GHANSHYAM SHARE & STOCK BROKERS, MUMBAI V. DCIT 4(1), MUMBAI

ITA 3573/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2667 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-10-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 19-05-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 20-05-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: D C JAIN
• Keywords: Unexplained cash credit; Unexplained investment; Business income; Charitable institution; Principle of natural justice; Rule of consistency; Deemed to accrue or arise in india; Cost of acquisition; Fair market value; Speculation loss; Revised return
• Section: 68; 12; 28; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI SANJAY ARORA , A M AND SHRI AMARJIT SINGH , J M ./ I.T.A. NO. 3573/MUM/2014 ( / ASSESSMENT YEAR: 2009 - 10 ) GHANSHYAM SHAR E & STOCK BROKERS PVT. LTD., C/O. D. C. JAIN & CO., 75, BOMBAY MUTUAL BLDG., 1 ST FLOOR, D. N. ROAD, FORT, MUMBAI - 400 001 / VS. DY. CIT, RANGE 4(1), AAYAKAR BHAVAN, 6 TH FLOOR, R. N. 640, M. K. ROAD, MUMBAI ./ ./ PAN/GIR NO. AAACG 3561 H ( ASSESSEE ) : ( RE VENUE ) ./ I.T.A. NO. 3762/MUM/2014 ( / ASSESSMENT YEAR: 2009 - 10 ) DY. CIT, RANGE 4(1), ROOM NI. 640, 6 TH FLOOR, AAYKAR BHAVAN, M. K. ROAD, MUMBAI / VS. GHANSHYAM SHARE & STOCK BROKERS PV T. LTD., 24, 2 ND FANASWADI, D. A. LANE, MUMBAI - 400 004 ( RE VENUE ) : ( ASSESSEE ) ASSESSEE BY : SHRI D. C. JAIN RE VENUE BY : SHRI AIRIJU JAIKARAN / DATE OF HEARING : 23.06.2016 / DATE OF PRONOUNCEMENT : 04 . 10 .2016 / O R D E R PER SANJAY ARORA, A. M.: THESE ARE CROSS APPEALS, I.E. , BY THE ASSESSEE AND THE R EVENUE, DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 8 , MUMBAI (CIT(A) FOR SHORT) DATED 13.03.2014 , PARTLY ALLOWING THE A SSESSEES APP EAL CONTESTING IT S 2 ITA NO S. 3573 & 3762/MUM/2014 (A.Y. 2009 - 10) GHANSHYAM SHARE & STOCK BROKERS PVT. LTD. ASSESSMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A.Y.) 2009 - 10 VIDE ORDER DATED 31.12.2011. ASSESSEE S A PPEAL (IN ITA NO. 3573 /MUM/2014) 2. THE ISSUE ARISING IN THE INSTANT APPEAL BY THE ASSESSEE IS WITH REGARD TO THE MAINTAINABILITY IN LAW, AND IN THE FACTS AND CIRCUMSTANCES OF THE CASE, OF THE ADDITION, EFFECTED IN THE SUM OF RS. 54,63,795/ - IN ASSESSMENT , ON ACCOUNT OF NEGATIVE STOCK - IN - TRADE AS AT THE YEAR - END , SINCE CONFIRMED IN FIRS T APPEAL . FACTS IN BRIEF 3. THE FINAL ACCOUNTS OF THE ASSESSEE - COMPANY, A SHARE AND STOCK BROKER, WERE FOUND BY THE ASSESSING OFFICER (AO) TO BEAR NEGATIVE STOCK AS AT THE YEAR - END IN SOME SCRIPS TRADED IN. THE SHARES, LISTED AT PARAGRAPH 5 (PAGES 2 - 3) OF THE ASSESSMENT ORDER, WERE FOUND BY HIM TO FALL IN TWO CATEGORIES. FOR THE FIRST CATEGORY, THE ASSESSEE EXPLAINED THEM TO BE SHARES WHICH CAME TO BE TRANSFERRED TO THE COMPANYS DEMATERIALISED (D - MAT) ACCOUNT FROM THAT OF ITS DIRECTORS AND THEIR FAMILY MEMBERS, AND WERE SOLD FROM THE ASSESSEES SAID ACCOUNT. HOWEVER, AS A CORRESPONDING PURCHASE WAS NOT RECORDED IN THE ASSESSEES ACCOUNTS (EITHER IN QUANTITY OR VALUE), THE SAME CAME TO BE REFLECTED AS NEGATIVE STOCK. THE ACQUISITION BY THE ASSESSEE, WHIC H WAS SANS ANY CONSIDERATION, RECORDED OR OTHERWISE, BEING NOT EXPLAINED, THE SAME WAS CONSIDERED UNEXPLAINED AS TO ITS NATURE AND SOURCE. ACCORDINGLY, V ALUE/S THEREOF, AS ON THE DATE/ S OF ACQUISITION, I.E., ON WHICH THE SAME CAME TO BE INCLUDED IN THE AS SESSEES D - MAT ACCOUNT, AGGREGATING TO RS. 24,28,500/ - , WAS BROUGHT TO TAX. DETAIL OF THESE SCRIPS ARE AS UNDER: (PG. 2 OF THE ASSESSMENT ORDER/ TABLE A ) SR. NO. COMPANY NAME QTY. (NOS.) AMOUNT (RS.) 1 BONGAINGAON REFINERY 3910 210835 2 SUDH A RSHAN CHEM 3 332 573544 3 TATA INVESTMENT CORP 1380 556560 4 TATA TEA 1229 906086 3 ITA NO S. 3573 & 3762/MUM/2014 (A.Y. 2009 - 10) GHANSHYAM SHARE & STOCK BROKERS PVT. LTD. 5 VST INDUSTRIES 275 88625 6 VST TILLERS 975 92850 TOTAL 2428500 FOR THE BALANCE SCRIPS, I.E., THE SECOND CATEGORY, DETAILED AS UNDER, THE ASSESSEE COULD NOT FURNISH ANY EXPLANAT ION, SO THAT THE SAME CAME TO BE ADDED BY VALUING THE SAME, AT A TOTAL OF RS. 36,35,395/ - , AT THE AVERAGE OF THE LOWEST AND HIGHEST RATES OBTAINING FOR F.Y. 2008 - 09, THE RELEVANT PREVIOUS YEAR: (PG. 2 OF THE ASSESSMENT ORDER / TABLE B ) SR. NO. NAME OF THE SC RIP QTY. (NOS.) 1 BPCL 4656 2 GARDEN SILK 200 3 RELIANCE POWER 3438 4 THIRUMAL CHEM 937 5 TORRENT POWER 3618 6 NEYVELI LIGNITE 1191 IN FIRST APPEAL, AS ALSO BEFORE US (THROUGH THE LD. AR), THE ASSESSEE EXPLAINED THAT AS THESE SHARES (OF THE DIRECTO RS AND THEIR FAMILY MEMBERS) WERE KEPT IN PLEDGE (WITH THE STOCK EXCHANGE) TOWARD MARGIN MONEY, THE SAME CAME TO BE SOLD AS AND WHEN THE MARGIN MONEY FELL SHORT, REQUIRING DISPOSAL/LIQUIDATION OF THE SHARES KEPT IN MARGIN, OR EVEN AT THE INSTANCE OF THE AS SESSEE - COMPANY, I.E., ON THE BASIS OF A DEMAND FOR THOSE SHARES. A PERUSAL OF THE D - MAT ACCOUNTS, HOWEVER, REVEALED THE SCRIPS REFLECTED THEREIN TO BE DIFFERENT FROM THAT SOLD BY THE COMPANY. IN VIEW OF THIS CATEGORICAL FINDING BY THE AO IN THE REMAND PROC EEDINGS, WHICH REMAINED UNCONTROVERTED, THE LD. CIT(A) CONFIRMED THE ADDITION FOR RS. 54,63,795/ - , I.E., THE IMPUGNED ADDITION. AGGRIEVED, THE ASSESSEE IS IN SECOND APPEAL. 4. BEFORE US, THE ASSESSEE RAISED ANOTHER PLEA - THAT THERE IS NEGATIVE OPENING S TOCK, I.E., AS AT THE BEGINNING OF THE YEAR, AS WELL, AND WHICH STANDS VALUED AT RS. 34,51,564/ - . THE VALUE OF THE NEGATIVE STOCK PER THE ASSESS E ES ACCOUNTS, SO THAT THE STOCK - IN - TRADE AS AT THE YEAR - END STANDS REDUCED BY THAT AMOUNT, IS RS. 36,78,956/ - . ACCORDINGLY, ONLY THE NET ACCRETION TO THE NEGATIVE STOCK DURING THE YEAR, OR THE NET 4 ITA NO S. 3573 & 3762/MUM/2014 (A.Y. 2009 - 10) GHANSHYAM SHARE & STOCK BROKERS PVT. LTD. REDUCTION IN THE CREDIT (NET) TO THE P&L A/C ON THIS ACCOUNT, I.E., RS. 2,27,392/ - (3678956 3451564), COULD ONLY BE BROUGHT TO TAX. REFERENCE WAS MADE TO THE LIST OF SUCH NEGATIVE SHARES AS AT THE BEGINNING AND THE END OF THE YEAR (PB PG. 58). THE ASSESSEES ACCOUNTS ARE DULY AUDITED, AND WHICH SHOULD THEREFORE BE ACCEPTED, FOLLOWING THE RULE OF CONSISTENCY, PLACING RELIANCE ON CIT VS. J.K. CHARITABLE TRUST [ 2009] 308 ITR 161 (SC) AND UNION OF INDIA VS. SATISH PANALAL SHAH [ 2001 ] 249 ITR 221 (SC) . THE LD DR. ON THE OTHER HAND, RELIED ON THE ORDERS BY THE REVENUE AUTHORITIES. 5. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATERIAL ON RECORD. THE FACTS AS EMANATING FROM T HE MATERIAL ON RECORD GIVE RISE TO A NUMBER OF QUESTIONS AND, ACCORDINGLY, ISSUES, WHICH WOULD REQUIRE BEING SUITABLY ADDRESSED, SO AS TO ARRIVE AT THE SUMS, IF ANY, THAT WOULD STAND TO BE ASSESSED AS INCOME, INCLUDING THE QUESTION AS TO THE CORRECT HEAD O F INCOME. 5.1 OUR FIRST OBSERVATION IN THE MATTER IS THAT THE ASSESSEE HAS BY REDUCING THE VALUE OF ITS STOCK - IN - TRADE AS AT THE YEAR - END, I.E., BY PLACING A VALUE (STATED TO BE MARKET VALUE AT THE YEAR - END) ON SOME SHARES RECORDED AT MINUS FIGURES, HAS A RTIFICIALLY DECREASED ITS BUSINESS PROFIT FOR THE YEAR. THE SALE VALUE OF THE RELEVANT SHARES HAVING BEEN ALREADY CREDITED TO THE PROFIT & LOSS ( P&L ) A CCOUNT, NOT DOING SO , GIVEN A NIL PURCHASE COST THEREOF, WHICH IS UNDERSTANDABLE IN - AS - MUCH AS NO COST H AS BEEN INCURRED TOWARD THEIR ACQUISITION BY THE COMPANY , SO THAT N O FURTHER ADJUSTMENT W AS ARGUABLY CALLED FOR . A ND THE ONLY ISSUE THAT C OULD ARISE IN THAT CASE WA S IF THE PURCHASE COST INCURRED IS MORE THAN THE SALE VALUE, AND ALSO IF THE ASSESSMENT (OF THE SURPLUS/ GAIN) AS BUSINESS INCOME UNDER SECTION 28 WAS PROPER. TO PUT THINGS IN PERSPECTIVE, THE NEGATIVE VALUES WOULD HAVE TO BE EXCLUDED IN DETERMINING STOCK - IN - TRADE, EVEN AS THE ASSESSEE PLEADS BEFORE US, BOTH AS AT THE BEGINNING AND THE END OF THE YEAR, AND THE PROFIT/LOSS (FOR THE ACCOUNT PERIOD) COMPUTED ACCORDINGLY. THAT IS, T HE OPENING STOCK WOULD ALSO HAVE TO BE COMPUTED LIKE - WISE, I.E., WORKED OUT BY PLACING NIL VALUE ON THE 5 ITA NO S. 3573 & 3762/MUM/2014 (A.Y. 2009 - 10) GHANSHYAM SHARE & STOCK BROKERS PVT. LTD. SHARES BEARING NEGATIVE QUANTITY . NEGATIVE STOCK, IT MAY BE APPRECIA TED, IS AN IMPOSSIBILITY AND THE STOCK (OF ANY SHARE OR IN ANY SCRIP) CAN ONLY BE A POSITIVE FIGURE AND, AT THE MINIMUM, AT NIL. IN EFFECT, WE ARE SAYING WHAT THE ASSESSEE CONTENDS BY PLEADING FOR AN ADDITION FOR THE NET REDUCTION CLAIMED IN VALUING ITS I NVENTORIES AS AT THE BEGINNING AND END OF THE YEAR, IMPACTING ITS PROFIT ACCORDINGLY , DETAILS OF WHICH ARE AS UNDER: (PB PG. 58) NEGATIVE STOCK AS ON 31.3.2009 TABLE C SR. NO. SCRIP QTY. (NOS.) RATE AMOUNT (RS.) 1) BONGAI REFINERY 3903 41 160023 2) BPCL 4653 376 1749528 3) GARDEN SILK 200 40 8000 4) GLAX SMRTH 1 704 704 5) NEYVELI LIGNITE 1191 84 100044 6) RELIANCE POWER 3438 103 354114 7) SUDERSHAN CHEM. 981 92 90252 8) TATA INV. CORP. 775 231 179025 9) TATA TEA 1135 584 662840 10) THIRUM AL CHEM. 932 47 43804 11) TORRENT POWER 3618 75 271350 12) VST INDS. 174 238 41412 13) RAVALGON 2 4250 8500 14) VST TILLER 72 130 9360 TOTAL 3678956 NEGATIVE STOCK AS ON 31.3.2008 (1.4.2009) SR. NO. SCRIP QTY. (NOS.) RATE AMOUNT (RS.) 1) BPCL 4645 433 2011285 2) NEYVELI LIGNITE 3587 124 444788 3) RELIANCE POWER 1635 334 546090 4) TORRENT POWER 3977 113 449401 TOTAL 3451564 PS: NET NEGATIVE STOCK: ( - ) RS. 2,27,392 [ ( - ) 36,78,956 ( - ) 34,51,564 ] 6 ITA NO S. 3573 & 3762/MUM/2014 (A.Y. 2009 - 10) GHANSHYAM SHARE & STOCK BROKERS PVT. LTD. SUBJECT TO VERIFICATION OF THE VALUES B Y THE ASSESSING OFFICER (A.O.) (AS ALSO THE QUANTITIES, WHICH ARE AT VARIANCE WITH THAT ADOPTED IN THE ASSESSMENT ORDER), WE, ACCORDINGLY, CONFIRM THE ADDITION OF RS. 2,27,392/ - TO THE ASSESSEES BUSINESS INCOME FOR THE YEAR ON ACCOUNT OF INCORRECT VALUATI ON OF ITS OPENING AND CLOSING STOCK - IN - TRADE. THOUGH IT COULD BE ARGUED THAT NO ADJUSTMENT IN RESPECT OF THE VALUE OF THE OPENING STOCK IS PERMISSIBLE, VALUE OF WHICH IS TO BE TAKEN AT THE SAME SUM (RS. 2,91,08,820/ - ) AS ADOPTED QUA CLOSING STOCK FOR THE I MMEDIATELY PRECEDING YEAR (PB PAGES 7, 40 47), WE DO NOT THINK THE ARGUMENT TO BE VALID. THIS IS AS BOTH THE OPENING AND CLOSING STOCK ARE TO BE VALUED CORRECTLY AND, TWO, ON THE SAME BASIS, I.E., TO ARRIVE AT THE CORRECT INCOME FOR THE ACCOUNT PERIOD. I T IS THE PROFIT FOR EACH YEAR, AND EACH YEAR ALONE, THAT COULD BE BROUGHT TO TAX FOR THAT YEAR; EACH YEAR BEING AN INDEPENDENT UNIT OF ASSESSMENT. REFERENCE IN THIS CONTEXT IS MADE TO THE DECISION IN CIT (DY.) VS. DAMAN GANGA PAPER LTD. [2014] 63 SOT 47 (M UM) , BASED ON DECISIONS BY THE HONBLE JURISDICTIONAL HIGH COURT AND SUPREME COURT SETTLING THE LAW IN THE MATTER. WE MAY REFER TO THIS ADDITION AS ADDITION 1 . WE MAY HERE ALSO MENTION THAT THOUGH MANIFEST IN THE FORM OF ( THE VALUE OF ) THE CLOSING STOCK, T HE ADDITION IS ESSENTIALLY ON ACCOUNT OF UNEXPLAINED CREDIT INASMUCH AS THE SOURCE OF THE CREDIT OF THE SHARES IN THE ASSESSEES D - MAT ACCOUNT IS UNEXPLAINED, WHICH REMAIN S UNACCOUNTED IN FINANCIAL ACCOUNTS AS WELL. THE SALE IMPLIES EXISTENCE OF SHARES, AT LEAST IN THAT NUMBER AND, FURTHER, AVAILMENT OF CREDIT IN THEIR RESPECT. IT IS THE NON - PASSING OF THE CORRESPONDING CREDI T ENTRY IN THE BOOKS OF ACCOUNT THAT THE INCIDEN CE OF NEGATIVE STOCK ARISES, ITSELF IMPLYING NON - EXPLANATION AS TO THE NATURE AND SOUR CE OF THE CREDIT. THE CORRESPONDING ADDITION SHALL BE U/S. 68 OR, EQUIVALENTLY, AS UNEXPLAINED ACQUISITION OF/ INVESTMENT IN SHARES, LIABLE FOR ADDITION U/S.69A. REFERENCE IN THIS CONTEXT MAY BE MADE TO THE DECISION IN THE CASE OF CIT V. JAUHARIMAL GOEL [2 005] 147 TAXMAN 448 (ALL). 7 ITA NO S. 3573 & 3762/MUM/2014 (A.Y. 2009 - 10) GHANSHYAM SHARE & STOCK BROKERS PVT. LTD. 5.2 THE SECOND AD JUSTMENT WARRANTED IS ON ACCOUNT OF THE INCREASE IN THE QUANTITY OF NEGATIVE STOCK DURING THE YEAR. FOR EXAMPLE, A STOCK, AT ( ) 500 UNITS AT THE BEGINNING OF THE YEAR, INCREASES TO ( ) 100 AT THE YEAR - END. CLEARLY, THERE IS A NET ADDITION OF 400 [( ) 100 ( ) 500] , IN ACCOUNTS, DURING THE YEAR AND, PRESUMABLY , ONLY AT A COST . SURELY, FURTHER ADJUSTMENT WOULD BE REQUIRED AND MER ELY EXCLUDING THE NEGATIVE VALUE QUA THESE (100) SHARES SHALL NOT SUFFICE . THIS W OULD ALSO OBTAIN IN CASE OF A POSITIVE STOCK AS AT THE YEAR - END, AT ( SAY ) (+) 100, IN WHICH CASE THE INCREASE WOULD BE AT 600 UNITS . THE EXERCISE IS THEREFORE NOT TO BE LIMITED TO STOCK WITH NEGATIVE QUANTITY/ VALUE AT THE YEAR - END . NOW, GOING BY OUR EARL IER EXAMPLE, T HE INCREASE OF 400 SHARES MUST FIND REFLECTION IN THE CLOSING STOCK AS AT THE YEAR - END, AND CANNOT BE IGNORED, WHICH THOUGH TRANSPIRES ON THE OPENING AND CLOSING QUANTITY OF SUCH STOCK S BEING TAKEN AT NIL, I.E., VALUED EXCLUDING THE NEGATIVE VALUES OR ASSIGNING NIL VALUES IN - AS - MUCH AS NEGATIVE STOCK IS A PHYSICAL IMPOSSIBILITY. NOT SO DOING WOULD TANTAMOUNT TO AVAILING DEDUCTION OF COST OF 400 SHARES AS RECORDED IN BOOKS FOR THE CURRENT YEAR AGAINST SALES MADE DURING A PRECEDING YEAR, WHICH C ANNOT BE . THAT IS, THE QUANTITY SHALL FIND REFLECTION IN THE CLOSING STOCK ( TO BE VALUED AT COST OR MARKET VALUE, WHICHEVER IS LESS) AND, CONSEQUENTLY, AS OPENING STOCK FOR THE FOLLOWING YEAR. THIS, THEN, WOULD CONSTITUTE ADDITION 2, I.E., BY WAY OF INCREA SE IN THE VALUE OF THE CLOSING STOCK, WHICH ON THE BASIS OF THE FIGURES/VALUES ON RECORD WORKS TO RS .2,28,189/ - , DETAILED AS UNDER: SCRIP QTY (CLOSING) QTY (OPENING) (+)/( - ) VALUE REMARKS BPCL ( - ) 4653 ( - ) 4 645 ( - ) 8 NIL (1) NEYVELI LIGNITE ( - ) 1191 ( - ) 3587 (+) 2396 2,01,264 (2) RELIANCE POWER ( - ) 3438 ( - ) 1635 ( - ) 1803 NIL (1) TORRENT POWER ( - ) 3618 ( - ) 3977 (+) 359 26,925 (2) (1) THE IMPACT OF THE NEGATIVE YEAR - END STOCK, WHICH GETS INCLUDE D IN THE NE GATIVE FIGURE AT COL. 3 ABOVE, STANDS ALREADY NEUTRALISED IN THE ADDITION OF RS.2,27,392/ - (ADDITION 1). (2) TO BE VALUED AT LOWER OF COST / FAIR MARKET PRICE ( AS AT THE RELEVANT DATE/S ) AND FMV AT THE YEAR - END . 8 ITA NO S. 3573 & 3762/MUM/2014 (A.Y. 2009 - 10) GHANSHYAM SHARE & STOCK BROKERS PVT. LTD. NEEDLESS TO ADD, THE A.O. SHALL, APART FROM VERIFICATION AND UNDERTAKING THE EXERCISE AFORE - SAID, EFFECT THE ADDITION, WHERE SO, ONLY AFTER HEARING THE ASSESSEE AND MEETING ITS OBJECTIONS, IF ANY. 5.3 THE THIRD ADDITION ( ADDITION 3 ) IS QUA THE PEAK SHORTFALL DURING THE YEAR, WHICH MAY BE AT A FIG URE DIFFERENT FROM THAT OBTAINING AS AT THE BEGINNING OR THE CLOSE OF THE YEAR. WE MAY REPRESENT THIS SCENARIO, ALONG WITH THE EARLIER TWO, AS UNDER, WITH REFERENCE TO A PARTICULAR SCRIP (SAY) : SCENARIO OPG. STK. CLG. STK. PEAK ( - ) DIFF ERENCE REMARKS 1. ( - ) 100 ( - ) 500 - ( - ) 400 ADDITION 1 2. ( - ) 500 ( - ) 100 - (+) 400 ADDITION 2 3. ( - ) 500 ( - ) 100 ( - ) 600 (+) 6 00 ADDITION 3 IN SCENARIO 3, THE ADDITION WOULD BE FOR THE VALUE OF 6 00 SHARES, AS AGAINST F OR 400 SHARES IN SCENARIO 2. THE REASON IS SIMPLE : THE ASSESSEE HAVING NO OPENING STOCK (IN THE RELEVANT SCRIP) , HAS SOLD, AND HAD THE REFORE ACQUIRED, 100 SHARES DURING THE YEAR UP TO THE PEAK DATE. THIS CORRESPONDS TO ADDITION 1 , WHICH GET S EFFECTED WHEN THE CLOSING STOCK IS VALUED AT NIL . ANOTHER 500 SHARES, HOWEVER, STAND ACQUIRED SINCE, AND BEING UNDISPOSED AS AT THE YEAR - END, WOULD STAND TO FIND REFLECTION IN THE CLOSING - STOCK. ADDITION IN RESPECT THEREOF, I.E., BY WAY OF CLOSING STOCK, SHALL ENSUE, VALUING THE SAME AT THE LOWER OF COST OF ACQUISITION OR MARKET VALUE (AS AT THE YEAR - END). THIS CORRESPONDS TO ADDITION 2. IT IS THIS CO MPLEX, RESULTING IN AN ADDITION FOR 600 SHARES (OF WHICH FOR 100 IS U/S. 68/69A AND FOR THE BALANCE 500 AS STOCK - IN - TRADE AT THE YEAR - END) THAT WE REFER TO AS ADDITION 3, AND WHICH IS THUS ONLY A VARIANT OF ADDITION 2. WE REFER TO THIS AS MOST CASES OF ADD ITION 2 MAY, IN ACTUAL PRACTICE , BE CASES OF ADDITION 3 AN D , FURTHER, WITH A VIEW TO EMPHASIZE THAT THE EXERCISE AFORE - SAID IS TO BE CARRIED OUT NOT ONLY QUA STOCKS RECORDED AT NEGATIVE FIGURES AS AT THE BEGINNING OR THE END OF THE YEAR, BUT ALSO AT ANY TI ME DURING THE YEAR . FURTHER, O NE MAY BE TEMPTED TO SUGGEST, AND IT MAY APPEAR THAT AN A DDITION TOWARD 600 SHARES IS NOT JUSTIFIED CONSIDERING THE 9 ITA NO S. 3573 & 3762/MUM/2014 (A.Y. 2009 - 10) GHANSHYAM SHARE & STOCK BROKERS PVT. LTD. SALE (IN BOOKS) OF /IN THE SAME NUMBER , CREDITED TO THE P&L A/C. HOWEVER, AS EXPLAINED HEREINBEFORE, THE SALE O F 500 SHARES FALLS IN A PRECEDING YEAR, QUA WHICH CREDIT THEREFORE CANNOT BE ALLOWED FOR THE CURRENT YEAR. THE SAME IS A SEPARATE TRANSACTION. T HE ASSESSEE, IN FACT, BY REDUCING THE OPENING VALUE OF THE INVENTORY HAS EFFECTIVELY NEUTRALIZED THE CREDIT (TO THE P&L A /C) TO A LARGE EXTENT. CO NTINUING FURTHER, WE ARE CONSCIOUS THAT THE VALUATION OF THE RELEVANT SCRIPS AS AT THE YEAR - END MAY BE LOWER THAN THE COST AS RECORDED IN BOOKS , AS WHERE THERE IS A DECLINE IN THE MARKET PRICE SINCE . THE DIFFERENCE, OR T HE SAID DECLINE, IS ONLY A BUSINESS LOSS, WHICH GETS ABSORBED IN THE VALUATION OF THE CLOSING STOCK. NO SEPARATE ADDITION/ADJUSTMENT IS REQUIRED TO BE MADE/ E FFECTED, I.E., APART FROM THAT IN RESPECT OF SHORTFALL W.R.T. THE COST STATED. TAKE, FOR EXAMPLE, T HE CASE OF THE SCRIP NEYVELI LIGNITE. IF THE COST OF THE SCRIP ON THE RELEVANT (ACQUISITION) DATE IS RS. 100/ - (SAY), OR OTHERWISE PURCHASED AT THAT COST (SAY), THE SAME STANDS RECORDED IN BOOKS AT RS. 2,39,600/ - AND, ACCORDINGLY, CLAIMED AS A DEDUCTION . THE SHARE PRICE AS AT THE YEAR - END BEING RS. 84/ - (TABLE C) , THE BUSINESS INCOME WILL HOWEVER STAND TO BE INCREASED ONLY BY THE CARRYI NG VALUE OF RS. 84/ - , I.E., RS. 2,01,264/ - , FORM ING PART OF THE CLOSING INVENTORY AND, CORRESPONDINGLY, THE OPENING INVENT ORY FOR THE FOLLOWING YEAR, AND SO ON. THE DIFFERENCE WITH REFERENCE TO ADDITION 1 IS THAT THE CORRESPONDING SHARES STAND ALREADY SOLD IN THAT CASE AND, THEREFORE, TO THAT EXTENT SHALL NOT FIND REFLECTION IN THE CLOSING STOCK; AND THE PROFIT/LOSS ON SALE G ETS SUBSUMED IN THE P&L ACCOUNT. AND, APART FROM ACCOUNTING FOR THE PEAK SHORTFALL (DURING THE YEAR) AND CONCOMITANT ADJUSTMENT, ADDITION 2 AND ADDITION 3 ARE OF THE SAME SPECIES. NEEDLESS TO ADD, THE EXERCISE FOR BOTH THE SE ADDITIONS IS TO BE CARRIED OUT FOR ALL THE SHARES, AND NOT LIMITED TO THOSE SHARES REPORTING NEGATIVE QUANTITY AS AT THE BEGINNING AND /OR AT THE END OF THE YEAR, WHICH MAY WELL BE POSITIVE, EVEN AS SHORTFALL (NEGATIVE STOCK) SUBSISTS DURING A PART OF THE YEAR. CREDIT IN THE FORM OF CLOS ING STOCK IN EVERY SUCH CASE (I.E., WITH REFERENCE AND TOWARD DECLINE FROM THE PEAK SHORTFALL DURING THE YEAR, AS AT THE YEAR - END), SHALL OBTAIN. ALSO, IF THE BUSINESS INCOME IS, AS CONTENDED, ASSESSED AS 10 ITA NO S. 3573 & 3762/MUM/2014 (A.Y. 2009 - 10) GHANSHYAM SHARE & STOCK BROKERS PVT. LTD. SPECULATIVE INCOME, THE DECLINE THEREIN ( ON ACCOUNT OF THE VALUATION OF CLOSING STOCK) WOULD AGAIN STAND TO BE ASSESSED UNDER THE SAME HEAD/CATEGORY. HOWEVER, AS WE SHALL PRESENTLY SEE, I.E., WHILE DISCUSSING THE REVENUES APPEAL, THE CATEGORIZATION OF THE SAME AS SPECULATIVE IS WITHOUT BASIS. ADDITION BY WAY OF SUCH ADJUSTMENT SHALL AGAIN BE CARRIED OUT BY ALLOWING THE ASSESSEE PROPER OPPORTUNITY OF HEARING, MEETING ITS CASE, IF ANY. 5.4 BEFORE PARTING WITH THE MATTER , WE MAY CLARIFY CERTAIN ASPECTS THEREOF. TO BEGIN WITH, THE ASSESSEES EXPLANATION OF T HE SHORTFALL IN SHARES AS ON ACCOUNT OF SHARES BELONGING TO THE DIRECTORS OR THEIR FAMILY MEMBERS KEPT AS MARGIN MONEY OF THE COMPANY, AVAILED CREDIT OF OR OTHERWISE MONETIZED ON THE SALE OF SUCH SHARES (ON THEIR BEING IN DEMAND) IS NEITHER HERE NOR THERE. THE EXPLANATION, FIRSTLY, DOES NOT EXTEN D TO ALL THE SHARES, BUT ONLY THAT LISTED IN TABLE A ABOVE . TWO, T HE QUESTION IS NOT AS TO WHOM THE SHARES BELONGED TO PRIOR TO THEIR ACQUISITION BY THE ASSESSEE - COMPANY, BUT OF THE NATURE AND SOURCE OF THE ACQUISIT ION THEREOF BY I T. MARGIN MONEY (ACCOUNT) OF THE ASSESSEE - COMPANY IS NOT A N OFF - THE - BALANCE SHEET ITEM FOR THE ASSESSEE TO HAVE NOT RECORDED THE SAME (ACQUISITION) IN ITS ACCOUNTS. THEN, AGAIN, HOW DOES THE ASSESSEE - COMPANY ACQUIRE PROPRIETARY RIGHTS OVER THOSE SHARES , AS EVIDENCED BY THEIR SALE AND, FURTHER, WITHOUT INCURRING ANY OBLIGATION QUA THE SAME ? WHAT PREVENTED THE COMPANY FROM RECORDING A CREDIT PURCHASE FROM THE TRANSFEROR/S? THE EXPLANATION IS EVEN OTHERWISE UNSUSTAINABLE, WITH THE REVENUE REPOR TING A DIFFERENCE BETWEEN THE STOCK WITH THE FAMILY MEMBERS AND THAT SOLD BY THE ASSESSEE - COMPANY . WHERE ACQUIRED FOR A CONSIDERATION OR OTHERWISE BORROWED (PLACING A NOTIONAL VALUE), IT WOULD NOT RESULT IN A NEGATIVE (SHORTFALL IN ) STOCK. THE NEGATIVE STO CK ITSELF IS A REFLECTION OF IT BEING NOT ACCOUNTED FOR, MUCH LESS EXPLAINED AS THE NATURE AND SOURCE OF THE CREDIT/ACQUISITION . HOW DID, EVEN AS THE AO ASKS, THE SHARES CAME TO BE CREDITED OR TRANSFERRED TO THE ACCOUNT OF AND, THEREFORE, SOLD BY THE ASSES SEE - COMPANY? THAT IS, CONSIDERING THAT IT IS NEITHER A CASE OF PURCHASE NOR OF BORROWING. THE SAME, I.E., NEGATIVE STOCK, WHICH IS 11 ITA NO S. 3573 & 3762/MUM/2014 (A.Y. 2009 - 10) GHANSHYAM SHARE & STOCK BROKERS PVT. LTD. ONLY WITH REFERENCE TO THE QUANTITY ACTUALLY SOLD, ALSO RUBBISHES THE ASSESSEES CLAIM OF ITS ACCOUNTS BEING AUDITED AS WEL L AS ITS RELIANCE ON THE RULE OF CONSISTENCY. WE HAVE IN FACT ALREADY ALLOWED IT CREDIT FOR THE OPENING NEGATIVE STOCK (SHORTFALL) IN - AS - MUCH AS THE SAID STOCK COULD ONLY BE ACQUIRED , OR CREDIT THERE - AGAINST AVAILED, WHICHEVER ONE WAY ONE MAY SEE IT, DU RING A PRECEDING YEAR. IF ANYTHING, IT SHOWS THE ACCOUNTS BEING UNRECONCILED, WITH DIFFERENCES BETWEEN THE QUANTITATIVE RECORDS (D - MAT ACCOUNTS) AND CORRESPONDING FINANCIAL ACCOUNTS. WE HAVE, ACCORDINGLY, DIRECTED FOR SUCH A RECONCILIATION, SO AS TO BRING OUT ALL SUCH DISCREPANCIES, DISCUSSING SOME, I.E., RATHER THAN CONFIRMING ONLY THAT WHICH SUBSIST AS AT THE YEAR - END, ALSO EXPLAINING THE EXTENT AND MANNER OF THE ENSUING ADDITION S FOR THE CURRENT YEAR . IN OTHER WORDS, WE HAVE, WHILE EXAMINING THE ASSESSEE S PLEA OF NEGATIVE OPENING STOCK, AND WHICH THEREFORE SHOULD ALSO BE GIVEN EFFECT TO, ACCEPTING IT ON THE BASIS OF THE SETTLED LAW, ALSO OBSERVED OTHER ASPECTS IN RELATION THERETO, TO FIND THAT THESE HAVE A DIRECT IMPACT ON THE INCOME FOR THE YEAR AND, TH EREFORE, SHALL REQUIRE ADJUDICATION BY THE ASSESSING AUTHORITY. THIS MAY, HOWEVER, NOT BE CONSTRUED AS PLACING ANY LIMITATION ON A.O.S EXAMINATION; THE PURPORT BEING THE PROPER ASSESSMENT - IN FRAMING WHICH HE SHALL HAVE REGARD TO OUR OBSERVATIONS IN THE MATTER, IN THE FACTS OF THE CASE , OBSERVING THE PRINCIPLES OF NATURAL JUSTICE. WE MAY HERE ALSO CLARIFY THAT IRRESPECTIVE OF WHETHER THE ASSESSEE PASSES THE CORRESPONDING JOURNAL ENTRIES IN ITS ACCOUNTS, THE QUANTITY OF ALL SHARES SUBJECT TO ADJUSTMENTS S HALL, FOR ASSESSMENTS FOR THE SUBSEQUENT YEARS, BE CARR IED FORWARD AT QUANTITIES DETERMINED IN THIS ASSESSMENT, I.E., AS AGAINST BOOK QUANTITIES. THE SAME, APART FROM FOLLOWING AS A COROLLARY, IS IN CONSONANCE WITH THE PRINCIPLES OF EQUITY; TAXATION OF INC OME; AND CONSISTENCY, WHICH THE FORMER ENDORSES. FURTHER, LEST ONE CONSIDERS US AS HAVING, IN SO DIRECTING, TRAVELLED OUTSIDE THE SCOPE OF THE APPEAL, WE MAY ADVERT TO THE DECISIONS, INTER ALIA , IN THE CASE OF KAPURCHAND SHRIMAL V. CIT [1981] 131 ITR 451 ( SC) AND AHMEDABAD ELECTRICITY CO. LTD. V. CIT [1993] 199 ITR 351 (BOM) (FB). THE RELIANCE ON J.K. CHARITABLE TRUST ( SUPRA) AND 12 ITA NO S. 3573 & 3762/MUM/2014 (A.Y. 2009 - 10) GHANSHYAM SHARE & STOCK BROKERS PVT. LTD. SATISH PANALAL SHAH ( SUPRA ) IS, AS WOULD BE APPARENT FROM THE FOREGOING, COMPLETELY MISPLACED. 5 . 5 WE DECIDE ACCORDINGLY. REVEN UES A PPEAL (IN ITA NO. 3762/MUM/2014) 6 . THE ASSESSEE - COMPANY WAS DURING THE ASSESSMENT PROCEEDINGS OBSERVED TO HAVE UNDERTAKEN ACTIVITIES UNDER THREE BROAD CATEGORIES DURING THE YEAR, BEING SHARE TRADING (PROPRIETARY TRADE) FUTURES AND OPTIONS (F & O) SHARE BROKING. THE INCOME FROM SHARE TRADING WAS REGARDED BY THE AO AS SPECULATIVE INCOME, FURTHER INCREASING THE SAME BY RS.15 LACS BY ALLOCATING ADMINISTRATIVE EXPENDITURE TO THAT CATEGORY, I.E., AS AGAINST, AS CONTENDED, RS.22,46,112/ - BY THE AS SESSEE. THE SAME WAS REVERSED BY THE LD. CIT(A), WHO FOUND NO BASIS FOR THE ALLOCATION OF THE ADMINISTRATIVE EXPENDITURE, AS WELL AS FOR CATEGORISING INCOME AS SPECULATIVE, PARTICULARLY CONSIDERING THAT EXPLANATION TO SECTION 73 WAS NOT INVOKED BY THE AO. 7 . WE HAVE HEARD THE PARTIES, AND PERUSED THE MATERIAL ON RECORD. SHARE TRADING, AS APPARENT FROM THE ASSESSEES FINAL ACCOUNTS, I.E., INCOME (OPERATING) STATEMENT AND BALANCE - SHEET (AS AT THE YEAR - END) RESPECTIVELY, CONSTITUTES A PRINCIPAL BUSINESS OF T HE ASSESSEE - COMPANY. IN FACT, THE REVENUES RELEVANT GROUND (GD. 1) ITSELF ADMITS SO. EXPLANATION TO SECTION 73, WHICH READS AS UNDER, IS THUS NOT APPLICABLE: LOSSES IN SPECULATION BUSINESS. 73. (1) .............. EXPLANATION. WHERE ANY PART OF THE BUS INESS OF A COMPANY (OTHER THAN A COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS 'INTEREST ON SECURITIES', 'INCOME FROM HOUSE 13 ITA NO S. 3573 & 3762/MUM/2014 (A.Y. 2009 - 10) GHANSHYAM SHARE & STOCK BROKERS PVT. LTD. PROPERTY', 'CAPITAL GAINS' AND 'INCOME FROM OTHER SOURCES', OR A COMPANY THE PRINCI PAL BUSINESS OF WHICH IS THE BUSINESS OF TRADING IN SHARES OR BANKING OR THE GRANTING OF LOANS AND ADVANCES CONSISTS IN THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, SUCH COMPANY SHALL, FOR THE PURPOSES OF THIS SECTION, BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF THE PURCHASE AND SALE OF SUCH SHARES. ACCORDINGLY, AND EVEN AS OBSERVED BY THE LD. CIT(A), WE FIND NO BASIS FOR HOLDING THE INCOME/LOSS FROM THE SAID A CTIVITY AS SPECULATIVE BY THE AO, NOR WAS ANY POINTED OUT TO US DURING HEARING. WE, THEREFORE, HAVE NO HESITATION IN CONFIRMING THE IMPUGNED ORDER ON THIS SCORE. AS REGARDS THE REALLOCATION OF THE ADMINISTRATIVE EXPENDITURE, WE FIND THAT BOTH THE ASSESSEE AS WELL AS THE AO TO HAVE ALLOCATED THE SAME UNDER DIFFERENT ACTIVITIES WITHOUT ANY BASIS. HOWEVER, THE SAID ALLOCATION IS ITSELF RENDERED OF NO CONSEQUENCE AS THE ENTIRE BUSINESS INCOME IS TO BE REGARDED AS NON - SPECULATIVE. WE DECIDE ACCORDINGLY, AND THE REVENUE FAIL ON BOTH THESE GROUNDS. WE MAY THOUGH ADD THAT THE AO HAS HELD THAT THE INCOME ON ACCOUNT OF UNEXPLAINED INVESTMENT WOULD NOT BE SET OFF AGAINST SPECULATIVE LOSS. DEEMED INCOME STANDS TO BE BROUGHT TO TAX UNDER CHAPTER - VI OF THE ACT, I.E., AGGR EGATION OF INCOME, AND NOT UNDER ANY PARTICULAR HEAD OF INCOME SPECIFIED U/S. 14, AS EXPLAINED BY THE HONBLE COURT IN FAKIR MOHMED HAJI HASAN VS. CIT [2001] 247 ITR 290 (GUJ). THE ONLY SURVIVING ISSUE, RAISED PER GD. 3, IS IN RESPECT OF DELETION OF ADDIT ION MADE BY THE AO, DENYING THE ASSESSEES CLAIM FOR REDUCTION IN THE CLOSING STOCK AND, CONSEQUENTLY, PROFIT/INCOME (PER THE REVISED RETURN) BY RS.12,13,444/ - , IN THE IN THE ABSENCE OF ANY DETAILS. THE ENTIRE DETAILS WERE EXAMINED IN THE REMAND PROCEEDI NGS, TO FIND THAT THE REVISION IS ON ACCOUNT OF REVISION IN THE RATES OF VALUATION OF THE CLOSING STOCK AS AT THE YEAR - END. THE REVISED STATEMENT IS, IN FACT, IN AGREEMENT WITH THE BALANCE - SHEET AS AT THE YEAR - END (FILED ALONG WITH THE ORIGINAL RETURN); TH E ASSESSEE EXPLAINING THE STOCK STATEMENT GIVEN EARLIER BEING AS ON 04.4.2011, FURNISHED INADVERTENTLY. WE, IN FACT, SEE NO ISSUE, I.E., EITHER IN PRINCIPLE OR ON FACTS. THE ASSESSEES REVISED RETURN (PB PG. 1) BEARS NO CLAIM FOR ANY REDUCTION IN STOCK; IT 14 ITA NO S. 3573 & 3762/MUM/2014 (A.Y. 2009 - 10) GHANSHYAM SHARE & STOCK BROKERS PVT. LTD. ADOPTING THE SAME FIGURE OF PROFIT, I.E., AS OBTAINS PER THE PROFIT AND LOSS ACCOUNT. WE HAVE NOTED THAT THE STOCK - IN - TRADE AT THE YEAR - END (RS.2,74,36,842/PB PGS. 48 - 57) IS IN AGREEMENT WITH THE FIGURE AS PER THE BALANCE - SHEET (PB PG. 7). NO ERROR IN THE IMPUGNED REVISION WAS ALSO POINTED OUT TO US DURING HEARING. WE, ACCORDINGLY, HAVE NO HESITATION IN CONFIRMING THE IMPUGNED ORDER ON THIS SCORE AS WELL. WE DECIDE ACCORDINGLY 8 . IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED AND PARTLY ALLOWED FO R STATISTICAL PURPOSES , AND THE REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON OCTOBER 04 , 201 6 SD/ - SD/ - ( AMARJIT SINGH ) (S ANJAY ARORA) / J UDICIAL MEMBER / A CCOUNTANT MEMBER MUMBAI ; DATED : 04 . 10 .201 6 . . ./ ROSHANI , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI