Principal Commissioner Of Incometax-1, Kolkata v. Sheth Commercial Co

ITAT/112/2021IA No.GA/2/2021 IN THE HIGH COURT AT CALCUTTASpecial Jurisdiction (Income Tax)ORIGINAL SIDE PRINCIPAL COMMISSIONER OF INCOMETAX-1, KOLKATA -Versus- SHETH COMMERCIAL CO. Appearance:Mr. Vipul Kundalia, Adv.Mr. Anurag Roy, Adv....for the appellant.Mr. Pratyush Jhunjhunwala, Adv....for the respondent. BEFORE: The Hon’ble JUSTICE T.S. SIVAGNANAM -And- The Hon’ble JUSTICE HIRANMAY BHATTACHARYYA Date : 8[th] August, 2022. The Court : This appeal filed by the revenue under Section260A of the Income Tax Act, is directed against the order dated12[th] June, 2020 passed by the Income Tax Appellate Tribunal, “A”Bench, Kolkata (the Tribunal) in ITA No.1100/Kol/2019 for theassessment year 2014-15.260A of the Income Tax Act, is directed against the order dated12[th] June, 2020 passed by the Income Tax Appellate Tribunal, “A”Bench, Kolkata (the Tribunal) in ITA No.1100/Kol/2019 for theassessment year 2014-15. The revenue has raised the following substantialquestions of law for consideration: “ i)Whether on the facts and circumstances of the case andin law the Income Tax Appellate Tribunal erred in notappreciating the fact that Pr. Commissioner of IncomeTax in this order under section 263 clearly mentionedthat the Assessing Officer made no enquiries on theissues mentioned in the order?in law the Income Tax Appellate Tribunal erred in notappreciating the fact that Pr. Commissioner of IncomeTax in this order under section 263 clearly mentionedthat the Assessing Officer made no enquiries on theissues mentioned in the order? ii)Whether on the facts and circumstances of the case andin law the Income Tax Appellate Tribunal erred in notappreciating that the assessment records also points outto the fact that the Assessing Officer had made noinvestigation on the fact of loss on dealing commoditiesof Rs.41,25,364/- claimed by the assessee as businessexpenses?in law the Income Tax Appellate Tribunal erred in notappreciating that the assessment records also points outto the fact that the Assessing Officer had made noinvestigation on the fact of loss on dealing commoditiesof Rs.41,25,364/- claimed by the assessee as businessexpenses? iii)Whether on the facts and circumstances of the case andin law the Income Tax Appellate Tribunal erred in notappreciating that the order under section 143(3) of theact dated 02.11.2016 passed by the Assessing Officer waserroneous and prejudicial to the interest of therevenue?in law the Income Tax Appellate Tribunal erred in notappreciating that the order under section 143(3) of theact dated 02.11.2016 passed by the Assessing Officer waserroneous and prejudicial to the interest of therevenue? We have heard Mr. Vipul Kundalia, learned standing counsel assisted by Mr. Anurag Roy, learned Advocate for theassessee and Mr. Pratyush Jhunjhunwala, learned Advocate for therespondent/assessee. The short question which falls for consideration in theinstant appeal is whether the Principal Commissioner of IncomeTax-14, Kolkata (PCIT) was justified in invoking his power under Section 263 of the Act and holding that the assessment order dated2[nd] November, 2016 under Section 143(3) of the Act was erroneousand prejudicial to the interest of revenue. We have heard Mr. Vipul Kundalia, learned standing counsel assisted by Mr. Anurag Roy, learned Advocate for theassessee and Mr. Pratyush Jhunjhunwala, learned Advocate for therespondent/assessee. The short question which falls for consideration in theinstant appeal is whether the Principal Commissioner of IncomeTax-14, Kolkata (PCIT) was justified in invoking his power under Section 263 of the Act and holding that the assessment order dated2[nd] November, 2016 under Section 143(3) of the Act was erroneousand prejudicial to the interest of revenue. Before we examine the factual position, we have toconsider as to whether proper procedure had been adopted by thePCIT before passing the order under Section 263 of the Act and asto whether the order is based upon the material facts which formedthe basis of the show cause notice issued under Section 263 of theAct. The allegation in the show cause notice is that the assesseehad claimed losses on account of commodities to the tune ofRs.41,25,364/- and upon perusal of the assessment records and fromthe contract notes of M/s. Godavari Exim Pvt. Ltd. that the saidloss has occurred on account of currency. Thus, in the opinion ofthe PCIT, the transaction in question involved settlementotherwise than the actual delivery or transfer of any commodity.In this regard, the provisions of Section 43(3) were referred toand the assessee was informed that their case was not covered byany of the exceptions specified in the proviso to sub-Section (5)of Section 43 and, therefore, proposed that the loss claimed bythe assessee was to be considered as a speculation loss and wasnot to be allowed.The assessee submitted their reply to the show causenotice firstly pointing out that M/s. Godavari Exim Pvt. Ltd. wasa member of MCA Stock Exchange Ltd. In this regard the assessee referred to notification no.46 of 2009 dated 22[nd] May, 2009 whichrecognised MCX Stock Exchange Ltd. as an Exchange under clause(ii) of Explanation-2 toclause (d) of the proviso to sub-Section(5) of Section 43 of the Act read with Rule 6DDB of the Income TaxRules, 1962. The assessee also referred to various decisions ofthe tribunal to Explanation as to what are the derivatives. Inthis regard reference was also made to the decision in the case ofRajshree Sugar & Chemicals Ltd. Vs. Axis Bank Ltd., reported inAIR 2011 (Mad) 144 and submitted that as per notificationno.46/2009 dated 22[nd] May, 2005 as well as the decisions which wererelied upon, the transaction is not to be treated as a speculativetransaction and that the assessing officer did not commit anyerror while completing the scrutiny assessment. On receipt of thereply, the PCIT has perused the contract note of M/s. GodavariExim Pvt. Ltd. and also the notification and there is no adversecomment on the validity of the notification by which the assesseeseeks to bring the transaction within the ambit of clause (d) ofSection 43(5) of the Act. However, the PCIT states that noservice tax number is stated and the space is left blank.Thereafter, the PCIT proceeds to refer to a report of theInspector of Income Tax and comes to the prima facie opinion thatthe transaction of the assessee with the M/s. Godavari Exim Pvt.Ltd. was not genuine. Thereafter, the PCIT has downloaded certainmaterial from Google and referred to the names of certain directors and concluded that the assessing officer failed to makeany enquiries or verification and, therefore, held that theassessment order is erroneous and prejudicial to the interest ofthe revenue.Aggrieved by such order, the assessee preferred appealbefore the tribunal which was allowed. Firstly, we note that theallegation in the show cause notice is confined to whether thetransaction should be treated as a speculation loss or not.Admittedly, documents were placed by the assessee stating thatM/s. Godavari Exim Pvt. Ltd. was registered with MCX StockExchange Ltd. which is a notified stock exchange. This positioncould not be disputed by the PCIT and, therefore, proceeded on adifferent angle which were not the materials based on which showcause notice was issued. Thus, a fundamental error has beencommitted by the PCIT by proceeding based upon certain allegedfacts which were never brought on record at the time of issuanceof the show cause notice. When the matter was carried on appealto the tribunal, the tribunal examined the documents and foundthat the transaction done by the assessee was an eligibletransaction in respect of trading in derivatives and that M/s.Godavari Exim Pvt. Ltd. was registered with MCX Stock Exchangewhich was a notified stock exchange. Since PCIT had travelledbeyond what was the allegation in the show cause notice, thetribunal had to clarify the factual position. Therefore, a query has been raised to the learned Advocate who appeared for theassessee before the tribunal and it was submitted that afterpassing order under Section 263 of the Act, the learned Advocatehad made enquiries in the stock exchange and found that the saidM/s. Godavari Exim Pvt. Ltd. had surrendered its membership of MCXStock Exchange and after surrendering the same it was engaged intransport business. Learned Advocate appearing for therespondent/assessee has produced before us a copy of the circulardated 8[th] September, 2016 which is a public notification ofresignation of membership and the name of the said M/s. GodavariExim Pvt. Ltd. finds place where they have sought to surrendertheir membership. Last of the transaction done by the saidcompany was on 30[th] March, 2016. After issuing the notificationand giving sufficient time for any objection to be received, andin the absence of any objection by circular dated 11[th] January,2017, the resignation/surrender of membership in the currencyderivatives of M/s. Godavari Exim Pvt. Ltd. was accepted and SEBIhas also cancelled the certificate of registration for the memberand they have ceased to be a member of MCX Stock Exchange. Thesedocuments which were noted by the tribunal would also enure infavour of the respondent/assessee. Thus, in the light of the above factual background, wefind that no question of law much less substantial questions oflaw arise for consideration in this appeal. Accordingly, the appeal (ITAT/112/2021) fails and isdismissed. Consequently, the connected application for stay (IANo.GA/2/2021) also stands closed. (T.S. SIVAGNANAM, J.) (HIRANMAY BHATTACHARYYA, J.) S.Das/As.