M/s. Anjalee Exim Pvt.Ltd., Ahmedabad V. The Dy.CIT.,Circle-1, Ahmedabad

ITA 1330/AHD/2011

• Counselvise Citation: 133020514 RSA 2011
• Duration Of Justice: 11 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 05-03-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 04-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VINOD TANWANI SR D R
• Assessee Lawyers: S N DIVETIA
• Keywords: Business income; Depreciation; Business expenditure; Principle of natural justice; Transactions in derivatives; Earning of tax free income; Speculation loss
• Section: 143(3); 14A

Judgement Text

, , , , C, IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, C BENCH . .. . . .. . , , , , ! ' ! ' ! ' ! ' # # # # $ %& $ %& $ %& $ %&, , , , ' ' ' ' ' ' ' ' BEFORE SHRI A.K. GARODIA, ACCOUNTANT MEMBER AND KUL BHARAT, JUDICIAL MEMBER) ITA NO.1330/AHD/2011 [ASSTT.YEAR : 2007-2008] M/S. ANJALEE EXIM PVT. LTD. 3 RD FLOOR, ANJALEE HOUSE OPP: LAL BUNGLOW, C.G. ROAD AHMEDABAD. PAN : AABCA 3012A ( /VS. DCIT, CIR.1 AHMEDABAD. ( (( (*+ *+ *+ *+ / APPELLANT) ( (( (,-*+ ,-*+ ,-*+ ,-*+ / RESPONDENT) ( .& / 0 / ASSESSEE BY : SHRI S.N.DIVETIA 2' / 0 / REVENUE BY : SHRI VINOD TANWANI, SR.DR $(3 / &4!/ DATE OF HEARING : 5 TH MARCH, 2012 56 / &4!/ DATE OF PRONOUNCEMENT : 27.04.2012 ORDER PER BENCH: 1. THE PRESENT APPEAL OF THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-VI, AHMEDA BAD DATED 16.03.2011. THE ASSESSEE HAS CHALLENGED THE ORDER OF THE LEARNED CIT(A) ON THE FOLLOWING GROUNDS OF APPEAL. I.T.A.NO. 1330 /AHD/2011 2 1.1 THE ORDER PASSED U/S.250 ON 16.03.2011 FOR AY 2007-08 BY CIT(A) DISMISSING THE APPEAL AGAINST ORDER U/S.143(3) DATE D 27.11.2009 IS WHOLLY ILLEGAL, UNLAWFUL AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE. 1.2 THE LD.CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND O R ON FACTS IN NOT CONSIDERING FULLY AND PROPERLY THE SUBMISSION MADE AND EVIDENCE PRODUCED BY THE APPELLANT. 2.2 THE LD.CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND O N FACTS IN CONFIRMING THE FOLLOWING ADDITIONS/DISALLOWANCES: A) DISALLOWANCE U/S.14A : RS.74,898 B) INTEREST INCOME AS OTHER SOURCES : RS.5,46,854 C) ALLOCATION OF COMMON EXPS. : RS.13,76,995 2.3 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LD.CIT(A) OUGHT NOT TO HAVE UPHELD THE ABOVE ADDITIONS/DISALLOWANCES. 3.1 THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THAT INTEREST INCOME WAS ASSESSABLE AS OTHER SOURCES AS AGAINST BUSINESS INCOME. 4.1 THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THAT EXPLANATION TO SEC.73 WAS ATTRACTED AND AS SUCH, IT WAS SPECULATIVE BUSINESS AND LOSS CANNOT BE SET OFF. 2. BRIEF FACTS OF THE CASE ARE THAT THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND ASSESSMENT UNDER SECTION 143(3) OF IT ACT WAS CONCLUDED BY ORDER DATED 27.11.2009. THE AO MADE D ISALLOWANCE UNDER SECTION 14A OF THE ACT BY APPLYING RULE 8D OF THE I NCOME TAX RULES, BUSINESS LOSS TREATED AS SPECULATIVE LOSS, DUAL DED UCTION OF DEPRECIATION AND INTEREST INCOME TREATED AS INCOME FROM OTHER SO URCES. THE AO FURTHER ALLOCATED EXPENSES BETWEEN THE SPECULATIVE AND NON-SPECULATIVE INCOME. AGAINST THIS ORDER, THE ASSESSEE APPROACHE D THE CIT(A) IN FIRST APPEAL, AND THE LD.CIT(A) AFTER CONSIDERING THE S UBMISSIONS MADE BY THE I.T.A.NO. 1330 /AHD/2011 3 LEARNED AR, CONFIRMED THE ORDER PASSED BY THE AO. THE ASSESSEE BEING AGGRIEVED WITH THE ORDER OF THE LEARNED CIT(A) IS I N SECOND APPEAL BEFORE US. 3. BEFORE US, THE LEARNED AR HAS MADE BOTH ORAL AND WRITTEN SUBMISSIONS. THE WRITTEN SUBMISSIONS AS MADE BY TH E LD.AR ARE REPRODUCED HEREWINBELOW: 3.0 DISALLOWANCE U/S.14A: 3.1 THE FIRST EFFECTIVE GROUND OF APPEAL RELATES TO THE DISALLOWANCE OF RS.74,898 U/S.14A. THE AO HAS MADE THIS DISALLOWANC E ON THE GROUND THAT THE APPELLANT WAS HAVING EXEMPT INCOME BY WAY OF DIVIDEND AND AS SUCH SOME COMPONENT OF ADMINISTRATIVE EXPENSES ATTR IBUTABLE TO IT WAS DISALLOWABLE U/S.14A. THE AO HA APPLIED RULE 8D AND WORKED OUT THE DISALLOWANCE AT RS.74,898. 3.2 THE APPELLANT SUBMITS THAT IMPUGNED DISALLOWANC E MADE BY AO IS WHOLLY UNJUSTIFIED BOTH ON FACTS AND IN LAW AS UNDE R:- FIRSTLY, THE AO HAS FAILED TO APPRECIATE THAT RULE 8D WAS NOT APPLICABLE FOR THE YEAR UNDER APPEAL SINCE IT IS NOT RETROSPEC TIVE EFFECT AS HELD IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD (328 ITR 81) (B OM.). THEREFORE, THE DISALLOWANCE WORKED OUT BY AO BY RESORTING TO RULE 8D IS WHOLLY ILLEGAL AND UNLAWFUL. SECONDLY, EVEN GOING BY THE AFORESAID DECISION, THE DISALLOWANCE U/S.14A COULD BE OF A REASONABLE OR FAIR AMOUNT IN THE FACT S AND CIRCUMSTANCES OF THE CASE. NOW, IN THE PRESENT CASE, THE APPELLANT I S EXCLUSIVELY ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND COMMODITIES. THE EARNING OF DIVIDEND INCOME IS INCIDENTAL TO THE HOLDING OF SHA RES IN THE COURSE OF THE AFORESAID BUSINESS. THE SHARES HELD BY THE APPELLAN T WERE STOCK-IN-TRADE AND NOT THE INVESTMENT. IT IS ALSO SHOWN BY WAY OF OPENING AND CL. STOCK IN ITS BOOKS OF ACCOUNT. AGAINST THE AFORESAID BACK GR OUND, IT WILL BE APPRECIATED THAT THERE IS NO PROXIMITY BETWEEN THE EXEMPT INCOME AND THE EXPENDITURE CLAIMED BY THE APPELLANT. IT IS NOW WEL L-SETTLED POSITION IN LAW THAT THE BURDEN IS CAST UPON THE DEPT. TO PROVE THE NEXUS BETWEEN THE EXPENDITURE AND EXEMPT INCOME. RELIANCE IS PLACED O N THE DECISION OF WOLFORT SHARES AND STOCK BROKERS LTD (326 ITR 1) (S C) AND HERO CYCLES LTD. ( 323 ITR 518) (PH). THE AO HAS GIVEN FINDING WHILE WORKING OUT THE DISALLOWANCE AS PER RULE 8D THAT THERE WAS NO EXPEN DITURE DIRECTLY RELATING TO THE EXEMPT INCOME. I.T.A.NO. 1330 /AHD/2011 4 NOW, COMING TO THE REASONABLENESS OF THE AMOUNT, TH E APPELLANT SUBMITS THAT CONSIDERING THE QUANTUM OF DIVIDEND INCOME, IT COULD NOT BE A SUBSTANTIAL AMOUNT AND EVEN ADMINISTRATIVE EXPENSES WOULD NOT BE REQUIRED TO BE INCURRED FOR THE SAME. IT IS WHOLLY UNBELIEVABLE THAT THE EXPENSES OF RS.74,898 WOULD BE INCURRED FOR EARNING EXEMPT INCOME OF RS.31,417. IN VIEW OF THE ABOVE, THE DISALLOWANCE O F RS.74,898 SHOULD BE DELETED. 4.0 INTEREST INCOME AS OTHER SOURCES (RS.5,46,854) 4.1 THE NEXT GROUND OF APPEAL RELATES TO THE INTERE ST INCOME OF RS.5,46,854 TREATED AS INCOME FROM OTHER SOURCES AS AGAINST BUSINESS INCOME BY AO. IT IS OBSERVED BY AO THAT THE APPELLA NT HAD FAILED TO FILE DETAILS OF INTEREST INCOME SO THAT IT COULD NOT BE ASCERTAINED THAT THE SAME WAS PART OF THE BUSINESS PROCESS. 4.2 THE APPELLANT SUBMITS THAT IT WAS POINTED OUT I N HIS SUBMISSION DT. 27.7.2009 THAT INTEREST WAS PART OF THE BUSINESS. I T WAS NOT REQUIRED TO FILE DETAILS BUT GIVEN SHOW CAUSE TO TREAT AS INCOME FRO M OTHER SOURCES. SECONDLY, THE APPELLANT HAD OFFERED NET INTEREST AS INCOME. IT WILL BE APPRECIATED THAT THE INTEREST INCOME WAS EARNED FRO M ADVANCE TO KALPESH GADHACHA AND BHARATBHAI GADHACHA WHICH WAS NOT IN T HE NATURE OF INVESTMENT BUT TEMPORARY FINANCE PROVIDED BY WAY OF SHARAFFI TRANSACTIONS AS IT WOULD BE NOTICED FROM THEIR LEDG ER ACCOUNT. SIMILARLY, THE PAYMENT OF INTEREST WAS ON ACCOUNT OF SHARAFFI TRANSACTIONS WITH NAVNEET PUBLICATIONS INDIA LTD. THEREFORE, AO OUGHT NOT HAVE TREATED THE INTEREST EXPS. AS PART OF THE BUSINESS AND THE INTE REST RECEIVED AS NON- BUSINESS ACTIVITY. EVEN THE QUANTUM OF AMOUNT ADVAN CED, THE PERIOD ETC. ARE SUFFICIENT TO PROVE THAT THE INTEREST RECEIVED WAS A PART OF THE BUSINESS OF THE APPELLANT. IN VIEW OF THE ABOVE, THE INTERES T INCOME SHOULD HAVE BEEN TREATED AS INCOME FROM OTHER SOURCES. 5.0 ALLOCATION OF EXPENSES 5.1 THE NEXT GROUND OF APPEAL RELATES TO THE ALLOCA TION OF EXPENSES BETWEEN SPECULATIVE BUSINESS AND NON-SPECULATIVE BU SINESS BY AO. SINCE THE APPELLANT WAS CARRYING ON SPECULATIVE AND NON-S PECULATIVE TRANSACTIONS, THE AO HAS BIFURCATED THE EXPENSES AG GREGATING TO RS.13,76,995 BEING ADMINISTRATIVE, INTEREST, DEPREC ATION ETC. IN THE RATIO I.T.A.NO. 1330 /AHD/2011 5 OF INCOME, I.E. 2 : 3. THE APPELLANT SUBMITS THAT THE IMPUGNED ALLOCATION IS WHOLLY UNJUSTIFIED BOTH ON FACTS AND IN LAW :- (A) FIRSTLY, THE AO HAS FAILED TO APPRECIATE THAT T HE BUSINESS CARRIED ON BY THE APPELLANT IN SHORES AND COMMODITIES IS A COM POSITE AND INDIVISIBLE BUSINESS. THE TRADING IN SUCH COMMODITIES RNAY TAKE DIFFERENT FORMS SUCH AS DELIVERY BASED, INFRA-TRADING. DAY-TRADING F&O, SPECULATIVE ETC. THEREFORE, THE DIFFERENT MANNER IN WHICH THE BUSINE SS IS CARRIED ON BY THE ASSESSEE CANNOT BE THE GROUND FOR ALLOCATING EXPENS ES AMONGST SUCH ACTIVITIES. AFTER ALL, WHAT IS BROUGHT TO TAX UNDE R THIS HEAD OF INCOME IS THE PROFITS AND GAINS OF BUSINESS OR PROFESSION. SECONDLY, THE AO HAS ALSO TAILED TO APPRECIATE THAT WHEN THE APPELLANT IS CARRYING ON TRADING BUSINESS IN COMMODITY, THE EXPE NSES RELATING TO THE SAME WOULD ALSO BE COMPOSITE AND THE SOME COULD NOT BE IDENTIFIED TO SUCH ACTIVITIES THE LAW DOES NOT REQUIRE THE ASSESS EE TO MAINTAIN SEPARATE ACCOUNTS FOR EACH OF SUCH ACTIVITY. ON THE CONTRARY THE POSITION AS PER JUDICIAL PRONOUNCEMENTS IN CASE OF EXEMPT INCOME AN D NON-EXEMPT INCOME WHERE COMPOSITE AND INDIVISIBLE ONE, THE EXP ENSES ARE NOT TO BE SEGREGATED INTO TWO (PRIOR TO INSERTION OF SEC. 14A ) THIRDLY, ASSUMING THE AO WAS JUSTIFIED IN MAKING SU CH BIFURCATION, THE SAME CANNOT BE ON THE BASIS OF INCOME BECAUSE IN CA SE OF SPECULATIVE TRANSACTION, THE ELEMENT OF INCOME WOULD BE UNCERTA IN AND ERRATIC SO THAT IT CANNOT BE COMPARED WITH NORMAL BUSINESS INCOME ( WHICH ALSO DEPEND ON MANY FACTORS) THEREFORE THE BIFURCATION MADE BY AO IS UNREALISTIC AND UNREASONABLE. ON THE CONTRARY, THE LEARNED DR HAS SUPPORTED THE O RDER OF THE AO AND ALSO THE IMPUGNED ORDER. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD AND JUDGMENTS CITED BY THE PARTIES. THE ASS ESSEE HAS CHALLENGED DISALLOWANCE UNDER SECTION 14A OF THE ACT OF RS.74, 898/-. THE AO HAS APPLIED RULE 8D WHILE COMPUTING THE EXPENDITURE. T HE AUTHORIZED REPRESENTATIVE HAS RELIED ON THE DECISIONS IN THE C ASE OF WOLFORT SHARES & STOCK BROKERS LTD., 326 ITR 1 (SC) AND HERO CYCLES LTD., 323 ITR 518 (P&H). IN SUPPORT OF THIS CONTENTION THAT THE BURD EN IS ON THE DEPARTMENT I.T.A.NO. 1330 /AHD/2011 6 TO PROVE THE NEXUS BETWEEN THE EXPENDITURE AND EXEM PT INCOME. WE FIND THAT LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE MERELY ON THE GROUND OF REASONABLENESS OF THE EXPENDITURE. THE CIT(A) H AS NOT GIVEN ANY FINDING AS TO WHY THE CASE LAW AS RELIED ON BY LD. AR ARE NOT APPLICABLE ON THE FACTS OF THE PRESENT CASE. AS PER THE RECEN T JUDGEMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG . PVT. LTD VS DCIT AS REPORTED IN 194 TAXMAN 203, SOME REASONABLE DISALLOWANCE SHOULD BE MADE PRIOR TO ASSESSMENT YEAR 2008-09 WHE N RULE 8D IS NOT APPLICABLE. NORMALLY, WE RESTORE THIS ISSUE TO THE FILE OF THE A.O. FOR A FRESH DECISION IN THE LIGHT OF THIS JUDGEMENT OF HO NBLE BOMBAY HIGH COURT BUT IN VIEW OF SMALLNESS OF AMOUNT OF DISALLO WANCE MADE BY THE A.O. OF RS.74,898/- BEING 0.5% OF AVERAGE VALUE OF INVESTMENT IN SHARES, WE FEEL THAT RESTORING BACK THIS SMALL ISSUE WILL B E UNNECESSARY WASTAGE OF TIME OF THE ASSESSEE & THE REVENUE BOTH. WE ALSO F IND THAT THERE IS NO DIRECT EXPENDITURE AS PER THE A.O. ALSO. WE ALSO F IND THAT INVESTMENT IN SHARES IS NIL AS ON 01.04.2006 I.E. IN THE BEGINN ING OF THE YEAR. THIS IS NOT BROUGHT ON RECORD BY THE A.O. THAT WHEN FIRST I NVESTMENT IN SHARES WAS MADE BY THE ASSESSEE. UNDER THESE FACTS, WE FE EL THAT A DISALLOWANCE OF RS.37,500/- WILL MEET THE ENDS OF JUSTICE. WE D ECIDE THIS AMOUNT ON THE BASIS THAT INVESTMENT WAS FOR HALF YEAR ONLY. THIS GROUND IS PARTLY ALLOWED. 5. THE SECOND ISSUE INVOLVED IS REGARDING TREATMENT OF RS.5,46,854/- INTEREST INCOME AS INCOME FROM OTHER SOURCES. THE LEARNED AR HAS SUBMITTED THAT THE TREATMENT OF INTEREST INCOME EAR NED BY THE ASSESSEE AS INCOME FROM OTHER SOURCES IS UNJUSTIFIED SINCE THE INTEREST INCOME IS RECEIVED BY THE ASSESSEE DURING THE COURSE OF BUSIN ESS ACTIVITY. THE CIT(A) HAS GIVEN A FINDING THAT THE INTEREST EARNED AND RECEIVED BY THE I.T.A.NO. 1330 /AHD/2011 7 ASSESSEE CANNOT BE TREATED AS INCOME RECEIVED DURIN G THE COURSE OF BUSINESS ACTIVITY, AS THE ASSESSEE IS NOT ENGAGED I N THE BUSINESS OF MONEY LENDING. ADMITTEDLY, THE ASSESSEE IS NOT ENGAGED I N THE BUSINESS OF MONEY LENDING AND THE ASSESSEE HAS FAILED TO DEMONS TRATE AS TO HOW LENDING OF MONEY IS RELATED TO HIS BUSINESS ACTIVIT Y. AS PER AUDITORS REPORT, THE ASSESSEE IS TRADING CONCERN ENGAGED IN THE BUSINESS OF SALE AND PURCHASE OF SHARES. THE LD. AR DID NOT PLACE ON RE CORD ANY BINDING PRECEDENT IN THIS ISSUE. THEREFORE, IN OUR OPINION THERE IS NO INFIRMITY IN THE ORDER OF THE LD. CIT(A). AS A RESULT, THIS GRO UND OF THE APPEAL IS REJECTED. 6. THE OTHER GRIEVANCE OF THE ASSESSEE IS WITH REGA RD TO ALLOCATION OF BUSINESS EXPENDITURE FOR THE SPECULATION BUSINESS A ND NON SPECULATION BUSINESS. THE A.O. HAS ALLOCATED AN AMOUNT OF RS.5 ,50,798/- TO SPECULATION LOSS OUT OF TOTAL COMMON EXPENSES OF RS .13,76,995/-. IN ADDITION TO THIS, THERE IS ONE MORE GRIEVANCE OF TH E ASSESSEE REGARDING COMPUTATION OF SPECULATION LOSS. THIS GRIEVANCE IS AS PER GROUND NO.4.1 OF THE APPEAL AS PER WHICH, IT IS CONTENDED BY THE ASSESSEE THAT EXPLANATION TO SECTION 73(1) WAS WRONGLY INVOKED. 7. IT WAS SUBMITTED BY THE LD. A.R. THAT THE ASSESS EE COMPANY IS CARRYING ON TRADING BUSINESS IN COMMODITY AND ALSO IN SHARES AS COMPOSITE AND INDIVISIBLE BUSINESS AND, THEREFORE, APPORTIONMENT OF EXPENSES AMONG THESE TWO ACTIVITIES IS NOT REQUIRED . HE ALSO SUBMITTED THAT EVEN IF ALLOCATION IS TO BE MADE, THE RATIO AD OPTED BY THE A.O. IS NOT PROPER. REGARDING THE EXPLANATION TO SECTION 73(1) , HE PLACED RELIANCE ON THE JUDGMENT OF HONBLE BOMBAY HIGH COURT RENDER ED IN THE CASE OF CIT VS DARSHAN SECURITIES PVT. LTD. IN I.T.A.NO.288 6/2009 DATED I.T.A.NO. 1330 /AHD/2011 8 02.02.2012. HE SUBMITTED A COPY OF THIS UNREPORTED JUDGMENT OF HONBLE BOMBAY HIGH COURT. 8. AS AGAINST THIS, LD. D.R. SUPPORTED THE ORDERS O F AUTHORITIES BELOW. HE ALSO PLACED RELIANCE ON THE JUDGMENT OF HONBLE ALLAHABAD HIGH COURT RENDERED IN THE CASE OF MAKHANLAL RAM SWARUP VS CIT 61 ITR 214 WHEREIN, IT WAS HELD BY THE HONBLE ALLAHABAD H IGH COURT THAT THE TRIBUNAL IS ENTITLED TO MAKE SUITABLE APPORTIONMENT OF THE EXPENSES BETWEEN MONEY LENDING AND TO SPECULATION BUSINESS. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSE D THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDER OF AUTHORITI ES BELOW AND THE JUDGMENTS CITED BY BOTH THE SIDES. REGARDING THIS ASPECT AS TO WHETHER ALLOCATION IS TO BE MADE OR NOT, WE FIND THAT THE J UDGEMENT OF HONBLE ALLAHABAD HIGH COURT CITED BY LD. D.R. COVERS THIS ISSUE AGAINST THE ASSESSEE. IN THIS ASPECT, WE DECIDE THIS ISSUE AGA INST THE ASSESSEE BY FOLLOWING THIS JUDGEMENT OF HONBLE ALLAHABAD HIGH COURT. REGARDING QUANTUM OF ALLOCATION, WE FEEL THAT THE A.O. HAS AL LOCATED THESE EXPENSES IN THE RATIO OF LOSS FROM SPECULATIVE TRANSACTION I N COMMODITY AND INCOME FROM DERIVATIVE TRANSACTION OF SHARES BUT HE HAS NO T CONSIDERED THE SALE OF SHARES REPORTED BY THE ASSESSEE IN THE P & L ACCOUN T OF RS.1437.85 LACS. IN OUR CONSIDERED OPINION, THE TOTAL EXPENSES CONSI DERED BY THE A.O. FOR ALLOCATION OF RS.13,76,995/- SHOULD BE ALLOCATED TO ALL THE THREE ACTIVITIES I.E. PURCHASE AND SALE OF SHARES, HAVING TURNOVER O F RS.1437.85 LACS, SPECULATIVE LOSS OF COMMODITY TRANSACTION OF RS.21. 40 LACS AND INCOME FROM DERIVATIVE TRANSACTION OF SHARES OF RS.50.43 L ACS. IF THESE EXPENSES ARE ALLOCATED TO THESE THREE ACTIVITIES IN THE RATI O OF THE TURNOVER OF THESE THREE ACTIVITIES THEN, THE AMOUNT TO BE ALLOCATED T O SPECULATION BUSINESS OF COMMODITY SHOULD BE 21.40 /1509.68 OF TOTAL EXPENSE S, WHICH COMES TO I.T.A.NO. 1330 /AHD/2011 9 ROUGHLY 1.5%. THE SAME SHOULD BE ALLOCATED TO PURC HASE AND SALE OF ACTIVITIES OF SHARES BY WAY OF DELIVERY TO THE EXTE NT OF 1437.85 / 1509.68 ROUGHLY 95% AND THE REMAINING EXPENSES SHOULD BE AL LOCATED TO INCOME FROM DERIVATIVE TRANSACTION OF SHARES. SUCH EXPEND ITURE TO BE ALLOCATED TO SPECULATION BUSINESS OF COMMODITY WORKS OUT TO RS.2 0655/- AND THE SAME FOR PURCHASE AND SALE OF SHARES BY WAY OF DELIVERY RS.13,08,145 AND THE REMAINING EXPENSES OF RS.48195/- IS REQUIRED TO BE ALLOCATED TO INCOME FROM DERIVATIVE TRANSACTION OF SHARES. ACCORDINGLY , THE PROFIT AND LOSS OF THESE THREE ACTIVITIES SHOULD BE AS UNDER: A. PROFIT & LOSS IN THE BUSINESS OF PURCHASE AND SALE OF SHARES BY DELIVERY: SALE OF SHARES RS.14,37,85,465 ADD: CLOSING STOCK RS. 2,99,59,113 RS.17,37,44,578 LESS: PURCHASE SE OF SHARES RS.17,37,34,136 LESS DMAT CHARGES RS.95,496 LESS: SERVICE TAX RS. 2,361 LESS SHARE TRADING EXP. RS.1,70,958 LESS EXPENSES ALLOCATED RS.13,08,145 RS.17,53,11,096 NET LOSS: RS. 15,66,518 B PROFIT & LOSS ON SPECULATIVE TRANSACTION IN COMMODITY: NET LOSS AS PER P & L ACCOUNT RS.21,40,013 ADD: ALLOCATION OF EXPENSES AS ABOVE RS. 20,6 55 TOTAL LOSS RS.21,60,668 C INCOME/LOSS FROM DERIVATIVE TRANSACTION OF SHARES: INCOME AS CREDITED IN P & L A/C RS.50,43,318 LESS : FUTURE TRADING EXPENSES RS.16,22,141 LESS: EXPENSES ALLOCATED AS ABOVE RS. 48,195 TOTAL EXPENSES RS.16,70,336 NET INCOME RS.33,72,982 I.T.A.NO. 1330 /AHD/2011 10 10. NOW, WE CONSIDER THE THIRD ASPECT AS TO WHETHER THE LOSS IN THE BUSINESS OF SHARE TRADING BY DELIVERY SHOULD BE CO NSIDERED AS SPECULATION LOSS BY INVOKING THE PROVISIONS OF EXPLANATION TO S ECTION 73(1). FOR THIS ISSUE, RELIANCE WAS PLACED BY THE LD. A.R. ON THE J UDGEMENT OF HONBLE BOMBAY HIGH COURT RENDERED IN THE CASE OF CIT VS DA RSHAN SECURITIES PVT. LTD. (SUPRA). IN THAT CASE, IT WAS HELD BY TH E HONBLE BOMBAY HIGH COURT THAT FOR THE PURPOSE OF DECIDING AS TO WHETHE R EXPLANATION TO SECTION 73(1) IS APPLICABLE OR NOT, BUSINESS INCOME SHOULD BE WORKED OUT WITHOUT INVOKING THE PROVISIONS OF EXPLANATION TO S ECTION 73(1) AND THEN, SUCH BUSINESS LOSS OR INCOME SHOULD BE COMPARED WIT H THE INCOME UNDER THE OTHER HEADS. IF WE DO SO IN THE PRESENT CASE, W E FIND THAT THERE IS INCOME OF RS.33,72,982/- FROM DERIVATIVE TRANSACTIO N OF SHARES AND THERE IS LOSS OF RS.15,66,518/- FROM BUSINESS OF SHARE TR ADING AND THERE IS LOSS OF RS.21,60,668/- FROM BUSINESS OF COMMODITY. AFTE R ADJUSTING THESE TWO LOSSES AGAINST THE INCOME FROM DERIVATIVE TRANSACTI ON, THERE IS NET LOSS OF RS.3,54,204/- AND INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES AS ASSESSED BY THE A.O. IS RS.5,46,854/- AND HENCE, IN COME FROM OTHER SOURCES IS MORE THAN THE BUSINESS LOSS AND, THEREFO RE, THE EXPLANATION TO SECTION 73(1) IS NOT APPLICABLE BECAUSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEAD INCOM E FROM OTHER SOURCES. BUT THERE IS ONE LACUNA. LOSS OF RS.(- )21,60,668/- FROM SPECULATION BUSINESS OF COMMODITY CANNOT BE REDUCED FROM BUSINESS INCOME. EVEN IF THE SPECULATION LOSS FROM THE BUSI NESS OF COMMODITY TRANSACTION OF RS.21,60,668/- IS NOT REDUCED FROM T HE INCOME FORM DERIVATIVE TRANSACTION OF RS.33,72,982/-, SET OFF O F BROUGHT FORWARD BUSINESS LOSS OF RS.19,91,409/- AS ALLOWED BY THE A .O. IN THE ASSESSMENT ORDER, HAS TO BE REDUCED FROM BUSINESS PROFIT AND W HEN WE DO SO, THE I.T.A.NO. 1330 /AHD/2011 11 BUSINESS INCOME ASSESSABLE TO BE INCLUDED IN GROSS TOTAL INCOME COMES TO RS. NIL AND GROSS TOTAL INCOME CONSISTS OF INCOM E FROM OTHER SOURCES ONLY OF RS.5,46,845/- AND, THEREFORE, EXPLANATION T O SECTION 73(1) IS NOT APPLICABLE AS PER THIS JUDGMENT OF HONBLE BOMBAY H IGH COURT. HENCE, BY RESPECTFULLY FOLLOWING THIS JUDGEMENT OF HONBLE BOMBAY HIGH COURT CITED BY THE LD. A.R., WE HOLD THAT IN THE FACTS OF THE PRESENT CASE AS DISCUSSED ABOVE, EXPLANATION TO SECTION 73(1) IS NO T APPLICABLE AND, THEREFORE, LOSS OF RS.15,66,518/- FROM BUSINESS OF PURCHASE AND SALE OF SHARES ON DELIVERY BASIS CANNOT BE CONSIDERED AS SP ECULATION LOSS AND ONLY THE LOSS FROM COMMODITY TRANSACTION BUSINESS OF RS. 21,60,668/- HAS TO BE CONSIDERED AS SPECULATION LOSS. WE DIRECT THE A.O. ACCORDINGLY. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 12. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED HEREINABOVE. SD./- SD./- ( . .. . . .. . /A.K. GARODIA) ! ' ! ' ! ' ! ' /ACCOUNTANT MEMBER ( $ %& $ %& $ %& $ %& /KUL BHARAT) ' ' ' ' /JUDICIAL MEMBER VIJAY/SP C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD I.T.A.NO. 1330 /AHD/2011 12 1. DATE OF DICTATION : 11-04-2012 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER. : 12-04-2012 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P.S./P.S : 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT. : 19-04-2012 5. DATE ON WHICH FAIR ORDER PLACED BEFORE OTHER MEMBER : 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P.S./P.S. : 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK. : 27/4/12 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK. : 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER. : 10. DATE OF DESPATCH OF THE ORDER :