MONISHA ARUN SHETH, MUMBAI V. ACIT CEN CIR 42), MUMBAI

ITA 6221/MUM/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3983 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 24-12-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 16-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P SINGH
• Keywords: Transactions in derivatives; Reasonable cause; Ignorance of law; Futures and options

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE S/SHRI B.R.MITTAL,(JM) AND SANJAY ARORA (AM) . . , , & ./I.T.A. NO.6221/MUM/2010 ( / ASSESSMENT YEAR:2004-05) MONISHA A RUN SHETH SADHANA HOUSE, 3 RD FLOOR, 570 P.B. MARG, BEHIND MAHINDRA TOWERS, WORLI, MUMBAI-400018 / VS. ASSTT.COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-42, AYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 ./ ./PAN/GIR NO. : ABNPS1801M ( / APPELLANT) .. ( / RESPONDENT) / APPELLANT BY : SHRI KIRAN MEHTA /RESPONDENT BY : SHRI O.P.SINGH ' / DATE OF HEARING : 24.7.2013 ' /DATE OF PRONOUNCEMENT : 24.07.2013 / O R D E R PER B.R.MITTAL, JM: ASSESSEE HAS FILED THIS APPEAL FOR ASSESSMENT YEA R 2004-05 DISPUTING THE ORDER OF LD.CIT(A) DATED 7.5.2013 CONFIRMING THE LEVY OF PENALTY U/S 271B OF THE INCOME TAX ACT, 1961 (THE ACT) AMOUNTING TO RS.71,659/-. 2. AT THE TIME OF HEARING, LD. AR SUBMITTED THAT THE S AID PENALTY HAS BEEN LEVIED CONSIDERING THE FACT THAT THE TURNOVER OF TH E BUSINESS OF THE ASSESSEE OF DEALING IN SHARES AND DERIVATIVES WAS MORE THAN RS.40,00,000/ - AND SINCE THERE WAS VIOLATION ON THE PART OF THE ASSESSEE TO GET THE ACCOUNTS AUDITED AS REQUIRED BY THE PROV ISIONS OF SECTION 44AB OF THE ACT AND THEREFORE PENALTY WAS LEVIED U/S 271B OF THE ACT. LD. AR SUBMITTED THAT SIMILAR ISSUE HAS BEEN CONSIDERED BY THE MUMBAI BENCH OF THE TRIBUNAL IN ASSESSEES RELATIVE CASE IN SMT.LINA DHIREN SHETH V/S ACIT IN ITA NO.6222/MUM/2010(AY-2004-05) DATED 3.4.2013 AND THE TRIBUNAL AFTER CONSIDERING THE I.T.A. NO.6221/MUM/2010 2 SUBMISSIONS OF THE ASSESSEE HAS RESTORED THE MATTER TO THE FILE OF AO TO VERIFY THAT THE TRANSACTIONS IN THE DERIVATIVES ARE SETTLED WITHO UT TAKING OR GIVING DELIVERY AND IF THE DIFFERENCE IS ONLY TAKEN, THE TOTAL OF TURNOVER I S LESS THAN RS.40,00,000/- OF THE ASSESSEE AND THE ASSESSEE IS NOT REQUIRED TO GET HE R ACCOUNT AUDITED. THE LD.AR ALSO FILED A COPY OF THE ORDER OF THE TRIBUNAL (SUPRA) T O SUPPORT HIS SUBMISSIONS. LD. DR HAS NOT DISPUTED THE SUBMISSIONS OF LD.AR , SAVE AND EXCEPT RELYING ON THE ORDER OF THE LD.CIT(A). 3. WE HAVE CONSIDERED THE SUBMISSIONS OF THE ASSESSEE AND THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE ORDER OF THE TRIBU NAL DATED 3.4.2013 (SUPRA). WE AGREE THAT THE FACTS IN THE CASE OF THE ASSESSEE ARE IDENTICAL TO THE FACTS IN THE A BOVE CASE (SUPRA) CONSIDERED BY THE TRIBUNAL. WE OBSERVE TH AT THE TRIBUNAL AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE THAT TOTAL TRANSACTIONS IN RESPECT OF DERIVATIVES SHOULD NOT BE CONSIDERED A S TURNOVER FOR THE PURPOSE OF CONSIDERING THE LIAB ILITY OF ASSESSEE TO GET ACCOUNTS AUDITED U/S 44AB OF THE ACT, B Y CONSIDERING THE DECISION OF PUNE BENCH OF THE TRIBUNAL IN THE CASE OF BANWARI SITARAM PASARI (H UF) V/S ACIT (2013) 140 ITD 320 (PUNE). W E OBSERVE THAT THE TRIBUNAL HAS RESTORED THE MATTER TO THE AO FOR LIMITED PURPOSE OF VERIFYING THE STAND OF THE ASSESSEE FRO M THE RELEVANT RECORD THAT THE TRANSACTIONS IN THE DERIVATIVES ARE SETTLED WITHOUT TAKING OR GIVING DELIVERY AND DECIDE THE MATTER IN THE LIGHT OF THE SAID DECISION OF THE PUNE BEN CH OF THE TRIBUNAL (SUPRA) AS WELL AS THE GUIDANCE NOTE ISSUED BY ICAI, THE REFE RENCE OF WHICH HAS BEEN GIVEN BY THE TRIBUNAL IN PARA 2 OF THE SAID ORDER. WE CONSIDER IT PRUDENT TO REPRODU CE PARA 2 TO 6 OF THE SAID ORDER WHICH READ AS UNDER : 2. THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDUAL W HO IS ENGAGED IN THE BUSINESS OF DEALING IN SHARES AND DERIVATIVES. ACCO RDING TO THE A.O., THE TURNOVER OF THE SAID BUSINESS FOR THE YEAR UNDER CONSIDERATI ON WAS MORE THAN RS. 40 LACS AND SINCE THERE WAS A FAILURE ON THE PART OF THE AS SESSEE TO GET THE ACCOUNTS AUDITED AS REQUIRED BY THE PROVISIONS OF SECTION 44 AB OF THE ACT, SHE WAS LIABLE TO PENALTY U/S 271B OF THE ACT. THE A.O., THEREFORE , ISSUED SHOW CA USE NOTICE TO THE ASSESSEE IN REPLY TO WHICH THE FOLLOWING SUBMISSIONS WERE MADE BY THE ASSESSEE :- TOTAL INCOME OF OUR CLIENT FOR THE SAID YEAR INTER LAID INCLUDES INCOME FROM DERIVATIVE TRANSACTIONS. WHICH HAS BEEN SHOWN AND ASSESSED AS SPECULATION BUS INESS INCOME. THE CONTENTIONS ISSUE RELATES TO THE MANNER IN WHICH FOREVER OF DERIVATIVES TRANSACTIONS NEEDS TO BE COMPUTED FOR THE PURPOSE OF DETERMINING WHETHER FOR AUDIT U/S. 44AB IS REQUIRED UNDER THE PRESENT REGULATIONS IF IS NOT POSSIBLE TO SETTLE DE RIVATIVE TRANSACTION BY DELIVERY AND ARE COMPULSORILY SETTLE IN CASH. HAVIN G REGARD TO THE I.T.A. NO.6221/MUM/2010 3 PECULATOR CHARACTERISTIC OF DERIVATIVE FROURSACHINS (WHICH ARE SIMILAR IN NATURE TO THAT OF SPECIALTIES TRANSACTIONS), WE BRAMBLY SUBMIT THAT WHAT IS RELEVANT FOR TH E PURPOSE OF COMPUTING THE TURN OVER LIMIT OF RS. 4 O LACS IS THE AGGREGATE RECEIVED/PAID. IT WOULD BE FALLACIOUS TO CONSIDER AGGREGATE SALES VALUE OF SUCH TRANSACTION FOR THE SAID PURPOS E. OF GUIDANCE NOTE ON TAX AUDIT U/S 44AB PUBLISHED B Y THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI) INTERLAID SPECIFIES THE MANNER OF COMPUTING TURNOVER IN THE CASE DERIVATIVE FROM SECT IONS. WE ENCLOSE HEREWITH RELEVANT EXTRACTS FROM THE SAID GUIDANCE N OTE. IT MAY BE SEEN THAT IT CORROBORATES OUR VIEW ON THIS ISSUE. IT MAY BE APPRECIATED THAT FURTHER CANNOT BE ANY PE NALTY FOR HOLDING A VIEW, WHICH IS SUPPORTED BY ICAI. WE MAY ALSO ADD T HAT TO THE BEST OF OUR KNOWLEDGE CBDT HAS NOT SO FAR ISSUED ANY CIRCUL AR DISAPPROVING THE AFORESAID VIEW OF ICAI OR GIVING CONTRARY VIEW ON T HIS ISSUE. THE ASSESSEE ALSO HIGHLIGHTED THE RELEVANT PORTION OF GUIDANCE NOTE ISSUED BY THE ICAI AND RELIED UPON BY HER, WHICH IS AS UNDER: DERIVATIVES, FUTURES AND OPTIONS: SUCH TRANSACTION S ARE COMPLETED WITHOUT THE DELIVERY OF SHARES OR SECURITIES. THESE ARE ALSO SQUARED UP BY PAYMENT OF DIFFERENCES. THE CONTRACT NOTES ARE ISSU ED FOR THE FULL VALUE OF THE ASSET PURCHASED OR SOLD BUT ENTRIES IN THE BOOKS OF ACCOUNTS ARE MADE ONLY FOR THE DIFFERENCES. THE TRANSACTIONS MAY BE SQUARED U P ANY TIME ON OR BEFORE THE STRIKING DATE. THE BUYER OF THE OPTION PAYS THE PREMIA. THE TURNOVER IN SUCH TYPES OF TRANSACTIONS IS TO BE DETERMINED AS FOLLOWS: (I) THE TOTAL OF FAVORABLE AND UNFAVOURABLE DIFFERENCES SHALL BE TAKEN AS TURNOVER, (II) PREMIUM RECEIVED ON SALE OF OPTIONS IS ALSO TO BE I NCLUDED IN TURNOVER. (III) IN RESPECT OF ANY REVERSE TRADES ENTERED , THE DIFFERENCE THEREON, SHOULD ALSO FORM PART OF THE TU RNOVER. 3. THE ABOVE SUBMISSIONS MADE BY THE ASSESSEE WERE NOT FOUND ACCEPTABLE BY THE A.O. ACCORDING TO HIM, THE GUIDANCE NOTE ISS UED BY THE ICAI WAS APPLICABLE TO THE TRANSACTIONS OF DERIVATIVES, FUTU RES & OPTIONS WHERE NO DELIVERY OF SHARES AND SECURITIES IS TAKEN. IN THIS REGARD, HE FOUND THAT THERE WAS A TIME GAP OF MORE THAN TWO DAYS IN THE PURCHASE AND SALE OF S HARES AND SECURITIES IN MOST OF THE TRANSACTIONS ENTERED INTO DURING THE YEAR UNDER CONSIDERATION. HE THEREFORE HELD THAT THE SAID TRANSACTIONS COULD NOT BE SAID TO BE COVERED BY THE GUIDANCE NOTE PUBLISH ED BY ICAI AND SINCE THE TOTAL TURNOVER OF THE TRAN SACTIONS OF THE ASSESSEE INVOLVED IN THE SHARES & SECURITIES WAS RS. 1,56,79,725/- , THE A.O. IMPOSED PENALTY OF RS.78,399/- U/S 271B OF THE ACT BEING 0.5% OF THE TOTAL TURNOVER. 4. THE PENALTY IMPOSED BY THE A.O. WAS CHALL ENGED BY THE ASSESSEE IN AN APPEAL BEFORE THE LD. CIT(A) AND THE SUBMISSIONS MA DE BEFORE THE A.O. WERE I.T.A. NO.6221/MUM/2010 4 REITERATED ON BEHALF OF THE ASSESSEE BEFORE THE LD. CIT(A). THE SAME, HOWEVER, DID NOT FIND FAVOUR WITH THE LD. CIT(A) WHO CONFI RMED THE PENALTY IMPOSED BY THE A.O. FOR THE FOLLOWING REASONS GIVEN IN PARA 4 OF H IS IMPUGNED ORDER:- 4. DURING APPEAL PROCEEDINGS WRITTEN SUBMISSIONS H AVE BEEN FILED. THE APPELLANT HAS ALSO FILED COPY OF INSTITUTE GUIDELIN ES. IN FACT THE ASSESSING OF FICER HAS QUOTED THE RELEVANT PORTIONS OF THE GUIDE LINES. IT CAN BE SEEN THAT IN CASE OF DELIVERY BASED TRANSACTIONS THE TOT AL VALUE OF SALE OR PURCHASE HAS TO BE TAKEN FOR DETERMINING TURNOVER F OR THE PURPOSES OF SECTION 44AB. THE ASSESSING OFFICER HAS AL SO GIVEN A FINDING THAT ACCORDING TO THE DETAILS OF TRANSACTIONS FILED THER E IS A GAP OF MORE THAN TWO DAYS BETWEEN THE PURCHASE AND SALE ENTRIES. THEREFORE THE ASSESSING OFFICER HELD THAT THEY ARE DELIVERY BASED TRANSACTIONS. I FIND THAT THE CONCLUSION OF THE ASSESSING OFFICER IS CORRECT AND THE RELEVAN T TRANSACTIONS ARE TO BE INCLUDED FOR THE PURPOSES OF TURNOVER. ACCORDINGLY THE LEVY OF PENALTY HAS BEEN CORRECTLY DONE. COMING TO THE ARGUMENT OF THE ASSESSEE THAT THERE WAS REASONABLE CAUSE FOR NO T CARR YING OUT AUDIT, IGNORANCE OF LAW CANNOT BE TAKEN AS REASONABLE CAUS E. THEREFORE THE LEVY OF PENALTY IS UPHELD AND THIS GROUND OF APPEAL IS D ISMISSED. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSES SEE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD TH E ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IN THE CASE OF BANWARI SITARAM PASARI HUF VS. ACIT (2013) 140 ITD 320 (PUNE) CITED BY THE LD. COUNSEL FOR THE ASSESSEE, THE PUNE BENCH OF THIS TRIBUNAL HAS HELD THAT WHERE THE ASSESSEE WAS ENGAGED IN THE ONLINE BUYING AND SELLING OF COMMODITIES THR OUGH A COMMODITY EXCHANGE AS A SPECULATIVE ACTIVITY, WITHOUT TAKING OR GIVING PHYSICAL DELIVERY, TOTAL TRANSACTIONS BOOKED WITH SUCH COMMODITY EXCHANGE CO ULD NOT BE CONSIDERE D AS TURNOVER FOR THE PURPOSES OF CONSIDERING LIABILIT Y OF ASSESSEE TO GET ACCOUNTS AUDITED U/S 44AB OF THE ACT. THE GUIDANCE NOTE ISSUED BY THE ICAI HAS ALSO CLARIFIED THIS POSITION WHICH IS NOT DISPUTED EVEN BY THE A.O. THE A.O., HO WEVER, HAS NOT ACCEPTED THE STAND OF THE ASSESSEE BASED ON THE SAID GUIDANCE NOTE ON THE PRESUMPTION THAT THERE BEING A TIME GAP OF MORE THAN TWO DAYS IN RESPECT OF MOST OF THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES AND SEC URITIES, IT WAS NOT A CASE OF SETTLEMENT OF TRANSACTIONS WITHOUT TAKING OR GIVING DELIVERY. IN THIS REGARD, THE LD. COUNSEL FOR THE ASSESSEE HAS FURNIS HED BEFORE US THE DETAILS OF DERIVATIVE TRANSACTIONS UNDERTAKEN DURING THE YEAR UNDER CONSIDERATION AND SUBMITTED THAT ALTHOUGH THERE WAS SOME TIME GAP I N THE PURCHASE AND CORRESPONDING SALES, THE TRANSACTIONS WERE FINALLY SETTLED WITHOUT TAKING OR GIVING THE DELIVERY. 6. THE LD. D.R., HAS ACCEPTED IN PRINCIPLE THAT IF THE TRANSACTIONS ARE SETTLED WITHOUT TAKING OR GIVING DELIVERY, ONLY THE DIFFERE NC E AMOUNT SHOULD BE CONSIDERED AS TURNOVER. HE, HOWEVER, HAS SUBMITTED THAT THE A.O. MAY BE GIVEN AN OPPORTUNITY TO VERIFY THE STAND OF THE ASSESSEE THAT ALL THE RELEVANT TRANSACTIONS OF DERIVATIVES ARE FINALLY SETTLED WIT HOUT TAKING OR GIVING DELIVERY AS C LAIMED BY THE LD. COUNSEL FOR THE ASSESSEE ON THE B ASIS OF THE RELEVANT DETAILS FURNISHED BEFORE THE TRIBUNAL. ACCORDINGLY THE IMPUGNED ORDER OF THE LD. CIT(A) IS SET ASIDE AND THE MATTER IS RESTORED TO THE FILE OF THE A.O. FOR THE LIMITED I.T.A. NO.6221/MUM/2010 5 PURPOSE OF VERI FYING THE STAND OF THE ASSESSEE FROM THE RELEVANT R ECORD THAT THE TRANSACTIONS IN THE DERIVATIVES ARE SETTLED WITHOUT TAKING OR GIVING DELIVERY AND DECIDE THE MATTER IN THE LIGHT OF THE DECISION OF P UNE BENCH OF THIS TRIBUNAL IN THE CASE OF BANWARI SITARAM PASARI HUF (SUPRA) AS WELL AS THE GUIDANCE NOTE ISSUED BY THE ICAI 4. IN VIEW OF THE ORDER OF CO- ORDINATE BENCH OF THE TRIBUNAL (SUPRA) WE RESTORE THE MATTER TO THE AO FOR THE LIMITED PURPOSES OF VE RIFYING THE STAND OF THE ASSESSEE THAT THE TR ANSACTIONS IN THE DERIVATIVES ARE SETTLED WITHOUT TAKING OR GIVING DELIVERY AND ACCORDINGLY DECIDE THE MATTER . HENCE, GROUND OF APPEAL TAKEN BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 5. IN THE RESULT, FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH JULY, 2013 . ' ) * 24TH, 2013 SD SD ( /SANJAY ARORA) ( . . / /B.R.MITTAL) / ACCOUNTANT MEMBER ' / JUDICIAL MEMBER MUMBAI; * DATED 24/ 07/2013 . . ./ PARIDA , SR. PS * +, -, / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. 0 ( ) / THE CIT(A)- 4. 0 / CIT 5. 1 3 , ' 3 , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) , / ITAT, MUMBAI