M/S.PRISM SHARE TRADING PRIVATE LIMITED , MUMBAI V. INCOME TAX OFFICER WARD 13(1)(4), MUMBAI

ITA 6466/MUM/2018

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 8200 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 11-11-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Business income; Transactions in derivatives; Deemed to accrue or arise in india; Cost of acquisition; Speculative transactions
• Section: 68; 143(3); 143(2)

Judgement Text

ITA No.6466/Mum/2018 AY. 2014-15 Prism Share Trading Services Pvt. Ltd. Vs. ITO-13(1)-4 1 IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, MUMBAI BEFORE SHRI AMARJIT SINGH, ACCOUNTANT MEMBER & MS. KAVITHA RAJAGOPAL, JUDICIAL MEMBER ITA No.6466/Mum/2018 (A.Y. 2014-15) Prism Share Trading Services Private Limited 1 st Floor, 24B Khatau Building, A.D. Mody Marg, Fort, Mumbai – 400001 Vs. ITO-13(1)-4 Room No.216B, 2 nd Floor, Aayakar Bhavan, M.K. Road, Mumbai- 400020 स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: AAECP4061D Appellant .. Respondent Appellant by : None Respondent by : Ms. Shreekala Pardeshi Date of Hearing 27.07.2022 Date of Pronouncement 12.08.2022 आदेश / O R D E R Per Amarjit Singh (AM): The present appeal filed by the assessee is directed against the order passed by the ld. CIT(A)-21, Mumbai, which in turn arises from the order passed by the A.O u/s 143(3) of the Act for A.Y.2014-15. The assessee has raised the following grounds before us: “1. On the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the addition of Rs.1,09,53,898/- u/s 68 of Income Tax Act on off market commodity transactions in silver. ITA No.6466/Mum/2018 AY. 2014-15 Prism Share Trading Services Pvt. Ltd. Vs. ITO-13(1)-4 2 2. On the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the addition of Rs.1,09,53,898 u/s 68 on the basis of improper assumption of facts- (a) The learned CIT(A) has assumed that there were 49 transactions of purchase and sale of silver on 05.12.2013 within a span of few hours, resulting in profit of Rs.1,09,53,898/-, whereas the transactions in silver were actually made from August 2013 to November 2013. (b) The learned CIT (A) has wrongly assumed that the transactions in silver trading were squared up at the end of the day and no payments were made. 3. On the facts and circumstances of the case and in law, the learned CIT (A) erred in referring to the profit of Rs.23,25,447/- in share trading of Risa International Ltd [Ground No. 3 of appeal before the CIT(A)], which has no bearing on the profit of Rs.1,09,53,898/ from commodity transactions in silver. 4. On the facts and circumstances of the case and in law, the learned CIT (A) erred in not allowing set off of business loss in F&O transaction of Rs.1,05,44,428/- against the income of Rs.1,09,53,898/- from off market commodity transactions in sliver assessed u/s 68. The appellant seeks leave to add, modify, or delete any ground (s) of appeal.” 2. This case was listed for hearing on 11 occasions but no one attended from the side of the assessee during the course of appellate proceedings before us, therefore the case is adjudicated after hearing the ld. D.R. and considering the material available on record. 3. The fact in brief is that return of income declaring total income at Rs.8,43,450/- was filed on 26.11.2014. The case was subject to scrutiny assessment and notice u/s 143(2) was issued on 31.08.2015. The assessment u/s 143(3) of the Act was finalized on 29.12.2016 and total income of the assessee was assessed at Rs.1,41,07,767/-. The further relevant facts are discussed while adjudicating the ground of appeal filed by the assessee as under: ITA No.6466/Mum/2018 AY. 2014-15 Prism Share Trading Services Pvt. Ltd. Vs. ITO-13(1)-4 3 (i) Ground No.1: confirming the addition of Rs.1,09,53,898/- u/s 68 of the Act: 4. During the course of assessment the A.O noticed that assessee carried out commodity transaction during the year under consideration and made a profit of Rs.1,09,53,898/-, through broker M/s Keynet Commodities Pvt. Ltd. which was the sister concern of the assessee concern. The assessee had claimed to have made a gain of Rs.1,09,38,870/- in the business of trading in commodities. On further verification the A.O noticed that assessee has made a transaction on MCX Exchange and dealt in Silver. On verification the MCX reported that assessee has not traded in any commodity. Consequently, the A.O has treated the transactions as unexplained cash credit and added to the total income of the assessee u/s 68 of the Act. 5. The assessee filed appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee. The relevant part of the decision of CIT(A) is reproduced as under: “I have considered the facts of the casa and submissions made by the appellant. It appears from the records that assessee had entered into 49 transactions of purchase and sale of silver on 5th December 2013 within a span of few hours through its associate concern and broker Kaynet Commodities and earned profits of Rs 1,09,53,898 at the end of the day. This was the only transaction in silver commodity trading made by the assessee which resulted in bumper profits of Rs 1,09,53,898/- to the assessee and yet the assessee did not carry out any similar 'commodity trading transactions later on and had not carried out such transactions earlier. Moreover, prima facie, the assessee did not make any payments for the same since all the transactions in silver commodity trading were squared up at the end of the day! Further inquiries by the AO with the MCX revealed that 'assessee's broker and associate M/s. Kaynet had not carried out these transactions through MCX and these commodities turned out to be bogus transactions wherein the assessee had purchased 'profits through its associate M/s. Kaynet AO issued show cause notice and treated the profits of Rs.1,09,33,870/- as unexplained cash credits u/s. 68 of the IT Act 1961 and taxed it as it is under I.T Act 1961 ITA No.6466/Mum/2018 AY. 2014-15 Prism Share Trading Services Pvt. Ltd. Vs. ITO-13(1)-4 4 6.2 The bills Issued by Kaynet were perused and it appears therefrom that there are buy and sell transactions in silver within minutes of each trade directions with price fluctuations ranging between Rs.5,000/- per kg to Rs.7,000/ reverse per kg, and such wide fluctuations appear to be manipulated ones since such wide fluctuations were not noticed in the silver trade exchange market as per information available on internet. Moreover, it defies logic that assessee after making bumper profits of Rs.1,09,53,899/- withdrew from commodity silver trading and never traded during the remaining four months, whereas, it continued to trade vigorously and continuously in "foreign exchange trade and share market trade through F&O options trading wherein it is claimed to have incurred heavy losses: Not only that assessee has also indulged in trading in 'penny stock trading "by purchasing 163364 shares of unknown company Risa International Limited for a total consideration of Rs.9,84,90.001/- by daily trading in shares of Risa from September 2013 till the end of March 2014 and forgot to offer 'profits of Rs.23,25,447/- in share trading of shares of Risa as its income which was detected by the AO. Thus it is quite clear from the records that the profits of Rs.1,09,53,898/- represent unexplained income' of the income u/s 68 of the IT Act 1961 and was taxable as such. This income of Rs. 1,09,53,698/- was made through convoluted transactions through its associate concern and the so called purchases claimed to have been made through Sneha Metals are bogus and it is possible that Sneha Metals had 'purchased losses of Rs.1,09,53,898/- through Kaynet to set off the same against its profits. In nutshell, the 'profits of Rs.1,09,53,898/- represent 'unexplained cash credits' within the meaning of its under section 68 of the IT Act 1961 and it shall be taxed as such under the I.T. Act, 1961. Assessee on ground no. 1 is rejected in facts and in law.” 6. After the hearing of the ld. D.R and perusal of material on record it is noticed that assessee has entered into 49 transactions of purchase and sale of silver on 05.12.2013 within a span of few hours through its associate concern and broker Kaynet Commodities and earned profit of Rs.1,09,53,898/- at the end of the day as elaborated in the finding of the ld. CIT(A). The A.O has also made inquiries from the MCX Exchange and found that assessee’s broker had not carried out these transaction through MCX and further from the bills issued by the broker it was also noticed that there was buying and selling transaction in silver within minutes of each trade reverse directions with price fluctuation ranging between Rs.5000/- per kg to Rs.7000/- per kg and such fluctuation was appeared to be manipulated. After considering the material fact that transaction was not made through MCX and the detail finding of the ld. ITA No.6466/Mum/2018 AY. 2014-15 Prism Share Trading Services Pvt. Ltd. Vs. ITO-13(1)-4 5 CIT(A), we don’t find any infirmity in the decision of ld. CIT(A), therefore, this ground nos. 1 & 2 of the assessee stand dismissed. (ii) Ground No. 3: Error in referring to the profit of Rs.23,25,447/- in share trading of Risa International Ltd: 7. During the course of assessment the A.O noticed that during the year under consideration the assessee company has made transaction of buying and selling of shares with respect of M/s Risa international Ltd. On perusal of the transaction it was noticed that assessee had made profit of Rs.23,25,477/- however, from the ITR detail it was noticed that assessee had offered income of Rs.26,153/- only. On query the authorized representative of the assessee stated that there was no data available to verify the same and agreed for adding the same to the total income. Therefore, the same was added u/s 68 to the total income of the assessee company. 8. Aggrieved, the assessee filed the appeal before the ld. CIT(A).The ld. CIT(A) has dismissed the appeal of the assessee. The relevant part of the decision is reproduced as under: “I have considered the facts of the case and submissions of the appellant This ground is relating to the taxability of income of Rs.23,25,447/- by way of profits on sale of 10000 shares of Risa International is taken up first. Assessee had offered an income of Rs.20.153/ as business income from sale of 10000 shares of Rise International out of 163364 purchased by it during the year and the AO detected this evasion of Income of Rs 23,25,447/- (103340187 minus 6014740) and taxed the samo as cash credits under section 68 of the I.T. Act, 1991. 14.2 Details furnished by the assessee reveal that assessee sold the shares of Risa Intl first in August 2013 in lots and then started selling the same in January 2014 in odd lots of 1, 56,20,50 and 100 and made profits of Rs.23,25,447/- and continued to carry forward the balance lot of 147384 (163304 minus 16000) as closing stock of shares in books of accounts which were not available with it at all. Moreover, the series of transactions on the date of sale show that assessoo and its broker Keynote Capital was selling shares almost every minute on 13/14/16/17-1 2014. Prima facie, these were speculative transactions in shares ITA No.6466/Mum/2018 AY. 2014-15 Prism Share Trading Services Pvt. Ltd. Vs. ITO-13(1)-4 6 of Risa Intl and hence the profit on sale of these shares was nothing but 'speculation business Income taxable as such. AO's contention to tax the same as cash credits u/s. 68 of the I.T. Act, 1961 appears to be a far fetched one and hence the same is rejected. Another contention raised by the assessee is that purchase price of 10000 shares should be averaged out to Rs.85,23,598/- as against Rs.80,14,740/- adopted by the AO. There is merit in the contention of the assessee since purchase of shares of Risa International was continued after August 2013 but before the date of sale on 13/1/2014 and hence it is reasonable to adopt the average purchase price of Rs.532.72 per share for 16000 shares at Rs.85,23,598/- as worked out by the assessee as follows: "As mentioned above, the shares have boon sold from 13.01.2014 to 17.01.2014. Till the date of sale, the Appellant had purchased 1,43,214 shares of Risa International Ltd. for consideration of Rs.7,62,93,659. Thus, the average cost of shares will amount to Rs. 532.72 per share. Applying the said average cost to 16,000 shares, cost of 16000 shares would work out to Rs.85,23,598. Thus, taking into consideration average cost of the shares, the Appellant had made profit of Rs. 18, 16,589, as per the working given below. Sale of 16,000 shares: Rs.1,03,40,187 Average purchase cost of 16,000 shares Rs. 85,23,598 Profit Rs. 18,16,589 In view of the above, it is submitted that business profit of Rs.18,16,589/- may kindly be taken as the profit resulting from sale of shares of Risa International Ltd., as against the profit of Rs.23,25,447/-, “assessed by the AO.” 9. Heard the ld. D.R and perused the material available on record. During the course of assessment after verification of the submission made by the assessee A.O has made profit of Rs.23,25,477/- on buying and selling shares in respect of M/s Risa International Ltd. which was not offered as income therefore the authorized representative of the assessee was agreed for adding the same to the total income as there was no data available pertaining to such transactions. The ld. CIT(A) in his finding after considering the submission of the assessee stated that prima facie these were speculation transaction made by the assessee in the shares of Risa International Ltd. and no closing of stock of such ITA No.6466/Mum/2018 AY. 2014-15 Prism Share Trading Services Pvt. Ltd. Vs. ITO-13(1)-4 7 shares was available in the books of account of the assessee. Considering the detailed finding of the ld. CIT(A) we don’t find any merit in the appeal of the assessee, therefore, this ground of appeal of the assessee also stand dismissed. (iii) Ground No. 4: Not allowing set off of the business loss in F & O transaction of Rs.1,05,44,428/- against the income of Rs.1,09,53,898/-: 10. The ld. CIT(A) has not allowed the claim of the assessee to set off of losses in accordance with the amended provisions u/s 115BBE of the Act. The relevant part of the decision of ld. CIT(A) is reproduced as under: “9. Set off losses against cash credit assessed under Section 68. 9.1 At the very outset, it is stated that for the A.Y.2013-14 the assessee company has claimed set off loses as per newly amended provision us 115BBE of the IT. Act. However, the same was not accepted on the similar issue. In this year also, the assessee company has claimed set off losses against the addition w/s 68 of the I.T. Act. After considering the judicial pronouncements, the assessee's plea is rejected. Reliance is placed on the decision in the case of Akr Poly Industries, Trichy vs Department of Income Tax ITA No.1042/Mds/2012 Dated the 29th January, 2013, wherein the Tribunal has relied on the decision of Hon'ble Gujarat High Court in the case of Fakir Mohmed haji Hasan Vs. CIT ([2001] 247 ITR 290) and has held as under: “The business loss assessed by the Assessing Officer cannot be set off against the amount taxed under section 68 as unexplained cash credits taxed under section 68 cannot be pegged to any head of income.” The same interpretation of law has been held in the case of M/s. Kerala Sponge Iron Ltd. vs. CIT (IT Appeal No.195/2014) (Kerela HC). 10. The legal position as it emanates from catena of above case laws is that since an addition under section 68 for that purpose cannot be taken as income under any specific heads of income, it cannot also be treated as "Business Income". In this view of the matter, I hold that the loss also cannot be set off against the said deemed income u/s.68. ITA No.6466/Mum/2018 AY. 2014-15 Prism Share Trading Services Pvt. Ltd. Vs. ITO-13(1)-4 8 11. In view of the above facts, the assessee has failed to discharge its onus. Accordingly, an amount of Rs.1,09,38,870/- is added back to the total income considering the same as unexplained cash credit u/s.68 of the I.T. Act, 1961....” The ld. CIT(A) has not allowed the claim of set off of losses on the ground that addition made u/s 68 cannot be treated as business income. In the light of the facts reported in the findings of the ld. CIT(A) as supra we don’t find any reason to interfere in the decision of ld. CIT(A). Accordingly, this ground of appeal of the assessee is also stand dismissed. 10. In the result, the appeal of the assessee is dismissed. Order pronounced in the open court on 12.08.2022 Sd/- Sd/- (KAVITHA RAJAGOPAL) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated 12.08.2022 PS: Rohit आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. संबंधधत आयकर आयुक्त / The CIT(A) 4. आयकर आयुक्त(अपील) / Concerned CIT 5. धिभागीय प्रधतधनधध, आयकर अपीलीय अधधकरण, अहमदाबाद / DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file. आदेशानुसार/BY ORDER, सत्याधपत प्रधत //True Copy// (Asst. Registrar) ITAT, Mumbai