OM STOCK & COMMODITIES PVT, LTD, MUMBAI V. DCIT CEN CIR - 11, MUMBAI

ITA 441/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4228 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 02-07-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 17-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PRAKASH THUNJHUNWALA

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL C CC C BENCH, BENCH, BENCH, BENCH, MUMBAI MUMBAI MUMBAI MUMBAI , ,, , ' ' ' ' # # # # , . BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI SANJAY ARORA SANJAY ARORA SANJAY ARORA SANJAY ARORA, AM , AM , AM , AM & & & & SHRI SHRI SHRI SHRI VIJAY VIJAY VIJAY VIJAY PAL RAO, JM PAL RAO, JM PAL RAO, JM PAL RAO, JM ./ I.T I.TI.T I.T.A. NO. .A. NO. .A. NO. .A. NO. 441/MUM/2011 441/MUM/2011 441/MUM/2011 441/MUM/2011 ( $% $% $% $% & & & & / ASSESSMENT YEAR :2008-09) OM STOCK & COMMODITIES PVT. LTD. SHOP NO. 8, MINAL APARTMENT, SHRADDHANAND ROAD, VILE PARLE (E), MUMBAI-400057 % % % % / VS. DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-11, AAYKAR BHAVAN, M.K. ROAD, MUMBAI-400020 ' ./ ( ./ PAN/GIR NO. : AAACO9041Q ( ') / APPELLANT APPELLANT APPELLANT APPELLANT) .. ( *+') / RESPONDENT RESPONDENT RESPONDENT RESPONDENT) ') ') ') ') , , , , / APPELLANT BY : SHRI PRAKASH THUNJHUNWALA *+') *+') *+') *+') - -- - , , , , /RESPONDENT BY : SHIR T. ROUMUAN PAITE % % % % - -- - . . . . / DT. OF HEARING : 2 ND JULY 2013 /& /& /& /& - -- -. . . . / DT.OFPRONOUNCEMENT: 10 TH JULY 2013 0 / O R D E R PER : # , . . / VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 8.11.2010 OF CIT(A) ARISING FROM PENALTY ORDER PASS ED U/S 271B R.W.S 274 OF THE INCOME TAX ACT FOR THE ASSESSMENT YEAR 2008- 09. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUND AS UNDER: THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE PENALTY OF ` 1,00,000/- LEVIED BY THE ASSESSING OFFICER UNDER SECTION 271B OF THE INCOME TAX ACT. ITA NO. 441/M/2011 OM STOCK & COMMODITIES PVT. LTD. 2 3. AT THE TIME OF HEARING THE ASSESSEE HAS RAISED A N ADDITIONAL GROUND AS UNDER: ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEVY OF PENALTY U/S 271B OF ` 1,00,000/- IS UNJUSTIFIED AS THE ONLINE TRANSACTION OF FUTURE COMMODITIES MADE BY THE APPEL LANT IN THE MCX EXCHANGE WOULD NOT FORM A PART OF TURNOVER, ACC ORDINGLY THE APPELLANT WAS NOT LIABLE TO TAX AUDIT U/S 44AB OF I . T. ACT, 1961. 4. SINCE THE ADDITIONAL GROUND RAISED BY THE ASSESS EE INVOLVING A LEGALLY ISSUE WHICH GOES TO THE ROUTE OF THE MATTER , THEREFORE, WE FIRST TAKE UP THE ADDITIONAL GROUND. WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND CONSIDERED THE RELEVANT FACTS OF THE CASE. THE ADDI TIONAL GROUND RAISED BY THE ASSESSEE IS PURELY LEGALLY IN NATURE AND DOES N OT INVOLVED ANY FRESH INVESTIGATION OF FACTS, THEREFORE, IN VIEW OF THE D ECISION OF HONBLE SUPREME COURT IN CASE OF NTPC 229 ITR 383, WE ADMIT THE ADDITIONAL GROUND FOR ADJUDICATION ON MERITS. 5. THE LD. AR OF THE ASSESSEE HAS SUBMITTED THAT TH E ASSESSEE COMPANY IS A MEMBER OF MULTI COMMODITY EXCHANGE OF INDIA (MCX) AND IS ENGAGED IN ONLINE BUSINESS OF TRADING IN COMMODITIE S. HE HAS FURTHER SUBMITTED THAT THE TRANSACTION CARRIED OUT BY THE A SSESSEE ARE SPECULATIVE IN NATURE AND THE EXCHANGE ISSUED MARK-TO-MARK BILL S TO THE ASSESSEE ON DAILY BASIS WHICH DOES NOT REPRESENT THE ACTUAL SAL E/PURCHASE TURNOVER, HOWEVER THESE DAILY BILLS WERE ISSUED TO RECOVER/PA Y THE DIFFERENCE IN COMMODITY PRICES TO COVER UP THE DAILY FLUCTUATION IN THE PRICES TO REDUCE THE RISK OF LOSS AND MARGIN MONEY. SINCE THE TRANSA CTIONS ARE WITHOUT TAKING DELIVERY OF COMMODITIES, THEREFORE, IT WOULD NOT FORM PART OF THE ITA NO. 441/M/2011 OM STOCK & COMMODITIES PVT. LTD. 3 SALE TURNOVER. THE LD. AR HAS FURTHER SUBMITTED THA T DURING THE YEAR THE ASSESSEE HAS NOT TAKEN/GIVEN THE DELIVERY OF ANY OF THE COMMODITIES AND ENTIRE TRANSACTIONS WERE MARK-TO-MARK SPECULATIVE T RANSACTION. AS PER THE CONTRACT NOTES, IT IS CLEAR THAT THE ENTIRE TRANSAC TIONS ARE SQUARED AT END OF EACH DAY OR CARRIED FORWARD TO SUBSEQUENT DAY FO R THE SQUARE AND THEREFORE THERE IS NO DELIVERY TAKEN/GIVEN TO OR FR OM MCX EXCHANGE. HAVING EXPLAINED THE FACTS, THE LD. AR OF THE ASSES SEE HAS SUBMITTED THAT THE TRANSACTION ON COMMODITY EXCHANGE WITHOUT PHYSI CAL DELIVERY DOES NOT FORM PART OF TURNOVER FOR THE PURPOSE OF SECTIO N 44AB OF THE ACT. THEREFORE, THE AUTHORITIES BELOW HAVE WRONGLY TAKEN INTO ACCOUNT THE AMOUNT OF THESE TRANSACTIONS AS TURNOVER FOR THE PU RPOSE OF SECTION 44AB. HE HAS RELIED UPON THE FOLLOWING DECISION: BANWARI SITARAM PASARI HUF VS ACIT 29 TAXMANN 137 (PUNE-ITAT) GROWMORE EXPORTS LTD. VS ACIT 72 TTJ 691 (MUM-ITAT) CIT VS GROWMORE EXPORTS LTD. APPEAL NO. 18 TO 20 OF 2001 (MOMBAY-HC) 6. ON THE OTHER HAND, THE LD. DR HAS RELIED UPON TH E ORDERS OF THE AUTHORITIES BELOW. 7. HAVING CONSIDERED THE RIVAL SUBMISSION AND CARE FUL PERUSAL OF RELEVANT RECORD, WE NOTE THAT THE AO HAS TOOK THE S ALES FIGURE AS THE TRANSACTION CARRIED OUT BY THE ASSESSEE ON MCX EXCH ANGE AND ACCORDINGLY INVOKED THE PROVISION OF SECTION 271B FOR VIOLATION OF SECTION 44AB. AS PER THE ASSESSING OFFICER, THE TURNOVER OF THE ASSESSEE WAS MORE THAN ` 40 ITA NO. 441/M/2011 OM STOCK & COMMODITIES PVT. LTD. 4 LACS AS THE LIMIT PRESCRIBED U/S 44AB FOR THE ACCOU NT BEING AUDITED AND THE REPORT OF SUCH AUDIT IN THE PRESCRIBED FORM TO BE FURNISHED BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME U/S 139. TH E ASSESSEE HAS CLEARLY BROUGHT OUT THE FACTS THAT THE ASSESSEES COMPANY I S TRADING IN COMMODITIES DIRECTLY WITH THE MULTI COMMODITY EXCHA NGE OF INDIA LTD. WITHOUT TAKING THE DELIVERY. THE ENTIRE TRANSACTION THROUGH MULTI COMMODITY EXCHANGE WERE MARK-TO-MARK AND WERE SQUAR ED AT THE END OF EACH DAY OR IN CASE OF CARRY FORWARD TO THE SUBSEQU ENT DAY. THEREFORE, ONLY THE NET AMOUNT IS EITHER DEBITED OR CREDITED T O THE ACCOUNT OF THE ASSESSEE AS PER THE CONTRACT NOTES. IN THE CASE OF BANWARI SITARAM PASARI HUF VS ACIT (SUPRA), PUNE BENCH OF THIS TRIBUNAL AS DEALT WITH AN IDENTICAL ISSUE IN PARA 6 & 7 AS UNDER: 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. THE CRUX OF THE CONTROVERSY REVOLVES AROUND AS TO WHETHER TH E ASSESSEE WAS INDEED LIABLE TO GET HIS ACCOUNTS AUDITED U/S 4 4AB OF THE ACT ON THE GROUND THAT ITS TURNOVER FROM THE COMMODITIE S BY BOOKING OF SAUDA WITH COMMODITY EXCHANGE STOOD AT RS. 1,86, 66,488/-? IN THIS CONNECTION, IT IS NOTED THAT THE ASSESSEE IS E NGAGED IN THE BUSINESS OF ON-LINE TRADING OF COMMODITIES AND IN T HIS SPECULATION ACTIVITY, THERE IS NO PHYSICAL DELIVERY OF COMMODIT IES GIVEN OR TAKEN. WHETHER THERE WAS ANY ELEMENT OF TURNOVER I N SUCH ACTIVITY IS THE BONE OF CONTENTION BETWEEN THE ASSESSEE AND THE REVENUE. IN SOMEWHAT SIMILAR SITUATION, OUR CO-ORDINATE BENC H OF MUMBAI TRIBUNAL IN THE CASE OF GROWRNORE EXPORTS LTD. (SUP RA) HAS DEALT WITH REQUIREMENT TO GET THE ACCOUNTS AUDITED U/S 44 AB OF THE ACT. IN THE CASE BEFORE THE MUMBAI BENCH THE ASSESSEE WA S ENGAGED IN THE SPECULATION TRANSACTION OF SALE AND PURCHASE OF UNITS WITHOUT TAKING DELIVERY AND THE ACCOUNT WAS SETTLED BY CREDITING THE DIFFERENCE. THE TRIBUNAL AFTER CONSIDERING SECT ION 18 OF THE SALE OF GOODS ACT 1930 OBSERVED THAT NO PROPERTY IN THE SAID UNITS PASSED ON TO THE ASSESSEE INASMUCH AS THE ASSESSEE NEVER ACQUIRED THE PROPERTY IN THE UNITS AS THE UNITS CON TRACTED TO BE BOUGHT WERE FUTURE UNASCERTAINED GOODS. SIMILARLY, IT COULD NOT PASS ON THE PROPERTY TO THE PARTY TO WHOM THE UNITS WERE CONTRACTED AND THEREFORE, THERE WAS NO SALE OR T URNOVER EFFECTED ITA NO. 441/M/2011 OM STOCK & COMMODITIES PVT. LTD. 5 BY THE ASSESSEE IN THE LEGAL SENSE FOR THE PURPOSES OF GETTING THE ACCOUNTS AUDITED U/S 44AB OF THE ACT 7. IN THE PRESENT CASE ALSO, THE TRANSACTION OF BUY ING AND SELLING OF COMMODITIES IS A SPECULATIVE ACTIVITY WHERE NO PHYS ICAL DELIVERY IS TAKEN OR GIVEN AND IN THIS VIEW OF THE MATTER, FOLL OWING THE PARITY OF REASONING GIVEN IN THE CASE OF GROWMORE EXPORTS LTD. (SUPRA), HEREIN ALSO WE ARE INCLINED TO HOLD THAT THERE WAS NO TURNOVER CONSTITUTED IN THE AMOUNT OF RS. 1,86,66,488/- FOR THE PURPOSES OF CONSIDERING THE LIABILITY OF ASSESSEE TO GET THE AC COUNTS AUDITED U/S 44AB OF THE ACT AND HENCE, THERE WAS NO REQUIRE MENT TO GET THE ACCOUNTS AUDITED U/S 44AB OF THE ACT. THUS, THE PENALTY U/S 271 B IMPOSED BY THE ASSESSING OFFICER IS HEREBY DI RECTED TO BE DELETED. 8. AS IT IS CLEAR FROM THE DECISION OF THE PUNE BEN CH THAT A SIMILAR VIEW WAS TAKEN BY THE BOMBAY BENCHES OF THIS TRIBUNAL IN CASE OF GROWMORE EXPORTS LTD. VS ACIT 78 ITD 95 WHICH HAS BEEN CONFI RMED BY THE HONBLE JURISDICTION HIGH COURT VIDE DECISION DATED 19.12.2 007 AND THE SPEAKING ORDER HAS BEEN PASSED IN THE CONNECTED CASE OF CIT VS HARSH ESTATE PVT. LTD. THE HONBLE HIGH COURT HAS OBSERVED AS UNDER: IN OTHER WORDS THE FINDING BY THE COMMISSIONER (AP PEALS) THAT THE PURCHASE WAS COUPLED WITH DELIVERY HAS BEEN REV ERSED BY THE ORDER OF THE ITAT. NOTHING HAS BEEN BROUGHT TO OUR ATTENTION FROM THE RECORD THAT THE SAID FINDING OF REVERSAL IS PER VERSE WARRANTING THIS COURT TO TAKE A VIEW DIFFERENT FROM THE VIEW T AKEN BY THE TRIBUNAL. WE THEREFORE, PROCEED ON THE FOOTING THAT THOUGH THERE WAS TRANSACTION OF SHARES IT WAS NOT COUPLED WITH D ELIVERY. ONCE THERE WAS NO DELIVERY, THE SALE PRICE OF THE SHARES COULD NOT HAVE BEEN CONSIDERED AS THE TURNOVER BUT ONLY THE DIFFER ENCE BETWEEN THE PRICE AT WHICH THE SHARES WERE PURCHASED AND CO NSEQUENTLY SOLD BY THE BROKER.. CONSIDERING THE FINDINGS ON MERITS NAMELY THAT THER E WAS NO DELIVERY AND CONSEQUENTLY THE SALE PRICES OF THE SH ARES COULD NOT HAVE BEEN CONSIDERED, IT IS NOT NECESSARY TO GO INT O THE OTHER ASPECTS. IN THE LIGHT OF THE ABOVE, WE FIND NO MERI T IN THIS APPEAL WHICH IS ACCORDINGLY DISMISSED. ITA NO. 441/M/2011 OM STOCK & COMMODITIES PVT. LTD. 6 9. IN VIEW OF THE DECISION OF THE TRIBUNAL AS WELL AS HONBLE HIGH COURT WE HOLD THAT THE VALUE OF THE SALE TRANSACTION OF C OMMODITY THROUGH MCX WITHOUT DELIVERY CANNOT BE CONSIDERED AS TURNOVER F OR THE PURPOSED OF SECTION 44AB. ACCORDINGLY, BY FOLLOWING THE DECISIO N OF THIS TRIBUNAL AS WELL AS HONBLE HIGH COURT, WE DELETED PENALTY LEVI ED U/S 271B AS THE TRANSACTIONS CARRIED OUT BY THE ASSESSEE WOULD NOT FALL UNDER THE AMBIT OF TURNOVER FOR THE PURPOSE OF SECTION 44AB. SINCE THE ADDITIONAL GROUND IS DECIDED IN FAVOUR OF THE ASSESSEE THEREFORE THE OTHER GROUNDS RAISED IN THE APPEAL BE COME IN FRUCTUOUS. HENCE WE DO NOT PROPOSE TO DECIDE THE SAME. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 1 0 TH JULY 2013 SD/- SD/- ( ) (SANJAY ARORA) ACCOUNTANT MEMBER ( # ) $ (VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 10 TH JULY 2013 SUBODH COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI