TMI Blog2023 (2) TMI 455X X X X Extracts X X X X X X X X Extracts X X X X ..... We note that these bad debts were not connected with the activity of derivative and therefore the same cannot fall within the scope of limited scrutiny as discussed above. The Ld. DR before us has not brought anything on record justifying that the Limited Scrutiny was converted by the Assessing Officer under normal scrutiny after obtaining necessary approval from the appropriate authority. Loss i.e. MCX trading loss has been shown by the assessee just to avoid tax liability on the income and to match the amount of profits shown in the income tax return - we note that these items have direct connection with the activities of derivative and therefore the same fall within the scope of assessment proceedings in the given set of facts. As such the entire issue should have been limited to the extent of the dispute raised in the notice under section 143(2) of the Act for the limited scrutiny but the AO in the present case has exceeded his jurisdiction as discussed above. Thus, the issue raised by the assessee in the CO is partly allowed. Deduction on account of bad debts written off - observation of the learned CIT-A that the debtors pertains to the current period, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Learned Commissioner of Income Tax (Appeals)-10, Ahmedabad of even dated 12/12/2019 arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as the Act ) relevant to the Assessment Year 2013-14. First, we take up the ITA No. 133/Ahd/2020 for AY 2015-16, an appeal by the assessee 2. The assessee has raised the following grounds of appeal: On the facts and in the circumstances of the case as well as in law the CIT(A) has grossly erred in rejecting the contention of the appellant and sustaining impugned addition of Rs.18,50,000/- on account of appellant s claim of bad debt, when the same is wholly unwarranted. 3. The facts in brief are that the assessee in the present case is an individual and claimed to be engaged in the activity of advertisement under the name and style of ADCOM advertising. Besides this, the assessee also claimed that he has been engaged in the business activity of share trading, future and options and speculative business. As per the assessee, he was maintaining separate books of accounts for both the activities. However, the assessee in the return of income filed and stateme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is for the reason that the assessee has been carrying on the activity of share trading since many years and the income thereon was classified as income from other sources. Therefore, the assessee cannot take a different stand in the year under consideration. 4.2 The AO further found that the assessee claimed to have earned short-term capital gain amounting to ₹ 1,34,12,254.00 which was also shown in the profit and loss account but the same was not offered to tax in the income tax return. 4.3 The AO also found that the assessee against the income from the future and option and speculative transaction has claimed the deduction of the following items: i. Bad Debts written off ₹ 18,50,000.00 ii. Other expenses ₹ 13,53,121.00 iii. MCX trading loss ₹ 2,73,39,075.00 4.4 As per the AO, the bad debts are representing only the money transactions without having any business relation. Likewise, the loss i.e. MCX trading loss of ₹ 2,73,39,075.00 has been shown by the assessee just to avoid tax liability on the income and to match the amount of profits shown in the income tax return. Accordingly, the AO rejected the claim of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any addition/ subtraction thereto on account of purchase/ sale was also classified under the investment activity. Therefore, the impugned gain should be treated under the head short-term capital gain instead of business income. 6.2 The assessee regarding the bad debts of ₹18.50 lakhs submitted that he has advanced/loaned money to the parties on interest at the rate of 3% per month. The assessee earned interest income from these parties for ₹ 3 Lacs in the year under consideration which was offered to tax and the same was accepted by the Revenue. However, on a later date the parties have stopped giving interest to the assessee and the money advanced to them became irrecoverable. Therefore, the assessee has written off the same as bad debts in the books of accounts. The assessee in support of his contention has furnished the necessary details of the parties which are available on pages 11 and 12 of the ld. CIT-A order. 6.3 The other charges amounting to ₹ 15,25,765.00 were incurred by the assessee in the course of the business. All these expenses were duly disclosed in the profit and loss account. The copies of the ledgers of the brokers were also furnished d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treat the surplus as Short Term Capital Gain is logical hence, accepted. 7.2 The learned CIT-A with respect to the bad debts claimed by the assessee for ₹18,50,000 has confirmed the order of the AO by observing as under: (c) It is argued that the interest is being charged at the rate of 3% and interest income is being shown to the department hence the same is business activity. However it is noticed that the appellant has no money lending business and largely is trading in shares and securities. There is opening balance in the case of two parties. It is also transpired that certain such amounts have been recovered in subsequent years which have been offered for taxation. Hence, it is a case of current year's debtors which has been claimed as bad debt, appears to be pre-mature claim. The AR argued that the main person in the above four creditors is in jail, therefore, the amount has been shown as bad debt. Notwithstanding this oral fact brought on record, it is the case of current debtor as already discuss and the appellant would not get benefit of the case of TRF Ltd. 323 ITR 397(SC) atleast in this year. v In my opinion, none of the four amounts claimed as bad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en after issue of summons does not appear, for that reason, the claim of assessee should not be denied, especially in the cases when the existence of broker is not in dispute, nor the payment is in dispute. Merely because some broker fai'td to appear, assessee should not be punished for the default of a broker and on mere suspicion the claim of assessee should not be denied. The evidential value of credible evidences such as contract notes and bank account details can not be ignored. The appellant has also submitted details of entity wise transacting under his further submission dated 10.12.2019, vide Annexure-5, which reveals true and correct affairs of the nature of the appellant's claim. The contention of the appellant regarding derivatives (F O) has been analyzed with reference to explanation to section 43(5)(d) which has been amended in A.Y. 2006-07 and further A.Y. 2014-15 declaring such profit/loss as non-speculative or income/loss from business and profession. I have carefully gone through the relevant details so placed on record. It is seen that the AO has rejected the claim solely for reasons that it was not claimed unequivocally in original return of incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under limited scrutiny only with respect to the examination of investment and income relating to securities (derivatives) but the AO has gone beyond his jurisdiction by giving his findings on the short-term capital gain, Bad Debts, other expenses and the business loss. According to the learned AR, the scope of the assessment proceedings was limited to the extent of examination of derivative activities of the assessee. 10.1 The learned AR, further, without prejudice to the above also contended that the bad debts and the other expenses were incurred in the course of the business. Therefore, the same should be allowed as deduction. It was also contended that all the necessary details with respect to the MCX loss was furnished during the assessment proceedings. But the AO without pointing out any defect in such loss has disallowed the same. 11. On the contrary the learned DR contended that the activity of the assessee showing the income under the head short-term capital gain is related to the securities only and therefore the AO has verified the same during the assessment proceedings. Accordingly the learner DR, the AO has not exceeded the jurisdiction in the assessment procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k and find that case of the assessee was selected for limited scrutiny to examine the following: i. Whether the investment and income relating to securities(derivative) transactions are duly disclosed. 13.3 As per the CBDT instruction No. 20/2015 dated 29/12/2015 and instruction no. 05/2016 dated 14-07-2016 and F. No. DGIT (Vig.)/ HQ/SI/2017-18 dated 30- 11-2017, the Assessing Officer in case of Limited Scrutiny can only examine those issues for which the case has been selected or the issue mentioned therein. If the AO is of the view that there is a potential escapement of income, he may convert the Limited Scrutiny into Complete Scrutiny but such view should be reasonable view based on credible information or material available on record. Furthermore, there should be direct nexus between such view and information/material. The relevant portion of the instruction stands as under: 3. As far as the returns selected for scrutiny through CASS-2015 are concerned, two type of cases have been selected for scrutiny in the current Financial Year-one is 'Limited Scrutiny' and other is 'Complete Scrutiny'. The assessees concerned have duly been intimated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reasonable view, the Assessing Officer would ensure that: a. there exists credible material or information available on record for forming such view; b. this reasonable view should not be based on mere suspicion, conjecture or unreliable source; and c. there must be a direct nexus between the available material and formation of such view. 13.4 In the light of the above stated discussion, we need to see whether the short-term capital gain and speculative profit/future and option transactions fall under the same bracket for which the proceedings under section 143(3) were initiated as discussed above. 13.5 The activity of trading/dealing in shares refers to the purchase and sale of the shares over the period of time. In the activity of share trading/dealing, it is necessary to have the delivery of the shares otherwise the activity without delivery shall be termed as speculative in nature. The income from the share trading/dealing can be classified as business income or capital gain at the case may be depending upon the facts and circumstances. But it is not so in the case of speculative transaction. It is classified generally as the business activity. Like ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where it was held as under: The jurisdiction of the Assessing Officer in such cases where the notices are issued for limited scrutiny is confined to the claims he has set out in the notice for verification. This position of law was further elaborated by the CBDT in its Circular No. 8/2002, dated 27-8-2002. The CBDT Circular clarifies that the Assessing Officer does not have the powers to make the entire assessment of income in limited scrutiny cases. Now question had to be decided when the Assessing Officer does not have the powers while making limited scrutiny assessment to decide such issues which are not covered by the limited scrutiny notice, the Commissioner (Appeals) on appeal against limited scrutiny assessment can exercise the powers in excess of the power vested with the Assessing Officer. There is no doubt that the power of the Commissioner (Appeals) is co-terminus with the power of the Assessing Officer. So, however, in the instant case, when the Assessing Officer did not have the power to make a full-fledged assessment in limited scrutiny cases, the Commissioner (Appeals) s power could not be enlarged beyond the power of the Assessing Officer in limited scrutiny ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of law. Accordingly we hold that the order passed by the learned CIT-A is unsustainable. Thus the ground of appeal of the assessee is allowed. 13.10 With respect to the disallowance of the expenses of ₹ 15,25,765.00 representing the indirect expenses, we note that the AO has made the disallowance of entire expenses which were deleted by the learned CIT-A in the entirety. However, the Revenue is before us in the appeal for the amount of ₹ 13,53,121.00 only representing the other expenses (inclusive of turnover charges, stamp duty, SEBI fees etc.). In this regard we have referred to the ledger of the other expenses placed on pages 116 to 119 which was duly supported by the statements of Edelweiss Broking Limited placed on pages 120 to 127 of the paper book. Thus, it is transpired that the expenses were incurred in the course of the business of the assessee. However, we find that as per the ledger account furnished by the assessee, the expenses stand at ₹ 13,53,121.69 whereas as per the statement of Edelweiss Broking Ltd. stand at ₹ 13,22,308 leading to the difference of Rs. 30,813.00 only which is of negligible value. Thus it cannot be said that the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X
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