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Income Tax Appellate Tribunal, “SMC-B” BENCH : BANGALORE
Before: SHRI ARUN KUMAR GARODIA
O R D E R
Per Shri A.K. Garodia, Accountant Member
This appeal is filed by the assessee which is directed against theorder of ld. CIT(A)-4, Bangalore dated 31.08.2018for Assessment Year 2015-16.
The grounds raised
by the assessee are as under. Tax effect relating to Grounds of Appeal each Ground of appeal (see note below) The impugned Appellate order dated: 31- 08-2018 passed by the Ld. CIT(A),
1. Bangalore-4 is opposed to law, facts and circumstances of the case.
The Ld. CIT(A) has erred in holding that the application of the profit percentage at 8% on estimated turnover is sustainable Rs.5,97,704/- without appreciating the fact that the (excluding interest of 2. turnover estimated by the AO at Rs. Rs. 3,19,433/-charged 2,04,15,866/- was apparently more than the u/s. 234A, 234B and prescribed limit of Rupees One Crore for 234C) which estimation of Income at 8% as per section 44AD is not applicable The Ld. CIT(A) has erred in confirming the addition of Rs. 16,33,269/- estimated by the AO based on the Guidance Note of ICAI without appreciating the fact the said 3. Guidance Note was applicable in respect of Same as above cases where the accounts are auditable u/s. 44AB of the Act but in the case of Appellant the Accounts are not auditable since the Turnover was less than Rupees One Crore. The Ld. CIT(A) has erred in holding that the Appellant's claim of set-off of loss requires to be disallowed since the Appellant neither claimed such loss in the statement of income nor by filing a revised 4. return of income or revised computation Same as above without appreciating the fact that the Appellant has not claimed any loss attributable to the Share transactions since the said loss is not allowable as it is related speculative share transactions The Ld. CIT(A) has erred in not appreciating the fact that the turnoverattributable to the sale of share 5. Same as above was of Rs. 58,86,012/- for the purpose of estimation of income at the rate of 8% u/s. 44AD of the Act. The Appellant craves leave to add, alter, 6. amend and delete any of the grounds at the time of hearing.
In course of hearing before me, it was submitted by ld. AR of assessee that as per the assessment order, the AO has adopted a turnover of Rs. 2,04,15,866/- and he computed the income of the assessee at 8% on this turnover but in fact the assessee’s sales is only Rs. 58,86,012/- but the AO has added the amount of purchase in arriving the turnover figure of Rs.
Page 3 of 6 2,04,15,866/-. He submitted that the AO should be directed to compute the income of the assessee by applying 8% rate on actual turnover figure of the assessee. The ld. DR of revenue supported the order of CIT(A).
I have considered the rival submissions. The submission of the assessee before CIT(A) as per letter dated 31.08.2018 is reproduced by CIT(A) in Para 6 of his order and hence, for the sake of ready reference, I reproduce the same hereinbelow. “6. Assessee's submissions:- The written submission is filled by the assessee on 31/08/2018 is extracted as under:
1. 1. The Appellant submits the following Written Submissions in support of the Appeal filed against the Assessment Order dtd: 30-11-2017.
2. The Appellant has been rendering consultation services in Real Estate and construction Business and providing guidance in the field of formation of layouts and other connected real estate services.
3. The Appellant has filed e-return of income on 14-02-2017 for the A.Y 2015-16 declaring income of Rs. 8,84,390/- and a scrutiny Assessment dtd 30-11-2017 was completed determining the total income at Rs. 25,17,659/- as against declared income of Rs.8,84,390/- .
4. In the course of the Assessment Proceedings, the Ld. AO has held that the Appellant has carried on, "Infra-Day" transactions in the trading of shares on day to day basis and held that the turnover of the Appellant was of Rs. 2,04,15,866/- consisting of favourable (Positive) and unfavourable (Negative) transactions. The AO has held that the Appellant has not maintained any regular books of Account. Therefore the Ld. AO has determined the income at Rs. 16,33,269/- at the rate of 8 percent on total Turnover of Rs. 2,04,15,866/- consisting of Favorable/Positive Transactions of Rs. 58,86,012/- and unfavorable/Negative transactions of Rs. 1,45,29,854/- placing reliance on para 15.5 of "Guidance Note of ICAI on Tax Audit u/s. 44AB of the Act". The AO has also placed reliance on the decision of the Hon'ble ITAT Mumbai in the case of Anahaita Nalin Shah V/s. DCIT - 4(1) Mumbai (2014) 43 Taxmann.com 206 (Mumbai - Trib). The Ld. AO has ignored the fact that the aforesaid Guidance Note of ICAI is applicable in the case where Audit u/s. 44AB is required. In the Appellant's case the AO himself has held that the Books of Accounts were not maintained and therefore the Provision of Section 44AB of the Act is not applicable Page 4 of 6 and accordingly the Guidance Note of ICAI is of no consequence to the facts of the Appellant's case.
The Appellant submits that he has not carried on any Intra-Day Transactions as stated by the Ld.AO. The Appellant has carried on the transactions on the Principles of Futures and Options. The Ld. AO has not appreciated the fact that the Appellant is entitled to the deduction of Unfavorable/Negative Turnover against the Favorable/Positive Turnover. However the Ld. AO for computation of income out of the Share transactions has held that the Appellant has carried on Intra-Day Share Transaction which was held as Business of the Appellant and therefore the Ld. AO has invoked the provision of section 44AD of the Act and estimated the income at the rate of 8 percent on a Turnover of Rs. 2,04,15,866A The Ld. AO on para 4.4 (iii) has stated that the Turnover of the Appellant is below One Crore Rupees. Whereas he has adopted the Turnover of Rs. 2,04,15,866/-. Therefore the Income estimated u/s. 44AD of the Act at 8% with an assumption of the turnover being less than One Crore is contrary to the law and facts of the case.
6. The Appellant submits that the Turnover of both Positive and Negative Transactions amounts to Rs. 2,04,15,866/- as stated in the Assessment Order and therefore the provision of section 44AD is not applicable since the Turnover exceeded the prescribed limit of Rs. 1,00,00,000/-(Rupees One Crore) envisaged u/s. 44AD of the Act. The Ld. AO has ignored the Negative Turnover while computing the Income on estimated Percentage basis. The Ld. AO had the information on record about the Favorable/Positive Transactions and also Unfavorable/Negative Transactions and therefore the Ld.AO ought to have considered both the transactions which would have resulted in Loss of Rs. 86,43,842/- as detailed below:- To Purchases Rs. 1,45,29,854/-By Sales Rs. 58,86,012/- By Net Loss Rs. 86,43,842/- 7. The Appellant submits that the addition made by the AO amounting to Rs. 16,33,269/- on estimated Percentage basis on Turnover including Unfavorable/Negative transactions is opposed to law and facts of the case since the Appellant has incurred Net Loss of Rs. 86,43,842/- in the Share Transaction Business.
The Appellant submits herewith the following statements:- i. Return of Income for the A. Y 2015-16 with P & L Account, Balance Sheet and Statement of Income marked as Annexure - A. ii. A Copy of Statement of the Business Transactions relating to Options and Futures which resulted in loss of Rs. 1,34,84,016/- marked as Annexure - B.
Page 5 of 6 iii. A Copy of Statement of the Business Transactions relating to Options and Futures which resulted in income of Rs. 59,22,595/- marked as Annexure - C. iv. An abstract of both transactions of Loss and Income which ultimately resulted in Loss of Rs. 75,61,420/- marked as Annexure - D. v. A Copy of the Trading Account of Share Transactions relating to Futures and Options marked as Annexure - E.
The documents mentioned above establishes the fact that the Appellant has incurred Loss of Rupees more than 75 Lakhs as per the Trading Account mentioned above as Annexure - E. Therefore the AO was not justified to rely upon the unrelated Guidance Note of ICAI for estimating the Income of Rs. 16,33,269/- at the rate of 8% on an assumed Turnover of Rs. 2,04,15,866/- u/s. 44AD of the Act which is not applicable to the Appellant's case. Therefore the addition made by the AO on estimated basis is not in accordance with law and hence the said addition of Rs. 16,33,269/- is liable to be deleted in the interest of justice and equity.”
5. From the above Para reproduced from the order of CIT(A), it is seen that it was submitted before CIT(A) by the assessee that this figure of Rs. 2,04,15,866/- adopted by the AO as turnover includes amount of purchases of Rs. 1,45,29,854/- and amount of sales of Rs. 58,86,012/- as noted in para no. 6 of the written submissions filed by the assessee before CIT(A) as reproduced above. This was also the submission of assessee before CIT(A) that if this amount of turnover is adopted then the provisions of section 44AD are not applicable because the same is applicable only up to turnover of Rs. 1 Crore. Under these facts, I feel it proper to restore back the matter to the file of CIT(A) for fresh decision by way of a speaking and reasoned order as to what is the actual turnover of the assessee because if amount of turnover of Rs. 2,04,15,866/- is obtained by adding back the amount of purchases and sales then the same cannot be considered as turnover because in my considered opinion only the amount of sale is turnover and not the amount of purchase. But in this regard, the guidelines issued by The Institute of Chartered Accountants of India (ICAI) should also be considered. Hence he should decide this aspect first by way of a speaking and reasoned order as to what is the turnover of the assessee. If it is found that the turnover of the assessee is less than Rs. 1 Crore then on Page 6 of 6 the turnover so determined, rate of 8% rates can be applied to compute the income of the assessee but if it is found that the turnover is more than Rs. 1 Crore, then section 44AD of IT Act cannot be applied and the income has to be computed on a reasonable basis after examining the entire material available on record. The CIT(A) should pass a reasoned and speaking order as per law in the light of above discussion after providing reasonable opportunity of being heard to both sides.
In the result, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced in the open court on the date mentioned on the caption page.