M/s Neptune securities Pvt.Ltd., Ahmedabad V. The Dy.CIT.,Range-3, Ahmedabad

ITA 1364/AHD/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 72996 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 18-02-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 22-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P BATHEJA
• Keywords: Business income; Source of fund; Speculation loss

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER ITA NO.1364/AHD/2012 A.Y. 2008-09 M/S. NEPTUNE SECURITIES PVT. LTD., 104, SHYAMAK COMPLEX, AHMEDABAD. V/S. THE ACIT, RANGE-3, AHMEDABAD. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI O.P. BATHEJA, SR.D.R. ASSESSEE(S) BY : SHRI TUSHAR P. HEMANI, A.R. / DATE OF HEARING : 18/02/2014 / DATE OF PRONOUNCEMENT: 21/02/2014 / O R D E R PER SHRI MUKUL KUMAR SHRAWAT, J.M. THIS IS AN APPEAL FILED BY THE ASSESSEE ARISING FRO M THE ORDER OF LEARNED CIT(A)-VI, AHMEDABAD, DATED 12.06. 2012 AND THE SUBSTANTIAL GROUND IS GROUND NO.1, REPRODUCED BELOW : 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACT S IN CONFIRMING ACTION OF AO IN DISALLOWING SET OFF OF LOSSES ON AC COUNT OF SHARE TRADING RS.3,09,985/- BY TREATING THE SAME AS A SPE CULATIVE IN NATURE WHICH IS WHOLLY UNSUSTAINABLE IN LAW AND ON FACTS. IT IS TOTALLY UNCALLED FOR, DESERVES TO BE QUASHED. 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S.143(3), DATED 25.11.2010 WERE THAT THE ASSESSEE COMPANY IS STATED TO BE ENGAGED IN TRADING OF SHARE S AND SECURITIES. IT WAS NOTED BY THE AO THAT THE ASSESSEE HAD CLAIME D A TRADING LOSS OF RS.3,29,434/-. ACCORDING TO AO, AS PER EXPLANATI ON TO SECTION 73 OF THE IT ACT, ANY LOSS ARISING OUT OF THE BUSIN ESS OF PURCHASE ITA NO.1364/AHD/2012 M/S. NEPTUNE SECURITIES PVT. LTD. VS. ACIT AHMEDABA D A.Y. 2008- 09 - 2 - AND SALE OF SHARES IS TO BE TREATED AS SPECULATION LOSS. A SHOW CAUSE WAS ISSUED AND IN COMPLIANCE IT WAS STATED TH AT AS PER P&L A/C. THE INCOME FROM THE SALE OF SHARES WAS AMOUNTE D TO RS.37,14,905/-. THE ASSESSEE HAS ALSO EARNED SHARE BROKING INCOME OF RS.24,08,618/-. THE CONTENTION OF THE ASSESSEE W AS THAT THE MAIN ACTIVITY OF THE ASSESSEE WAS TRADING IN SHARES AND NOT THE SHARE BROKING; THEREFORE, THE PROVISIONS OF SECTION 73 OF THE IT ACT WERE NOT APPLICABLE. HOWEVER, THE AO WAS NOT CONVINCED A ND HELD THAT THE MAIN INCOME OF THE ASSESSEE WAS FROM SHARE BROK ING WHICH WAS MORE THAN THE INCOME FROM THE TRADING IN SHARES . IT WAS CONCLUDED BY THE AO THAT THE LOSS IN QUESTION WAS A SPECULATION LOSS; HENCE, NOT TO BE ALLOWED TO SET OFF AGAINST THE BUSINESS INCOME / LOSS. BEING AGGRIEVED THE MATTER WAS CARRI ED BEFORE THE FIRST APPELLATE AUTHORITY. 3. BEFORE LEARNED CIT(A), IT WAS STATED THAT THE AS SESSEE COMPANY HAS OTHER RESOURCES OF INCOME AND THE BIFUR CATION OF THE SAME WAS GIVEN AS UNDER: IT CAN BE SEEN FORM THE EXPLANATION TO SECTION 73 IN NOT APPLICATION TO THE COMPANY WHOSE TOTAL INCOME CONSISTS MAINLY O F INCOME WHICH IS CHARGEABLE UNDER THE HEAD INTEREST ON SECURITIES, I NCOME FORM HOUSE PROPERTY, CAPITAL GAIN AND INCOME FROM OTHER SOURCE S. WE HERE WITH PRODUCED THE BRAKE UP OF INCOME OF APPELLANT FOR TH E YEAR UNDER CONSIDERATION AMONG VARIOUS HEADS OF INCOME IS AS U NDER: SR. NO. SOURCE OF INCOME (HEAD OF INCOME) AMOUNT RS. 1. INTEREST INCOME (RS.90,276/- + RS.2,11,439/-) 3,01,715/- 2. CAPITAL GAIN (RS.1,56,640/- LTCG + 56,715/- STCG) 2,13,355/- 3. DIVIDEND INCOME 1,32,190/- TOTAL 6,47,260/- ITA NO.1364/AHD/2012 M/S. NEPTUNE SECURITIES PVT. LTD. VS. ACIT AHMEDABA D A.Y. 2008- 09 - 3 - THEREFORE THE INCOME FROM VARIOUS HEADS OF INCOME O F THE APPELLANT IS RS.6,47,260/- IS MORE THEN A LOSS OF RS.3,29,434/- AS STATED BY LD. AO. THEREFORE WHEN THE MAJOR INCOMES OF THE APPELLANT A RE IS FROM VARIOUS HEADS OF INCOME AS COMPARED TO INCOME FOR SHARE TRA DING, THE EXPLANATION TO SECTION 73 OF INCOME TAX ACT 1961 NO T APPLICABLE. THEREFORE, NO DISALLOWANCE CAN BE MADE BY INVOKING EXPLANATION TO SECTION 73 OF THE ACT. 3.1 HOWEVER, LEARNED CIT(A) WAS NOT CONVINCED AND H ELD THAT THE LOSS IN QUESTION WAS SPECULATION LOSS, AS FOLLO WS: 4.3 I HAVE CONSIDERED THE FACTS OF THE CASE; ASSES SMENT ORDER AND APPELLANT'S WRITTEN SUBMISSION. ASSESSING OFFICER T REATED THE APPELLANT'S SHARE TRADING ACTIVITY AS SPECULATIVE A S PER EXPLANATION TO SECTION 73 ON THE GROUND THAT APPELLANT EARNED INCO ME FROM SALE OF SHARES RS 37.15 LAKHS WHICH, IS MORE THAN OTHER BUS INESS ACTIVITY I.E. BROKERAGE. APPELLANT ALSO EARNED INCOME BY WAY OF I NTEREST, DIVIDEND AND SOME CAPITAL GAIN HOWEVER THE TOTAL OF THE SAME IS 6.47 LAKHS WHICH IS MUCH LESS THAN INCOME FROM SALE OF SHARES. APPELLANT SUBMITTED THAT THERE IS LOSS IN BUSINESS HEAD HENCE OTHER INCOME IS MORE THAN BUSINESS INCOME AND ACCORDINGLY IT IS OUT SIDE THE PURVIEW OF EXPLANATION TO SECTION 73. IT IS NOT IN DISPUTE THAT APPELLANT'S AUDITOR CONFIRMED THE APPELLANT'S MAIN ACTIVITY AS SHARE TRADING. OTHER INCOMES RECEIVED ARE INCIDENTAL TO THIS MAIN ACTIVITY AND THEREFORE EVEN IF THERE IS LOSS IN BUSINESS HEAD, I NTEREST AND DIVIDEND INCOME CANNOT BECOME APPELLANT'S MAIN ACTIVITY. ACCORDINGLY IT IS HELD THAT BUSINESS OF APPELLANT TO THE EXTENT OF TR ADING IN SHARES IS SPECULATIVE AND DISALLOWANCE MADE BY THE ASSESSING OFFICER IS CONFIRMED. 4. NOW BEFORE US LEARNED AR, MR. TUSHAR P. HEMANI H AS DRAWN OUR ATTENTION AT PAGE 46 OF THE PAPER BOOK TO DEMONSTRATE THAT AS PER THE COMPUTATION OF INCOME FOR A.Y. 2008 -09 THE INCOME FROM ALL OTHER HEADS WAS HIGHER THAN THE LOS S IN QUESTION, THEREFORE, THE PROVISIONS HAVE WRONGLY BEEN APPLIED . IN RESPECT OF HIS ARGUMENT RELIANCE WAS PLACED ON CONCORD COMMERCIALS PVT. LTD. , 95 ITD 117 (MUM.) (SB). LEARNED AR HAS ALSO COMME NTED THAT THERE WAS WRONG CALCULATION OF IMPUGNED LOSS B ECAUSE THE AO HAS NOT CONSIDERED THE INCOME FROM OTHER RESOURCES. IN THIS ITA NO.1364/AHD/2012 M/S. NEPTUNE SECURITIES PVT. LTD. VS. ACIT AHMEDABA D A.Y. 2008- 09 - 4 - CONNECTION, HE HAS PLACED BEFORE US POINT-WISE SUBM ISSIONS, RELEVANT PORTION IS REPRODUCED BELOW: GROUNDS AO PG PARA CIT(A) PG PARA COMMENTS 1. CONFIRMING ACTION OF THE AO IN DISALLOWING SET- OFF OF LOSSES ON ACCOUNT OF SHARE TRADING RS.3,09,985/- 3 & 5 4 5 TO 4 TO 8 4.3 APPELLANT IS ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND SECURITIES AS IS EVIDENT FROM TAX AUDIT REPORT PLACED AT PGS,12 TO 27 @ 13 OF P/B. AO FOUND THAT APPELLANT HAD EARNED BROKERAGE INCOME OF RS.24,08,618/- AND ITS SALES WERE TO THE TUNE OF RS.37,14,905/-. HE TOOK A VIEW THAT MAIN INCOME OF THE APPELLANT IS FROM SHARE BROKING SINCE AFTER DEDUCTING PURCHASE AND EXPENSES RELATED TO TRADING IN SHARES, THE INCOME FROM BROKERAGE WILL BE MORE THAN INCOME FROM TRADING IN SHARES. HE THEREFORE CONCLUDED THAT PROVISION OF S.73 IS APPLICABLE IN APPELLANT'S CASE AND THAT APPELLANT IS ENGAGED IN SPECULATION BUSINESS ACTIVITY. HE WORKED OUT TRADING LOSS AT RS.3,29,434/- [I.E. SALES RS.37,14,905 + CLOSING STOCK RS.6,57,696 - OPENING STOCK RS.13,13,159 - PURCHASE RS.33,88,876 = TRADING LOSS OF RS.3,29,434/-] (PGS.28 TO 44 @ 36 OF P/B). FINALLY, HE DISALLOWED RS.3,09,985/- [I.E. RS.1,77,795/- BEING TRADING LOSS (AS PER REVISED CALCULATION) AND RS.1,32,190/- BEING DIVIDEND INCOME CREDITED TO P&L A/C BY TREATING THE SAME AS SPECULATION LOSS AND THE SAME CAME TO BE CONFIRMED BY CIT(A). BOTH THE LOWER AUTHORITIES FAILED TO APPRECIATE THAT APPELLANT'S MAIN ACTIVITY IS OF TRADING IN SHARES AND SECURITIES AND NOT SHARE BROKING. APPELLANT'S SALES (I.E. SALE OF SHARES) IS RS.37,14,905/- WHICH IS HIGHER THAN BROKERAGE OF RS.24,08,618/- (PGS.28 TO 44 @ 36 OF P/B) AND HENCE, ITS MAIN ACTIVITY IS TRADING IN SHARES AND NOT EARNING BROKERAGE INCOME. FURTHER, APPELLANT HAS SUFFERED LOSS FROM THE ACTIVITY OF TRADING IN SHARES AND SECURITIES ITA NO.1364/AHD/2012 M/S. NEPTUNE SECURITIES PVT. LTD. VS. ACIT AHMEDABA D A.Y. 2008- 09 - 5 - WHICH IS AN UNDISPUTED FACT. AS AGAINST SUCH LOSS, APPELLANT HAS EARNED FOLLOWING INCOME FROM DIFFERENT SOURCES (PGS.28 TO 44 @ 36 OF P/B): A) INCOME FROM OTHER SOURCES : RS.3,01,715 (INTEREST: RS.90,276 + RS.2,11,439) B) CAPITAL GAIN : RS.2,13,3 55 (LTCG RS.1,56,640 + STCG RS.56715) C) DIVIDEND INCOME : RS.1,32,190 (RS.64,826 + RS.67,364) TOTAL RS.6 ,47,260 5. FROM THE SIDE OF THE REVENUE, LEARNED SR.D.R., M R. O.P. BATHEJA APPEARED AND SUPPORTED THE ORDER OF THE AUT HORITIES BELOW. 6. HAVING HEARD THE SUBMISSION OF BOTH THE SIDES, W E HEREBY HOLD THAT IN A SITUATION WHEN A COMPANY IS DERIVING INCOME FROM VARIOUS RESOURCES THEN IF THE COMPANY CLAIMS THAT I T FALLS WITHIN THE EXCEPTION PROVIDED IN THE EXPLANATION TO SECTION 73 THEN THE ASSESSEE HAS TO PROVE THAT IT IS EITHER A COMPANY W HOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABL E UNDER THE HEAD INTEREST ON SECURITIES, INCOME FROM HOUSE PR OPERTY, CAPITAL GAIN, AND INCOME FROM OTHER RESOURCES. THE ASSESSEE COMPANY IS OTHERWISE REQUIRED TO PROVE THAT THE PRI NCIPAL BUSINESS IS BANKING OR GRANTING OF LOAN ADVANCES SO THAT IT MAY FALL IN THE SECOND OF CATEGORY WITHIN THE EXCEPTION OF THE EXPL ANATION. THE CALCULATION WHICH IS SUBMITTED BEFORE US IS YET TO BE CONFIRMED BY THE AO; THEREFORE, FOR THIS LIMITED PURPOSE WE HERE BY RESTORE THIS MATTER BACK TO THAT STAGE. HOWEVER, IF THE AO IS SA TISFIED THAT THE ASSESSEE FALLS WITHIN THE EXCEPTION AS PRESCRIBED I N EXPLANATION TO SECTION 73 THEN THE CLAIM OF THE ASSESSEE SHOULD BE ALLOWED. WITH ITA NO.1364/AHD/2012 M/S. NEPTUNE SECURITIES PVT. LTD. VS. ACIT AHMEDABA D A.Y. 2008- 09 - 6 - THESE DIRECTIONS, THIS GROUND OF THE ASSESSEE MAY B E TREATED AS ALLOWED BUT FOR STATISTICAL PURPOSE ONLY. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE ONLY. SD/- SD/- (N.S. SAINI) (MUKUL KR. SHRAWAT) ACCOUNTANT MEMBER JUD ICIAL MEMBER AHMEDABAD; DATED 21/02/2014 PRABHAT KR. KESARWANI, SR. P.S. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A)-III, AHMEDABAD 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE. / BY ORDER, / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD