2016 (9) TMI 441 - AT - Income Tax

Rejection of P/L A/C prepared by the assessee - assessee was practising as Chartered Accountant - addition on share trading rejection of claim of purchase and sale of shares - Held that - As admitted by assessee that he has carried on trading activity in shares in the name of his family members, under these set of facts, we are of the view that the Ld CIT(A) was not correct in referring to the capital gains declared by the assessee in his return of income. The purchase of shares, in the accounting parlance, may be accounted as current investment or fixed investment depending upon the character in which it is going to be retained. Generally trading asset is referred to as current investment. Accordingly, we are of the view that the expression used in the statement given u/s 132(4) cannot be taken as determinative factor for deciding the character of the purchase of shares. On the contrary, the statement given by the assessee that he has been carrying on trading in shares in the name of family members has not been controverted by the revenue. Under these set of facts, we are of the view that there is no reason to doubt the claim that the assessee has carried on trading activities in shares. With regard to the purchase and sale of shares, we notice that the assessee has produced bills in support of the same. The assessee also expressed its inability to support other documents, since the records of the broker got destroyed in fire. We notice that the assessee has furnished necessary proof to support the claim of fire and those documents were not disproved by the assessing officer. We notice that the AO has reported that the purchase and sale transactions were not found in the records of stock exchange. We notice that the assessment year involved is 1995-96, i.e., prior to introduction of dematerialisation scheme, and during those period, the shares used to be traded in cash till the book closure time. Hence, it was not always necessary that the purchase and sales should be routed through the stock exchange. We are also of the view that the inability of the assessee to produce other documents for the reasons beyond his control cannot be used against the assessee. Accordingly, we are of the view that the tax authorities, in the facts and circumstances of the case, are not justified in rejecting the claim of purchase and sale of shares. 9. Having held that the assessee s claim of trading in shares should be accepted, we are of the view that the closing stock valued by the assessee should also be accepted, since the valuation was not controverted with any tangible material. Accordingly, we are of the view that there is no reason to reject the profit and loss account prepared by the assessee. Accordingly, we set aside the order of Ld CIT(A) passed on this issue and direct the AO to accept the profit declared by the assessee in the place of ₹ 25.45 lacs assessed by him. - Decided in favour of assessee.

Summary

Issues:
1. Addition of undisclosed investments in shares
2. Assessment of income as per profit and loss account
3. Cooperation of assessee during assessment
4. Claim of trading in shares by the assessee
5. Rejection of purchase and sale transactions by tax authorities
6. Valuation of closing stock and acceptance of profit and loss account

Analysis:
1. The appeal pertains to the addition of undisclosed investments in shares made by the assessing officer against the income declared by the assessee. The assessee, a Chartered Accountant, disclosed a sum of ?25.45 lakhs during a search operation, which was contested by the tax authorities.

2. The assessing officer rejected the profit and loss account prepared by the assessee, considering the entire amount of ?25.45 lakhs as income. The first appellate authority set aside the matter for reassessment, where the assessee's explanation for non-cooperation was accepted.

3. The assessee claimed to have carried out trading in shares in the name of family members and provided supporting documents, although some records were lost in a fire incident. The tax authorities raised concerns about the lack of complete details and reliability of submitted bills.

4. The tax authorities reported that the assessee could not be considered a trader in shares and recast the profit and loss account, resulting in a higher profit figure. However, the appellate tribunal found the assessee's explanation credible and accepted the claim of trading activities in shares.

5. The tribunal noted that the assessee's inability to produce all documents due to the fire incident should not be held against him. The absence of transactions in stock exchange records was considered in the context of the trading practices prevalent during the assessment year.

6. Ultimately, the tribunal concluded that the assessee's claim of trading in shares should be accepted, along with the valuation of closing stock. The profit and loss account prepared by the assessee was deemed acceptable, leading to the allowance of the appeal.

This detailed analysis of the judgment highlights the issues involved, the arguments presented, and the tribunal's decision based on the facts and legal principles considered during the proceedings.