ITO, Wd-6(3), Kolkata, Kolkata V. M/s Natraj Vinimay Pvt. Ltd., Kolkata

ITA 1401/KOL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1953 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 6 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 30-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G HANGSHING
• Keywords: Business income; Speculation loss
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : KOLKATA [BEFORE HONBLE SHRI N.V.VASUDEVAN, JM & SHRI M.B ALAGANESH, AM ] I.T.A NO. 1401/KOL/20 16 ASSESSMENT YEAR : 2009-1 0 ITO, WARD-6(3), KOLKATA -VS- M/S NATRAJ VINIMAY PVT. LTD. [PAN: AACCN 4643 D] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI G.HANGSHING, C IT DR FOR THE REVENUE : SHRI SUBASH AGARWAL, ADVOCAT E DATE OF HEARING : 04.01.2018 DATE OF PRONOUNCEMENT : 10.01.2018 ORDER PER M.BALAGANESH, AM 1. THIS APPEAL BY THE REVENUE ARISES OUT OF THE O RDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-9, KOLKATA [ IN SHORT THE LD C ITA] IN APPEAL NO. 574/CIT(A)- 9/WARD-6(3)/2014-15/KOL DATED 06.04.2016 AGAINST TH E ORDER PASSED BY THE ITO, WARD- 6(3), KOLKATA [ IN SHORT THE LD AO] UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 29.12.2011 FOR THE ASS ESSMENT YEAR 2009-10. 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS A S TO WHETHER THE LD CITA WAS JUSTIFIED IN DELETING THE ADDITION OF RS. 12,94,60,000/- BY T REATING THE SHARE TRADING LOSS AS SPECULATIVE LOSS, IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESS EE IS A COMPANY ENGAGED IN THE BUSINESS OF TRADING OF SHARES, DERIVING INCOME FROM PROFIT O N SALE OF SHARES, BROKERAGE ETC. AND 2 ITA NO.1401/KOL/2016 M/S NATRAJ VINIMAY PVT. LTD. A.YR.2009-10 2 PROFIT ON SALE OF LANDED PROPERTIES. THE ASSESSEE A LSO DERIVED RENTAL INCOME OF RS. 60,000/- WHICH HAD BEEN OFFERED UNDER THE HEAD INCO ME FROM OTHER SOURCES IN THE RETURN OF INCOME. THE ASSESSEE MADE PROFIT FROM NEGOTIATIO N OF SALE OF VACANT LAND TO THE TUNE OF RS. 12,99,11,802/-. THE ASSESSEE INCURRED LOSS O N SHARE TRANSACTION AMOUNTING TO RS. 12,94,60,000/-. THE ASSESSEE INCURRED BUSINESS EXPE NDITURE THAT WERE DEBITED IN THE PROFIT AND LOSS ACCOUNT TO THE TUNE OF RS. 4,69,729 /-. THE NET LOSS FROM BUSINESS OUT OF AFORESAID TRANSACTIONS WORKED OUT TO RS. 17,917/- ( 129911802 129460000- 469719 = -17917). IN OTHER WORDS, THE ASSESSEE CLAIMED NET B USINESS LOSS OF RS. 17,917/- IN THE RETURN OF INCOME AND THE SAME WAS ADJUSTED/SET OFF WITH RENTAL INCOME OFFERED UNDER INCOME FROM OTHER SOURCES TO THE TUNE OF RS. 60,000 /- AND GROSS TOTAL INCOME OF RS. 42,083/- WAS DISCLOSED IN THE RETURN OF INCOME. THE LD. AO SOUGHT TO TREAT THE LOSS ON ACCOUNT OF SHARE TRANSACTIONS OF RS. 12,94,60,000/- AS SPECULATION LOSS BY INVOKING THE PROVISIONS OF EXPLANATION TO SECTION 73 OF THE ACT. THE LD. AO ALSO OBSERVED THAT THE ASSESSEE HAD NOT OWNED ANY LANDED PROPERTY AND HENC E, THERE CANNOT BE ANY SALE FOR SUCH LANDED PROPERTY, AND THEREBY THE PROFIT OF RS. 12,99,11,802/- WAS MADE ONLY OUT OF NEGOTIATION OF SALE OF SUCH VACANT LAND AND HENCE, THE SAME WAS NOTHING BUT THE COMMISSION/BROKERAGE INCOME DERIVED BY THE ASSESSE E. HOWEVER, THE LD. AO ACCEPTED THE STAND OF THE ASSESSEE OF THIS INCOME BEING OFFE RED UNDER THE HEAD INCOME FROM BUSINESS. THE LD. AO ONLY TREATED THE LOSS ON SHARE TRANSACTION OF RS. 12,94,60,000/- AS SPECULATION LOSS AND DISALLOWED THE SAME IN THE ASS ESSMENT AND ALLOWED THE SAME TO BE CARRIED FORWARD FOR FUTURE SET OFF WITH SPECULATION INCOME. 4. THE LD. CIT(A) OBSERVED THAT SINCE THE INCOME FR OM OTHER SOURCES OF RS. 60,000/- IS HIGHER THAN THE INCOME FROM BUSINESS AS REPORTED IN THE RETURN, THE EXPLANATION TO SECTION 73 OF THE ACT CANNOT BE APPLIED WHICH FALLS UNDER THE FIRST EXCEPTION PROVIDED THEREON. THE LD. CIT(A) OBSERVED THAT THE ASSESSEE HAS DEALT IN THE PURCHASE AND SHARE OF THE PROPERTIES FOR THE PURPOSE OF MAKING PROFITS . WHENEVER THE ASSESSEE FOUND THAT THE PRICE OF THE LAND PURCHASED HAS APPRECIATED AFT ER PURCHASE, IT HAD SOLD THE SAME 3 ITA NO.1401/KOL/2016 M/S NATRAJ VINIMAY PVT. LTD. A.YR.2009-10 3 BEFORE GETTING IT REGISTERED IN ITS NAME. HENCE THE NAME OF THE ASSESSEE IS APPEARING AS THE CONFIRMING PARTY IN THE SALE DEED. THE LD. CIT( A) OBSERVED THAT EVEN OTHERWISE THE LD. AO HAD ONLY CONSIDERED THIS PROFIT FROM LANDED PROPERTY AS COMMISSION/BROKERAGE INCOME AND HAD ALSO ACCEPTED THE HEAD OF INCOME OF THE ASSESSEE AS INCOME FROM BUSINESS IN RESPECT OF SUCH PROFITS. HENCE HE HELD THAT IT DOES NOT MAKE ANY DIFFERENCE WITH REGARD TO CHARACTER OF TRANSACTION AS THE HEAD OF INCOME REMAINED THE SAME. 5. WITH REGARD TO DIRECTION OF THE LD. AO FOR TREA TING THE RENTAL INCOME OF RS. 60,000/- AS BUSINESS INCOME OF THE ASSESSEE, THE LD. CIT(A) OBSERVED THAT THE ASSESSEE HAD MERELY DERIVED THIS RENTAL INCOME OUT OF SUB-LETTIN G OF THE PROPERTY. IN THIS REGARD, HE OBSERVED THAT THE ASSESSEE HAD ALLOWED M/S SANAMEX IMFINANCE PVT. LTD. TO OCCUPY AND USE THE SPACE AT 2E, CORNFIELD ROAD, GROUND FLOOR, KOLKATA-700019 ON THE BASIS OF LEAVE AND LICENCE FOR A TEMPORARY PERIOD ON A MONT HLY RENT OF RS. 5,000/-. SINCE, THE ASSESSEE IS NOT OWNER OF THE PROPERTY AND HAD MEREL Y SUBLET THE SAME TO ANOTHER PERSON THE SAID PROPERTY WAS NOT SHOWN IN THE BOOKS OF ACC OUNTS OF THE ASSESSEE. SINCE, THE ASSESSEE IS NOT THE OWNER OF THE PROPERTY THE SAID RENTAL INCOME CANNOT BE HELD AS INCOME FROM HOUSE PROPERTY. SINCE, THE ASSESSEE WAS NOT ENGAGED IN THE BUSINESS OF SUBLETTING, THE SAME CANNOT BE CONSTRUED AS BUSINES S INCOME OF THE ASSESSEE. ACCORDINGLY, HE UPHELD THE ACTION OF THE ASSESSEE B Y TREATING THE RENTAL INCOME AS INCOME FROM OTHER SOURCES. THE LD. CIT(A) BASED ON THESE FACTS AND PLACING RELIANCE OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COU RT IN THE CASE OF EASTERN AVIATION & INDUSTRIES LTD. VS. CIT REPORTED IN 208 ITR 1023 (C AL) AND MUMBAI TRIBUNAL DECISION IN THE CASE OF RAJAN ENTERPRISES PVT. LTD. VS. ITO REPORTED IN 41 ITD 469 ; SPECIAL BENCH OF MUMBAI TRIBUNAL IN THE CASE OF ACIT VS. CO NCORD COMMERCIAL PVT. LTD. REPORTED IN 95 ITD 117; KOLKATA TRIBUNAL DECISION I N THE CASE OF ACIT VS. BLUE CHEAP CAPITAL MARKET IN I.T.A. NO. 2211/KOL/2004 & KOLKAT A TRIBUNAL IN THE CASE OF LOKPRIYA TRADE AND AGENCY PVT. LTD. IN I.T.A. NO. 1781/KOL/2 010, HELD THAT THE ASSESSEES CASE BASED ON THE INCOME CRITERION, FALLS OUTSIDE THE A MBIT OF EXPLANATION TO SECTION 73 OF 4 ITA NO.1401/KOL/2016 M/S NATRAJ VINIMAY PVT. LTD. A.YR.2009-10 4 THE ACT, SINCE THE INCOME COMPUTED UNDER THE HEAD INCOME FROM OTHER SOURCES IS MORE THAN THE INCOME / LOSS UNDER THE HEAD BUSINESS. AC CORDINGLY, HE DIRECTED THE LD. AO TO TREAT THE LOSS SUFFERED ON SHARE TRANSACTION OF RS. 12,94,60,000/- AS NORMAL BUSINESS LOSS. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON TH E FOLLOWING GROUNDS: 1. THE LD. CIT(A) ERRED IN LAW AS WELL AS IN FACT B Y DELETING THE ADDITION OF RS. 12,94,60,000/- MADE U/S 73 OF THE INCOME TAX ACT. 2. THAT THE APPELLANT CRAVES THE LEAVE TO ADD, ALTE R, MODIFY, INCLUDE OR DELETE ANY GROUND OF APPEAL. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THA T THE RENTAL INCOME DERIVED BY THE ASSESSEE HAS BEEN CORRECTLY HELD BY THE LD. CIT(A) AS INCOME FROM OTHER SOURCES AS ADMITTEDLY THE ASSESSEE IS NOT THE OWNER OF THE PRO PERTY AND HAD MERELY SUBLET THE PROPERTY TO ANOTHER CONCERN THEREBY DERIVING RENTAL INCOME OF RS. 60,000/-. HENCE, THE LD. CIT(A) HAD RIGHTLY TREATED THE SAME AS INCOME F ROM OTHER SOURCES AS HAS BEEN REPORTED BY THE ASSESSEE IN ITS RETURN OF INCOME. 7. WE FIND THAT THE INCOME FROM OTHER SOURCES IS MO RE THAN THE LOSS INCURRED BY THE ASSESSEE IN THE SUM OF RS. 17,917/- UNDER THE HEAD INCOME FROM BUSINESS. HENCE, THE ASSESSEES CASE SQUARELY FALLS UNDER THE FIRST EXCE PTION UNDER INCOME CRITERION PROVIDED IN EXPLANATION TO SECTION 73 OF THE ACT WH ICH READS AS UNDER: WHERE ANY PART OF THE BUSINESS OF A COMPANY ([OTHER THAN A COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHA RGEABLE UNDER THE HEADS INTEREST ON SECURITIES, INCOME FROM HOUSE PROPERTY, CAPI TAL GAINS AND INCOME FROM OTHER SOURCES], OR A COMPANY [ THE PRINCIPAL BUSINESS OF WHICH IS THE BUSINESS OF TRADING IN SHARES OR BANKING] OR THE GRANTING OF LO ANS AND ADVANCES) CONSISTS IN THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, SUC H COMPANY SHALL, FOR THE PURPOSES OF THIS SECTION, BE DEEMED TO BE CARRYING ON A SPE CULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF THE PURCHASE AND SAL E OF SUCH SHARES.] HENCE, WE HOLD THAT THE LD. CIT(A) HAD RIGHTLY OBSE RVED AND TREATED THIS LOSS ON ACCOUNT OF SHARE TRANSACTION AS NORMAL BUSINESS LOS S OF THE ASSESSEE AND NOT AS SPECULATION LOSS. HENCE, WE HOLD THAT THE IMPUGNED TRANSACTION IS FALLING WITHIN THE 5 ITA NO.1401/KOL/2016 M/S NATRAJ VINIMAY PVT. LTD. A.YR.2009-10 5 AMBIT OF EXCEPTION PROVIDED IN EXPLANATION TO SECTI ON 73 OF THE ACT. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT( A) IN THIS REGARD. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE COURT ON 10.01.2018 SD/- SD/- [N.V. VASUDEVAN] [ M.BALAGANESH ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 10.01.2018 SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. I.T.O. WARD-6(3), KOLKATA, AAYAKAR BHAVAN, 6 TH FLOOR, ROOM NO. 13A, P-7, CHOWRINGHEE SQUARE, KOLKATA-700069 2. M/S NATRAJ VINIMAY PVT. LTD. 2E, CORNFIELD ROAD, GROUND FLOOR, KOLKATA-700019 3..C.I.T.(A)- , KOLKATA 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVAT E SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S