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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI PAVAN KUMAR GADALE
�थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AAACS7140Q Appellant .. Respondent Appellant by : Shri.Rajiv Khandelwal.AR Respondent by : Shri P. Daniel, Special Counsel Date of Hearing 21.12.2022 Date of Pronouncement 31.01.2023 आदेश / O R D E R PER PAVAN KUMAR GADALE JM: These are the appeals filed by the assessee against the separate orders of the Commissioner of Income Tax (Appeals)-49, Mumbai passed u/s 143(3) r.w.s 147 and 250 of the Act.
Since the issues in these two appeals are common and identical, hence are clubbed, heard and consolidated order is passed. For the sake of convenience, shall take up the ITA No. & 362/Mum/2021 NH Securities Ltd, Mumbai. - 2 - 361/Mum/2021 for the A.Y. 2013-14 as a lead case and the facts narrated. The assessee has raised the following grounds of appeal:
1. The Commissioner of Income-tax (Appeals) - 49, Mumbai (hereinafter referred to as the CIT(A)) erred in upholding the action of the Deputy Commissioner of Income-tax, Central Circle 7(1), Mumbai (hereinafter referred to as the Assessing Officer) in issuing notice under section 148 of the Act. The appellants contend that on the facts and in the circumstances of the case and in law, the CIT(A) ought not to have upheld the action of Assessing Officer inasmuch as the notice issued under section 148 is bad in law and consequently, the assessment order needs to be quashed.
2. The CIT(A) erred in upholding the action of the Assessing Officer in disallowing Rs 9,77,881, being loss on mark-to-market valuation of stock-in-trade at the year- end on the ground that the appellants have not carried out any business activity during the year under reference.
The appellants contend that on the facts and in the circumstances of the case and in law, the CIT(A) ought not to have upheld the action of Assessing Officer in making the impugned disallowance inasmuch as the Assessing Officer has not correctly appreciated the facts of the case in its entirety.
The CIT(A) erred in upholding the action of the Assessing Officer in charging interest Rs 1,20,764 and Rs 4,91,682 under sections 234A and 234B of the Act, respectively.
& 362/Mum/2021 NH Securities Ltd, Mumbai. - 3 -
The appellants contend that the Assessing Officer ought not to have charged impugned interest under sections 234A and 234B inasmuch as – (a) the Assessing Officer has not given an opportunity to the appellants before charging the said interest as required by the principles of nature justice, (b) the charging of interest is not in accordance with law. The appellants crave leave to add to, alter or amend the aforestated grounds of appeal
2. The brief facts of the case are that the assessee company is engaged in the business of trading in shares and securities. The assessee has filed the return of income for the A.Y 2013-14 on 06.12.2017 disclosing a total income of Rs. 1,07,930/- in lieu of notice u/s 148 of the Act and the assessee was provided reasons for reopening of the assessment. The Assessing Officer (AO) has issued notice u/s 143(2) and 142(1) of the Act. In compliance to the notice, the Ld. AR of the assessee appeared from time to time and submitted the details and the case was discussed. On perusal of the financial statements, the AO found that the assessee has claimed certain expenses and loss in the financial statements and further no business activity was carried out by the & 362/Mum/2021 NH Securities Ltd, Mumbai. - 4 - assessee during the year under consideration and a show cause notice was issued. In compliance to show cause notice, the assessee has furnished the submissions referred at Page 2 Para 4.2 of the order as under:
4.2 In response to the above, the AR of the assessee, vide his letter dated 22.12.2017 has stated as under:
"As regards to the proposed disallowance of the entire operating and other expenses on the ground that our clients have not carried on any business activity the year reference, we submit as follows:-
There are two indivisible business/division of our clients namely, broking and trading. The Securities Appellate Tribunal (SAT) by its order dated 04.05.2007 has confirmed the debar/cancellation of certificate of registration by the SEBI of our clients form carrying on any broking activity. However, no such bar has been imposed by the SEBI on the trading business/division of our clients.
As such, though there is undoubtedly suspension of broking activity by virtue of the aforesaid order of the SAT, there is no such suspension of trading activity. Our clients are holding stock-in-trade Rs. 8,86,833/- as at the year-end and have claimed diminution on the same Rs. 9,77,881/-. Therefore, our clients cannot be said to be not carrying on any business during the year under reference.
In view of the above our clients should be treated to have carried on business activity during the year under & 362/Mum/2021 NH Securities Ltd, Mumbai. - 5 - reference and consequently, the expenses claimed by our clients ought to be allowed 3. The AO was not satisfied with the explanations for the claims in the profit and loss statement as the assessee has not carried out any business activity and the assessee has earned interest income on fixed deposits and dividend which are locked with the various government authorities and was disclosed under other sources. The assessee has claimed the loss in the revenue operations due to valuation of the stock of shares at the end of year. Further, the AO found that the Hon’ble SAT vide order dated 04.05.2007 has upheld the cancellation of the certificate of registration by the SEBI from carrying on any broking activity and as per the order of the SEBI the company could not carry any trading activities. The AO found that the loss disclosed by the assessee company is on account of diminution in the value of shares and such activities cannot be considered as carrying on business activity and there is no receipt or accrual of any business receipts and the closing stock has been carry forward from year to year and the loss in the valuation of the shares was claimed.
& 362/Mum/2021 NH Securities Ltd, Mumbai. - 6 - The A.O. dealt on the applicability of provisions and judicial decisions and observed that the claim cannot be allowed and therefore made a disallowance of expenses and depreciation aggregating to Rs. 30,48,011/- and trading loss of Rs. 9,77,881/- due to valuation of the shares as there is no trading activity and assessed the total income of Rs.41,33,820/- and passed the order u/s 143(3) r.w.s 147 of the Act dated 29.12.2017.
Aggrieved by the order, the assessee has filed an appeal before the CIT(A) challenging the validity of assessment and claim of expenses and claim of loss on valuation of securities. Whereas the CIT() considered the grounds of appeal, submissions of the assessee and findings of the AO and has confirmed the disallowance of Rs. 9,77,881/- being notional loss due to valuation of shares as the assessee has not carried out any business activity during the year and granted relief in other grounds of appeal and partly allowed the assessee appeal. Aggrieved by the CIT(A) order, the assessee has filed an appeal before the Hon’ble Tribunal. & 362/Mum/2021 NH Securities Ltd, Mumbai. - 7 -
5. At the time of hearing, the Ld. AR submitted that the CIT(A) has erred in confirming the validity of the re assessment proceedings and disallowance of loss on mark to market valuation of stock in trade irrespective of the fact that the assessee has only made the claim though there are no activities and substantiated the submissions with paper book and prayed for allowing the appeal.
6. Contra, the Special Counsel Mr. Daniel submitted that it’s a group concern of Ketan V. Parikh 2001 scam and the assessee cannot claim the loss on valuation of stock in trade of shares and further the assessee has also not brought on record with any decisions to support the allowing the claim and prayed for dismissal of assessee appeal.
Heard the rival submissions and perused the material on record. At the time of hearing the Ld. AR of the assessee has not pressed the ground of appeal No.1with respect to validity of reassessment proceedings and the same is treated as not pressed dismissed. In respect of loss debited to the profit and loss account being loss on mark to market valuation & 362/Mum/2021 NH Securities Ltd, Mumbai. - 8 - of stock in trade on the year end. The Ld. AR submitted that though the assessee has not carried out any business activity but the assessee has only made a claim in valuation of the shares. The assessee was engaged in the business of merchant banking, stock broker till April 2001. The Ld. AR referred to financial statements at page 40 of the paper book where the audited balance sheet of the assessee company is placed. In particular the assessee has referred to page 41 of the paper book being the profit and loss account where the assessee has disclosed only loss in stock valuation of Rs. 9,77,881/-. Whereas the assessee has claimed overheads including depreciation under schedule 7 & 14 of the profit and loss account which includes various expenses of running the administration of the asssessee company aggregating to Rs.30,06,897/- and was allowed by the CIT(A). The Ld.AR submitted that the assessee has disclosed loss of valuation of the stock being the diminishing of value of the script and referred to page 57, 58 & 59 of the paper book and explained the nature of holding of stock in trade and the value. Prima-facie the Ld.AR wants to & 362/Mum/2021 NH Securities Ltd, Mumbai. - 9 - demonstrate that the claim was made in earlier year and the department has accepted the same when a query was raised with respect to nature of claim made in the earlier years and subsequent years the Ld. AR requested some time to submit the details. Further, the Special Counsel submitted that the SEBI by order dated 08.03.2001 has debarred the assessee company from any share trading activity and appeal was also dismissed by the SAT on 04.05.2007 and finally the Hon’ble Supreme Court has passed the order to confirm the suspension as a broking trader on 18.05.2007.The Special Counsel has also placed reliance on the similar issue in the case of KNP Securities Pvt Ltd Vs. ACIT in & 5009/Mum/2007 for the A.Y 2003-04 & 2004-05 dated 29.05.2009 and highlighted on the discontinuance of the business.Therefore Considering the facts, circumstances, submissions and judicial orders ,the facts emanates that the asssessee is not engaged in the business activities as per the audited financial statements and prima facie the valuation of shares held as stock in trade has to be considered when there is activity in the business operations of & 362/Mum/2021 NH Securities Ltd, Mumbai. - 10 - the asssessee, the Ld.AR contentions that the claim of expenses was allowed by the appellate authority cannot be basis and the stock in trade shall be effective only when there is activity of business operations and on perusal of page 41 &42 of the paper book, the assessee has claimed similar loss on valuation in the profit & loss for the previous year ending 31-03-2012.The Ld.AR has filed the assessment order passed under u/sec143(3) r.w.s147 dated 30-03-2016 were the A.O. has accepted the claim of valuation of shares. Therefore to meet the ends of justice and for limited purpose restore the issue to the file of the A.O. to verify the claim and decide on the merits considering the facts as discussed and allow the grounds of appeal for statistical purpose.
ITA.No.362/Mum/2021, A.Y 2014-15
As the facts and circumstances in this appeal and ground of appeal
no 1 & 3 are identical to A.Y 2013
14. (except variance in figures) and the decision rendered in above paragraph 7 would apply mutatis mutandis and the disputed & 362/Mum/2021 NH Securities Ltd, Mumbai. - 11 - issue is restored to the file of the A.O. with the similar directions. And were as the ground of appeal no 2 pertains to claim of write off of sundry debtors, and on perusal of the lower authorities order, no information was submitted pertaining to claims and therefore shall provide one more opportunity to the asssesee to substantiate with the information and the issue is restored to the file of the assessing officer to examine the details and accordingly allow the grounds of appeal for statistical purpose .
In the result, both the appeals filed by the asssessee are partly allowed for statistical purpose.
Order pronounced in the open court on 31.01.2023.