Periyasamy Ramesh Rajah, CHENNAI V. ITO, Virudhunagar

ITA 837/CHNY/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4292 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 05-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P SURESH RAO
• Assessee Lawyers: G BASKAR
• Keywords: Bonafide belief; Reasonable cause
• Section: 143(3); 139

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI . . . , ! , ' #$ % [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ] ./ I.T.A. NO.837/MDS/2017 / ASSESSMENT YEAR : 2011-2012. PERIYASAMY RAMESH RAJAH, NO.94, RAMAMOORTHY ROAD, VIRUDHUNAGAR 626 001. [PAN ACWPR 9243A] VS. THE INCOME TAX OFFICER, WARD 1(3) VIRUDHUNAGAR 626 001. ( &' / APPELLANT) ( ()&' /RESPONDENT) / APPELLANT BY : SHRI. G. BASKAR, ADVOCATE /RESPONDENT BY : SHRI. P. SURESH RAO, JCIT. / DATE OF HEARING : 13-06-2017 / DATE OF PRONOUNCEMENT : 15-06-2017 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-3, MADURA I, DATED 02.02.2017 FOR THE ASSESSMENT YEAR 2011-2012. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL. ITA NO. 837/MDS/2017. :- 2 -: 2. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT CONSIDERING THE FACTS OF THE CASE AND THE SUBMISSIONS MADE BEFORE HIM IN THE PROPER PERSPECTI VE. 3. THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE SEEN THAT THE APPELLANT BONA FIDE BELIEVED THA T THE QUANTUM OF ONLINE SHARE TRADING CAN'T BE TREATED AS TURNOVER FOR. THE PURPOSES OF SEC. 44AB OF THE INCO ME- TAX ACT. 3. BRIEF FACTS OF THE CASE ARE THAT T HE ASSESSEE IS AN INDIVIDUAL AND MANAGING DIRECTOR OF M/S.RAMESH ENTE RPRISES DERIVING INCOME FROM SHARES, SALARY, PROPERTY AND O THER SOURCES. FOR THE IMPUGNED ASSESSMENT YEAR, ASSESS EE FILED HIS RETURN OF INCOME ON 05.11.2012 ADMITTING TOTAL INCOME OF C12,48,400 /--. THE ASSESSING OFFICER SELECTED THE CASE FOR SCRUTINY AND COMPLETED THE ASSESSMENT U/S.143 (3) OF THE ACT ON 04.03.2014 DETERMINING THE TOTAL INCOME OF THE A SSESSEE AT C 14,86,270/-. THE MAIN ADDITION MADE IN THE ASSESSME NT ORDER WAS ON ACCOUNT OF THE FACT THAT THE ASSESSEE HAD NOT DISCLOSED THE SHARE TRANSACTIONS WITH THE STOCK BRO KER M/S.KOTAK SECURITIES LIMITED AND THE RELEVANT BANK ACCOUNT, WHICH WAS USED FOR SHARE TRANSACTIONS. THE ASSESSIN G OFFICER NOTICED THAT THE ASSESSEE HAD NOT DISCLOSED THE SH ARE. TRANSACTIONS TO THE EXTENT OF C11,18,15,759/- WHICH EXCEEDED THE PRESCRIBED TURNOVER OF C60,OO,OOO /- AND, THEREFORE, THE ASSESSEE OUGHT TO HAVE OBTAINED THE TAX AUDIT REPORT BUT NO ITA NO. 837/MDS/2017. :- 3 -: TAX AUDIT REPORT WAS FILED. HE, THEREFORE, INITIATE D PENALTY PROCEEDINGS U/S.271 B OF THE ACT. DURING THE COURSE OF PENALTY PROCEEDINGS, THE ASSESSEE SUBMITTED THAT HE INCURR ED HUGE LOSS IN SHARE TRANSACTIONS AND, THEREFORE, THE SAME COULD NOT BE DISCLOSED TO THE DEPARTMENT AND THEREBY HE DID N OT OBTAIN THE ACCOUNTS AUDITED BY THE CHARTERED ACCOUNTANT. T HE ASSESSING OFFICER DID NOT ACCEPT THE REPLY OF THE A SSESSEE ON THE GROUND THAT THE ASSESSEE DID NOT EVEN ADMIT TH E TRANSACTIONS WITH M/S.KOTAK SECURITIES LIMITED AND THERE WAS UNACCOUNTED CASH DEPOSIT OF C1,66,943/- IN THE BANK ACCOUNT OF THE ASSESSEE WITH M/S.KOTAK MAHINDRA BANK WHICH WAS NOT AT ALL DISCLOSED AND, THEREFORE, THERE WAS A WILLFU L DEFAULT ON THE PART OF THE ASSESSEE IN AS MUCH AS THE BANK ACC OUNT USED FOR THE SHARE TRADING PURPOSES WAS NOT AT ALL DISCL OSED TO THE DEPARTMENT. ACCORDINGLY, HE IMPOSED A PENALTY OF C1,50,OOO/-. 4. AGGRIEVED, ASSESSEE FILED AN APPEAL BEFORE LD. COMM ISSIONER OF INCOME TAX (APPEALS). BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS), THE ASSESSEE HAD FILED WRIT TEN SUBMISSIONS BASED ON WHICH THE APPEAL WAS DISPOSED. THE ASSESSEE CONTENDED THAT THERE WAS NO WILLFUL DEFAU LT ON THE PART OF THE ASSESSEE AND HE WAS UNDER THE BONAFIDE BELIEF ITA NO. 837/MDS/2017. :- 4 -: THAT THE SHARE TRANSACTIONS NEED NOT BE AUDITED. IT WAS ALSO SUBMITTED THAT THERE WAS NO CONTUMACIOUS CONDUCT O R IT WAS NOT WITH A VIEW TO EVADE PAYMENT, OF TAX AND THE BR EACH WAS ONLY TECHNICAL OR VENIAL IN NATURE. IT WAS FURTHER SUBMITTED THAT THE ONLINE TRADING OF SHARE WAS ONLY SPECULATI ON ACTIVITY AND THERE WAS NO PHYSICAL DELIVERY OF SHARES GIVEN OR TAKEN AND, THEREFORE, NEED NOT BE TAKEN AS TURNOVER FOR T HE PURPOSE OF SECTION 44AB. THE LD. COMMISSIONER OF INCOME T AX (APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE. ADMITTEDLY, THE ASSESSEE ENTERED INTO ONLINE SHARE TRADING ACTIVITIES ON A LARGE SCALE TO THE EXTENT OF RS.11, 18,15,759/- THROUGH HIS BANK ACCOUNT WITH M/S.KOTAK MAHINDRA BA NK. HOWEVER, WHILE FILING THE RETURN, THE ASSESSEE DID NOT DISCLOSE THE SHARE TRANSACTIONS AS WELL AS THE BANK ACCOUNT. IN FACT THE ASSESSING OFFICER ADDED UNACCOUNTED CAS H DEPOSIT OF C1,66,943/- REPRESENTING THE UNACCOUNTE D MONEY IN M/S.KOTAK MAHINDRA BANK FOR WHICH THE ASSE SSEE DID NOT FILE ANY APPEAL. THIS CLEARLY SHOWS THAT T HERE WAS A DELIBERATE ATTEMPT TO SUPPRESS THE SHARE TRANSACTIO NS AND THE PROFIT EARNED THERE FROM AND THE CAPITAL USED F OR THE PURPOSE OF SHARE TRADING. IN THE CIRCUMSTANCES, IT CANNOT BE ACCEPTED THAT THERE WAS NO WILLFUL DEFAULT ON THE P ART OF THE ITA NO. 837/MDS/2017. :- 5 -: ASSESSEE. THE ASSESSEE WANTED TO HIDE THE ENTIRE S HARE TRANSACTIONS FROM THE KNOWLEDGE OF THE DEPARTMENT A ND ONLY DURING THE COURSE OF SCRUTINY ASSESSMENT, IT C AME TO LIGHT. IN THE CIRCUMSTANCES, LD. CIT(A) FOUND THAT THERE IS NO REASONABLE CAUSE FOR NON-FILING OF AUDIT REPORT U/S.44AB AND, HE THEREFORE, CONFIRMED THE PENALTY. 5. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. BEFORE US, LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT DURING THE ASSESSMENT YEAR 2011-12, THE ASSESSEE HAD DEALT IN SHARES IN THE STOCK EXCHANGE THROUGH HIS DEMAT ACCO UNT WITH M/S.KOTAK SECURITIES LINKED WITH SAVINGS SWAP ACCOU NT WITH MAHINDRA BANK LTD. AS THE ASSESSEE INCURRED HUGE L OSS IN SHARES DEALINGS (DURING THE ASSESSMENT PROCEEDINGS, IT WAS WORKED OUT BY THE ASSESSEE AS C9,10,528), DUE TO MENTAL DISTRUST , THE ASSESSEE INADVERTENTLY FORGOTTEN TO INFORM HIS ACCOUNTANT TO CONSIDER THE DEMAT ACCOUNT WITH M/S.KOTAK SECURITIES LTD UNDER T HE IMPRESSION THAT THESE ARE OF SPECULATIVE TRANSACTIONS AND LOSS OF WHICH CANNOT BE CLAIMED AGAINST NORMAL INCOME EVEN THOUGH HIS BA NK ACCOUNT WAS SHOWN IN THE ACCOUNTS WITHOUT UPDATING THE TRAN SACTIONS FROM BANK. THE ASSESSEE WAS ENGAGED IN ON-LINE TRADING OF SHARES FOR THE ASSESSMENT YEAR 2011-12 AND IN THIS SPECULATION ACTIVITY, AS PER ITA NO. 837/MDS/2017. :- 6 -: THE CONTRACT NOTES, THERE WAS NO PHYSICAL DELIVERY OF SHARES GIVEN OR TAKEN AND THE ACCOUNT WAS SETTLED BY CREDITING T HE DIFFERENCE ONLY. THE ASSESSEE NEVER ACQUIRED THE PROPERTY IN THE SHARES, AS THE SHARES CONTRACTED TO BE BOUGHT WERE FUTURE UNAS CERTAINED SHARES AND THE PROPERTY IN THE SHARES CONTRACTED AS PER CONTRACT NOTES WERE NO 'SALE' OR ' TURNOVER' IN THE LEGAL F OR THE PURPOSE OF GETTING ACCOUNTS AUDITED UNDER SECTION 44AB. AS PER STOCK EXCHANGE RULES, BYE-LAWS AND REGULATIONS, IN THE NE TTED TRANSACTIONS, THE DIFFERENCE ONLY EITHER CREDITED O R DEBITED TO THE ACCOUNT OF THE ASSESSEE AND NOT THE SALE/PURCHASE VALUE. THE SALE / PURCHASE VALUE ARE MENTIONED IN CONTRACT NOTES AR E FOR INFORMATION OF THE ASSESSEE FOR CONVENIENCE TO KNO W WHETHER THERE WAS PROFIT OR LOSS IN SHARES DEALINGS OF PARTICULAR SRIPS. LD. AUTHORISED REPRESENTATIVE FURTHER RELIED ON THE F OLLOWINGS JUDICIAL DECISIONS. (I) BAJRANG OIL MILLS VS. ITO, 295 ITR 314 (RAJ). (II) OM STOCK & COMMODITIES (P) LTD VS. DCIT, 150 ITD 645 (ITAT MUM) (III) KALYANI EXPORTS & INVESTMENTS (P) LTD/ JANNHAVI INVESTMENTS (P) LTD/ RAJGAD TRADING (P) LTD VS. DCIT, 78 IT 95 (ITAT, PUNE ) 6. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. ITA NO. 837/MDS/2017. :- 7 -: 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. IN THIS CASE ASSESSEE FILED E-RETURN ON 05 .11.2012 ADMITTING TOTAL INCOME OF C12,48,400/- WITH ACIT, CIRCLE I, VIRUDHUNAGAR. THE RETURN WAS PROCESSED U/S. 143(1) OF THE ACT ON 30.0 8.2013. LATTER, THE ASSESSMENT WAS COMPLETED U/S. 143(3) OF THE AC T DETERMINING THE TOTAL INCOME AT C14,86,270/- THEREBY MAKING AN ADDI TION OF C2,37,869/-. LATTER THE LD. ASSESSING OFFICER INVO KED THE PROVISIONS OF SEC. 271B OF THE ACT AND LEVIED PENALTY OF C1,50,00 0/- AS BOOKS OF ACCOUNTS PRODUCED BY THE ASSESSEE WERE NOT AUDITED BY THE CHARTERED ACCOUNTANT AND NO TAX REPORT WAS FILED ALONGWITH R ETURN OF INCOME THOUGH ASSESSEES TURNOVER EXCEEDED C.60,00,000/- F OR THE ASSESSMENT YEAR. THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF BAJRANG OIL MILLS VS. ITO, 295 ITR 314, WHEREIN IT WAS HELD THAT SUB-SECTION (9) OF SECTION 139 OPERATES WHERE A RETURN HAS BEEN SUBMIT TED BY THE ASSESSEE AND THE ASSESSING OFFICER CONSIDERS WHETHE R THE RETURN OF INCOME FURNISHED BY THE ASSESSEE IS DEFECTIVE. IT R EQUIRES THE ASSESSING OFFICER WHERE HE FINDS THAT THE RETURN SU BMITTED BY THE ASSESSEE IS DEFECTIVE, HE MUST GIVE HIM AN OPPORTUN ITY TO RECTIFY THE DEFECT WITHIN A PERIOD OF FIFTEEN DAYS FROM THE DAT E OF SUCH INTIMATION OR WITHIN SUCH FURTHER PERIOD WHICH, ON AN APPLICAT ION MADE IN THIS BEHALF, THE ASSESSING OFFICER MAY, IN HIS DISCRETIO N, ALLOW ; AND IF THE DEFECT IS NOT REMOVED WITHIN THE SAID PERIOD OF FIF TEEN DAYS OR WITHIN ITA NO. 837/MDS/2017. :- 8 -: THE EXTENDED PERIOD AS MAY BE ALLOWED BY THE ASSESS ING OFFICER, THE RETURN HAS TO BE TREATED AS INVALID AND THE ASSESSE E IS CONSIDERED TO HAVE FAILED TO FURNISH THE RETURN. THE PROVISIONS OF SECTION 139(9) IS OF SINGULAR IMPORTANCE FROM THE POINT OF VIEW TO ALLOW A CHANCE TO THE ASSESSEE TO MAKE HIS RETURN COMPLETE AND SPECIFY TH E DEFECTS WHICH ARE CURABLE AND FOR THE PURPOSE OF CURING THAT DEFE CT AN OPPORTUNITY HAS TO BE OFFERED TO THE ASSESSEE BEFORE THE CONSEQ UENCES OF SUCH DEFECTS FOLLOW. IN OTHER WORDS, THE CONSEQUENCE OF NONCOMPLIANCE WITH THE REQUIREMENT OF FURNISHING OF A VALID RETUR N TAKES EFFECT ONLY AFTER THE ASSESSEE FAILS TO REMOVE THE DEFECTS WITH IN THE TIME ALLOWED UNTIL THE ASSESSEE HAS OPPORTUNITY TO REMOVE SUCH D EFECTS, THE CONSEQUENCE OF SUCH FAILURE TO COMPLY WITH SUCH DEF ECTS CANNOT FOLLOW. IF NO SUCH REPORT IS SUBMITTED THE QUESTION MAY NOT CARRY FURTHER AS IN THAT EVENT THE RETURN ITSELF BECOMES INVALID AND IT BECOMES A CASE WHERE IT IS TO BE DEEMED THAT THE ASSESSEE HAS FAIL ED TO SUBMIT ANY RETURN WHICH MAY LEAD TO CONSEQUENCE OF DEFAULT IN FILING THE RETURN. HENCE, IT CANNOT BE SAID THAT THERE IS ANY FAILURE ON THE PART OF THE ASSESSEE TO FURNISH THE AUDIT REPORT U/S.44AB OF TH E ACT AT THE REQUEST OF THE LD. ASSESSING OFFICER. BEING SO, BY PLACING RELIANCE ON THE JUDGMENT OF RAJASTHAN HIGH COURT IN THE CASE OF BAJRANG OIL MILLS (SUPRA), WE ARE INCLINED TO DELETE THE PENALTY LEVIED U/S. 2 71B OF THE ACT. ITA NO. 837/MDS/2017. :- 9 -: 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOW ED. ORDER PRONOUNCED ON THURSDAY, THE 15 TH DAY OF JUNE, 2017, AT CHENNAI. SD/- SD/- ( . . . ! ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( ! ) (CHANDRA POOJARI) ' / ACCOUNTANT MEMBER '# / CHENNAI $% / DATED: 15TH JUNE, 2017. KV %&'' ()'*) / COPY TO: ' 1 . / APPELLANT 3. ' +',! / CIT(A) 5. )-.' / / DR 2. / RESPONDENT 4. ' + / CIT 6. .0'1 / GF