The appellant-assessee has filed an appeal against the order of the learned Commissioner (Appeals)-II, Kanpur, dated 20-6-2001. On behalf of the appellant-assessee, Shri Rakesh Garg, advocate attended whereas on behalf of the respondent-revenue, Shri S.Z. Ahmed, learned Senior Departmental Representative attended and they made their respective submissions.
In brief, the relevant facts, as per the order of the assessing officer and the learned Commissioner (Appeals), are that the appellant-assessee filed a return of income of Rs. 1,03,560 on 29-11-1996. There being defects in the return of income, a notice under section 139(9) dated 20-2-1996 was issued and served on 2-3-1996. The assessee was required to rectify the defects within a period of 15 days which were not rectified, therefore, the assessing officer treated the return filed on 29-11-1995 as invalid and deemed to have never been filed. Thereafter, a notice under section 148 dated 22-3-1999 was issued and served on 30-3-1999. The appellant-assessee filed a return of income of Rs. 1,06,560 on 16-4-1999 in compliance to the said notice. The assessee had incurred a loss of Rs. 1,30,666 on share dealings in respect of 3700 shares of M/s. Seva Mercantile Ltd. and the appellant-assessee was required to furnish certain details as mentioned in the assessment order which 'were not furnished. The assessing officer found from the contract notes that the appellant-assessee purchased the shares of M/s.
Seva Mercantile Ltd. through M/s. N. Gupta & Associates on 5-10-1994 and sold the shares through them on 3-11-1995. Tlie assessing officer found that M/s. N. Gupta & Associates are the members of Sikkim Stock Exchange which is unrecognised and the shares of M/s. Seva Mercantile Ltd. are not often traded in stock exchanges in India and in support of the rates of purchase and sale, the assessee furnished a copy of Amar Ujala Newspaper of Agra which gives the rates of U.P. Stock Exchange Ltd., Kanpur though the shares were transacted through brokers based in Delhi and members of the Sikkim Stock Exchange and. in view of this, the assessing officer did not consider the transactions as normal and in view of failure on the part of the appellant-assessee to furnish vital informations regarding the acquisition and sale of shares, particularly when the assessee suffered loss, the assessing officer treated the said dealing in shares as an attempt to reduce the income earned by the appellant- assessee, therefore, the loss shown by the appellant-assessee was treated as bogus and held that no such loss had been incurred. Accordingly, the assessing officer made an addition of Rs. 1,30,666. On appeal, the learned Commissioner (Appeals) went a step further and found that the payment of shares was made much after the sale of shares as mentioned in para 6 of the appellate order and from this, the learned Commissioner (Appeals) treated that the contract notes are managed and obtained and not issued in the regular course of business, because no broker gives physical delivery of shares unless he has received the payment and in the case of appellant- assessee, even the learned Commissioner (Appeals) doubted as to whether the broker through whom the transactions were effected exists or not and the assessee also failed to specify as to when the delivery of shares was taken. In respect of expenses as per para 8 of the appellate order also, the learned Commissioner (Appeals) held that no expenditure has been incurred by the appellant-assessee for getting the shares transferred in its name and in view of the shares transferred in its name, the learned Commissioner (Appeals) held that the appellant-assessee has not taken delivery of shares, therefore, no question of transferring the shares in its name arose. Therefore, the transactions were clearly covered under section 43(5) of the Income Tax Act and the learned Commissioner (Appeals) treated the loss suffered by the appellant- assessee in the transactions of share as speculation loss which cannot be set-off against other income and as a result, the appeal of the appellant-assessee was dismissed, against which the appellant-assessee is in present appeal on the grounds that the learned Commissioner (Appeals) should have cancelled the assessment in view of the contents in grounds 1, 2 and 3 that the proceedings under section 148 were neither valid nor validly concluded. Without prejudice to the aforesaid grounds, the ground has been taken that the loss of Rs. 1,30,666 has since been incurred in share dealings, is liable to be set off against other income and that the appellant's contentions about the genuineness of loss as also admissibility of its claim for set-off against other income should not (sic) have been accepted, as the contentions remained unrebutted. The ground is also taken that the loss in question was genuine, therefore, the learned Commissioner (Appeals) should not have held the transaction as bogus and of speculative nature and denial of set off of such loss against other income is illegal and unjustified.
Regarding the same, Shri Rakesh Garg, learned counsel for the assessee, submitted that the ground of validity of proceedings under section 148 was specifically taken and the issue was disputed as per grounds 1, 2 and 3 and this aspect of the matter has conveniently been ignored by the learned Commissioner (Appeals), as there is no mention of the same in the appellate order. Shri Garg further submitted that the return of income filed under section 139(1) being correct and complete, notice under section 148 was not validly issued as the proceedings were already pending before the assessing officer on the basis of return pending before the assessing officer. Similarly, there being no income escaping assessment, proceedings under section 148 could not have been initiated, therefore, the order passed on 29-11-2000, is beyond time and without jurisdiction. Shri Garg also submitted that though the return of income was filed on 29-11-1995, enclosing therewith two TDS certificates finding place on inner pp. 4 and 5 and proof of payment under section 140A appearing on inner p. 3 and the notice under section 148 was served on 30-3-1999, a notice dated 31-7-2000, under section 143(2) is beyond limitation period, therefore, the whole exercise of assessment is of no consequence. In support of his contention, Shri Garg referred to copy of notice issued under section 148 dated 22-3-1999, on p. 21, notice dated 31-7-2000, under section 143(2) on p.
23 and the reply of the assessee dated 24-8-2000 on p. 24 and further notice under section 143(2) dated 8-9-2000 on p. 25 of the paper book and accordingly. Shri Garg referred to letter dated 30-10-2000 appearing on p. 27 of the paper book, submitted that TDS certificates for Rs. 16,508 issued by the company, SISL and deposit of tax at Rs. 16,024 under section 140A were submitted along with the letter dated 6-12-1995, which goes to show that the said defects, which were pointed out by the assessing officer stood rectified well before the issue of notice under section 139(9), dated 20-2-1996 served on 2-3-1996.
Therefore, question of non-compliance of the said notice does not arise and there being a valid return and without disposal of the same, notice under section 148 could not be issued, as there was no escapement of income sought to be assessed under section 148. Reference was also made to the letter dated 24-8-2000 addressed to the assessing officer as appearing on p. 24 of the paper book. Shri Garg further submitted that even after filing of return in response to so called notice under section 148 under protest as the return was filed on 16-4-1999, as per acknowledgement appearing on p. 22 of the paper book, notice dated 31-7-2000, issued under section 143(2) of the Income Tax Act as appearing on p. 23 of the paper book is beyond time, i.e., beyond one year, therefore, assessment framed is barred by limitation and is liable to be quashed as such. On merits also Shri Garg submitted that the transactions of purchase and sale of 3,700 shares of M/s. Seva Mercantile Ltd. were through M/s. N. Gupta & Associates and the transaction and is on actual delivery and payments, the details of which were duly furnished and even the copies of accounts of the broker for the financial years 1994-95 and 1995-96, copies of transfer of bank vouchers and copies of assessee's bank statement showing the debits (including bank charges) in assessee's account with them were duly filed before the learned Commissioner (Appeals) and after receipt of the appellate order, a petition under section 154 also highlighted that grounds 1, 2 and 3 regarding the validity of proceedings under section 148 in view of assessee's return of income under section 139(1) and that the proceedings under section 139(9) were not required, as the assessee has rectified the defects before issue of notice under section 139(9), therefore, the order of the assessing officer was not legally maintainable.
On the other hand, Shri S.Z. Ahmed, learned Senior Departmental Representative supported the order of the lower authorities and submitted that loss suffered by the appellant-assessee at Rs. 1,30,666 in share dealing is not liable to be set-off against other income and the learned Commissioner (Appeals) has discussed in detail leading to valid conclusion that the appellant-assessee has not taken the delivery of shares. Therefore, no question of transferring of shares arose and the transaction of the appellant -assessee is clearly covered in view of the provisions under section 43(5) of the Income Tax Act. Therefore, the learned Commissioner (Appeals) is justified in holding that it was a case of speculation loss and that kind of loss cannot be set-off against other income. So far as the legal grounds are concerned, there is no discussion in the order of the learned Commissioner (Appeals), therefore, it does not arise from the order of the learned Commissioner (Appeals).
We have carefully considered the rival submissions. From the photocopy of paper book filed before us, it is evident that the appellant-assessee filed return of income along with details of TDS certificates,' copy of auditors' report and copy of letter dated 6-12-1995 addressed to the Assistant Commissioner, Circle 2(2) and received in his office on 7-12-1995, there is no mention of filing of return of income for assessment year 1995-96 on 30-9-1995 and for filing of self-assessment tax, challan for Rs. 16,024 deposited with the RBI, Kanpur, on 27-11-1996 and one TDS certificate for Rs. 16,508 which was not available at the time of filing of return has been attached along with the letter and in view of the same, the return of income filed earlier, no action with reference to letter under section 139(9) was required. It appears that the enclosures filed along with the letter dated 6-12-1995 as appearing on p. 18 of the paper book could not be linked and moreover the assessing officer issued notice under section 139(9) dated 20-2-1996 and served on 2-3-1996. As to why the assessing officer was required to issue a notice under section 148 dated 22-3-1999, i.e., after a gap of three years without further enquiry from the assessee that as to why there was no compliance of notice under section 139(9) dated 20-2-1996 and there being proof that the assessee had filed the challan for self-assessment tax for Rs. 16,024 with reference to return of income for assessment year 1995-96 earlier filed on 29-11-1995 stating the receipt No. 00525 dated 29-11-1995 and also TDS certificate for Rs. 16,508, specially when letter dated 6-12-1995 had been received by the Assistant Commissioner, Circle 2(2) as per stamped receipt dated 7-12-1995. Therefore, the whole exercise of issue of notice under section 148 appears to be uncalled for. There being specific ground before the learned Commissioner (Appeals) challenging the proceedings under section 148 and there being a correct and complete return under section 139(1), the same could not have been subjected to any proceedings under section 139(9). Therefore, the assessment order passed on 29-11-2000 is beyond time and without jurisdiction and these grounds being grounds 1, 2 and 3 on the issue had not at all been dealt with by the learned Commissioner (Appeals) and has conveniently been ignored. Therefore, on this issue alone, the order of the learned Commissioner (Appeals) cannot be maintained. Even the issue of notice under section 143(2) is beyond limitation, i.e., not within one year of filing of return in response to notice under section 148 though filed in protest, assessment cannot be said to be validly made being time barred. Under the circumstances, the assessment order being void ab initio, therefore, question of confirmation thereof does not arise and is liable to be quashed. Therefore, the order of the learned Commissioner (Appeals) which arises from such an order cannot be maintained.