AI Insights
The case involves the Income Tax Department (Revenue) appealing against the order of the Commissioner of Income Tax (Appeals) which had deleted various additions made by the Assessing Officer in the assessment of M/s. Affluence Commodities Pvt. Ltd. for the Assessment Year 2015-16. The additions included unexplained cash, losses booked in penny stocks, and disallowances under section 14A of the Income Tax Act. The Tribunal examined the evidence, including contract notes, ledger accounts, and bank transactions, and found that the assessee had substantiated its claims, leading to the dismissal of the Revenue's appeal.
Appeal Details
Counselvise Citation
[2023] 140 COUNSELVISE.COM (IT) 114271 (ITAT-AHMEDABAD)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 4 month(s) 7 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
23-04-2023
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
C
Next Hearing Date
24-01-2023
Assessment Year
2015-2016
Appeal Filed On
16-12-2020
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “C” BENCH Before: Shri Waseem Ahmed, Accountant Member And Shri T.R. Senthil Kumar, Judicial Member The ACIT, Central Circle-2(3), Ahmedabad (Appellant) Vs M/s. Affluence Commodities Pvt. Ltd. 4 th Floor, A-6, Safal Profitaire, Corporate Road, Prahlad Nagar, Ahmedabad PAN: AAGCA1140A (Respondent) Assessee Represented: Shri Dhinal Shah, Adv. Revenue Represented: Shri A P Singh, CIT-DR Date of hearing : 25-01-2023 Date of pronouncement : 24-04-2023 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:- This appeal is filed by the Revenue as against the appellate order dated 09.10.2020 passed by the Commissioner of Income Tax (Appeals)-13, Ahmedabad, arising out of the assessment order passed under section 143(3) of the Income Tax Act, 1961 ITA No. 593/Ahd/2020 Assessment Year 2015-16 I.T.A No. 593/Ahd/2020 A.Y. 2015-16 Page No ACIT Vs. M/s. Affluence Commodities Pvt. Ltd. 2 (hereinafter referred to as ‘the Act’) relating to the Assessment Year (A.Y) 2015-16. 2. The brief facts of the case is that the assessee is a Pvt. Ltd. Company engaged in the business of shares & securities, commodities, F&O derivatives, etc. For the Assessment Year, 2015- 16, the assessee filed its Return of Income declaring total income of Rs. 1,98,70,620/- which was processed u/s. 143() of the Act. 2.1. There was a search action u/s. 132 of the Act conducted in the case of the assessee as part of Ahmedabad Commodity Traders Group on 18.12.2014. Thereafter assessment u/s. 143(3) was completed determining the total income of Rs. 3,24,07,399/- with addition on account of unexplained cash of Rs. 1,10,989/-, disallowance of losses booked in penny stocks of Rs. 73,12,905/- and disallowance u/s. 14A and Book Profit u/s. 115JB of Rs. 51,12,885/- and demanded tax thereon. 3. Aggrieved against the assessment order, the assessee filed an appeal before Commissioner of Income Tax (Appeals). The Ld. CIT(A) considered the submissions made by the assessee and deleted the additions made by the Assessing Officer as follows: Unexplained CASH: 5.1 From the perusal of assessment order it is seen that the appellant is engaged in the business of shares and securities, commodities, F & O derivatives etc. and that during the year the appellant had carried out transactions through various brokers from NSE/BSE/MCX/NMCE platforms. During the search proceedings at the business premises, cash amounting to Rs.3,93,090/- was found. During the assessment proceedings the appellant had submitted the cash ledger account and had shown its own cash balance of Rs.2,82,101/- on the date of search which included a sum of Rs. 1,50,000/- withdrawn on 17.12.2014. The appellant also submitted cash ledger of its sister concern, M/s. Affluence Shares and I.T.A No. 593/Ahd/2020 A.Y. 2015-16 Page No ACIT Vs. M/s. Affluence Commodities Pvt. Ltd. 3 Stock Brokers Pvt. Ltd.. However the AO treated cash of Rs.2,82,101/- as explained and remaining cash of Rs 1,10,989/- as unexplained which was added to the total income of the appellant u/s.69A. 5.2 It is submitted by the appellant that the status of balance of cash as per cash books as on 17.12.2014 in both the companies were of Rs. 5,59,524/-, that thus the cash found of Rs.3,93,090/- against cash balance as on 17.12.2014 in both the companies of Rs. 5,59,524, stood explained and since cash found is as per books of accounts, the addition of Rs.1,10,989/- requires to be deleted. The veracity of the cash books of the appellant and its sister concern, M/s. Affluence Shares and Stock Brokers Pvt. Ltd. have not been doubted by the AO and that without any stated reason the cash balance of M/s. Affluence Shares and Stock Brokers Pvt. Ltd. has been ignored by the AO This approach of the AO is un-tenable because no plausible explanation of tax payer can be rejected by the revenue without bringing on record cogent material to refute the same. Under the circumstances the addition of Rs.1,10,989/- cannot be upheld. The AO is directed to delete the addition. The related ground succeeds. Losses booked under penny stocks: 5.5 It is submitted by the appellant that it is trader in shares, that it had executed this transactions on online trading platform(s) and it had no control whatsoever on share prices, that it had incurred loss in shares of Alang Industries Gases Ltd. due to market conditions and that, the shares of Kappac Pharma purchased are still with it and they have not been sold till date. It is the case of the appellant that it had proved the genuineness of the transactions by furnishing contract notes and ledgers from books of brokers whereas the AO did not have any proof or corroborative evidence to prove that the appellant had traded in such transactions to book losses for setting off against profits already earned. It is further argued that as the search had taken place at the premises of the assessee company, then the high amount of cash or investment must had been received if the assessee had executed such transaction to book losses whereas no such cash or investments were found. 5.6. The argument of the appellant has strength. The appellant has proved the genuineness of the transactions beyond doubt by furnishing contract notes and ledger accounts from the books of brokers. It is also seen that the assessing officer has disallowed the losses in scripts of Alang Industrial Gases and the valuation of closing stocks in scripts of Kappac Pharma on mere premises and general information from SEBI and the Investigation Wing, Kolkata. The AO does not have any documentary proof which can even indicate that the assessee has actually incurred losses to reduce its profits. The AO has not even established that the scripts of Alang Industrial Gases and Kappac Pharma were penny stocks. Under the circumstances it has to be held that the AO has not even an iota of evidence to question genuineness of the transactions and valuation of I.T.A No. 593/Ahd/2020 A.Y. 2015-16 Page No ACIT Vs. M/s. Affluence Commodities Pvt. Ltd. 4 closing stocks. Further based on the judicial precedents of the jurisdictional High Court and the jurisdictional ITAT relied upon by the appellant, the disallowance of loss of Rs. 73,12,905 /- has to be deleted. The related ground succeeds. Disallowance under section 14A: 5.11 It is seen that the addition of Rs.51,12,885/- by way of disallowance u/s.14A has been made by the AO in a mechanical manner without proper application of mind to the facts of the case and disregarding the decision of jurisdictional ITAT of Ahmedabad and jurisdictional High Court of Gujarat C which have laid down that the disallowance u/s.14A cannot exceed the amount of Income Tax exempt income earned. The contention of the appellant that provisions of Section 14A would not be attracted in the case of traders in shares and securities where the dividend earned is incidental to the trade does not appears to be tenable. In Doubledot Finance Ltd. V. CIT 65 SOT 324, the Mumbai ITAT has held that Sec. 14A is attracted even in case of dividend income arising from shares held as stock in trade. The appellant has also challenged the addition on the ground that the AO did not record any satisfaction for invoking Section 14A which is prerequisite of applying Rule 8D. This argument of the appellant cannot be conceded to as it is the case of the AO that no computation of such disallowance was furnished by the appellant when it was specifically asked for by the AO. However the AO was required to examine whether disallowance u/s 14A could have been made without establishing direct nexus between interest bearing fund applied for share trading/investment activities. In this regard it has been submitted by the appellant that though the shares were classified as investments, it was actually stock in trade and that in the balance sheet the shares should have been reflected as a stock in trade but inspite of that the shares being held as a stock in trade was evidenced from the fact that profit on sale of shares was shown as operating income as profit in trade in shares in the P & L account and there was neither LTCG nor Short Term Capital Gain claimed. This submission of the appellant has to be rejected as dealt before. But the fact remains that but at the same time the appellant has chosen not to deal with the application of interest bearing funds. The appellant is entitled to the benefit of the decision of the jurisdictional ITAT & High Court where under the disallowance u/s. 14A has to be restricted to the exempt income earned. 5.12 Under the circumstances the AO is directed to restrict the disallowance u/s. 14A to the extent of exempt income by way of dividend of Rs.10,56,851/-, but as the appellant has already made self disallowance of Rs.6,20,225/-. The AO is directed to retain further disallowances of Rs.4,36,626/- in place of addition of Rs.51,12,885/- made in the assessment order. The related ground succeeds partly. 5.13 The appellant has also taken a ground that addition of Rs.51,12,885/- should not have been made for the purpose of book profit I.T.A No. 593/Ahd/2020 A.Y. 2015-16 Page No ACIT Vs. M/s. Affluence Commodities Pvt. Ltd. 5 u/s.115JB. In this regard it has been contended that there is no provision in the explanation to the said section for making and adjustment of such expenses. However, I find that section 115JB allows for-increasing of the profit by the amount of expenditure relatable to any income to which section 10 other than clause 38 applies (clause (f) of Explanation 1). However, for its submission reliance has been placed by the appellant on ACIT vs. Vireet Investment P. Ltd. 82 taxmann.com 415 (Delhi SB) and CIT vs. Gujarat State Fertilizers and Chemicals Ltd. 358 ITR 323 (Guj.). In view of the case laws relied upon by the appellant, it is held that the disallowance u/s. 14A could not have been added/adjusted for computation of book profit u/s.115JB. 3. Aggrieved against the Revision order, the Revenue is in appeal before us raising the following Grounds of appeal: 1. On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in deleting the addition of Rs. 1,10,989/- on made by the AO on account of unexplained cash. 2. On the facts and circumstances of the case and in law, the Id. CIT(A) has erred in deleting the addition of Rs.51,12,885/- made on account of disallowance u/s. 14A rwr 8D of the Act. 3. On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred deleting the addition of Rs.73,12,905/- made by the A.O. on account of disallowance of losses booked in penny stock of Rs.73,12,905/- , namely Alang Industries Gases Ltd. and 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the A.O. 5. It is, therefore, prayed that the order of the Ld. CIT(A) be set aside and that of the A.O. be restored to the above extent. 6. This case is covered exception as per CBDT's Circular No.23 of 2019 dated 06/09/2019 read with off Office Memorandum date 16/09/2019 vide F.No.279/Misc./M-93/2018-ITJ(Pt). 4. The Ld. CIT-DR Shri A.P. Singh appearing for the Revenue supported the order passed by the Assessing Officer and requested to uphold the same and allowed the assessee’s appeal. 5. Per contra, Shri Dhinal Shah appearing for the assessee filed before us three volumes of Paper Book in support of its claim I.T.A No. 593/Ahd/2020 A.Y. 2015-16 Page No ACIT Vs. M/s. Affluence Commodities Pvt. Ltd. 6 wherein Contract Note for Purchase and Sale of Shares of Alang Industrial Gases Ltd. and M/s. Kappac Pharma revocation of ban order of SEBI in the case of Kailash Auto Finance Ltd. and various case laws in support of its claim. The Ld. Counsel reiterated the submissions made before Ld. CIT(A) and thus pleaded the appellate order passed by Ld. CIT(A) does not require any interference. And the Revenue appeal is liable to be dismissed. 6. We have given our thoughtful consideration and perused the materials available on record and we dispose of the Revenue appeal by each ground-wise. 6.1. Ground no. 1 deletion of Rs. 1,10,989/- as unexplained cash. The Ld. CIT(A) has recorded the cash balance as per cash books as on 17.12.2014 in both the companies were of Rs.5,59,524/-, the cash found of Rs. 3,93,090/- which is against the cash balance as on 17.12.2014 which stood explained as per the books of accounts. Therefore the addition of Rs. 1,10,989/- requires to be deleted. When the Assessing Officer doubted the cash books of the assessee and its sister concern namely M/s. Affluence Shares and Stock Brokers Pvt. Ltd., the addition made by the A.O. is not sustainable in law. 6.2. The Ld. D.R. appearing for the Revenue could not bring on record any contra statements as observed by the Ld. CIT(A). In the absence of the same, the deletion made by the Ld. CITA) does not require any interference. Thus the ground no. 1 raised by the Revenue is dismissed. I.T.A No. 593/Ahd/2020 A.Y. 2015-16 Page No ACIT Vs. M/s. Affluence Commodities Pvt. Ltd. 7 7. Ground no. 2 namely deletion of addition on account of disallowance made u/s. 14A r.w. Rule 8D of the Act. The Ld. A.O. made addition of Rs. 51,12,885/- by way of disallowance u/s. 14A r.w. Rule 8D. The Ld. CIT(A) after considering the submissions of the assessee held that the disallowance u/s. 14A to the extent of exempt income received by the assessee by way of dividend income of Rs. 10,56,851/- only. However the assessee already made self- disallowance of Rs. 6,20,225/-, the A.O. was directed to retain further disallowance of Rs. 4,36,626/- as against the original disallowance of Rs. 51,12,885/-. 7.1. The Ld. CIT(A) has followed the Jurisdictional ITAT, Ahmedabad judgments and Hon’ble Gujarat High Court in confining the disallowance to the extent of exempt earned by the assessee. 7.2. The Ld. D.R. could not make any contravent statements as against the relief given by the Ld. CIT(A) whereas Ld. A.R. submitted before us relied upon Hon’ble Supreme Court Judgment in the case of Maxopp Investment Pvt. Ltd. and Hon’ble Gujarat High Court judgment in the case of CIT Vs. Gujarat State Fertilizers & Chemicals Ltd. reported in 358 ITR 323 (Guj.). Thus submitted the disallowance made by the A.O. is unjustifiable. 8. We have given our thoughtful consideration and perused the materials available on record. It is now settled principle of law the disallowance made u/s. 14A is restricted to the exempt (dividend) income received by the assessee. I.T.A No. 593/Ahd/2020 A.Y. 2015-16 Page No ACIT Vs. M/s. Affluence Commodities Pvt. Ltd. 8 8.1. Respectfully following the Judgment of the Jurisdictional High Court, we have no hesitation in sustaining the order passed by the Ld. CIT(A), restricting the disallowance to the exempt income of Rs. 10,56,851/- received by the assessee during the financial year. Thus the grounds raised by the Revenue is devoid of merits and liable to be dismissed. 9. The 3 rd ground namely losses booked under penny stocks of Rs. 73,12,905/- on sale of Alang Industrial Gases Ltd. shares. The assessee has proved the genuineness of the transactions beyond doubt by furnishing contract notes, ledger accounts, bank transactions from books of brokers whereas the A.O. without any material evidence disallowed the losses of in scripts of Alang Industrial Gases Ltd. and the valuation of the closing stock in Kappac Pharma just based on the SEBI general information and Investigation Wing, Kolkatta. The A.O. made the disallowance without documentary proof whereas the assessee proved the genuineness of the transactions and established on online trading platforms and it had no control whatsoever on share prices and thus incurred losses in shares of Alang Industrial Gases Ltd. It is the case of the assessee that it sold only part of the shares and remaining shares have been held by the assessee in subsequent assessment year also. Thus following Jurisdictional High Court Judgment, the Ld. CIT(A) deleted the addition. 9.1. The Ld. D.R. could not produce any contra judgments in support of its case, whereas Ld. Counsel for the assessee submitted before us the following case laws: I.T.A No. 593/Ahd/2020 A.Y. 2015-16 Page No ACIT Vs. M/s. Affluence Commodities Pvt. Ltd. 9 (i) CIT V/s. Himani M. Vakil [2014] 41 taxmann.com 425 (Gujarat) (ii) PCIT V/s, Ramniwas Ramjivan Kasat [2017] 82 taxmann.com 458 (Gujarat) (iii) CIT V/s. Maheshchandra G. Vakil [2013] 40 taxmann.com 326 (Gujarat) (iv) Meenadevi N. Gupta V/S, ACIT [2013] 35 taxmann.com 211 (Ahmedabad - Trib.) (v) CIT V/s. Odeon Builders (P.) Ltd. [2019] 110 taxmann.com 64 (SC), (vi) Chandra Prakash Jhunjhunwala in ITA No. 2351/Kol/2017 dated 09- 08-2019 (vii) Shashi Bala Bajaj - ITAT Kolkata in ITA No. 1547/Kol/2018 dated 16- 11-2018 (viii) PCIT V/s. Prem Pal Gandhi 401 ITR 253 (P&H) (ix) PCIT V/s. Dhawani Mahendra Shah - Tax Appeal No. 674/2017 dated 12-09-2017 Gujarat High Court (x) PCIT V/s. Bharati Somchand Shah - Tax Appeal No.1023/2017 dated 22-01-2018 Gujarat High Court (xi) Shantaben Parasmal Jain V/s. DCIT ITAT Ahmedabad in ITA No. 726/Ahd/2017 dated 15-10-2018 10. The Jurisdictional High Court of Gujarat in the case of Himani M. Vakil (cited supra) held as follows: “Assessee filed her return declaring certain amount as short term capital gain arising from sale of shares - Assessing Officer taking a view that share transactions were bogus, added amount of capital gain to assessee's taxable income as unexplained cash credit - Tribunal, however, concluded that genuineness of transactions was duly proved by contract notes for sale and purchase, bank statement of broker, demat Account showing transfer in and out of shares, as also abstract of transactions furnished by CSE - accordingly, addition made by Assessing Officer was deleted - Whether since finding recorded by Tribunal was based on appreciation of material on record, no substantial question of law arose therefrom.” 10.1. In the case of Ramniwas Ramjivan Kasat (cited supra) held as follows: “Assessment year 2006-07- During relevant year, assessee sold certain shares owned by him - Assessing Officer opined that purchase of shares in question itself was bogus and, thus, there was no question of sale of same He thus added amount of sale proceeds of shares to assessee's taxable income Tribunal noted that shares had been purchased in previous assessment year - It was further found that assessment for previous assessment year had I.T.A No. 593/Ahd/2020 A.Y. 2015-16 Page No ACIT Vs. M/s. Affluence Commodities Pvt. Ltd. 10 been taken in scrutiny and in assessment order purchase of shares had been accepted as genuine - Tribunal thus concluded that no addition could be made with aid of section 68 when such shares were sold in relevant assessment year - Whether on facts, impugned order passed by Tribunal did not require any interference.” 10.2. In the case of Maheshchandra G. Vakil (cited supra) held as follows: “Assessment year 2006-07 - Assessee filed return of income declaring certain amount as short term capital gain arising from sale of shares - Assessing Officer framed assessment treating short term capital gain as explained cash credit - Tribunal, however, opined that genuineness of transactions was proved by contract notes for sale and purchase, bank statement of broker, Demat Account Showing transfer in and out of shares, as also abstract of transactions furnished by stock exchange - Accordingly, Tribunal deleted addition made by Assessing Officer - Whether since impugned order of Tribunal was based on appreciation of evidence on record, it did not require any interference.” 11. Respectfully following the above Jurisdictional High Court judgments and also the fact that the assessee is a retaining Kappac Pharma shares as stock-in-trade and the closing stock is valued at the market rate. Since the market rate is lower it has incurred a business loss of Rs. 53,02,455/-, though the shares are not sold. The difference is only because of valuation of shares which is as per the Accounting Standard and the share of Kappac Pharma are still forming part of closing stock of the assessee company as on 31.03.2019. Thus, we have no hesitation in deleting the disallowance made by the A.O. which was correctly deleted by the Ld. CIT(A). Thus the grounds raised by the Revenue is without any basis and the same is liable to be rejected. The remaining ground nos. 4 to 6 are general in nature, which does not require specific adjudication. I.T.A No. 593/Ahd/2020 A.Y. 2015-16 Page No ACIT Vs. M/s. Affluence Commodities Pvt. Ltd. 11 12. In the result, the appeal filed by the Revenue is hereby dismissed. Order pronounced in the open court on 24 -04-2023 Sd/- Sd/- (WASEEM AHMED) (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad : Dated 24/04/2023 आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपीलȣय अͬधकरण, अहमदाबाद
