ACIT, New Delhi V. Shri Rajiv Bhal, New Delhi

ITA 3628/DEL/2012

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5447 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-05-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 18-07-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 11-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Speculation loss; Deemed dividend; Revenue expenditure; Futures and options; Speculative transactions
• Section: 43(5)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI F BENCH, NEW DELHI BEFORE SHRI N.K. BILLAIYA , ACCOUNTANT MEMBER, AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO. 3628 /DEL/201 2 [ASSESSMENT YEAR: 20 08 - 09] THE A. C.I.T VS. SHRI RAJIV BAHL CENTRAL CIRCLE 21 E - 108, MASJID MOTH NEW DELHI GREATER KAILASH - III NEW DELHI PAN : AA MPB3279 L ITA NO. 3406 /DEL/201 4 [ASSESSMENT YEAR: 20 09 - 10] SHRI RAJIV BAHL VS. THE A.C.I.T E - 108, MASJID MOTH CENTRAL CIRCLE 21 GREATER KAILASH III NEW DELHI NEW DELHI PAN : AA MPB3279 L [APPELLANT] [RESPONDENT] DATE OF HEARING : 01 . 0 5 .201 8 DATE OF PRONOUNCEMENT : 0 2 .0 5 .2018 ASSESSEE BY : SHRI KAPIL GOEL , ADV REVENUE BY : S HRI A TIQ AHMED, SR. DR ORDER PER N.K. BILLAIYA , ACCOUNTANT MEMBER, THE ABOVE TWO APPEALS FIRST BY THE REVENUE PREFERRED AGAINST THE ORDER OF THE CIT(A) - 2 DATED 26.04.2012 FOR A.Y 2008 - 09 AND THE OTHER BY THE ASSESSEE IS PREFERRED AGAINST THE ORDER OF THE 2 CIT(A) - 12 DATED 24.03.2014 AND PERTAINS TO A.Y 2009 - 10. S INCE BOTH THESE APPEALS WERE HEARD TOGETHER AND PERTAIN TO SAME ASSESSEE, THESE ARE BEING DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. ITA NO. 3628/DEL/2012 [A.Y 2008 - 09] APPEAL BY THE REVENUE 2. THE FIRST GRIEVANCE OF THE RE VENUE RELATES TO THE DELETION OF ADDITION OF RS. 1,16,20,767/ - MADE BY THE AO ON ACCOUNT OF LOSS ON SHARES. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAS DEBITED A SUM OF RS. 1,16,20,767 / - UNDER THE HEAD LOSS ON SHARES. THE AO WAS OF THE OPINION THAT SINCE IT IS NOT A REVENUE EXPENDITURE, IT CANNOT BE SET OFF AGAINST THE BUSINESS INCOME. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE SAID LOSS SHOULD NOT BE TREATED AS SPECULATI VE LOS S. ON RECEIVING NO PLAUSIBLE REPLY, THE AO DISALLOWED A SUM OF RS. 1,16,20,767/ - AND ADDED THE SAME TO THE RETURNED INCOME OF THE ASSESSEE. THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A) AND EXPLAINED THAT THE SAID EXPENDITURE WAS INCURRED BY THE ASSE SSEE IN DERIVATIVE TRADING IN FUTURES AND OPTIONS OF THE SHARES. ALL SUPPORTING DETAILS WERE FURNISHED. AFTER CONSIDERING THE 3 FACTS AND SUBMISSIONS AND RELATED DOCUMENTARY EVIDENCES AND AFTER CALLING FOR REMAND REPORT, THE CIT(A) OBSERVED THAT THE ASSESS EE HAS FURNISHED THE STATEMENT OF ACCOUNTS FROM SHARE BROKERS IN WHICH ALL THE DETAILS WERE MENTIONED. THE CIT(A) FURTHER OBSERVED THAT ALL THE TRANSACTIONS WERE SUBJECT TO SECURITIES TRANSACTION TAX AND FURTHER, THE DEFINITION OF SPECULATION BUSINESS I N TERMS OF SECTION 43(5)(D) OF THE INCOME - TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT'] EXCLUDES THE TRANSACTION IN DERIVATIVES AND FINALLY CONCLUDED THAT SECTION 73 IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE AND THE LOSS ON SHARE CANNOT BE TREAT ED AS SPECULATION LOSS. THE CIT(A), THEREFORE, DIRECTED THE AO TO ALLOW THE CLAIM OF SET OFF OF LOSS. 4. BEFORE US, THE LD. DR STRONGLY SUPPORTED THE FINDINGS OF THE AO. 5. PER CONTRA, THE LD. AR REITERATED THE SUBMISSIONS AS MADE BEFORE THE LOWER AU THORITIES 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE ORDERS OF THE AUTHORITIES BELOW . THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE HAS INCURRED LOSS FROM DERIVATIVE 4 TRADING IN A RECOGNISED STOCK EXCHANGE. SECTION 43(5) OF THE ACT DEFINES SPECULATIVE TRANSACTION AS UNDER: SPECULATIVE TRANSACTION' MEANS A TRANSACTION IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY, INCLUDING STOCKS AND SHARES, IS PERIODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY OR SCRIPS: PRO VIDED THAT FOR THE PURPOSES OF THIS CLAUSE - (A) A CONTRACT IN RESPECT OF RAW MATERIALS OR MERCHANDISE ENTERED INTO BY A PERSON IN THE COURSE OF HIS MANUFACTURING OR MERCHANTING BUSINESS TO GUARD AGAINST LO SS THROUGH FUTURE PRICE FLUCTUATIONS IN RESPECT OF HIS CONTRACTS FOR ACTUAL DELIVERY OF GOODS MANUFACTURED BY HIM OR MERCHANDISE SOLD BY HIM; OR (B) A CONTRACT IN RESPECT OF STOCKS AND SHARES ENTERED INTO BY A DEALER OR INVESTOR THEREIN TO GUARD AGAINST LOSS IN HIS HOLDINGS OF STOCKS AND SHARES THROUGH PRICE FLUCTUATIONS; OR (C) A CONTRACT ENTERED INTO BY A MEMBER OF A FORWARD MARKET OR A STOCK EXCHANGE IN THE COURSE OF ANY TRANSACTION IN THE NATURE OF JOBBING OR ARBITRAGE TO GUARD AGAINST LOSS WHICH MAY ARISE IN THE ORDINARY COURSE OF HIS BUSINESS AS SUCH MEMBER; SHALL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION; 5 7. IT CAN BE SEEN FROM THE AFOREMENTIONED DEFINITION THAT ALL ELIGIBLE TRANSACTIONS IN RESPECT OF TRADING IN DERIVATIVES ARE NOT TO BE DEEMED TO BE SPECULATIVE TRANSACTIONS. IN THE LIGHT OF THE ABOVE, IT CAN BE SAFELY CONCLUDED THAT LOSS INCURRED BY THE ASSE SSEE FROM DERIVATIVE TRANSACTION IS NOT SPECULATIVE LOSS. THE LOSS IS ELIGIBLE FOR SET OFF AS PER PROVISIONS OF LAW AND WE DO NOT FIND ANY ERROR OR INFIRMITY IN THE FINDINGS OF THE LD. CIT(A). GROUND NO. 1, IS ACCORDINGLY DISMISSED. 8. GROUND NO. 2 REL ATES TO THE DELETION OF ADDITION OF RS. 5 LAKHS MADE BY THE AO ON ACCOUNT OF DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. 9. WHILE SCRUTINIZING THE RETURN OF INCOME, THE AO NOTICED THAT THE ASSESSEE HAS TAKEN UNSECURED LOAN OF RS. 5 LAKHS FROM M/S REALTECH INF RASTRUCTURE LTD. BY INVOKING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT, THE AO ADDED A SUM OF RS. 5 LAKHS AS DEEMED DIVIDEND. THE ASSESSEE STRONGLY AGITATED THE MATTER BEFORE THE CIT(A) AND BROUGHT TO HIS NOTICE THAT THE PROVISIONS OF SECTION 2(22)(E ) OF THE ACT WERE NOT AT ALL APPLICABLE TO THE FACTS OF THE CASE IN AS MUCH AS M/S REALTECH INFRASTRUCTURE LTD. DOES NOT HAVE ANY BALANCE OF RESERVE AND SURPLUS. AFTER CONSIDERING THE FACTS AND SUBMISSIONS, THE CIT(A) FOUND THAT M/S 6 REALTECH INFRASTRUCTUR E LTD. HAS PROFIT FROM OPERATION OF RS. 2.45 LAKHS BUT IN THE BALANCE SHEET, THERE IS NO RESERVE AND SURPLUS AND, THEREFORE, THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT ARE NOT APPLICABLE. ADDITION OF RS. 5 LAKHS WAS ACCORDINGLY DELETED. 10. BEFORE US, THE LD. DR STRONGLY SUPPORTED THE FINDINGS OF THE AO. 11. PER CONTRA, THE LD. AR REITERATED THE STAND AS TAKEN BEFORE THE CIT(A). 12. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW. THERE IS NO DISPUTE THAT THE ASSESSEE WAS HAVING SUBSTANTIAL HOLDING IN THE COMPANY M/S REALTECH INFRASTRUCTURE LTD. IT IS EQUALLY TRUE THAT M/S REALTECH INFRASTRUCTURE LTD. DOES NOT HAVE ANY BALANCE IN THE RESERVE AND SURPLUS IN ITS BALANCE SHEET. THIS MEANS THAT THE SECOND LIMB OF THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT IS MISSING. THEREFORE, THERE CANNOT BE ANY ADDITION AS DEEMED DIVIDEND. THE CIT(A) HAS RIGHTLY DELETED THE ADDI TION. NO INTERFERENCE IS CALLED FOR. GROUND NO. 2 IS ACCORDINGLY DISMISSED. 7 13. THIRD GROUND RELATES TO THE ALLOWING A RELIEF OF RS. 68,520/ - BY RESTRICTING THE DISALLOWANCE TO 50% OF RS. 1 , 37 , 040/ - OUT OF DISALLOWANCE ON CAR EXPENSES. 14. A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT THE AO HAS DISALLOWED 1/10 TH OF THE EXPENSES ON CAR RUNNING AND MAINTENANCE EXPENSES ON ADHOC BASIS. THE FIRST APPELLATE AUTHORITY HAS RESTRICTED THE SAME TO 50%. AS THE AO HAS MADE THE DISALLOWANCE ON ADHOC BASIS AND THE CIT(A) HAS RESTRICTED THE SAME TO 50%, WE DO NOT FIND ANY MERIT IN THIS GRIEVANCE OF THE REVENUE. THEREFORE, THE GROUND RAISED ON THIS COUNT IS DISMISSED. 15 . IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ITA NO. 3 406 /DEL/201 4 [A.Y 200 9 - 1 0] APPEAL BY THE ASSESSEE 16. FIRST GRIEVANCE OF THE ASSESSEE RELATES TO THE DISALLOWANCE OF RS. 1,89,29,655/ - MADE BY THE AO ON ACCOUNT OF LOSSES IN FUTURE TRADING. 17. AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY US IN ITA NO. 3628/DEL/2012 VID E GROUND NO. 1 OF THAT APPEAL. ON A DETAILED 8 DISCUSSION THEREIN, WE HELD THAT THE LOSS IS NOT A SPECULATIVE LOSS. AT THE SAME TIME, WE FIND THAT THE FACTS OF THE YEAR UNDER CONSIDERATION ARE SLIGHTLY DIFFERENT FROM THE FACTS CONSIDERED IN A.Y 2008 - 09. IN A.Y 2008 - 09, BOTH THE LOWER AUTHORITIES HAVE GIVEN A FINDING THAT THE ASSESSEE HAS INCURRED LOSSES FROM DERIVATIVE TRADING IN A RECOGNISED STOCK EXCHANGE. HOWEVER, IN THE YEAR UNDER CONSIDERATION, THERE IS NO SUCH FINDING BY THE AUTHORITIES BELOW. THERE FORE, IN THE INTEREST OF JUSTICE AND FAIR PLAY, WE RESTORE THIS ISSUE TO THE FILE OF THE AO. THE ASSESSEE IS DIRECTED TO DEMONSTRATE THAT THE LOSS HAS BEEN INCURRED IN DERIVATIVE TRADING IN A RECOGNISED STOCK EXCHANGE AND THE AO IS DIRECTED TO VERIFY THE SAME AND DECIDE THE ISSUE IN THE LIGHT OF THE FINDINGS GIVEN BY US IN ITA NO. 3628/DEL/2012. ACCORDINGLY, GROUND NO 1 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 18. GROUND NO. 2 IS INTER - LINKED WITH GROUND NO. 1 IN AS MUCH AS IF THE AO FINDS THAT TH E LOSS HAS BEEN INCURRED FROM DE R IVAT IVE TRADING IN SHARES IN A RECOGNISED STOCK EXCHANGE, THEN THE STT PAID SHOULD BE ALLOWED. GROUND NO. 2 IS ALSO TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 9 19. GROUND NO. 3 RELATES TO THE ADDITION OF RS. 46,62,150/ - ON ACCOUNT OF TRADING ADVANCE AS DEEMED DIVIDEND. 20. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAS SHOWN RS. 46,62,150/ - AS A LIABILITY TO M/S REALTECH CONSTRUCTION P. LTD. THE AO FOUND THAT THE ASSESSEE IS ALSO A DIRECTOR OF THE SAID COMPANY HAVING MORE THAN 10% OF SHARE HOLDING. THE AO WAS OF THE FIRM BELIEF THAT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT SQUARELY APPLY TO THE FACTS OF THE CASE A ND ACCORDINGLY ADDED RS. 46,62,150/ - TO THE INCOME OF THE ASSESSEE AS DEEMED DIVIDEND. 21. THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. 22. BEFORE US, THE LD. AR VEHEMENTLY CONTENDED THAT THE SAID LIABILITY TO THE COMPANY IS IN RESPECT OF BUSINESS TRANSACTION AND IT IS NEITHER LOAN NOR ADVANCE. IT IS THE SAY OF THE LD. AR THAT THE SAID COMPANY HAS GIVEN ADVANCE TO THE ASSESSEE TOWARDS PURCHASE OF SOME PROPERTY AS THE ASSESSEE IS ALSO DOING BUSINESS AS A REAL ESTATE COMMISSIO N AGENT. THE COUNSEL FOR THE ASSESSEE CONCLUDED BY STATING 10 THAT SINCE IT IS A BUSINESS TRANSACTION, PROVISIONS OF SECTION 2(22)(E) OF THE ACT DO NOT APPLY. 23. THE LD. DR STRONGLY SUPPORTED THE FINDINGS OF THE LOWER AUTHORITIES. 24. WE HAVE GIVEN THOUGH TFUL CONSIDERATION TO THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE CONTENTION OF THE LD. AR THAT THE SAID AMOUNT IS A BUSINESS TRANSACTION BETWEEN THE ASSESSEE AND M/S REALTECH CONSTRUCTION P. LTD IS NOT COMING OUT FROM THE ORDERS OF THE AUTHORIT IES BELOW. THIS NEEDS VERIFICATION BY THE AO. THEREFORE, IN THE INTEREST OF JUSTICE AND FAIR PLAY, WE RESTORE THIS ISSUE TO THE FILE OF THE AO. THE ASSESSEE IS DIRECTED TO DEMONSTRATE BY BRINGING COGENT MATERIAL EVIDENCES ON RECORD TO SHOW THAT THE SAID ADVANCE WAS TAKEN FOR SOME BUSINESS PURPOSE. THE AO IS DIRECTED TO VERIFY THE DOCUMENTARY EVIDENCES AND DECIDE THE ISSUE AFRESH AS PER PROVISIONS OF LAW. THE ASSESSEE IS FURTHER DIRECTED TO SHOW HOW THE SAID ADVANCE WAS PAID UP IN THE SUBSEQUENT YEARS. WITH THE ABOVE DIRECTIONS, THIS GROUND IS ALSO TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 11 25. ACCORDINGLY, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 26. TO SUM UP, IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO. 3628/DEL/2012 IS DISMISSED WHEREAS THE APPEAL OF THE ASSESSEE IN ITA NO. 3406/DEL/2014 IS ALLOWED FOR STATISTICAL PURPOSES. THE ORDER IS PRON OUNCED IN THE OPEN COURT ON 0 2 .0 5 .2018. S D / - S D / - [ SUDHANSHU SRIVASTAVA ] [ N.K. BILLAIYA ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 0 2 N D MAY , 2018 VL/ COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR ASST. REGISTRAR, ITAT, NEW DELHI