Dy.CIT, Circle-3(3), Hyderabad V. M/s.Zen Securities Limited, Hyderabad

ITA 936/HYD/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5563 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 11-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI B.RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 936 /HYD/1 2 : ASSESSMENT YEAR 200 4 - 0 5 DY. COMMISSIONER OF INCOME - TAX CIRCLE 3(3), HYDERABAD V/S. M/S. ZEN SECURITIES LIMITED, HYDERABAD ( PAN - AA A C Z 0682 Q ) (APPELLANT) (RESPONDENT) C.O. NO.02/HYD/2013 (IN ITA NO. 936 /HYD/1 2) : ASSESSMENT YEAR 200 4 - 0 5 M/S. ZEN SECURITIES LIMITED, HYDERABAD ( PAN - AA A C Z 0682 Q ) V/S. DY. COMMISSIONER OF INCOME - TAX CIRCLE 3(3), HYDERABAD ( CROSS - OBJECTOR) ( APPELLANT - IN - APPEAL ) DEPARTMENT B Y : S MT. K. HARITHA DR ASSESSEE BY : SHRI V.RAGH AVENDRA RAO DATE OF HEARING 6 . 3 .2014 DATE OF PRONOUNCEMENT 28.3.2014 O R D E R PER SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER: THIS APPEAL BY THE REVENUE AND CROSS - O BJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME - TAX(APPEALS) GUNTUR DATED 22.3.2011 FOR THE ASSESSMENT YEAR 2004 - 05. 2. LET US FIRST TAKE UP FOR CONSIDERATION, THE APPEAL OF THE REVENUE. ITA NO. 936 / HYD/20 1 2 & CO M/S. ZEN SECURITIES LIMITED, HYDERABAD 2 3. EFFECTIVE GROUNDS OF THE REVENUE IN ITS APPEAL RE AD AS FOLLOWS 1. THE LEARNED COMMISSIONER OF INCOME - TAX(APPEALS) HAS ERRED BOTH ON FACTS AND IN LAW. 2. THE LEARNED CIT(APPEALS) ERRED IN ALLOWING THE ASSESSEES CLAIM OF DECREASE IN STOCK - IN - TRADE AS THE SAME IS NOT AN ALLOWABLE EXPENDITURE 3. THE LEARNED CIT(APPEALS) HAS NOT APPRECIATED THE FAC T THAT THE DECREASE IN STOCK VALUE DOES NOT MATCH WITH THE DIFFERENCE BETWEEN OPENING/CLOSING STOCK VALUES AS PER BALANCE SHEET. 4. . 4 . FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE COMPANY ENGAGED IN THE BUSINESS OF STOCK AND SHARE BROKING, FIL E D ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2004 - 05 ON 28.10.2004, ADMITTING TOTAL INCOME OF RS .3,27,53,164. ASSESSMENT WAS COMPLETED UN D ER S.143(3) OF THE ACT ON 26.0 6.2006, ACCEPTING THE INCOME RETURNED BY THE ASSESSEE. TH E REAFTER, IT WAS NOTICED TH AT THE ASSESSEE DEBITED AN AMOUNT OF RS.15 , 62 , 946 TOWARDS DECREASE IN STOCK - IN TRADE TO THE PROFIT & LOSS ACCOUNT; AND THE SCHE D ULE 6 TO THE BALANCE SHEET AS AT 31.3.2004, VIZ. CURRENT ASSETS REFLECTED THE OPENING STO C K - IN - TRADE AS ON 1. 4 .2003 AND CLOSIN G - STOCK IN TRADE AS ON 31.3.2004 AT RS.70,13,805 AND RS.90,05,655 RESPECTIVELY. FROM THIS, IT WAS OBSERVED THAT THE D EC R EASE IN STOCK IN TRADE DEBI T ED TO THE PROFIT & LOSS ACCOUNT AS ON 31.3.2004, IS NOTHING BUT NOTIONAL DECREASE IN VALUE O F THE S TOCK - IN - TRADE(SHARES), WHICH IS NO T AN ALLOWABLE EXPENDITURE AND CONSEQUENTLY, THE I N COME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. THE CASE WAS ACCOR D IN G LY REOPENED UNDER S.148 OF TH E AC T, AND THE RE - ASSESSMENT WAS ACCORDINGLY COMPLETED BY DISALLOWING TH E LOSS CLAIMED ON ACCOUNT OF DECREASE IN VALUE O F STOCK AMOUNTING TO RS.15,62,946, ON A TOTAL INCOME OF R S .3,43,16,106, VIDE ORDER OF ASSESSMENT DATED 29.10.2009 PASSED UNDER S.143(3) READ WITH S.147 OF THE ACT. 5. ON APPEAL BEFORE THE CIT(A), LEAR NED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE FURNISHED DETAILS OF SHARE QUOTES DOWN LOADED FORM THE WEB SITE OF NSE AND BSE AS ON 31.3 . 2004, WHICH HAVE BEEN ADO P TED FOR THE ITA NO. 936 / HYD/20 1 2 & CO M/S. ZEN SECURITIES LIMITED, HYDERABAD 3 PU RP O S E OF VALUATION OF CLOSING STOCK OF SHARES AS ON THAT DATE, AND ALSO FURNIS HED ELABORATE EXPLANATION OPPOSING THE ADDITION MADE BY THE ASSESSING OFFICER, AND SUBMITTED THAT AS PER TH E CONSISTENT METHOD O F ACCOUN T IN G FOLLOWED BY TH E ASSESSEE , TH E STOCK IN TRA D E(QUOTED SHARES ) IS VALUED AT COST OR MARKET VALUE WHICHEVER IS LO W ER, W HICH IS A MET H OD WELL RECOGNISED IN TRADE, RECOMMENDED BY THE ACC OUNTIN G STANDARDS, AND DULY R E FLECTED IN THE BOOK S FO ACCOUNT. THE CIT(A), ON DUE CONSIDERATION OF THE MATTER, DELETED THE ADDITION MADE BY TH E ASSESSING OFFICER, IN THE FOLLOWING MANNER - 4.4. .I HAVE CON S I D ERED THE SUBMI S SION S MADE BY TH E APPELLANT, GONE THROUGH THE O R DER OF THE AO, P ERUSED THE M A TERIAL PL A CED BEFORE ME, IN C LU D IN G TH E CITATIONS RELIED ON BY TH E APPELLANT. TO START WITH, IT MAY B E NO T ED THAT THE APPELLANT HAS BEEN FOLLOWI NG TH E SAME METHOD O F VALUING CLOSING STOCK YEAR AFTER YEAR CONSISTENT L Y, WHICH HAS NEVER BEEN QUESTIONED BY T HE REVENUE. IT IS TRUE TH A T THE APPELLANT HAS BEEN FOLLO W IN G THE VALUATION OF CLOSING STOCK ADOPTING TH E CO S T PRICE OR MARKET VALUE WHICHE V ER IS LESS AS AT THE LAST DATE OF T H E ACCOUNTING YE A R. TH E DETAILS O F SHARE QUOTES DOWN LOADED FORM THE WEB SITE OF NSE AND B SE AS ON 3 1 . 0 3.2004, WHICH HAVE BEEN ADOPTED FOR THE PURPO S E OF VALUATION OF CLOSING STOCK OF SHARES AS ON THAT DATE BY THE APPELLANT IS APP R ECIATED. IT I S A SETTLED MATER THAT IN SH A RE TRANSAC T IONS THE NOTIONAL LO S S OR NOTIONAL PROFIT AT THE END O F THE Y E AR HAS TO BE ALLOWED TO GIVE REALISTIC POSITION AT THE END OF EACH YEAR. A NOTIONAL LO S S IN A YEAR WOULD BE E RASED, IF THE MARKET IS IMP ROVED SUBSEQUENTLY, OR BY THE TIM E SALES ARE AFFECTED MIGHT RESULT INTO PROFITS. THUS, IN THE GIVEN FACTS AND CIRCUMSTANCES O F THE CASE, THE NOTIONAL LOSS IS AN ALLOWABLE CLAI M AND AS SUCH THE AO IS DIRECTED TO ALLOW THE SAME. 6. AGGRIEVED BY THE RELIEF GRANTED BY THE CIT(A) AS ABOVE, REVENUE IS IN APPEAL BEFORE US. 7. WE HEARD BOTH SIDES AND PE R USED THE ORDERS OF THE REVENUE AUTHORITI E S AND OTHER MATERIAL ON RECORD. IT IS EVIDENT FROM THE IMPUGNED ORDERS OF THE REVENUE AUTHORI TIES, THAT THE ASSESSEE - COMPANY HAS BEEN CONSISTENTLY FOLLOWING THE SAME METHOD OF VALUATION OF STOCK - IN - TRADE SINCE ITS INCEPTION IN 1995. AS PER THE SAID METHOD, THE STOCK IS VALUED AT COST OR MARKET VALUE, AT THE END OF EACH YEAR, WHICHEVER IS LOWER. THE EFFECT OF DECREASE OR INCREASE IN THE VALUE OF STOCK IN TRADE YEAR OR AFTER IS TAKEN CARE IN THE CONSISTENT METHOD FOLLOWED BY THE ASSESSEE. THE DETAILS OF SHARE QUOTES DOWNLOADED FROM THE WEBSITES OF NSE AND BSE AS ON 31.3.2004, WHICH HAVE ITA NO. 936 / HYD/20 1 2 & CO M/S. ZEN SECURITIES LIMITED, HYDERABAD 4 BEEN ADOPT ED FOR THE PURPOSES OF VALUATION OF CLOSING STOCK OF SHARES, AS ON THAT DATE, HAVE BEEN FURNISHED BEFORE THE REVENUE AUTHORITIES. SINCE THE SAID METHOD ADOPTED BY THE ASSESSEE IS A WELL RECOGNISED ONE AND ACCEPTED EVEN BY THE DEPARTMENT IN EARLIER YEARS, THERE IS NO REASON FOR DISTURBING THE SAME IN THE YEAR UNDER APPEAL, IN THE ABSENCE OF ANY DISTINGUISHING FACTS/CIRCUMSTANCES NOTICED BY THE REVENUE. WE ARE IN AGREEMENT WITH THE REASONING GIVEN BY THE CIT(A), IN PARA 4.4 OF THE IMPUGNED ORDER, WHICH WE H AVE EXTRACTED HEREINABOVE, FOR DELETING THE ADDITION MADE BY THE ASSESSING OFFICER. WE FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE CIT(A) ON THIS ASPECT. WE ACCORDINGLY UPHOLD THE SAME AND REJECT THE GROUNDS OF THE REVENUE IN THIS APPEAL. 8. IN THE RESULT, REVENUES APPEAL IS DISMISSED. 9. NOW TURNING TO THE CROSS - OBJECTION OF THE ASSESSEE, THOUGH CERTAIN GROUNDS, NUMBERING FOUR, HAVE BEEN RAISED ORIGINALLY, TO RECTIFY A MISTAKE WHICH ALLEGEDLY CREPT IN GROUND NO.3, REVISED GROUNDS HAVE BEEN FILED, BUT ULTIMATELY, IN ALL THESE GROUNDS, EFFEC TIVE GRIEVANCE OF THE ASSESSEE IS WITH REGARD TO THE LEGALITY AND VALIDITY OF THE REOPENING OF ASSESSMENT MADE BY THE ASSESSING OFFICER UNDER S.148 OF THE ACT. 10. THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT INI TI ATION OF RE - ASSESSMENT PROCE EDINGS IS AGAINST THE PROVISO TO S.147 OF THE ACT, B E CAU S E THE ASSESSMENT WAS ORIGINALLY COMPLET E D UN DER S.143(3) OF THE ACT ON 26.6.2006 AND THE INITIATION BY A NOTICE UNDER S.148 DATED 6.4.2009, HAS BEEN DONE AFTER MORE THAN FOUR YEARS AFTER THE END OF THE ASSESSMENT YEAR. SIN C E THERE WAS NO FAILURE ON THE P A RT OF THE ASSESSEE TO DISCLOSE THE MATERIAL FACTS, WHICH IS CLEAR FROM TH E LETTER OF THE ASSESSING OFFICER DATED 7.7.2009 , IN REPLY TO THE ASSESSEES REQUEST FOR REA S ONS FOR REOPENING. 11. THE L EARNED DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE REVENUE AUTHORITIES. ITA NO. 936 / HYD/20 1 2 & CO M/S. ZEN SECURITIES LIMITED, HYDERABAD 5 11. WE HEARD BOTH SIDES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AND OTHER MATERIAL ON RECORD. IN THE FIRST PLACE, WE MAY NOTE THAT THE CIT(A) HAS NOT DEALT WITH THIS ISSUE IN THE IMPUGNED ORDER. IN ANY EVENT, SINCE WE HAVE DECIDED THE MERITS OF THE ADDITION MADE BY THE ASSESSING OFFICER IN THE RE - ASSESSMENT, IN FAVOUR OF THE ASSESSEE, CONFIRMING THE ORDER OF THE CIT(A), WHILE DEALING WITH THE REVENUES APPEAL HEREINABOVE, THE ISSUE RAISED BY THE ASSESSEE IN THE CROSS - OBJECTIONS, HAS BECOME ACADEMIC IN NATURE. HENCE, WE ARE NOT INCLINED TO GO INTO THE SAME. AS SUCH, THE ASSESSEES GROUNDS IN THE CROSS - OBJECTIONS, ARE REJECTED. 12. IN THE RES ULT, REVENUES APPEAL AS WELL AS ASSESSEES CROSS - OBJECTION ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 28 TH MARCH, 2014 SD/ - SD/ - ( B.RAMAKOTAIAH ) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER DT/ - 28 TH MARCH, 2014 COPY FORWARDED TO: 1. M/S. ZEN SECURITIES LIMITED, 101 VIJAYASREE APARTMENTS, NAGARJUNA NAGAR COLONY, AMEERPET, HYDERABAD 2 . DY. COMMISSIONER OF INCOME - TAX CIRCLE 3(3), HYDERABAD 3. 4. COMMISSIONER OF INCOME - TAX(APPEALS) GUNTUR COMMISSIONER OF INCOME - TAX III HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S