S V Janardhan , Bangalore V. Income Tax Officer Ward-4(3)(3), Bangalore

ITA 3383/BANG/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 7166 (ITAT-BANGALORE)
• Duration Of Justice: 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 24-12-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Tax effect; Revised return; Futures and options
• Section: 44AD; 234B; 44AB; 43; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC-B BENCH : BANGALORE BEFORE SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER ITA NO . 3 383 / BANG/201 8 ASSESSMENT YEAR : 20 1 5 - 1 6 SHRI S.V. JANARDHAN, NO. 980, 12 TH CROSS, 35 TH MAIN, 1 ST PHASE, J P NAGAR, BANGALORE 560 078. PAN: ACSPJ1162A VS. THE INCOME TAX OFFICER, WARD 4 (3) (3), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI H. GURUSWAMY, ITP., RESPONDENT BY : SHRI A. RAMESH KUMAR, JCIT (DR) DATE OF HEARING : 1 6 .01.2019 DATE OF PRONOUNCEMENT : 18 . 01 .201 9 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER THIS APPEAL IS FILED BY THE ASSESSEE WHICH IS DIREC TED AGAINST THEORDER OF LD. CIT(A)-4, BANGALORE DATED 31.08.2018FOR ASSESSMENT YEAR 2015-16. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER. GROUNDS OF APPEAL TAX EFFECT RELATING TO EACH GROUND OF APPEAL (SEE NOTE BELOW) 1. THE IMPUGNED APPELLATE ORDER DATED: 31- 08-2018 PASSED BY THE LD. CIT(A), BANGALORE -4 IS OPPOSED TO LAW, FACTS AND CIRCUMSTANCES OF THE CASE. ITA NO. 3383/BANG/2018 PAGE 2 OF 6 2. THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE APPLICATION OF THE PROFIT PERCENTAGE AT 8% ON ESTIMATED TURNOVER IS SUSTAINABLE WITHOUT APPRECIATING THE FACT THAT THE TURNOVER ESTIMATED BY THE AO AT RS. 2,04,15,866/- WAS APPARENTLY MORE THAN THE PRESCRIBED LIMIT OF RUPEES ONE CRORE FOR WHICH ESTIMATION OF INCOME AT 8% AS PER SECTION 44AD IS NOT APPLICABLE RS.5,97,704/- (EXCLUDING INTEREST OF RS. 3,19,433/-CHARGED U/S. 234A, 234B AND 234C) 3. THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS. 16,33,269/- ESTIMATED BY THE AO BASED ON THE GUIDANCE NOTE OF ICAI WITHOUT APPRECIATING THE FACT THE SAID GUIDANCE NOTE WAS APPLICABLE IN RESPECT OF CASES WHERE THE ACCOUNTS ARE AUDITABLE U/S. 44AB OF THE ACT BUT IN THE CASE OF APPELLANT THE ACCOUNTS ARE NOT AUDITABLE SINCE THE TURNOVER WAS LESS THAN RUPEES ONE CRORE. SAME AS ABOVE 4. THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE APPELLANT'S CLAIM OF SET-OFF OF LOSS REQUIRES TO BE DISALLOWED SINCE THE APPELLANT NEITHER CLAIMED SUCH LOSS IN THE STATEMENT OF INCOME NOR BY FILING A REVISED RETURN OF INCOME OR REVISED COMPUTATION WITHOUT APPRECIATING THE FACT THAT THE APPELLANT HAS NOT CLAIMED ANY LOSS ATTRIBUTABLE TO THE SHARE TRANSACTIONS SINCE THE SAID LOSS IS NOT ALLOWABLE AS IT IS RELATED SPECULATIVE SHARE TRANSACTIONS SAME AS ABOVE 5. THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING THE FACT THAT THE TURNOVERATTRIBUTABLE TO THE SALE OF SHARE WAS OF RS. 58,86,012/- FOR THE PURPOSE OF ESTIMATION OF INCOME AT THE RATE OF 8% U/S. 44AD OF THE ACT. SAME AS ABOVE 6. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND DELETE ANY OF THE GROUNDS AT THE TIME OF HEARING. 3. IN COURSE OF HEARING BEFORE ME, IT WAS SUBMITTED BY LD. AR OF ASSESSEE THAT AS PER THE ASSESSMENT ORDER, THE AO HAS ADOPTED A T URNOVER OF RS. 2,04,15,866/- AND HE COMPUTED THE INCOME OF THE ASS ESSEE AT 8% ON THIS TURNOVER BUT IN FACT THE ASSESSEES SALES IS ONLY R S. 58,86,012/- BUT THE AO HAS ADDED THE AMOUNT OF PURCHASE IN ARRIVING THE TU RNOVER FIGURE OF RS. ITA NO. 3383/BANG/2018 PAGE 3 OF 6 2,04,15,866/-. HE SUBMITTED THAT THE AO SHOULD BE DIRECTED TO COMPUTE THE INCOME OF THE ASSESSEE BY APPLYING 8% RATE ON ACTUA L TURNOVER FIGURE OF THE ASSESSEE. THE LD. DR OF REVENUE SUPPORTED THE ORDE R OF CIT(A). 4. I HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE SU BMISSION OF THE ASSESSEE BEFORE CIT(A) AS PER LETTER DATED 31.08.2018 IS REP RODUCED BY CIT(A) IN PARA 6 OF HIS ORDER AND HENCE, FOR THE SAKE OF READ Y REFERENCE, I REPRODUCE THE SAME HEREINBELOW. 6. ASSESSEE'S SUBMISSIONS:- THE WRITTEN SUBMISSION IS FILLED BY THE ASSESSEE ON 31/08/2018 IS EXTRACTED AS UNDER: 1. THE APPELLANT SUBMITS THE FOLLOWING WRITTEN SUBM ISSIONS IN SUPPORT OF THE APPEAL FILED AGAINST THE ASSESSMENT ORDER DT D: 30-11-2017. 2. THE APPELLANT HAS BEEN RENDERING CONSULTATION SE RVICES IN REAL ESTATE AND CONSTRUCTION BUSINESS AND PROVIDING GUID ANCE IN THE FIELD OF FORMATION OF LAYOUTS AND OTHER CONNECTED REAL ES TATE SERVICES. 3. THE APPELLANT HAS FILED E-RETURN OF INCOME ON 14 -02-2017 FOR THE A.Y 2015-16 DECLARING INCOME OF RS. 8,84,390/- AND A SCRUTINY ASSESSMENT DTD 30-11-2017 WAS COMPLETED DETERMINING THE TOTAL INCOME AT RS. 25,17,659/- AS AGAINST DECLARED INCOM E OF RS.8,84,390/- . 4. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE LD. AO HAS HELD THAT THE APPELLANT HAS CARRIED ON, 'INFRA-DAY' TRAN SACTIONS IN THE TRADING OF SHARES ON DAY TO DAY BASIS AND HELD THAT THE TURNOVER OF THE APPELLANT WAS OF RS. 2,04,15,866/- CONSISTING OF FA VOURABLE (POSITIVE) AND UNFAVOURABLE (NEGATIVE) TRANSACTIONS. THE AO HAS HELD THAT THE APPELLANT HAS NOT MAINTAIN ED ANY REGULAR BOOKS OF ACCOUNT. THEREFORE THE LD. AO HAS DETERMIN ED THE INCOME AT RS. 16,33,269/- AT THE RATE OF 8 PERCENT ON TOTAL T URNOVER OF RS. 2,04,15,866/- CONSISTING OF FAVORABLE/POSITIVE TRAN SACTIONS OF RS. 58,86,012/- AND UNFAVORABLE/NEGATIVE TRANSACTIONS O F RS. 1,45,29,854/- PLACING RELIANCE ON PARA 15.5 OF 'GUI DANCE NOTE OF ICAI ON TAX AUDIT U/S. 44AB OF THE ACT'. THE AO HAS ALSO PLACED RELIANCE ON THE DECISION OF THE HON'BLE ITAT MUMBAI IN THE CASE OF ANAHAITA NALIN SHAH V/S. DCIT - 4(1) MUMBAI (2014) 43 TAXMANN.COM 206 (MUMBAI - TRIB). THE LD. AO HAS IGN ORED THE FACT THAT THE AFORESAID GUIDANCE NOTE OF ICAI IS APPLICA BLE IN THE CASE WHERE AUDIT U/S. 44AB IS REQUIRED. IN THE APPELLANT 'S CASE THE AO HIMSELF HAS HELD THAT THE BOOKS OF ACCOUNTS WERE NO T MAINTAINED AND THEREFORE THE PROVISION OF SECTION 44AB OF THE ACT IS NOT APPLICABLE ITA NO. 3383/BANG/2018 PAGE 4 OF 6 AND ACCORDINGLY THE GUIDANCE NOTE OF ICAI IS OF NO CONSEQUENCE TO THE FACTS OF THE APPELLANT'S CASE. 5. THE APPELLANT SUBMITS THAT HE HAS NOT CARRIED ON ANY INTRA-DAY TRANSACTIONS AS STATED BY THE LD.AO. THE APPELLANT HAS CARRIED ON THE TRANSACTIONS ON THE PRINCIPLES OF FUTURES AND OPTIO NS. THE LD. AO HAS NOT APPRECIATED THE FACT THAT THE APPELLANT IS ENTITLED TO THE DEDUCTION OF UNFAVORABLE/NEGATIVE TURNOVER AGAINST THE FAVORABLE/POSITIVE TURNOVER. HOWEVER THE LD. AO FOR COMPUTATION OF INCOME OUT OF THE SHARE TRANSACTIONS HAS HELD THAT THE APPELLANT HAS CARRIED ON INTRA-DAY SHARE TRANSACTION WHICH WAS HE LD AS BUSINESS OF THE APPELLANT AND THEREFORE THE LD. AO HAS INVOK ED THE PROVISION OF SECTION 44AD OF THE ACT AND ESTIMATED THE INCOME AT THE RATE OF 8 PERCENT ON A TURNOVER OF RS. 2,04,15,866A THE LD. AO ON PARA 4.4 (III) HAS STATED THAT THE TU RNOVER OF THE APPELLANT IS BELOW ONE CRORE RUPEES. WHEREAS HE HAS ADOPTED THE TURNOVER OF RS. 2,04,15,866/-. THEREFORE THE INCOME ESTIMATED U/S. 44AD OF THE ACT AT 8% WITH AN ASSUMPTION OF THE TUR NOVER BEING LESS THAN ONE CRORE IS CONTRARY TO THE LAW AND FACTS OF THE CASE. 6. THE APPELLANT SUBMITS THAT THE TURNOVER OF BOTH POSITIVE AND NEGATIVE TRANSACTIONS AMOUNTS TO RS. 2,04,15,866/- AS STATED IN THE ASSESSMENT ORDER AND THEREFORE THE PROVISION OF SEC TION 44AD IS NOT APPLICABLE SINCE THE TURNOVER EXCEEDED THE PRESCRIB ED LIMIT OF RS. 1,00,00,000/-(RUPEES ONE CRORE) ENVISAGED U/S. 44AD OF THE ACT. THE LD. AO HAS IGNORED THE NEGATIVE TURNOVER WHILE COMP UTING THE INCOME ON ESTIMATED PERCENTAGE BASIS. THE LD. AO HA D THE INFORMATION ON RECORD ABOUT THE FAVORABLE/POSITIVE TRANSACTIONS AND ALSO UNFAVORABLE/NEGATIVE TRANSACTIONS AND THEREFOR E THE LD.AO OUGHT TO HAVE CONSIDERED BOTH THE TRANSACTIONS WHIC H WOULD HAVE RESULTED IN LOSS OF RS. 86,43,842/- AS DETAILED BEL OW:- TO PURCHASES RS. 1,45,29,854/-BY SALES RS. 58,86,01 2/- BY NET LOSS RS. 86,43,842/- 7. THE APPELLANT SUBMITS THAT THE ADDITION MADE BY THE AO AMOUNTING TO RS. 16,33,269/- ON ESTIMATED PERCENTAGE BASIS ON TURNOVER INCLUDING UNFAVORABLE/NEGATIVE TRANSACTIONS IS OPPO SED TO LAW AND FACTS OF THE CASE SINCE THE APPELLANT HAS INCURRED NET LOSS OF RS. 86,43,842/- IN THE SHARE TRANSACTION BUSINESS. 8. THE APPELLANT SUBMITS HEREWITH THE FOLLOWING STA TEMENTS:- I. RETURN OF INCOME FOR THE A. Y 2015-16 WITH P & L ACCOUNT, BALANCE SHEET AND STATEMENT OF INCOME MARKED AS ANNEXURE - A. II. A COPY OF STATEMENT OF THE BUSINESS TRANSACTION S RELATING TO OPTIONS AND FUTURES WHICH RESULTED IN LOSS OF RS. 1 ,34,84,016/- MARKED AS ANNEXURE - B. ITA NO. 3383/BANG/2018 PAGE 5 OF 6 III. A COPY OF STATEMENT OF THE BUSINESS TRANSACTIO NS RELATING TO OPTIONS AND FUTURES WHICH RESULTED IN INCOME OF RS. 59,22,595/- MARKED AS ANNEXURE - C. IV. AN ABSTRACT OF BOTH TRANSACTIONS OF LOSS AND IN COME WHICH ULTIMATELY RESULTED IN LOSS OF RS. 75,61,420/- MARK ED AS ANNEXURE - D. V. A COPY OF THE TRADING ACCOUNT OF SHARE TRANSACTI ONS RELATING TO FUTURES AND OPTIONS MARKED AS ANNEXURE - E. 9. THE DOCUMENTS MENTIONED ABOVE ESTABLISHES THE FA CT THAT THE APPELLANT HAS INCURRED LOSS OF RUPEES MORE THAN 75 LAKHS AS PER THE TRADING ACCOUNT MENTIONED ABOVE AS ANNEXURE - E. TH EREFORE THE AO WAS NOT JUSTIFIED TO RELY UPON THE UNRELATED GUIDAN CE NOTE OF ICAI FOR ESTIMATING THE INCOME OF RS. 16,33,269/- AT THE RAT E OF 8% ON AN ASSUMED TURNOVER OF RS. 2,04,15,866/- U/S. 44AD OF THE ACT WHICH IS NOT APPLICABLE TO THE APPELLANT'S CASE. THEREFORE T HE ADDITION MADE BY THE AO ON ESTIMATED BASIS IS NOT IN ACCORDANCE WITH LAW AND HENCE THE SAID ADDITION OF RS. 16,33,269/- IS LIABLE TO BE DE LETED IN THE INTEREST OF JUSTICE AND EQUITY. 5. FROM THE ABOVE PARA REPRODUCED FROM THE ORDER OF CIT(A), IT IS SEEN THAT IT WAS SUBMITTED BEFORE CIT(A) BY THE ASSESSEE THAT TH IS FIGURE OF RS. 2,04,15,866/- ADOPTED BY THE AO AS TURNOVER INCLUDE S AMOUNT OF PURCHASES OF RS. 1,45,29,854/- AND AMOUNT OF SALES OF RS. 58, 86,012/- AS NOTED IN PARA NO. 6 OF THE WRITTEN SUBMISSIONS FILED BY THE ASSES SEE BEFORE CIT(A) AS REPRODUCED ABOVE. THIS WAS ALSO THE SUBMISSION OF ASSESSEE BEFORE CIT(A) THAT IF THIS AMOUNT OF TURNOVER IS ADOPTED T HEN THE PROVISIONS OF SECTION 44AD ARE NOT APPLICABLE BECAUSE THE SAME IS APPLICABLE ONLY UP TO TURNOVER OF RS. 1 CRORE. UNDER THESE FACTS, I FEEL IT PROPER TO RESTORE BACK THE MATTER TO THE FILE OF CIT(A) FOR FRESH DECISION BY WAY OF A SPEAKING AND REASONED ORDER AS TO WHAT IS THE ACTUAL TURNOVER OF THE ASSESSEE BECAUSE IF AMOUNT OF TURNOVER OF RS. 2,04,15,866/- IS OBTAINED BY ADDING BACK THE AMOUNT OF PURCHASES AND SALES THEN THE SAME CANNOT BE CONSIDERED AS TURNOVER BECAUSE IN MY CONSIDERED OPINION ONLY THE AMOUNT OF SALE IS TURNOVER AND NOT THE AMOUNT OF PURCHASE. BUT IN TH IS REGARD, THE GUIDELINES ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI) SHOULD ALSO BE CONSIDERED. HENCE HE SHOULD DECIDE THIS ASPECT F IRST BY WAY OF A SPEAKING AND REASONED ORDER AS TO WHAT IS THE TURNO VER OF THE ASSESSEE. IF IT IS FOUND THAT THE TURNOVER OF THE ASSESSEE IS LE SS THAN RS. 1 CRORE THEN ON ITA NO. 3383/BANG/2018 PAGE 6 OF 6 THE TURNOVER SO DETERMINED, RATE OF 8% RATES CAN BE APPLIED TO COMPUTE THE INCOME OF THE ASSESSEE BUT IF IT IS FOUND THAT THE TURNOVER IS MORE THAN RS. 1 CRORE, THEN SECTION 44AD OF IT ACT CANNOT BE APPLIE D AND THE INCOME HAS TO BE COMPUTED ON A REASONABLE BASIS AFTER EXAMINING T HE ENTIRE MATERIAL AVAILABLE ON RECORD. THE CIT(A) SHOULD PASS A REAS ONED AND SPEAKING ORDER AS PER LAW IN THE LIGHT OF ABOVE DISCUSSION A FTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO BOTH SIDES. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- (ARUN KUMAR GARODIA) ACCOUNTANT MEMBER BANGALORE, DATED, THE 18 TH JANUARY, 2019. /MS/ COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.