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Income Tax Appellate Tribunal, KOLKATA BENCH “B” KOLKATA
Before: Shri N.V.Vasusdevan & Shri Waseem Ahmed
आदेश /O R D E R
PER Waseem Ahmed, Accountant Member:-
This appeal by the Revenue against the order of Commissioner of Income Tax (Appeals)-I, Kolkata dated 21.01.2011. Assessment was framed by ITO Ward- 1(2), Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 17.12.2007 for assessment year 2005-06.
At the time of hearing nobody appeared from the side of the assessee in spite of the fact that the notice was served by the Inspector of income tax by way of affixture on dated 8th January 2016. The original report of inspector is placed on record. Therefore we decided to hear the case ex-parte after hearing the learned DR appearing on behalf of Revenue.
ACIT CC-XXIII, Kol. V. M/s Manush Distributors Ltd. Page 2 3. At the outset, we find that Revenue has raised sole revised ground of appeal which submitted on 19.06.2015 and we have admitted the same which is reproduced below:-
1. In the facts and circumstances of the case and in law the learned CIT(A) has erred in allowing excess loss out of buying and selling of shares without proper appreciation of the fact that the closing stock of shares shown to have been held by the assessee at the end of the previous year as per the audited accounts was grossly understated while compared to the closing stock of shares held by the assessee at the end of the previous year as per demat account.”
The sole issue raised by revenue in this appeal is that Ld. CIT(A) erred in deleting the addition made by the AO on account of deference between closing stock of shares as per books and demat account of assessee.
Brief facts of the case are that assessee is a Private Limited Company and engaged in trading in shares / loan financing activities. The assessee is a registered Non Banking Finance Company (NBFC for short) with Reserve bank of India. The assessee declared loss of Rs.1,04,93,367/- on account of sale / purchase of shares under the business head of the income. The assessee during the assessment proceedings failed to produce the stock registers, actual delivery of shares script. So the Assessing Officer could not verify the genuineness and actual mode of transactions. There was also a survey u/s 133A of the Act on dated 27.02.2006 at the business premises of the assessee but assessee failed to produce the books of account. Therefore the AO rejected the books of account u/s 145 of the Act and proceeded to compute the income u/s. 144 of the Act. From the records and facts the AO found that the transactions of purchase & sale of shares were settled otherwise than actual delivery of script. Further, AO found that the loss shown is to set off the interest income of ₹1,09,25,507/- other income. Accordingly the held such loss as speculation under section 73(1) of the Act and disallowed the set off with other income.
Aggrieved, assessee preferred an appeal to ld. CIT(A) where the assessee submitted the necessary details for the purchase and sale of share supported with contract notes / stock exchange quotation to authenticate the rates of the sale and purchase of securities. The assessee also submitted the Demat statement showing ACIT CC-XXIII, Kol. V. M/s Manush Distributors Ltd. Page 3 inward & outward movement of shares. The assessee claimed that all the transactions of sale / purchase are backed by delivery. The opening stock of shares was also shown with the support of the audited statement of accounts. As such there is no irregularity in the books of account. So the provision of Sec. 145(3) cannot be invoked. During the time of survey on dated 07.02.2007 all the books of accounts were shown and maintained. In view of above Ld. CIT(A) reversed the order of Assessing Officer by observing as under:- “5. I have careful examined the assessment order and the submissions made by the authorized representative. I m of the opinion that the main contention of the Assessing Officer was that he was not satisfied about the delivery of shares by the assessee and hence applied the provisions of section 43(5) of the Income tax Act treating the said transactions as speculative. It is to be noted that the assessing officer has not questioned the incurrence or happening of the transactions; he has merely concluded that the said transactions are speculative since not backed by delivery. However, from the details furnished by the authorized representative it is evident that the delivery of shares did take place and as such section 43(5) is not applicable to the assessee. The demat account and the confirmation of the broker confirm the delivery of share in each and every case of transactions of trading in share as discussed above.
5.1 The Assessing Officer has admitted in his order that the assessee had produced contract notes, books of account an other relevant records for his verification hence his conclusion that the transactions pertaining to shares were periodically or ultimately settled otherwise than by actual delivery appears fully erroneous. Demat delivery of shares is a fact of life today, all transactions on the online exchanges now a days have to be settled by demat delivery hence if the Assessing Officer had desired, he could have very well verified the issue of delivery directly from the broker or the depositories. In any case, admittedly, in the transactions under consideration, the assessee had received the shares in their demat account at the time of acquisition and made delivery of the same on sale.
5.2 Again vide para 4.2 of the assessment order the Assessing Officer stated that “there was no opening stock”. However, the assessee company did have opening stock. This is apparent from the fact of the balance sheet of the assessee.
5.3 From above it is clear that the Assessing Officer could not arrive at a concrete finding as is evident from the language used by the Assessing Officer in his assessment order. He had to arrive at a definite finding on the basis of available documentary evidence before burdening the assessee with a huge tax liability which he has failed to do.
Further I agree with the contention of the assessee that such loss on trading in shares does not come within the ambit of explanation of section 73 since ACIT CC-XXIII, Kol. V. M/s Manush Distributors Ltd. Page 4 the company is engaged in the business of granting of loans and advances as evident from the audited statement of accounts of the assessee.
5.4 Accordingly, I hereby direct the Assessing Officer to treat the loss on dealing in shares amounting to ₹1,04,93,367 as non speculative and thus to delete the addition made to the tune of ₹1,04,93,367. Thus the appeal of the assessee is allowed.”
Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us.
We have heard Ld. DR and perused the materials available on record. Before us the Ld. DR vehemently supported the order of the AO. From the aforesaid discussion we find that the assessee has claimed loss of Rs.1 049 3367 on account of purchase and sale of share loss. The AO has treated the transaction of purchase and sale of the shares from speculative business in terms of the provisions of section 43(5) of the Act. The reason for the same was that the assessee failed to produce sufficient supporting documents in support of its claim of loss. The AO also rejected the books of accounts under section 145(3) of the Act as the assessee failed to produce the stock registers and actual delivery of the shares scripts. However we find from the order of the learned CIT(A) that all the shares were sold on the basis of delivery and were duly recorded in the Demat account of the assessee. We also further observed that the learned DR could not bring anything on record contrary to the finding of the learned CIT(A). The loss from the shares trading business of the : assessee can be tabulated in the following manner S.N Name of Co. No. of Value of No. of Value of Profit (loss) Remar share purchase share sale o. ks purchase sold d 21st Century 1 8000 308770 8000 46,240 (262530/-) Demat India 2 M/s Parbati 81300 8768151 72,800 32,25,699 (5542452/-) Holding Ltd. -do- 3 Limtex 19000 3798013 19000 223652 (3574361) Investment -do- Ltd. 4 GR Inds. 13400 2027281 13400 432763 (1594518) -do- 5 Amul Ky 2900 478674 2900 42398 (436276) -do- Investment ACIT CC-XXIII, Kol. V. M/s Manush Distributors Ltd. Page 5 Now, from the above facts of the case, it is clear that the loss arose from the business of share dealing cannot be regarded as speculation as it is out of the purview of provisions of section 43(5) of the Act. All the share transactions were supported with the delivery of the shares and were shown in the Demat account of the assessee. We also find that the AO has treated the loss as speculation loss without exercising his power to issue notice under section 133(6) of the Act. The assessee should have confirmed by issuing show cause notice to the stock exchange before arriving at the conclusion that the loss in shares is from the speculation business. In view of above we have no hesitation in upholding the decision of learned CIT(A). The effective ground of Revenue’s appeal is dismissed.
In the result, Revenue’s appeal stands dismissed. Order pronounced in the open court 23/03/2016 Sd/- Sd/- (N.V.Vasudevan) (Waseem Ahmed) (Judicial Member) (Accountant Member) Kolkata, *Dkp �दनांकः- 23/03/2016 कोलकाता । आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. अपीलाथ�/Appellant-ACIT,CC-XXIII, 5th Floor, 18, Rabindra Sarani, Kolkata-1 2. ��यथ�/Respondent-M/s Manush Distributors Ltd., 52, Weston Street, Kolkata-12 3. संबं�धत आयकर आयु�त / Concerned CIT Kolkata 4. आयकर आयु�त- अपील / CIT (A) Kolkata 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, कोलकाता / DR, ITAT, Kolkata 6. गाड� फाइल / Guard file. By order/आदेश से, /True Copy/
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, कोलकाता ।