Commissioner of Income Tax - I vs Naishad I. Parikh

Challenging the order of Income Tax Appellate Tribunal ("Tribunal" hereinafter) dated 04.01.2013, present tax appeal u/s 260A of the income tax Act, 1961 ("Act" hereinafter) is preferred proposing the following substantial question of law:

Whether the Appellate Tribunal is right in law on facts in deleting the disallowance of Rs. 66,52,220/- on account of loss in share trading & F & O activity along with OD interest?

We have heard the learned Senior Counsel Mr. Manish Bhatt for the Revenue, who has taken us through the orders of revenue authorities. He also further contended forcefully that the Tribunal could not have taken upon itself the task of the Chartered Accountant by holding that the respondent assessee could have got away with not maintaining the audited report as were otherwise desired.

Upon hearing the learned counsel and on close examination of the material on record, for the reasons to follow hereinafter, tax appeal is not being entertained.

It can be noted that the Assessing Officer disallowed the claim of the respondent assessee of share trading and F & O losses allowing OD interest on the ground that these transactions were not routed through the profit and loss accounts.

This was challenged before the Commissioner (Appeals) who did not agree with the reasonings of the Assessing Officer and by giving a detailed order held in favour of the assessee deleting the addition made by the Assessing Officer.

When challenged before the Tribunal, it concurred with the findings of the CIT (Appeals) as far as future holding loss is concerned and held in favour of the assessee however, for share trading loss, it remanded the matter to A.O. Therefore, the present tax appeal, proposing aforementioned question of law.

We could notice that the CIT (Appeals) in its elaborate reasonings noted that a consistent method of computation of income/loss was followed by the assessee from the earlier year. It of course noted that both F & O losses and the share trading along with the OD interest were not to be debited directly in the capital account, but, in consolidated P & L account of the appellant. However, considering otherwise many substantiating documents particularly the audited capital account, copies of account from the broker''s book, the support received from the stamped contract notes issued by the brokers containing unique client code and the PAN of the respondent assessee, it concluded that such activity were incorporated in the books from the trial balance, profit and loss account, capital account and the balance sheet prepared and audited. The transactions thus when were made through a recognized stock exchange and time stamped contract notes were issued, it was held that these transactions have fulfilled the criteria of the business considering the fact that there was no element of investment. It was also held that these transactions of future & options cannot be termed as capital.

Concurring with the elaborate findings of the CIT (Appeals), the Tribunal held thus:

We have heard the rival contention of the both sides and perused the material before us. The appellant had followed the consistent method of computation of income/loss from the earlier year for which necessary evidence has been placed on record. It is true that this item should not be debited directly in capital account, but debited in consolidated P & L account of the appellant. But the appellant had field all the of claiming loss before the A.O. from the account of Broker''s books which includes a copy of contract note issued by the brokers containing unique client code & PAN of the appellant. In audit report also, the nature of activity had been mentioned as professional consultant and share trading. The balance sheet as well as capital account has been audited by the Chartered Accountant. The credit balance of capital as on 31.03.2008, has been transferred to audited balance sheet at Rs. 2,22,87,082/-. But for share loss, the appellant had not submitted any evidence whether any delivery of share has been taken or not. Whereas, the loss on future trading claimed by the appellant at Rs. 40,43,471/- for which supporting evidence with time stamped contract notes issued by the brokers containing unique client code and PAN of the appellant, had been submitted by the appellant before the A.O. The appellant has shown the unsecured loan for this purpose from M/s. Financial Products Ltd. at Rs. 70,05,438/- in the balance sheet. From A.Y. 2005-06, u/s 43(5), the future and option transaction had been excluded from the purview of speculation; if the transactions are carried out at recognized stock exchange and time stamped contract notes were issued. The appellant had routed this transaction through recognized stock exchange notes. Thus, Revenue''s appeal on future and option transaction is dismissed. But, the appellant had not proved before the A.O. As well as CIT(A) that shares loss was not speculative loss or delivery of share has been taken by the appellant or not. Thus, for limited purpose, this issue is set aside to the A.O.

Tribunal thus on the share loss for want of availability of sufficient evidence chose to remand the matter, while stamping on the order of CIT (Appeals) on F & O activity. We are in complete agreement with the decision of Tribunal that when the transactions themselves were not under any cast of shadow or doubt and there was no dispute over the quantum of loss computed by the appellant and the respondent assessee when had substantiated the entire transactions by furnishing otherwise valid and statutorily accepted documents, on merely debiting directly these items in capital account instead of in P & L account and thus not routing share trading account through audited account u/s 44AB cannot Furnish a ground to disregard overwhelming legally acceptable evidences to reject the claim of assessee.

5.1 We also need to note at this juncture that the Hon''ble Supreme Court in the case of The Kedarnath Jute Mfg. Co. Ltd. Vs. The Commissioner of Income Tax, (Central), Calcutta, was dealing with an issue where the assessee company was following the mercantile system of accounting which incurred a liability on account of the sales tax determined to be payable by the sales tax authorities on the sales made by it in a particular calender year. The sales tax demand was raised pending the assessment under the Act for that year. The claim of the assessee was rejected for deduction of that amount by the income tax Officer on the ground that the assessee had contested the sales tax liability in appeals and that it had made no provision in the books with regard to the payment of that amount. The Apex Court in such circumstances had held that "whether the assessee is entitled to a particular deduction or not will depend upon the provision of law relating thereto and not on the view which the assessee might take of his rights nor the existence or absence of entries in the books of account be decisive or conclusive in the said matter". In the instant case the item, as rightly pointed out by both the authorities, could not have been debited directly in the capital account but in view of voluminous documents substantiating the claim of the assessee, we see no reason to interfere. No question of law much less any substantial question of law having been arisen, the tax appeal deserves no further consideration.