TaxTMI 
TaxTMI 
2022 (8) TMI 564
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....ding that the trading activity in F & O undertaken by Sri Karthik Velagapudi and Smt. P. Usha Rao on behalf of the company Nekkanti Systems Pvt. Ltd., is not assessable in the assessment of the appellant. 3. The learned Principal Commissioner of Income Tax erred in holding that the loss claimed on account of F & O of Rs. 1,67,31,578/- loss assessable in the assessment of Sri Karthik Velagapudi and Smt. P. Usha Rao and is not an allowable loss in the assessment of the company. 4. The learned Principal Commissioner of Income Tax erred in holding that the order u/s. 143(3) dated 04.11.2016 for the assessment year 2014-15 is erroneous and prejudicial to the interest of revenue on the ground that the loss claimed under F & O of Rs. 1,67,31,578/- is not allowable." 3. The brief facts of the case are that assessee is a company who filed its e-return for A.Y. 2014-15 on 21.09.2014 declaring taxable income of Rs. 22,64,140/-. Subsequently, the case was selected for scrutiny and notice u/s. 143(2) of the Act was issued and was served on the assessee on 08.09.2015. In response to the notice u/s. 143(2) and subsequent statutory notice u/s. 142(1) of the Act, director of th....
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....a settled principle of law that if the view which was taken by the Assessing Officer is a possible view, it would not be within the jurisdiction of the revisional authority to exercise the power u/s. 263. 5.1. The Ld. AR further submitted that the assessments in the hands of the Directors of the assessee were also completed accepting the explanations submitted by the Directors that the loss from F & O arisen by the activities carried out on behalf of the assessee company was disclosed and considered in the assessment and hence, there was no loss to Revenue and as such, the assessment order passed for A.Y. 2014-15 is not prejudicial to the interests of revenue. In this connections, he relied on the following decisions: A) Malabar Industrial Co. Ltd. Vs. CIT - (2000) 243 ITR 83 (SC). B) CIT Vs. Max India Limited (2007) 295 ITR 282 (SC) C) Ultratech Cements Ltd. Vs. State of Rajasthan - (2020) 117 taxmann.com 807 (SC). D) CIT Vs. Smt. Neena Krishna Menon - (2021) 123 taxmann.com 205. E) CIT Vs. GM Mittal Stainless Steel (P) Ltd. - (2003) 263 ITR 255 (SC) F) CIT Vs. Canara Bank - (2021) 123 taxmann.com 207 G) Narayan Tat....
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....e after the conclusion of the proceedings for A.Y. 2015-16 and the Ld. CIT(A) had passed the order for A.Y. 2015-16 on 23.01.2019. The assessee immediately after receipt of the order dt. 23.01.2019 from the Ld. CIT(A) had forwarded the order to Ld. PCIT. However, Ld. PCIT has not considered the said order which was forwarded by the assessee to the Ld. PCIT. The Ld. AR for the assessee had also filed the written submissions on 25.07.2022, the relevant portion of the written submissions are as under: "22. It is humbly submitted that it is connected with the powers of the Board of Directors of a company and the delegation of powers to the Directors. According to the provisions of Sec. 179 of the Companies Act, the Board of Directors of the company shall be entitled to exercise such powers as the company desires them to do. The provisions of clause (e) of sub-section (3) of Sec. 179 of the Companies Act empowers the Board of Directors of the company to invest the funds of the company if a resolution is passed to the effect. First proviso to sub-section (3) of Sec. 179 of the Companies Act mentions that the Board may by a resolution delegate such powers to any committee of dire....
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....character as agent, and any loss resulting from misappropriation of funds by him would be a loss incidental to the carrying on of the business." e) In the case of the assessee, the Directors, on due authorisation by the company, carried on the business of the company i.e., trading in shares, as agents of the company and on behalf of the company and therefore, the profit and/or loss thereon should be treated as the outcome of the business of the company and allowed in the assessment of the company. It cannot be considered as profit and/or loss of the Directors in their assessments. From the above, it is clear that the Board of Directors are permitted to pass a Resolution authorising the directors to act on behalf of the company which is permissible under the Companies Act and the assessee company did exactly what was permitted by the Companies Act." In view of the above, it was submitted that the order passed by the Ld. PCIT was wrong and contrary to the order passed by the Ld. CIT(A) for A.Y. 2015-16. 8. We have heard the rival submissions and perused the material on record. Before we deal with the issue, it is essential to bring certain important dates which are rel....
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....iven by the assessee to its directors namely, Ms. P. Usha Rao and Mr. Karthik Velagapudi. As against the above said two amounts, the trading loss notified by Ms. P. Usha Rao was Rs. 1,37,11,755/- and by Karthik Velgapudi was Rs. 16,84,539/-. The total loss suffered by the assessee was Rs. 1,73,99,050/-. 9.2. Similarly, for A.Y. 2015-16, the payment made by the company to its directors namely, Ms. P. Usha Rao on various occasions was Rs. 1,72,83,000/-. (Page 58 of the Paper Book) and against that amount, the said Ms. P. Usha Rao suffered a trading loss of Rs. 2,18,87,793/-, which was later on claimed to be the loss of assessee company. 10. As per the order of the Assessing Officer dt. 04.11.2016, there is no discussion on the allowability or disallowability of the amount of Rs. 1,73,99,050/- in the assessment order. During the course of argument, the Ld. DR has drawn our attention to the letter dt. 26.04.2016 whereby ten questions were posed to the assessee which reads as under: 1. 1. Assessment particulars of Directors & copies of return of income of Directors. 2. Complete copy of the Annual report and financial statements. 3. Details of Amalgamatio....
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....Delhi High Court in the case of GEE VEE Enterprises cited supra justified making of inquiries by the Assessing Officer by observing as under: "14. The reason is obvious. The position and function of the Income Tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may he accepted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income Tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word "erroneous" in section 263 emerges out of this contract. It is because it is incumbent on the Income Tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word "erroneous" in section 263 includes the failure to make such an inq....
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....judicial to the interest of the Revenue, if the Assessing Officer fails to carry out the inquiries, which ought to have been carried out in the facts and circumstances of the case. 16. In view of the above judicial precedents and the amendment introduced by the Finance Act by way of Explanation-2 of Section 263 of the Act, if the Assessing Officer failed in carrying out the enquiry which ought to have been carried in the fact and circumstances of the case, the assessment order is obviously erroneous. 17. The issue in dispute in the case of assessee before us, is that whether inquiry was conducted by the Assessing Officer during assessment proceeding on the issue of disallowability of loss caused to the directors in the hands of the assessee or not? 18. In the present case, despite the fact that the losses were caused to the directors in their accounts, the Assessing Officer has allowed the said loss to be set off against the income of the assessee company without making any enquiry. The same is not permissible in law. No question was asked by the Assessing Officer to the assessee and there was no basis for allowing the deduction of such trading loss to the assessee company....
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....of arguments before us. Section 179(3)(e) provides as under : The Board of directors of a company shall exercise the following powers on behalf of the company by means of resolutions passed at meeting of the board, namely, - To invest the funds of the company. 21. The power under section 179(3)(e) can only be given to the directors only for investing the funds of the company. The word "invest" used in the clause is required to be interpreted in a narrow sense as it's meaning cannot be expanded to include "trading activities of purchase and sale of shares by the directors in their individual capacity." The board resolution dated 01.04.2013 provides as under: "FURTHER RESOLVED THAT the above Directors of the company are also authorized to operate the transactions for and on behalf of the company and for which do draw amounts from the company from time to time and submit periodic reports to the company clearly segregating between the transactions made for and on behalf of the company and transactions made in respective personal capacities. FURTHER RESOLVED THAT the company do take cognizance of the statements/reports submitted by the above said directors an....
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.... was made by the Assessing Officer on account of trading losses made by the directors of the assessee company. The Ld. DR has drawn our attention to para 2.1 of the order passed by the Assessing Officer which reads as under: "2.1. During the course of hearing, it is noticed that the assessee company claimed loss from "F & O" to the tune of Rs. 2,18,87,793/-. The details of the transactions made in F & O have been called for. It is informed by the assessee that it transacted in derivatives through M/s. Zen Money, Hyderabad. In response to this office letter dt:23-08-2017, issued u/s. 133(6) of the I.T. Act, the intermediary "Zen Money" furnished the KYC of the client and the bank accounts details linked to the transaction, besides intimating that there are no transactions done by the company during the financial year 2014-15 relevant to the assessment year 2015-16. It is noticed from the KYC document that the account was opened in the name of the company by linking the PAN No. [AACCN1440]. It is also written in the resolution passed at the meeting of Board of Directors of M/s. Nekkanti Systems Pvt. Ltd., on 11-02-2008, a copy of which was submitted to Zen Money at the time ....
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.... by the appellant. This also seen that they have operated that account on behalf of the appellant not in their own account. The profit or loss by way of purchase/selling of shares, stocks, scripts etc. has not arisen to the directors but to the appellant. The same is evident that appellant admitted the loss or profit derived from the said activity of the Directors in its hands in the immediately preceding year. Since the directors have acted on behalf of the appellant and they have carried out the activity of purchase and sale of shares stock, scripts etc. after duly authorized by the appellant, the said activity of the directors would automatically construed to be the business activity relating to the appellant itself and not that of the directors. In view of the above and I am of the considered view the loss/profit arising from the activity carried on by the said directors required to be assessed in the hands of the appellant only. Therefore, the AO is not justified in treating the loss of Rs. 2,18,87,893/- which has arisen by the activities carried out by the said directors on behalf of the appellant in the hands of the said directors. Therefore, the AO is directed to allow the ....
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.... A.Y. 2014-15 has not applied his mind and has allowed the deduction for an amount of Rs. 1,73,99,050/-. We are in agreement with the contention of the Ld. DR that the director and the company are separate and distinct persons/assessees, and the income/loss of different assessee are required to be assessed separately. Part D of Chapter IV of the Income Tax Act deals with the profits and gains of profession. As per the Act, the assessee is only entitled to deduction as per Part D of Chapter IV which inter alia provides that if a loss is caused to the assessee on account of business carried out by the assessee, then the said loss is allowable. In our view, any loss which is intrinsically connected with the business of the assessee is an allowable deduction. 33. In the present case, it is clear from the facts on record that the activities of share trading were carried out by the directors in their individual capacity from their unique client codes. Therefore, in our view, the losses/income, if any, caused on account of such activities carried out by the directors from their own unique client codes cannot be allowed in the hands of the assessee. Further, an interesting aspect is als....