ACIT, CC-XXIII, Kolkata, Kolkata V. M/s. Manush Distributors Ltd., Kolkata

ITA 647/KOL/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4890 (ITAT-KOLKATA)
• Duration Of Justice: 4 year(s) 10 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 12-08-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 29-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RANU BISWAS JCIT SRDR
• Keywords: Rejection of books of accounts; Speculation loss
• Section: 143(3); 133A; 133(6); 43(5); 145; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA BEFORE SHRI N.V.VASUSDEVAN, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 647 / KOL / 2011 ASSESSMENT YEAR :2005-06 ACIT, CENTRAL CIRCLE,- XXIII, 5 TH FLOOR, 18, RABINDRA SARANI, KOLKATA-1 V/S . M/S MANUSH DISTRIBUTORS LTD., 52, WESTON STREET, KOLKATA-700 012 [ PAN NO.AACCM 0348J ] /APPELLANT .. / RESPONDENT /BY APPELLANT SMT. RANU BISWAS, JCIT-SR-DR /BY RESPONDENT NONE /DATE OF HEARING 04-02-2016 /DATE OF PRONOUNCEMENT 23-03-2016 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE REVENUE AGAINST THE ORDER OF COM MISSIONER OF INCOME TAX (APPEALS)-I, KOLKATA DATED 21.01.2011. ASSESSME NT WAS FRAMED BY ITO WARD- 1(2), KOLKATA U/S 143(3) OF THE INCOME TAX ACT, 196 1 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 17.12.2007 FOR ASSESSMEN T YEAR 2005-06. 2. AT THE TIME OF HEARING NOBODY APPEARED FROM THE SIDE OF THE ASSESSEE IN SPITE OF THE FACT THAT THE NOTICE WAS SERVED BY THE INSPE CTOR OF INCOME TAX BY WAY OF AFFIXTURE ON DATED 8 TH JANUARY 2016. THE ORIGINAL REPORT OF INSPECTOR IS PLACED ON RECORD. THEREFORE WE DECIDED TO HEAR THE CASE EX-PARTE AFTER HEARING THE LEARNED DR APPEARING ON BEHALF OF REVENUE. ITA NO.647/KOL/2011 A.Y. 2005-06 ACIT CC-XXIII, KOL. V. M/S MANUSH DISTRIBUTOR S LTD. PAGE 2 3. AT THE OUTSET, WE FIND THAT REVENUE HAS RAISED S OLE REVISED GROUND OF APPEAL WHICH SUBMITTED ON 19.06.2015 AND WE HAVE ADMITTED THE SAME WHICH IS REPRODUCED BELOW:- 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN ALLOWING EXCESS LOSS OUT OF BUYING AND SELLING OF SHARES WITHOUT PROPER APPRECIATION OF THE FACT THAT THE CLOSING ST OCK OF SHARES SHOWN TO HAVE BEEN HELD BY THE ASSESSEE AT THE END OF THE PREVIOU S YEAR AS PER THE AUDITED ACCOUNTS WAS GROSSLY UNDERSTATED WHILE COMPARED TO THE CLOSING STOCK OF SHARES HELD BY THE ASSESSEE AT THE END OF THE PREVI OUS YEAR AS PER DEMAT ACCOUNT. THE SOLE ISSUE RAISED BY REVENUE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF DEFERENCE BETWEEN CLOSING STOCK OF SHARES AS PER BOOKS AND DEMAT ACCOUNT OF ASSESSEE. 4. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A P RIVATE LIMITED COMPANY AND ENGAGED IN TRADING IN SHARES / LOAN FINANCING ACTIV ITIES. THE ASSESSEE IS A REGISTERED NON BANKING FINANCE COMPANY (NBFC FOR SHORT) WITH R ESERVE BANK OF INDIA. THE ASSESSEE DECLARED LOSS OF RS.1,04,93,367/- ON ACCOU NT OF SALE / PURCHASE OF SHARES UNDER THE BUSINESS HEAD OF THE INCOME. THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS FAILED TO PRODUCE THE STOCK REGISTERS, ACTUAL DELIVERY OF SHARES SCRIPT. SO THE ASSESSING OFFICER COULD NOT VERIFY THE GENUINEN ESS AND ACTUAL MODE OF TRANSACTIONS. THERE WAS ALSO A SURVEY U/S 133A OF T HE ACT ON DATED 27.02.2006 AT THE BUSINESS PREMISES OF THE ASSESSEE BUT ASSESSEE FAILED TO PRODUCE THE BOOKS OF ACCOUNT. THEREFORE THE AO REJECTED THE BOOKS OF ACC OUNT U/S 145 OF THE ACT AND PROCEEDED TO COMPUTE THE INCOME U/S. 144 OF THE ACT . FROM THE RECORDS AND FACTS THE AO FOUND THAT THE TRANSACTIONS OF PURCHASE & SA LE OF SHARES WERE SETTLED OTHERWISE THAN ACTUAL DELIVERY OF SCRIPT. FURTHER, AO FOUND THAT THE LOSS SHOWN IS TO SET OFF THE INTEREST INCOME OF 1,09,25,507/- OTHER INCOME. ACCORDINGLY THE HELD SU CH LOSS AS SPECULATION UNDER SECTION 73(1) OF THE ACT AND DISALLOWED THE SET OFF WITH OTHER INCOME. 5. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO LD. C IT(A) WHERE THE ASSESSEE SUBMITTED THE NECESSARY DETAILS FOR THE PURCHASE AN D SALE OF SHARE SUPPORTED WITH CONTRACT NOTES / STOCK EXCHANGE QUOTATION TO AUTHEN TICATE THE RATES OF THE SALE AND PURCHASE OF SECURITIES. THE ASSESSEE ALSO SUBMITTED THE DEMAT STATEMENT SHOWING ITA NO.647/KOL/2011 A.Y. 2005-06 ACIT CC-XXIII, KOL. V. M/S MANUSH DISTRIBUTOR S LTD. PAGE 3 INWARD & OUTWARD MOVEMENT OF SHARES. THE ASSESSEE C LAIMED THAT ALL THE TRANSACTIONS OF SALE / PURCHASE ARE BACKED BY DELIV ERY. THE OPENING STOCK OF SHARES WAS ALSO SHOWN WITH THE SUPPORT OF THE AUDITED STAT EMENT OF ACCOUNTS. AS SUCH THERE IS NO IRREGULARITY IN THE BOOKS OF ACCOUNT. SO THE PROVISION OF SEC. 145(3) CANNOT BE INVOKED. DURING THE TIME OF SURVEY ON DATED 07.02.2 007 ALL THE BOOKS OF ACCOUNTS WERE SHOWN AND MAINTAINED. IN VIEW OF ABOVE LD. CIT (A) REVERSED THE ORDER OF ASSESSING OFFICER BY OBSERVING AS UNDER:- 5. I HAVE CAREFUL EXAMINED THE ASSESSMENT ORDER AN D THE SUBMISSIONS MADE BY THE AUTHORIZED REPRESENTATIVE. I M OF THE OPINI ON THAT THE MAIN CONTENTION OF THE ASSESSING OFFICER WAS THAT HE WAS NOT SATISF IED ABOUT THE DELIVERY OF SHARES BY THE ASSESSEE AND HENCE APPLIED THE PROVIS IONS OF SECTION 43(5) OF THE INCOME TAX ACT TREATING THE SAID TRANSACTIONS A S SPECULATIVE. IT IS TO BE NOTED THAT THE ASSESSING OFFICER HAS NOT QUESTIONED THE INCURRENCE OR HAPPENING OF THE TRANSACTIONS; HE HAS MERELY CONCLU DED THAT THE SAID TRANSACTIONS ARE SPECULATIVE SINCE NOT BACKED BY DE LIVERY. HOWEVER, FROM THE DETAILS FURNISHED BY THE AUTHORIZED REPRESENTATIVE IT IS EVIDENT THAT THE DELIVERY OF SHARES DID TAKE PLACE AND AS SUCH SECTION 43(5) IS NOT APPLICABLE TO THE ASSESSEE. THE DEMAT ACCOUNT AND THE CONFIRMATION OF THE BROKER CONFIRM THE DELIVERY OF SHARE IN EACH AND EVERY CASE OF TRANSAC TIONS OF TRADING IN SHARE AS DISCUSSED ABOVE. 5.1 THE ASSESSING OFFICER HAS ADMITTED IN HIS ORDER THAT THE ASSESSEE HAD PRODUCED CONTRACT NOTES, BOOKS OF ACCOUNT AN OTHER RELEVANT RECORDS FOR HIS VERIFICATION HENCE HIS CONCLUSION THAT THE TRANSACT IONS PERTAINING TO SHARES WERE PERIODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN BY ACTUAL DELIVERY APPEARS FULLY ERRONEOUS. DEMAT DELIVERY OF SHARES I S A FACT OF LIFE TODAY, ALL TRANSACTIONS ON THE ONLINE EXCHANGES NOW A DAYS HAV E TO BE SETTLED BY DEMAT DELIVERY HENCE IF THE ASSESSING OFFICER HAD DESIRED , HE COULD HAVE VERY WELL VERIFIED THE ISSUE OF DELIVERY DIRECTLY FROM THE BR OKER OR THE DEPOSITORIES. IN ANY CASE, ADMITTEDLY, IN THE TRANSACTIONS UNDER CON SIDERATION, THE ASSESSEE HAD RECEIVED THE SHARES IN THEIR DEMAT ACCOUNT AT T HE TIME OF ACQUISITION AND MADE DELIVERY OF THE SAME ON SALE. 5.2 AGAIN VIDE PARA 4.2 OF THE ASSESSMENT ORDER THE ASSESSING OFFICER STATED THAT THERE WAS NO OPENING STOCK. HOWEVER, THE ASS ESSEE COMPANY DID HAVE OPENING STOCK. THIS IS APPARENT FROM THE FACT OF TH E BALANCE SHEET OF THE ASSESSEE. 5.3 FROM ABOVE IT IS CLEAR THAT THE ASSESSING OFFIC ER COULD NOT ARRIVE AT A CONCRETE FINDING AS IS EVIDENT FROM THE LANGUAGE US ED BY THE ASSESSING OFFICER IN HIS ASSESSMENT ORDER. HE HAD TO ARRIVE A T A DEFINITE FINDING ON THE BASIS OF AVAILABLE DOCUMENTARY EVIDENCE BEFORE BURD ENING THE ASSESSEE WITH A HUGE TAX LIABILITY WHICH HE HAS FAILED TO DO. FURTHER I AGREE WITH THE CONTENTION OF THE ASSESSEE THAT SUCH LOSS ON TRADING IN SHARES DOES NOT COME WITHIN THE AMBIT OF EXPLANA TION OF SECTION 73 SINCE ITA NO.647/KOL/2011 A.Y. 2005-06 ACIT CC-XXIII, KOL. V. M/S MANUSH DISTRIBUTOR S LTD. PAGE 4 THE COMPANY IS ENGAGED IN THE BUSINESS OF GRANTING OF LOANS AND ADVANCES AS EVIDENT FROM THE AUDITED STATEMENT OF ACCOUNTS OF T HE ASSESSEE. 5.4 ACCORDINGLY, I HEREBY DIRECT THE ASSESSING OFFI CER TO TREAT THE LOSS ON DEALING IN SHARES AMOUNTING TO 1,04,93,367 AS NON SPECULATIVE AND THUS TO DELETE THE ADDITION MADE TO THE TUNE OF 1,04,93,367. THUS THE APPEAL OF THE ASSESSEE IS ALLOWED. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) REVENUE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD LD. DR AND PERUSED THE MATERIALS A VAILABLE ON RECORD. BEFORE US THE LD. DR VEHEMENTLY SUPPORTED THE ORDER OF THE AO. FROM THE AFORESAID DISCUSSION WE FIND THAT THE ASSESSEE HAS CLAIMED LO SS OF RS.1 049 3367 ON ACCOUNT OF PURCHASE AND SALE OF SHARE LOSS. THE AO HAS TREA TED THE TRANSACTION OF PURCHASE AND SALE OF THE SHARES FROM SPECULATIVE BUSINESS IN TERMS OF THE PROVISIONS OF SECTION 43(5) OF THE ACT. THE REASON FOR THE SAME WAS THAT THE ASSESSEE FAILED TO PRODUCE SUFFICIENT SUPPORTING DOCUMENTS IN SUPPORT OF ITS C LAIM OF LOSS. THE AO ALSO REJECTED THE BOOKS OF ACCOUNTS UNDER SECTION 145(3) OF THE A CT AS THE ASSESSEE FAILED TO PRODUCE THE STOCK REGISTERS AND ACTUAL DELIVERY OF THE SHARES SCRIPTS. HOWEVER WE FIND FROM THE ORDER OF THE LEARNED CIT(A) THAT ALL THE SHARES WERE SOLD ON THE BASIS OF DELIVERY AND WERE DULY RECORDED IN THE DEMAT ACCOUN T OF THE ASSESSEE. WE ALSO FURTHER OBSERVED THAT THE LEARNED DR COULD NOT BRIN G ANYTHING ON RECORD CONTRARY TO THE FINDING OF THE LEARNED CIT(A). THE LOSS FROM TH E SHARES TRADING BUSINESS OF THE ASSESSEE CAN BE TABULATED IN THE FOLLOWING MANNER : S.N O. NAME OF CO. NO. OF SHARE PURCHASE D VALUE OF PURCHASE NO. OF SHARE SOLD VALUE OF SALE PROFIT (LOSS) REMAR KS 1 21 ST CENTURY INDIA 8000 308770 8000 46,240 (262530/-) DEMAT 2 M/S PARBATI HOLDING LTD. 81300 8768151 72,800 32,25,699 (5542452/-) -DO- 3 LIMTEX INVESTMENT LTD. 19000 3798013 19000 223652 (3574361) -DO- 4 GR INDS. 13400 2027281 13400 432763 (1594518) -D O- 5 AMUL KY INVESTMENT 2900 478674 2900 42398 (436276) -DO- ITA NO.647/KOL/2011 A.Y. 2005-06 ACIT CC-XXIII, KOL. V. M/S MANUSH DISTRIBUTOR S LTD. PAGE 5 NOW, FROM THE ABOVE FACTS OF THE CASE, IT IS CLEAR THAT THE LOSS AROSE FROM THE BUSINESS OF SHARE DEALING CANNOT BE REGARDED AS SPE CULATION AS IT IS OUT OF THE PURVIEW OF PROVISIONS OF SECTION 43(5) OF THE ACT. ALL THE SHARE TRANSACTIONS WERE SUPPORTED WITH THE DELIVERY OF THE SHARES AND WERE SHOWN IN THE DEMAT ACCOUNT OF THE ASSESSEE. WE ALSO FIND THAT THE AO HAS TREATED THE LOSS AS SPECULATION LOSS WITHOUT EXERCISING HIS POWER TO ISSUE NOTICE UNDER SECTION 133(6) OF THE ACT. THE ASSESSEE SHOULD HAVE CONFIRMED BY ISSUING SHOW CAUS E NOTICE TO THE STOCK EXCHANGE BEFORE ARRIVING AT THE CONCLUSION THAT THE LOSS IN SHARES IS FROM THE SPECULATION BUSINESS. IN VIEW OF ABOVE WE HAVE NO H ESITATION IN UPHOLDING THE DECISION OF LEARNED CIT(A). THE EFFECTIVE GROUND OF REVENUES APPEAL IS DISMISSED. 7. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 23 /03/2016 SD/- SD/- (N.V.VASUDEVAN) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP !- 23 / 03 /201 6 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-ACIT,CC-XXIII, 5 TH FLOOR, 18, RABINDRA SARANI, KOLKATA-1 2. /RESPONDENT-M/S MANUSH DISTRIBUTORS LTD., 52, WESTO N STREET, KOLKATA-12 3. ) *+, , - / CONCERNED CIT KOLKATA 4. , , -- / CIT (A) KOLKATA 5.01233*+, , *+ , / DR, ITAT, KOLKATA 6.26789 / GUARD FILE. BY ORDER/ ,, /TRUE COPY/ / , *+ ,