AI Insights
The case involves Ashish Niranjan Shah, who filed an appeal against the order of the Pr. Commissioner of Income Tax-4, Pune, which was passed under section 263 of the Income Tax Act, 1961. The original assessment order accepted the returned income of the assessee without any discussion on the claimed business loss of Rs.10,20,14,068 due to defaults by NSEL. The Pr. CIT later revised this order, categorizing the loss as speculative and thus not allowable as a business loss under the provisions of the Act. The Tribunal examined the submissions, the assessment records, and the legal provisions, ultimately agreeing with the Pr. CIT's view that the loss was speculative and the original assessment order was erroneous.
Appeal details
Counselvise Citation
[2023] 140 COUNSELVISE.COM (IT) 134436 (ITAT-PUNE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
4 year(s) 5 month(s) 11 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
12-10-2023
Appeal Filed By
Assessee
Order Result
Dismissed
Bench Allotted
A
Next Hearing Date
27-07-2023
Assessment Year
2014-2015
Appeal Filed On
01-05-2019
Judgement Text
आयकर अपीलीय अिधकरण ”ए” Ɋायपीठ पुणेमŐ। IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES “A” :: PUNE BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND DR. DIPAK P. RIPOTE, ACCOUNTANT MEMBER आयकर अपील सं. / ITA No.697/PUN/2019 िनधाᭅरण वषᭅ / Assessment Year : 2014-15 Ashish Niranjan Shah, 39, Mantri Court, Dr.Ambedkar Road, Next to RTO, Sangam, Pune – 411001. PAN: AIDPS 7682 K V s The Pr.CIT-4, Pune. Appellant/ Assessee Respondent /Revenue Assessee by Shri Kishor B Phadke – AR Revenue by Shri Keyur Patel, IRS – CIT-DR Date of hearing 28/07/2023 Date of pronouncement 13/10/2023 आदेश/ ORDER PER DR. DIPAK P. RIPOTE, AM: This appeal filed by the Assessee is directed against the order of ld.Pr.Commissioner of Income Tax-4, Pune dated26.03.2019 under section 263 of the Income Tax Act, 1961. The assessee has raised the following grounds of appeal : “1. Learned Pr. CIT- 4, Pune erred in law and on facts in treating the Assessment Order u/s 143(3) being erroneous & thereby prejudicial to the revenue u/s 263 without appreciating that, the learned AO has allowed appellant's claim of business loss amounting to Rs.10,20,14,068/- incurred on account of default in payment by NSEL, with due application of mind & verification. The learned Pr. CIT erred in holding that, AO has not carried out any enquiry with respect to business loss claimed by the appellant & not applied his ITA No.697/PUN/2019 Ashish Niranjan Shah [A] 2 mind on the issue. 2. Learned Pr. CIT - 4, Pune erred in law and on facts in treating the Assessment Order u/s 143(3) being erroneous & thereby prejudicial to the revenue u/s 263 without appreciating fact that, there are multiple views are present with respect to allowance of appellant's claim of business loss incurred on account of default in payment by NSEL & the learned AO has taken a view which is favourable to the appellant. 3. Learned Pr. CIT - 4, Pune erred in law and on facts in treating the Assessment Order u/s 143(3) being erroneous & thereby prejudicial to the revenue u/s 263 by taking contradicting & varying stand i.e. earlier stating that, business loss is not allowable as the same was incurred out of alleged unauthorised / illegal transaction & later on by changing the stand that, such business loss is in the nature of speculation & not a normal business loss. 4. Learned Pr. CIT - 4, Pune erred in law and on facts in treating the Assessment Order u/s 143(3) being erroneous & thereby prejudicial to the revenue u/s 263, by holding that, loss incurred by appellant is in the nature of speculation without dealing with & contradicting with findings of Honourable Bombay High Court wherein it was held that, transactions entered on NSEL are akin to ‘Financial Transaction'. The learned Pr. CIT ought to have appreciated that, loss arising out of Financial Transaction can never be characterised as loss arising from speculation business. 5. Learned Pr. CIT - 4, Pune erred in law and on facts in treating the Assessment Order u/s 143(3) being erroneous & thereby prejudicial to the revenue u/s 263, by holding that, the business loss incurred on account of default in payment by NSEL is in the nature of speculation without substantiating the same being in the nature of speculation as per provisions of section 43(5) of ITA, 1961 & also intent of appellant to carry out speculation. Learned Pr. CIT- 4, Pune erred in holding business loss on account of speculation only because Trades carried at NSEL are alleged to be unauthorized & hence, illegal. As per Bombay High Court held that, traders were aware of such illegal trades & still carried out illegal transactions. The appellant did not take delivery of goods in any of the cases & also did not have any infrastructure to store the goodself purchased. ITA No.697/PUN/2019 Ashish Niranjan Shah [A] 3 Appellant is not a member of exchange & hence trades are speculative. 6. Learned Pr. CIT - 4, Pune erred in law and on facts in treating the Assessment Order u/s 143(3) being erroneous & thereby prejudicial to the revenue u/s 263 without appreciating fact that, transaction carried out by the appellant falls under proviso to section 43(5) of ITA, 1961. 7. Learned Pr. CIT - 4, Pune erred in law and on facts in treating the Assessment Order u/s 143(3) being erroneous & thereby prejudicial to the revenue u/s 263 without appreciating fact that, business loss is on account default on repayment of advance given to / through NSEL ¬ on account trading in transaction hence, cannot be characterised as speculative. 8. Learned Pr. CIT - 4, Pune erred in law and on facts in treating the Assessment Order u/s 143(3) being erroneous & thereby prejudicial to the revenue u/s 263, at one hand holding that, the business loss incurred on account of default in payment by NSEL is in the nature of speculation & on other hand, directing learned AO to carry out assessment afresh & allow the business loss as per the law. 9. The appellant craves leave to add, alter, clarify, explain, modify, delete any of the grounds of appeal, and to seek any just and fair relief.” Brief Facts of the case : 2. Assessee is an Individual. He filed return of income for A.Y.2014-15 on 05/11/2014 declaring loss of Rs.9,80,46,333/-.The case of the assessee was selected for Scrutiny. The ITO, Ward-7(1) Pune passed the assessment order dated 27/12/2016 accepting the returned income. There is no discussion in the assessment order on any issue. 2.1 The Ld.Pr.Commissioner of income tax-4 Pune initiated proceedings under section 263 of the Act for AY 2014-15. The ITA No.697/PUN/2019 Ashish Niranjan Shah [A] 4 ld.Pr.Commissioner of Income Tax passed order u/s 263 dated 26/03/2019 after giving opportunity to the assessee. 2.2 The assessee during the year had carried out trading of Commodities on National Stock Exchange Ltd (NSEL) through a broker named Lecmec Commodities Broking Private Ltd. The assessee is Director in the Lecmec Commodities Broking Private Ltd. The assessee claimed business loss in the return of Income of Rs.10,20,14,067/- on account of alleged default in payment of settlement dues by NSEL. The Assessee during the assessment proceedings filed a letter along with Affidavit dated 16/12/2016 and claimed in the affidavit that by mistake assessee has claimed the loss as business loss instead of Bad Debts. Thus, the assessee during the assessment proceedings claimed the amount of Rs.10,20,14,067.77/- as Bad Debts. The Assessing Officer (AO) has not discussed in the order about the claim of Bad Debts. The ld.Pr.CIT has opined that the Loss ofRs.10,20,14,067/- is a speculation loss, whereas the AO has merely accepted returned Income ,it means AO has allowed it as Business Loss and allowed to Set Off against current years income. However, there is no discussion in the assessment order. The ld.Pr.CIT has held that the AO has not carried out any verification. The ld.Pr.CIT has ITA No.697/PUN/2019 Ashish Niranjan Shah [A] 5 analysed the transactions of the assessee at length in the order u/s 263 of the Act. 2.3 Aggrieved by the order u/s 263 the assessee has filed appeal before this Tribunal. Submission of Ld. Authorised Representative(ld.AR) : 3. The Ld.AR filed paper book. The Ld.AR also filed copy of the Order Sheet maintained by the Assessing Officer during the Assessment Proceedings. 3.1 Relevant part of the Assessee’s submission is reproduced here under : “3. Whether the 143(3) order is "Erroneous" - Appellant submits that, following documents reveal a deep application of mind by the learned AO. Point No. Page Number of the Paper-Book (i.e. PBJ Point 1 PB-1 - Page-50 Selection of the scrutiny for "large other expenses claimed in P & L 2 PB-1 - Page-2 P & L showing loss of Rs. 10,20,14,067 3 PB-1 - page-5 Note No. 5 described conspicuously, incurrence of business loss with it's summary working 4 PB-1 - page-20 Row No. 38(4) of the Return of Income showing Business Loss of Rs. 10,20,14,068 ITA No.697/PUN/2019 Ashish Niranjan Shah [A] 6 5 PB-1- Page-58 & PB-6- Page-1006 Submission of the Appellant before learned AO giving note on Business Loss + giving contract note copies + stipulating reason for claim of business loss + Paper news cuttings giving details of NSEL scam 6 PB-1-Page-61 Note on NSEL scam + Affidavit claiming business loss as bad-debt + Reconciliation of claimed amount of Rs. 10,71,34,117 claimed from broker (and eventually from NSEL) 7 PB-1 - Page-63 Ledger extract of Appellant in the books of borker M/s Leacmech Commodities Broking Pvt Ltd + Action of Appellant in joining Investors forum for claiming dues from NSEL The ld.Counsel for the assessee filed Paper Book and drew the attention of the Bench on certain points in Paper Book No.1 to the effect that the selection of scrutiny for "large other expenses claimed in P & L are at paper book no.1 at page no.50; P & L showing loss of Rs. 10,20,14,067/- age page no.2; Note No. 5 described conspicuously, incurrence of business loss with it's summary working at page no.5; Row No. 38(4) of the Return of Income showing Business Loss of Rs. 10,20,14,068/- at page no.20; Note on NSEL scam + Affidavit claiming business loss as bad-debt + Reconciliation of claimed amount of Rs. 10,71,34,117 claimed from broker (and eventually from NSEL) at page no.61; Ledger extract of Appellant in the books of borker M/s Leacmech Commodities Broking Pvt Ltd + Action of Appellant in joining Investors forum for claiming dues from NSEL at page no.63 and further submitted the Submission of the Appellant before learned AO giving note on Business Loss + giving contract note copies + stipulating reason for claim of business loss + Paper news cuttings giving details of NSEL scam at PB-1, page no.58 and PB-6 at page no.1006. Based on all these details, the learned AO has allowed claim of the Business loss of the Appellant by considering the same as a Bad-debt loss. Even the learned PCIT-4, Pune, in Para No. 3 (line no. 3) and in Para No. 7 (line no. 6) has observed the loss as bad-debt loss. This conspicuous decision to allow the original claim of "Business Loss" as a claim of "Bad-debt" loss is demonstrative of the deep application of mind by the learned AO. 4. Reliance on following decisions - Appellant has relied upon various decisions wherein, it has been held that, objection w.r.t. an inadequate enquiry or, more careful enquiry, etc. are not the parameters to hold an ITA No.697/PUN/2019 Ashish Niranjan Shah [A] 7 order as 'Erroneous' for the purpose of section 263. - CIT V. Nirav Modi - 380 UTR 292 (Bom) - PB-III - Page-434 - CIT V. Shreepati Holdings & Finance P Ltd - ITA ano. 1879 - / 2013 (Bom) - PB-III - page-442 , - CIT V. Leisure Wear Exports ltd - 341ITR 166 - (Del) - PB-III - Page- 448 - CIT V. Anil Kumar Sharma - 335 ITR 83 (Del0 - PB-lll-Page-457 Considering the specific enquiry of the learned AO, the 143(3) order does not suffer from the issue of absence of enquiry. As such, same is not "Erroneous". PART-III Whether the 143(3) order is prejudicial to the interest of revenue 5. Speculative transaction issue - This issue is wrecked up by the learned PCIT-4 time and again. A speculative transaction, as so defined in section 43(5) means some trade transaction where, settlement of the transaction takes place without delivery. As per the facts of the case, in NSEL platform, all deliveries for purchase of commodities were assured by the NSEL itself. The NSEL used to take the goods in it's possession (in warehouses) and only then permit the trade deals on the NSEL platform. Further, delivery of a buyer used to be held by NSEL only once the deal was performed between a seller and a buyer. Rules of "Dealing in Commodities' are given at Page-113 of PB-II. Rules of "Delivery" are given at Page-136 of PB-II. Rules of 'trade Finance' are given at page- 168 of PB-II. All key clauses of these ruies were read out during the course of hearing today. It was submitted that, once a buyer buys goods on NSEL platform and pays for the same, NSEL starts holding the goods on behalf of such buyer. This entire mechanism has been elaborately explained in the order of Honorable Supreme court given at Para No. 2,3, and 4 given at Page No. 1212 to 1216 of Paper-Book-VI. The concept of "constructive delivery" has been aptly explained therein by the apex court. Even the Sale of Goods Act, vide sections 25 and 26 recognize the concept of delivery held by (say) RAILWAY or (say) AGENT, etc. and wherein, ownership passes on constructive basis. This is exactly, what happened in present case. For all contracts entered by Appellant, the delivery was held by the NSEL on behalf of the Appellant at first stage of the deal i.e. PURCHASE (i.e. T + 2). Same was to be extended to the new buyer (erstwhile seller) at the second stage of the deal i.e. SALE (i.e. T + 25). Now when, the goods owned by the Appellant were held by NSEL as it's agent for the eventual disposal / delivery, such a transaction is obviously, a delivery based transaction. Any transaction in which, delivery passes (whether on physical basis or whether on ITA No.697/PUN/2019 Ashish Niranjan Shah [A] 8 constructive basis), is outside the ken of a "speculative transaction". As such, the assumption of the learned PCIT-4, Pune that, Appellant was engaged into "speculative transactions" is a fallacious presumption and miles away from reality. No any decision of disturbance of the 143(3) order, based on such fallacious presumption, should have been reached by learned PCIT-4, Pune. 6. Insurance coverage - After the debacle of NSEL, claims were raised before the United India Insurance company. The said claims were declined by the said Insurance company by saying that, the goods were fraudulently removed from Warehouses by fraudulent Members. Be that as it may, the fact remains that, a GOVT of INDIA owned Insurer, clarified that, before the clandestine removal of goods from Warehouses, indeed, the goods existed in the Warehouses. Now, when such goods were existing at an earlier stage, obviously, related trades ought to be considered as "delivery based deals" on the principle of constructive delivery. As such, even on this count, the over-reached presumption of the learned PCIT-4, Pune emerges clearly as a fallacious assumption. As a sequel, it emerges that, the trade transactions of the Appellant were not speculative at all. As such, disturbance of the 143(3) order on a fallacious presumption of absence of delivery, is fallacious and ought not to have been reached. 8. Reference to Honorable Bombay High court relied upon in 263 order - The learned CIT-4, Pune has, in his 263 order, relied upon observations in the decision of the Honorable Bombay High Court regarding the bail application of Mr. Jignesh Shah, the kingpin of the NSEL scam. Copy of the Honorable Bombay High Court decision is given at Page-256 to page- 278 of Paper-Book-11 filed by Appellant. It is submitted, the learned CIT-4, Pune has referred to only one para-15 of the said decision of the Honorable Bombay High Court. But, the other paras of the said decision reveal as under – Para-18 The Investors could be misled by propaganda that investing money into these transactions was safe....Names of 25 defaulting companies have been mentioned in the FIR itself ............ Para-19 Emerging picture is that, buyers and sellers of the transactions are described as "investors"... and the platform of NSEL was used for safe returns earning Para-23 Mr. Anjani Sinha, CEO of NSEL has taken entire responsibility of wrongs upon him.. ITA No.697/PUN/2019 Ashish Niranjan Shah [A] 9 Appellant submits that, if the real nature of transactions was to be "safe returns finance activity", the aspect of speculative transaction does not remain relevant any more. Speculative transaction is that, where, instead of settling transaction by delivery, same is simply settled by book entries, etc. Now, if the transactions, in the first place were to be "finance transactions" aspect of "delivery" becomes a non-issue. In turn, aspect of speculative v. non-speculative also becomes a non-issue then. This aspect of emerging "finance activity" resulting into "finance loss" (and not a speculative loss per se) was stated before the learned CIT-4 during the 263 proceedings. Kindly refer to Para 5.1 of the 263 order of learned PCIT-4, Pune in this regard (copy of submission also given at Page-84 and Page-85 of PB-I). But the same has not been adjudicated by learned CIT-4, Pune. Before characterizing / coloring the NSEL transactions as 'speculative' transactions, learned CIT-4, Pune ought to have considered this crucial aspect of 'finance transactions' as so stated in the very same order of Honorable Bombay High, relied upon the learned PCIT- 4, Pune himself. Without addressing the key issue of disturbance, the 143(3) order ought not to have been disturbed, Non consideration of this issue and ignoring Appellant's conspicuous contentions on the said issue, makes the 263 order erroneous, as so held in the following decisions – (i) CIT V. Vikas Polymers - 341ITR 537 (Del) - Page-540 (PB-III) (ii) PCIT V. Delhi Airport Metro Ex. (P) ltd - 298 ITR 9 (Del) - Page-527 (PB-III) 11. Decision on permissibility of losses on NSEL trading after 263 order - In Paper- Book-IV from Page-718 to Page-931, 16 decisions are cited which allow the claim of NSEL losses, either as a "Business Loss" or as "bad-debt". In the landmark decision in case of DCIT V. Nirshilp Securities Pvt zltd - ITA No. 6322 / Mum / 2019, the angle of speculative v. non-speculative was elaborately discussed. The phenomenon of paired deals was also critically examined by the Honorable ITAT. Specific observation in the said case of Nirshilp is as undere - 7.17. In view of our elaborate observations in the facts and circumstances of the instant case and respectfully following the aforesaid judicial precedent relied upon, we hold that the loss arising on account of payment made to NSEL through registered broker towards purchase of commodities (which were never delivered to assessee), shall be allowable as regular business loss u/s 28 of the Act. We further hold that the said loss cannot be construed as speculative in nature. The above decision and various other decisions demonstrate that, claim of the Appellant was in order, and bonafide. ITA No.697/PUN/2019 Ashish Niranjan Shah [A] 10 21. Write-off to P &L - An issue was raised in the hearing before Honorable ITAT, whether, the claims of losses from NSEL trading were really written-off so that, the same can meet the conditions in section 36(l)(vii) read with section 36(2) of ITA, 1961. Issue arose during the hearing, in particular, considering the phraseology used while claiming loss of Rs. 10.20 Cr in P & L. Doubt was raised that, debit to P & L of Rs. 10.20 Cr by simply saying "To business Loss - Rs.10,20,14,067' is not same as (say) "bad-debt written-off- Rs. 10,20,14,067". It was questioned whether, such obscure wording meets the terms of section 37(l)9vii) r.w.s. 36(2) of the ITA, 1961. Now apart from the earlier summarized submissions that, testing of these terms is not the real issue involved in present proceedings, Appellant intends to make some further submissions. In particular, -Appellant relies upon the decision in the case of Vijaya Bank V. CIT - 323 ITR 66 (SC) -wherein, it has been held that, true test for write-off as bad-debt is reduction of the : a m from assets. A copy of the said decision is enclosed herewith and marked as Annexure- 2. Further, Appellant also relies upon the case of Tainwala Chemicals & - Plastics India Ltd V. ACIT- 13 Taxmann.com 211 (Mum). In the said case, the bad-debts write-off was claimed by using the phraseology as "provision for doubtful debts" and 'saucing the same from debtors accounts. Relevant head-note of the said decision is reproduced as under. II Section 36(1)(vii) of the Income-tax Act, 1961 - Bad debts - Assessment year 2004-05 - Whether even when a part of debt is written off it can be allowed as bad debt - Held, yes - Whether once a provision for doubtful debt has been debited in P/L a/c and corresponding provision has been credited or reduced from debtor's a/c on assets side of balance sheet, then this would amount to writing off - Held, yes - Whether where assessee company had debited provision for doubtful debt to profit & loss account and correspondingly reduced assets by reducing amount of unsecured loans outstanding on assets side of balance sheet, same would amount to writing off of loan and, accordingly, assessee was entitled to claim amount of loan written off as bad debt - Held, yes [In favour of assessee] A copy of the said decision is enclosed and marked as Annexure-3. Now, as per facts, the said amt of Rs. 10.20 Cr was written off from the brokers account on 31/3/2014 by two separate JV entries - first, booking of profit of Rs.38,35,812 and second, by booking business loss of Rs.10,58,49,880. A copy of the ledger account of the broker is placed on record vide Page No. 962 of the PB-V. Appellant regrets the mention that "page No. 969 of Paper-Book- V" was present on the file of the learned AO. This mistake was occurred due to confusion and for which, appellant apologies with folded hands before the Honorable 1TAT Bench. It is submitted, ITA No.697/PUN/2019 Ashish Niranjan Shah [A] 11 nothing turns on the availability of the said page on the file of learned AO, since, firstly, the net balance of the broker in balance- sheet was already reduced by the said loss amount and secondly, the entire case of the learned PCIT-4, Pune was on the character / color of the said loss whether it is speculative or not, which is a stage after the incurrence of the said loss.” Submission of ld.Departmental Representative(ld.DR) : 4. The ld.DR for the Revenue filed a written submission. Ld.DR relied on the order of the Ld.Pr.CIT. Ld.DR relied on following Case Laws : Malabar Industrial Company vs. CIT [2000] 109 Taxman 66 (SC). Hon'ble Supreme Court in Deniel Merchants Pvt. Ltd., vs. ITO (Appeal No. 2396/2017) dated 29.11.2017. Rajmandir Estates (P.) Ltd. Vs PCIT [70 taxmann.com 124 (Calcutta). Rajmandir Estates (P.) Ltd. Vs.PCIT [2017] 77 taxmann.com 285 (SC) Sesa Sterlite Limited 92021)123 taxmann.com 217 B(ombay) Swarup Vegetable Products Vs. CIT [1991] 54 Taxman 175 (Allahabad) CIT Vs. Maithan International 375 IR 123 (Calcuta) Gee Vee Enterprises Vs. Addl. CIT 99 ITR 375 (Delhi) CIT Vs. Ballarpur Industries Ltd. [2017] 85 taxmann.com 10 (Bombay) CIT Vs. M.M.Khambhatwala 198 ITR 144 (Guj) CIT Vs. Ashok Logani (11 taxmann.com 208, 347 ITR 22) (Delhi HC) ITA No.697/PUN/2019 Ashish Niranjan Shah [A] 12 PCIT Vs. Shri Braham Dev Gupta ITA 907/2017 and 1162/2017 (Del HC) CIT Vs. Toyota Motor Corporation (Delhi) (174 Taxman 395) / Toyota Motor Corporation 173 Taxman 458 (SC) Omni Lens Pvt. Ltd. (ITAT Ahmedabad Bench) (ITA No.2818/Ahd/2017) Findings and Analysis : 5. We have heard both the parties and perused the records. On perusal of the assessment order it is observed that the Assessing Officer(AO) has not discussed anything in the assessment order, he has merely accepted the returned income. 5.1 We have also perused the copy of the Order Sheet maintained by the Assessing Officer(AO), which has been filed by the Assessee in the paper book. There is no discussion or mention in the Order sheet about the issue of Business Loss. 5.2 We have perused copy of the Notices issued by the Assessing Officer under section 142 which has been filed by the assessee at Page 53, 57 of Paper Book(PB). 5.3 The ld.AO vide notice dt.15.08.2016 raised these questions before the assessee : ITA No.697/PUN/2019 Ashish Niranjan Shah [A] 13 “1. Detailed note on business/profession activities carried out by you during the year under consideration. 2. Please furnish copy of ITR, computation and audit report along with all schedules and annexures or furnish financial statements i.e. Trading, Profit & Loss Account/Income & Expenditure Account and Balance Sheet, if the case is not auditable u/s. 44AB. 3. Please furnish copy of books of accounts in soft form preferably in Tally for the relevant Financial Year. If not available in Tally format, it may be submitted in PDF or Excel sheet. Please do mention user name and password. 4. TDS reconciliation statement along with Form No.26AS. 5. Evidence for TDS deducted and remitted in the following format :- Sr. No. Particulars of Expenditure debited in P & L a/c. Amount (Rs.) TDS deducted Reason for non deduction of TDS 6. Bank a/c details along with all banks statements in the following format :- ITA No.697/PUN/2019 Ashish Niranjan Shah [A] 14 Sr. No. Name of the Bank Branch A/c Type A/c No. 7. Details of Name, Permanent & Residential address of the assessee along with mobile number, telephone no. & email ids. 8. Evidences for deduction claimed under Chapter VIA viz. Purchase document, Sale deeds or any other documentary evidences. 9. Please furnish the Power of Attorney.” In the other notice u/s 142, there is no specific question. 5.3 Thus, it can be seen that the AO had not asked any question regarding the Loss claimed by the assessee. The Assessee has shown the Loss as under in the Return of Income : 36 Rates and taxes, paid or payable to Government or any local body (Excluding taxes o income) I Union excise duty 36i 0 ii Service tax 36ii 0 iii VT/Sales tax 36ii 0 iv Cess 36iv 0 v Any other rate, tax, duty or cess 36v 0 vi Total rates and taxes paid or payable (36i + 36ii + 36iii + 36iv + 36v) 36vi 0 37 Audit fee 37 2500 38 Other expenses (specify nature and amount) 1 Gen expenditure, Subscription, software charg, soc charg 1 282501 2 Property tax veh expenditure, accounting charg, hotel 2 155744 3 Petrol, pt, nsdl charges, bank charges 3 131562 4 Business loss 4 102014068 iii Total 38iii 102583875 ITA No.697/PUN/2019 Ashish Niranjan Shah [A] 15 39 Bad debts (specify PAN of the person, if available, for whom Bad Debt for amount of Rs.1 lakh or more is claimed and amount) PAN Amount iv Others (more than Rs.1 lakh) where PAN is not available 39iv 0 V Others (amount less than Rs.1 lakh) 39v 0 Vi Total Bad Debt (39i + 39ii + 39iv + 39v) 39vi 0 The Profit and Loss Account submitted by the Assessee is reproduced here under : EXPENDITURE AMOUNT INCOME AMOUNT TO GENERAL OFFICE 1823.57 BROKERAGE 24922.94 TO SUBSCRIPTION FEE 236574.00 INTEREST INCOME 4034073.00 TO SOFTWARE/COMPUTER 9303.14 PROFIT & LOSS ON 97784.56 TO TELEPHONE 14681.00 LOSS TR TO CAPITAL 98595156.30 TO SALARY 54194.00 TO ELECTRICITY CHARGES 29160.00 TO SOCIETY CHARGES 34800.00 TO PROPERTY TAX 50142.00 TO VEHICLE EXPENSES 10347.00 TC ACCOUNTING 87750.00 TO INSURANCE 10012.00 TO CLUB EXPENSES 43154.00 TO HOTEL EXPENSES 7505.00 TO PETROL EXPENSES 65939.60 TO PROFESSIONAL TAX 2500.00 TO NSDL, NSE 61219.89 TO BANK CHARGES 1902.83 TO DEPRECIATION 14361.00 TO AUDIT FEE 2500.00 TO BUSINESS LOSS 102014067.77 102751936.80 102751936.80 5.4 Thus, the assessee has shown the Loss in the Profit and Loss Account in the Return of Income, instead of showing separately. Rather the assessee had camouflaged the Loss in the Profit and Loss account which is not the correct way of reporting any Loss as per the Accounting Standard and procedure. The proper way was ITA No.697/PUN/2019 Ashish Niranjan Shah [A] 16 to show the Sale Consideration received on Sale of Commodities on the Credit side in the Profit and Loss Account, then to show the amount paid for purchase of commodities on the Debit side of the P & L Account. Assessee, was also required to show Opening Stock, Closing Stock in the Profit and Loss Account. However, assessee has not shown these entries in the Profit and Loss Account. 6. As we have observed earlier the AO has not asked any specific question on this issue. AO has not even bothered to ask the Assessee regarding change of his claim from Business Loss to bad Debts. Nowhere, the AO had asked how the assessee had arrived at the Figure of Rs.10,20,14,068/- mentioned in the return of Income as Loss. 6.1 Now, we will discuss the nature of transaction. The Ld.AR has submitted copies of some contract notes in the Paper Book. One such contract note, (page 964 onwards of PB) we intend to analyse here under: ITA No.697/PUN/2019 Ashish Niranjan Shah [A] 17 6.2 This particular contract note is dated 17.07.2013 issued by LCEMEC Commodities Broking Pvt. Ltd, in which the assessee is a Director. On 17.07.2013, LCEMEC Commodities Broking Pvt. Ltd, purchased on behalf of assessee 5000 units of SPTCOMRAWOOLLH2 at 17:55:56HRS for Rs.713/- per unit and sold immediately at 17:56:15HRS 5000 units at Rs.726/- per unit price. 6.3 Thus, it means on the same date i.e.17.07.2013, the assessee purchased 5000 units and within less than One(1) minute sold it by earning profit of Rs.13/- per unit. Assessee claimed that Assessee had taken Delivery, however, we fail to understand, how one can take delivery of 5000 units within few seconds and then immediately Sale the 5000 units. When we apply theory of preponderance of human probability, it is highly impossible. Therefore, this transaction is nothing but a speculative transaction. There are similar kinds of transactions in the sample broker notes enclosed in the paper book. Since, this particular transaction is a speculative transaction, the Loss arising from Speculative Transaction can be set off only against Speculative profit. We note that complete set of Brokers Note was never provided to the AO or ITAT. ITA No.697/PUN/2019 Ashish Niranjan Shah [A] 18 6.4. Computation of Income shown by the assessee : Particulars Rupees Income from House Property 5,55,627/- Income / Loss from Business -9,85,95,156/- Income from Other Sources 3,246/- Gross Total Income Nil 6.5 However, the Assessing Officer has not analysed these transactions and AO has not carried on any inquiries. 6.6 The Assessee had filed an Affidavit before the AO during the Assessment Proceedings, claiming that erroneously the assessee had claimed loss arising from Trading in Commodities done on National Spot Exchange as Business Loss but it should be treated as Bad Debts. (page 60 of the paper book). As held by the Hon’ble Supreme Court in the case of PCIT Vs. Khyati Realtors Pvt Ltd,as per the Section 36 of the Income Tax Act ,to claim Debt as Bad , the Debt shall be actually written off in the Books and the same should have been offered as Income in any of the earlier years. We have studied the Ledger Account which is at page 962 of the paper book, it is observed that the Assessee had not Written Off the Debt. Therefore, the first Primary Condition has not been complied by the assessee. We do not know whether the assessee had shown the ITA No.697/PUN/2019 Ashish Niranjan Shah [A] 19 impugned income in any of the earlier years. However, the fact is that the AO had not verified these basic facts. Also, the AO had not applied the correct law. 7. The Assessee in the Audit Report has given following Note : “Business Loss During the year the assessees has traded in commodities through Lecmec Commodities Broking Pvt Ltd. Member of NSEL Details of which are Provided Below the Net Loss arising out of this transactions have been transferred to Business Loss. Opening Stock Rs.102283768.68 Add Purchases Rs.395820451.87 Less Sales Rs.396090152.78 Net Business Loss Rs.102014067.77 ” 7.1 Thus, as per the said note, there was Opening Stock, but in the schedule enclosed with the return the Assessee has not shown any Stock. The schedule enclosed with the return is reproduced here as under : Part A – QD Quantitative details (optional in a case not liable for audit under section 44AB) (a) In the case of trading concern Item Name (1) Unit (2) Opening Stock (3) Purcha se (4) Sales Qty (5) Closing Stock (6) Shortage /excess, if any (7) (b) In the case of a manufacturing concern – Raw materials Item Nam e (1) Un it (2) Openi ng stock (3) Purcha se (4) Consumpti on (5) Sales Qty (6) Closi ng Stock (7) Yield Finish ed Produc ts (8) %age of yield (9) Shortage/exc ess, if any (10) (c) In the case of a manufacturing concern – Finished Goods Item Nam e (1) Un it (2) Opening Stock (3) Purchas (4)e Finished goods manufactured (5) Sales Qty (6) Closi ng stock (7) Shortage/exc ess, if any (8) ITA No.697/PUN/2019 Ashish Niranjan Shah [A] 20 7.2 Thus, no opening stock had been shown by the assessee in the Return of Income. The Assessee has not given any quantitative details in the relevant part of the Return of Income, which is reproduced above showing NIL details. Even in the Form 3CD i.e. the Audit Report, the Quantitative Details of Opening Stock, Purchase, Sale has been mentioned as NIL.(page 13 of the paper book). 7.3 The AO has not verified the working submitted by the Assessee in the Note which we have reproduced above. The AO had not asked assessee the quantitative details or not asked any question on the absence of Opening Stock in the respective schedule. 8. All the above discussion explains that the AO had not carried out any specific inquiry qua the impugned loss. 9. The Hon’ble Bombay High Court in the case of Vedanta Ltd. Vs. CIT 124 taxmann.com 435 (Bombay)/[2021] has held as under : Quote, “ 23. The CIT, in exercising its revisional jurisdiction, has satisfied the twin requirements as prescribed in Section 263 of the ITAT Act. There was material before the ITAT to at least prima ITA No.697/PUN/2019 Ashish Niranjan Shah [A] 21 facie infer that there was under-invoicing and that this aspect of under-invoicing was not considered by the AO in making his assessment order. The CIT, in exercising its revisional jurisdiction, has not shut out any of the defences open to the Assessee, but has directed the AO to pass a fresh assessment order after verifying and examining all the relevant facts of the case, legal position and giving adequate opportunity of being heard to the Assessee. 24. In Malabar Industrial Co. Ltd. v. CIT [2000] 109 Taxman 66/243 ITR 86 (SC) the Hon'ble Supreme Court has held that the CIT can pass an order under section 263 of the IT Act even on debatable issues. Similarly, it is clear where the assessment was completed without proper inquiries which circumstances necessitated, it is competent for the CIT to invoke the revisional jurisdiction and direct fresh assessment, after verifying and examining all relevant facts, as well as legal position as may be involved. ” Unquote. 9.1 The Hon’ble Supreme Court in the case of CIT vs M/s. Paville Projects Pvt. Ltd. in Civil Appeal No. 6126 of 2021 has held as under : Quote , “Thus, even as observed in paragraph 9 by this Court in the case of Malabar Industrial Co. Ltd.(supra) that the scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. It is further observed that if due to an erroneous order of the Income Tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. However, only in a case where two views are possible and the Assessing Officer has adopted one view, such a decision, which might be plausible and it has resulted in loss of Revenue, such an order is not revisable under Section 263. ITA No.697/PUN/2019 Ashish Niranjan Shah [A] 22 7.3 Applying the law laid down by this Court in the case of Malabar Industrial Co. Ltd. (supra) to the facts of the case on hand and even as observed by the Commissioner, the order passed by the Assessing Officer is erroneous as well as prejudicial to the interest of the Revenue. Having gone through the assessment order as well as the order passed by the Commissioner of Income Tax, we are also of the opinion that the assessment order was not only erroneous but prejudicial to the interest of the Revenue also. In the facts and circumstances of the case, it cannot be said that the Commissioner exercised the jurisdiction under Section 263 not vested in it. The erroneous assessment order has resulted into loss of the Revenue in the form of tax. Under the Circumstances and in the facts and circumstances of the case narrated hereinabove, the High Court has committed a very serious error in setting aside the order passed by the Commissioner passed in exercise of powers under Section 263 of the Income Tax Act.” 9.2 The Hon’ble Supreme Court in the case of CIT Vs.Amitabh Bachchan [2016] 384 ITR 200 (SC) has held as under : Quote“Making a claim which would prima facie disclose that the expenses in respect of which deduction has been claimed has been incurred and thereafter abandoning/withdrawing the same gives rise to the necessity of further enquiry in the interest of the Revenue. The notice issued under Section 69-C of the Act could not have been simply dropped on the ground that the claim has been withdrawn. We, therefore, are of the opinion that the learned C.I.T. was perfectly justified in coming to his conclusions insofar as the issue No. (iii) is concerned and in passing the impugned order on that basis. The learned Tribunal as well as ITA No.697/PUN/2019 Ashish Niranjan Shah [A] 23 the High Court, therefore, ought not to have interfered with the said conclusion. 22. In the light of the discussions that have preceded and for the reasons alluded we are of the opinion that the present is a fit case for exercise of the suo motu revisional powers of the learned C.I.T. under Section 263 of the Act. The order of the learned C.I.T., therefore, is restored and those of the learned Tribunal dated 28th August, 2007 and the High Court dated 7th August, 2008 are set aside. The appeal of the Revenue is allowed.”Unqoute 9.3 In the case under consideration the AO has allowed the impugned Loss to be set off against the Income from House Property and Income from Other Sources, without any verification. Therefore, it has resulted in loss of revenue. 10. Thus the twin conditions of erroneous and prejudicial to the interest of revenue has been satisfied in this case. 10.1 The Explanation 2 to Section 263 was introduced with Effect From 01/06/2015. In this case the impugned Assessment Order was passed on 27/12/2016, the first notice u/s 143(2) was issued on 31/08/2015. Thus, even the Explanation 2 to Section 263 is applicable in the case of the assessee qua the Assessment order dated 27/12/2016. ITA No.697/PUN/2019 Ashish Niranjan Shah [A] 24 11. Therefore, in the facts and circumstances of the case, for all the reasons discussed, we are of the considered opinion that the order of the Assessing Officer is erroneous and prejudicial to the interest of the revenue. 11.1 Therefore, for all the elaborate reasons discussed above, and respectfully following the law laid down by the Hon’ble Supreme Court(supra) and Jurisdictional High Court (supra), we uphold the order u/s 263. 11.2 Accordingly, grounds of appeal number 1 to 8 raised by the assessee are dismissed. Ground Number 9 is general in nature, hence does not need any adjudication. Hence, Ground Number 9 dismissed. Rebuttal of the Case laws relied by the assessee : 12. The Assessee has relied on the decision of the Hon’ble Supreme Court in the case of CIT Vs. Max India Ltd. This decision is on the issue of two possible views. However, in the case of the assessee we have observed that the AO had not carried out any inquiries, and hence there is no question of any opinion formed by the AO. Therefore, the said case law is distinguishable on the facts. ITA No.697/PUN/2019 Ashish Niranjan Shah [A] 25 13. The assessee has also relied on many other case laws but all are distinguishable on facts and hence not applicable in the case of the Assessee. 14. In the result, appeal of the assessee is dismissed Order pronounced in the open Court on 13 th October, 2023. Sd/- Sd/- (S.S.GODARA) (DR. DIPAK P. RIPOTE) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; ᳰदनांक / Dated : 13 th Oct, 2023/ SGR* आदेशकᳱᮧितिलिपअᮕेिषत / Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant. 2. ᮧ᭜यथᱮ / The Respondent. 3. The CIT(A), concerned. 4. The Pr. CIT, concerned. 5. िवभागीय ᮧितिनिध, आयकर अपीलीय अिधकरण, “ए” बᱶच, पुणे / DR, ITAT, “A” Bench, Pune. 6. गाडᭅ फ़ाइल / Guard File. आदेशानुसार / BY ORDER, // TRUE COPY // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे/ITAT, Pune.
