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Income Tax Appellate Tribunal, ‘ C’ BENCH : CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI CHANDRA POOJARI]
आदेश / O R D E R
PER CHANDRA POOJARI, ACCOUNTANT MEMBER
This appeal of the assessee is directed against the order of the Commissioner of Income-tax (Appeals)-3, Madurai, dated 02.02.2017 for the assessment year 2011-2012.
2. The assessee has raised the following grounds of appeal.
ITA No. 837/Mds/2017. :- 2 -:
‘’The Commissioner of Income Tax (Appeals) erred in not considering the facts of the case and the submissions made before him in the proper perspective.
The Commissioner of Income Tax (Appeals) ought to have seen that the appellant bona fide believed that the quantum of online share trading can't be treated as turnover for. the purposes of Sec. 44AB of the Income- Tax Act’’.
Brief facts of the case are that the assessee is an 3. individual and managing director of M/s.Ramesh Enterprises deriving income from shares, salary, property and other sources. For the impugned assessment year, assessee filed his return of income on 05.11.2012 admitting total income of �12,48,400/--. The Assessing Officer selected the case for scrutiny and completed the assessment u/s.143(3) of the act on 04.03.2014 determining the total income of the assessee at �14,86,270/-. The main addition made in the assessment order was on account of the fact that the assessee had not disclosed the share transactions with the stock broker M/s.Kotak Securities Limited and the relevant bank account, which was used for share transactions. The Assessing Officer noticed that the assessee had not disclosed the share. transactions to the extent of �11,18,15,759/- which exceeded the prescribed turnover of �60,OO,OOO/- and, therefore, the assessee ought to have obtained the tax audit report but no ITA No. 837/Mds/2017. :- 3 -: tax audit report was filed. He, therefore, initiated penalty proceedings u/s.271 B of the Act. During the course of penalty proceedings, the assessee submitted that he incurred huge loss in share transactions and, therefore, the same could not be disclosed to the department and thereby he did not obtain the accounts audited by the chartered accountant. The Assessing Officer did not accept the reply of the assessee on the ground that the assessee did not even admit the transactions with M/s.Kotak Securities Limited and there was unaccounted cash deposit of �1,66,943/- in the bank account of the assessee with M/s.Kotak Mahindra Bank which was not at all disclosed and, therefore, there was a willful default on the part of the assessee in as much as the bank account used for the share trading purposes was not at all disclosed to the department. Accordingly, he imposed a penalty of �1,50,OOO/-.
Aggrieved, assessee filed an appeal before ld. Commissioner of Income Tax (Appeals). Before the ld. Commissioner of Income Tax (Appeals), the assessee had filed written submissions based on which the appeal was disposed. The assessee contended that there was no willful default on the part of the assessee and he was under the bonafide belief
ITA No. 837/Mds/2017. :- 4 -: that the share transactions need not be audited. It was also submitted that there was no contumacious conduct or it was not with a view to evade payment, of tax and the breach was only technical or venial in nature. It was further submitted that the online trading of share was only speculation activity and there was no physical delivery of shares given or taken and, therefore, need not be taken as turnover for the purpose of section 44AB. The ld. Commissioner of Income Tax (Appeals) after considering the submissions of the assessee. Admittedly, the assessee entered into online share trading activities on a large scale to the extent of Rs.11,18,15,759/- through his bank account with M/s.Kotak Mahindra Bank. However, while filing the return, the assessee did not disclose the share transactions as well as the bank account. In fact the Assessing Officer added unaccounted cash deposit of �1,66,943/- representing the unaccounted money in M/s.Kotak Mahindra Bank for which the assessee did not file any appeal. This clearly shows that there was a deliberate attempt to suppress the share transactions and the profit earned there from and the capital used for the purpose of share trading. In the circumstances, it cannot be accepted that there was no willful default on the part of the ITA No. 837/Mds/2017. :- 5 -: assessee. The assessee wanted to hide the entire share transactions from the knowledge of the department and only during the course of scrutiny assessment, it came to light. In the circumstances, ld. CIT(A) found that there is no reasonable cause for non-filing of audit report u/s.44AB and, he therefore, confirmed the penalty.
Against this, the assessee is in appeal before the Tribunal.
Before us, ld. Authorised Representative submitted that during the assessment Year 2011-12, the Assessee had dealt in shares in the Stock Exchange through his Demat account with M/s.Kotak Securities linked with Savings Swap account with Mahindra Bank Ltd. As the Assessee incurred huge loss in shares dealings (during the assessment proceedings, it was worked out by the Assessee as �9,10,528), due to mental distrust, the Assessee inadvertently forgotten to inform his accountant to consider the Demat Account with M/s.Kotak Securities Ltd under the impression that these are of speculative transactions and loss of which cannot be claimed against normal income even though his bank account was shown in the accounts without updating the transactions from bank. The Assessee was engaged in on-line trading of Shares for the assessment year 2011-12 and in this speculation activity, as per
ITA No. 837/Mds/2017. :- 6 -: the Contract Notes, there was no physical delivery of Shares given or taken and the account was settled by crediting the difference only. The Assessee never acquired the property in the Shares, as the Shares contracted to be bought were future unascertained shares and the property in the Shares contracted as per Contract Notes were no "sale" or " turnover" in the legal for the purpose of getting accounts audited under Section 44AB. As per Stock Exchange Rules, bye-laws and regulations, in the netted transactions, the difference only either credited or debited to the account of the Assessee and not the sale/purchase value. The sale / purchase value are mentioned in Contract Notes are for information of the Assessee for convenience to know whether there was profit or loss in shares dealings of particular Srips. Ld. Authorised Representative further relied on the followings judicial decisions.
(i) Bajrang Oil Mills vs. ITO, 295 ITR 314 (Raj).
(ii) Om Stock & Commodities (P) Ltd vs. DCIT, 150 ITD 645 (ITAT Mum) (iii) Kalyani Exports & Investments (P) Ltd/ Jannhavi Investments (P) Ltd/ Rajgad Trading (P) Ltd vs. DCIT, 78 IT 95 (ITAT, Pune)
On the other hand, ld. Departmental Representative 6. relied on the orders of the lower authorities.
ITA No. 837/Mds/2017. :- 7 -:
We have heard both the parties and perused the material on record. In this case assessee filed e-return on 05.11.2012 admitting total income of �12,48,400/- with ACIT, Circle –I, Virudhunagar. The return was processed u/s. 143(1) of the Act on 30.08.2013. Latter, the assessment was completed u/s. 143(3) of the Act determining the total income at �14,86,270/- thereby making an addition of �2,37,869/-. Latter the ld. Assessing Officer invoked the provisions of Sec. 271B of the Act and levied penalty of �1,50,000/- as books of accounts produced by the assessee were not audited by the Chartered Accountant and no tax report was filed alongwith return of income though assessee’s turnover exceeded �.60,00,000/- for the assessment year. The Hon’ble Rajasthan High Court in the case of Bajrang Oil Mills vs. ITO, 295 ITR 314, wherein it was held that Sub-section (9) of section 139 operates where a return has been submitted by the assessee and the Assessing Officer considers whether the return of income furnished by the assessee is defective. It requires the Assessing Officer where he finds that the return submitted by the assessee is defective, he must give him an opportunity to rectify the defect within a period of fifteen days from the date of such intimation or within such further period which, on an application made in this behalf, the Assessing officer may, in his discretion, allow ; and if the defect is not removed within the said period of fifteen days or within
ITA No. 837/Mds/2017. :- 8 -: the extended period as may be allowed by the Assessing Officer, the return has to be treated as invalid and the assessee is considered to have failed to furnish the return. The provisions of section 139(9) is of singular importance from the point of view to allow a chance to the assessee to make his return complete and specify the defects which are curable and for the purpose of curing that defect an opportunity has to be offered to the assessee before the consequences of such defects follow. In other words, the consequence of noncompliance with the requirement of furnishing of a valid return takes effect only after the assessee fails to remove the defects within the time allowed until the assessee has opportunity to remove such defects, the consequence of such failure to comply with such defects cannot follow.
If no such report is submitted the question may not carry further as in that event the return itself becomes invalid and it becomes a case where it is to be deemed that the assessee has failed to submit any return which may lead to consequence of default in filing the return.
Hence, it cannot be said that there is any failure on the part of the assessee to furnish the audit report u/s.44AB of the Act at the request of the ld. Assessing Officer. Being so, by placing reliance on the judgment of Rajasthan High Court in the case of Bajrang Oil Mills (supra), we are inclined to delete the penalty levied u/s. 271B of the Act.
ITA No. 837/Mds/2017. :- 9 -:
In the result, the appeal of the assessee is allowed.
Order pronounced on Thursday, the 15th day of June, 2017, at Chennai.