While upholding the revisional order, the Income Tax Appellate Tribunal (ITAT) Hyderabad bench has held that the set off of loss incurred in share trading by the directors with the income of the company is not valid
The appeals filed by the assessee and revenue against the orders of Principal Commissioner of Income Tax, Hyderabad dt.29.03.2019 u/s 263 of the Income Tax Act, 1961.
The assessee, Nekkanti Systems Private Limited filed its e-return declaring taxable income of Rs.22,64,140/-. After examining the material available on record and the information furnished by the assessee, Assessing Officer completed the assessment u/s 143(3) of the Act accepting the income returned.
On verification of all the details furnished, PCIT revised the assessment order u/s 143(3) of the Act on 04.11.2016 for A.Y. 2014-15 as the same was erroneous and prejudicial to the interest of the revenue.
It was clear that none of the questions pertains to the claim of deduction by the assessee for the loss suffered by the directors in their accounts which was not replied to by the assessee. The order of AO failed to enquire.
It was observed that the mere transfer amounts by the company to the accounts of directors cannot ipso facto lead to the conclusion that they were authorized to transact for and on behalf of the assessee company. Once the transactions were undertaken by the company in its capacity, having a separate unique client code, then it was possible that the activity would be carried out through the accounts of the directors and thereby viewed the order passed by PCIT as the law.
The Tribunal observed that the activities of share trading were carried out by the directors in their capacity from their unique client codes and the losses/income, if any, caused on account of such activities carried out by the directors from their unique client codes cannot be allowed in the hands of the assessee company.
Shri Rama Kanta Panda, Accountant Member & Shri Laliet Kumar, Judicial Member observed that the conduct of the company and its directors does not inspire confidence as it is highly improbable to believe that the assessee will continue to transact through its directors, despite persistent losses.
The appeals filed by the assessee are dismissed and the appeal filed by the Revenue was allowed. The assessee was represented by Sri S. Rama Rao and the revenue was represented by Sri Rajendra Kumar.
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