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Income Tax Appellate Tribunal, MUMBAI BENCHES “C”, MUMBAI
Before: SHRI MAHAVIR SINGH & MANOJ KUMAR AGARWAL
PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the order of CIT (A) Central IV, Mumbai in Appeal No. CIT (A)/C-IV/IT-185/2007-08 dated 12/11/2008. Assessment was completed by DCIT, Central Circle-31, Mumbai for the AY 1991-92 u/s 144 r. w. s. 254 of the Income Tax Act’ 1961 (hereinafter ‘the Act’) vide his order dated 23/11/2007.
At the outset Ld. Counsel for the assessee has not pressed Ground Nos. 1, 2 and 3, which relates to violation of principal of natural justice and he stated that he is not interested in prosecuting these grounds. Similarly, he has not pressed ground No.6 in respect to treatment of short term capital gain as income from share trading business as
ITA No. 939/MUM/2009 Assessment Year: 1991-92 speculative income. As the learned Counsel for the assessee has not pressed these grounds, we dismiss the same as not pressed.
The first effective issue in this appeal of the assessee against the order of CIT (A) confirming the action of the Assessing Officer (AO) in disallowing loss from sale of shares amounting to Rs. 49,06,798/- claimed to be set off against profit from sale of unit of UTI US-64. For this, assessee has raised following Ground Nos. 4 & 5.
“4. The learned Commissioner of Income-Tax (Appeals) has erred in law and in facts in disallowing loss from sale of shares amounting to Rs. 49,06,798/- set off against profit from sale of units of UTI US-64.
The learned Commissioner of Income-Tax (Appeals) has erred in law and in facts in not appreciating that profit from sale of units of US-64 was speculative in nature. The learned CIT(A) ought to have appreciated that no delivery was taken in respect of transaction in US-64 as well as in shares of other companies.”
Briefly stated facts are that the assessee is a private limited company engaged in the business of hiring of motor cars and trading in shares and securities. The AO during the course of assessment proceedings, on verification of records, noticed that during the period 04/03/1991 to 30/03/1991 the assessee has earned profit on sales of UTI US-64 amounting to Rs. 50,39,700/-, but it has disclosed net profit of Rs. 1,32,904/- after claiming loss of Rs. 49,06,798/- in trading of purchase and sales of shares. According to the AO, since loss arising from purchase and sales of shares is speculative in nature, the assessee was asked to explain as to why said loss from share trading against the income from US-64 be not disallowed? The assessee replied vide letter dated 17/09/2007 that the profit from US-64 is speculative profit because the assessee has not taken delivery of US- 64 and therefore it is speculative profit and also relied on the decision of Growmore Exports Ltd. Vs. ACIT 78 ITD 95. The assessee claimed that the profit from US-64 is speculative profit and is eligible to be set off against loss from shares. The AO relying on the decision of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. Vs. CIT (2002)
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ITA No. 939/MUM/2009 Assessment Year: 1991-92 122 Taxman 562, held that since the unit of UTI are not treated as share under Companies Act, 1964 and consequently, loss incurred by the assessee on account of sale of shares could not be set off against profit earned from unit US-64. Secondly, according to AO, the forward trading and speculation is not permitted in unit of US-64 and hence transaction involving US-64 entered into by the assessee is illegal transaction and loss from legal business only can be adjusted against legal business and not against income from illegal business. The loss from illegal business can be adjusted against income from illegal business. Accordingly, the loss adjusted by assessee after setting off of speculative loss arising out of sale and purchase of shares amounting to Rs. 49,06,796/- was disallowed. Aggrieved, assessee preferred appeal before the CIT (A) who also confirmed the action of the AO on the same reasons. Aggrieved, assessee came in second appeal before the Tribunal.
Before us Ld. Counsel for the assessee first of all took us through the assessment order and the order of CIT (A). The learned Counsel for the assessee has not disputed the fact as mentioned by the AO but disputed that the transaction of purchase and sale of units of US-64 falls within the ambit of Section 43(5) of the Act and the US-64 units are commodity. The learned Counsel for the assessee relied on the decision of Hon'ble Bombay High court in the case of CIT Vs. Bharat R. Ruia (HUF) [2011] 337 ITR 452 (Bom). Ld. Counsel for the assessee took us through the head note of the judgment which states:
“Section 43(5) of the Income-tax Act, 1961, defines the expression “speculative transaction” to mean a transaction in which a contract for the purchase or sale of any commodity including stocks and shares is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips.
Since the expression “commodity” is not defined under the Act the expression “commodity” in section 43(5) has to be given meaning as understood in common parlance. The expression “commodity” means an article of trade or commerce
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ITA No. 939/MUM/2009 Assessment Year: 1991-92 which is tangible in nature. A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. Futures contracts in both index as well as stocks can be bought and sold through the trading members of a recognized stock exchange”.
He also relied on the decision of coordinate bench of this Tribunal Delhi ‘A’ bench in the case of ANZ Grindlays Bank Vs. DCIT (2004) 88 ITD 53 (Del) wherein the Tribunal has decided that transaction of purchase and sales of units and Government security by assessee through BR without actual delivery would fall within the scope of speculative transaction as define in section 45(3) of the Act. In view of this, the learned Counsel for the assessee argued that the word ‘commodity’ would include items of the same generic as stock and shares and hence would include the units of UTI and Government securities and therefore the transaction fall within the ambit of section 43(5) of the Act but subject to prohibition contained in section 73 of the Act. According to the learned Counsel for the assessee, the loss arising out of sale of shares is to be set off against the profit of unit of UTI US-64 in this case.
On the other hand the Sr. DR made only one submission that once Hon'ble Supreme Court in the case of Apollo Tyres (supra) has decided the issue that UTI US-64 are not to be treated as shares, no other view can be taken and even Hon'ble Bombay High Court in the case of Bharat R. Ruia (HUF) (supra) has no occasion to consider the units of UTI US-64, whereas before Hon'ble Bombay High Court, the issue was of speculative transactions vis-à-vis proviso to section 43(5) of the Act. In view of these, learned Sr. DR urged the bench to confirm the order of CIT (A) and restored that of the Assessing Officer.
We have heard the learned Representatives of both the parties and also perused the material placed on record before us. Now, the first aspect of dispute on the issue is whether the profit arising from the sale of units of UTI US-64 is speculative transaction in-term of Section 43(5) of the Act, consequently, the profit is speculative profit or the
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ITA No. 939/MUM/2009 Assessment Year: 1991-92 business profit. The learned Counsel for the assessee first of all relied on the decision of Hon’ble Bombay High Court in the case of Bharat R. Ruia (HUF) (supra) and he drew our attention of the Revenue before the Hon’ble Bombay High Court and the relevant referred by him reads as under: -
“ Chapter IV of the Act contains provisions relating to the computation of profits and gains of business or profession. Section 28 in Chapter IV of the Act, inter alia, provides that the profits and gains of any business or profession which are carried on by the assessee at any time during the previous year shall be chargeable to income-tax under the head "Profits and gains of business or profession". Explanation 2 to section 28 provides that where speculative transactions carried on by an assessee are of such a nature as to constitute a business, then such speculation business shall be deemed to be distinct and separate from any other business. Section 722 of the Act provides for set off of the carried forward business losses not being a loss sustained in a speculation business. Section 73 provides that the carried forward losses in speculation business shall not be set off except against profits and gains, in any other speculation business. The assessee” claims that the losses incurred in derivative transactions are business losses which could be set off against profits and gains of any other business / any other heads of income, whereas the revenue contends that the losses incurred by the assessee in derivative transactions are speculative transactions covered under Section 43(5) of the Act which could be set off only against profits of speculation business.
Section 43(5) of the Act defines the expression 'speculative transaction' to mean a transaction in which a contract for the purchase or sale of any commodity including stocks and shares is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips.
The question, therefore to be considered is, whether the transactions in futures contracts carried on by the assessee through a broker of the recognized stock exchange which is ultimately settled otherwise by actual delivery, constitutes
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ITA No. 939/MUM/2009 Assessment Year: 1991-92 transactions or contracts for the purchase and sale of any commodity under Section 43(5) of the Act
The expression 'commodity' is not defined under the Act. Therefore, the expression 'commodity' in Section 43(5) has to be given meaning as understood in common parlance. As per Black's Dictionary (Eight Edition) the expression 'commodity' means an article of trade or commerce which are tangible in nature. As per "THE MAJOR LAW LEXICON' by Pramantha Aiyer (4th Edition) the expression 'commodity' has two meanings (one) in economics, it is any tangible goods that is traded and (two) it is raw materials and goods, especially such goods as cocoa, cofee, jute, potatoes, tea, etc. which may also be traded. Thus, in common parlance, the expression commodity means an article of trade or commerce which are tangible in nature.
In the present case, the assessee had entered into futures contracts for purchase of shares of certain companies at a specified future date and at a specified price, which were to be settled in cash without actual delivery of the shares. Such a contract, whether constitutes a contract for purchase of a commodity is the question.”
He further, argued that the expression commodity does not include stocks and shares for the purpose of Section 43(5) of the Act, but the same would follow and decide the purview of Section 43(5) of the Act, and Hon’ble Bombay High Court, according to the learned Counsel, has answered this as under: -
“The expression 'commodity' would cover all articles of trade including stocks & shares. Even under Section 43(5), the expression 'commodity' is not expanded to include 'stocks & shares'. In fact, use of 'comma' in between the word 'commodity' and the words 'including stocks & shares' in Section 43(5) make it clear that transactions for purchase of any commodity would include transaction for purchase or sale of stocks & shares. In other words, Section 43(5) does not seek to expand the scope of expression 'commodity' but merely emphasizes that the
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ITA No. 939/MUM/2009 Assessment Year: 1991-92 transaction in commodity includes transactions in stocks & shares. Therefore, transactions in futures contracts like transactions in stocks & shares when settled otherwise than by actual delivery would be speculative transactions under Section 43(5) of the Act.”
In view of the above judgments of the Bombay High Court, the learned Counsel for the assessee stated that the issue now stands cover in favour of assessee by this decision of Hon’ble Bombay High Court. He further referred to the decision of co- ordinate Bench of this Tribunal in the case of ANZ Grindlays Bank Vs CIT of ITAT Delhi (2004) 88 ITD 53 Delhi, the coordinate Bench on the very same issue, wherein the units of UTI and government speculates were the underlying assets and the Tribunal held that the transactions of purchase and sale of units and government securities by the assessee without actual delivery would fall within the scope of speculative transactions as defined in Section 43(5) of the Act. The learned Counsel for the assessee referred to the Para 20 of the order which reads as under
“There is another aspect of the matter. Explanation to Section 73 is only a deeming provision and therefore, is applicable only where the case of assessee does not fall within the scope of Section 43(5). This explanation is applicable only where a company is dealing in shares by actual delivery. Since the legislature intended to discourage companies in dealing in shares of other companies, it inserted deeming provisions in the form of Explanation to Section and made such dealings as part of speculative business so as to deprive such assessee from setting off losses in such business against other incomes of such assessee. It is only in such case, the Legislature has provided exception by way of exclusion of certain companies. Therefore, the result is that if banking company is engaged in business of shares by actual delivery then such business shall not be regarded as speculative business and consequently, such banking company would be entitled to set off losses in such business against its normal profits. However, if the business of such banking company consists of purchase and sale of shares without actual delivery, then such business would itself fall within the scope of section
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ITA No. 939/MUM/2009 Assessment Year: 1991-92 43(5) read with Explanation 2 to section 28 and consequently, the losses incurred in such business would not be allowed to set off against other income in view of main provisions of section 73 itself and there would be no occasion to apply the Explanation to such section. In the present case, the case of assessee falls within the scope of Section 43(5) and therefore, losses in transactions of purchase and sale of units and securities without actual delivery cannot be set off against the normal income from banking in view of the main provisions of section 73.”
We have considered these cause-laws referred by the learned Counsel for the assessee and also considered the decision of Hon’ble Supreme Court in the case of Apollo Tyres Ltd (supra): -
“The last point for our consideration is: whether buying and selling of units by the assessee company can be treated as a speculative business ? For this purpose, the Revenue argues that the units purchased by the assessee company from the UTI are shares, therefore, as per Explanation to Section 73 of the Act, the said business of purchasing and selling of shares will have to be treated as a business of speculation. The Revenue in support of this argument, relies on Section 32(3) of the UTI Act which reads as follows :
"(3) Subject to the foregoing sub-sections, for the purposes of the Income-tax Act, 1961, --
(a) any distribution of income received by a unit holder from the Trust shall be deemed to be his income by way of dividends; and
(b) the Trust shall be deemed to be a company."
Relying on the above provision of the UTI Act, the Revenue contends that if the UTI is a company and income from its units is dividend then ipso facto the units will have to be shares, therefore, the business of purchase and sale of units conducted by the assessee company will have to be deemed to be a business in shares which business, according to the Revenue, attracts Explanation to Section
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ITA No. 939/MUM/2009 Assessment Year: 1991-92 73. On this basis, it is contended that the business of purchase and sale of units by the assessee company amounts to a business of speculation. Both the tribunal and the High Court have considered this argument as also the effect of Section 32(3) of the UTI Act and have come to the conclusion that the provision of the said Act is limited for the purpose of assessment of dividend income under the Act, and for deduction of tax at source. They have held that the legal fiction created by Section 32(3) of the UTI Act cannot be carried any further. We have examined the provisions of the UTI Act and we are of the opinion that even though the said Section creates a fiction to make the UTI as a deemed company and distribution of income received by the unit holder as a deemed dividend, by virtue of these deemed provisions, it cannot be said that it also makes the unit of the UTI a deemed share. In our opinion, a deeming provision of this nature as found in Section (3) should be applied for the purpose for which the said deeming provision is specifically enacted, which in the present case is confined only to deeming the UTI as a company and deeming the income from the units as a dividend. If as a matter of fact, the Legislature had contemplated making the units as also a deemed share then it would have stated so. In the absence of any such specific deeming in regard to the units as shares it would be erroneous to extend the provisions of Section (3) of the UTI Act to the units of UTI for the purpose of holding that the unit is a share. For these reasons, we are in agreement with the finding of the High Court on this point also”
We have gone through the judgments of Bombay High Court in the case of Bharat R. Ruia (HUF) (supra) and noticed that the underlying asset before the Hon’ble Bombay High Court was shares and stocks and not the units of UTI. Therefore, the decision of Hon’ble Bombay High Court is not at all applicable to the facts of the present case because, the issue is directly covered by the decision of the Hon’ble Supreme Court in the case of Apollo Tyres Ltd (supra), wherein, Hon’ble Supreme Court has considered the provisions of Section 32(3) of the Unit Trust of India Act, 1963 which crates fiction to make the UTI a deemed company and distribution of income received by the Unit to holds is deemed dividend for the purpose of this Act and by virtue of this provisions it Page 9 of 19
ITA No. 939/MUM/2009 Assessment Year: 1991-92 cannot be said that Section also makes the units of UTI a deemed share. According to Hon’ble Supreme Court, the deemed provision in Section 32(3) of the Act finds only to deeming the UTI a company and income from units of dividend. In the absence of any specific deeming provisions in the UTI Act units as shares, it was held that it would be erroneous to extend the provisions of Section 32(3) of the Act for the purpose of holding the units as share. Accordingly, it was held that buying and selling of units by assessee cold not to be treated as speculative business and loss in buying and selling of units of UTI was business loss and not speculation loss. We find that Hon’ble apex Court has decided this issue and which is binding for us..
As regards to another aspect of which the AO and CIT(A), who have confirmed the disallowance of loss from business and profit of UTI and the disallowance was confirmed on the belief that transactions entered into by the assessee was illegal and therefore, the loss arising from illegal business will not be allowed against legal transactions.
We have heard the rival contentions on this issue and gone through the facts and circumstances of the case. Before us, the learned Counsel for the assessee filed a copy of judgments in Suit No.1 of 2005, Canbank Financial Services Ltd. Vs. 1.M/s V.B. Desai, a firm. We find that this situation has raised the following issues: -
“4. Whether the Suit transactions are prohibited by the Securities Contract (Regulation) Act, 1956 as alleged in Para V of the written statement.
Whether the Suit is based on an illegality and is liable to be dismissed on that ground as alleged in Para IV and VI of the written Statement?”
The special Court had decided the issue: -
“In my opinion, therefore, the fact that Units of Mutual Funds were included in the definition of the term “securities” by amending Act clearly shows that the units of the Mutual funds were not included in that definition before the
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ITA No. 939/MUM/2009 Assessment Year: 1991-92 amendment. As observed the Supreme Court in its judgment in the case of RBI Vs. Peerless General Finance and Investment Co. Ltd., AIB 1987 SC 1023 that the legislatures resort to inclusive definitions also to bring under one nomenclature all transactions possessing certain similar feature but going under different name. Depending on the context, in the process of on enlarging, the definition may even become exhaustive. In my opinion, therefore, the word “include” is used in section 2(h), in truth and substance, to give exhaustive definition of the term “securities” for the purpose of securities Contract Act. Therefore, as on the relevant date the units of the Mutual Funds which was the subject matter of the ready forwa4d transaction between the parties was not securities within the meaning of the securities contract Regulation Act, the transaction was not hit by the Section 16 and therefore, the transaction cannot be said to be an illegal transaction cannot be said to be an illegal transaction as it was not prohibited by the Securities Contract Regulation Act. Issues Nos. 4 & 5 are, therefore, answered.”
We have going through the judgments of special Court (Trial Of Offences Relating To Transactions In Securities) as notified under the provisions of special Courts ((Trial Of Offence Relating To Transaction In Securities Act, 1992) and noticed that the claim of loss made by the assessee was rejected by the AO on another ground that transaction entered into by the assessee was illegal and therefore deduction of loss relating to illegal business cannot be allowed as deduction. We find that assessee was in fact dealing in forward transactions of Government securities through stock brokers. The assessee entered into an agreement for forward delivery of Govt. Securities with one set of parties through the brokers and immediately also entered into forward purchase of Govt. Securities from other set of parties through the broker, but delivery of the securities never takes place. These transactions are finally settled by paying differential amount. According to special Court, the transactions are speculative transactions and the assessee has shown income out of same set of transactions which is more than the loss declared by the assessee. We find that the judgment of special Court clearly held that forward
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ITA No. 939/MUM/2009 Assessment Year: 1991-92 transactions entered into by the assessee was not illegal and therefore loss cannot be disallowed on that ground. We are also hold the same view. However, we have already held the transactions of sale/purchase of UTI unit 64 as business transaction and not speculative transactions, consequently, the profit arising out of the sale of UTI unit 64 is to be assessed as business income and cannot be set off against the profit arising out of sale / purchase of shares.
The next common issue raised by the assessee in this appeal is as regards to the claim of expenses in respect to the electricity, repair and maintenance and travelling, telephone and cash expenses. The assessee has raised following ground No.7-11 for these disallowances:-
“7. The learned CIT(A) has erred in law and in facts is not granting deduction on account of electricity expenses amounting to Rs. 19,211/-.
The leaned CIT(A) has erred in law and in facts is not granting deduction on account of repair and maintenance expenses amounting to Rs.20325/-
The leaned CIT(A) has erred in law and in facts is not granting deduction on account of travelling expenses amounting to Rs. 19,856/-
The leaned CIT(A) has erred in law and in facts is not granting deduction on account of telephone expenses amounting to Rs. 10,436/-.
The leaned CIT(A) has erred in law and in facts is not granting deduction on account of car expenses amounting to Rs. 13,381/-”
At the outset, the learned Counsel for the assessee stated that due to smallness of amount, leaves it to the Court to decide. It means that assessee is not interested to argue on these matters due to smallness of amounts and hence, the disallowances are confirmed. These grounds of assessee’s appeals are dismissed.
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ITA No. 939/MUM/2009 Assessment Year: 1991-92 16. The next issue in this appeal of assessee is against the order of CIT(A) confirming the addition made by AO on account of disclosure under section 132(4) of the Act amounting to Rs.3,90,000. For this assessee has raised following ground No. 12: -
“The learned CIT(A)has erred in law and in facts in making addition on account of disallowance u/s 132(4) amounting to Rs.3,90,000/-.”
At the outset, the learned Counsel for the assessee filed copy of Tribunal’s order in ITA No. 3596/Mum/2013 for the very same assessment year 1991-92 dated 05-05-2015 in a group concern’s case Harsh Estates Pvt. Ltd. v. DCIT, wherein, a similar addition in other group concerns were deleted by the Tribunal vide Para 4 to 6 as under: -
“4. Ground No.4 is about addition of Rs.3.90 lacs on account of declaration made u/s. 132(4) of the Act. During the course of assessment proceedings, the AO noted that after search at various premises of the group, Harshad Mehta, vide his letter dt.2.6.92, had offered an additional income of Rs.100 cr. u/s. 132(4) of the Act as additional income on behalf of his family members and the group concerns. The AO further observed that the disclosure was made in excess of what has been disclosed by the group entities in their returns of income, that no bifurcation of undisclosed income had been filed. In the original assessment proportionate addition of Rs.3.90 lacs had been made on the basis of advance tax paid by the assessee. The AO required the assessee to explain as to why similar addition should not be made as income not reflected in the regular books of account because Harshad Mehta had referred/offered additional income to the income over and above the income related to the advances tax paid. The assessee contended that declaration was on estimate basis, that the books were not complete. The AO, however, was not convinced by the argument of the assessee in view of the fact that a large number of benami transactions were established in the course of subsequent investigation and that the assessee group had substantial income from share trading and money market that was not recorded in the regular books of account. Accordingly, he made addition of Rs.3,90,000/-
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ITA No. 939/MUM/2009 Assessment Year: 1991-92 5. Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority (FAA). Before him it was argued that the presumption u/s. 132(4)(A) could not be invoked for the purpose of assessment proceedings, that the declaration had been made on the fact that no books were maintained, that no addition could be made on account of any declaration of any income without corroborative evidence found during the search. After considering the submissions of the assessee and the assessment order, the FAA held that as per provisions of section 292C presumption of 132(4A) was available for assessment proceedings, that the objection of the assessee had no force.Confirming the order of the AO he upheld the addition.
Before us, Authorized Representative (AR) submitted that similar addition was made in one of the group cases, that the Tribunal, had deleted the addition that was part of declaration made u/s. 132(4) of the Act. Departmental Representative(DR)supported the order of the FAA and stated that income should not be below the declared income. We have heard the rival submissions and perused the material before us. We find that in the case of Late Harshad S. Mehta (Legal Heir Jyoti S. Mehta) 5518/Mum/2007 AY-1988-89 and Ors dt.2.1.2008 similar issue was discussed as under :-
“5.30 The last ground No.24 relates to the assessee's grievance against the addition of Rs.25,OO,OOO made by the Assessing Officer on the basis of declaration u/s.l32(4)of the Act. 5.31 It is, submitted by the learned Chartered Accountant that the declaration was given by the assessee on 27.09.1990 without having the benefit of the records and that too during the course of search proceedings conducted on 27.09.1990. The return of income for the assessment year under appeal was filed on 30.11.1990, by which time, the assessee had reconciled the figures and taken care of all the items. It is the case of the learned Chartered Accountant that the Assessing Officer has made additions in respect of all the specific items including on the basis of the findings of the search party, there is no scope for making any adhoc addition and that too, without any evidences. Page 14 of 19
ITA No. 939/MUM/2009 Assessment Year: 1991-92 5.32 We have gone through the declaration given by the assessee, available in page 88 of the paper book filed by the assessee before us. In the said declaration, the assessee has proposed to pay taxes on additional income of Rs.25,OO,OOO. It is seen from the declaration that the assessee was giving an estimate of his total income for the year under consideration rather than adding independent and additional amount of Rs.25,OO,OOO, in addition to income accountable in the assessee's hands. The assessment in this case has been completed by the Assessing Officer by making various additions to the income returned by the assessee. Once the Assessing Officer determined the total income in such a manner involving a series of additions, there is no justification in making further addition of Rs.25,OO,OOO on the basis of the declaration made by the assessee. If the Assessing Officer was to accept the declaration made by the assessee, then he should not have made other additions outside books of account. Therefore, there is force in the argument of the assessee on this point. The Assessing Officer may determine the total income either on the basis of estimation or on the basis of the declaration of the assessee. Therefore, in the facts and circumstances of the case, we find that the addition of Rs.25, OO, OOO needs to be deleted. We order accordingly.”
Respectfully following the above order we direct the AO to determine the total income of the assessee either on the basis of estimation or on the basis of declaration made by the assessee. Following the order of Late Harshad S. Mehta- Legal Heir Jyoti S. Mehta(supra), we delete the addition amounting to Rs.3.90 lakhs made by AO and confirmed by FAA.Gr.4 is decided in favour of the assessee.”
As the facts are exactly identical in the present case also and Revenue could not differentiate the facts. Respectfully, following the coordinate Bench of this Tribunal in
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ITA No. 939/MUM/2009 Assessment Year: 1991-92 assessee’s group case, we direct the AO to delete the addition of Rs.3.90 lakhs. This issue of the assessee is allowed.
The next issue in this appeal of assessee is against the order of CIT(A) charging interest under section 234A, 234B, 234C of the Act.
At the outset, the assessee filed copy of Tribunal’s order in ITA No. 3596/Mum/2013 for the very same assessment year 1991-92 dated 05-05-2015 in a group concerns case Harsh Estates Pvt. Ltd. (supra), wherein, a similar levy of interest in other group concerns were decided by the Tribunal vide Para 11 as under: -
“11. Last ground of appeal is about levy of interest u/s. 234A, 234B and 234C of the Act. During the course of hearing before us, the AR fairly conceded that the issue was decided against the assessee vide Tribunal order dt.8.10.14 (ITA 1035/Mum/13 and Ors.) We find that the Tribunal in its order dt.8.10.2014 (supra) had decided the issue as under: -
“So far as, charging of interest u/ s 234A, 234B and 234C is concerned the Id. Counsel for the assessee contended that it may be sent to the file of the Id. Assessing officer. However, the Id. Special counsel contended that the levy of interest is mandatory therefore it should be decided against the assessee. However, the Id. Counsel for the assessee contended that it may be sent to the Assessing Officer for actual calculation purposes only. Agreed, levy of interest is mandatory and sometimes consequential depending upon the facts of each case. We note that identical issue arose before the Tribunal in the aforesaid cases therefore following the reasoning contained therein, we direct the Assessing Officer to recompute the interest liability after reducing the amount of tax deductable at source and decide as per the provisions of law. We direct accordingly, thus, this ground is allowed for statistical purposes.”
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ITA No. 939/MUM/2009 Assessment Year: 1991-92 Respectfully following the above, we decide ground No.6 against the assessee and direct the AO re-compute the interest liability after reducing tax liability at source and decide the issue as per provisions of law”
Respectfully following the above direction of the Tribunal, we direct the AO to recompute the interest liability after reducing tax deducted at source or liability of TDS and charge the interest accordingly.
The next issue in this appeal of assessee is against the order of CIT(A) in upholding the action of the AO in charging interest under section 220(2) of the Act.
At the outset, the learned Counsel for the assessee stated that this issue is also covered by the decision of the Hon'ble Bombay High Court in the case of CIT v. M/s Chika Overseas Pvt. Ltd. which reads as under: -
“6) We see no merit in the above contention. Under Section 156 of the Act, service of the demand notice is mandatory. Section 220(2) of the Act provides that if the amount specified in any notice of demand under Section 156 is not paid within the period prescribed under sub-section (1) of Section 220, then, the assessee shall be liable to pay simple interest at the rate prescribed therein.
7) In the present case, it is not in dispute that the original assessment order dated 28/2/1997 was set aside by the ITAT with a direction to pass fresh assessment order. Accordingly, fresh assessment order was passed on 24/12/2006 and the demand notice was served on 24/12/2006. As per Section 220(1) of the Act, the assessee was liable to pay the amount of demand within thirty days from the service of demand notice dated 24/12/2006. It is only if the assessee fails to pay the amount demanded, within thirty days of the service of the demand notice dated 24/12/2006 as stipulated under Section 220(1) of the Act, the assessee was liable to pay interest under Section 220(2) of the Act. If the liability to pay interest under Section 220(2) arises after thirty days of the service of the demand notice dated 24/12/2006, the question of demanding interest for the period prior to
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ITA No. 939/MUM/2009 Assessment Year: 1991-92 24/12/2006 does not arise at all. Neither the assessment order dated 24/12/2006 nor the demand notice dated 24/12/2006 required the assessee to pay interest after thirty days from the date of service of the original demand notice dated 28/2/1997. Since the demand itself was crystallized under the assessment order dated 24/12/2006 and the assessee under Section 220(1)of the Act had time to pay that demand up to thirty days of the service of the demand notice dated 24/12/2006, the argument of the revenue that the assessee was liable to pay interest under Section 220(2) of the Act, for the period prior to the crystallization of the demand on 24/12/2006 cannot be sustained. Therefore, in the facts of the present case, the decision of the ITAT in holding that the assessee is liable to pay interest under Section 220(2) of the Act from the end of the period mentioned in Section 220(1) of the Act i.e. thirty days after the service of notice of demand dated 24/12/2006 till the date on which the amount demanded was paid cannot be faulted.”
We find from the facts of the present case that the ITAT in the present case in ITA No. 8987/Mum/1995 vide order dated 17-10-2005 has set aside the assessment and restored the matter to the file of the AO with a direction to frame the assessment denovo. The AO framed the impugned assessment u/s 144 r. w. s. 254 of the Act dated 23-11- 2007 and in term of the ratio of Hon’ble Bombay High Court in the case of Chika Overseas Pvt. Ltd. (supra), the AO can demand the interest u/s 220(1) of the Act after 30 days of serving of demand notice dated 23-11-2007. We direct the AO accordingly and this issue of assessee’s appeal is partly allowed.
In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 20th January, 2017.
Sd/- Sd/- (MANOJ KUMAR AGARWAL) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER म ुंबई Mumbai; दिन ुंक Dated: 20th January, 2017 Sudip Sarkar /Sr.PS Page 18 of 19
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आदेश प्रतिलिपि अग्रेपिि/Copy of the Order forwarded to : अपील र्थी / The Appellant 1. प्रत्यर्थी / The Respondent. 2. आयकर आय क्त(अपील) / The CIT(A)- 3. आयकर आय क्त / CIT 4. विभ गीय प्रतततनधि, आयकर अपीलीय अधिकरण, म ुंबई / DR, ITAT, Mumbai 5. ग र्ड फ ईल / Guard file. 6. आदेशानुसार/ BY ORDER, सत्य वपत प्रतत //True Copy// उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीिीय अधिकरण, म ुंबई / ITAT, Mumbai
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