M/s. Souvenir Developers (India) Pvt. Ltd., Dhule V. Assistant Commissioner of Income-tax,

ITA 1374/PUN/2014

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7233 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 12-10-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 04-07-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR VIVEK AGGARWAL
• Keywords: Business income; Transactions in derivatives; Speculation loss
• Section: 43(5); 6; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUNE . , , , BEFORE SHRI D. KARUNAKARA RAO , AM AND SHRI VIKAS AWASTHY, JM . / I TA NO. 1374 /PUN/20 14 /ASSESSMENT YEAR : 2009 - 10 SOUVENIR DEVELOPERS (INDIA) PVT. LIMITED, SHOP NO. 1, ANIMISH APARTMENT, PLOT NO. 3, JANKI NAGAR, WADI BHOKAR ROAD, DEOPUR, DHULE - 424 002 PAN : AAICS2131D ....... / APPELLANT / V/S. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 3(1), DHULE. / RESPONDENT A SSESSEE BY : SHRI SUNIL GANOO REVENUE BY : DR. VIVEK AGGARWAL / DATE OF HEARING : 12.10.2017 / DATE OF PRONOUNCEMENT : 31 .10.2017 / ORDER PER VIKAS AWASTHY, JM THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEAL) - I, NASIK DATED 27.02.2014 FOR ASSESSMENT YEAR 2009 - 10. 2 ITA NO.1374 /PUN/2014 A.Y. 2009 - 10 2. THIS APPEAL HAS BEEN FILED WITH A DELAY OF 63 DAYS. THE A SSESSEE HAS FILED AN APPLICATION SUPPORTED BY AN AFFIDAVIT CITING REASONS FOR DELAY IN FILING OF THE PRESENT APPEAL. AFTER PERUSAL OF THE REASONS GIVEN IN THE AFFIDAVIT, WE ARE SATIS FIED THAT DELAY IN FILING OF APPEAL IS NOT INTENTIONAL BUT IS ON ACCOUNT OF MEDICAL EXIGENCY AS EXPLAINED IN THE AFFIDAV IT. THE DELAY IN FILING OF APPEAL IS CONDONED AND APPEAL IS ADMITTED FOR HEARING AND IS DISPOSED OFF ON MERITS. 3. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORDS ARE: THE ASSESSEE IS A PRIVATE LIMITED COMPANY , ENGAGED IN THE BUSINESS OF CONSTRUCTIO N OF ROADS AND COLLECTION OF TOLL FEES. THE ASSESSEE IS ALSO ENGAGED IN TRADING OF SHARES. THE ASSESSEE SUFFERED LOSS OF RS.1,09,66,444/ - FROM SHARE TRADING BUSINESS AND EARNED PROFIT OF RS. 80,96,748/ - FROM TOLL BUSINESS. THE ASSESSEE COMPUTED NET LOSS A T RS.1,05,23,220/ - AFTER SETTING OFF OF PROFITS FROM TOLL BUSINESS. THE RS.1,05,23,220/ - AFTER SETTING OFF OF PROFITS FROM TOLL BUSINESS. THE ASSESSEE FILED ITS RETURN OF INCOME ON 30.09.2009 DECLARING TOTAL INCOME OF RS.85,43,220/ - . IN SCRUTINY ASSESSMENT, T HE ASSESSING OFFICER IGNOR ED THE LOSS SUFFERED BY ASSESSEE FROM TRA DING OF SHARES AND ASSESSED TAXABLE INCOME AT RS.90,79,092/ - ON THE BASIS OF RETURNED INCOME . 4. AGGRIEVED BY THE ASSESSMENT ORDER DATED 29.12.2011, THE ASSESSEE FILED APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEAL). THE COMMISSIONER OF INCOME TAX ( APPEAL) REJECTED THE CONTENTIONS OF THE ASSESSEE TO SET OF F LOSS INCURRED FROM SHARE TRADING (SPECULATIVE LOSS) AGAINST BUSINESS INCOME OF THE ASSESSEE. AGAINST THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEAL), THE ASSESSEE IS IN SECOND APPEAL BEFORE TH E TRIBUNAL. 3 ITA NO.1374 /PUN/2014 A.Y. 2009 - 10 5. THE ASSESSEE HAS RAISED THREE GROUNDS IN APPEAL. SHRI SUNIL GANOO APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED AT THE OUTSET THAT HE IS WITHDRAWING GROUND NO. 1 AND 2 RAISED IN APPEAL. THUS, THE ONLY GROUND LEFT FOR ADJUDICATION IS GROUND NO. 3. THE SAME IS REPRODUCED AS UNDER : 3. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMING AN ADDITION ON TRANSACTIONS IN DERIVATIVES ON RECOGNIZED STOCK EXCHANGE AS DEFINED IN SECTION 43(5)(D) OF THE INCOME TAX ACT, 1961 WITH REFERE NCE TO EXPLANATION GIVEN TO SECTION 73 OF THE INCOME TAX ACT, 1961 WHICH IS APPLICABLE TO SPECULATIVE TRANSACTIONS. THE LD. AR SUBMITTED THA T THE ONLY ISSUE INVOLVED IN PRESENT APPEAL IS ; WHETHER LOSS OF RS.1,90,66,444/ - SUFFERED BY ASSESSEE IN SHARE TRA DING BUSINESS INCLUDING LOSS UNDER FUTURES AND OPTIONS TRANSACTIONS IS A SPECULATION LOSS WITHIN THE MEANING OF EXPLANATION TO 73(4) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 5.1 THE LD. AR FURTHER CONTENDED THAT THE FIRST APPE LLATE AUTHORITY BY PLACING RELIANCE ON THE DECISION RENDERED IN THE CASE OF CIT VS. DLF COMMERCIAL DEVELOPERS LTD REPORTED AS 261 CTR 127 (DELHI) HAS REJECTED THE CONTENTION OF ASSESSEE. THE LD. AR FAIRLY ADMITTED THAT THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. LOKMAT NEWSPAPERS P. LTD. REPORTED AS 322 ITR 43 HAS DECIDED THE ISSUE AGAINST THE ASSESSEE. THE LD. AR FURTHER SUBMITTED THAT THE FINDINGS OF COMMISSIONER OF INCOME TAX(APPEALS) ARE ASSAILED BY ASSESSEE IN PRESENT APPEAL JUST TO KEEP THE ISSUE ALIVE. THE LD. AR TO DISTINGUISH THE JUDGMENTS, PLACED RELIANCE ON THE PROVISO TO SECTION 43 (5) OF THE ACT. 4 ITA NO.1374 /PUN/2014 A.Y. 2009 - 10 6. ON THE OTHER HAND, DR. VIVEK AGGARWAL REPRESENTING THE DEPARTMENT VEHEMENTLY DEFENDED THE IMPUGNED ORDER AND PRAYED FOR DI SMISSING THE APPEAL OF ASSESSEE. 7. WE HAVE HEARD THE SUBMISSIONS MADE BY REPRESENTATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW. THE LD. AR OF THE ASSESSEE STATED AT BAR THAT HE IS WITHDRAWING GROUND NO. 1 AND 2 RAISED IN THE A PPEAL. A CCORDINGLY, GROUND NO. 1 AND 2 ARE DISMISSED AS WITHDRAWN. 8. THE LD. AR FAIRLY ADMITTED THAT THE ISSUE RAISED BY ASSESSEE IN GROUND NO. 3 RELATING TO SET OFF OF SPECULATIVE LOSS ARISING FROM SHARE TRADING BUSINESS AND TRADING OF FUTURES AND OPTIONS AGAINST BUSINESS INCOME IS NOT PERMISSIBLE. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. LOKMAT NEWSPAPERS P. LTD (SUPRA.) HAS HELD : 6 . SUB SECTION (1) OF SECTION 73 PROVIDES THAT THE LOSS IN RESPECT OF A SPECULATION BUSINESS CAN BE SET OFF ONLY AGAINST THE PROFITS AND GAINS OF ANOTHER SPECULATION BUSINESS. SUBSECTION (2) OF SECTION 73 ENABLES AN ASSESSEE TO CARRY FORWARD THE LOSS ARISING OUT OF A SPECULATIO N BUSINESS WHICH HAS NOT BEEN SET OFF EITHER WHOLLY OR PARTLY UNDER THE PROVISIONS OF SUB SECTION (1). A LOSS FROM A SPECULATION BUSINESS WHICH HAS NOT BEEN SET OFF EITHER ENTIRELY OR IN PART, CAN BE CARRIED FORWARD TO THE FOLLOWING ASSESSMENT YEAR AND CAN BE SET OFF AGAINST THE PROFITS AND GAINS, IF ANY, OF A SPECULATION BUSINESS CARRIED ON BY THE ASSESSEE AND ASSESSABLE FOR THAT ASSESSMENT YEAR. IF THE LOSS CANNOT BE WHOLLY SET OFF, THE AMOUNT OF LOSS WHICH IS NOT SO SET OFF, CAN BE CARRIED FORWARD TO THE FOLLOWING ASSESSMENT YEAR. HOWEVER, A LOSS CANNOT BE CARRIED FORWARD FOR MORE THAN FOUR ASSESSMENT YEARS IMMEDIATELY SUCCEEDING THE ASSESSMENT YEAR IN WHICH THE LOSS WAS FIRST COMPUTED. 7. THE EXPLANATION TO SECTION 73 CREATES A DEEMING FICTION. THE EXPLANATION POSTULATES A SITUATION WHERE THE ASSESSEE IS A COMPANY AND WHERE ANY PART OF THE BUSINESS OF THE COMPANY CONSISTS OF THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES. IN SUCH A CASE, THE ASSESSEE IS FOR THE PURPOSES OF SECTION 73 DEEMED TO BE CARRYING ON A SPECULATION BUSINESS, TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF THE PURCHASE AND SALE OF SHARES. THE 5 ITA NO.1374 /PUN/2014 A.Y. 2009 - 10 EXPLANATION CARVES OUT AN EXCEPTION IN THE CASE OF A COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME UNDER THE HEADS OF INT EREST 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 EXCEPTION CARVED OUT BY THE EXPLANATION, HOWEVE R, IS NOT ATTRACTED TO THE FACTS OF THIS CASE AND ITS INTERPRETATION, THEREFORE, DOES NOT CALL FOR CONSIDERATION HERE. WHAT IS MATERIAL FOR THE PURPOSES OF THIS CASE IS, THAT THE EXPLANATION POSTULATES A SITUATION WHERE ANY PART OF THE BUSINESS OF A COMPAN Y CONSISTS OF THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES. THEREFORE, THE EXPLANATION IS ATTRACTED IN A SITUATION WHERE SOMETHING MORE THAN AN ISOLATED TRANSACTION INVOLVING SALE AND PURCHASE OF SHARES IS INVOLVED. A BUSINESS POSTULATES A SYSTEMATIC COURSE OF ACTIVITY OR DEALING. UNLESS THE BUSINESS OF A COMPANY CONSISTS OF THE SALE AND PURCHASE OF SHARES, THE DEEMING FICTION WOULD NOT APPLY. HOWEVER, ONCE THE REQUIREMENTS OF THE EXPLANATION ARE SATISFIED, NAMELY, IN A SITUATION WHERE: (I) THE ASSESS EE IS A COMPANY; (II) ANY PART OF THE BUSINESS OF THE COMPANY CONSISTS IN THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, THE CONSEQUENCE WHICH IS ENVISAGED IN THE EXPLANATION, AS A FICTION OF LAW, IS BROUGHT INTO EXISTENCE. THE LEGAL FICTION IS THAT T HE ASSESSEE IS DEEMED TO BE CARRYING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF THE PURCHASE AND SALE OF SUCH SHARES. 8. SECTION 28 OF THE ACT DEALS WITH THE PROFITS AND GAINS OF A BUSINESS OR PROFESSION. EXPLANATION (2) TO SECTION 28 PROVIDES THAT WHERE SPECULATIVE TRANSACTIONS CARRIED ON BY AN ASSESSEE ARE OF SUCH A NATURE AS TO CONSTITUTE A BUSINESS, THE BUSINESS (WHICH IS TO BE REFERRED TO AS A SPECULATION BUSINESS) SHALL BE DEEMED TO BE BE REFERRED TO AS A SPECULATION BUSINESS) SHALL BE DEEMED TO BE DISTINCT AND SEPARATE FROM ANY O THER BUSINESS. SECTION 43 PROVIDES DEFINITIONS OF CERTAIN TERMS RELEVANT TO THE HEAD OF INCOME FROM PROFITS AND GAINS OF BUSINESS OR PROFESSION. SUBSECTION (5) OF SECTION 43 DEFINES THE EXPRESSION SPECULATIVE TRANSACTION TO MEAN A TRANSACTION IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY, INCLUDING STOCKS AND SHARES, IS PERIODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY OR SCRIPS. THE PROVISO TO SUB SECTION (5) THEN DESCRIBES CERTAIN CATEG ORIES OF TRANSACTIONS WHICH SHALL NOT BE DEEMED TO BE SPECULATIVE TRANSACTIONS. THE PROVISO WILL NOT HAVE A BEARING ON THESE PROCEEDINGS. 9. THE CONTENTION OF THE REVENUE IN THE PRESENT CASE, IN ESSENCE IS THAT THE DEFINITION OF THE EXPRESSION SPECULATIV E TRANSACTION IN SECTION 43(5) MUST BE READ INTO THE PROVISIONS OF SECTION 73, BECAUSE A BUSINESS CANNOT BE A SPECULATION BUSINESS UNLESS THERE IS A SPECULATIVE TRANSACTION AND A SPECULATIVE TRANSACTION IS DEFINED BY THE FORMER AS ONE, NOT INVOLVING AN AC TUAL DELIVERY OF SHARES. HENCE, IT WAS SUBMITTED THAT A TRANSACTION WHICH INVOLVES AN ACTUAL DELIVERY OF SHARES WOULD NOT CONSTITUTE A SPECULATIVE TRANSACTION AND THE ASSESSEE WHO IS ENGAGED IN A BUSINESS INVOLVING THE ACTUAL DELIVERY OF SHARES, CANNOT BE REGARDED AS BEING ENGAGED IN SPECULATION BUSINESS. 10. THE SUBMISSION WHICH HAS BEEN URGED ON BEHALF OF THE REVENUE, CANNOT BE ACCEPTED, HAVING REGARD TO THE PLAIN MEANING OF THE EXPLANATION TO SECTION 73. THE SUBMISSION OF THE REVENUE IS THAT A LOSS WHIC H ARISES ON ACCOUNT OF A TRANSACTION OF THE SALEAND PURCHASE OF SHARES WOULD CONSTITUTE A LOSS FROM A SPECULATION 6 ITA NO.1374 /PUN/2014 A.Y. 2009 - 10 BUSINESS FOR THE PURPOSES OF THE EXPLANATION. BUT, THAT THE PROFIT WHICH ARISES FROM A TRANSACTION INVOLVING THE ACTUAL DELIVERY OF SHARES WOULD NOT CONSTITUTE A PROFIT FOR THE PURPOSES OF SUBSECTIONS (1) AND (2) OF SECTION 73 IN RESPECT OF WHICH A SET OFF CAN BE GRANTED. TO ACCEPT THE SUBMISSION OF THE REVENUE WOULD BE TO INTRODUCE A RESTRICTION INTO THE SCOPE AND AMBIT OF THE DEEMING FICTION WHICH IS CREATED BY THE EXPLANATION TO SECTION 73, WHICH IS NOT CONTEMPLATED BY PARLIAMENT. ONCE A DEEMING FICTION IS CREAT ED BY LAW, IT MUST BE GIVEN FULL AND FREE EFFECT, OF COURSE, IN RELATION TO THE AMBIT WITHIN WHICH IT IS INTENDED TO OPERATE. THE DEEMING FICTION CREATED BY THE EXPLANATION TO SECTION 73 DEFINES WHEN AN ASSESSEE IS TO BE DEEMED TO BE CARRYING ON A SPECULAT ION BUSINESS FOR THE PURPOSES OF THE SECTION. THE DEEMING FICTION IS, THEREFORE, ONE WHICH ARISES SPECIFICALLY IN THE CONTEXT OF THE PROVISIONS OF SECTION 73 AND IS CONFINED TO THAT PURPOSE ALONE. THE EXPLANATION STIPULATES THAT WHERE AN ASSESSEE IS A COMP ANY WHOSE BUSINESS CONSISTS IN ANY PART OF THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, IT SHALL BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF PURCHASE AND SALE OF SUCH SHARES. WHETHER OR NOT IT I S A PROFIT OR LOSS THAT HAS RESULTED FROM CARRYING ON SUCH BUSINESS, IS A CONSIDERATION WHICH IS ALIEN TO THE MEANING OF WHAT CONSTITUTES A SPECULATION BUSINESS BY THE EXPLANATION TO SECTION 73. ONCE AN ASSESSEE IS DEEMED TO BE CARRYING ON A SPECULATION BU SINESS FOR THE PURPOSE OF SECTION 73, ANY LOSS COMPUTED IN RESPECT OF THAT SPECULATION BUSINESS, CAN BE SET OFF ONLY AGAINST THE PROFITS AND GAINS OF ANOTHER SPECULATION BUSINESS. SIMILARLY, FOR THE PURPOSES OF SUBSECTION (2), THE LOSS IN RESPECT OF A SPEC ULATION BUSINESS WHICH HAS NOT BEEN SET OFF EITHER IN WHOLE OR IN PART, CAN BE CARRIED FORWARD AND CAN BE SET OFF AGAINST PROFITS IN PART, CAN BE CARRIED FORWARD AND CAN BE SET OFF AGAINST PROFITS AND GAINS OF ANY SPECULATION BUSINESS. THE EXPRESSION ANY SPECULATION BUSINESS MEANS A SPECULATION BUSINESS OF THE ASSESSE E IN RESPECT OF WHICH PROFITS AND GAINS FOR THE ASSESSMENT YEAR IN QUESTION HAVE ARISEN AND THERE IS NO JUSTIFICATION TO RESTRICT THE CONTENT OF THAT SPECULATION BUSINESS WHERE PROFITS HAVE ARISEN BY EXCLUDING A BUSINESS INVOLVING ACTUAL DELIVERY OF SHARES . NO SUCH RESTRICTION IS FOUND IN THE EXPLANATION. TO IMPOSE ONE IS A LEGISLATIVE FUNCTION. IN OTHER WORDS, ONCE THE ASSESSEE IS CARRYING ON A SPECULATION BUSINESS AND THE PROFITS AND GAINS HAVE ARISEN FROM THAT BUSINESS DURING THE COURSE OF THE ASSESSMENT YEAR, THE ASSESSEE IS ENTITLED TO SET OFF THE LOSSES CARRIED FORWARD FROM A SPECULATION BUSINESS ARISING OUT OF A PREVIOUS ASSESSMENT YEAR. THUS, IN VIEW OF THE ADMITTED FACTS OF THE CASE AND THE RATIO LAID DOWN IN THE CASE OF CIT VS. LOKMAT NEWSPAPE R P. LTD., THE GROUND NO. 3 RAISED IN APPEAL BY ASSESSEE IS DISMISSED. 7 ITA NO.1374 /PUN/2014 A.Y. 2009 - 10 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRO NOUNCED ON TUESDAY , THE 31 ST DAY OF OCTOBER , 201 7 . SD / - SD/ - ( . / D. KARUNAKARA RAO ) ( /VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; / DATED : 31 ST OCTOBER , 2017 . SB / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT (APPEAL) - 1, NASHIK. 4. THE CIT - 1, NASHIK. 5 . , , , / DR, ITAT, B BENCH, PUNE. 6 . / GUARD FILE. // TRUE COPY // / BY ORDER, / PRIVATE SECRETARY , / ITAT, PUNE .