KULDEEP SINGH NANDA, MUMBAI v. ITO WD 11(1)(2), MUMBAI

ITA 2069/MUM/2009 | 2004-2005
Pronouncement Date: 09-02-2010 | Result: Allowed

Appeal Details

RSA Number 206919914 RSA 2009
Assessee PAN AABPN3364K
Bench Mumbai
Appeal Number ITA 2069/MUM/2009
Duration Of Justice 10 month(s) 5 day(s)
Appellant KULDEEP SINGH NANDA, MUMBAI
Respondent ITO WD 11(1)(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 09-02-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 09-02-2010
Assessment Year 2004-2005
Appeal Filed On 03-04-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A MUMBAI BEFORE SHRI R.K. GUPTA J.M. AND SHRI A.L. GEHLOT A.M. ITA NO. 2069/M/2009 ASSESSMENT YEAR: 2004-05 SHRI KULDEEP SINGH NANDA APPELLANT 16 VASANT PEDDAR ROAD MUMBAI 400 026. (PAN AABPN3364K) VS. INCOME TAX OFFICER RESPONDENT WARD 11(1)(2) AAYAKAR BHAVAN M.K. MARG MUMBAI 400 020. APPELLANT BY : MR. A.V. SONDE RESPONDENT BY : MR. DEBASHIS CHANDE ORDER PER A.L. GEHLOT A.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT(A)- XI MUMBAI PASSED ON 09.01.2009 FOR THE ASSESSMENT YEAR 2004-05 WHEREIN THE ASSESSEE HAS RAISED THE FOLLOWI NG GROUNDS OF APPEAL:- 1. THE LEARNED CIT(A)-XI MUMBAI ERRED IN CONFIRMIN G THE DISALLOWANCE OF LOSS OF RS. 22 20 864/- MADE BY THE AO HOLDING IT IN THE NATURE OF SPECULATIVE. 2. THE LEARNED CIT(A) ERRED IN NOT CONSIDERING THE ALTERNATE GROUND OF BAD DEBTS ON THE GROUND THAT IT IS NOT C LEAR WHETHER THE CONDITIONS OF SECTION 36 ARE MET OR NOT. 2. THE ASSESSEE IS IN THE BUSINESS OF LEASING AND F INANCING. THE ASSESSEE DERIVED INCOME BY WAY OF INTEREST AND DIVI DEND DURING THE YEAR. THE ASSESSEE CLAIMED DEDUCTION OF RS. 22 20 8 64/- AS LOSS FROM ARBITRATION. IN RESPONSE TO SHOW CAUSE NOTICE THE ASSESSEE SUBMITTED BEFORE THE AO THAT SHRI K.S. NANDA I.E. THE ASSESS EE IN HIS INDIVIDUAL NAME ENGAGED HIMSELF IN WHAT IS KNOWN AS ARBITRAGE IN SHARES WHERE ITA NO. 2069/M/09 SHRI KULDEEP SINGH NANDA 2 SHARES ARE PURCHASED ON SAY BSE AND ARE SOLD ON NSE WITH SOME MARGINAL DIFFERENCE OR VICE VERSA. THE PAYMENT FOR THE PURCHASE OF SHARES IS MADE BY CHEQUE TO THE BROKER AND FOR SALE OF SHARES THE CHEQUE IS RECEIVED FROM THE BROKER. GENERALLY THERE IS A GAP OF TWENTY DAYS OR SO BETWEEN THE PAYMENT FOR THE SHARE AND TH E RECEIPT FOR THE SALE OF SHARES THOUGH THE SHARES ARE BOUGHT AND SO LD ON THE SAME DAY. AS A RESULT OF THIS ON ANY DAY THERE IS INVEST MENT IN THE FORM OF PAYMENT TO BROKER BETWEEN TWENTY TO THIRTY LACS. TH E ASSESSEE FURNISHED THE FOLLOWING DETAILS OF AMOUNT OUTSTANDI NG FROM THE BROKER: AY INCOME DISCLOSED AMOUNT OUTSTANDING ON 31 ST MARCH 1999-00 NIL NIL 2000-01 1 66 937.25 20 88 332.50 2001-02 13 50 633.10 28 40 082.50 2002-03 12 01 938.50 22 59 351.25 2003-04 3 10 290.25 22 20 864.00 2004-05 NIL NIL 2.1 THE AO NOTICED THAT THE BROKER WHO OWED A SUM O F RS. 22 20 864/- TO THE ASSESSEE STOPPED MAKING PAYMENT AND HE WAS ALMOST BANKRUPT. THE CHEQUES ISSUED BY HIM TO THE A SSESSEE WERE DISHONORED AND WERE RETURNED UNPAID. CASES U/S 138 OF THE NEGOTIABLE INSTRUMENT ACT WERE FILED AGAINST HIM IN PUNE COURT IN THE YEAR 2002. THE AO REJECTED THE ASSESSEES CLAIM OF BAD DEBTS AS WELL AS BUSINESS LOSS OBSERVING THAT THE ASSESSEE DID NO T GIVE DETAILS OF SHARES OF PURCHASE AND SOLD AND THE ONLY DETAILS SU BMITTES WERE THE LEDGER ACCOUNT OF BROKER IN THE ASSESSEES BOOKS. D ETAILS OF PRIOR YEARS PROFIT HAS BEEN GIVEN BUT IT IS ALSO CLEAR FROM THE DETAILS THAT DURING THIS ASSESSMENT YEAR NO SALE OR PURCHASE OF SHARES HAS TAKEN PLACE. IN THE CASE OF ASSESSEE AS THE ASSESSEE HAS EXPLAIN ED SALE AND PURCHASE WAS DONE ON SAME DAY THROUGH DIFFERENT EXC HANGE AND NO ACTUAL DELIVERY OF SHARES TOOK PLACE. FOR THE SAME REASON ASSESSEES PROFIT DECLARED IN EARLIER YEARS IS NOTHING BUT SPE CULATION PROFIT. THE AO FURTHER OBSERVED THAT THE ASSESSEE CASE ARBITRAT ION IS NOT TO GUARD ITA NO. 2069/M/09 SHRI KULDEEP SINGH NANDA 3 AGAINST LOSS BUT FOR THE MOTIVE OF PURPOSE SO IT IS NOTHING BUT SPECULATION PROFIT WHICH IS OFFERED IN EARLIER YEA RS. THEREFORE THE CLAIM OF THE ASSESSEE OF OUTSTANDING AMOUNT FROM SH ARE BROKER AS ARBITRATION LOSS CANNOT BE ALLOWED AND EVEN THE CLA IM OF THE ASSESSEE ALSO CANNOT BE ALLOWED AS BAD DEBTS AS IT IS NOT TH E DEBT FIRST HAND BUT THE AMOUNT INVESTED IN SPECULATION THROUGH BROK ER. THE CIT(A) CONFIRMED THE ORDER OF THE AO BY OBSERVING AS UNDER :- 6. I HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MATERIALS ON RECORD. IT IS SEEN THAT THE BROKER THROUGH WHOM THE APPELLANT ACTED WAS ALMOST BANKRUPT ATLEAST BEFORE 2002. TH E PERSON CONCERNED WAS ALSO ENGAGED BY THE APPELLANT FOR REA L ESTATE TRANSACTIONS. IT IS NOT CLEAR WHEN THE APPELLANT CA ME TO KNOW THAT THE REAL ESTATE TRANSACTIONS WERE NOT PROPERLY HAND LED BY THE SAID PERSON INASMUCH AS EITHER CLEAR TITLES WERE NO T AVAILABLE OR PROPERTIES WERE SOLD TO MORE THAN ONE PERSON. BUT T HE FACT REMAINS THAT THE APPELLANT WAS DOING BUSINESS WITH THIS BROKER WHERE ADMITTEDLY THERE WAS A GAP BETWEEN PAYMENT FO R SHARES AND RECEIPT ON ACCOUNT OF SALE OF SHARES OF ABOUT T WENTY DAYS. IT THEREFORE APPEARS TO ME THAT THE TRANSACTIONS CARR IED OUT WERE NOT PURELY IN A NORMAL COURSE I.E. TO EARN A PROFIT OR SUFFER A LOSS IN ORDINARY COURSE OF BUSINESS. THE ELEMENT OF SPE CULATION IN A SITUATION LIKE THIS IS QUITE OBVIOUS. ADMITTEDLY T HE APPELLANT HAD NOT RECEIVED THE PAYMENTS. IN SUCH VIEW OF THE MATT ER I FIND MYSELF IN AGREEMENT WITH THE AOS FINDINGS IN THIS REGARD IN DISALLOWING THE CLAIM OF THE SAID LOSS OF RS. 22 20 864/-. AS FAR AS THE ALTERNATIVE CLAIM OF BAD DEBT IS CONCERNED THE APPELLANT HAS NOT STATED WHETHER CONDITIONS U/S 36 ARE MET OR NOT. IN SUCH VIEW OF THE MATTER THE FINDING OF THE AO DOES NOT CALL FOR ANY REFERENCE. 3. THE LEARNED AR SUBMITTED THAT IN EARLIER YEARS W HATEVER WAS THE PROFIT DISCLOSED BY THE ASSESSEE ON ACCOUNT OF THE OUTSTANDING BALANCE WITH THE BROKER HAS BEEN ASSESSED AS INCOME FROM B USINESS. THE ASSESSEE FILED THE DETAILS OF THE SALE TRANSACTION OF WHICH COPIES HAVE BEEN PLACED AT PAGE 17 ONWARDS OF THE ASSESSEES PA PER BOOK. THE LEARNED AR SUBMITTED THAT THE CLAIM OF THE ASSESSEE IS ALLOWABLE EITHER AS A BUSINESS LOSS OR BAD DEBTS. THE LEARNED AR IN SUPPORT OF HIS CONTENTION RELIED UPON THE FOLLOWING DECISIONS: - 1. LORDS DAIRY FARMS LTD. V. CIT [1955] 27 ITR 7 00 (BOM.) 2. DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION) V. OMAN INTERNATIONAL BANK (SAOG) 313 ITR 128. ITA NO. 2069/M/09 SHRI KULDEEP SINGH NANDA 4 4. THE LEARNED DR ON THE OTHER HAND RELIED UPON T HE ORDERS OF THE REVENUE AUTHORITIES. 5. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND PERUSED THE RECORD. THE ADMITTED FACTS OF THE CASE ARE THAT THE CLAIM OF THE ASSESSEE FOR RS. 22 20 864/- IS OUTSTANDING BALANCE CARRIED FORWARD FROM EARLIER YEARS RELATED TO SHARE TRANSAC TION. THE PROFIT OR LOSS OUT OF THE TURNOVER AGAINST WHICH THERE WAS OU TSTANDING BALANCE REMAINED WITH BROKER HAS BEEN OFFERED BY THE ASSESS EE AS BUSINESS INCOME AND THE SAME WAS ACCEPTED BY THE DEPARTMENT IN EARLIER YEARS. ON PERUSAL OF THE ORDER OF THE AO WE FIND THAT THE FINDING OF THE AO THAT PROFIT DECLARED BY THE ASSESSEE IN EARLIER YEA R WAS SPECULATION PROFIT IS MERELY A PRESUMPTION WHEREAS IN FACT THE PROFIT DECLARED IN EARLIER YEAR HAVE BEEN ACCEPTED BY THE DEPARTMENT A S BUSINESS PROFIT. THE VIEW TAKEN BY THE AO DURING THE YEAR UNDER CONS IDERATION IN RESPECT OF EARLIER YEARS PROFIT DECLARED BY THE ASS ESSEE ACCEPTED BY THE REVENUE AS BUSINESS PROFIT CANNOT BE ACCEPTED AND H ELD AS SPECULATION PROFIT IN THE YEAR UNDER CONSIDERATION WITHOUT ANY BASIS. THE ASSESSEES CLAIM AS BUSINESS LOSS IS THE OUTSTA NDING AMOUNT WITH BROKER I.E. TURNOVER OF SHARES ON WHICH PROFIT OR LOSS HAVE BEEN OFFERED AS BUSINESS PROFIT THEREFORE THE ASSESSEE IS ENTITLED FOR SET OFF OF SUCH LOSS IF THE OUTSTANDING BALANCE IS NOT RECO VERABLE. WE THEREFORE ALLOW THE CLAIM OF THE ASSESSEE. WE ALLO W THE ASSESSEES CLAIM ON FIRST GROUND ITSELF THEREFORE ALTERNATE CL AIM RAISED IN GROUND NO. 2 BECOMES INFRUCTUOUS. 4. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALL OWED. PRONOUNCED ON THIS 9 TH DAY OF FEBRUARY 2010 SD/- SD/- (R.K. GUPTA) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTAN T MEMBER DATED: 9 TH FEBRUARY 2010 ITA NO. 2069/M/09 SHRI KULDEEP SINGH NANDA 5 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE A BENCH I.T .A.T. MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR I.T.A.T. MUMBAI. KV S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON 02.02.10 SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR 05.02.10 SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER