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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI AMIT SHUKLA & SHRI RAMIT KOCHAR
सुनवाई क� तार�ख /Date of Hearing : 03-02-2016 घोषणा क� तार�ख /Date of Pronouncement : 27.4.2016 आदेश / O R D E R PER RAMIT KOCHAR, Accountant Member
This appeal, filed by the assessee company, being 02-12-2010 passed by learned Commissioner of Income Tax (Appeals)- 8, Mumbai (hereinafter called “the CIT(A)”) for the assessment year 2001-02, the appellate proceedings before the CIT(A) arising from the assessment order dated 3-11-2009 passed by the Assessing Officer (hereinafter called “the AO”) u/s 143(3) r.w.s. 254 of the Income Tax Act,1961(Hereinafter called “the Act”).
ITA 1486/Mum/2011 2
2. The grounds raised by the assessee company in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai(hereinafter called “the Tribunal”) read as under:-
“1. Re: Disallowance of claim of Bad Debts of Rs. 8,92,259/-:
1.1 On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) [hereinafter referred to as 'the learned CIT (A)'] erred in not following the Jurisdictional Bombay High Court Judgment of Director of Income Tax (International Taxation) vs. Oman International Bank SAOG 313 ITR 128 that evidences are not required to be produced in case of Bad Debts in view of the retrospective amendments in the section 36(1)(vii).
1.2 The learned CIT(A) grossly erred in not appreciating that considering the nature of the business the Appellant is engaged in, executing the erroneous transaction of purchasing and selling of the shares on account of client leads to Bad Debts allowable under section 36(1) (vii).
1.3 The learned CIT(A) also grossly erred in upholding the order of the Assessing Officer that the loss on account of the trading of shares due to erroneous execution of the orders of the client is speculative in nature.
2. Re: Order passed under 143(3) r.w.s. 254 is null & void:
2.1 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in not holding that the order passed by the Assessing Officer under section 143(3) r.w.s. 254 beyond the prescribed time limit is null and void and therefore grossly erred in not quashing the same.
2.2 The learned CIT(A) erroneously held that for proving the fact that the order was not passed within the due date prescribed in second proviso to section l53(2A), the onus is on the Appellant to determine when the order was received by the Chief Commissioner or Commissioner.
2.3 The learned CIT(A) also failed to consider the fact that the Assessing Officer has done the Assessment in haste stating that the Appellant has not submitted the details in time without considering the difficulty faced by the Appellant.”
ITA 1486/Mum/2011 3
3. The brief facts of the case are that assessment u/s 143(3) of the Act was completed by the AO on 27-08-2003 by assessing the total income at Rs. 37,70,028/- as against the returned income of Rs.28,77,770/- . While framing the assessment u/s 143(3) of the Act, the A.O. treated the loss of Rs. 8,92,259/- claimed by the assessee company as share trading loss , as speculation loss. The A.O. disallowed the same and added to the total income of the assessee company.
On the first appeal being filed by the assessee company with the CIT(A), the CIT(A) deleted the additions made by the A.O. .
Aggrieved by the orders of the CIT(A), the Revenue preferred an appeal before the Tribunal. The Tribunal vide its order dated 3rd October, 2007 , in has set aside the matter back to the file of the A.O. with certain directions as under:
“ 2. Both the parties submitted before us that the facts of the present case before the Tribunal are identical with the facts of the Revenue’s appeal for the earlier Assessment year 1999-2000 in wherein the issue was set aside to the file of the Assessing Officer with certain direction. We have considered the rival submissions. We find that the issue in the present appeal of the Revenue being identical with that of the facts in assessee’s own case for the Assessment year 1999-2000 in ITA No. 4894/M/02 dt 27.10.05. We consider it justified to set aside the issue in the present appeal of the revenue to the file of the Assessing Officer with similar directions to allow the loss as trading loss after examining the evidence to be furnished by the assessee and giving an opportunity of being heard to the assessee and in case , the assessee fails to submit the evidence/records in support of its claim, the order of the Assessing Officer shall stand confirm. Accordingly, the Assessing ITA 1486/Mum/2011 4
Officer is directed to decide the issue de novo in accordance with the directions as contained in the order of the Tribunal dt. 27.10.05 for Assessment year 1999-2000 and we direct accordingly.
3. In the result, the appeal of the Revenue is allowed for statistical purposes.”
In pursuance to the orders dated 3-10-2007 of the Tribunal , the A.O. issued notice u/s 143(2) dated 5th September, 2008 which was served on the assessee company on 25th September, 2008. Further a letter dated 31st August, 2009 was also issued to the assessee company which was returned back with the remark ‘unserved’ by the postal authorities. Again a letter dated 3rd September, 2009 was issued and served on the assessee company on 4th September, 2009 asking the assessee company to submit the following details in support of its claim :
Statement of speculation loss.
Copy of brokers note 3.Scripwise ledger copy of account of shares 4.Copy of bank statement showing payment received/made, in respect of sale/purchase of shares.
The hearings were fixed from time to time but either the assessee company requested for adjournment’s from time to time or did not attend the hearing(s) despite opportunities being given by the AO from time to time. Thus, in nut- shell the assessee company did not gave any replies to the queries raised by the AO and did not co-operated with the Revenue during de-novo assessment proceedings.
ITA 1486/Mum/2011 5 The Tribunal had set aside the matter to the file of A.O. vide orders dated 03- 10-2007 with directions to allow the loss as trading loss after examination of the evidences furnished by the assessee company after giving an opportunity of being heard to the assessee company. It was also directed by the Tribunal that if the assessee company fails to submit the evidences/record with regard to support of its claim the order of the AO shall stand confirmed.
Since the assessee company failed to submit the evidences/records in support of its claim, the A.O. vide orders dated 3rd November, 2009 passed u/s 143(3) r.w.s. 254 of the Act, confirmed the order of the A.O. u/s 143(3) dated 27th August, 2003 .
Aggrieved by the orders dated 03-11-2009 passed by the AO u/s 143(3) of the Act read with Section 254 of the Act , the assessee company filed its first appeal before the CIT(A).
The CIT(A) confirmed the orders of the A.O. vide orders dated 02-12-2010. The CIT(A) observed that the assessee company did not furnish any evidence before the AO that the loss arising on account of excess shares purchased by mistake in executing the orders of the client’s in respect of transactions executed on their behalf. The CIT(A) observed that the assessee company failed to produce evidence in support of the claim regarding the nature of loss, as directed by AO and hence AO has justifiably disallowed the assessee company’s claim and held the loss to be speculative loss. The assessee company filed certain documents as evidence before the CIT(A) which the CIT(A) held that the same is merely details of profit and loss arising on delivery and non-delivery based transactions of certain scripts which cannot be treated as evidence of the transactions having been done on behalf of the clients or mistakenly undertaken which was refused by the clients. The CIT(A) held that the assessee company having failed to produce any evidence to ITA 1486/Mum/2011 6 substantiate its claim that the loss has arisen on purchase of shares on behalf of its clients who have refused to take delivery of the said shares. The assessee company also submitted before the CIT(A) that the impugned order u/s 143(3) r.w.s. 254 of the Act was time barred. As the assessee company has not brought on record when the order of the Tribunal was received by the CCIT or CIT , thus the said contention of the assessee company was also rejected by the CIT(A) and A.O.’s order was upheld as the assessee company failed to produce any evidences/ record in support of its claim, vide CIT(A) orders dated 02-12-2010.
6.Aggrieved by the order of the CIT(A) dated 02-12-2010, the assessee company is in appeal before the Tribunal.
The ld. Counsel for the assessee company submitted that it is the second round of litigation. The A.O.’s order is time barred u/s 153(2A) of the Act. The ld. Counsel submitted that the assessee company is a stock broking company. The Tribunal has passed the order dated 3rd October, 2007 setting aside the matter to the file of the AO for de-novo examination and there-after in pursuance there-of, notice u/s 143(2) of the Act was issued on 5th September, 2008 and impugned order u/s 143(3) r.w.s. 254 of the Act was framed on 3rd November, 2009, which is clearly barred by time limitation as prescribed u/s 153(2A) of the Act .The ld. Counsel relied upon the judgment of Hon’ble Delhi High Court in the case of CIT v. Bhan Textile (P) Ltd., (2008) 300 ITR 0176(Del.HC) and submitted that the assessment order dated 3rd November, 2009 is time barred as per section 153(2A) of the Act and hence the assessment order dated 03-11-2009 passed by the AO u/s 143(3) r.w.s. 254 of the Act needs to be quashed. The ld. Counsel also submitted that vide letter dated 24th March, 2015 as well reminder letter’s dated 11th May, 2015 and 24th November, 2015 were filed with the CCIT whereby the assessee company has duly asked for the date of receipt of the Tribunal orders by the ITA 1486/Mum/2011 7 Revenue , in order to determine the date of time barring of passing of the orders u/s 143(3) read with Section 254 of the Act but the CCIT has not replied and hence adverse view can be taken against the Revenue as the critical evidences are withheld by the Revenue (copy of the letters placed at P.B. ,page 6 to 8).
The ld. D.R. submitted that in the first round of litigation, the Tribunal has set aside the order to the file of A.O. with directions . The A.O. has treated the loss as speculation loss. The assessee company has failed to produce any evidence before the A.O. and hence the authorities have rightly treated the loss of Rs. 8.92,259/- as speculation loss. There was a clear cut direction from the Tribunal to produce the evidence to substantiate its claim of allowability of trading loss but the assessee company has failed to bring on record the said details. In the second round of litigation before the authorities below , the assessee company has not produced any evidence.
We have considered the rival contentions and also perused the material available on record including the case laws relied upon by the parties. We have observed that the assessee company had stated to have incurred trading loss of Rs. 8,92,259/- on account of share trading loss on behalf of the clients, which was treated by the A.O. as speculation loss. In the first round of litigation, the Tribunal vide its order dated 3rd October, 2007 in has set aside the matter back to the file of the A.O. with directions to allow the claim of the assessee company after de-novo examination of the matter and in case the assessee company fails to submit the evidence, the order of the A,.O. shall stand confirmed. The said order of the Tribunal is reproduced hereunder:
“ 2. Both the parties submitted before us that the facts of the present case before the Tribunal are identical with the facts of the Revenue’s ITA 1486/Mum/2011 8 appeal for the earlier Assessment year 1999-2000 in wherein the issue was set aside to the file of the Assessing Officer with certain direction. We have considered the rival submissions. We find that the issue in the present appeal of the Revenue being identical with that of the facts in assessee’s own case for the Assessment year 1999-2000 in ITA No. 4894/M/02 dt 27.10.05. We consider it justified to set aside the issue in the present appeal of the revenue to the file of the Assessing Officer with similar directions to allow the loss as trading loss after examining the evidence to be furnished by the assessee and giving an opportunity of being heard to the assessee and in case , the assessee fails to submit the evidence/records in support of its claim, the order of the Assessing Officer shall stand confirm. Accordingly, the Assessing Officer is directed to decide the issue de novo in accordance with the directions as contained in the order of the Tribunal dt. 27.10.05 for Assessment year 1999-2000 and we direct accordingly.
In the result, the appeal of the Revenue is allowed for statistical purposes.”
The assessee company has not co-operated with the A.O. during second round of litigation and did not submit relevant evidences/records. The CIT(A) had rejected the evidences submitted before him as the same were not relevant and which the CIT(A) held that the same is merely details of profit and loss arising on delivery and non-delivery based transactions of certain scripts which cannot be treated as evidence of the transactions having been done on behalf of the clients or mistakenly undertaken which was refused by the clients.. No evidence on merits has been produced by the assessee company before the Tribunal in second round of litigation with respect to the said claim of the assessee company.
ITA 1486/Mum/2011 9 The assessee company has taken a legal stand that the order dated 03-11- 2009 of the A.O. u/s 143(3) r.w.s. 254 was time barred u/s 153(2A) of the Act as the Revenue has not completed the assessment before the expiry of nine months from the end of the financial year in the which the order of the Tribunal dated 03-10-2007 was received by CCIT/CIT as stipulated u/s 153(2A) of the Act. The assessee company has relied upon the decision of Hon’ble Delhi High Court in the case of CIT v. Bhan Textile (P) Ltd. (supra) to contend that the order dated 3rd November, 2009 framed by the AO u/s. 143(3) r.w.s. 254 of the Act is clearly time barred as the order of the Tribunal setting aside the assessment is dated 03-10-2007. We have observed that the reliance placed by the assessee company in the case of CIT v. Bhan Textile (P) Ltd.(supra) is misconceived as in that case the entire assessment was set aside / cancelled and restored to the file of the A.O. for de-novo framing of the entire assessment as the original order was framed u/s 144 of the Act as it was felt that AO should have allowed one more opportunity to the assessee before framing of original assessment u/s 144 of the Act. Thus it was a complete set aside of the original assessment and the AO was directed to frame fresh assessment without any limitation or restriction or fetters on the power of the AO to frame fresh assessment, after giving opportunity of being heard. No restriction or limitation or fetters whatsoever was placed on the powers of the A.O. to frame the fresh assessment on any relevant issue connected with the affairs of the tax-payer in the afore-stated case of CIT v. Bhan Textiles Private Limited(supra), thus the AO had powers to make even those additions which were not made in the original assessment orders which was framed u/s 144 of the Act as best judgment assessment. Thus it was a complete set aside of the assessment order. Limitation of time for fresh assessment as was governed by section 153(2A) of the Act, which as applicable for impugned assessment year is reproduced below:-
ITA 1486/Mum/2011 10
[(2A) Notwithstanding anything contained in sub-sections (1) [, (1A), (1B)] and (2), in relation to the assessment year commencing on the 1st day of April, 1971, and any subsequent assessment year, an order of fresh assessment in pursuance of an order under section 250 or section 254 or section 263 or section 264, setting aside or cancelling an assessment, may be made at any time before the expiry of one year from the end of the financial year in which the order under section 250 or section 254 is received by the Chief Commissioner or Commissioner or, as the case may be, the order under section 263 or section 264 is passed by the Chief Commissioner or Commissioner:
[Provided further that where the order under section 254 is received by the Chief Commissioner or Commissioner or, as the case may be, the order under section 263 or section 264 is passed by the Commissioner on or after the 1st day of April, 2005, the provisions of this sub-section shall have effect as if for the words “one year”, the words “nine months” had been substituted:]”
While, in the instant case, the Tribunal vide orders dated 03-10-2007 in in first round of litigation has set aside the matter for determination of the issue with limited mandate restricted to the examination of the claim of the assessee company with respect to allowability of share trading loss of Rs. 8,92,259/- incurred by the assessee company and the whole assessment was not annulled , cancelled or quashed. Thus, there was a clear cut restriction and limitation on the powers of A.O. for de-novo determination of the issue with respect to the allowability of claim of the ITA 1486/Mum/2011 11 assessee company of share trading loss and the AO was not allowed to transgress beyond the directions given by the Tribunal as set-out above to frame de-novo assessment. Hence , in the instant year under appeal, the mandate to the A.O. was limited and the assessment order was not completely set aside, annulled or quashed and the mandate was given to the A.O. not to travel beyond the examination of the claim of the assessee company with respect to allowability of the loss of Rs. 8,92,259/- incurred by the assessee company and hence it was not a complete set aside,annulment or quashing of the original assessment order. The assessee company case is clearly covered by the provisions of Section 153(3)(ii) of the Act and there is no restriction placed on the Revenue with respect to the time limit for framing the de-novo determination of the issue of allowability of the claim of the assessee company of share trading loss of Rs. 8,92,259/- incurred by the assessee company u/s 153(3)(ii) of the Act. However, it is a different issue that the courts have interpreted that the said orders need to be passed within reasonable period of time albeit no time limit is prescribed u/s 153(3)(ii) of the Act which matter does not require consideration in the instant appeal and hence we have not elaborated on the same. The said section 153(3)(ii) of the Act is reproduced below:-
“(3) The provisions of sub-sections (1) [, (1A), (1B)] and (2) shall not apply to the following classes of assessments, reassessments and recomputations which may, [subject to the provisions of sub-section (2A),] be completed at any time— (i) [***] (ii) where the assessment, reassessment or recomputation is made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under section 250, 254, 260, 262, 263, or ITA 1486/Mum/2011 12
264 [or in an order of any court in a proceeding otherwise than by way of appeal or reference under this Act] ;”
Since there is no time limit (albeit reasonable time limit as interpreted by courts) in framing de novo determination of the claim of the assessee company with respect to the issue of allowability of share trading loss of Rs.8,92,295/- as provided by the provisions of Section 153(3)(ii) of the Act and the assessee company instant case is clearly covered by the provisions of Section 153(3)(ii) of the Act and not Section 153(2A) of the Act as contended by the assessee company. Hence, we uphold the assessment order of the A.O. dated 3rd November, 2009 passed u/s 143(3) of the Act read with Section 254 of the Act and holds that the said order is not hit by the limitation of time provided u/s 153(2A) of the Act as it is clearly covered by Section 153(3)(ii) of the Act which does not prescribe any time limit for framing the assessment in consequence of or to give effect to the findings and directions contained in the order of the Tribunal and the contention of the assessee company with respect there-to are rejected.
Similar view was taken by the Hon’ble Bombay High Court in the case of Rikhaabdas Jhaverchand v. CIT (2002) 120 Taxman 206(Bom.) and Hon’ble Delhi High Court the case of Basu Distributors Private Limited v. ITO (2007) 159 Taxman 410(Delhi).
The assessee company has not come forward with the relevant and material details of the losses of Rs.8,92,259/- incurred on share trading on behalf of clients before the authorities below as well before us in the second round of litigation, despite being directed by the Tribunal in the first round of litigation. However, we have observed that the assessee company was under a bona-fide belief that it’s case is hit by the limitation of time as prescribed ITA 1486/Mum/2011 13 u/s 153(2A) of the Act for framing de-novo assessment by the AO in the second round of litigation and that the proceedings before AO u/s. 143(3) read with Section 254 of the Act were time barred, whereas this belief of the assessee company was misplaced as the instant case is covered u/s 153(3)(ii) of the Act whereby no limitation of time is prescribed. We , therefore hold that the assessment so framed by the AO u/s. 143(3) read with Section 254 of the Act vide orders dated 03-11-2009 was not hit by bar of limitation as prescribed u/s 153(2A) of the Act and is covered and protected u/s 153(3)(ii) of the Act and we uphold the orders of the AO dated 03-11-2009 passed u/s. 143(3) read with Section 254 of the Act. We order accordingly.
The assessee company has also raised a fresh legal ground of appeal for the first time before the Tribunal in the second round of litigation that this loss of Rs.8,92,259/- is a bad debt covered by the provisions of Section 36(1)(vii) of the Act and being a legal ground which goes to the root of the matter, we admit this ground in the interest of justice. The authorities below have not examined this legal claim of the assessee company that the said loss of Rs. 8,92,259/- is covered by the provisions of Section 36(1)(vii) of the Act and the allowability of the said claim is both a mixed question of law and facts requiring examination and enquiry with respect to the evidence/records produced by the assessee company in its defense, on merits by the authorities below. In our considered view , the interest of justice will be best served , if the matter is sent back to the file of A.O. for examination of fresh legal claim raised by the assessee and one more opportunity be given to the assessee company to produce relevant evidences/details in its defense which shall be examined by the AO on merits. Accordingly, we direct the A.O. to consider the contentions/evidences of the assessee company and determine the issue de-novo after considering all the evidences/records submitted by the assessee company, on merits , failing which the order of the A.O. will stand confirmed. Needless to say that the AO shall provide proper and ITA 1486/Mum/2011 14 adequate opportunity of being heard to the assessee company in accordance with the principles of natural justice in accordance with law.
In the result, the appeal filed by the assessee company in ITA N0. 1486/Mum/2011 for the assessment year 2001-02 is partly allowed for statistical purposes as indicated above.
Order pronounced in the open court on 27th April , 2016. आदेश क� घोषणा खुले �यायालय म� �दनांकः ………. को क� गई ।