* THE HIGH COURT OF DELHI AT NEW DELHI
Judgment reserved on: 15.10.2008
Judgment delivered on: 23.10.2008
% ITA 1229/2008
COMMISSIONER OF INCOME TAX DELHI-X ..... Revenue
NEW DELHI
versus
BHARTESH JAIN ..... Respondent
Advocates who appeared in this case:
For the Revenue : Mr .J.R.Goel
For the Respondent : Mr.K.R.Manjani
CORAM :-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE RAJIV SHAKDHER
1. Whether the Reporters of local papers may
be allowed to see the judgment ? Yes
2. To be referred to Reporters or not ? Yes
3. Whether the judgment should be reported
in the Digest ? Yes
ITA No. 1229 of 2008 Page 1 of 10
RAJIV SHAKDHER, J
1. The Revenue has preferred the present appeal under Section 260A of the
Income Tax Act, 1961 (hereinafter referred to as “the Act”) against the
judgment dated 22.02.2008 passed by the Income Tax Appellate Tribunal
(hereinafter referred to in short as “Tribunal”) in ITA/762/Del/2006 pertaining
to assessment year 1995-96.
1.1 The only issue which arises for consideration is whether the assessee
should be permitted to set off brought forward losses amounting to
Rs.50,95,247/-, in respect of, sale and purchase of shares, pertaining to
assessment years 1994-95 against income of assessment year 1995-96 assessed
at Rs.33,20,000/- under Section 144 of the Act by the Assessing Officer.
1.2 The Assessing Officer vide assessment order dated 21.3. 2005, passed on
remand, has disallowed the set off on the ground that the income earned by the
assessee in assessment year 1995-96 is income in the nature of business income
arising from sale and purchase of shares, as against, income from speculation.
In appeal the Commissioner of Income Tax (Appeals) (hereinafter referred to as
CIT(A)) has sustained aforesaid order of the Assessing Officer. However, the
Tribunal by the impugned judgment has reversed the orders of the authorities
below.
ITA No. 1229 of 2008 Page 2 of 10
2. In order to dispose of this appeal the following facts require to be noticed:
2.1 On 30.10.1995 the assessee had filed a return declaring his income as
„nil‟. The assessee failed to satisfy the queries raised by the Assessing Officer.
The result was, that the Assessing Officer, completed the assessment under
Section 144 of the Act. Consequently, assessee‟s income was assessed at
Rs33,20,000/-.
2.2. Being aggrieved the assessee filed an appeal with CIT(A). By an order
dated 17.3.1998 the CIT(A) restored the figure of Rs 33,16,184/- being the
income returned by the assessee against assessed income of Rs 33,20,000/-.
However, the CIT(A) treated the said income as business income.
2.3 Aggrieved the assessee preferred an appeal to the Tribunal. By an order
dated 09.6.2003 the Tribunal remanded the matter to the Assessing Officer
after, noting the contradiction in the assessment order whereby, the Assessing
Officer, while refusing to allow adjustment/set off of brought forward losses of
assessment years 1994-95 against income of the assessment year in question
i.e., 1995-96 on the ground that income of assessment year 1995-96 did not
arise from speculation, had in the same breath, in the last paragraph of the
assessment order observed that the facts of assessment year 1995-96 were
similar to 1994-95. The Tribunal even while making the said observations
ITA No. 1229 of 2008 Page 3 of 10
vide its order dated 9.6.2003 issued following directions to the Assessing
Officer:-
“…….The AO added that the assessee had not brought
anything on record to show that his income of assessment year
1995-96 was for speculation. In this connection it is noted from
the submissions made before the ld. CIT(A) that the books of
accounts for the period upto July, 1995 were lying with the
Department and in the absence of the same the assessee could not
furnish the details required by the AO in the course of the
assessment proceedings. The AO also did not examine the books
of account suo moto to find out the exact nature and source of the
income of the assessment year 1995-96. No material from the
books of account were brought on record by the AO to support the
view that the income was not from speculation. It will be wrong to
disallow the assessee‟s claim of adjustment and set off of brought
forward loss merely on presumption without looking into the
books of account which could help verify the matter and come to a
proper and just conclusion in the matter. In the interest of justice
the assessee must be given opportunity to inspect the books of
account and furnish details there-from in support of the claim of
set off of the brought forward loss……..”
2.4. On remand the matter was taken up by the Assessing Officer. Before the
assessing officer, the assessee filed the two letters dated 29.12.2004 and
15.3.2005. The sum and substance of the stand taken in these letters was:-
(i) for assessment years 1992-93 and 1993-94 the Revenue had completed
proceedings under Section 143(3) of the Act and the income for the said
assessment years was assessed as business income;
ITA No. 1229 of 2008 Page 4 of 10
(ii) there was no change in the nature of business in these years;
(iii) the books produced for inspection of the assessee on 29.12.2004 were
incomplete and represented affairs of only part of the period in issue, as also,
the fact that the accompanying vouchers were incomplete and;
(iv) lastly, the assessee claimed that he did not have details with him as it
was an old matter.
2.5 On the other hand the Revenue contended that it had produced all such
books for inspection of the assessee, which were, in their custody. The
Revenue further contended that they had books available only for the period up
to the date of the search i.e., 25.7.1994 and, therefore, they could not be asked
to produce books for the latter part of the accounting year.
3. After recording the course of events and the submissions of the assessee,
the Assessing Officer vide order dated 21.3.2005 disallowed the set off of
brought forward losses. In the said order the Assessing Officer noted the fact,
that, in the assessment year 1994-95, that is, assessment year immediately
preceding the year under consideration, the assessee‟s income had been treated
as income from „speculation‟ and that the said decision of the Revenue had
been sustained right till the Tribunal. The Assessing Officer concluded that
ITA No. 1229 of 2008 Page 5 of 10
since the assessee in his return of income for assessment year 1995-96 had
shown his income as business income, a fact which the assessee had not denied,
the assessee could not be allowed to set off brought forward losses of
assessment year 1994-95 against the income for assessment year 1995-96.
3.1 Once again the assessee, being aggrieved, preferred an appeal to the
CIT(A). The CIT(A) sustained the order of the Assessing Officer after
observing that assessee had failed to substantiate his claim that the income
generated during the year under consideration was speculative in nature even
while steadfastly adhering to his stand that there was “no change in his
activities in the current year when compared to the preceding year.
4. Being aggrieved, the assessee approached the Tribunal by way of an
appeal. The Tribunal in para 5 of the impugned judgment reproduced the
original assessment order dated 26th August, 1997 passed by the Assessing
Officer in the first round. The extract as replicated in the impugned judgment,
being significant, is reproduced hereinbelow:-
“……The assessee has claimed b/f losses of Rs.50,05,047/-
but in the assessment year 1994-95 it was held that the loss
incurred by the assessee is a speculation loss which cannot be
adjusted against current year’s business income and same is to
be c/f for set off against speculation income. The assessee has
not brought anything on record to show that his income during
the year is from speculation. Therefore, b/f speculation loss
ITA No. 1229 of 2008 Page 6 of 10
cannot be set off against current year’s business income as the
assessee has not brought anything on record to show that the
income of the current year is from speculation. The facts are
similar as in the assessment year 1994-95……”
4.1. The Tribunal, similarly, in paragraph 8 of the impugned judgment also
noted the fact that in the earlier round it had by an order dated 09th June, 2003, a
reference to which is made hereinabove, directed the Assessing Officer to
examine the books of accounts of the assessee available with him to determine
the „nature‟ and „source‟ of income of the assessment year in issue i.e., 1995-96
after giving due opportunity to the assessee. The Tribunal noted with concern
that the Assessing Officer despite the directions issued in the earlier round had
not brought on record any material from the record available with him, to
demonstrate that the income of the assessee was not in the nature of income
from speculation. The Tribunal noted that there being no material on record to
suggest that the activity of the assessee, that is, earning income from sale and
purchase of shares was in any way different from the activity carried on by the
assessee in assessment year 1994-95, the Revenue could not take a different
view in respect of a similar activity carried out, in the year under consideration,
till such time it had “solid and positive material”. The Tribunal observed that in
the absence of such material, the contrary stand of the Revenue, was not only
against the principles of equity and justice, but was also contrary to law. The
ITA No. 1229 of 2008 Page 7 of 10
Tribunal in this regard applied the principles enunciated by the Supreme Court
in the case of Radhasoami Satsang v. CIT 193 ITR 321(SC).
5. Having heard the learned counsel for the Revenue as well as the counsel
for the assessee we are of the view that the impugned judgment passed by the
Tribunal has to be sustained for the following reasons:
5.1 In the first round the Tribunal had noted that the Assessing Officer had
while disallowing the set off of brought forward losses with current year‟s
income, i.e., assessment year 1995-96, returned a finding that the facts of the
year under consideration i.e., assessment year 1995-96 were similar to those of
assessment year 1994-95. In view of this patent contradiction, and given the
fact, that the Assessing Officer had failed to examine the books of accounts
which were in his custody, so as to ascertain the nature and source of the
income of the assessee —- the Tribunal remanded the matter to the Assessing
Officer. Instead of repairing the damage, the Assessing Officer in the second
round, continued in the same vein; he once again failed to examine the books of
accounts even though so directed by remand order. The Assessing Officer
merrily went by what was stated by the assessee in his return of income. The
assessee‟s contention was obviously ignored which, in sum and substance was,
that the activity which was carried on in the assessment year 1995-96 was no
ITA No. 1229 of 2008 Page 8 of 10
different from that, which was, carried on in assessment year 1994-95. On this
aspect of the matter the Tribunal has, in the impugned judgment, made a careful
note of the contentions of the assessee which were broadly as follows:-there
was no change in facts and circumstances in the year under consideration, i.e.,
assessment year 1995-96, when compared to assessment year 1994-95
inasmuch as in assessment year 1994-95 the assessee‟s income had been treated
as speculative in nature in view on his failure to establish he had taken and
given physical delivery of shares traded by him. Consequently, the Revenue
could not treat the nature of income for assessment year 1995-96 differently till
it was in a position to bring on record material to the contrary. To put it
differently the assessee could not be called upon to prove the negative.
5.2 Thus, the Tribunal, keeping in mind the said submissions of the assessee,
as also, the observations of the Assessing Officer in the original order of
assessment dated 26.8.1997, wherein he had said that the facts of assessment
year 1994-95 were similar to the year under consideration i.e., 1995-96, and
given the fact that no endeavour, whatsoever, had been made by the Assessing
Officer to bring on record material to establish that the income of the assessee
was not speculative in nature despite a specific direction issued in the first
round by the Tribunal — concluded that it had no option but to hold the
Revenue to its stand which it had taken for the preceding assessment year, i.e.,
ITA No. 1229 of 2008 Page 9 of 10
assessment year 1994-95 to the effect that the activity of the assessee of sale
and purchase of shares was speculative in nature —- even in respect of
assessment year 1995-96.
5.3. We do not find any error in the approach adopted by the Tribunal. The
Tribunal has returned a finding of fact based on appreciation of material before
it. In these proceedings we cannot substitute our view with that of the
Tribunal. No question of law, much less, a substantial question of law arises
for our consideration. In the result, the appeal is dismissed.
RAJIV SHAKDHER, J
BADAR DURREZ AHMED, J
October 23, 2008
da
ITA No. 1229 of 2008 Page 10 of 10