Laxmi Vishanji Karani, , Hyderabad V. Asst. Commissioner of Income Tax, Circle-4(1), Hyderabad

ITA 1304/Hyd/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 8430 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-07-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-B
• Next Hearing Date: 19-02-2020
• Assessment Year: 2013-2014
• Appeal Filed On: 27-07-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S MURALI MOHAN
• Assessee Lawyers: T CHAITANYA KUMAR
• Keywords: Speculation loss; Set aside
• Section: 143(3); 43(5); 73

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B - SMC, HYDERABAD BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO.1303/H/2017 ASSESSMENT YEAR: 2013 - 14 VISHANJI KHIMJI KARANI, HYDERABAD. PAN: ABXPK 8486 C VS. ACIT, CIRCLE - 4(1), HYDERABAD. (APPELLANT) (RESPONDENT) ITA NO.1304/H/2017 ASSESSMENT YEAR: 2013 - 14 LAXMI VISHANJI KARANI, HYDERABAD. PAN: AELPK 9940 E VS. ACIT, CIRCLE - 4(1), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY: SRI T. CHAITANYA KUMAR REVENUE BY: SRI S. MURALI MOHAN, DR DATE OF HEARING: 19/02/2020 DATE OF PRONOUNCEMENT: 08/07/2020 ORDER PER A. MOHAN ALANKAMONY, AM.: BOTH THESE APPEALS ARE FILED BY THE ASSESSEES AGAINST THE ORDERS OF THE LD. CIT (A) - 1, HYDERABAD IN APPEAL NOS. 0241 & 0247/CIT(A) - 1/HYD/2015 - 16/2017 - 18, BOTH DATED 27/04/2017 FOR THE ASSESSMENT YEAR 2013 - 14. SINCE THE ISSUE INVOLVED IN BOTH THE APPEALS I S IDENTICAL, 2 FOR THE SAKE OF CONVENIENCE, BOTH THE APPEALS ARE TAKEN UP TOGETHER FOR HEARING AND DISPOSED OFF BY THIS COMMON ORDER. 2. BOTH THE ASSESSEES HAVE RAISED IDENTICAL GROUNDS IN THEIR APPEALS HOWEVER, THE CRUXES OF THE ISSUES ARE THAT:: - (I) T HE LD. CIT (A) HAS ERRED IN CONFIRMING THE ORDER OF THE LD. AO WHO HAD TREATED THE LOSS FROM TRADING IN EQUITY SHARES OF RS. 4,54,863/ - AND RS. 1,21,806/ - IN THE CASE OF DR. VISHANJI KHIMJI KARANI AND DR. LAXMI VIISHANJI KARANI RESPECTIVELY AS SPECULATION LOSS AND REJECTED THE CLAIM OF THE ASSESSEES FOR SETTING OFF THE LOSS FROM THE INCOME EARNED BY THE ASSESSEES UNDER THE HEAD BUSINESS & PROFESSION. (II) THE LD. CIT (A) HAS ERRED IN CONFIRMING THE LEVY OF INTEREST U/S. 234C AND 234D OF THE ACT. 3. SI NCE THE SECOND GROUND RAISED BY BOTH THE ASSESSEES ARE WITH RESPECT TO LEVY OF INTEREST U/S. 234C AND 234D OF THE ACT WHICH IS CONSEQUENTIAL IN NATURE AND HENCE DEVOID OF MERIT. 4. THE BRIEF FACTS OF THE CASE ARE THAT BOTH THE ASSESSEES DR. VISHANJI KHI MJI KARANI AND DR. LAXMI VIISHANJI KARANI ARE ENGAGED IN MEDICAL PROFESSION AS DOCTORS FILED THEIR RETURN OF INCOME FOR THE RELEVANT ASSESSMENT YEAR 2013 - 14 ON 25/08/2013 AND 24/09/2013 DECLARING TAXABLE INCOME OF RS. 25,08,040/ - AND RS. 23,93,590/ - RESPEC TIVELY. SUBSEQUENTLY, THE CASE WAS TAKEN UP FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED ON 3/2/2016 U/S. 143(3) OF THE ACT WHEREIN THE LD. AO DISALLOWED THE CLAIM OF SET OFF OF LOSS FROM TRADING IN SHARES AMOUNTING TO RS. 4,54,863 AND RS. 1,21,806/ - IN T HE HANDS OF DR. VISHANJI KHIMJI 3 KARANI AND DR. LAXMI VIISHANJI KARANI RESPECTIVELY BY HOLDING THAT THE LOSS IN THE CASE OF THE ASSESSEES IS ARISING FROM SPECULATION BUSINESS. 5. BEFORE THE LD. AO BOTH THE ASSESSEES HAD SUBMITTED THAT THEY WERE PURCHASING AND SELLING EQUITY SHARES THROUGH THEIR STOCKBROKER ON ACTUAL DELIVERY BASIS. HOWEVER, THE LD. AO OPINED THAT ANY ACTIVITY PERTAINING TO PURCHASE AND SALE OF SHARES HAS TO BE TREATED AS SPECULATION BUSINESS. WHILE ARRIVING AT SUCH A CONCLUSI ON THE LD. AO RELIED ON EXPLANATION 2 TO SECTION 28, SUB - SECTION 3 OF SECTION 73 AND SECTION 43(5) OF THE ACT. THE LD. AO FURTHER RELIED ON THE DECISION IN THE CASE OF PAHAPUR COOLING TOERS VS. CIT REPORTED IN 256 ITR 202. 6. BOTH THE ASSESSEES CARRIE D THE MATTER ON APPEAL BEFORE THE LD. CIT (A). ON PERUSING THE ISSUE, THE LD. CIT(A) WAS ALSO OF THE VIEW THAT EVEN THE DELIVERY - BASED TRANSACTIONS OF PURCHASE AND SALE OF SHARES WILL NOT HAVE ANY EFFECT ON THE PROVISIONS OF SECTION 73 OF THE ACT. THE LD. CIT (A) FURTHER EXAMINING THE STATEMENT ISSUED BY M/S. KOTAK SECURITIES LIMITED TOWARDS THE TRANSACTIONS PERTAINING TO THE PURCHASE AND SALE OF EQUITY SHARES ON BEHALF OF THE ASSESSEE OBSERVED THAT THEY DO NOT CORRELATE WITH THE BANK RECEIPTS AND PAYMENTS OF THE ASSESSEES WITH RESPECT TO EVERY PURCHASE AND SALE TRANSACTION OF EQUITY S HARES . FURTHER, THE LD. CIT (A) OPINED THAT EVEN IF IT IS HELD THAT THE LOSS ARISING OUT OF PURCHASE AND SALE OF EQUITY SHARES ARE NOT FROM 4 SPECULATION BUSINESS, IT CANNOT BE SET OFF AGAINST T HE PROFESSIONAL INCOME OF THE ASSESSEE. WITH THE ABOVE OBSERVATION THE LD.CIT(A) UPHELD THE ORDER OF THE LD. AO. 7. BEFORE ME THE LD. AR SUBMITTED THAT BOTH THE ASSESSEES ARE DOCTORS ATTACHED TO DIFFERENT HOSPITALS EARNING PROFESSIONAL INCOME. IT WAS FUR THER SUBMITTED THAT BOTH THE ASSESSEES FROM THEIR TAX PAID FUNDS TRADED IN LISTED EQUITY SHARES THROUGH STOCKBROKER M/S. KOTAK SECURITY LIMITED BASED ON THEIR ADVICE. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEES HAD NOT INDULGED IN ANY FORWARD TRADING OF SHARES. IT WAS FURTHER SUBMITTED THAT BOTH THE ASSESSEES HAD PURCHASED AND SOLD SHARES THROUGH THE STOCKBROKER ON A CTUAL DELIVERY BASIS AND THE ACCOUNTS HAVE BEEN SETTLED ON A PERIODIC ALLY . IT WAS THEREFORE PLEADED THAT THE ADDITION MADE BY THE LD. AO IS ERRONEOUS AND THEREFORE THE SAME MAY BE DELETED. THE LD DR ON THE OTHER HAND RELIED ON THE ORDERS OF THE LD. REVENUE AUT HORITIES AND ARGUED IN SUPPORT OF THE SAME. 8. I HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE MATERIAL ON RECORD. FROM THE FACTS OF THE CASE IT IS APPARENT THAT BOTH THE ASSESSEES ARE PURCHASING AND SELLING EQUITY SHARES THROUGH THE STOCK BR OKER M/S. KOTAK SECURITY LIMITED. ACCOUNTS WERE SETTLED BETWEEN THE ASSESSEES AND THE STOCKBROKER ON A PERIODIC BASIS. THE PURCHASE AND SALE OF SHARES ARE MADE ON BEHALF OF THE ASSES SEES BY THE 5 STOCKBROKER ON ACTUAL DELIVERY. SUCH TRANSACTIONS CANNOT BE HELD TO BE SPECULATION IN NATURE. ONLY WHEN TRANSACTIONS ARE MADE WITHOUT DELIVERY IT CAN BE SAID TO BE SPECULATIVE IN NATURE. IN THE CASE OF THE ASSESSEE THE STOCK BROKER TREATS THE ASSESSEE AS DEBTOR FOR THE PURCHASE OF EQUITY SHARES MADE ON BEHALF OF THE ASSESSEE AND CREDITOR FOR THE SALE OF THE EQUITY SHARES HELD BY THE ASSESSEE WHI C H MAY BE KEPT IN THE POSSESSION OF THE STOCKBROKER . PROVISIONS OF SECTION 4 3(5) OF THE ACT CLEARLY SPECIFY THAT WHERE TRANSACTIONS ARE ENTERED BETWEEN PARTIES WITH RESPECT TO PURCHASE AND SALE OF COMMODITIES OR STOCK OTHERWISE THAN BY ACTUAL DELIVERY THEN THE TRANSACTION SHALL BE TREATED AS SPECULATIVE IN NATURE. ON VERIFYING THE STATEMENT ISSUED BY THE STOCKBROKER M/S. KOTAK SECURITY LIMITED WITH RESPECT TO THE TRANSACTIONS MADE ON BEHALF OF THE ASSESSEE, I DO NOT FIND THE TRANSACTI ON TO BE SPECULATIVE IN NATURE BECAUSE THE PURCHASE AND SALE OF SHARES ARE ON DELIVERY BASIS, MAY BE THE POSSESSION IS WITH THE STOCKBROKER . FURTHER, ONCE IT IS HELD THAT THE TRANSACTIONS ARE NOT SPECULATIVE IN NATURE, THEN THE GAIN ARISING OUT OF SUCH TRADING TRANSACTIONS SHALL BE SUBJECT TO BE TAXED ONLY UNDER THE HEAD INCOME FROM BUSINESS IN THE CASE OF THE ASSESSEE . SINCE INCOME FROM BUSINESS AND INCOME FROM PROFESSION FALLS UNDER THE SAME HEAD, SET OFF OF LOSS FROM ONE SOURCE OF INCOME WITH ANOTHER SOURCE OF INCOME UNDER THE SAME HEAD IS ALLOWABLE AS PER THE PROVISIONS OF SECTION 70 OF THE ACT. FURTHER IN THE CASE OF THE ASSESSEE PROVISIONS OF SECTION 73 WILL NOT BE APPLICABLE FOR THE REASONS DISCUSSED HEREIN ABOVE. THEREFORE, I 6 HEREBY SET ASIDE THE ORDERS OF THE LD. CIT (A) ON THIS ISSUE AND FURTHER DIRECT THE LD. AO TO TREAT THE LOSS INCURRED BY THE ASSESSEES WITH RESPECT TO TRADING IN EQUITY SHARES A S LOSS FROM BUSINESS AND SET OFF THE SAME AGAINST THE INCOME EARNED BY THE ASSESSEE S FROM THEIR PROFESSION. 9. BEFORE PARTING, IT IS WORTHWHILE TO MENTION THAT THIS ORDER IS PRONOUNCED AFTER 90 DAYS OF HEARING THE APPEAL, WHICH IS THOUGH AGAINST THE USUAL NORMS, I FIND IT APPROPRIATE, TAKING INTO CONSIDERATION OF THE EXTRA - ORDINARY SITUATION IN THE LIGHT OF THE LOCK - DOWN DUE TO COVID - 19 PANDEMIC. WHILE DOING SO, I HAVE RELIED IN THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. JSW LTD. I N ITA NO.6264/M/2018 AND 6103/M/2018 FOR AY 2013 - 14 ORDER DATED 14TH MAY 2020. 10. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEES ARE PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 08 TH JULY, 2020. SD/ - ( A. MOHAN ALANKAMONY ) ACCOUNTANT MEMBER HYDERABAD, DATED: 08 TH JULY, 2020. OKK 7 COPY TO: - 1) (I) VISHANJI KHIMJI KARANI, 3 - 5 - 585/301, AIR BUS APARTMENTS, VITHAL WADI, HYDERABAD. (II) LAXMI VISHANJI KARANI, 3 - 5 - 585/301, AIR BUS APARTMENTS, VITHAL WADI, HYDERABAD. 2) ACIT, CIRCLE - 4(1), INCOME TAX TOWERS, AC GUARDS, HYDERABAD. 3) THE CIT (A) - 1, HYDERABAD. 4) THE PR. CIT - 1, HYDERABAD. 5) THE DR, ITAT, HYDERABAD 6) GUARD FILE