TAPTI MACHINES LTD, MUMBAI v. DCIT CEN CIR 17 & 28, MUMBAI

ITA 1635/MUM/2009 | 2003-2004
Pronouncement Date: 25-03-2011 | Result: Partly Allowed

Appeal Details

RSA Number 163519914 RSA 2009
Assessee PAN AAACT4033H
Bench Mumbai
Appeal Number ITA 1635/MUM/2009
Duration Of Justice 2 year(s) 14 day(s)
Appellant TAPTI MACHINES LTD, MUMBAI
Respondent DCIT CEN CIR 17 & 28, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 25-03-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted E
Tribunal Order Date 25-03-2011
Date Of Final Hearing 21-02-2011
Next Hearing Date 21-02-2011
Assessment Year 2003-2004
Appeal Filed On 12-03-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E MUMBAI BEFORE SHRI S V MEHROTRA ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO JUDICIAL MEMBER ITA NO. 1635/MUM/2009 (ASSESSMENT YEAR 2003-04) TAPTI MACHINES LTD. C/O M/S G K CHOKSI AND CO. 601 RAHEAJ CHAMBERS FREE PRESS JOURNAL ROAD MUMBAI-400021 PAN:AAACT4033H . APPELLANT VS THE DCIT CENT CIR-17. 6 TH FL. AYAKAR BHAVAN MUMBAI-400020. RESPONDENT APPELLANT BY : SHRI R G TRALSHAWALA RESPONDENT BY : SHRI S K SINGH O R D E R PER VIJAY PAL RAO JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 12.12.2008 OF CIT(A) FOR THE ASSESSMEN T YEAR 2003-04. 2. THE ASSESSEE HAS FILED THE CONCISE GROUNDS OF AP PEAL WHICH READ AS UNDER : 1. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE THE HON. CIT(A) HAS ERRED IN NOT APPRECIATING THE ADDITIONAL EVIDENCE PROVIDED BY T HE APPELLANT AND IN CONCLUDING THAT THE SALE OF SHARE S AS ITA NO. 1635/MUM/2009 (ASSESSMENT YEAR 2003-04) 2 NOT SATISFACTORILY EXPLAINED AND THEREBY SUSTAINING THE DISALLOWANCE OF THE APPELLANTS CLAIM OF LOSS OF RS.19 25 691/- ON SALE O F RS.2 75 000/- 2. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE THE HON. CIT(A) HAS ERRED IN CONFIRMING THE LD. AOS ACTION OF PROVOKING EXPLANATION TO SECTION 73 AND TREATING THE LOSS FRO M SALE OF SHARES AS SPECULATION LOSS AS AGAINST BUSINESS LOSS CLAIMED APPELLANT. 3. GROUNDS OF APPEAL NO.1 IS REGARDING DISALLOWANCE OF ASSESSEES CLAIM OF LOSS ON SALE OF SHARES OF ODIS SI SECURITIES LTD. 3.1 BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY IS ENGAGED IN THE BUSINESS OF TRADING IN SHARES. UPON PERUSAL OF DETAILS OF PURCHASE AND SALE OF SHARES THE AO NOTED THAT THE ASSESSEE HAD AN OPENING STOCK OF 275100 SHARES OF O DISSI SECURITIES LTD AMOUNTING TO RS.22 00 691/- OF WHIC H 275000 SHARES WEE SOLD FOR RS.2 75 000/- DURING THE YEAR. THE AO ASKED THE ASSESSEE TO EXPLAIN AND JUSTIFY THE SALE OF SHARES. THE ASSESSEE FAILED TO EXPLAIN THE FACTS TO THE AO. THE ASSESSEE FILED A LETTER ADDRESSED TO ANAGRAM CAPIT AL MARKET WHEREIN IT HAS SHOWN AGREEMENT TO SELL THE SHARES O F ODISSY SECURITIES LTD FOR RUPEE ONE PER SHARE AND HAS ASKE D THE PARTY TO ACKNOWLEDGE RECEIPT OF TRAN SFER DEEDS ETC. HOWEVER NO COPY OF ACCEPTANCE AND ACKNOWLEDGMENT OF THE SAID PARTY WAS FILED ITA NO. 1635/MUM/2009 (ASSESSMENT YEAR 2003-04) 3 NEITHER WAS A BROKER NOTE FURNISHED EVIDENCING THE SAID TRANSACTIONS. THE ASSESSEE ALSO DID NOT FURNISH A COPY OF ITS DEMAT ACCOUNT THOUGH TI WAS DIRECTED TO DO SO BY T HE AO. SINCE THE ASSESSEE FAILED TO EXPLAIN THE MATTER TO THE AO THE AO REJECTED THE CLAIM OF THE ASSESSEE FOR LOSS OF RS.19 25 691/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE 3.2 ON APPEAL BEFORE THE CIT(A) THE ASSESSEE FI LED LETTER OF CONFIRMATION FROM ANAGRAM CAPITAL MARKET AS AN ADDITIONAL EVIDENCE TO PROVE THE GENUINENESS OF TRANSACTIONS. THE CIT(A) ISSUED A REMAND ORDER FOR VERIFICATION AND CONSIDERATION OF THE ADDITIONAL EVIDENCE BY THE AO . THE AO HAS SUBMITTED THE REMAND REPORT WHEREBY THE AO D ECLINED TO ACCEPT THE CLAIM OF THE ASSESSEE. ACCORDINGLY THE CIT(A) CONFIRMED THE ACTION OF THE AO. 3.3. BEFORE US THE LEARNED AR OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAS FURNISHED ALL THE DETAILS PERTAINING TO THE TRANSACTIONS OF SALE AND PURCHASE S MADE BY THE ASSESSEE OF ODISSY SECURITIES LTD. THE LD. AR OF THE ASSESSEE HAS FURNISHED ALL RELEVANT DOCUMENTS IN RESPECT OF THE PURCHASE AND SALES BY WAY OF SALE CONFIRMATION AND CONFIRMATION OF THE SHARES OF ODISSY SECURITIES LT D. THE ASSESSEE HAS ALSO FURNISHED THE DETAILS OF MODE O F PAYMENT OF PURCHASE AND SALE BANK ACCOUNT HIGHLIGHTING TH E PAYMENT ITA NO. 1635/MUM/2009 (ASSESSMENT YEAR 2003-04) 4 MADE FOR PURCHASE OF SHARES CONFIRMATION LETTER F ROM ANAGRAM CAPITAL MARKET DATED 28.9.2006. THE AS SESSEE HELD THE SHARES IN PHYSICAL FORM AND THEREFORE T HE TRANSACTIONS ARE GENUINE AND CANNOT BE DOUBTED. T HE LEARNED AR OF THE ASSESSEE HAS FURTHER SUBMITTED THAT THE AO HAS DECLINED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAS SOLD ONLY 275000 SHARES OUT OF 275100 SHARES AND THE BALANCE 100 SHARES WERE NOT SHOWN AS STOCK- IN-TRADE. HE HAS SUBMITTED THAT SINCE THE VALUE OF THE SHARE S BECAME NIL AND THEREFORE THE ASSESSEE DID NOT SHOW ANY VAL UE OF THE REMAINING 100 SHARES. IT WAS ONLY DUE TO BONAFIDE MISTAKE. EVEN OTHERWISE IF THE DISALLOWANCE IS TO BE MADE TH E SAME CAN BE ONLY IN RESPECT OF THE VALUE OF 100 SHARES W HICH WERE NOT SHOWN BY THE ASSESSEE AS STOCK-IN-TRADE. THE A SSESSEE PURCHASED THE SHARES AT RS.8 PER SHARE WHEREAS THE SHARES WERE SOLD AT THE RATE OF RS.1 PER SHARE. THEREFORE WHEN THE VALUE OF THE SHARES BECOME ZERO THEN THERE WAS NO PURPOSE FOR KEEPING REMAINING 100 SHARES AS CLOSING STOCK . THE ASSESSEE HAS DULY EXPLAINED THESE DISCREPANCIES BE FORE THE AO IN THE REMAND PROCEEDINGS BUT THE AO AS WELL AS THE CIT(A) DID NOT ACCEPT THE EXPLANATION AND FAILED T O APPRECIATE THE DOCUMENTARY PROOF. ACCORDINGLY THE CLAIM OF T HE ASSESSEE WAS DISALLOWED ON THE GROUND OF DISCREPANC Y IN CLOSING STOCK. THE LD. AR OF THE ASSESSEE HAS FUR THER ITA NO. 1635/MUM/2009 (ASSESSMENT YEAR 2003-04) 5 SUBMITTED THAT IN CASE OF THE SISTER CONCERN OF THE ASSESSEE THE LOSS ON SALE SOME SCRIPTS WAS ALLOWED. HE HAS REFERRED THE ORDER OF THE CIT(A) AT PAGE 40 OF THE PAPER B OOK IN THE CASE OF M/S PELICAN PACKERS PVT LTD THE SISTER CO NCERN OF THE ASSESSEE. THE LD. AR HAS POINTED OUT THAT IN THE CASE OF SISTER CONCERN OF THE ASSESSEE AFTER CONSIDERING TH E REMAND REPORT THE CIT(A) HAS ALLOWED THE CLAIM OF LOSS ON SALE OF SHARES AT SAME RATE AT RS.1 PER SHARE. THEREFORE THE GENUINENESS OF TRANSACTION CANNOT BE DOUBTED. 3.4 ON THE OTHER HAND THE LEARNED DR HAS SUBMITTED THAT THE ASSESSEE SOLD THE SHARES AT THE RATE OF RS.1 P ER SHARE WITHOUT SHOWING ANY DOCUMENTARY EVIDENCE. THE ASSE SSEE FAILED TO PROVE GENUINENESS OF TRANSACTIONS. HE HA S RELIED UPON THE ORDER OF THE CIT(A) AND SUBMITTED THAT THE ASSESSEE FAILED TO ESTABLISH THE GENUINENESS OF TRANSACTIONS DURING THE COURSE OF ASSESSMENT PROCEEDINGS AS WELL AS IN THE APPELLATE PROCEEDINGS BEFORE THE CIT(A). 3.5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND R ELEVANT RECORD. WE FIND THAT BOTH THE AO AS WELL AS THE LE ARNED CIT(A) HAS DOUBTED THE GENUINENESS OF THE TRANSACT IONS DUE TO UNSOLD 100 SHARES NOT SHOWN AS CLOSING STOCK BY THE ASSESSEE. THE ASSESSEE FILED THE CONFIRMATION LET TER OF THE ITA NO. 1635/MUM/2009 (ASSESSMENT YEAR 2003-04) 6 BUYER OF THE SHARES WHICH WAS NOT DOUBTED EITHER B Y AO OR THE CIT(A) WHILE DECIDING THE ISSUE. WHEN NUMBER O F SHARES SOLD BY THE ASSESSEE HAS NOT DISPUTED THEN MEREL Y BECAUSE THE REMAINING 100 SHARES OUT OF 275100 SHARES NOT SHOWN IN THE BALANCE-SHEET WOULD NOT CHANGE THE SALE TRANSAC TIONS AS NOT GENUINE ONE. THE ASSESSEE EXPLAINED THAT DUE TO THE NIL VALUE OF THE SHARE THE SAME WERE NOT SHOWN AS CLOSI NG-STOCK WHICH IS A BONAFIDE MISTAKE. IN OUR VIEW THE DI SALLOWANCE IF ANY ON THE BASIS OF NOT SHOWING THE CLOSING STOCK -OF 100 SHARES HAVE BEEN RESTRICTED ONLY TO THE VALUE OF 10 0 SHARES AND NOT THE ENTIRE SHARES OF 275000 SHARES. EVEN OTHERWISE WHEN THE IDENTICAL ISSUE HAS BEEN DECIDED BY THE CIT(A) IN THE CASE OF SISTER CONCERN OF THE ASSESSEE AND AL LOWED THE CLAIM OF LOSS ON THE SAME SET OF FACTS AND SHARES OF ODISSY SECURITIES LTD. AFTER CONSIDERING THE REMAND REPO RT THEN THE REVENUE CANNOT TAKE A DIFFERENT STAND IN THE CASE OF THE ASSESSEE. PARTICULARLY WHEN THERE IS NO DIFFERENC E IN THE FACTS AND CIRCUMSTANCES OF THE BOTH CASES. THE REL EVANT PART OF THE ORDER OF THE CIT(A) IN THE SISTER CONCERN F OR THE ASSESSMENT YEAR 2003-04 IS REPRODUCED AS UNDER : THE AO VIDE HIS LETTER NO. ACCCC-17 AND 18/REMAND REPORT/2006-07 DATED 3.12.2009 SUBMITTED HIS REPORT WHICH IS EXTRACTED HEREUNDER: THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND SECURITIES. DURING THE YE AR UNDER CONSIDERATION THE ASSESSEE HAS CLAIMED LOSS OF RS.20 33 000/- ON ACCOUNT OF SALE OF SHARES. T HE ITA NO. 1635/MUM/2009 (ASSESSMENT YEAR 2003-04) 7 ASSESSEE HAS SOLD 291 000 SHARES OF M/S ODISSI SECURITIES LTD TO M/A ANAGRAM CAPITAL MARKETS LTD F OR RS.2 95 000/- AND SHOWN LOSS OF RS.20 33 000/-. AT TIME OF SCRUTINY ASSESSMENT ASSESSEE HAD NOT PRODUCED ANY EVIDENCE IN THE FORM OF ANY AGREEMENT BROKER NOTE. NOW IN THE APPEAL STAGE ASSESSEE HAS FILED DETAILS OF PURCHASE OF SHARES OF M/S ODISSI SECURITIES LTD AND THE CONFIRMATION LET TER 20.09.2006 FROM M/S ANAGRAM CAPITAL MARKETS LTD ON THEIR LETTER HEAD CONFIRMING THE SHARE TRANSACTION. AS EVIDENCE OF PURCHASE AND SALE PRICE HAVE NOW BEEN SUBMITTED LOSS CLAIMED BY THE ASSESSEE MAY BE ALLOWED CONSIDERING THE ABOVE FACTS AND EVIDENCE THE APPEA L IS DECIDED ON MERITS 7. I HAVE CONSIDERED THE FACTS SUBMISSION AS WELL AS THE REMAND REPORT OF THE AO. FROM THE REMAN D REPORT IT IS CLEAR THAT THE APPELLANT COULD PROVE T HE PURCHASE OF SHARES AND SALE OF SHARES AND SALE OF SHARES WITH REGARD TO ODISSI SECURITIES LTD. THE A O IS DIRECTED TO ALLOW THE LOSS OF RS.20 33 000/- 3.6 IN VIEW OF THE ABOVE DISCUSSION AND FACTS AND CIRCUMSTANCES OF THE CASE WE FIND THAT THE DISALLO WANCE OF THE CLAIM OF LOSS ON THE GROUND OF DOUBTING THE GENUINE NESS OF THE TRANSACTIONS IS NOT JUSTIFIED. ACCORDINGLY WE DEC IDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 4. THE GROUNDS OF APPEAL NO.1 IS ALLOWED. 5. GROUNDS OF APPEAL NO.2 IS REGARDING THE TREATING THE LOSS ON ACTIVITIES OF SPECULATION LOSS. ITA NO. 1635/MUM/2009 (ASSESSMENT YEAR 2003-04) 8 5.1 FACTS LEADING TO THIS ISSUE ARE THAT THE ASSESS EE HAS SHOWN LOSS OF RS.26 01 856/- AS PER THE PROFIT AND LOSS ACCOUNT. IT HAS REDUCED THE SPECULATION LOSS OF RS. 29 99 806/- BAD DEBTS OF RS.2 72 973/- AND PRIOR PERIOD EXPENSE S OF RS.35470/- FROM THE LOSS AS PER THE PROFIT AND LOSS ACCOUNT AND NET BUSINESS INCOME OF RS.7 14 607 IS SHOWN AFT ER REDUCING DEPRECIATION AS PER IT ACT AT RS.15 123/- AGAINST THIS BUSINESS INCOME THE ASSESSEE HAS SET OFF BROUGHT F ORWARD BUSINESS LOSS TO THE EXTENT OF INCOME AND DECLARED NIL INCOME. BUT THE AO OBSERVED FROM THE PROFIT AND LOSS ACCOU NT THAT THE ASSESSEE IS ENGAGED ONLY IN THE BUSINESS OF TRADING IN SHARES AND THE LOSS THERE FROM IS SPECULATION LOSS. AS S UCH NO OTHER BUSINESS INCOME CAN BE COMPUTED IN THIS CASE. THE LO9SS AFTER REDUCING THE INTEREST AND DIVIDEND INCOME AS DISCUSSED HEREIN ABOVE IS THE SPECULATION LOSS OF THE ASSESSE E WHICH IS ALLOWED TO BE CARRIED FORWARD IN TERMS OF SECTION 7 3. 5.2 ON APPEAL THE CIT(A) DECIDED THE ISSUE AS UND ER : 24. THOUGH OF MERE ACADEMIC INTEREST SINCE THE APPELLANT ITSELF HAS ADMITTED THAT THE LOSS FROM TR ADING IN SHARES IS SPECULATION LOSS IT IS WORTH NOTING T HAT THE PROFIT AND LOSS ACCOUNT OF THE APPELLANT INDICA TES THAT A LARGE PART OF ITS CASH FLOW HAS BEEN USED FOR SHARES TRADING PURPOSES. IT IS FURTHER BORNE BY TH E FACT THAT THE ACCUMULATED LOSSES OF RS.3 11.60 LAC S STATED IN THE COMPANYS BALANCE SHEET HAVE NOT ACCRUED FROM ITS ACTIVITY OF LENDING BUT OF TRADI NG IN SHARES OVER THE YEARS. THE LOANS AND ADVANCES ARE STATIC AND ITS ACTIVITY FOR THE YEAR BY WAY OF OPERATIONS HAS BEEN THAT OF TRADING IN SHARES. THE ITA NO. 1635/MUM/2009 (ASSESSMENT YEAR 2003-04) 9 APPELLANTS CONTENTIONS THAT ITS PRINCIPLE BUSINESS IS THAT OF GRANTING LOANS AND ADVANCES IS NOT SUPPORTE D BY THE FACTS ON RECORD. HAVING STATED SO I HOWEVER REJECT THIS GROUND OF APPEAL SINCE THE APPELLANT HAS ITSELF ADMITTED IN THE COMPUTATION OF TOTAL INCOME AS WELL AS IN ITS SUBMISSIONS DURING THE COURSE OF APPEAL THAT ITS LOSS FROM TRADING IN SHARES IS SPECULATION LOSS I THEREFORE HOLD THAT THE APPELLAN TS LOSS OF RS.29 99 806/- ARISING FROM SHARES TRADING IS SPECULATION LOSS UNDER THE PROVISIONS OF EXPLANATI ON TO SECTION 73 OF THE ACT 5.3. WE HAVE HEARD BOTH THE PARTIES AND CONSIDERED THE RELEVANT RECORD. IT APPEARS FROM THE IMPUGNED ORDE R THAT THE CIT(A) HAS NOT ADJUDICATED UPON THIS ISSUE OF TREA TING THE LOSS ON SHARES AS SPECULATION LOSS BUT THE CIT(A) HAS HE LD THAT THE LOSS OF RS.29 99 806 WHICH WAS FROM TRADING OF SH ARES AS SPECULATION AS PER THE PROVISIONS OF SECTION 73 OF THE ACT. IT IS PERTINENT TO NOTE THAT THE LOSS OF RS.29 99 806 WAS ALREADY ADMITTED BY THE ASSESSEE AS SPECULATIVE LOSS AS EVI DENT FROM THE RECORD AND PARTICULARLY PARAGRAPH 3 OF THE ASSE SSMENT ORDER AS UNDER : 3. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF TRADING IN SHARES. THE ASSESSEE COMPANY HAS DECLARED LOSS FROM SPECULATION BUSINESS AT RS.29 99 806/- ACCORDINGLY WE SET ASIDE THE ISSUE TO THE RECORD O F THE CIT(A) AND DIRECT TO DEDUCT THE SAME AS PER LAW. ITA NO. 1635/MUM/2009 (ASSESSMENT YEAR 2003-04) 10 6. THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 25TH MAR 2011 SD SD (S V MEHROTRA ) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL M EMBER MUMBAI DATED 25 TH MAR 2011 SRL:9311 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH BY ORDER TRUE COPY ASSTT. REGISTRAR ITAT MUMBAI