Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, KOLKATA ‘SMC’ BENCH, KOLKATA
Before: Shri P.M. Jagtap
Per Shri P.M. Jagtap, A.M..: This appeal filed by the assessee is directed against the order of ld. Commissioner of Income Tax (Appeals)-10, Kolkata dated 22.02.2017.
In Ground No. 1, the assessee has challenged the action of the authorities below in treating speculation profit of Rs.3,00,905/- as unexplained cash credit under section 68 of the Income Tax Act, 1961.
The assessee in the present case is a HUF, which filed its return of income for the year under consideration on 25.01.2014 declaring total income of Rs.2,12,920/-. In the said return, speculation profit of Rs.3,00,805/- claimed to be earned through broker M/s. Jagtarni Commodities Pvt. Limited from the transactions made in National Multi-
I.T.A. No. 652/KOL./2017 Assessment year: 2013-2014 Page 2 of 12
Commodity Exchange of India Limited (in short ‘NMCE’) was shown by the assessee under the head “income from business and profession”. In order to verify the veracity of the said claim made by the assessee, notices under section 133(6) of the Act were issued by the Assessing Officer to the broker M/s. Jagtarni Commodities Pvt. Limited and exchange i.e. NMCE. In response, NMCE vide letter dated 29.12.2015 informed the Assessing Officer that the assessee was never registered with the Exchange by the broker M/s. Jagtarni Commodities Pvt. Limited and even the said broker was never active on the Exchange. The notices issued under section 133(6) by the Assessing Officer to M/s. Jagtarni Commodities Pvt. Limited remained un-complied with. Keeping in view this response received from the concerned parties to the notices issued by him under section 133(6), the assessee was called upon by the Assessing Officer to offer its explanation and produce evidence to prove the genuineness of its claim of speculation profit. The assessee, however, failed to comply with this requirement and the Assessing Officer accordingly did not accept the claim of the assessee for speculation profit as genuine. He treated the said profit as unexplained cash credit under section 68 chargeable to tax in the hands of the assessee @ 30% as per the provisions of section 115BBE of the Act.
The action of the Assessing Officer in treating the speculation profit as unexplained cash credit under section 68 chargeable to tax @ 30% was challenged by the assessee in the appeal filed before the ld. CIT(Appeals) and the following submissions were made by the assessee in support of its case on this issue before the ld. CIT(Appeals):- “1. The appellant earned speculation profit of Rs.3,00,805.26 and the same was shown as income during the year on accrual basis.
The amount was not received during the financial year. It was received by cheque on or about 24.07.2013 as per bank statement [copy enclosed}. Thus, the credit in the bank appears in next financial year 2013-14 and therefore could not be considered in the Assessment Year 2013-14.
I.T.A. No. 652/KOL./2017 Assessment year: 2013-2014 Page 3 of 12
Thus, there has been no receipt during the financial year 2012-13 which could be hit by provisions of Sec 68. The reflection of an income where journal entry has been passed could not be equated with the credits envisaged u/s 68.
In the facts, there could not be application of sec 1158E on the aforesaid amount.
The said amount has been treated as undisclosed income u/s 68 whereas there was no such credit in the books of accounts in the previous year relevant to Assessment Year 2013-14 and therefore the provisions of Sec 1158BE could not be made applicable. 6. In any case, the identity of the concerned broker was duly established by the Ld. AO himself. Cheque has been issued by such broker in subsequent financial year. Notice u/s 133(6) was duly served upon the concerned broker.
The assertions of the Ld. A 0 could be summarized as under:
(a) Para 2.1 of Assessment Order "....... Assessee has not been registered with the exchange by the broker, M/s Jagatrani Commodities P. Ltd ....”
(b)"notice u/s 133(6) issued to M/s Jagtrani Commodities has not been complied with though the notice was duly served ....”.
Submissions by the appellant: This Indicates the so called default, if any, has been committed by the broker. It is submitted that for any default on part of the broker could not be made basis for any adversity on the client. This submission Is made on the basis of ratio decided by the Hon'ble Jurisdictional High Court in following cases:- ITO vs. Ms. Khalil M. Bharwani (Mumbai ITAT), Income Tax Appeal No. 223 of 2011, date of judgement: 27/11/2015.
CIT vs Kundan Investment Ltd 130 Taxman 689 (Calcutta High Court) CIT vs Emerald Comm .Ltd 250 1TR 539 (Calcutta High Court) CIT vs Dhawan Investment & Trading Co Ltd238 ITR486(CaI]
In reply to communication with· NMCE, the Ld. AO has incorporated reply from the said institution where it is asserted “........ was expelled from the membership of the exchange with effect from 15th May 2013......”
Submissions by the appellant: The expulsion of any member from the Institution is an internal matter between the broker and the institution. Such act could not be made basis for any adversity on the appellant.
I.T.A. No. 652/KOL./2017 Assessment year: 2013-2014 Page 4 of 12
Submissions made before the Ld. AO along with analysis of case decided by the Hon'ble Calcutta High Court are enclosed, which may kindly be considered”.
The ld. CIT(Appeals) did not find merit in the submissions made by the assessee and proceeded to uphold the action of the Assessing Officer in treating the speculation profit as unexplained cash credit under section 68 for the following reasons given in paragraph no. 5 of his impugned order:- “5. Having considered the matter, and the specific findings of the Ld. AO, it has to be said there remains suspicions about the Impugned transactions entered into by the appellant, leading to purported speculation profits. The letter of the National Multi Commodity Exchange of India Ltd. (NMCE) cannot be brushes aside by the appellant on grounds that he had nothing to do with what the status of the Broker was on the Exchange. This coupled with the fact that there was no response to the notice Issued by the ld. AO to the Broker assumes greater significance. I am in agreement with the Ld. AO that the transactions relating to the claim of speculation profits as made by the appellant come within the ambit of "suspicious transactions", and therefore the rules of, suspicious transactions would apply to the case. Payment through Banks, performance through stock exchange and other such features are only apparent features. I this case what the Stock Exchange has confirmed before the Ld. AO goes against the appellant-HUF. Therefore, I have to reach the inevitable conclusion that the transactions as discussed by the Ld.AO fall in the realm of "suspicious" and dubious" transactions. The Ld. AO has therefore necessarily to consider the surrounding circumstances, which he indeed has done in a very meticulous and careful manner. In the case of Win Chadha –vs.- CIT (International Taxation) in ITA No.3088 & 3107/Del/200S, the Hon'ble Delhi ITAT, B"-Bench has observed, on 31.12.2010 as under:
"SUSPICIOUS AND DIBIOUS TRASANCTION HOW TO BE DEALT WITH:
6.11. The tax liability in the cases of suspicious transactions is to be assessed on the basis of the material available on record, surrounding circumstances, human conduct, preponderance of probabilities and nature of incriminating information/ evidence available with AO.
I.T.A. No. 652/KOL./2017 Assessment year: 2013-2014 Page 5 of 12
6.12. In the case of Sumati Dayal -V.-CIT (1995) 80 Taxman 89 (SC), the Hon'ble Supreme Court has dealt with the relevance of human conduct, preponderance of probabilities and surrounding circumstance, burden of proof and its shifting on the Department In cases of suspicious circumstances, by following observations:
" ..... It is, no doubt, true that in all cases in which a receipt is sought to be taxed as income, the burden lies on the department to prove that it is within the taxing provision and if a receipt is in the nature of Income, the burden of proving that it is not taxable because it falls within exemption provided by the Act lies upon the assessee. But in view of section, 68, where any sum is found credited in the books of the assessee for any previous year, the same may be charged to income-tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof Is, in the opinion of the Assessing Officer, not satisfactory. In such case there is prima facie evidence against the assessee, viz., the receipt of money, and if he fails to-rebut the same, the said evidence being unrebutted, can be used against him by holding that it is a receipt of an Income nature. While considering the explanation of the assessee, the department cannot, however, act unreasonably.
........... Having regard to the conduct of the appellant as disclosed In her sworn statement as well as other material on the record, an Inference could reasonably be drawn that the winning tickets were purchased by the appellant after the event. The majority opinion after considering surrounding circumstances and applying the test of human probabilities had rightly concluded that the appellant's claim about the amount being her winning from races, was not genuine. It could not be said that the explanation offered by the appellant in respect of the said amounts had been rejected unreasonably and that the finding that the said amounts were income of the appellant from other sources was not based on evidence”. Order of the AO on this technical plea will amount to taking a lopsided view of the proceedings. Besides, the JPC has underlined the importance of Reports of investigation agencies like CBI, DRI, ED whose were in the offing, as the relevant investigations were in process. In view of these observations, we do not accede to the assessee's pleas In this behalf. The Assessee's contentions and objections in this behalf that the material available on record was not
I.T.A. No. 652/KOL./2017 Assessment year: 2013-2014 Page 6 of 12
admissible as evidence and that it cannot be relied on by the AO, are devoid of any merit and are rejected outright .......”.
In view of the above discussion, I find no infirmity in the orders of the Ld. AO, and I confirm the same. Ground No 1 taken by the appellant stand dismissed”.
The ld. counsel for the assessee submitted that the claim of the assessee of having earned the speculation profit of Rs.3,00,805/- was duly supported by the Contract Notes issued by the concerned broker M/s. Jagtarni Commodities Pvt. Limited and there was no reason to doubt the genuineness of the said claim. He submitted that the broker was expelled from the membership of M/s. NMCE from 15th May, 2013, i.e. only after the transactions of the assessee resulting into speculative profit. Referring to the relevant portion of the ld. CIT(Appeals)’s order as contained in paragraph no. 5, he submitted that the claim of the assessee for speculative profit was disallowed merely on the basis of suspicion and not on the basis of any cogent or convincing reasons. Relying on the decision of the Hon’ble Calcutta High Court in the case of CIT –vs.- Cargo Industrial Holdings Limited [244 ITR 422], he contended that the claim of the assessee for speculative profit cannot be denied merely because the broker failed to appear in response to notices issued by the Assessing Officer or on a mere suspicion about genuineness of transactions. He also relied on the decision of the Hon’ble Calcutta High Court in the case of CIT –vs.- Emerald Commercial Limited [250 ITR 539], wherein it was held that non-production of share brokers by assesese could not disentitle it for claim of loss in a genuine transaction of shares. He further relied on the decision of this Tribunal in the case of Rahul –vs.- ITO (ITA No. 140/KOL/2009 dated 10.08.2007), wherein the genuineness of share transactions was accepted by the Tribunal as the same were duly supported by the Contract Notes as well as Bank statements.
The ld. D.R., on the other hand, submitted that a specific reply was received by the Assessing Officer from the concerned Exchange in
I.T.A. No. 652/KOL./2017 Assessment year: 2013-2014 Page 7 of 12
response to notice issued under section 133(6) that neither the assessee nor the broker had done any transaction as claimed by the assessee resulting into speculative profit. He submitted that the assessee was not even registered with NMCE and even the concerned broker M/s. Jagtarni Commodities Pvt. Limited was never active on NMCE as clearly informed by the Exchange. He contended that this specific information received from M/s. NMCE was sufficient to show that the claim of the assessee of speculative profit was not genuine and the authorities below, therefore, were fully justified in treating the same as unexplained cash credit under section 68. As regards the case laws relied upon by the ld. counsel for the assessee in support of the assessee’s case, he contended that the facts involved in the said cases are altogether different since there was no such specific adverse information received against the assessee from the concerned Exchange.
I have considered the rival submissions and also perused the relevant material available on record. It is observed that in order to verify the veracity of the claim of the assessee of having earned speculation profit, enquiry was made by the Assessing Officer with the concerned broker, namely M/s. Jagtarni Commodities Pvt. Limited as well as the concerned Commodity Exchange NMCE by issuing notices under section 133(6) of the Act. In reply to the said notices, there was no response from the broker. NMCE, however, reported to the Assessing Officer vide letter dated 29.12.2015 that neither the assessee nor even the broker was ever active on their Exchange. It was also informed by NMCE that M/s. Jagtarni Commodities Pvt. Limited was expelled from the membership of the Exchange w.e.f. 15th May, 2013 for issuance of fraudulent Contract Notes. The contention raised by the ld. counsel for the assessee in this regard is that the transactions in question were entered into by the assessee through this concerned broker before his expulsion from the membership of the Exchange from 15th May, 2013. He has also relied on the Contract Notes issued by the said broker as evidence of the transactions. It is, however, observed that the said broker
I.T.A. No. 652/KOL./2017 Assessment year: 2013-2014 Page 8 of 12
was indulging in issuance of fraudulent Contract Notes prior to 15.05.2013 as found by NMCE and on the basis of this finding, he was expelled from the membership of the Exchange. The genuineness of the Contract Notes issued by the said broker even prior to 15.05.2013 thus was found to be doubtful and the letter issued by NMCE stating that he was never active on the Exchange further corroborated the same. In support of the assessee’s case, ld. counsel for the assessee has relied on the decisions of the Hon’ble Calcutta High Court in the case of Cargo Industrial Holdings Limited (supra) and in the case of Emerald Commercial Limited (supra) as well as the decision of this Tribunal in case of Rahul (supra). As rightly contended by the ld. D.R., these cases cited by the ld. counsel for the assessee, however, are distinguishable on facts, inasmuch as, there was no enquiry made by the Assessing Officer in the said case directly with the concerned Stock Exchange which clearly revealed that the relevant transactions were not done through the Stock Exchange as claimed by the assessee on the basis of Contract Notes issued by the broker. In the present case, such enquiry was made by the Assessing Officer, which clearly revealed that not only the assessee but even the concerned broker was never active on the Stock Exchange. It also revealed that the said broker was indulging in issuing fraudulent Contract Notes which resulted into his expulsion from the membership of the Exchange from 15th May, 2013. Keeping in view all these facts of the case, I find myself in agreement with the ld. CIT(Appeals) that the genuineness of the assessee’s claim of having earned the speculation profit of Rs.3,00,905/- was not established and the Assessing Officer, therefore, was fully justified in treating the said amount as unexplained cash credit under section 68 chargeable to tax at the flat rate of 30%. I, therefore, uphold the impugned order of the ld. CIT(Appeals) on this issue and dismiss Ground No. 1 of the assessee’s appeal.
The issue raised in Ground No. 2 relates to the disallowance of Rs.1,00,000/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of assessee’s claim for short-term capital loss.
I.T.A. No. 652/KOL./2017 Assessment year: 2013-2014 Page 9 of 12
In the return of income filed for the year under consideration, a short-term capital gain of Rs.1,12,118/- was declared by the assessee and the same was set off against a short-term capital loss of Rs.1,00,000/- arising from the sale of shares. During the course of assessment proceedings, the claim of the assessee for short-term capital loss of Rs.1,00,000/- arising from the sale of 25,000 shares of M/s. Paul & Chakraborty Pvt. Limited was examined by the Assessing Officer and on such examination, he recorded the following findings:- “(i) It is apparent from the details submitted during the course of assessment proceedings that the assessee-HUF allegedly purchased shares from Bimla Devi Jain, who is a member of the HUF and purportedly sold to Vikash B. Jain (HUF), whose karta is also a member of the assessee-HUF.
(ii) The fair market value of the shares of M/s. Pal & Chokraborty Pvt. Ltd as on 31.03.2012 was Rs.6.74/-, which was allegedly purchased by the assessee @ Rs.10/- per share.
(iii) The share holders list of M/s. Paul & Chakraborty Pvt. Ltd. for the F.Y. 2012-13 and 2013-14, as filed with the ROC, does not show Vikash B Jain (HUF) as a shareholder.
(iv) The entire transactions were done through Journal entries and thus there was no monetary involvement in the alleged transactions”.
When the above findings were confronted by the Assessing Officer to the assessee, the assessee could not offer any satisfactory explanation, the claim of the assessee for short-term capital loss of Rs.1,00,000/-, therefore, was disallowed by the Assessing Officer.
The disallowance made by the Assessing Officer on account of its claim for short-term capital loss of Rs.1,00,000/- was challenged by the assessee in the appeal filed before the ld. CIT(Appeals) and the following submission was made on behalf of the assessee in support of its case on this issue:-
I.T.A. No. 652/KOL./2017 Assessment year: 2013-2014 Page 10 of 12
“Submissions Regarding: Disallowance of short term capital loss: The HUF has been having transactions with its members from time to time. Transactions were carried on in other shares also through journal entry. There was nothing unusual. The particular loss In shares of PAUL & CHAKRAVARTY occurred for transaction through journal entry with the running account with the members. Initially, Bimla Devi Jaln has been holding the shares. Her name as shareholder appears in the MCA records. As Vikash B Jain did not send the shares to the company, the same could not be registered in that name”.
The above submissions made by the assessee did not find favour with the ld. CIT(Appeals), who proceeded to confirm the action of the Assessing Officer in disallowing the assessee’s claim for short-term capital loss by observing as under:- “1. I find that in the matter of the impugned transactions, the Ld. AO has recorded clear and cogent findings, and in assessment as well as in appeal, the appellant has been unable to place any clear reasoning or evidence in the matter. In fact, I find that the appellant has not defended himself at all, but has placed certain irrelevant considerations in the matter.
In the said circumstances, I am not inclined to interfere with the findings of the Ld. AO, which accordingly stand confirmed. The ground is adjudicated against the appellant, and stands dismissed”.
The ld. counsel for the assessee submitted that the genuineness of the relevant transactions of purchase and sale of shares resulting into short-term capital loss was never doubted by the Assessing Officer and the claim of the assessee for the short-term capital loss was disallowed by him merely because the said transactions were made with the family members. He contended that there is no bar in having such transaction along with the family members and the other transactions of similar nature made by the assessee with family members through journal entries were accepted by the Assessing Officer himself as genuine. He submitted that recurring current account is maintained by the assessee to post such
I.T.A. No. 652/KOL./2017 Assessment year: 2013-2014 Page 11 of 12
transactions in shares made by the assessee with family members and this is the regular practice followed by the assessee.
The ld. D.R., on the other hand, relied on the orders of the authorities below in support of the revenue’s case on this issue.
I have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that the genuineness of the relevant share transactions resulting into short-term capital loss of Rs.1,00,000/- was doubted by the Assessing Officer on the ground that these were transactions made by the assessee with other family members. As contended by the ld. counsel for the assessee in this regard, transactions of similar nature were entered into by the assessee with the family members and the said transactions made through journal entries were accepted by the Assessing Officer. Another reason given by the Assessing Officer to doubt the genuineness of the relevant share transactions was that the fair market value of the relevant shares as on 30/03/2012 was Rs.6.75 per share while the assessee had purchased the said shares at Rs.10/- per share. It is, however, observed that the shares were purchased by the assessee at Rs.10/- per share on 01.11.2012 and there is nothing brought on record by the Assessing Officer to show that the fair market value of the said shares as on the date of purchase by the assessee was different from the purchase price shown by the assessee. As regards the allegation of the Assessing Officer that there was no monetary involvement in the transactions in question, the ld. counsel for the assessee has placed on record the copies of current accounts of the concerned family members as appearing in the books of account of the assessee at page nos. 27 & 28 of his paper book to show that there were substantial monetary transactions between the parties against which the value of share transactions in question was adjusted. Having regard to all these facts of the case, I am of the view that the action of the Assessing Officer in disallowing the short-term capital as claimed by the assessee by doubting the genuineness of the relevant share transaction was not
I.T.A. No. 652/KOL./2017 Assessment year: 2013-2014 Page 12 of 12
well founded and the ld. CIT(Appeals) was not justified in upholding the said action of the Assessing Officer. I, therefore, set aside the impugned order of the ld. CIT(Appeals) on this issue and direct the Assessing Officer to allow the claim of the assessee for short-term capital loss of Rs.1,00,000/-. Ground No. 2 of the assessee’s appeal is accordingly allowed.
In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court on October 31, 2017.
Sd/- (P.M. Jagtap) Accountant Member Kolkata, the 31st day of October, 2017
Copies to : (1) Bhag Chand Chhabra, HUF, C/o. B. Jain & Co., 2, Ashutosh Mukherjee Road, Kolkata-700 020
(2) Income Tax Officer, Ward-34(1), Kolkata, Aayakar Bhawan (Poorva), 110, Shanti Pally, Kolkata-700 107
(3) Commissioner of Income Tax (Appeals)-10, Kolkata; (4) Commissioner of Income Tax ,Kolkata (5) The Departmental Representative (6) Guard File By order
Senior Private Secretary, Head of Office/DDO Income Tax Appellate Tribunal, Kolkata Benches, Kolkata Laha/Sr. P.S.