2023 (10) TMI 1513 - AT - Income Tax

ITAT Mumbai reduces share trading profit addition by 50% for assessment year 1993-94

ITAT Mumbai partly allowed assessee's appeal for A.Y. 1993-94 regarding share market transactions. The tribunal sustained 50% of share market trading ... Addition on account of the valan transactions unexplained - HELD THAT:- There is substance in the argument of the assessee that dividend/interest income having earned through banking channels and reflected in the bank accounts, the primary entries reflected in the bank statement should be considered as material sufficient to determine income. It is not the case of the Revenue that the assessee had earned any dividend /interest in cash from neither her holdings nor any evidence is made available on record in support of such proposition. Therefore in our opinion it would be reasonable to consider the dividend/interest income as shown in the books of account as taxable income of the assessee. Even otherwise, the difference between the figure arrived at by the AO is not much higher and as per the principle enshrined in Article 265 of the Constitution of India that State should not enrich itself unjustly, we are inclined to accept the plea of the assessee that addition in respect of dividend/interest income should be restricted. Addition on account of share market trading profit - HELD THAT:- AO has consistently framed the assessment for A.Y. 1993-94 in case of the assessee and other related entities in the like manner as that of A.Y. 1992-93. Similarly, even the AO has not produced before us the material relied upon by him in order to substantiate the correctness of his working and disprove the figures of the assessee after lapse of 30 years. In our opinion, different approach cannot be adopted when there is no change in facts and circumstances of the case. The facts being similar, there being no material adduced before us to distinguish the circumstances and to follow the judicial discipline, we are respectfully following the order in [2019 (2) TMI 1198 - ITAT MUMBAI] and in all fairness, equity direct the A.O. to allow 50% relief in respect of addition. The addition to the extent of Rs. 2, 88, 36,552/- is sustained and the balance addition of Rs. 2, 88, 36,552/- is deleted. In result, the ground no. 2 is partly allowed. Addition on account of alleged share market oversold position - HELD THAT:- Tribunal has accepted the contention of the assessee that the addition on account of share market oversold position is not sustainable in law since the relevant material relied upon by the AO for computing the additions has never been brought on record till date and therefore, the addition made by the AO cannot be sustained. Addition made by the AO does not deserve to be sustained in the facts and circumstances of the case and hence, delete the same. In the result, ground filed by the assessee is allowed. Addition on account of profit on sale of shares in shortage - AO has assessed the income of the assessee for A.Y. 1993-94 in the like manner and the DR has not pointed out any distinguishable facts in the appeal under consideration. Therefore, respectfully following the order [2019 (2) TMI 1198 - ITAT MUMBAI] passed by the co-ordinate bench and materiality of the addition, we also delete the addition of Rs. 2, 89,250/- confirmed by the Ld. CIT (A). In the result, ground no. 4 of the assessee is allowed. Income from Badla transactions - AO has followed similar process of determining Badla Income as was done in earlier year and the annexure number remains same for both years - DR has not dwell upon any distinguishing feature. Considering the materiality of the addition by respectfully following the order passed by the Tribunal in earlier year in assessee’s own case we delete the impugned addition. In the result, ground raised by the assessee is allowed. Disallowing the interest expenditure claimed by the assessee u/s. 57 - HELD THAT:- It is apparent that the reasons given for not allowing the interest expenditure claimed by the assessee u/s. 57 of the Act are not tenable in view of the decision of Seth R. Dalmia [1977 (9) TMI 1 - SUPREME COURT] which is duly followed in the case of Smt. Pratima Mehta [2023 (10) TMI 1474 - ITAT MUMBAI] We allow this ground of appeal in favour of the assessee and direct the A.O. to allow interest expenditure claimed by the assessee while computing the taxable income. Enhancement made by the CIT (A) on account of difference noticed in the ledger accounts - It is undisputed that the assessee carried on transactions on behalf of her client. But the contention of the assessee that it had not claimed deduction for interest payable to Harshad S. Mehta in her P & L account placed at page 800 of the paper book seems to be prima facie correct. The appellate proceedings in the case of Harshad S. Mehta are pending before the Ld. CIT (A) and if it is established that Harshad S. Mehta has offered this income for A.Y.1993-94 the same needs to be deleted from the total income of the assessee. This relief to the assessee is subject to addition in the hands of Harshad S. Mehta. In the result, ground no. 8 raised by the assessee is allowed for statistical purposes. Levy of interest u/s. 234A and 234B - In our opinion, the A.O. is duty bound to levy interest u/s. 234A and 234B of the Act as per the provisions of the Act. We accordingly direct the A.O. to levy interest as per the law. This ground of the assessee has no merit and stands dismissed. Assessee has not furnished source of acquisition of shares -main objection of the Revenue is that the assessee should not be granted relief as she had not furnished source of the investment - HELD THAT:- As such, it is obvious that the assessee has carried out transactions on the floors of the exchange. We find that the facts and figures brought on record by the assessee before the appellate authority have to be disproved by Revenue by bringing any cogent material or evidence to the contrary. ITAT being final fact finding authority is more concerned about the facts to be established on record based on which a fair adjudication can be carried out. It is undisputed that the CIT (A) has granted relief to the assessee on factual basis. In our opinion, the impugned order passed by the Ld. CIT(A) on this issue granting relief to the assessee is judicious and needs no interference. Hence, the first ground of appeal filed by the Revenue is dismissed. Stock in trade and allow interest expenditure on proportional basis which was claimed by the assessee - HELD THAT:- It is the case of the Revenue that the directions are issued without considering fact that the assessee failed to show that the respective entities had charged interest on amounts paid by the respective parties. Ground no. 3 pertains to objection raised by the Revenue that the assessee had claimed deduction u/s. 57 of the Act hence; it is for the assessee to prove that the interest expenditure was incurred wholly and exclusively for the purpose of earning interest income. Thus, it is apparent that the allowability of interest has been covered by cross appeal filed by the assessee in the ground discussed at length hereinabove. This issue has been decided in favour of the assessee. Having held that the assessee is entitled to claim deduction for interest expenditure, these grounds filed by the Revenue become infructuous and hence, ground nos. 2 & 3 are dismissed. Non granting of set off of loss against other income - As it is apparent that the A.O. has not adduced any material to show that the transactions captured are speculative in nature. It is apparent that the entire working or the basis of working is arbitrary. Similarly, the Tribunal in assessee’s own case for A.Y. 1992-93 has upheld the view taken by the predecessor first appellate authority. No decision to the contrary has been brought to our attention by the Revenue. Direction given by the Ld. CIT (A) to the A.O. to verify and grant relief on account of oversold position in capital market - It is apparent that the issue related to over-sold position in the capital market has also been raised in ground no. 3 of appeal filed by the assessee and the said issue has been decided in favour of the assessee for the reasons discussed hereinabove. As such, this ground filed by the Revenue has become infructuous and hence, dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in the judgment include:Whether the addition of Rs. 88,78,044/- on account of dividend and interest income was justified.Whether the addition of Rs. 6,83,95,324/- on account of share market trading profit was justified.Whether the addition of Rs. 26,65,106/- on account of the share market oversold position was justified.Whether the addition of Rs. 2,89,250/- on account of profit on sale of shares in shortage was justified.Whether the addition of Rs. 2,08,453/- on account of income from Badla transactions was justified.Whether the partial allowance of interest expenditure was justified.Whether the enhancement of income by Rs. 7,97,23,030/- due to discrepancies in ledger accounts was justified.Whether the levy of interest under sections 234A and 234B was computed in accordance with the law.Whether the CIT(A) was justified in granting relief of Rs. 49,86,64,659/- on account of profit earned on unexplained sale of shares.Whether the CIT(A) was justified in treating the speculative loss as a normal business loss.Whether the directions to verify and grant relief on account of oversold position in the capital market were justified.2. ISSUE-WISE DETAILED ANALYSISDividend and Interest Income AdditionThe legal framework involves the assessment of income under the Income Tax Act, 1961. The Tribunal found that the assessee had shown dividend and interest income in her books, which was corroborated by bank statements. The discrepancy in the assessment order was acknowledged, and the addition was reduced to the amount shown in the books.Share Market Trading Profit AdditionThe Tribunal noted the lack of material evidence provided by the Revenue to substantiate the addition. The Tribunal followed precedents from the assessee's earlier assessment years, applying a 50% reduction to the addition due to the lack of complete evidence and the passage of time.Share Market Oversold Position AdditionThe Tribunal found that the addition was based on incomplete evidence and followed earlier rulings that such additions were unsustainable. The addition was deleted.Profit on Sale of Shares in Shortage AdditionThe Tribunal followed earlier decisions in the assessee's case, finding no distinguishing facts for the current year, and deleted the addition.Income from Badla Transactions AdditionThe Tribunal found the addition to be based on similar reasoning as in earlier years and deleted it, following the precedent set in the assessee's case.Interest Expenditure AllowanceThe Tribunal referred to Supreme Court and jurisdictional High Court decisions, allowing the interest expenditure under section 57 of the Act, as the interest had a nexus with income from other sources.Ledger Account DiscrepanciesThe Tribunal noted the potential for double taxation and directed verification with the corresponding entries in Harshad S. Mehta's accounts, allowing conditional relief.Levy of Interest under Sections 234A and 234BThe Tribunal directed the AO to levy interest as per the law, dismissing the assessee's ground.Revenue's Appeal on Unexplained Sale of SharesThe Tribunal upheld the CIT(A)'s relief, emphasizing the lack of evidence from the Revenue to disprove the assessee's records.Speculative Loss TreatmentThe Tribunal followed earlier decisions treating the loss as a normal business loss, dismissing the Revenue's appeal.Relief on Oversold PositionThe Tribunal found the issue moot due to the decision in the assessee's favor on similar grounds.3. SIGNIFICANT HOLDINGSThe Tribunal established key principles, including:Reliance on bank statements and books of accounts for determining dividend and interest income.Application of a 50% reduction in additions where evidence is incomplete and outdated.Recognition of the nexus between interest expenditure and income from other sources under section 57.Conditional relief based on verification of corresponding entries in related accounts.Adherence to precedents in treating speculative losses as normal business losses.The final determinations included partial allowance of the assessee's appeal and dismissal of the Revenue's appeal, with specific directions for verification and application of legal principles.