RAJNI TAK,JAIPUR vs. ITO WARD 5(1), JAIPUR, JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”SMC’’ JAIPUR Jh lanhi xkslkbZ] U;kf;d lnL; ds le{k BEFORE: Hon’ble SHRI SANDEEP GOSAIN, JUDICIAL MEMBER vk;dj vihy la-@ITA No. 314/JP/2022 fu/kZkj.k o"kZ@Assessment Year : 2017-18 cuke Smt. Rajni Tak The ITO Shubhmanglam Telecom Vs. Ward 5(1) Near Central Bank Amer Road Jaipur Subhash Chowk, Jaipur-302 002 LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AEEPT 6352 N vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Shrawan Kumar Gupta, Adv. jktLo dh vksj ls@ Revenue by: Mrs. Monisha Choudhary, JCIT lquokbZ dh rkjh[k@ Date of Hearing : 15/09/2022 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 27 /10/2022 vkns'k@ ORDER PER: SANDEEP GOSAIN, JM This appeal filed by the assessee is directed against order of the ld. CIT(A) dated 18-07-2022, National Faceless Appeal Centre, Delhi [ hereinafter referred to as (NFAC) ] for the assessment year 2017-18 wherein the assessee has raised the following grounds of appeal. ‘’1. The impugned assessment order u/s 143(3) dated 16.09.2019 as well as notices are bad in law, invalid, illegal and on facts of the case, for want of jurisdiction,

2 ITA NO. 314/JP/2022 SMT. RAJNI TAK VS ITO, WARD 5(1), JAIPUR barred by limitation and various other reasons and hence the same may kindly be quashed. 2.1 Rs.6,24,608/-: The ld. CIT(A) has grossly erred in law as well as on the facts of the case in confirming the addition of Rs.6,24,608/- on account of Share trading by taking the profit at Rs.7,55,741/- as against Rs.1,31,133/- shown by the assessee and the ld. AO also erred in making the addition without invoking the provision of Sec. 145(3) of the act. Hence the addition so made by the ld. AO is being totally contrary to the provisions of law and facts on the record and hence same may kindly be deleted in full. 3.1 The ld. CIT(A) and AO both have grossly erred in law as well as on the facts of the case in making the addition by taking the share trading transaction as alleged speculative business as against the share trading. Hence the action of the Id. AO in treating the share trading business as speculative business is being totally contrary to the provisions of law and facts on the record and hence same may kindly be held share trading and delete the addition in full. 3.2. The ld. CIT(A) and AO have grossly erred in law as well as on the facts of the case in not giving the setoff of loss of Rs.5,43,406/- from share trading treading the same as speculative business. Hence the set off so not given by the Id. AO is being totally contrary to the provisions of law and facts on the record and hence same may kindly be directed to allow the set off of Rs. 5,43,406/-. 4. The ld. AO has grossly erred in law as well as on the facts of the case in charging interest u/s 234A.2348 and 234C. The appellant totally denies it liability of charging of any such interest. The interest, so charged being contrary to the provisions of law and facts, may kindly be deleted in full.

During the course of hearing, the ld. AR has not pressed the Ground 2.1 No. 1. Hence, the same is dismissed being not pressed.

3.1 Apropos Ground No. 2 and 3 of the assessee, brief facts of the case are that the assessee filed her return of income on 12-10-2017 declaring the total income of Rs.1,33,750/- for the year under consideration. During the course of assessment

3 ITA NO. 314/JP/2022 SMT. RAJNI TAK VS ITO, WARD 5(1), JAIPUR proceedings, the AO noted that the assessee has shown the income from shares transaction at Rs.1,31,133/- in the P&L account and as per ledger account of M/s JM Financial Pvt. Ltd. As per Form 10DB statement, M/s JM Financial Pvt. Ltd. has shown total sale of share (Delivery base) at Rs.13,15,88,722/- and purchased price of said shares at Rs.13,04,19,130/- and Security transaction tax at Rs.2,62,000/- on it. Thus the total price comes to Rs.13,06,81,135/- and profit comes to Rs.9,07,587/-. However, the assessee has shown profit only of Rs.1,31,133/-. By issuance of show cause notice u/s 142(1), the AO asked the assessee regarding the difference of Rs.7,76,454/- as to why the same should not be added in the total income. In response to the same, the assessee has submitted the reply on 06.09.2019 which is available at page 2-4 of the assessment order. The crux of the reply was that assessee used to purchases the share in the evening or closing hours and kept it as closing stock on that day. She used to sell the same on next day in morning or at opening hours of next day. Thus, she was continuously following this practice on her remaining share during trading day in whole of the year i.e. called BTST (Buy Today & Sale Tomorrow). In support, the assessee submitted contract note of some days i.e. 06.04.2016, 07.04.2016 & 08.04.2016 which are available at Paper Book 38 to 52, giving therein example, comparison and verification of the same , from which it can be proved or verified that quantity and scrip sold and purchased on a particular day are not same. Thus

4 ITA NO. 314/JP/2022 SMT. RAJNI TAK VS ITO, WARD 5(1), JAIPUR the assessee is not involved in any intraday share trading. The assessee always sold her previous day share holding in the morning and in the evening again purchased some share holding with some difference in quantity & scrip to sell the same in next day. Thus the transaction by the assessee was share trading, not speculative transaction and the net result of all shares transaction of Rs.2,82,980/- is to be considered as share trading business. Out of this, other direct expenses amounting to Rs.1,51,846.79 is also to be deducted. The AO stated that code No.3 mentioned in Form No. 10DB submitted by the J.M. Finance Pvt. Ltd is not actual delivery base transaction which is covered under the speculation and assessee has adjusted loss form transaction (Speculation) during the year under consideration. The total intraday (Speculation) loss on shares is at Rs.5,43,406/- and held that this loss is speculation loss and cannot be adjusted share business (Delivery base). Thus the AO observed that the assessee has shown the income from shares transaction at Rs.1,31,133/- in the P&L account after claiming expenses of Rs.1,51,846/-. As per ledger account of M/s JM Financial Pvt. Ltd and 10DB statement, the assessee has total sale of share (Delivery base) at Rs.13,15,88,722/- and purchased price of said shares at Rs.13,04,19,130/- and Security transaction tax at Rs.2,62,000/- on it. Thus the total price comes to Rs.13,06,81,135/- and profit comes to Rs.9,07,587/-, but the assessee has shown profit only of Rs.1,31,133/-and the AO added Rs.

5 ITA NO. 314/JP/2022 SMT. RAJNI TAK VS ITO, WARD 5(1), JAIPUR 7,76,454/- in the total income of the assessee by denying the setoff of Rs.5,43,406/- treating the same as speculation loss and not share trading loss. 3.2 In first appeal the ld. CIT(A) confirmed the addition by stating that the AO has taken the difference of purchase and sale which is at Rs.9,07,587/-. The AO has calculated the profit by taking total sale of shares at Rs.13,15,88,722/- and purchase price of Rs.13,04,19,150/- and STT of Rs.2,62,000/- totaling to Rs.13,06,81,135/- . The assessee has not denied the total of sales or the purchase price. Hence, the profit calculated by the AO is treated to be correct. The ld. CIT(A) further stated that it is noticed and is evident from Form 10DB submitted by JM Finance that the transactions are not actual delivery base transaction. In view of this, the assessee cannot be denied these transactions to be speculative. The AO has rightly disallowed the above and has allowed it to be carried forward and to be adjusted in subsequent years in speculation profits 3.3 Before the Bench, the ld. A/R has reiterated the same submissions and details as made before the AO and also filed the written submission and paper book before the Bench also. Further, the assessee has filed following written submission before this Bench.

“ In this case the main issue is that the share transaction done by the assessee is whether share trading or speculation business. The assessee has done the share trading business not the speculation.

6 ITA NO. 314/JP/2022 SMT. RAJNI TAK VS ITO, WARD 5(1), JAIPUR 1. Correct facts and evidences has been ignored by the ld. AO: At the very outset it is submitted that the assessee is filling her return of income regularly for the year she has also filed her return of income on dated 12.10.2017. She is having income from share trading from last many years and income from other sources. The modus oparendi of the business of the assessee in this year is also the same as in earlier years also in later years. The assessee has share trading business for that kindly see following facts. During the year under consideration the assessee has started its share trading business from 06.04.2016, by purchasing some shares on that day & there is no sale on the starting day of trading i.e. on 06.04.2016. Thus purchase of shares on this day, kept in holding of the assessee as on 06.04.2016 (PB38-40). On the next day i.e. 07.04.2016 in the morning i.e in opening hours of the share market, the assessee sold her complete share holding i.e. being purchased on 06.04.2016(PB42). On the same day i.e. on 07.04.2016 in the evening i.e in the closing hours of the share market, the assessee again purchased some shares & configuration of quantity & script has been changed to some extent(PB42). That on the next day i.e. 08.04.2016 again in morning hours of the share market, the assessee sold her complete share holding i.e. being purchased on 07.04.2016. And in the evening or closing hours again purchased(PB49-51). Thus the assesee on her every remaining share trading day of the year under consideration, followed the same practice. i.e. called BTST (Buy Today & Sale Tomorrow). ln support of our above mentioned contention or explanation we have filed before the ld. AO & CIT(A) both the copy of contract note of 06.04.2O16, 07.04,2016 & 08.04.2016(PB38-52) for example for comparing these contract note to verify that quantity & script sold & purchased on a particular day are not same which is an essential part to consider them as intraday transaction. Thus in view of above we can say that the assessee on a particular day always sold his complete previous day holding in the morning & in the evening purchased share holding to sell the same on next day.

7 ITA NO. 314/JP/2022 SMT. RAJNI TAK VS ITO, WARD 5(1), JAIPUR Further, we have also stated to the ld AO that we are ready to submit soft copy (by hand) to you of all contract note, for your kind consideration, as we received from our broker. As the volume is huge it is not possible for us to submit the same through E-Processing Link vide our letter dt. 06.09.2019(PB36). Thus looking to the above facts and documents circumstances it is proved that (i) the assessee has not involved in any intra-day share trading at all as wrongly stated by the ld. AO and not considered by the ld. CIT(A). (ii) the assessee always sold her previous day share holding in the morning & in the evening again purchased some share holding with some difference in quantity & scripts to sale the same on the next day morning. (iii) As a basic principle of inventory i.e . FIFIO (First in First Out), the assessee followed the same & this can be verify by reading the time of purchase & time of sale of shares on a particular day. As all the purchase of the assessee were after timing of 15.00 o-clock (PB38-41) and sales were after timing of 9.00 O-Clock(PB42) and also see (PB43-51). Despite this the lower authorities have ignored these very vital facts. The assessee regularly having holding of shares. The ld. AO relied only on the basis of Form10B submitted by the broker and ignored the other above all the material and documentary evidences which was also given by the same broker and practice in this line. If the broker do netting of the day and submit different things, it is not the fault of the assessee. If the ld. AO was having any doubt he could have made the inquiry from the broker. When the assessee has submitted the details with all the documentary proof, the ld. AO was bound to accept the same until and unless he proves the same incorrect by making the inquiry. But the ld. AO has failed to do so. The ld. AO has not bring any evidence to disprove our contentions. The ld. CIT(A) has also not rebutted our these arguments. Further in Section 43(5)(b) it is clearly provided that in respect of stocks and shares entered in to by a dealer or investor therein to guard against loss in his holding of stocks and shares through price fluctuations the same cannot be treated as Speculative Transaction. (Here in our case holding of shares is important and not denied by the ld. AO)

8 ITA NO. 314/JP/2022 SMT. RAJNI TAK VS ITO, WARD 5(1), JAIPUR As if the assessee involved in selling her holding of previous day, how it can be treated as speculative transaction. lf assessee today purchases some shares & sale the same on next day, how this could be intra-day transaction. Further how we can imagine & draw conclusion that on a particulars day the assessee sold the shares in morning are not those already purchased by him on previous day evening, but they are those that assessee will purchase in the evening of the that particular day. This is far from understanding and not possible. (l)Thus, as explained above there was only share trading activity & no speculation activity carried out by the assesseee & net result of all shares transaction, which is Rs. 2,82,980/- to be considered as share trading business income & out of this other direct expenses amounting to Rs.1,51,846/- also to be deducted. The ld. AO has simply considered the Form 10DBA as the final basis for computing profit/loss of the business of the assesee. As in the form 10DBA they shown only STT charges & not showing other charges that could draw wrong calculation of profit. In support the assessee had submitted audited financial statement to the ld. AO but he has ignored the same. In share transaction there is not only STT and there are other expenses has to be incurred by the assessee as audit fees, bank charges, depreciation, professional fees salary etc.. but the ld. AO has ignored the same not allow a single expense out of these expenses. However the ld. CIT(A) has allowed the same. Further on perusal of the order of the ld. CIT(A) it is stated that he has not rebutted our contentions and evidences or not commented any adverse, which shows either he has accepted or has nothing to revert the same. When department is relying upon on the form given by M/s JM Financial Services and assessee is also relaying the share trading account statements given by the M/s JM Financial Services and when there is some difference then the ld. AO must have verified. And it is also settled law that the view favourable of the assesse should be taken or benefit of doubt should be given to the assessee. 2. Accepted in next year: Further it is very important to note that in the next A.Y. 2018-19 same issue has come in the scrutiny assessment and the assessee has filed the same reply and the ld. AO has accepted the BTST(by today sale tomorrow) method and accepted that the assessee is not involved in intraday trading(Speculation) Business. Vide assessment order dt. 26.03.2021(PB72-73)

9 ITA NO. 314/JP/2022 SMT. RAJNI TAK VS ITO, WARD 5(1), JAIPUR and query letter notice u/s 142(1)dt. 20.01.2021(PB74-78). Hence when in subsequent years the revenue has accepted, then now there remains no question for not to accept the same. 3. No trading addition can be made without invoking the provisions of S. 145(3): The ld. AO has made the trading addition i.e on account of share business income by treating the share trading income in to speculation business income, hence it was mandatory on the part of the AO as well as on the part of ld. CIT(A) to point out specific defects in the books of accounts and to reject the books of accounts by invoking the provisions of Sec. 145(3). In the present case admittedly the ld. AO as well as the ld. CIT(A) have neither pointed any specific defects in the books of accounts nor rejected the books of accounts nor invoked the provisions of Sec. 145(3). And it is the settled law that no trading additions can be made or estimated without pointing rejecting the books of account. Kindly refer. I. R.B. Bansilal Abirchand Spinning & Weaving Mills 75 ITR 260 (Bom) (Page 261) II.CIT vs. Maharaja Shree Umaid Mills Ltd. 192 ITR 565 (Raj.) III.DCIT v. Mewar Textile Mills Ltd. 21 Tax World 821 (JP) IV. Mohd. Umer v. CIT 101 ITR 525 (Pat) (Page 528) V. Ajanta Constructions (P.)Ltd. Vs. ACIT XXII TW 606 (ITAT Jaipur) VI. DCIT Vs. Associated Stone Industries (Kotah) Ltd. XXII TW 155 (JP) VII. Ghewarchand Vs. ITO - XXI TW 571 VIII. Siddheshwari Cotton Mills P. Ltd. V CIT 117 ITR 953 at 957 (Cal) ITR 719 (SC). Also refer : ACIT VS M/S MOUNT MALT BRU LTD 34 TW 246 (Jp). Also kindly refer Manohar Lal V. ITO (2000) 68 TTJ 27 (JD) & also Shri Gautam Textile V. ITO (2001) 72 TTJ 169 (JD).

10 ITA NO. 314/JP/2022 SMT. RAJNI TAK VS ITO, WARD 5(1), JAIPUR Also refer a recent decision of this honble Bench in the case of Pappu Qureshi v/s ITO ITA No. 314/Jp/2019 dt. 28.04.2020. In the case of DCIT & ANR. vs. Malbros International Pvt. Ltd. & Anr. (2016) 47 CCH 0249 (Chd. Trib) held Addition—Deletion of addition on account of low G.P. rate—AO stated that since Assessee did not produce any proper reply or evidence regarding lower profits, nor he produced evidence which was claimed as expenses and other material to justify trading results, addition was made on account of low G.P. rate—CIT set aside order made by AO—Held, AO without rejecting books of account of Assessee had estimated GP rate being average of GP rates of two years of Assessee—AO had not pointed out any discrepancy with regard to sales made by Assessee, purchases and various expenses shown by it in its trading account, these were components which affect profitability of any concern—If AO could not find anything wrong with any of components of trading account of Assessee, how could Tribunal just brush aside GP rate shown by Assessee and only on basis of fact that GP rate had declined in comparison to earlier year, GP addition be made—A.O. while estimating G.P. rate for current year had over looked important statutory requirement of rejecting books of accounts—No defect in maintenance of books of accounts had been pointed out so as to proceed to next step of estimating fair and reasonable G.P.—It was not open to A.O. to substitute its own view of G.P. as against profit worked out on basis of books of accounts regularly maintained by Assessee—Revenue’s Appeal dismissed. In the case of ACIT v/s Govind Ram Kakwani 90 TTJ 981(Jabalpur) it has been held “ No trading addition warranted as the assessee’s books of account were not rejected and proviso to S. 145(3) was not applied and the AO has accepted the purchase and sales” In the case of ITO v/s Dr. Kailsah Sharma & Sons 84 TTJ 955(Jd) it has been held “When the ld. AO did not point out any specific mistake in the books of account and did not reject the same but made the addition and the Department is not challenging the finding of the CIT(A) that the provision of s. 145 could not be invoked , addition cannot be made on estimate basis.” In case of Sri Venktaraju Modern Boiled & Raw Rice Mills v/s ACIT 57 TTJ 493(Hyd) held “ Without first rejecting the books maintained by the assessee showing cost of construction, the AO was not justified in making reference to Valuation cell and then addition on that basis under sec. 69”

11 ITA NO. 314/JP/2022 SMT. RAJNI TAK VS ITO, WARD 5(1), JAIPUR In CIT v/s Pratap Singh, Amorsh Sing, Rajendra Singh 200 ITR 788(SC) held “ In respect of investment made in the property there can be only two method to find out the correct position (one, when proper books of accounts are maintained and two valuation report). If the assessee maintained proper books of account and all the details mentioned in such books of account which were duly supported by vouchers and no defects pointed out and the books are not rejected , the figure shown therein have to be followed. The valuation report can be taken in to consideration only when the books of accounts are not reliable or not supported by proper vouchers or the ITO is of the opinion that no reliance can be placed on such books of account. It is too that the ITO has no option, but to rely on the valuation report which is documents prepared by an expert and is admissible, but there must be finding by the ITO that the books maintained by the assessee are defective or not reliable.” The same principal is also applicable in the present case. Further the circulation certificate is not the part of books of accounts. Hence, in view of the above facts and circumstances the addition made by the AO of Rs.7,76,454/- and the addition sustained by the ld. CIT(A) to the extent of Rs.6,24,608/- may kindly be deleted in full and also may kindly be directed to set off of loss of Rs.5,43,406/- and oblige.’’ 3.4 On the other hand, the ld. DR supported the orders of the lower authorities.

3.5 After hearing both the parties and perusing the materials available on record, it is noted that the main dispute in present appeal is that whether the entire share business of the assessee was share trading or partly share trading and partly speculation. On the perusal of the orders of the lower authorities, it is seen that they have relied upon only the Form 10DB submitted by the M/s J.M. Financial Services Limited in which they used to mention consolidated position of the share

12 ITA NO. 314/JP/2022 SMT. RAJNI TAK VS ITO, WARD 5(1), JAIPUR transaction code wise done by the person in whole year. According to that, the total Buy of Trade was of Rs.48,61,13,735/- and total sell Trade of Rs.48,63,96,715/-. On these, the speculation loss is calculated at Rs.5,43,406/- and Short Term at Rs.8,26,386/- and the Net position comes to Rs.2,82,980/- (826386-543406) (PB 59). The same has been shown share trading business by the assessee in his P&L A/c available at PB-16. The AO on the basis of Form 10DB has divided these transaction in two parts, i.e. one in share trading profit calculated at Rs.9,07,587/- and Second in Speculation trading in which there was loss of Rs.5,43,406/-. On perusal of the order of the ld. CIT(A), it is observed that he in very summarily manner sustained the action of the AO, except the relief of Rs.1,51,846/- on account of expenses debited in the P&L account. During the course of hearing the ld. A/R also has drawn attention of the Bench on the Paper Book Page 38 to 52 which are contract note containing the name of shares, time of purchase, time of sale, quantity of purchase STT etc. For example on 06.04.2016, assessee purchased some shares but there is no sale on the starting day of trading i.e. on 06.04.2016. These purchased shares were kept in holding of the assessee as on 06.04.2016 vide PB38-40. The timing of purchase was 15.04 to 15.28, which is closing time of share market. On the next day i.e. on dt. 07.04.2016 in the morning, the time of sale was 9.16 to 10.00 which is opening hours of the share market. The assessee sold her complete share holding of being purchased on 06.04.2016(PB42).

13 ITA NO. 314/JP/2022 SMT. RAJNI TAK VS ITO, WARD 5(1), JAIPUR This is also the same position on the same day i.e. on 07.04.2016 in the evening in closing hours of the share market. She again purchased some shares & configuration of quantity & scrip has been changed to some extent (PB42) and sold the same on the next day i.e. 08.04.2016 again in morning hours of the share market, the assessee sold her complete share holding which was purchased on 07.04.2016 and in the evening or closing hours again purchased(PB49-51). These modus operandi of share trading is called BTST (Buy Today & Sale Tomorrow). The contract note or ledger A/c is directly linked up the stock exchange and every details of every transaction of every day with time are mentioned, which is an authentic document and supports the contention of the assessee. The Form 10DB is prepared by the Share Broker in consolidated for whole year and this practice is being followed by the assessee in every year. The ld. A/R has also drawn Bench attention toward the scrutiny assessment of the next A.Y. i.e. 2018-19 where there was same share trading business and the revenue has accepted the same and not made any addition in next A.Y.s. The Assessment order u/s 143(3) for A.Y. 2018- 19 was placed at PB 72-73 with the notice u/s 142(1) PB 74-78. Hence these detailed contract note/ledger A/c, bills given by the same broker cannot be ignored which shows that the business of the assessee was share trading not speculation business which was accepted by the Department in the next year. In view of the

14 ITA NO. 314/JP/2022 SMT. RAJNI TAK VS ITO, WARD 5(1), JAIPUR above deliberation, the additions so made by the lower authorities is hereby deleted.

4.0 The Ground No. 4 of the assessee is regarding charging of interest u/s 234A, 234B and 234C of the Act which are mandatory and consequential in nature.

5.0 In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 27/10/2022.

Sd/- ¼lanhi xkslkbZ½ (Sandeep Gosain) U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 27 /10/2022 *Mishra आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. The Appellant- Smt. Rajni Tak, Jaipur 2. izR;FkhZ@ The Respondent- The ITO, Ward 5(1), Jaipur 3. vk;dj vk;qDr@ The ld CIT 4. vk;dj vk;qDr¼vihy½@The ld CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 6. xkMZ QkbZy@ Guard File (ITA No. 314/JP/2022) vkns'kkuqlkj@ By order,

Asstt. Registrar