9911796707
TMI Blog2022 (7) TMI 547X X X X Extracts X X X X X X X X Extracts X X X X ..... ement of income from the business of shipping agency carried on by the assessee under the name and style of M/s Prime Corporation. However, the AO during the assessment proceedings has also made the addition on account of unexplained investment under the provisions of section 69 - The reason of making the addition was based on the proceedings before the ADIT (Inv) as mentioned in the assessment order. A perusal of the above proceedings before the ADIT investigation reveals that addition of unexplained investment relates to the share trading activities carried out by the assessee through its bank i.e. Axis Bank and Religare Financial Services. It is undisputed fact that there was no mentioned about the share trading activity in the reasons recorded by the AO under the provisions of section 147 which is evident from the preceding paragraph. But the law provides the authority to the AO to make the addition of any other income which comes to his knowledge subsequently in the course of assessment proceedings. Whether the loss claimed by the assessee with respect to share trading business can be allowed as deduction against the escaped income as discussed above? - We find that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition was made by the AO on account of the undisclosed investments based on wrong assumption of facts. According to the learned AR there was the sale proceeds of Rs. 4,85,95,023.00 out of which a sum of 1,03,50,000.00 was disclosed but no inference can be drawn that the cash available with the assessee was only of Rs. 1,03,50,000.00 only. The contention of the learned AR was not disproved by the DR appearing on behalf of the revenue. Thus, we hold that investment was made by the assessee out of the gross receipts shown by him from the activity of share trading. Accordingly, we are of the view that no addition in the given facts and circumstances is warranted. Hence, we set aside the finding of the learned CIT-A and direct the AO to delete the addition made by him. Thus the ground of appeal of the assessee is allowed. Addition on account of difference in opening balance and closing balance of the share - As per the accounting practice, the closing stock of the shares as on the last day of the previous year is carried forward to the year under consideration which is shown as opening balance. Against such opening balance, the assessee makes the sale of the shares and the net effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above grounds of appeal. 3. At the outset, we note that the learned AR at the time of hearing has not advanced any argument on the ground raised by the assessee challenging the validity of the reopening under the provisions of section 147 of the Act. Accordingly, in the absence of any argument by the learned counsel for the assessee, we dismiss the same. 4. The issue raised in ground Nos. 3 and 4 by the assessee is either consequential or general in nature. Accordingly, we dismiss the same as not pressed. 5. The 1st issue raised by the assessee is that the learned CIT-A erred in confirming the disallowance of the loss claimed against the share trading activity which was set of against the profit from the shipping business. 6. The necessary facts as arising from the order of authorities below are that the assessee in the present case is an individual and was subject to the survey operation under section 133A of the Act. As a result of survey, the statement of the assessee under section 131(1A) was recorded wherein the assessee has claimed to have earned income from the business of shipping agency which was not disclosed in the income tax return. The assessee simultaneously duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings. But it is not so in his case. 7. However, the AO was not satisfied with the contention of the assessee on the reasoning that the reassessment proceeding were initiated with respect to shipping agency business and the same was also accepted in the course of survey operation. Now, the assessee is claiming the set off of the loss of the share trading activity which is unconnected with the shipping trading business. Thus, the AO disallowed the claim of the assessee. 7.1 Besides the above, the AO noted that the loss from the share trading activity was computed under the provisions of section 44AF of the Act. Admittedly, under the provisions of section 44AF of the Act, income is calculated of an assessee engaged in retail trade equal to 5% of the total turnover. Thus, under the provisions of section 44 AF the Act there is no possibility of claiming the loss. Furthermore, the turnover of the assessee exceeds ₹ 40 Lacs being the threshold limit and therefore the provisions of section 44 AF cannot be applied. Based on the above, the AO did not allow the set off of the loss claimed by the assessee with respect to share trading activities against the shipping business. 8. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f original return. Assessee had intention to conceal his income from shipping agency. Then assessee also paid self-assessment tax of Rs 15,20,000/- suo motto based on its estimated profit from shipping business without making any set-off from its share trading losses. It is also pertinent to note that self assessment tax was paid while filing original return. Thus, it leads to a situation where if no reassessment proceedings would have been initiated against assessee then he was content with payment of his self assessment tax. It is only when the assessment were proceedings were underway that the claim of losses from share trading and issue of refund was made. Such claim is devoid of logic and prudence and Is of malafide nature. Reassessment proceedings were initiated to reassess undisclosed income generated from shipping agency in the name of M/s Prime Corporation which were invested in shares as well as non disclosure of salary Income, as accepted in earlier proceedings before department. As regards the application of Section 44AF, I find that the assessee has himself contended that: - With respect the findings that Share trading activities are not retail activities hence, ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icable here. The Karnataka High Court in the case of CIT Vs. Sangeetha Granites Ltd. (2010) 326 ITR 324(Kar) has held that: 11. In so far as question no.2 is concerned, having perused the judgemtn of Hon'ble supreme court in Sun Engineering works (P) Ltd. case (1992) 198 ITR 297 we have no hesitation to hold that in a reassessment proceedings which relate to the income which has escaped assessment where the assessment where the assesee would be entitle to put forward the claim for deduction of any expenditure in respect of that income (that income which is referable to escaped income) and also about the taxability of items which were sought to be taxed in the assessment proceedings only be agitated and not to income which was not the subject matter of assessment. If the contention of learned counsel Sri Kalkarni were to be accepted which is to the effect that income which has been assessed and accepted by the assesee can also be gone into the reassessment proceedings. It would be leading to an incongruous situation transaction as the assessee would under the gules o questioning the taxability would in effect convert it as his appeal or revising in disguise which is impermissibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... underassessment is set aside and not the original assessment proceedings particularly if it has acquired finality. In the reassessment proceedings it is not open to an assessee to seek a review of the concluded item, unconnected with escapement of income. 13. Hence in our opinion when excise duty amounting to Rs. 12,96,995/- which is unconnected with the escapement of income has been concluded finally against the assessee in the reassessment proceedings, it is not open to the assessee to raise a fresh claim de hors the issue in reassessment. It is obvious that the reassessment proceedings are always intended to put the Revenue in the beneficial position so as to charge any income which escaped taxation at an earlier stage. Such proceedings cannot be used by the assessee for making a fresh claim and thus putting it in an advantageous position." I also find that the assessee has not even established that the actually incurred any such loss. Admittedly he does not maintain books of account. The profit and loss account has admittedly been made on estimated basis. Admittedly, the provision of Section 44AF do not apply to him. This claim was admittedly made erroneously by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scapement of income, for the purpose of computation of the escaped income. 14.1 Moving further, we also note that the Finance (No. 2) Act, 2009 inserted an Explanation 3 to Section147 retrospectively with effect from 01/04/1989 which reads as follows: "Explanation 3. - For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedingsunder this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under subsection (2) of section 148." 14.2 Under this Explanation in section 147 of the Act, the AO was empowered to assess or reassess income in respect of any issue which comes to his notice subsequently in the course of proceedings under this section, notwithstanding that the reason for such issue has not been included in the reasons recorded under subsection (2) of section 148 of the Act. Thus, Explanation 3 makes it clear that the AO may assess or reassess the income in respect of issues which have escaped assessment, if such issues ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entioned in the assessment order. The relevant extract is reproduced as under: Unexplained investment u/s.69 of the Act. During the earlier proceedings before ADIT(Inv) the assessee has accepted total profits of Rs.1,03,50,000/- for AY 2008-09 till FY 2010-11 (3 years). However, as per dissemination note. "During the period April to December, 2010, client has made total payments of Rs.1.46 crores to Religare and payout taken of Rs.25.54 lakhs. All the transactions were routed through Bank account No.909010033105496 of Axis Bank." 14.5 A perusal of the above proceedings before the ADIT investigation reveals that addition of unexplained investment relates to the share trading activities carried out by the assessee through its bank i.e. Axis Bank and Religare Financial Services. 14.6 It is undisputed fact that there was no mentioned about the share trading activity in the reasons recorded by the AO under the provisions of section 147 of the Act which is evident from the preceding paragraph. But the law provides the authority to the AO to make the addition of any other income which comes to his knowledge subsequently in the course of assessment proceedings. 14.7 Now the contro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missed the grounds of appeal in its totality, presumably because the issues covered by these grounds were not -raised before the Assessing Officer. In out view, the Department's reliance on the judgment of the Hon'ble Apex Court in the case of Sun Engg. works (P.) Ltd. (supra) is misplaced on the facts and circumstances of the case. This decision pertains essentially to proceedings under section 147 of the Act and entails as to what should toe the role of the Assessing Officer and the assessee in reassessment proceed. This is exactly what the Apex Court said :- "In proceedings under section 147 of the Income-tax Act, 1961 the ITO may bring to charge items of income which had escaped assessment other than or in addition to the item or which led to the issuance of a notice under section 148 and where reassessment is made under section 147 in respect of income which had escaped tax, the ITO's jurisdiction is confined only to such income which has escaped tax or has been under assessed-and does not extend to' revising, reopening or reconsidering the whole assessment or permitting the assessee to questions' which had been decided in the original assessment pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment' cannot he reduced beyond the income originally assessed.' 14.9 In the light of above decision and after analyzing all the facts as discussed above, we find that the assessee is entitled to claim the deduction of the expenditures in respect of which the escaped income has sought to be assessed. The loss from the share trading activity has direct nexuses with respect to the unexplained investments which has been added by the AO under the provisions of section 69 of the Act. Accordingly we hold that the assessee is entitled for the deduction with respect to the loss claimed by the assessee from the share trading activities amounting to Rs. 23,63,465.00. 14.10 In addition to the above, we also note that there was single bank account which was used for the purpose of the share trading activities as well as for shipping business activities. As such the income generated by the assessee from the share trading activities was diverted to the business of shipping. The common fund was used for generating both the incomes out of the single bank account. Therefore we find difficult to hold that the activities being share trading and shipping business are distinct and not inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on the ground raised by the assessee challenging the validity of the reopening under the provisions of section 147 of the Act. Accordingly, in the absence of any argument by the learned counsel for the assessee, we dismiss the same. 17. The issue raised in ground No. 3 and 4 by the assessee is either consequential or general in nature. Accordingly, we dismiss the same as not pressed. 18. The solitary issue raised by the assessee in ground no. 2 is that the learned CIT-A erred in confirming the disallowance of the loss claimed against the share trading activity which was set off against the profit from the shipping business. 19. At the outset, we note that the issue raised by the assessee in his ground of appeal is identical to the issue raised by the assessee in his own case bearing ITA No. 95/Rjt/2018 for the assessment year 2009-10. Therefore, the findings given in ITA No. 95/Rjt/2018 shall also be applicable for the issue raised by the assessee in the above mentioned appeal. The ground of appeal of the assessee in for the 95/Rjt/2018 has been allowed by us vide paragraph Nos. 14 to 14.13 of this order. The learned DR and Ld. AR also agreed that whatever will be the findings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A No. 95/Rjt/2018 shall also be applicable for the issue raised by the assessee in the above mentioned appeal. The ground of appeal of the assessee in ITA No. 95/Rjt/2018 has been allowed by us vide paragraph Nos. 14 to 14.13 of this order. The learned DR and Ld. AR also agreed that whatever will be the findings in ITA 95/Rjt/2018 for AY 2009-10 shall also be applied to the appeal on hand i.e. ITA No. 97/Rjt/2018 for the assessment year 2011-12. Hence, the ground of appeal filed by the Assessee allowed. 25. The 2nd issue raised by the assessee in ground Nos. 3 and 4 is that the learned CIT-A erred in confirming the addition of ₹ 5,83,333.00 and ₹ 11,66,667.00 under the provisions of section 69 of the Act. 26. The AO during the assessment proceedings found that the assessee has made payment of ₹ 1.46 crores against which there was a pay out of ₹ 24.54 lakhs. Thus, the net outflow stood at ₹ 1.21 crores only. The assessee at the same time has also accepted an income of ₹ 1.035 crores from the shipping business pertaining to the financial years 2008-09 to 2010-11. Thus, the AO was of the view that the outflow representing the payment of ₹ 1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the profit of undisclosed shipping agency and in making addition of only the excess after giving this set off. Such excess payment of Rs. 17,50,000/- still remains unexplained. However, I do not find merits in action of A.O. in averaging out this excess payment over three years. In my considering opinion, the addition of Rs. 17,50,000/- should be made in the A.Y. 2011-12 along which is the contention of assessee as well in appeals for A.Y 2009-10 & 2010-11. Therefore the additions of Rs. 5,83,333/- each made in A.Y. 2009-10 and 2010-11 have been directed to be deleted by me in relevant appeals. However, in A.Y. 2011-12, the addition of Rs. 5,83,333/- is enhanced to Rs. 17,50,000/-. Accordingly ground of appeal is dimissed with enhancement. 28. Being aggrieved by the order of the learned CIT-A, the assessee is in appeal before us. The learned AR before us filed a paper book running from pages 1 to 51 and submitted as under: 1. The appellant is engaged in the Shipping agency business and earns income and also carried out activity of share trading with Religare and other broking company. 2. The learned Assessing Officer has made addition in respect of investment m share tradin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. 1. The Ld. AO has made addition of Rs. 5,83,333/- in 3 years (AY being average of investments amounting to Rs. 17,50,000/-. 2. The Ld. CIT(A) vide para no, 3.3.4, page no, 24-25 deleted the addition made by Ld. AO in AY 2009-10 and AY 2010-11, stating that appellant has admitted that must be made in the AY 2011-12. 3. The appellant in its submission for AY 2009-10 and AY 2010-11 has only mentioned the fact that investment is made In the period of April 2010 to December 2010. Therefore, the same addition in AY 2009-10 and AY 2010-11 is not warranted. 4. In this regard it is submitted that the appellant has not made any such claim. The Ld. CIT(A) has made addition without providing the opportunity of being heard. 5. Your kind attention is invited to provisions contained in section 251 of the Act. The relevant portion of section is reproduced as under: Powers of the Commissioner (Appeals) 251. (1) In disposing of an appeal, the Commissioner (Appeals) shall have the following powers- (a)…. (aa)… (b)… (c)… (2) The Commissioner (Appeals) shall not enhance an assessment or a penalty or reduce the amount of refund unless the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration by enhancing the income declared by the assessee which has been elaborated in the preceding paragraph. At this juncture it is necessary to refer the relevant provisions of section 251(2) of the Act which reads as under: (2) The 56[***] 57[Commissioner (Appeals)] shall not enhance an assessment or a penalty or reduce the amount of refund unless the appellant has had a reasonable opportunity of showing cause against such enhancement or reduction. 30.2 From the above reading of the provisions of law, we note that it is mandatory for the learned CIT-A before enhancing the income that he has to provide the opportunity of being heard to the assessee. However, we find that no such opportunity has been extended to the assessee. The ld. DR has also not provided anything contrary to the arguments advanced by the ld. AR for the assessee. Therefore, to our understanding, the addition of Rs. 11,67,777.00 is not warranted in the given facts and circumsatnces. 30.3 For the balance amount of ₹ 5,83,333.00, we note that it was explained by the assessee that there is no additional income which was undisclosed which was utilized for the purpose of impugned investment. Accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of capital gain/loss' The Assessing Officer has rightfully treated the appellant's transaction of shares giving rise to the capital gain and from the capital gain the difference in stock expenses amounting to Rs.21,00,000/- is not the allowable expenditure as per the income Tax Act. Therefore the appellants argument made supra are not tenable hence I confirm the action of the Assessing Officer to disallow sum of Rs.21,00,000/-- being stock difference claimed as expenses against the capital gain. The ground of appeal on this account is accordingly dismissed. 34. Being aggrieved by the order of the learned CIT-A. The assessee is in appeal before us. The learned AR before us filed a paper book running from pages 1 to 17 and contended that It is stated that the appellant has followed generally accepted accounting principles for computing the profit or loss for the ear under consideration. Therefore, in order to arrive as the profit or loss the appellant has taken the net effect of stock valuation. It is further stated that the per broker's profit and loss statement the amount of valuation of opening stock has not been taken into consideration while arriving at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t effect is accounted as income/ loss in the books of accounts which is accepted accounting practice. If such practice is not followed to carry forward opening balance, then the amount of sales of the items appearing in the opening stock will result as gross income in the hands of the assessee which would not reflect the true income of the assessee. In other words the income is determined after reducing the cost of acquisition from the sales price. As such the opening stock reflects the cost of acquisition which is adjusted against the price of the sales. If it is not done, the income chargeable to tax under the provisions of law cannot be determined. Thus we hold that assessee has not claimed any expense of ₹ 21 lakhs which is reflecting the difference in the opening and closing stock as alleged by the authorities below. Accordingly, we set aside the finding of the learned CIT-A and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed.
36.1 In the result the appeal of the assessee is allowed.
37. In the combined result, all the appeals of the assessee are allowed.
This Order pronounced in Open Court on 08/07/2022 X X X X Extracts X X X X X X X X Extracts X X X X
|
