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Facts
The assessee, a retired Commander, engaged in equity and derivative trading during FY 2014-15 but did not declare these transactions in his income tax return, which was filed late. He incurred overall losses but initially reported a profit of Rs. 7,69,411/- from one broker, ICICI Direct.
Held
The Tribunal held that the Assessing Officer erred in adding the profit from one broker when the assessee had overall losses from other transactions. The Tribunal also noted that the revised computation of income was not rejected by the lower authorities.
Key Issues
Whether the AO can add profit from certain share transactions when the assessee has overall losses, and the return was filed late. Whether the benefit of set-off of losses should be allowed.
Sections Cited
139(1), 250, 271(1)(c)
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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI NARENDER KUMAR CHOUDHRY
Per : Narender Kumar Choudhry, Judicial Member:
This appeal has been preferred by the Assessee against the order dated 20.12.2024, impugned herein, passed by the Ld. Commissioner of Income Tax (Appeal) (in short Ld. CIT(A)) u/s 250 of the Income Tax Act, 1961 (in short ‘the Act’) for the A.Y. 2015- 16.
Sarath Manari Gopinathan 2. In the instant case, from the statement showing profit and loss account it was seen by the AO that the Assessee has made equity transaction of Rs.7,69,411/- but has not filed its return of income within stipulated time period u/s. 139(1) of the Act whereas, income of the profit from the equity shares was of Rs.7,69,411/-. Thus the loss claimed by the Assessee was not allowed by the Assessing Officer and consequently income/profit from the equity share of Rs. 7,69,411/- was taxed in the hands of the Assessee as short term capital gain.
The Assessee being aggrieved challenged the said addition before the Ld. Commissioner and filed following submissions.
“3. In response to notice issued u/s 250 of IT Act the appellant filed return submission as under:
MOST RESPECTFULLY SUBMITTED FOR YOUR LORDSHIPS PERUSAL 1. I am a retired Commander from the Armed Forces and I was represented by a CA Mr. Ajit and Associates in the Appeal for the instant case and he had fled the following response/ FACTS of the Case for the Appeal --- Assesse Mr. Sarath Manari Gopinathan, PAN AFQPG8813A, is Commander in Indian Navy and draws salary in that capacity. During the Financial Year2014-15, Mr. Sarath undertook several transactions in buying and selling of the equities and 20change traded derivatives through the brokers... M/s Progressive Share Brokers Pvt. Ltd., CICI Direct and Globe Capital Market Ltd. From these brokers he made the Net Loss of Rs. Eleven Lakhs Seventy Nine Thousand and Three Hundred Twenty Nine. The assesse had fled the IT return, reflecting the Income from Salaries but not recorded his equity/derivative trading activities in his returns of the relevant Assessment year. However, as can be noted from the Annexure II, he has made severe losses in the said transaction and as such, his omission does not cause any loss to treasury. In her Assessment Order, the learned Assessing Officer has claimed that... "On 14.12.2017, the AR of the assessee fled a statement showing profit & loss from ICICI Direct shown in Annexure 1 claiming income of Rs. 7,69,411/- from the transaction made from equity shares. However, details fled by assessee is considered but the loss claimed by the assessee is not allowed since the assessee has not filed its return of income within Sarath Manari Gopinathan stipulated time period u/s 139(1) of the Act 1961. Whereas the income/proft from the equity shares of Rs. 7,69,411/- is taxed in the hands of the assessee as short term capital gain. Penalty proceedings u/s 271(1)(c) is being initiated for furnishing inaccurate particulars of income." In this regard, we would like to respectfully bring it to the notice of the learned Commissioner (Appeals) that the said Short Term Capital Gain of Rs. 769410 was merely from one broker, ICICI Direct. There are two such other brokers and the net results of transactions from both of them were losses of Rs. 1917510 (Progressive Share Brokers Pvt. Ltd.) and Rs. 31229 (Globe Capital Market Ltd). Thus, under the Source 'Short Term Capital Gain' of the Head 'Income from Capital Gains', the assesse has recorded loss of Rs. 11,79,329, as already mentioned hereinbefore. In such situation, there is No Applicability of the Time Limit to file return u/s 139(1) and in our opinion, the assessing offer in is error to add the aforesaid profit from one particular broker, back to the income of the assessee. On this background, I pray you to reconsider the assessment made and allow us to process for the refund of the 20% of the tax, which we have paid with reference to this assessment order. 2.
I have enclosed the Revised computation of Income along with the Capital gain/loss statements of all my three accounts which clearly shows that overall I had suffered losses and I was not liable for paying short term capital gains tax. Your Lordship, I was a layman serving in the armed forces in 2014-15 and to my limited Knowledge I was liable to pay tax only if I made profits whereas I had made overall severe losses and I had decided not to do share market trading in future and therefore I did not declare my losses/ capital loss in my tax returns Your Lordship, it is also submitted that my ITR refund of Rs 1,60,000/- has also been withheld over the years towards adjustment to the aforesaid impugned Tax demand of Rs 3,04,000/-, therefore it is humbly prayed that this withheld amount should also be released with applicable interest. Furthermore, I have been receiving Demand Notices for the Alleged 70,000/- leftover amount from the Impugned Tax Demand, it is humbly prayed that the appropriate income tax authorities be directed to expunge the aforesaid Demand Notices.
The Ld. Commissioner though considered the aforesaid submissions of the Assessee however, not been impressed, confirmed the aforesaid addition of Rs.7,69,411/- by observing and holding as under:
Sarath Manari Gopinathan “4.The facts of the case, in brief, are that the appellant is a Commander in Indian navy and filed return of income for the AY 2015-16 on 01.08.2016 declaring total income of Rs.8.63.440/- in the head income from salary. As per AIR information, it is noticed that the assessee is doing share transactions which was not declared in the return of income. During the assessment proceedings, the assessee was asked to submit details relating to transactions made as reported in securities transactions reflected in AIR transaction with source and capital gain arising with documentary evidence. In response, the assessee admits that he has not recorded his equity/derivative trading activity in his return of the relevant assessment year. However, he claimed that he has made several losses in the said transactions. On perusal of the details, it seems that the assessee has shown loss from the transactions made through equity shares Rs. 19,17,510/-. Further, the assessee filed a statement showing P/L from ICICI Direct showing income of Rs.7,69,411/- from the transactions made from equity shares.
The AO made addition of Rs.7,69,411/- in the head of short term capital gain, however, the loss claimed by the assessee is not allowed since the assessee has not filed his return of income within the stipulated time period u/s 139(1) of the IT Act.
I have considered the submission of the assessee and assessment order of the AO. On perusal of the records, it reveals that the assessee has not declared transactions of equities and derivatives in return of income. The AO made addition on the basis of information available on records. The losses claimed by the assessee is not allowed as the assessee has not filed his return of income within the stipulated time period u/s 139(1) of the IT Act.
Considering the above facts, addition made by the AO is confirmed. In the result, the appeal is dismissed.”
The Assessee being aggrieved is in appeal before this Court.
Heard the parties and perused the material available on record and given thoughtful consideration to the rival claims of the parties. Admittedly the Assessee has also made losses in the transaction of shares carried out from Progressive Shares Brokers Pvt. Ltd and Glob Capital Market Ltd., respectively to the tune of Rs.19,17,510/- and Rs. 31,229/- but inadvertently or due to lack of Sarath Manari Gopinathan knowledge in the original return of income had shown the income Rs.7,69,411/- received from ICICI direct only. Somehow on realizing his mistake, the Assessee revised his computation of income along with capital gain/loss statement of all three accounts maintained and ultimately shown/recorded loss of Rs.11,79,329/- and therefore, has claimed that no tax liability is accruable on the Assessee.
Both the authorities below mainly on the reason that the Assessee has not filed his return of income within stipulated time period u/s. 139(1) of the Act, disallowed such claim of the Assessee and consequently made and upheld the addition of Rs.7,69,411/- as short term capital gain. The Assessee before this court has submitted that he is not asking for carrying forward of the losses but in fact requesting for settling off, of the losses.
Admittedly, the return revised along with computation of income and capital gain/loss statement has not been rejected by both the authorities below. It is the mandate of law as enshrined in Article 265 of the Constitution of India, as reminded by Hon’ble Apex Court as well as Hon’ble High Courts that no tax can be levied or collected except by authority of law. In simple terms, tax can be levied only in accordance with law, but not otherwise.
Admittedly in the instant case, the Assessee has incurred losses from the share transactions carried out by him and therefore, considering the mandate of law mentioned above, this court is inclined to allow the appeal of the Assessee and consequently the Assessing Officer is directed to re-compute the tax liability by taking into consideration all transactions of shares, carried out by the Assessee, in the AY under consideration.
In the result, Assessee’s appeal is allowed, in the above terms.
Order pronounced in the open court on 22.05.2025.