TMI Blog2022 (7) TMI 547X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessee is entitled to claim the deduction of the expenditures in respect of which the escaped income ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ong 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 is accounted as income/ loss in the books of accounts which is acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to add, alte, amend or delete any of the 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al return of income was made in the income escaping proceedings. 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 sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dence why losses from share trading were not claimed during filing of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inguishable from this case is devoid of any merit. The decision of apex court is squarely applicable 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision in the case of Sun Engineering Works (P) Ltd. is that once an assessment is validly reopened only the previous 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 bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that in the reassessment proceedings, it was not open to the assessee to seek a review of the concluded item, unconnected with the escapement 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, Explanati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erusal of the above reasons, we note that the proceedings were initiated on account of escapement 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 of ₹ 5,83,333.00 under the provisions of section 69 of the Act. The reason of making the addition was based on the proceedings before the ADIT (Inv) as mentioned 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Van Oord Atlanta B.V. v. Assistant Director of Income-tax reported in 112 TTJ 0229 wherein it was observed as under: 8. We have heard the rival submissions of the parties and also perused the documents produced by both the parties. Before dealing with the main issue regarding the existence of any PE of the appellant company in India and the question of taxability of the appellant's income in India, we would like to decide the question of admissibility of the grounds of appeal. The learned CIT(A) dismissed 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 char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings into an appeal or revision in disguise and seek relief in respect of items earlier rejected or claim relief in respect of items not claimed in the original assessment proceedings, unless relatable to escaped income'. Even in cases where the claims of the assessee during the course of reassessment proceedings relating to the escaped income are accepted, still the allowance of such claims has to be limited to the extent to which they reduce the income to that originally assessed. The income, for purposes of 'reassessment' 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. 23,6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer. 2. That, the learned CIT(A) has wrongly confirmed the disallowance of loss of Rs.23,46,510/- on share trading. 3. That, the learned CIT(A) has wrongly confirmed the charging of the interest u/s.23A, 234B, 234C and 234D of the I.T. Act, 1961. 4. That, the findings of the learned Assessing Officer and CIT(A) are not justified and are bad-in-law. The appellant craves to add, alte, amend or delete any of the above grounds of appeal. 16. 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. 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 busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ither consequential or general in nature. Accordingly, we dismiss the same as not pressed. 23. The 1st issue raised by the assessee in ground No. 2 is that the learned CITA erred in confirming the disallowance of the loss claimed of Rs. 15,70,042.00 as against the share trading activity which was set off against the profit from the shipping business. 24. 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 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 lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not only the Profit. I do not find any arguments for turnover of assessee explaining bank deposits. His contention that turnover and the profit should be seen as source of deposits is devoid of any merit. The AO as discussed earlier it is the excess of payment over receipts and the profit of shipping agency which only has been considered unexplained by AO. Considering the totality of facts and circumstances of the case, I am of the considered opinion that the assessee has failed to explain the source of excess of payments over the receipts. The A.O. has been more than reasonable in allowing set off 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 dele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Disclosed 2009-10 1,75,12,824 30,50,000 2010-11 1,58,79,814 27,50,000 2011-12 1,52,02,385 45,50,000 Total 4,85,95,023 1,03,50,000 10. Therefore, the gross receipts of 3 years is Rs. 4,85,95,023/-, the said amount is available for the pay-in and pay-out and therefore the findings of the ld. AO is incorrect. 11. Therefore, the source of investment is duly reflected in the bank accounts and therefore the same is duly explained. 12. It is therefore respectfully submitted to delete the addition, which purely made on the basis of surmises and presumption. GROUND 5:That, the learned CIT(A) has enhanced income without opportunity as provided u/s 251(2) of the I. T. 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 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but confirmed the addition for all the 3 years as discussed above amounting to ₹ 17,50,000.00. Thus the sum of ₹ 11,67,777 out of the total addition of ₹ 17,50,000 pertains to the assessment year 2008-09 which was added to the total income of the assessee including the income of the assessee under consideration. In other words the addition made by the AO for the year under consideration for ₹ 5,83,333.00 pertains to the year under consideration whereas the balance amount of addition was not subject matter of dispute in the assessment order. But the learned CIT-A has added the same in the year under consideration. Thus, the income for the year under consideration was enhanced by the ld. CIT-A and therefore it was mandatory upon the learned CIT-A to issue the enhancements notice under the provisions of section 251 of the Act. 30.1 As far the addition of ₹ 11,67,777.00 is concerned, we note that this addition has been made in the year under 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 wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares and the closing value stock of shares in year under consideration. According to the AO, such difference cannot be allowed as deduction against the business profit of share trading business. Thus the AO disallowed the same and added to the total income of the assessee. 33. Aggrieved assessee preferred an appeal to the learned CIT-A who confirmed the same by observing as under: During the appellate proceeding the appellate reiterated the contention raised before the Assessing Officer and stated that the Assessing Officer wrongly consider the amount of Rs.21,00,000/- as expenses however, same is nothing but difference of opening stock and of closing stock (Rs.2,23,88,387 - Rs.2,02,88,387). The applicant has accordingly followed generally accepted account and principle of computing profit and loss in the revised return of income and hence rightly arrived to the loss of Rs.1,12,2361-. The appellant's such argument are not in accordance in accounting principle relating to computation 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he difference of the sales and purchases. As some of the items of opening stocks are sold during the ear and duly included in the sales figures. Further, some of the purchases are lying as closing stock. And therefore to derive the correct opening stock and closing stock items are required to b taken into consideration. Therefore, the appellant has not claimed any expense it is merely the net effect of the opening and closing stock valuation. Therefore, considering the facts and circumstances of the case it is requested to delete the addition. 35. On the other hand the learned DR vehemently supported the order of the authorities below. 36. We have heard the rival contentions of both the parties and perused the materials available on record. 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
