ACIT, Circle - 4, Kolkata V. M/s. Addorn Investment Ltd., Kolkata

ITA 1130/KOL/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 5575 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 3 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2010
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 17-06-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 30-06-2009
• Court: TRIBUNAL
• Department Lawyers: P C NAYAK
• Assessee Lawyers: D S DAMLE
• Keywords: Business income; Speculation loss

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : KOLKATA () BEFORE . . . . . . . . , , , , , !'# !'# !'# !'# /AND . .. . . .. .' '' ' , $ ) [BEFORE HONBLE SRI D. K. TYAGI, JM & HONBLE SRI C . D. RAO, AM] #% #% #% #% / I.T.A NO. 1 130 /KOL/2009 &'( ')* &'( ')* &'( ')* &'( ')*/ // / ASSESSMENT YEAR : 2004-05 ASSISTANT COMMISSIONER OF INCOME-TAX, VS. M/S. ADD ORN INVESTMENT LTD. CIRCLE-4, KOLKATA. (PA NO. AACCA 1169 R) (,- / APPELLANT ) (.,-/ RESPONDENT ) FOR THE APPELLANT: SRI P. C. NAYAK FOR THE RESPONDENT : SRI D. S. DAMLE / / ORDER PER D. K. TYAGI, JM ( . . . . . . . . , , , , ) THE REVENUE HAS FILED THIS APPEAL AGAINST THE ORDER OF THE LD. CIT(A), KOLKATA DATED 17.3.2009 FOR ASSESSMENT YEAR 2004-05 ON THE SOLE GROUND OF ALLOWING THE LOSS OF RS.24,76,261/- ON SHARE TRADING IS A BUSINESS LOSS AND NOT SPECULATION LOSS WITHIN THE MEANING OF EXPLANATION TO SECTION 73 OF THE I. T. A CT. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD SHOWN A LOSS OF RS.24,76,261/- IN SHARE TRADING. THE ASSESSING OFFICER APPLIED THE PROVISI ONS OF EXPLANATION BELOW SECTION 73 OF THE ACT I.E. DEEMED SPECULATION LOSS IN THE CASE OF THE ASSESEE ON THE GROUND THAT THE ASSESSEE COMPANY WAS NOT A COMPANY WHOSE GROSS TOTA L INCOME CONSIDERED MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEAD INTEREST ON SECURITIES, INCOME FROM HOUSE PROPERTY, CAPITAL GAINS, AND INCOME FROM OTHER SOURCES OR A COMPANY THE PRINCIPAL BUSINESS OF WHICH IS THE BUSINESS OF BANKING OR THE GRANTING OF LOANS AND ADVANCES. THE ASSESSING OFFICER, THEREFORE, CONCLUDED THAT SINCE THIS IS A SPECULATION LOSS SO IT CAN NOT BE SET OFF AGAINST THE BUSINESS INCOME. IN APPEAL, THE LD. CIT(A) HELD THAT THE ASSESSEE COMPANY IS ENTITLED TO THE BENEFIT OF THE EXPLANATI ON TO SECTION 73 OF THE INCOME TAX 2 ACT, 1961 AND, THEREFORE, THE LOSS IS TREATED AS BU SINESS LOSS AND NOT SPECULATION LOSS AND THE SAME CAN BE SET OFF AGAINST PROFIT AND GAINS OF ANOTHER BUSINESS. THE ADDITION MADE BY THE ASSESSING OFFICER ON THIS ACCOUNT IS, THEREF ORE, DELETED AND THE ASSESEE GETS RELIEF ACCORDINGLY. AGGRIEVED BY THE SAID ORDER, THE REVE NUE IS IN APPEAL BEFORE US. 3. LD. DR AT THE TIME OF HEARING BEFORE US RELIED O N THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT THE ASSESSING OFFICER WA S RIGHT IN TREATING THE LOSS ON SHARE TRADING TO THE EXTENT OF RS.24,76,261/- AS DEEMED S PECULATION LOSS AND ALLOWED TO BE CARRIED FORWARD AS IT IS APPARENT FROM PLAIN READIN G OF SEC. 73 ALONG WITH EXPLANATION THAT THE ASSESSEE WHO IS HAVING BUSINESS INCOME WIL L NOT BE ALLOWED TO SET OFF LOSS ARISING FROM PURCHASE AND SALES OF SHARES AND LOSS ARISING FROM SUCH PURCHASE AND SALE OF SHARES IS TO BE TREATED AS DEEMED SPECULATION LO SS. HE ALSO SUBMITTED THAT THE LD. CIT(A) WAS NOT RIGHT IN HOLDING THAT NBFC IS EXCLUD ED FROM THE PURVIEW OF EXPLANATION TO SECTION 73 OF THE I. T. ACT. THE LD. CIT(A) HAS ALSO ERRED IN HOLDING THAT LOSS OF RS.24,76,261/- ON SHARE TRADING IS A BUSINESS LOSS AND NOT SPECULATION LOSS WITHIN THE MEANING OF EXPLANATION TO SECTION 73 OF THE I. T. A CT. HE ALSO CONTENDED THAT THE LD. CIT(A) WAS NOT RIGHT IN HOLDING THAT THE ADVANCING OF LOANS TO GROUP CONCERNS CONSTITUTED THE BUSINESS OF GRANTING LOANS AND ADVA NCES FOR EXCLUSION OF THE ASSESEES CASE FROM THE AMBIT OF EXPLANATION TO SECTION 73 OF THE I. T. ACT. HE LASTLY CONCLUDED THAT THE ORDER OF THE LD. CIT(A) MAY BE REVERSED AN D THAT OF THE ASSESSING OFFICER BE RESTORED. 4. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE RELIED ON THE ORDER OF THE LD. CIT(A) AND SUBMITTED THAT THE ISSUE IS SQUARELY COV ERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT, KOLKATA BENCH PASSED IN THE C ASE OF DCIT VS. M/S. ADAPT INVESTMENT LTD. IN ITA NO. 1420 & 1421/KOL/2009 FOR ASSESSMENT YEAR 2002-03 AND 2004-05 DATED 27.11.2009. HE, THEREFORE, SUBMITTED THAT SINCE THE ORDER OF THE LD. CIT(A) IS IN LINE WITH THE ORDER PASSED BY THE TRIB UNAL CITED SUPRA, THE ORDER PASSED BY HIM MAY BE UPHELD. 5. AFTER HEARING BOTH THE PARTIES, CAREFULLY PERUSI NG THE MATERIAL AVAILABLE ON RECORD AND ALSO THE DECISION CITED BY THE LD. COUNSEL FOR THE ASSESSEE, WE FIND THAT THE LD. CIT(A) HAS DEALT THE ISSUE AS UNDER : 3 11. I HAVE CAREFULLY CONSIDERED THE SUBMISSION MAD E BY THE APPELLANT COMPANY STATED AS ABOVE AND ALSO THE FACTS OF THE CASE. SECTION 7 3 PROVIDES THAT ANY LOSS, COMPUTED IN RESPECT OF SPECULATION BUSINESS CARRIED ON BY THE A SSESEE, WAS NOT TO BE SET OFF EXCEPT AGAINST PROFITS AND GAINS, IF ANY, OF ANOTHER SPECU LATION BUSINESS. THE SAID EXPLANATION IS A DEEMING PROVISION WHEREBY THE TRAN SACTION OF THE COMPANY DEALING IN PURCHASE AND SALE OF SHARES SHALL BE TREATED AS SPE CULATIVE TRANSACTION SUBJECT TO TWO EXCEPTIONS : - (I) THE FIRST EXCEPTION IS AVAILABLE IN THE CASE OF A COMPANY WHOSE GROSS TOTAL INCOME (GTI) CONSISTS MAINLY OF INCOME WHICH IS CHA RGEABLE UNDER THE HEAD INTEREST ON SECURITIES, INCOME FROM HOUSE PROPER TY, CAPITAL GAINS AND INCOME FROM OTHER SOURCES. (II) THE SECOND EXCEPTION IS IN THE CASE OF A COM PANY WHOSE PRINCIPAL BUSINESS IS THE BUSINESS OF BANKING OR GRANTING OF LOANS AND AD VANCES. 12. THE FIRST CATEGORY OF EXCEPTION IS IDENTIFIED BY THE COMPOSITION OF ITS GROSS TOTAL INCOME, WHICH GIVES THRUST ON THE COMPOSITION OF GR OSS TOTAL INCOME OF THE COMPANY. IF THE GROSS TOTAL INCOME OF THE COMPANY MAINLY CONSIS TS OF INCOME FALLING UNDER THE ABOVE-MENTIONED HEADS, EXPLANATION TO SECTION 73 DO ES NOT APPLY. ON THE OTHER HAND, IF THE GROSS TOTAL INCOME OF THE COMPANY IS MAINLY MA DE UP OF INCOME UNDER THE HEAD PROFITS & GAINS AND OF BUSINESS OR PROFESSION IT IS CAUGHT BY THE MISCHIEF OF EXPLANATION TO SECTION 73. THUS, UNDER THE FIRST C ATEGORY OF EXCEPTION, WE HAVE TO SEE THE CHARACTER OF ITS GROSS TOTAL INCOME. 13. IN THE SECOND CATEGORY OF EXCEPTION THE THRUST IS MADE ON THE NATURE OF BUSINESS CARRIED ON BY THE COMPANY. IF THE COMPANY IS CARRY ING AS ITS PRINCIPAL BUSINESS, THE BUSINESS OF BANKING OR GRANTING OF LOANS AND ADVANC ES, EXPLANATION TO SECTION 73 DOES NOT APPLY. SO IN ORDER TO EXCLUDE ANY COMPANY FROM THE AMBIT OF EXPLANATION, WE HAVE TO SEE THE NATURE OF THE PRINCIPAL BUSINESS CARRIED ON BY THE COMPANY. 14. THUS, TWO EXCEPTIONS PROVIDED IN EXPLANATION TO SECTION 73 ARE GOVERNED BY TWO DIFFERENT TESTS LAID DOWN IN THE SAID EXPLANATION I TSELF. THEREFORE, THE EXAMINATION OF THE EXCEPTIONS PROVIDED IN THE EXPLANATION OF SECTION 7 3, NEEDS TO BE DONE STRICTLY IN ACCORDANCE WITH THE TESTS LAID DOWN IN THE EXPLANAT ION. 15. IT IS, THUS, CLEAR THAT IN ORDER TO ASCERTAIN WHETHER AN ASSESSEE WOULD BE ENTITLED TO THE BENEFIT OF THE EXPLANATION TO SECTION 73 OF THE INCOME TAX ACT, 1961, IT IS TO BE EXAMINED FIRST WHETHER THE ASSESEE COMES WITHIN TH E EXCEPTIONS PROVIDED IN THE EXPLANATION BELOW SECTION 73. 16. SINCE THE APPELLANT COMPANY HAS CLAIMED THE SHA RE TRADING LOSS AS NORMAL BUSINESS LOSS AND NOT SPECULATION LOSS AS WORKED OU T BY ASSESSING OFFICER, THIS IS TO BE EXAMINED WHETHER THE CASE OF THE APPELLANT FALLS IN THE CATEGORY OF TWO EXCEPTIONS AS PROVIDED IN THE EXPLANATION TO SECTION 73. THE APP ELLANT COMPANY HAS CLAIMED THAT THE PRINCIPAL BUSINESS OF THE APPELLANT COMPANY IS OF G RANTING OF LOANS AND ADVANCES. THE COMPANY IS ALSO REGISTERED WITH RBI AS NBFC, THE CO PY OF WHICH WAS ENCLOSED ALONG WITH THE SUBMISSION. 4 17. IN ORDER TO EXAMINE WHETHER THE CASE OF THE AP PELLANT FALLS INTO THE SECOND EXCEPTION TO EXPLANATION 73, THE AUDITED BALANCE SH EET AND PROFIT & LOSS ACCOUNT OF THE APPELLANT COMPANY WERE EXAMINED AND ANALYZED. IT IS EVIDENT FROM THE ABOVE TABLE THAT THE CAPITAL EMPLOYED IN GRANTING LOANS AND ADV ANCES IS MUCH MORE THAN THE CAPITAL EMPLOYED IN GRANTING LOANS AND ADVANCES IS MUCH MOR E THAN THE CAPITAL EMPLOYED IN SHARE TRADING BUSINESS. THUS, THERE IS NO DOUBT TH AT THE PRINCIPAL BUSINESS OF THE APPELLANT COMPANY IS OF BUSINESS OF GRANTING LOANS & ADVANCES AND NOT SHARE BUSINESS. SO, I AGREE WITH THE CONTENTION OF THE APPELLANT CO MPANY THAT HIS CASE IS COVERED UNDER THE SECOND EXCEPTION OF EXPLANATION TO SECTION 73 T HAT ITS PRINCIPAL BUSINESS IS BUSINESS OF BANKING OR GRANTING OF LOANS AND ADVANCES. THE APPELLANT COMPANY HAS ALSO PRODUCED A CERTIFICATE FROM RBI THAT THIS COMPANY I S REGISTERED AS AN NBFC. 18. THUS, THE APPELLANT COMPANY IS ENTITLED TO THE BENEFIT OF THE EXPLANATION TO SECTION 73 OF THE INCOME TAX ACT, 1961 AND THEREFORE, THE L OSS IS TREATED AS BUSINESS LOSS AND NOT SPECULATION LOSS AND THE SAME CAN BE SET OFF AG AINST PROFIT AND GAINS OF ANOTHER BUSINESS. THE ADDITION MADE BY THE ASSESSING OFFIC ER ON THIS ACCOUNT IS, THEREFORE, DELETED AND THE APPELLANT GETS RELIEF ACCORDINGLY. SINCE THE ABOVE FINDING OF THE LD. CIT(A) IS IN LIN E WITH THE ORDER PASSED BY THE TRIBUNAL CITED SUPRA, ON IDENTICAL FACTS, WE FIND NO INFIRMITY IN HIS ORDER AND THE SAME IS HEREBY UPHELD. THE APPEAL OF THE REVENUE IS, THERE FORE, DISMISSED. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. 7. ORDER IS PRONOUNCED IN THE OPEN COURT ON 14.10.1 0 SD/- SD/- . . ' , $ . . , (C. D. RAO) (D. K. TYAGI) ACCOUNTANT MEMBER JUDICIAL MEMBER ( $ $ $ $) )) ) DATED :14TH OCTOBER, 2010 '01 &'23 &4' JD.(SR.P.S.) / 5 .&&6 76)8- COPY OF THE ORDER FORWARDED TO: 1 . ,- / APPELLANT ACIT, CIRCLE-4, KOLKATA. 2 .,- / RESPONDENT, M/S. ADDORN INVESTMENT LTD., 31, N. S . ROAD, KOLKATA-1 3 . &/' / THE CIT, KOLKATA 4 . &/' ( )/ THE CIT(A), KOLKATA. 5 . '?& .&' / DR, KOLKATA BENCHES, KOLKATA 6 .&/ TRUE COPY, /'@/ BY ORDER, A #3 /DEPUTY REGISTRAR .