahil Agencies ITA No. 4413/Mum/2014.In this case at Para No. 10, the Hon’ble Mumbai Tribunal observed as follows: 10. In view of the above and relying on the decision of various high court and tribunal as cited by ld. AR it is clear that the stock of diamond declared during the. Search is taxable under the heads of income as defined in section 14 read with section 56 and not taxable separately. As there cannot be taxable income of income out of the 5 heads of income as specified in section 14 of the Act. Hence the stock ITA No. 3341/Mum/2019 A.Y.2015-16 6 ofdiamondofRs.13,47,63,640/-is taxable either under Income from Business & Profession or under income from other sources. The Hon’ble Mumbai Tribunal in the same case further observed at Para No. 14 as follows: 14.With regard to set off of losses, once it is decided that the income is taxable under either of the head of income A to F of section 14 of the Act, then the set off losses is permitted under section 7lof the Act. The income declared at the time of search was in respect of excess stock found which was in nature of business activity therefore part of business income. Even if the said amount was to be taxed than the same should be under the head income from other sources and therefore current year loss of Rs.13,47,63,640/-have to be set off against the income in terms of provision of section 71 of the Act. Reliance can be placed on the judgment of Chensing Venture vs CIT [2007] 163 Taxman 175 (Mad). Following the above Judicial Pronouncements, it is concluded that the Credits/Income referred in the present case also to be treated as either Business Income or under either of the head of Income A to F of section 14 of the Act and once it is so decided, then the set off of losses u/s 71 of the Act, is permissible to the Assessee. Appellant succeeds on this ground.” 5. The facts are that the assessee has already declared the said income from business and offered for taxation in his return. How the same is required to be considered as undisclosed as income is not understood able. The CIT(A) has relied upon the decision in the case of Margaret’s Hope Tea Co. Ltd. 71 Taxmann 574 (Calcutta) (1990). The facts are not ITA No. 3341/Mum/2019 A.Y.2015-16 7 distinguishable at this stage. The CIT(A) has rightly adjudicated the matter of considered by giving the detail reasons. No incriminating material is available on record to interfere with the finding of the CIT(A). In view of the said circumstances, we are of the view that the CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfered with at this appellate stage. Accordingly, both the issues are decided in favour of the assessee against the revenue. ISSUE NO.3 6. Under this issue the revenue has challenged the deletion of the addition of Rs.14,38,512/- being the brokerage and commission u/s 69C of the Act. Before going further, we deem it necessary to advert the finding of the CIT(A) on record.:- “(ii) Ground No. 2 To 4: The Ground No. 2 to 4 of the Appeal relates to Non-Applicability of Sec. 115BBE of the Act, hence these grounds are considered collectively. As per the said grounds the AR of the Appellant argued that the amended provisions of the Sec. 115BBE are not applicable to the present case. In this regard, | reproduced the text of Sec. 115BBE as follows : 14[Tax on income referred to in section 68 or section 69 or section 69A or section 69B or section 69C or section 69D. 115BBE. 15{(1) Where the total income of an assessee, ITA No. 3341/Mum/2019 A.Y.2015-16 8 (a) includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D and reflected in the return of income furnished under section 139; or (b) determined by the Assessing Officer includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, if such income is not covered under clause (a), the income-tax payable shall be the aggregate of the amount of income- tax calculated on the income referred to in clause (a) and clause (b), at the rate of sixty per cent, and the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause ().] (2) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance or set off of any loss] shall be allowed to the assessee under any provision of this Act in computing his income referred to in clause (a) l6sfand clause (b/] of sub-section (1).] 14. Inserted by the Finance Act, 2012, w.e.f. 1-4-2013. 15.Substituted by the Taxation Laws (Second Amendment) Act, 2016, w.e-f. 1-4-2017. Prior to its substitution, sub-section (1) read as under: "(1) Where the total income of an assessee includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, the income-tax payable shall be the aggregate of ITA No. 3341/Mum/2019 A.Y.2015-16 9 (a) the amount of income-tax calculated on income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, at the rate of thirty per cent; and (b) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (a)." 16. Inserted by the Finance Act, 2016, w.e.f. 1-4-2017. 16a. Inserted by the Finance Act, 2018, w.r.e.f. 1-4-2017. From the definition of Sec. 115BBE it is clear that restriction on set off of loss against Income taxed by the AO u/s 68 is effective only from-QL04,2017, Such restriction was not there till AY 2016-17. Precisely, it does not apply to the case under review which relates to AY 2015-16. Prior to 01.04.2017 the restriction was only in respect of deduction of any Expenditure or Allowance against the Income taxed by the AO u/s 68 of the Act. There is a difference between the word Expenditure and Loss. The said difference is explained in Para 17by the Apex Court in the case of T. A. Quereshil57 Taxman 5§14(SC)(2006) as referred by the AR of the Appellant, which is being reproduced below: 17. The Explanation to section 37 has really nothing to do with the present case as it is not a case of a business expenditure, but of business loss. Business losses are allowable on ordinary commercial principles in computing profits. Once it is found that the heroin seized formed part of the stock-in-trade of the assessee, it follows that the seizure and confiscation of such stock-in-trade has to be allowed as a ITA No. 3341/Mum/2019 A.Y.2015-16 10 business loss. Loss of stock-in-trade has to be considered as a trading loss Vide CIT Vs. S.N.A.S.A. Annamalai Chettiar AIR 1973 SC 1032. In the light of amended provisions of Sec. 115BBE and the judicial pronouncement discussed above, I am of the view that the provisions of Sec. 115BBE (as amended) are not applicable to the case of Appellant. The appellant succeeds on this ground as well.” 7. The matter of controversy in the said issues is that the amended provision of Section 115BBE is liable to be applicable in the present case also or not. The notification speaks about the applicability w.e.f. 01.04.2017 onwards. The present case is the case for the A.Y.2015-16. The expenses having explained and considered by CIT(A) in view of the decision in case of T. A. Quereshi 157 Taxman 514 (SC)(2006). We nowhere found any reason to interfere with the finding of the CIT(A) on this issue, therefore, we are of the view that the finding of the CIT(A) in quite correct which is not liable to be interfere with at this appellate stage. Accordingly, this issue is decided in favour of the assessee against the revenue. 8. In the result, the appeal filed by the revenue is hereby dismissed. Order pronounced in the open court on 28/04/2022 Sd/- Sd/- (S. RIFAUR RAHMAN) (AMARJIT SINGH) लेखध सदस्य / ACCOUNTANT MEMBER न्यधनिक सदस्य/JUDICIAL MEMBER मुंबई Mumbai; ददनांक Dated : 28/04/2022 Vijay Pal Singh (Sr. P.S.) ITA No. 3341/Mum/2019 A.Y.2015-16 11 आदेश की प्रनिनलनि अग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. आयकर आयुक्त(अपील) / The CIT(A)- 4. आयकर आयुक्त / CIT 5. दवभागीय प्रदतदनदध, आयकर अपीलीय अदधकरण, मुंबई / DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file. आदेशधिुसधर/ BY ORDER, सत्यादपत प्रदत //True Copy// उि/सहधिक िंजीकधर /(Dy./Asstt. Registrar) आिकर अिीलीि अनर्करण, मुंबई / ITAT, Mumbai