DCIT CEN CIR 2(3), MUMBAI V. INFOLINK SOLUTIONS P LTD, MUMBAI

ITA 545/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7855 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 04-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUNITA BILLA
• Assessee Lawyers: MANISH V SHAH
• Keywords: Business income; Transactions in derivatives; Speculation loss; Validity of assessment
• Section: 143(3); 142(1); 153A

Judgement Text

1 ITAS 545 547/MUM/2016 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I, MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO. 545/MUM/2016 (ASSESSMENT YEAR: 2007-08) DY.CIT, CENT.CIR.2(3) MUMBAI VS M/S INFOLINK SOLUTIONS PVT LTD 5/1880,SARVODAYA MHB COLONY, KHER COLONY, BANDRA (E), MUMBAI-51 PAN :AAACI9120N APPELLANT RESPONDEDNT I.T.A NO. 547/MUM/2016 (ASSESSMENT YEAR: 2006-07) M/S INFRA ALLIANCE TRADING PVT LTD 610, 10 TH FLOOR, NAVJIVAN COMMERCIAL CHS LTD, LAMINGTON ROAD, MUMBAI CENTRAL, MUMBAI-=400 008 PAN :AAACI5902J VS DY.CIT, CENT.CIR.2(3) MUMBAI APPELLANT RESPONDEDNT REVENUE BY SMT SUNITA BILLA ASSESSEE BY SHRI MANISH V SHAH DATE OF HEARING 27-12 -2017 DATE OF PRONOUNCEMENT -12-2017 O R D E R PER G MANJUNATHA, AM : THESE TWO APPEALS FILED BY THE REVENUE AGAINST SEP ARATE BUT IDENTICAL ORDERS 2 ITAS 545 547/MUM/2016 OF THE CIT(A)-48, MUMBAI DATED 30-11-2015 IN RESPEC T OF TWO DIFFERENT ASSESSES. SINCE FACTS ARE IDENTICAL AND ISSUES ARE COMMON, THESE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON O RDER, FOR THE SAKE OF CONVENIENCE. ITA NO.547/MUM/2016 2. THE REVENUE, IN THIS APPEAL HAS RAISED THE FOLLOWIN G GROUND OF APPEAL:- (I) 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN ANNULLING THE ASSESSMENT U/S . 153C R. WS. 153A WITHOUT APPRECIATING THE FACT THAT THE PRO VISIONS OF THE SAID SECTION AUTHORIZES THE ASSESSING OFFICER TO ASSESS OR REASSESS THE TOTAL INCOME IN RESPECT OF SIX ASSESSMENT YEARS IMM EDIATELY PRECEDING THE ASSESSMENT YEAR RELEVANT TO PREVIOUS YEAR IN WHICH SEARCH IS CONDUCTED OR REQUISITION IS MADE, WITHOUT ANY EXCEPTION.' (II) 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE L CI. CIT(A) ERRED IN NOT DECIDING ON MERITS DI SALLOWANCE OF ADJUSTMENT OF SPECULATION LOSS ON FUTURE AND OPTION S OF RS. 1,03,41,446/- AS BUSINESS LOSS.' 3. THE BRIEF FACTS OF THE CASE ARE THAT A SEARCH AND S EIZURE ACTION U/S 132(1) OF THE I.T. ACT, 1961 HAS TAKEN PLACE IN THE CASE OF G LOBAL TELECOM LTD GROUP, ITS ASSOCIATE CONCERNS, DIRECTORS AND RELATED PERSONS O N 28-09-2010, WHEREIN CERTAIN PAPERS / DOCUMENTS, COMPUTER DATA WERE FOUND AND SE IZED FROM THE PREMISES. THE AO, AFTER ARRIVING AT HIS SATISFACTION WITH REG ARD TO THE OWNERSHIP OF THE DOCUMENTS / COMPUTER DATA, ISSUED NOTICE DATED 19-0 9-2011 U/S 153C OF THE ACT, CALLING FOR A TRUE AND CORRECT RETURN OF INCOME FOR AY 2006-07. IN RESPONSE, THE ASSESSEE FILED ITS RETURN OF INCOME ON 30-11-2011 DECLARING LOSS AT RS.1,05,66,650 WHICH WAS THE SAME AS THAT OF THE RE TURNED LOSS AS PER ORIGINAL 3 ITAS 545 547/MUM/2016 RETURN OF INCOME FILED U/S 139(1) OF THE ACT, ON 16 -11-2006 AND THE ASSESSMENT OF WHICH WAS COMPLETED ON 13-08-2008 U/S 143(3), AC CEPTING THE TOTAL LOSS DECLARED BY THE ASSESSEE. THE CASE HAS BEEN SELECT ED FOR SCRUTINY AND ACCORDINGLY NOTICES U/S 143(2) AND 142(1) OF THE AC T WERE ISSUED. IN RESPONSE TO NOTICES, AUTHORIZED REPRESENTATIVE OF THE ASSESSEE ATTENDED FROM TIME TO TIME AND FILED DETAILS, AS CALLED FOR. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF TRADING IN COMPUTER HARDWARE AND SOFTWARE; HOWEVER, DEBITED F& O LOSS OF RS.3,51,41,247 AND CLAIMED AS SET OFF AGAINST THE BUSINESS INCOME. THE AO, AFTER CONSIDERING RELEVANT FACTS OBSERVED THAT CLAUSE (D) OF PROVISO TO SUB SECTION 5 OF SECTION 43 AS APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDE RATION, TRANSACTIONS IN PURCHASE / SALE OF DERIVATIVES AND SHARES HAVE TO B E CONSIDERED AS SPECULATIVE TRANSACTIONS. THEREFORE, IN VIEW OF THE SAID PROVI SIONS, THE LOSS CLAIMED BY THE ASSESSEE OF RS.3,51,41,247 HAS BEEN TREATED AS SPEC ULATIVE BUSINESS LOSS AND ACCORDINGLY ADDED TO THE INCOME OF THE ASSESSEE. 4. AGGRIEVED BY THE ASSESSMENT ORDER, ASSESSEE PREFERR ED APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), ASSESSEE HAS FILED ADD ITIONAL GROUND CHALLENGING THE VALIDITY OF ASSESSMENT U/S 143(3) R.W.S. 153C O N THE GROUND THAT THE AO HAS MADE ADDITION TOWARDS F&O LOSSES WITHOUT REFERRING TO ANY INCRIMINATING MATERIAL FOUND DURING THE COURSE OF SEARCH. THE CI T(A) FORWARDED ADDITIONAL GROUNDS RAISED BY THE ASSESSEE TO THE AO FOR HIS CO MMENTS. IN RESPONSE, AO VIDE LETTER DATED 26-09-2014 SUBMITTED A REMAND REP ORT AND REITERATED HIS STAND 4 ITAS 545 547/MUM/2016 TAKEN AT THE TIME OF ASSESSMENT THAT THE ADDITION H AS BEEN MADE ON THE BASIS OF SATISFACTION RECORDED AT THE TIME OF ISSUE OF NOTIC E U/S 153C. IN A REJOINDER TO THE REMAND REPORT, ASSESSEE CONTENDED THAT THE SATISFAC TION NOTE DOES NOT REFER TO THE MATERIAL FOUND DURING THE COURSE OF SEARCH AND SEIZ URE. THE MATERIAL FOUND WERE P&L ACCOUNT FOR THE YEAR ENDING 31-03-2010 WHICH WA S ALREADY BEFORE THE AO AT THE TIME OF COMPLETION OF ASSESSMENT U/S 143(3) OF THE ACT. IT WAS FURTHER CONTENDED THAT THE MATERIAL ON THE BASIS OF WHICH T HE DISALLOWANCE IS SO MADE IN THE ASSESSMENT U/S 143(3) R.W.S. 153C OF THE ACT WE RE ALREADY AVAILABLE BEFORE THE AO DURING THE ORIGINAL ASSESSMENT PROCEEDINGS U /S 143(3) OF THE ACT, THEREFORE, IT IS VERY CLEAR THAT NO NEW FRESH DETAI LS WERE AVAILABLE OR DOCUMENTS FOUND DURING THE COURSE OF SEARCH AND HENCE, THE AO CANNOT MAKE ADDITION TOWARDS ITEMS OF INCOME OR LOSS WHICH WERE PART OF ORIGINAL RETURN OF INCOME. IN THIS REGARD, HE RELIED UPON THE DECISION OF ITAT, M UMBAI SPECIAL BENCH IN THE CASE OF ACIT VS ALL CARGO GLOBAL LOGISTICS LTD 137 ITD 287(MUM)(SB). 5. THE CIT(A), AFTER CONSIDERING RELEVANT SUBMISSIONS OF THE ASSESSEE AND ALSO RELYING UPON THE DECISION OF HONBLE BOMBAY HIGH CO URT IN THE CASE OF CONTINENTAL WAREHOUSING CORPORATION LTD VS CIT(2015 ) 374 ITR 645 (BOM) OBSERVED THAT THE ASSESSMENT FOR THE ASSESSMENT YEA R IN QUESTION IS UNABATED AS ON THE DATE OF SEARCH; AS SUCH, THE IMPUGNED ADDITI ON SHOULD NOT HAVE BEEN MADE IN THE ABSENCE OF ANY INCRIMINATING MATERIAL HAVING BEEN FOUND IN THE COURSE OF SEARCH. THE CIT(A) FURTHER OBSERVED THAT THERE IS NOTHING ON RECORD TO SUGGEST THAT ANY MATERIAL WAS FOUND IN THE COURSE OF SEARCH WHICH WOULD SHOW ANY 5 ITAS 545 547/MUM/2016 CONNECTION ON LOSS ON SALE OF SHARES AND F&O WITH T HE SEIZED MATERIAL WHICH IS THE SUBJECT MATTER OF DISPUTE IN ASSESSMENT ORDER. THE RELEVANT PORTION OF THE ORDER OF CIT(A) IS EXTRACTED BELOW:- 4.7 IN THE PRESENT CASE, I FIND THAT THERE IS NOTH ING ON RECORD TO SUGGEST THAT ANY MATERIAL WAS FOUND IN THE COURSE O F SEARCH WHICH WOULD SHOW ANY CONNECTION ON LOSS OF SALE OF SHARE AND F&O WITH THE SEIZED MATERIAL WHICH IS THE SUBJECT MATTER OF DISP UTE IN ASSESSMENT ORDER. NOTHING IS FOUND CONTRARY TO THE STATED POS ITION OF THE ASSESSEE. BE THAT AS IT MAY, I AM NOT PRESENTLY DEALING WITH THE MERITS OF THE EFFICACY OF THE INGREDIENTS OF THE ADDITIONS MADE B Y AO., BUT, I AM ONLY TRYING TO ASCERTAIN AS TO WHETHER ANY INCRIMIN ATING MATERIAL WAS UNEARTHED DURING THE COURSE OF SEARCH WHICH WOULD S HOW THAT THE LOAN WAS NOT GENUINE. IN THE INSTANT CASE THE AO HA S DISALLOWED THE LOSS OF RS,51,41, 245/- ON SALE OF F&O AND SHARES CLAIMED BY ASSESSEE IN ITS P&L ACCOUNT AND THE SAME IS TREATED BY AO AS SPECULATIVE LOSS AND ACCORDINGLY, ADDED TO THE TOTAL INCOME OF THE A SSESSEE. ON THESE ASPECTS, I FIND THAT THERE IS NO MATERIAL REFERRED TO BY THE AO TO SAY THAT ANY INCRIMINATING MATERIAL WAS UNEARTHED DURIN G THE SEARCH. THEREFORE, IN THE FACTUAL BACKGROUND, I DO NOT FIND ANY JUSTIFICATION FOR THE AO TO MAKE THE IMPUGNED ADDITION IN AN ASSE SSMENT FINALIZED U/S 153C OF THE ACT IN THE ABSENCE OF ANY INCRIMINATING MATERIAL HAVING BEEN FOUND DURING THE COURSE OF SEA RCH, QUA THE IMPUGNED LOSS ON SALE OF F&O AND SHARES. I MAY CATE GORICALLY MENTION THAT ON THE DATE OF INITIATION OF SEARCH, Q UA THE A.Y. 200607 UNDER CONSIDERATION, ASSESSMENT WAS NOT PENDING, AN D ACCORDINGLY, THE ASSESSMENTS FOR THIS YEAR DID NOT ABATE IN TERM S OF THE SECOND PROVISO TO SECTION 153A(1) OF THE ACT. THEREFORE, T HE RATIO OF THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CA SE OF CONTINENTAL WAREHOUSING CORPORATION (NHAVA SEVA) (S UPRA) IS CLEARLY ATTRACTED AND THE IMPUGNED ADDITIONS SHOULD NOT HAVE BEEN MADE IN RESPECT OF AN UNABATED ASSESSMENTS WHICH HA D BECOME FINAL IN THE ABSENCE OF ANY INCRIMINATING MATERIAL HAVING BEEN FOUND IN THE COURSE OF SEARCH, QUA THE IMPUGNED ADD ITION OF F&O AND SHARES. THUS, I DIRECT THE AO TO DELETE THE ADDITION OF RS.3,51 ,41 ,247/- AS THE SAME IS BEYOND THE SCO PE AND AMBIT OF AN ASSESSMENT ENVISAGED U/S 153A R.W.S.153C OF THE ACT . ACCORDINGLY, ADDITIONAL GROUNDS ARE ALLOWED. SINCE THES ASSESSMENT PROCEEDINGS HAVE BEEN ANNULLED, ISSUES R AISED IN THE GROUNDS OF APPEAL ARE NOT ADJUDICATED UPON. 6 ITAS 545 547/MUM/2016 6. THE LD.DR SUBMITTED THAT THE LD.CIT(A) ERRED IN ANN ULLING THE ASSESSMENT ORDER U/S 143(3) R.W.S. 153C WITHOUT APPRECIATING T HE FACT THAT THE PROVISIONS OF THE SAID SECTION AUTHORIZES THE AO TO ASSESS OR RE- ASSESS TOTAL INCOME IN RESPECT OF SIX ASSESSMENT YEARS IMMEDIATELY PRECEDING THE A SSESSMENT YEAR RELEVANT TO PREVIOUS YEAR IN WHICH SEARCH IS CONDUCTED OR REQUI SITION IS MADE WITHOUT ANY EXCEPTIONS. THE LD.DR FURTHER SUBMITTED THAT THOUG H THERE IS NO REFERENCE OF ANY SEIZED MATERIAL TO JUSTIFY ADDITION MADE BY THE AO, THE PROVISIONS OF SECTION 153A / 153C DOES NOT REQUIRE ANY SEIZED MATERIAL FO R THE PURPOSE OF ASSESSMENT. THEREFORE, THE CIT(A) WAS ERRED IN DELETING ADDITIO N MADE BY THE AO TOWARDS F&O LOSSES. 7. ON THE OTHER HAND, THE LD.AR FOR THE ASSESSEE STRON GLY SUPPORTED THE ORDER OF CIT(A). THE LD.AR FURTHER SUBMITTED THAT THE AS SESSMENT FOR THE ASSESSMENT YEAR 2006-07 IS CONCLUDED / UNABATED AS ON THE DATE OF SEARCH, WHICH IS EVIDENT FROM THE DATES AND EVENTS THAT THE SEARCH TOOK PLAC E ON 28-09-2010 AND BY THE TIME THE ASSESSMENT FOR THE ASSESSMENT YEAR 2006-07 HAS BEEN COMPLETED U/S 143(3), THEREFORE, THE AO WAS ERRED IN MAKING ADDIT ION TOWARDS F&O LOSSES IN THE ABSENCE OF ANY SEIZED MATERIALS. THE LD.CIT(A) HAS RIGHTLY REFERRED THE JUDGEMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CONTINENTAL WAREHOUSING CORPORATION LTD (SUPRA) WHEREIN IT WAS CLEARLY OBSERVED THAT NO ADDITION CAN BE MADE IN RESPECT OF UNABATED ASSESSM ENTS WHICH HAD BECOME FINAL IN THE ABSENCE OF ANY INCRIMINATING MATERIAL HAVING BEEN FOUND IN THE COURSE OF SEARCH. 7 ITAS 545 547/MUM/2016 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL AVAILABLE ON RECORD. THE ONLY SOLITARY ISSUE THAT CAME UP FOR O UR CONSIDERATION IS WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE AO WAS JUSTIFIED IN MAKING ADDITION TOWARDS F&O LOSSES IN THE ABSENCE OF ANY INCRIMINAT ING MATERIAL FOUND AS A RESULT OF SEARCH IN THE ASSESSMENT COMPLETED U/S 14 3(3) R.W.S. 153C OF THE INCOME-TAX ACT, 1961. THE ISSUE IS NO LONGER RES I NTEGRA. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CONTINENTAL WAREHOUSING C ORPORATION LTD VS CIT (SUPRA) OBSERVED THAT IN RESPECT OF AN UNABATED ASS ESSMENT WHICH HAD BECOME FINAL, NO ADDITION CAN BE MADE IN THE ABSENCE OF AN Y INCRIMINATING MATERIAL FOUND AS A RESULT OF SEARCH. THE ITAT, MUMBAI SPEC IAL BENCH IN THE CASE OF ALL CARGO GLOBAL LOGISTICS LTD VS ACIT (SUPRA) OBSERVED THAT NO ADDITION CAN BE MADE IN THE ASSESSMENT FRAMED U/S 143(3) R.W.S. 153 A IN THE ABSENCE OF ANY INCRIMINATING MATERIAL. IN THIS CASE, THE SEARCH T OOK PLACE ON 28-09-2010. THE ASSESSMENT FOR THE ASSESSMENT YEAR IN QUESTION HAS BEEN COMPLETED U/S 143(3) ON 13-08-2008. AS ON THE DATE OF SEARCH THE ASSESSMEN T YEAR IN QUESTION WAS UNABATED. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT NO ADDITION CAN BE MADE IN RESPECT OF UNABATED / CONCLUDED ASSESSMENTS IN THE ABSENCE OF ANY INCRIMINATING MATERIAL FOUND AS A RESULT OF SEARCH. IN THIS CASE, THE ADDITION MADE BY THE AO IS BASED ON FINANCIAL STATEMENTS FIL ED BY THE ASSESSEE ALONG WITH REGULAR RETURNS OF INCOME. THIS FACT HAS BEEN ACCE PTED BY THE LD.DR. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE A O WAS ERRED IN MAKING ADDITION TOWARDS F&O LOSSES WITHOUT ANY REFERENCE T O SEIZED MATERIAL FOUND AS A