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Income Tax Appellate Tribunal, “SMC” BENCH : KOLKATA
Before: Hon’ble Sri N.V.Vasudevan, JM ]
Date of Hearing : 22.01.2016. Date of Pronouncement : 03.02.2016. ORDER This is an appeal by the Assessee against the order dated 21.03.2014 of CIT(A)-XXXVI, Kolkata, relating to AY 1997-98.
In the first three grounds the assessee has challenged the validity of initiation of re-assessment proceedings u/s 147 of the Act. The Assessee is a company engaged in the business of trading and investment. The assessee filed return of income for A.Y.1996-97 declaring total income at Rs.2,890/- and notice u/s 148 was issued on 17.03.2004. The reasons recorded by the AO for issuing notice u/s 148 of the Act are set out in page 15 of the main order of CIT(A) which are as follows :- “Asst. Year :1997-98 Reason for re-opening the assessment From the profit and loss account filed by the assessee company along with the return of income for the assessment year 1997-98 it is found that the assessee incurred loss in share dealing as follows : Profit and loss account (share dealing) Dr…………………………………………………………………………………Cr. To open stock 36,52,340 By sales 25,96,430/- “Closing Stock 8,63,040 “Net Loss 1,92,870/- 36,52,340/- 36,52,340/- The loss of Rs.1,92,870/- computed as above has been set off against interest income of Rs.2,55,735/- and thus resultant profit as per profit and loss account was only of Rs.2,885/-. -B.M.Consultants Pvt.Ltd. A.Y.1997-98 1
Under explanation below section 73 of the IT Act, 1961 where any part of the business of a company (other than a company whose gross total income consists mainly of income which is chargeable under the head ‘interest on securities’ ‘Income from house property ‘, ‘ capital gains’ and ‘income from other sources) or a company the principal business of which is the business of banking of the granting of loans and advances consists in the purchase and sale of shares of other companies such company shall for the purpose of this section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares. In this case there was no income under any other head excepting under the head ‘income from business’. Keeping in view the explanation below section 73 the loss from purchase and sale of shares of rs.1,92,870/- plus the proportionate expenses of rs.24,903/- (57,903/- X 1,92,870/-) i.e. total of 2,17,773/- in this case should be treated 4,48,605/- As speculation loss which is not to be allowed in computing total income of the assessee but to be carried forward and will be set off against any future speculation profit. I, have, therefore, reason to believe that income to the extent of rs.2,17,773/- for the A.Y.1997-98 has escaped assessment within the meaning of section 147 of the IT Act, 1961. Hence, proceedings u/s 147 have been initiated.” This was confronted the assessee, during the course of assessment. However, no compliance be given by the assessee. As the AO’s computation speculation loss from share trading is found to be reasonable and correct, the addition made is sustained and the appeal on this ground is dismissed.
2.1. Perusal of the above reasons recorded by the AO, clearly shows that AO had looked into the profit and loss account filed before the AO and noticed that there was a loss in share trading of Rs.1,92,870/- which was set off the interest income of Rs.2,55,735/-. Since the assessee is a company and Explanation below 73 provides that loss incurred by a company in purchase and sale of shares of other companies shall be considered as speculation loss, the AO came to the conclusion that there was escapement of income in as much as the loss on sale of shares ought not to have been set off against interest income of the assessee. The Assessee’s assessment for AY 97- 98 had not been completed u/s.143(3) of the Act. In my opinion the reasons recorded by the AO was sufficient to initiate proceedings u/s 147 of the Act. I accordingly dismiss ground nos. 1 to 3 raised by the assessee.
Ground no.6 was not pressed and the remaining grounds that need adjudication are ground no.s 4 and 5 which read as follows :- “4. That in the facts and circumstances of the case, the Learned Assessing Officer was not justified in making addition under section 73 of the Income Tax Act, 1961 ITA No.1339/Kol/2014-B.M.Consultants Pvt.Ltd. A.Y.1997-98 2 amounting to Rs.2,17,773/- by treating the loss in share dealing as ‘Speculation Loss ‘ since the deeming provision in explanation below section 73 was not applicable in the case of the assessee. The Learned CIT(A) has erred in confirming the action of the Learned Assessing officer.
5. That in the facts and circumstances of the case, the Learned Assessing Officer was not justified in making addition of Rs.8,30,000/- under section 68 of the Income Tax Act, 1961. The Learned CIT(A) has erred in confirming the action of the Learned Assessing Officer.”
In respect of the aforesaid two grounds I find that the CIT(A) after hearing the submissions of the assessee had called for a remand report from the AO. The remand report was not confronted to the assessee. It is a plea of the assessee before me in respect of ground no.5 the assessee had come to know the objection of the AO in the remand report which is extracted in para 5.3. of the CIT(A)’s order. According to the AO the Assessee failed to explain as to why the cheque number given by the Assessee for having received payment thorough banking channel did not tally with the bank statement. According to the assessee it came to know about this fact only after reading the conclusions drawn by the CIT(A) in the impugned order after the receipt of the order of CIT(A). As far as ground no. 4 is concerned it has been the plea of the assessee that his principal business was of granting loans and advances and therefore he was outside the purview of Explanation to section 73 of the Act. Even the submissions of the assessee was not properly addressed by the CIT(A). In the given facts and circumstances I am of the view that it would be just and proper to set aside the order of CT(A) and remand the issue raised by the assessee in ground nos 4 and 5 to the AO for fresh consideration in accordance with law. The AO will afford opportunity of being heard to the assessee in the set aside proceedings.
In the result for statistical purpose the appeal of the assessee is treated as allowed. Order pronounced in the Court on 03.02.2016. SD/- [ N.V.Vasudevan ] Judicial Member Dated : 03.02.2016.
[RG PS] ITA No.1339/Kol/2014-B.M.Consultants Pvt.Ltd. A.Y.1997-98 3 Copy of the order forwarded to: 1.B.M.Consultant Private Limited, Chhaparia & Associates, Chartered Accountants, 8, Camac Street, Shantiniketan Building, 5th Floor, Room No.2, Kolkata-700017. 2. ITO, Ward-11(4), Kolkata. 3. CIT(A)-XXXVI, Kolkata 4. CIT-14,Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.