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Income Tax Appellate Tribunal, MUMBAI BENCH “G”, MUMBAI
Before: SHRI PAVAN KUMAR GADALE & SHRI GAGAN GOYAL
PER GAGAN GOYAL, A.M: This appeal by assessee is directed against the order of National Faceless Appeal Centre (for short “NFAC”) dated 10.02.2023 u/s. 250 of the Income Tax Act, 1961 (in short ‘the Act’) for A.Y. 2016-17. The assessee has raised the following grounds of appeal:-
Gunita Pradeep Kapur 1. The National Faceless Appeal Centre [hereinafter referred to as 'NFAC'] is not justified in upholding the actions of the Income Tax Officer, Ward 19(1)(3), Mumbai [hereinafter referred to as 'Ld. A.O.'] in disallowing the loss amounting to Rs. 35,81,745/- without considering the fact that the turnover of the Appellant is below the monetary limit of Rs.1 crore and hence, not required to get her books of accounts audited as per the provisions of section 44AB of the Act. Thus, the order passed by the NFAC is unlawful, bad in law and the same may be quashed and set aside.
2. The NFAC is not all justified in upholding the disallowance of loss amounting to Rs. 35,81,745/- without considering the said method employed by the Ld. A.O. for computing the turnover is not in accordance with the method provided by the statutory body, ICAI. Hence, the disallowance of loss is not valid, bad in law and hence, the same may be deleted.
The Brief facts of the case are that assessee individual filed her return of income on 01-08-2016, declaring total income at Rs. NIL and has shown loss of Rs. (-) 20,84,742/-. Case of the assessee was selected for scrutiny under CASS and relevant statutory notices were issued. During the assessment proceedings, assessee submitted revised statement of income showing loss of Rs. (-) 35, 81,745/- on account of loss from commodity transactions under the head Income from Business & Profession. AO, in his order relying on the decision of Hon’ble Apex Court [2006] 157 Taxman 1 (SC) Goetze (India) Ltd. v. CIT and default in getting her accounts audit u/s. 44AB, disallowed the claim of assessee for revised figure of loss. Assessee being aggrieved with this order of AO preferred an appeal before the Ld. CIT (A),
Gunita Pradeep Kapur who in turn confirmed the action of AO. Assessee being further aggrieved preferred this appeal before us.
We have gone through the order of AO, Order of Ld. CIT (A) and submissions of the assessee alongwith grounds of appeal raised before us. Issue before us pertains to allowability or otherwise of the loss claimed by the assessee amounting to Rs. (-) 35, 81,745/-. Issue of penalty is not there before us, although substantially discussed in assessment order, appeal order and in assessee’s own submissions. Case of the assessee is no account case as assessee is not claiming any other expenses under the Head “Business and Profession” other than loss on account of commodity transactions by virtue of dealing in derivatives, future and options of the same.
During the assessment proceedings, assessee vide letter dated: 22.12.2018 submitted before AO that loss from Future & Options transactions was (-) 35, 81745/-, but inadvertently claimed at Rs. (-) 20, 84,743/-. To substantiate her claim assessee filed Global Report and Ledger issued by her Broker M/s. Philips Commodities India Pvt. Ltd. Same is produced before the Ld. CIT (A) also and placed on record before us also vide Page Nos. 20 to 25 and 40 to 49 of the paper books, dated: 06.09.2023 and 12.10.2023 respectively. On facts and figure of the matter there is no dispute by the authorities below, the only issue involved is whether assessee can claim revised figure of loss before the AO and can the same be claimed in absence of Tax Audit Report u/s. 44AB of the Act.
There is no challenge on figures claimed by the assessee based on Global Report and Ledger issued by her Broker M/s. Philips Commodities
Gunita Pradeep Kapur India Pvt. Ltd. As far as issue of accepting the loss by AO on revised computation is concerned, [2006] 157 Taxman 1 (SC) Goetze (India) Ltd. v. CIT is applicable on AO and not on Ld. CIT(A) and Income Tax Appellate Tribunal. If First Appellate Authority is otherwise, not doubting the figures of loss claimed by the assessee, he is duly empowered and duty bound to accept the claim of assessee, subject to verification of documents and evidences produced by the assessee. In this case assessee has already filed relevant documents pertaining to loss claimed by her, i.e., Global Report and Ledger issued by her Broker M/s. Philips Commodities India Pvt. Ltd. before the Ld. CIT (A). We have gone through the documents relating to transactions of F & O entered into by the assessee and found the same to be in order. This view is being fortified by the Hon’ble Apex Court in the case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 (SC).
As far as reliance of AO and Ld. CIT (A) on section 44AD of the Act is concerned, we find the same to be mis-placed on the given facts of the assessee. For sake of clarity and ready reference we are reproducing herein below the provisions of section 44AD of the Act as under:
“[Special provision for computing profits and gains of business on presumptive basis. 44AD. (1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an eligible assessee engaged in an eligible business, a sum equal to eight per cent of the total turnover or gross receipts of the assessee in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the eligible assessee, shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession" : [Provided that this sub-section shall have effect as if for the words "eight per cent", the words "six per cent" had been substituted, in respect of the amount of total turnover or gross receipts which is received by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account [or through such other electronic mode as may be prescribed] during the previous year or before the due date specified in sub-section (1) of section 139 in respect of that previous year.] (2) Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed. (3) The written down value of any asset of an eligible business shall be deemed to have been calculated as if the eligible assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years. [(4) Where an eligible assessee declares profit for any previous year in accordance with the provisions of this section and he declares profit for any of the five assessment years relevant to the previous year succeeding such previous year not in accordance with the provisions of sub-section (1), he shall not be eligible to claim the benefit of the provisions of this section for five assessment years subsequent to the assessment year relevant to the previous year in which the profit has not been declared in accordance with the provisions of sub-section (1). (5) Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee to whom the provisions of sub-section (4) are applicable and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB.] [(6) The provisions of this section, notwithstanding anything contained in the foregoing provisions, shall not apply to—
(i) a person carrying on profession as referred to in sub-section (1) of section 44AA;
(ii) a person earning income in the nature of commission or brokerage; or (iii) a person carrying on any agency business.]
Explanation. —For the purposes of this section, —
(a) "Eligible assessee" means, —
(i) an individual, Hindu undivided family or a partnership firm, who is a resident, but not a limited liability partnership firm as defined under clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008 (6 of 2009); and (ii) who has not claimed deduction under any of the sections 10A, 10AA, 10B, 10BA or deduction under any provisions of Chapter VIA under the heading "C.—Deductions in respect of certain incomes" in the relevant assessment year;
(b) "Eligible business" means, —
(i) any business except the business of plying, hiring or leasing goods carriages referred to in section 44AE; and (ii) whose total turnover or gross receipts in the previous year does not exceed an amount of [two crore rupees].]
Following provisos shall be inserted after sub-clause (ii) of clause (b) of Explanation to section 44AD by the Finance Act, 2023, w.e.f. 1-4-2024:
Provided that where the amount or aggregate of the amounts received during the previous year, in cash, does not exceed five per cent of the total turnover or gross receipts of such previous year, this sub-clause shall have effect as if for the words "two crore rupees", the words "three crore rupees" had been substituted:
Provided further that for the purposes of the first proviso, the receipt of amount or aggregate of amounts by a cheque drawn on a bank or by a bank draft, which is not account payee, shall be deemed to be the receipt in cash.
In view of above, Section 44AD of the Act can’t be a reference point for the matter under consideration, as the same deals with regular business in retail of Goods etc. Whereas here the profit or loss is arising from derivatives/ future & options of shares/commodities and range of loss or profit is infinite, subject to margin capacity of person to person. Hence, order of the authorities below relying on section 44AD of the Act is found to be mis-placed and decision taken thereon is also find to be faulty.
As far as non-maintenance of books of accounts and consequent tax audit is concerned that issue is not before us to adjudicate, but the same can’t be the reason for disallowing the assessee’s claim. As the assessee did not carry any other business and not claiming any loss/expense other than F & O loss, which is Gunita Pradeep Kapur ascertainable from an authentic document, i.e., Global Report submitted by the assessee. In view of the above observations, ground relating to allowability of loss claimed by the assessee is allowed.
In the result, appeal of the assessee is allowed.