The ACIT, Ahmedabad Circle -3, Ahmedabad V. Tushti Securities Pvt. Ltd, Ahmedabad

ITA 1122/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6238 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 23-06-2011
• Assessment Year: 1998-1999
• Appeal Filed On: 13-04-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ALBINUS TIRKEY
• Assessee Lawyers: S N SOPARKAR
• Keywords: Speculation loss
• Section: 143(3); 43(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, A BENCH (BEFORE S/SHRI G.D. AGARWAL, VICE-PRESIDENT AND BHAVNESH SAINI, JUDICIAL MEMBER) ITA NO.1122/AHD/2009 [ASSTT. YEAR : 1998-1999] ACIT, CIR.3 AHMEDABAD. VS. M/S.TUSHTI SECURITIES P. LTD. 8, SHIPATH SOCIETY, NR.SWATI SOCIETY NARANGPURA, AHMEDABAD. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI ALBINUS TIRKEY ASSESSEE BY : SHRI S.N. SOPARKAR O R D E R PER G.D. AGARWAL, VICE-PRESIDENT : THIS IS REVENUES APPEAL AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-VII, AHMEDABAD DATED 19.01.2009 FOR A.Y.1 998 -1999 ARISING OUT OF THE ORDER OF THE AO UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961. 2. THE ONLY GROUND RAISED IN THIS APPEAL READS AS U NDER: 1. THE CIT(A) ERRED IN LAW AND ON FACTS IN DELETIN G ADDITION OF RS.8,79,299/- ON ACCOUNT OF JOBBING LOSS. 3. THE FACTS ARE THAT THE ASSESSEE IS A SHARE BROKE R AND FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE FILED RETURN DISC LOSING TOTAL INCOME AT RS.94,890/-. IN THE ORIGINAL ASSESSMENT COMPLETED UNDER SECTION 143(3), THE AO DISALLOWED THE JOBBING LOSS OF RS.8,79,299/- TREATING THE SAME AS SPECULATIVE LOSS. ON FURTHER APPEAL, THE ITAT REST ORED THE MATTER BACK TO THE FILE OF THE AO FOR EXAMINING WHETHER THE ASSESS EES CASE FALLS WITHIN THE PROVISO (C) TO SECTION 43(5). THE AO COMPLETED THE ASSESSMENT AS PER THE DIRECTION OF THE ITAT VIDE ORDER DATED 28-1 1-2007 AND HE ITA NO.1122/AHD/2009 -2- DISALLOWED THE LOSS NOT ONLY UNDER SECTION 43(5) HO LDING THAT PROVISO (C) NOT APPLICABLE IN THE CASE OF THE ASSESSEE, BUT ALS O APPLYING PROVISO TO SECTION 73 OF THE I.T. ACT BECAUSE THE ASSESSEE IS A COMPANY. IN THE SECOND ROUND OF APPEAL, THE CIT(A) VIDE HIS ORDER D ATED 19-1-2009 DELETED THE DISALLOWANCE WITH THE FOLLOWING FINDING S: 3. THE SUBMISSIONS MADE BY THE AR ARE PERUSED. IT MAY BE SEEN THAT THE APPELLANT IS A MEMBER OF STOCK EXCHAN GE WHO CARRIES ON PURCHASE AND SALE OF SHARES. THEREFORE, THE APP ELLANTS CASE FALLS WITHIN THE PROVISIONS OF (C) OF SECTION 43(5) OF THE IT ACT. ACCORDINGLY, THE APPELLANT HAS INCURRED JOBBING LOS S ON ACCOUNT OF JOBBING TRANSACTIONS WHICH ARE SPECIFICALLY EXCLUDE D FROM THE AMBIT OF SPECULATIVE TRANSACTIONS AS PER THE PROVIS IONS (C) OF SECTION 43(5) OF THE IT ACT. THEREFORE, THE ADDITI ON MADE BY THE AO IS DELETED. 4. THE REVENUE AGGRIEVED WITH THE ORDER OF THE CIT( A) IS IN APPEAL BEFORE US. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US. FROM THE ORDER OF THE CIT(A) IT IS EVID ENT THAT HE HAS DEALT WITH ONLY PROVISO (C) TO SECTION 43(5) BUT HAS NOT DEALT WITH EXPLANATION TO SECTION 73. EVEN WITH REGARD TO PROVISO (C) OF SECTION 43(5) HIS FINDING IS CRYPTIC. HE SIMPLY STATED THAT SINCE TH E APPELLANT IS MEMBER OF STOCK EXCHANGE, WHO CARRIES ON PURCHASE AND SALE OF SHARES THEREFORE THE ASSESSEES CASE FALLS WITHIN THE PROVISO (C) TO SEC TION 43(5). WE ARE UNABLE TO ACCEPT THE ABOVE VIEW OF THE CIT(A). THE SECTION 43(5) DEFINES THE TERM SPECULATIVE TRANSACTION. IT READS AS UN DER: (5). SPECULATIVE TRANSACTION MEANS A TRANSACTION IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY, INCLUDING STOCKS AND SHARES, IS PERIODICALLY OR ULTIMATELY SE TTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TRANSFER OF THE COMM ODITY OR SCRIPS. ITA NO.1122/AHD/2009 -3- FROM THE ABOVE, IT IS EVIDENT THAT, IF ANY CONTRACT FOR PURCHASE AND SALE OF ANY COMMODITY INCLUDING THE SHARES IS SETTLED OTHER WISE THAN BY ACTUAL DELIVERY SUCH TRANSACTION WOULD BE SPECULATIVE TRAN SACTION. ADMITTEDLY, IN THE CASE UNDER APPEAL BEFORE US, THE ASSESSEE HA S NOT TAKEN THE DELIVERY OF THE SHARES AND THEREFORE AS PER SECTION 43(5), T HE TRANSACTION WAS A SPECULATIVE TRANSACTION. HOWEVER, SECTION 43(5) HA S PROVIDED CERTAIN EXCEPTION WHEREIN THE TRANSACTION WOULD NOT BE TREA TED AS SPECULATIVE DESPITE THE SETTLEMENT OF THE TRANSACTION OTHERWISE THAN BY ACTUAL DELIVERY. ONE OF THE EXCEPTION IS PROVISO (C) WHICH READS AS UNDER: (C) A CONTRACT ENTERED INTO BY A MEMBER OF A FORWA RD MARKET OR A STOCK EXCHANGE IN THE COURSE OF ANY TRANSACTION I N THE NATURE OF JOBBING OR ARBITRAGE TO GUARD AGAINST LOSS WHICH MA Y ARISE IN THE ORDINARY COURSE OF HIS BUSINESS AS SUCH MEMBER: FROM THE ABOVE IT IS EVIDENT THAT TO FULFILL THE CO NDITION OF PROVISO (C) TO SECTION 43(5), THE ASSESSEE HAS TO FULFILL THE FOLL OWING CONDITIONS: (I) HE IS A MEMBER OF STOCK EXCHANGE; (II) TRANSACTION IS IN THE NATURE OF JOBBING; (III) THE TRANSACTION IS ENTERED TO GUARD AGAINST THE LOS S WHICH MAY ARISE IN THE ORDINARY COURSE OF HIS BUSINESS AS A MEMBER OF STOCK EXCHANGE. 6. THE CIT(A) ACCEPTED THE ASSESSEES CASE MERELY B ECAUSE THE ASSESSEE FULFILLED FIRST CONDITION I.E. HE IS A MEM BER OF STOCK EXCHANGE. THE ASSESSEE HAS NOT PRODUCED DETAILS OF THE TRANSA CTION ENTERED INTO BY HIM SO AS TO ESTABLISH THAT THE TRANSACTION WAS ACT UALLY IN THE NATURE OF JOBBING TRANSACTION AND IT WAS TO GUARD AGAINST THE LOSS WHICH MAY ARISE IN THE ORDINARY COURSE OF BUSINESS. NO IOTA OF EVI DENCE IS PRODUCED TO ITA NO.1122/AHD/2009 -4- PROVE THAT THE ASSESSEE FULFILLED ALL THE CONDITION S AS PRESCRIBED IN PROVISO (C) TO SECTION 43(5). THEREFORE, WE ARE OF THE OPI NION THAT THE CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT THE ASSESSEES CASE F ALLS WITHIN THE AMBIT OF PROVISO (C) TO SECTION 43(5). MOREOVER, SECTION 73 (1) & EXPLANATION THERETO READS AS UNDER: 73(1) ANY LOSS, COMPUTED IN RESPECT OF A SPECULATI ON BUSINESS CARRIED ON BY THE ASSESSEE SHALL NOT BE SE T OFF EXCEPT AGAINST PROFIT AND GAINS, IF ANY, OF ANOTHER SPECUL ATION BUSINESS. EXPLANATION - WHERE ANY PART OF THE BUSINESS OF A C OMPANY OTHER THAN A COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MA INLY OF INCOME WHICH IS CHAREGEABLE UNDER THE HEADS 'INTERE ST ON SECURITIES', 'INCOME FROM HOUSE PROPERTY', 'CAPITAL GAINS' AND 'INCOME FROM OTHER SOURCES' OR A COMPANY THE PRINCI PAL BUSINESS OF WHICH IS THE BUSINESS OF BANKING OR THE GRANTING OF LOANS AND ADVANCES CONSISTS IN THE PURCHASE AND SALE OF SHARE S OF OTHER COMPANIES, SUCH COMPANY SHALL, FOR THE PURPOSES OF THIS SECTION, BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF THE PURCAHSE AND SAL E OF SUCH SHARES. ADMITTEDLY, THE ASSESSEE IS A COMPANY AND THE LOSS WAS INCURRED BY THE ASSESSEE IN THE TRANSACTION OF PURCHASE AND SALE OF SHARES. THEREFORE, PRIMA FACIE THE EXPLANATION TO SECTION 73 WAS APPLICABLE. IN THE WRITTEN SUBMISSIONS BEFORE THE CIT(A), IT IS CONTENDED BY T HE ASSESSEE THAT SECTION 73 IS RELEVANT ONLY FOR CARRY FORWARD OF LO SS AND SINCE IN THE ASSESSEES CASE NO LOSS IS INVOLVED SECTION 73 WOUL D NOT BE APPLICABLE. FROM THE PERUSAL OF THE SECTION 73 IT IS EVIDENT TH AT IT IS APPLICABLE FOR SET OFF OF LOSS AGAINST THE OTHER INCOME AND NOT FOR CA RRY FORWARD OF LOSS. AS WE HAVE ALREADY STATED THAT AS PER EXPLANATION IF THE LOSS ARISES FROM THE BUSINESS OF PURCHASE AND SALE OF SHARES BY A COMPAN Y, IT WILL BE DEEMED AS SPECULATION LOSS. THE ASSESSEE IS A COMPANY AND ADMITTEDLY LOSS WAS ITA NO.1122/AHD/2009 -5- IN THE BUSINESS OF PURCHASE AND SALE OF SHARES. TH EREFORE, PRIMA FACIE EXPLANATION TO SECTION 73 WAS APPLICABLE AND IT WAS FOR THE ASS ESSEE TO ESTABLISH THAT ITS CASE FALLS WITHIN THE EXCEPTION PROVIDED UNDER EXPLANATION TO SECTION 73. THE ASSESSEE HAS MADE NO EFFORT TO ESTABLISH THAT ITS CASE FALL WITHIN THE EXCEPTION TO EXPLANATION TO SECTION 73. IT WAS ALSO CONTENDED BY THE ASSESSEE THAT WHEN SECTION 43 (5) IS APPLICABLE, SECTION 73 CANNOT BE APPLIED BECAUSE TWO DEEMING PR OVISIONS CANNOT BE APPLICABLE SIMULTANEOUSLY. WE ARE UNABLE TO ACCEPT THIS CONTENTION OF THE ASSESSEE ALSO. THE SECTION 43(5) AND THE SECTION 7 3 OPERATE IN DIFFERENT FIELDS. SECTION 43(5) DEFINES THE TERM SPECULATIV E TRANSACTION. WHILE SECTION 73 IS APPLICABLE IN RESPECT OF SET OFF OF T HE PROFIT OF THE SPECULATION BUSINESS AGAINST OTHER INCOME. EXPLANATION TO SECTION 73 IS A DEEMING PROVISION APPLICABLE ONLY IN THE CASE OF A COMPANY WHO DERIVES INCOME FROM PURCHASE AND SALE OF SHARES. THEREFORE , IN OUR OPINION, SECTION 43(5) AND SECTION 73 OPERATE IN A DIFFERENT FIELD AND IN A GIVEN CASE BOTH MAY BE APPLICABLE SIMULTANEOUSLY. CONSID ERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, IN OUR OPI NION, THE CIT(A) WAS NOT JUSTIFIED IN DELETING THE DISALLOWANCE OF LOSS OF RS.8,79,299/-. WE THEREFORE REVERSE THE ORDER OF THE CIT(A) ON THIS P OINT AND RESTORE THAT OF THE AO. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLO WED. ORDER PRONOUNCED IN OPEN COURT ON 30 TH JUNE, 2011 SD/- SD/- (BHAVNESH SAINI) JUDICIAL MEMBER (G.D. AGARWAL) VICE-PRESIDENT