HARISH KUMAR BIYANI,KOLKATA vs. A.C.I.T.,CIRCLE-34, KOLKATA

The main grievance of the assessee is against the action of the ld. CIT(A) in not allowing the assessee’s claim of short term capital loss of ₹46,35,928/- which the assessee claimed to have occurred on sale of shares of M/s. Titan Industries Ltd. (hereinafter M/s. TIL) and against the action of the ld. CIT(A) in confirming the addition of ₹2,99,509/- on this transaction.

Brief facts of the case as noted by the AO is that the assessee is engaged in the business of trading in shares, share derivatives and currency derivatives. Since the assessee had claimed short term capital loss of ₹46,35,928/- and consequently the claim of loss had to be carried forward, the AO asked for the details of the loss claimed by the assessee. According to the AO, the assessee submitted the details as Assessment Year: 2012-13 Harish Kumar Biyani. per which it discerned that the assessee had purchased 19500 shares of M/s. TIL during the period between 26.10.2010 to 02.05.2011 for a total consideration of ₹96,70,974/- and sold the same during the period between 22.09.2011 to 20.03.2012 for a sum of ₹52,34,946/- resulting in loss of ₹46,35,928/-. According to the AO from the details given by the assessee it was noted that the assessee had bunched the purchase transactions on different dates and did not specify the rate of scrip purchased on different dates. So the AO asked the assessee to file the copies of the contract notes in respect of purchase and sales of these shares and also asked to explain the reasons for treating the transactions in the shares of M/s. TIL on capital account, when the transactions in all other shares are on trading account. The AO also asked the assessee to file details of investments shown in balance sheet as on 31.03.2011 and also on 31.03.2012. The AO also mentioned in the assessment order that the assessee sold shares amounting to ₹1,17,71,947/- during the relevant assessment year other than the shares of M/s. TIL which were all treated as on trading account. The AO notes that pursuant to the notice, the assessee had filed a list of shares shown under the “Investments” as on 31.03.2011 and as on 31.03.2012 totalling to ₹65,29,478/- and ₹78,63,614/- respectively. Thereafter the AO records in para 5 which is as under:

Thereafter the AO was of the opinion that the shares of M/s. TIL has been purchased by the assessee as stock in trade because the assessee has not filed any evidence in the form of copy of demat account which can prove that the shares of M/s. TIL was held on capital account (investment and not trading). Thereafter the AO treated the sale of shares of M/s. TIL as on trading account and applying the weighted average computed profit on sale of shares of M/s. TIL at ₹2,99,509/- instead of the claim made by the assessee of short term loss of ₹46,35,928/-.

Aggrieved, the assessee preferred an appeal before the ld. CIT(A) who confirmed the same.

Aggrieved, the assessee is before me.

Having heard both the parties it is noted that the assessee is dealing in shares and maintaining two separate accounts for investment and trading. There is no dispute in respect of the income of the assessee arising from his trading account which has been treated as “business income”. The only dispute is regarding the claim of the assessee that he has incurred short term capital loss arising from the sale of shares of M/s. TIL. According to the assessee he has sold the shares of M/s. TIL which he has inherited from his Late father Om Shankar Biyani who expired on 10.07.2011. [The Late father of the assessee had bequeathed all the assets movable and immovable to assessee as per the Probate granted by the Court of Dist. Delegate, Alipore]. According to the assessee, the assets so bequeathed included shares of M/s. TIL and these were treated as investments by the assessee. According to the assessee, the shares of M/s. Titan Industries were split from the face value of ₹10/- to ₹l/- on 23.06.2011 i.e., before the death of father of the appellant and also on the same date Bonus shares were issued in the proportion of 1:1 and this resulted in holding of Assessment Year: 2012-13 Harish Kumar Biyani. 117000 shares by Late Om Shankar Biyani. It was brought to my notice that the appellant had received the entire holding of 117000 shares upon the death of his father. And according to ld. AR, the inference drawn by the A.O. with regard to the split up of the shares as well as consequent issue of bonus shares as having been done by the appellant with regard to his holding is devoid of any reasoning as because the split up and the consequent bonus as explained earlier were done much prior to the assessee inheriting those shares. It was pointed out by the ld. AR that the appellant in- fact sold 26,000 shares and not 19,500 as stated by the A.O. in the order of assessment during the year for a total consideration of ₹52,34,946/- and the cost of the same being ₹98,70,874/- as appearing in the Books of Late Om Shankar Biyani from whom the aforesaid shares were inherited. This transaction, according to ld AR therefore, resulted in Short Term Capital loss of ₹46,35,928/- (₹98,70,874/- minus ₹52,34,945/-) which was claimed by the appellant. It is noted that the A.O., however, has taken the sale consideration of 26,000 shares at a consideration of ₹52,34,946/- but while deducting the cost of purchase of the above shares has deducted the value of 975 shares pre-split and pre bonus and thereby calculating the alleged profit and made the addition of ₹2,99,509/-.

Therefore, according to the ld. AR, the AO as well as the ld. CIT(A) has mis- construed the facts of the case and has proceeded arbitrarily in treating the short term capital loss claimed by the assessee/appellant and in turn erroneously determined the income of the assessee at ₹2,99,509/-.

Per contra, the ld. DR supporting the order of the ld. CIT(A) contended that the assessee was a dealer in shares as well as holding certain shares in investment portfolio. And according to the ld. DR if the intention of the assessee was to hold these shares as investment and not as stock in trade, it should have been categorized as investment in the balance sheet on 31.03.2011 which has not been done as noted by the ld. CIT(A). The ld. CIT(A) according to him has observed that the assessee has not been able to rebut the finding of the AO in this respect and has not filed any document by way of relevant balance sheet etc. to support his case that the shares were held as investment and not as stock in trade. So, according to the ld. DR since the assessee

After hearing both the parties I note that the assessee had inherited the movable and immovable assets of his father Late Om Shankar Biyani who expired on 10.07.2011. According to the ld. AR, the assessee had inherited shares and debenture of ₹7,70,38,512/- which is shown as investment. According to the ld. AR, Late Om Shankar Biyani had invested in shares of M/s. TIL which were duly reflected in the demat account maintained by him and as on the date of death he possessed 117000 shares of M/s. TIL which are appearing in his demat account as under:-

However it was pointed out by the ld. AR that the AO has wrongly taken the figure as 19500 shares whereas actual sale of shares of M/s. TIL was of 26000 shares. The AO has not accepted the assessee’s claim that he was holding those shares (M/s. TIL) in the capital account and therefore he was of the opinion that the transaction should be treated as business transaction (Trading account); and he did not accept the claim of the assessee to take the benefit of Section 55(2)(aa) of the Act. I note that the number of shares sold by the assessee is 26000 and not 19500 as erroneously found by the AO and confirmed by the ld. CIT(A). The short question to be solved is whether the inherited shares of M/s. TIL by the assessee from his father Late Om Shankar Biyani should be treated as “investment” or as “stock in trade”. For that I note that the factual findings recorded by the AO are not clear finding of fact. Therefore, I am

Ground no. 6 is against the action of the ld. CIT(A) confirming the addition of ₹78,750/-. Brief facts of the case is that the AO noted that the assessee had shown to own a commercial space no. 1502, Gali Anarwali, Farash Khana, Delhi-110 006 which was purchased for a sum of ₹18,02,000/- on 12.10.2011. Since no rental income was returned by the assessee, the AO confronted him, then according to the AO the assessee had replied that this property was not used (‘empty’) property. Taking note � that the assessee has not used the property in question for 4 � months, the AO invoked Section 22 of the Act to compute the notional rent and estimated it at ₹25,000/- per month and after giving standard deduction of 30%, he made an addition of ₹78,750/-. On appeal the ld. CIT(A) confirmed the addition. However, the ld. CIT(A) noted while confirming the addition that the assessee had submitted before him that the said property was kept for the purpose of business though no business could be commenced in this area and therefore notional rent was not applicable as per law. However, the ld. CIT(A) observed that this contention was not offered by the assessee before the AO and that was not supported by any documents. Therefore he refrained from interfering with addition made by the AO. So it is noted from the observation made by the ld. CIT(A) that during assessment stage since the assessee did not get

The next grievance is against the ld. CIT(A) in confirming the addition of ₹2,60,955/- made by the AO u/s 69C of the Act. Brief facts is that the assessee had declared withdrawal for household expenses at ₹1,59,045/- in his balance sheet. According to the AO this is very low keeping in view the standard of living of the assessee. So according to him the assessee has made his household expenses from undisclosed sources. Therefore he estimated the household expenses at ₹35,000/- per month and made an addition of ₹2,60,955/- u/s 69C of the Act. According to the ld. AR, the AO never confronted the assessee in respect of his suspicion that the assessee has drawn less money for his household expenses. Without confronting the assessee, the AO has estimated the addition based on suspicion & conjecture. So, I deem it fit to remand this issue also back to the file of the AO for de novo adjudication and direct the AO to give proper opportunity to the assessee before making any addition on this issue. Thus the impugned order of the ld. CIT(A) is set aside and the three issues discussed (supra) are remanded back to AO for fresh assessment, after giving proper opportunity to assessee and as discussed (supra).

In the result, the appeal of the assessee is allowed for statistical purposes. Order is pronounced in the open court on 17th January, 2020.