ACIT Vs Clothing Culture Ltd (ITAT Mumbai)
ITAT Mumbai held that commodity transactions carried out as regular business transaction cannot be treated as speculative transaction. Accordingly, the loss incurred from the same is treated as normal business loss.
Facts- The assessee is a limited company engaged in the business of manufacturing and trading of textile products. AO during the course of assessment proceedings observed that assessee had sold shares of M/s. Anukaran Commercial Enterprises Ltd (in short as ‘ACEL’) and had originally shown short term capital gain of Rs.34,05,60,006/- in the original return of income by offering the same to tax at special rates u/s.111A of the Act. However, in the revised return, the said gain was shown as business income by the assessee.
AO show-caused the assessee as to why the gains received from sale of shares of M/s. ACEL has not been carried out by it in the regular course of business and be not treated as income from other sources.
Finally, AO however, ignored these contentions and sought to treat the gain on sale of shares of ACEL as unexplained cash credit u/s.68 of the Act by shifting the same from business income. Aggrieved, the assessee preferred an appeal before the ld. CIT(A). CIT(A) granted relief to the assesee by accepting the gain on sale of shares as business income as against income added u/s.68 of the Act by AO.
Further, second issue is CIT(A) grnated deduction for loss of Rs.24,39,28,896/- claimed by the assessee in respect of commodity transactions of National Spot Exchange Ltd., (NSEL) treating it as not speculative in nature.
Conclusion- We find that assessee was selling the shares only from 16/02/2013 onwards in piecemeal. Even according to the ld. AO, the price rigging of shares of ACEL had happened only during the period 29/11/2010 to 26/12/2012. The assessee had not sold the shares during this period. Hence, the entire basis of rigging of prices, manipulation of prices, role of the assesee thereon, completely falls flat and fails. In any case, one of the main grievance of the ld. AO is that there were 47 investors to whom preferential allotment of shares were made on 02/03/2012 by ACEL. Admittedly, the assessee’s name does not figure in those 47 investors. On this ground also, the case of the ld. AO fails. Despite all these strong points, the assessee has come forward to buy mental peace and to avoid protracted litigation pursuant to the survey by offering gain arising on sale of shares of ACEL as business income instead of short term capital gains offered at special rates of tax. By this process, the assessee has actually paid excess tax to the Government.
Held that as per the provisions of Section 43(5)(d) of the Act, the commodity transactions carried out by the assessee cannot be treated as a speculative transaction. Hence, it should be considered as regular business transaction and in case it resulted in a loss, it should be construed as normal business loss. Hence, we do not find any infirmity in the order of the ld. CIT(A) granting relief to this extent.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal in ITA No. 495/Mum/2021 for A.Y.2014-15 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-CIT(A) 12, Mumbai in appeal No. CIT(A)12, Mumbai/11344/2016-17 dated 14/08/2020 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3)of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 30/12/2016 by the ld. Dy. Commissioner of Income Tax 6(2)(1), Mumbai (hereinafter referred to as ld. AO).
2. At the outset, we find that the appeal of the Revenue is delayed by 123 days. We find that the appellate order was passed by the ld. CIT(A) during the Covid period and the appeal has been filed before this Tribunal by the Revenue during the Covid period. Hence, in view of the relaxation granted by the Hon’ble Supreme Court, the delay of 123 days is hereby condoned and appeal of the Revenue is admitted for adjudication.
2.1 The Revenue has raised the following grounds of appeal:-
1. “On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the profits and gains of Rs. 34,01,87,229/- derived by the assessee from purchase and sale of shares of M/s Anukaran Commercial Enterprises Ltd. cannot be treated as unexplained cash credit under section 68 of the Act, without appreciating the fact brought on record by the Assessing Officer that M/s Anukaran Commercial Enterprises Ltd. is an entity engaged in providing accommodation entries of LTCG/STCG to beneficiaries, including the “
2. “On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in holding that provisions of Section 68 are not applicable to the assessee’s case without appreciating the fact that during the survey operations u/s 133A as well as during the assessment proceedings, the assessee has not been able to satisfactorily explain the genuineness of its transaction in shares of M/s Anukaran Commercial Enterprises.”
3. “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating the fact that there has been a deliberate attempt on the part of the assessee to evade the payment of tax by categorising a receipt chargeable to tax at higher rate of 30% by treating the same as Short Term Capital Gain chargeable to tax at 15%, and only following the survey action u/s 133A, and during the course of the subsequent assessment proceeding the assessee to chose to offer the receipt for taxation @ 30%”
4. “On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in holding that commodity transactions entered into by the assessee company on National Spot Exchange Ltd(NSEL) were not speculative transactions within the meaning of section 43(5) of the Act without appreciating the fact that alleged transactions were not supported by documentary evidence of actual delivery of goods.”
5. “On the facts and in the circumstances of the case and in law, the Ld. CIT(A), has erred in holding that the loss of Rs. 24,39,25,896/- claimed by the assessee company in respect of commodity transaction on National Spot Exchange Ltd.(NSEL) was allowable as a normal business loss without appreciating the fact that there was rampant misuse and exploitation of NSEL Exchange Platform by unscrupulous brokers and traders and the transactions carried out through the Exchange were with malafide intentions.”
6. “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing the assessee’s claim of expenses of Rs. 21.68,322/- towards warehousing rent, brokerage and commission, stamp charges on purchases and trading of commodities on National Spot Exchange Ltd(NSEL), without appreciating the fact that the alleged commodity transactions claimed to have been carried out by the assessee were not supported by documentary evidence of actual delivery of goods.”
7. “The Appellant prays that the order of the CIT(Appeals) on the above ground be set aside and that of the AO be restored.”
8. “The Appellant craves leave to amend or alter any ground or to submit additional new ground, which may be necessary.”
3. We have heard rival submissions and perused the materials available on record. The assessee is a limited company engaged in the business of manufacturing and trading of textile products. The assessee filed its return of income for the A.Y.2014-15 on 28/11/2014 declaring total income of Rs.14,75,45,668/- comprising of business loss of Rs.19,30,14,338/- and short term capital gains of Rs.34,05,60,006/-. Subsequently in the course of assessment proceedings, the assessee filed a revised return on 22/03/2016 revising its total income at Rs.14,71,72,890/- and the entire income is offered to tax as business income. The ld. AO during the course of assessment proceedings observed that assessee had sold shares of M/s. Anukaran Commercial Enterprises Ltd (in short as ‘ACEL’) and had originally shown short term capital gain of Rs.34,05,60,006/- in the original return of income by offering the same to tax at special rates u/s.111A of the Act. However, in the revised return, the said gain was shown as business income by the assessee. The chronology of events leading to the said share transactions are as under:-
