DCIT, Circle - 6, Kolkata, Kolkata V. Gulshan Investment Co. Ltd., Kolkata

ITA 1012/KOL/2010

• Counselvise Citation: 101223514 RSA 2010
• Duration Of Justice: 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 14-03-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 14-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S P CHOWDHURY
• Assessee Lawyers: GIRISH SHARMA
• Keywords: Business income; Speculation loss

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : KOLKATA () BEFORE . . , , !' /AND .#$.!, %& [BEFORE HONBLE SRI B. R. MITTAL, JM & HONBLE SRI C. D. RAO , AM] '' '' '' '' / ITA NO. 1012 /KOL/2010 () !*+ () !*+ () !*+ () !*+/ // / ASSESSMENT YEAR : 2006-07 DEPUTY COMMISSIONER OF INCOME-TAX, -VS- GULSHAN IN VESTMENT CO. LTD. CIRCLE-6, KOLKATA. (PA NO.AACCG 0597 R) (-. / APPELLANT ) (/0-./ RESPONDENT ) FOR THE APPELLANT: 1 /SHRI S. P. CHOWDHURY FOR THE RESPONDENT : 1/ SHRI GIRISH SHARMA %2 / ORDER PER SHRI C. D. RAO, AM/ . .. .#$ #$#$ #$. .. .! !! !, , , , %& %& %& %& THE APPEAL PREFERRED BY THE REVENUE IS DIRECTED AGA INST THE ORDER OF THE LD. CIT(A), KOLKATA DATED 19.02.2010 FOR ASSESSMENT YEA R 2006-07 ON THE FOLLOWING GROUNDS: 1.THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE LD. CIT(A)-VI, HAS ERRED IN LAW IN TREATING THE SHARE TRADING PROFIT OF RS.18,83,9 94/- AS SPECULATIVE PROFIT AS PER EXPLANATION BELOW SEC. 73. 2. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE LD. CIT(A)-VI, HAS ERRED IN LAW IN CONSIDERING THAT SEC.73 AND EXPLANATION THERETO APPLY TO PROFIT FROM SHARE TRADING ALSO AND NOT ONLY TO LOSS. 2. BRIEFLY STATED FACTS OF THE CASE AS OBSERVED BY THE ASSESSING OFFICER ARE THAT THE ASSESSEE IS A LIMITED COMPANY DERIVING INCOME PRIMA RILY FROM BUSINESS OF SHARE TRADING AND SPECULATION IN SHARES INCLUDING DERIVATIVE TRAN SACTIONS. IT HAS ALSO EARNED INTEREST INCOME, INCOME FROM MUTUAL FUNDS AND DIVIDEND DURIN G THE YEAR. THE SOLE ISSUE IN THIS CASE IS THAT WHETHER THE PROFITS AND GAINS DERIVED BY THE ASSESEE IN THE BUSINESS OF PURCHASE AND SALE OF SHARES CONSTITUTED PROFITS AND GAINS OF SPECULATION BUSINESS WITHIN THE MEANING OF SEC. 73 READ WITH EXPLANATION THERET O. IN THIS CASE THE ASSESSING OFFICER STATED THAT EXPLANATION TO SEC.73 WAS NOT APPLICABL E BECAUSE THE DEPLOYMENT OF FUNDS IN GRANTING OF LOANS AS ON 31 ST MARCH, 2006 WAS SUBSTANTIALLY MORE COMPARED WITH 2 DEPLOYMENT OF FUNDS IN STOCK IN TRADE OF SHARE TRAD ING BUSINESS. THE ASSESSING OFFICER IN THE ASSESSMENT ORDER RECORDED AS UNDER: THE ADDITIONAL CIT, RANGE-6, ISSUED HIS DIRECTION ON 27/10/08, WHERE HE OBSERVED THAT AS PER BALANCE SHEET OF THE ASSESSEE THE TOTAL AVAI LABLE FUND INCLUDING SECURED LOAN WAS RS.2291.53 LACS. OUT OF THIS FUND, THE ASSESSEE HA D INVESTED IN STOCK IN TRADE (SECURITIES) A SUM OF RS.697.6 LACS AND ADVANCED LO ANS FOR RS.1993.62 LACS. THE ASSESSEE EARNED INTEREST INCOME OF RS.121.07 LACS. AS SUCH, EXPLANATION BELOW SEC. 73 IS NOT ATTRACTED FOR THE PRESENT YEAR AND INCOME FR OM DELIVERY BASED SHARE TRADING IS TO BE TREATED AS NORMAL BUSINESS INCOME AND NOT AS A D EEMED SPECULATIVE ACTIVITY. UNDER THE ABOVE DIRECTION, BENEFIT AND ADJUSTMENT OF BROU GHT FORWARD LOSS U/S. 73 IS DENIED. IN APPEAL, THE LD. CIT(A) HELD THAT ASSESSEES BUSI NESS OF PURCHASE AND SALE OF SHARES IS TO BE TREATED AS SPECULATION BUSINESS AND DIRECTE D THE ASSESSING OFFICER TO SET OFF THE PROFIT DERIVED FROM BUSINESS OF PURCHASE AND SALE O F SHARES AGAINST THE SPECULATION LOSSES AS PER LAW. AGGRIEVED, THE REVENUE IS IN AP PEAL BEFORE US. 3. AT THE TIME OF HEARING BEFORE US, THE LD. DR PLA CED HEAVY RELIANCE ON THE ORDER OF ASSESSING OFFICER AND SUBMITTED THAT CIT(A) WAS NOT RIGHT IN HOLDING THAT THE PROFITS EARNED BY THE ASSESSEE FROM THE BUSINESS OF PURCHAS E AND SALES OF SHARES IS IN THE NATURE OF SPECULATION PROFIT U/S. 73 OF THE ACT. HE ALSO CONTENDED THAT THE ASSESSING OFFICER HAS RIGHTLY HELD THAT EXPLANATION TO SEC.73 IS NOT APPLICABLE IN THIS CASE BECAUSE THE DEPLOYMENT OF FUNDS IN GRANTING OF LOANS AS ON 31 ST MARCH, 2006 WAS SUBSTANTIALLY MORE COMPARED WITH DEPLOYMENT OF FUNDS IN STOCK IN TRADE OF SHARE TRADING BUSINESS. THEREFORE, THE ACTION OF THE LD. CIT(A) WAS NOT JUS TIFIED IN TREATING THE SHARE TRADING PROFIT OF RS.18,83,994/- AS SPECULATIVE PROFIT AS P ER EXPLANATION BELOW SEC. 73 OF THE ACT. HE LASTLY PRAYED BEFORE THE BENCH TO SET ASID E THE ORDER OF THE LD. CIT(A) AND RESTORE THAT OF ASSESSING OFFICER. 4. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE WHILE RELYING ON THE ORDER OF THE LD. CIT(A) REITERATED HIS SAME SUBMISSIONS AS S UBMITTED BEFORE THE LOWER AUTHORITIES AND FURTHER SUBMITTED BEFORE THE BENCH THAT THE ACTION OF THE LD. CIT(A) MAY BE UPHELD. 5. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED HE M ATERIAL AVAILABLE BEFORE US. WE FIND THAT THE ASSESSING OFFICER OBSERVED THAT EX PLANATION TO SEC.73 IS NOT APPLICABLE 3 IN THIS CASE BECAUSE THE DEPLOYMENT OF FUNDS IN GRA NTING OF LOANS AS ON 31 ST MARCH, 2006 WAS SUBSTANTIALLY MORE COMPARED WITH DEPLOYMENT OF FUNDS IN STOCK IN TRADE OF SHARE TRADING BUSINESS OF THE ASSESSEE. IN APPEAL, THE L D. CIT(A) WHILE GIVING RELIEF TO THE ASSESSEE HAS HELD AS UNDER: I HAVE GONE THROUGH THE SUBMISSIONS OF THE APPELLA NT AND ALSO THE ORDER OF THE A.O. THE ONLY MATERIAL ISSUE TO BE DECIDED IN THE PRESENT AP PEAL IS WHETHER THE ASSESSEE WAS ENTITLED TO SET OFF OF PROFIT, IN THE BUSINESS OF PURCHASE A ND SALE OF SHARES AGAINST THE LOSSES INCURRED IN DERIVATIVE TRANSACTIONS AND SPECULATIVE TRANSACTIONS IN SHARES. THE A.O IN HIS ORDER RECORDED AS FOLLOWS: THE ADDITIONAL C1T, RANGE-6, ISSUED HIS DIRECTION ON 27/10/08, WHERE HE OBSERVED THAT AS PER BALANCE SHEET OF THE ASSESSEE THE TOTAL AVAILABLE FUND INCLUDING SECURED LOAN WAS RS.2291.53 LACS. OUT OF THIS FUND, THE ASSESSEE HAD INVESTED IN STOCK IN TRADE (SECURITIES) A SUM OF RS . 697.6 LACS AND ADVANCED LOANS FOR RS. 1993.62 LACS. THE ASSESSEE EARNED INTEREST INCOME OF RS. 121.07 LACS. AS SUCH, EXPLANATION BELOW SEC 73 IS NOT ATTRACTED FOR THE PRESENT YEAR AND INCOME FROM DELIVERY BASED SHARE TRADING IS TO BE TREATED AS NORMAL BUSINESS INCOME AND NOT AS A DEEMED SPECULATIVE ACTIVITY. UNDER THE ABO VE DIRECTION, BENEFIT AND ADJUSTMENT OF BROUGHT FORWARD LOSS U/S 73 IS DENIED . THE ADDITIONAL C.I.T HAS NOT GIVEN CLEAR REASON TO INDICATE THAT THE COMPANY FALLS IN WHICH EXCEPTION PROVIDED IN THE EXPLANATION TO THE PROVIS IONS OF SEC.73. THE EXPLANATION TO SEC 73 COMES OUT WITH 2 EXCEPTIONS THERETO. AS PER THES E EXCEPTIONS, THE EXPLANATION TO SEC.73 IS NOT APPLICABLE TO FOLLOWING CATEGORIES OF COMPAN IES; A) A COMPANY WHOSE GROSS TOTAL INCOME MANLY CONSI STS OF INCOME FROM HOUSE PROPERTY, CAPITAL GAINS AND OTHER SOURCES, OR B) A COMPANY WHOSE PRINCIPAL BUSINESS IS BANKING OR GRANTING OF LOANS & ADVANCES. IN THE ORDER THE A.O ASSESSED ENTIRE INCOME FOR THE A.Y 2006-07 UNDER THE HEAD PROFITS AND GAINS OF BUSINESS. THE A.O HAS ASSESSED INTERE ST INCOME OF RS.1,21,07,566/- CATEGORICALLY AS BUSINESS INCOME ALONG WITH INCOME FROM SHARE TRADING. THE FIRST EXCEPTION ENVISAGED IN THE EXPLANATION BASED ON INC OME COMPOSITION CRITERIA, IS NOT APPLICABLE TO THE APPELLANTS CASE. THE HONBLE SPECIAL BENCH OF ITAT, KOLKATA IN THE C ASE OF DCIT VS VENKATESWARA INVESTMENTS &. FINANCE LTD. [93 LTD 177] OBSERVED THE MEMORANDUM AND THE ARTICLES OF ASSOCIATION OF THE COMPANY, PAST HISTORY OF THE ASSESSEE, CURRENT AND PAST YEARS DEPLOYMENT OF THE CAPITAL OF THE ASSESSEE, BREAK UP OF THE INCOME EARNED DURING THE RELEVANT AND PAST YEARS AND THE NATURE OF ACTIVITIES OF THE ASSESSEE WILL ALL H ELP IN DETERMINING THE PRINCIPAL BUSINESS OF THE ASSESSEE. IF IN ANY PARTICULAR YEAR , THE ASSESSEE HAS NOMINAL BUSINESS INCOME AND HAS SUBSTANTIAL INTEREST INCOME , IT DOES NOT IMPLY THAT THE ASSESSEES PRINCIPAL BUSINESS IS OF FINANCE OR GRAN TING OF LOANS AND ADVANCES. 4 SIMILARLY THE ASSESSEE, THE PRINCIPAL BUSINESS OF W HICH IS THE GRANTING OF LOANS AND ADVANCES MAY EARN A COMPARATIVELY HIGH INCOME F ROM OTHER ACTIVITIES IN ANY PARTICULAR YEAR AND STILL THE PRINCIPAL BUSINES S OF THE ASSESSEE MAY REMAIN GRANTING OF LOANS AND ADVANCES. ON EXAMINATION OF THE COMPARATIVE STATEMENT OF FUND DEPLOYMENT FROM 31ST MARCH 2002 TO 3L MARCH 2008 SHOWS THAT BARRING 31ST MARCH 2006, IN ALL THE YEARS FUNDS DEPLOYED IN STOCK IN TRADE WERE SUBST ANTIALLY MORE THAN DEPLOYMENT OF FUNDS IN BUSINESS OF GRANTING LOANS. FURTHER IN THE ABOVE- MENTIONED YEAR, THE ABSOLUTE NUMERIC AMOUNT OF INCO ME FROM SHARE TRADING WAS MUCH MORE THAN INTEREST INCOME ON LOANS. THE A.O SE EMS TO HAVE NOT VERIFIED INTO THE FACTS OF DEPLOYMENT OF FUNDS OF EARLIER YE ARS AND SUCCEEDING YEARS RELEVANT TO THIS ASSESSMENT YEAR. THE ABOVE DISCUSSION IN MY OPINION ESTABLISHES THAT BOTH THE EXCEPTIONS CONTAINED IN EXPLANATION UNDER SEC. 73 ARE NOT APPL ICABLE TO THE APPELLANTS CASE. FACTS ON RECORD SHOW THAT THE APPELLANTS CAS E WAS NOT COVERED BY EITHER OF THE EXCEPTIONS CONTAINED IN THE EXPLANATION ITSE LF AS A CONSEQUENCE, APPELLANTS BUSINESS OF PURCHASE AND SALE OF SHARES IS TO BE TREATED AS SPECULATION BUSINESS. THE AO IS DIRECTED TO SET O FF THE PROFIT DERIVED FROM BUSINESS OF PURCHASE & SALE OF SHARES AGAINST THE S PECULATION LOSSES AS PER LAW. THIS GROUND OF APPEAL IS ALLOWED. IN THIS VIEW OF THE MATTER AND IN THE ABSENCE OF AN Y CONTRARY MATERIAL BROUGHT ON RECORD BY THE REVENUE AT THE TIME OF HEARING BEFORE US, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND THE SAME IS HEREBY UPHELD. T HEREFORE, THE APPEAL OF THE REVENUE IS DISMISSED. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 13.04.2011 SD/- SD/- . . , , , , .#$.!, , , , %& (B. R. MITTAL) (C. D. RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER ( (( ($& $& $& $&) )) ) DATED : 13 TH APRIL, 2011 !34 (56 7! JD.(SR.P.S.) 5 %2 8 /9 :%9*;- COPY OF THE ORDER FORWARDED TO: 1 . -. /APPELLANT - DCIT, CIRCLE-6, KOLKATA. 2 /0-. /RESPONDENT GULSHAN INVESTMENT CO. LTD.9, EZRA ST REET, KOL-1.. 3 . 2( / THE CIT, KOLKATA 4 . 2( ( )/ THE CIT(A), KOLKATA. 5 . !BC /( / DR, KOLKATA BENCHES, KOLKATA 09 // TRUE COPY, %2(D/ BY ORDER, E '6 /ASSTT. REGISTRAR .