DCIT 4(1), MUMBAI V. ACTIVE FINSTOCK P.LTD, MUMBAI

ITA 1516/MUM/2012

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0589 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-05-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 19-05-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 05-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASGHAR ZAIN
• Assessee Lawyers: R C JAIN
• Keywords: Business income; Maximum Marginal Rate; Question of law; Speculation loss; Bad and doubtful debts; Condonation of delay
• Section: 43B; 43(5)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A MUMBAI . . , / BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER /AND . , SHRI D.KARUNAKARA RAO, ACCOUNTANT MEMBER . / ITA NO.1516/MUM/2012 / ASSESSMENT YEAR 2008-09. DY.COMMISSIONER OF INCOME-TAX 4(1), 6 TH FLOOR, ROOM NO.640, AAYKAR BHAVAN, MUMBAI -20 / VS. M/S. ACTIVE FINSTOCK PVT. LTD. 908, STOCK EXCHANGE TOWER, DALAL STREET, FORT, MUMBAI 400 001 ./ ./ PAN/GIR NO. : AAACA8798G ( / APPELLANT ) .. ( / RESPONDENT ) . / ITA NO.1620/MUM/2012 / ASSESSMENT YEAR 2008-09. M/S. ACTIVE FINSTOCK PVT. LTD. 908, STOCK EXCHANGE TOWER, DALAL STREET, FORT, MUMBAI 400 001 / VS. DY.COMMISSIONER OF INCOME-TAX 4(1), 6 TH FLOOR, ROOM NO.640, AAYKAR BHAVAN, MUMBAI -20 ./ ./ PAN/GIR NO. : AAACA8798G ( / APPELLANT ) .. ( / RESPONDENT ) C.O.NO.03/MUM/2015 (ARISING OUT OF ITA NO.1620/MUM/2012, A.Y. 2008-09 ) DY.COMMISSIONER OF INCOME-TAX 4(1), 6 TH FLOOR, ROOM NO.640, AAYKAR BHAVAN, MUMBAI - 20 / VS. M/S. ACTIVE FINSTOCK PVT. LTD. 908, STOCK EXCHANGE TOWER, DALAL STREET, FORT, MUMBAI 400 001 ./ ./ PAN/GIR NO. : AAACA8798G ITA NO.1516&1620/MUM/2012. C.O. NO.03/MUM/2015 2 CROSS OBJECTOR .. APPELLANT IN APPEAL REVENUE BY SHRI ASGHAR ZAIN ASSESSEE BY S/SHRI R.C.JAIN & AJAY DAGA ' # $ / DATE OF HEARING : 19/05/2015 ' # $ / DATE OF PRONOUNCEMENT : 19/05/2015 / O R D E R PER I.P.BANSAL, J.M: ITA NO.1516/MUM/2012 AND ITA NO.1620/MUM/2012 ARE CROSS APPEALS AND ARE DIRECTED AGAINST ORDER PASSED BY LD. CIT(A) -8, MUMBAI DATED 30/12/2011 FOR ASSESSMENT YEAR 2008-09. AGAINST TH E APPEAL FILED BY THE ASSESSEE THE DEPARTMENT HAS ALSO FILED CROSS OBJEC TION NO.03/MUM/2015, WHICH IS BELATED BY 660 DAYS. GROUNDS OF CROSS APP EALS AND CROSS OBJECTION READ AS UNDER: 1.GROUNDS OF APPEAL IN ITA NO.1516/MUM/2012-REVENU ES APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE AMOUN TING TO RS.52,28,925/- ON ACCOUNT OF BAD DEBTS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE AMOUN TING TO RS.1,33,913/- ON ACCOUNT OF UNPAID STT U/S.43B. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E , THE IMPUGNED ORDER OF THE LD. CIT(A) IS CONTRARY TO LAW TO BE SET ASI DE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 2. GROUNDS OF REVENUES CROSS OBJECTION NO.03/MUM /2015: THE APPELLANT HAS RAISED ADDITIONAL GROUND OF APPEA L BEFORE ITAT AS UNDER: I) THE LD CIT(A) ACCORDINGLY OUGHT TO HAVE ALLOWED THE SET OFF OF THE BROUGHT FORWARD SPECULATION LOSS AGAINST THE PROFIT FROM SH ARE TRADING FOR THE YEAR DEEMED AS SPECULATIVE WITHIN THE MEANING OF EXPLANA TION TO SEC. 73 OF THE ACT. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE ASS ESSEE FILED A SUPPLEMENTARY GROUND WITH REGARD TO SET OFF OF BROU GHT FORWARD SPECULATION LOSS OF RS 8,09,691/- FOR AY 2007-08, A GAINST THE DEEMED SPECULATION INCOME WITHIN THE MEANING OF EXPLANATIO N TO SEC.73 OF THE ACT. THE CIT(A) HELD THAT THE SUPPLEMENTARY GROUNDS DID NOT REQUIRE ITA NO.1516&1620/MUM/2012. C.O. NO.03/MUM/2015 3 INVESTIGATION OF FACTS AND ADMITTED THE SAME. THE C IT(A) HELD THAT DEEMING PROVISIONS OF EXPLANATION TO SEC. 73 APPLIES ONLY I N RESPECT OF LOSSES, ASSESSEE CAN NOT AVAIL OF SET OFF OF THE BROUGHT SP ECULATION LOSS AGAINST THE DELIVERY BASED TRANSACTION CONSIDERED AS BUSINESS I NCOME OF THE YEAR. ACCORDINGLY THE CIT(A) DISMISSED THIS GROUND OF THE ASSESSEE. AGAINST THIS FINDING OF THE LD. CIT(A), THE ASSESSE E PREFERRED APPEAL BEFORE THE HON'BLE ITAT ON THE FOLLOWING GROUNDS: A) THE LD. CIT(A) WHILE ADMITTING ADDITIONAL GROUND OF THE APPELLANT ERRED IN HOLDING THAT EXPLANATION TO SEC. 73 OF THE ACT A PPLIES ONLY TO LOSSES AND NOT TO PROFITS. B) IN SO DOING HE DID NOT APPRECIATE THAT THE FICTI ON CREATED BY EXPLANATION TO SEC.73 OF THE ACT APPLIES TO SPECULATIVE TRANSAC TIONS AS DISTINGUISHED FROM SPECULATIVE LOSS. THE LD. CIT(A) ACCORDINGLY OUGHT TO HAVE ALLOWED TH E SET OFF OF THE BROUGHT FORWARD SPECULATION LOSS AGAINST THE PROFIT FROM SH ARE TRADING FOR THE YEAR DEEMED AS SPECULATIVE WITHIN THE MEANING OF EXPLANA TION TO SEC. 73 OF THE ACT. THE DEPARTMENT HAS NOT INCORPORATED THE ABOVE GROUN D, AS THE SAME HAS ALREADY BEEN DISMISSED BY THE CIT(A). THE AO IN HIS REPORT HAS STATED THAT THE ADDITIONAL GROUND SHOULD HAVE NOT BEEN ACCEPTED SINCE THE ASSESSEE DOES NOT FULFILL A NY OF THE CONDITIONS LAID DOWN IN THE RULE 46A. THE AO DID NOT QUESTION THE G AIN FROM SHARE TRADING AMOUNTING TO RS.16,20,98S/- AND TREATED THE SAME AS BUSINESS INCOME AS CLAIMED BY THE ASSESSEE. THE ASSESSEE CANNOT CHANGE THE NATURE OF INCOME DURING THE ASSESSMENT AS WELL AS APPELLATE PROCEEDINGS. NO CONCRETE REASON WAS SUBMITTED BY THE ASSESSEE FOR C HANGE OF NATURE OF INCOME. THE LD. CIT(A) HAS RIGHTLY HELD THAT THE DE EMING PROVISIONS OF EXPLANATION TO SEC.73 APPLIES ONLY IN RESPECT OF LO SSES AND HENCE THE ASSESSEE CANNOT SET OFF THE BROUGHT FORWARD SPECULA TION LOSS AGAINST THE DELIVERY BASED SHARE TRANSACTION. HENCE, A CROSS OB JECTION NEEDS TO BE FILED. IN THIS REGARD, AN APPROVAL IS OBTAINED BY T HE CIT-4, MUMBAI VIDE LETTER NO.CIT-4/CROSS OBJ. APPR./2014-15/2160 DATE D 29.12.2014. 3. GROUNDS OF APPEAL IN ITA NO.1620/MUM/2012-ASSESSEE S APPEAL: 1. THE LD. CIT(A) WHILE ADMITTING ADDITIONAL GROU ND OF THE APPELLANT ERRED IN HOLDING THAT EXPLANATION TO SEC.73 OF THE ACT A PPLIES ONLY TO LOSSES AND NOT TO PROFITS. 2. IN SO DOING HE DID NOT APPRECIATE THAT THE FICTI ON CREATED BY EXPLANATION TO SEC.73 OF THE ACT APPLIES TO SPECULATIVE TRANSAC TIONS AS DISTINGUISHED FROM SPECULATIVE LOSS. 3. THE LD. CIT(A) ACCORDINGLY OUGHT TO HAVE ALLOWED THE SET OFF OF THE BROUGHT FORWARD SPECULATION LOSS AGAINST THE PROFIT FROM SHARE TRADING FOR THE YEAR DEEMED AS SPECULATIVE WITHIN THE MEANING O F EXPLANATION TO SEC.73 OF THE ACT. ITA NO.1516&1620/MUM/2012. C.O. NO.03/MUM/2015 4 2. AS IT CAN BE SEEN FROM GROUND OF CROSS OBJECTIO N FILED THE REVENUE, THESE ONLY SUPPORT THE ORDER OF LD. CIT(A) AND OBJECTING THE GRO UNDS OF APPEAL TAKEN BY THE ASSESSEE ON THE GROUND THAT ASSESSEE CANNOT CHANGE THE NATURE OF INCOME DURING THE ASSESSMENT AS WELL AS ASSESSMENT PROCEEDINGS AND NO C ONCRETE REASONS HAVE BEEN SUBMITTED BY THE ASSESSEE FOR CHANGE OF NATURE OF INC OME AND REVENUE IS SUPPORTING THE DECISION OF LD. CIT(A) ON MERITS. THE DEEMING PR OVISIONS OF EXPLANATION TO SECTION 73 WOULD APPLY ONLY IN RESPECT OF LOSSES AND HENCE, ASSESSEE CANNOT SET OFF THE BROUGHT FORWARD SPECULATION LOSS AGAINST THE DELIVERY BASED SHARE TRANSACTIONS. 3. FROM THE CROSS OBJECTIONS TAKEN BY THE REVENUE, I T IS SEEN THAT THESE ARE ONLY ARGUMENTS RAISED BY THE REVENUE TO AGITATE THE RELIEF CLAIMED IN THE GROUNDS OF APPEAL FILED BY THE ASSESSEE. THE REVENUE OTHERWISE CAN TAK E SUCH ARGUMENTS WHILE GIVING REPLY TO THE ARGUMENTS OF LD. AR WITH REGARD TO THE APPE AL OF THE ASSESSEE. IN THESE CIRCUMSTANCES IT WAS REQUIRED FROM LD. AR THAT WHETHER HE HAS ANY OBJECTION IN CONDONATION OF DELAY FOR FILING THE CROSS OBJECTION BY THE REVENUE. LD. AR FAIRLY CONCEDED THAT ASSESSEE DOES NOT HAVE ANY OBJECTION IF THE DELAY IN FILING THE CROSS OBJECTION IS CONDONED. ACCORDINGLY, AFTER HEARING BOTH THE PARTIES WE CONDONE THE DELAY AND PROCEED TO DECIDE THE CROSS APPEALS AS WELL AS CROSS OBJECTION FILED BY THE REVENUE. REVENUES APPEAL: 4. APROPOS GROUND NO.1; THE ASSESSEE IS A STOCK BROK ER AND HAS DEBITED AN AMOUNT OF RS.17,68,430/- BEING BAD DEBT AND SUNDRY IR RECOVERABLE BALANCES WRITTEN OFF. THE ASSESSEE SUBMITTED THE DETAILS DURING THE COURSE OF ASSESSMENT PROCEEDINGS VIDE LETTER DATED 19/11/2010. THE TOTAL AMOUNT WAS A S UM OF RS.52,28,925/-, WHICH WAS CLAIMED AS BAD DEBT AND SUNDRY BALANCES. THE AO REQUIRED THE ASSESSEE TO EXPLAIN THE SAME. IT WAS EXPLAINED THAT DURING THE C OURSE OF EARNING SHARE BROKERAGE INCOME THESE AMOUNTS HAVE BECOME IRRECOVERABLE AND TH EREFORE, THESE SHOULD BE ALLOWED UNDER SECTION 36(1)(VII) OF THE INCOME TAX AC T, 1961(THE ACT). THE AO DID NOT ACCEPT SUCH CLAIM OF THE ASSESSEE AND DISALLOWED THE I MPUGNED AMOUNT. LD. CIT(A) HAS ALLOWED THIS CLAIM OF THE FOLLOWING THE DECISION OF SPECIAL BENCH IN THE CASE OF SHREYAS S. MORARKHIA, 40 SOT 432; HONBLE DELHI HIG H COURT DECISION IN THE CASE OF CIT VS. DB(INDIA) SECURITIES LTD. 318 CTR 26 (DEL) AND ALSO THE DECISION IN THE CASE OF ITA NO.1516&1620/MUM/2012. C.O. NO.03/MUM/2015 5 BONNAZA PORTFOLIO LTD. 320 ITR 78 (DEL) AND HAS HELD THAT ASSESSEE IS ENTITLED TO CLAIM SUCH DEDUCTION. THE REVENUE IS AGGRIEVED WITH SUCH DECISION OF LD. CIT(A). 4.1 AT THE OUTSET IT WAS SUBMITTED BY LD. AR THAT THIS ISS UE IS NOW COVERED BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF SHREYAS S. MORARKHIA, 342 ITR 285(BOM). IN WHICH FOLLOWING QUESTION WAS FRAMED TO BE ANSWERED: WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ASSESSEE, WHO IS A SHARE BROKER, IS ENTITLED TO DEDUCTION BY WAY OF BA D DEBTS UNDER SECTION 36(1)(VII) READ WITH SECTION 36(2) OF THE INCOME TAX ACT, 1961 IN R ESPECT OF THE AMOUNT WHICH COULD NOT BE RECOVERED FROM ITS CLIENTS IN RESPECT OF TRANSAC TIONS EFFECTED BY HIM ON BEHALF OF HIS CLIENTS APART FROM THE COMMISSION EARNED BY HIM. 4.2 THEIR LORDSHIPS, AFTER HEARING BOTH THE PARTIES A ND AFTER CONSIDERING THE VARIOUS DECISIONS HAVE CONFIRMED HAVE CONFIRMED THE DECISI ON OF SPECIAL BENCH WITH THE FOLLOWING OBSERVATIONS: 14. THE VALUE OF THE SHARES TRANSACTED BY THE ASSE SSEE AS A STOCK BROKER ON BEHALF OF ITS CLIENT IS AS MUCH A PART OF THE DEBT AS IS THE BROK ERAGE WHICH IS CHARGED BY THE ASSESSEE ON THE TRANSACTION. THE BROKERAGE HAVING BEEN CREDI TED TO THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE, IT IS EVIDENT THAT A PART OF THE DEBT IS TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE. THE FACT THAT THE LIABILITY TO PAY THE BROKERAGE MAY ARISE, AS CONTENDED BY THE REVENUE, AT A POINT IN TIME ANTERI OR TO THE LIABILITY TO PAY THE VALUE OF THE SHARES TRANSACTED WOULD NOT MAKE ANY MATERIAL D IFFERENCE TO THE POSITION. BOTH CONSTITUTE A PART OF THE DEBT WHICH ARISES FROM THE VERY SAME TRANSACTION INVOLVING THE SALE OR, AS THE CASE MAY BE, PURCHASE OF SHARES. SI NCE BOTH FORM A COMPONENT PART OF THE DEBT, THE REQUIREMENTS OF SECTION 36(2)(I) ARE FULF ILLED WHERE A PART THEREOF IS TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE. BE FORE CONCLUDING, WE AGAIN TAKE NOTE OF THE FACT THAT IN PARAGRAPH 31 OF ITS IMPUGNED DE CISION THE TRIBUNAL HAS LEFT THE ISSUE AS REGARDS THE VALUE OF THE SHARES WHICH REMAIN IN THE HANDS OF THE ASSESSEE WHICH HAS TO BE ADJUSTED AGAINST THE AMOUNT RECEIVABLE FROM THE CLIENT TO BE DETERMINED BEFORE THE REGULAR BENCH OF THE TRIBUNAL FOLLOWING THE VIEW OF THE SPECIAL BENCH. THE VIEW WHICH HAS BEEN TAKEN BY THE SPECIAL BENCH IS, WITH RESPECT, I N ACCORDANCE WITH LAW. WE ACCORDINGLY DISPOSE OF THE APPEAL BY ANSWERING THE QUESTION OF LAW AS FORMULATED IN THE AFFIRMATIVE AND IN FAVOUR OF THE ASSESSEE. THERE SHALL BE NO OR DER AS TO COSTS. 4.3 LD. DR DID NOT CONTROVERT TO SUCH SUBMISSION OF LD . A.R. 4.4 IN THIS VIEW OF THE SITUATION, AS THE ISSUE IS COVE RED BY THE AFOREMENTIONED DECISION OF HONBLE JURISDICTIONAL HIGH COURT, WE D ECLINE TO INTERFERE IN THE RELIEF GRANTED BY LD. CIT(A) AND GROUND NO.1 OF THE REVENUE IS DISMISSED. 5. APROPOS GROUND NO.2; THE SAME RELATES TO UNPAID S TT TO WHICH SECTION 43B OF THE ACT HAS BEEN APPLIED. BEFORE LD. CIT(A) IT WAS CO NTENDED THAT THIS AMOUNT WAS ITA NO.1516&1620/MUM/2012. C.O. NO.03/MUM/2015 6 MERELY A LIABILITY IN THE CAPACITY OF AN AGENT ON BE HALF OF GOVERNMENT WHICH WAS REMAINING UNPAID TILL THE DATE OF FILING THE RETURN OF INCOME. IT WAS POINTED OUT THAT IN THE IMMEDIATE NEXT YEAR THE AMOUNT WAS SQUARED UP I N THE FOLLOWING MANNER: BY PAYMENT R S. 10,780/- BY WRITING BACK TO THE P&L ACCOUNT RS. 1,23,13 3/- ------------------- TOTA L : RS. 1,33,913/- --------------------- 5.1 IT WAS FURTHER POINTED OUT THAT AFORESAID AMOUNT OF R S.1,23,133/- HAS BEEN OFFERED AS INCOME AND ASSESSEE DID NOT CLAIM ANOTHER SUM OF RS.10,780/- IN THE NEXT YEAR I.E. A.Y. 2009-10. TO SUPPORT SUCH CONTENTION AUDITED ACCOUNTS AND COMPUTATION OF INCOME RELEVANT FOR A.Y 2009-10 WERE SUBMITTED. A FTER CONSIDERING ALL THESE THINGS LD. CIT(A) HAS DELETED THE ADDITION ON THE GROUND TH AT ASSESSEE SHOULD NOT SUFFER DOUBLE TAXATION AND HE HAS ASKED THE AO TO VERIFY IT AND ALLOW APPROPRIATE RELIEF. THE OBSERVATIONS OF LD. CIT(A) READ ASUNDER: 5.3 I HAVE CONSIDERED THE CONTENTION OF THE AO AS WELL AS OF THE LD. AR. I AM INCLINED TO AGREE WITH THE APPELLANT THAT SECTION 43B HAS NOT A PPLICABILITY TO THE SAID CREDIT BALANCE. HOWEVER, THE CREDIT BALANCE IS PART OF TRADING ACCO UNT WHICH IS LIABLE TO BE TAXED. IT IS NO DOUBT TRUE THAT THE APPELLANT HAS SUFFERED DOUBLE T AXATION IN RESPECT OF THE AFORESAID AMOUNT, ONE IN THE YEAR UNDER APPEAL AND THE OTHER IN THE SUBSEQUENT YEAR. IN MY CONSIDERED OPINION, IT WOULD BE FAIR IF THE TAX IS RECOVERED FROM THE APPELLANT IN RESPECT OF THIS AMOUNT ONLY ONCE AND NOT TWICE AS STATED ABOVE . I ACCORDINGLY DIRECT THE AO TO DELETE THE ABOVE ADDITION SUBJECT TO THE VERIFICATION THAT APPELLANT HAS PAID TAX IN THE NEXT YEAR ON THIS VERY AMOUNT. IN ADOPTING THE ABOVE PROCED URE, NO INJUSTICE WILL BE DONE EITHER TO THE REVENUE OR TO THE APPELLANT AS IT IS ASSESSED T O MAXIMUM MARGINAL RATE OF TAX IN BOTH THE YEAR AND THERE IS TAXABLE INCOME IN EACH OF THE ABOVE YEAR. THIS GROUND OF APPEAL IS, THUS, TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 5.2 IN THIS VIEW OF THE SITUATION, AFTER HEARING BOTH THE PARTIES, WE DECLINE TO INTERFERE IN THE FINDINGS RECORDED BY LD. CIT(A) AS THE ADDITION HAS BEEN DELETED ONLY ON THE GROUND THAT THE SAME SHOULD NOT TAXED TWICE AND AO HAS ALSO BEEN ASKED TO MAKE THE NECESSARY VERIFICATION. THEREFORE, THIS GR OUND OF THE REVENUE IS ALSO DISMISSED. ASSESSEES APPEAL: 6. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE FILED FOLLOWING NOTE BEFORE THE AO: NOTE ON EXPLANATION TO SECTION 73 OF IT ACT, 1961 AND ITS TREATMENT IN COMPUTATION OF TOTAL INCOME: ITA NO.1516&1620/MUM/2012. C.O. NO.03/MUM/2015 7 YOU HAVE REQUIRED TO SHOW CAUSE AS TO WHY THE EXPLA NATION TO SECTION 73 SHOULD NOT BE INVOKED FOR SHARE TRANSACTIONS, PLEASE THAT THAT TH ERE IS A GAIN OF RS.1620985/- FROM SHARE TRADING AS REFLECTED IN SCHEDULE L OF THE A UDITED ACCOUNTS. ON CAREFUL EXAMINATION OF PROVISIONS OF EXPLANATION TO SECTION 73, COMPUTATION OF TOTAL INCOME FILED AND SCHEDULE L, IT IS SEEN THAT THE SHARE TRADING INCOME OF RS.1620985/- IS DECLARED AS BUSINESS INCOME ONLY AS AGAINST SPECULATION INCOME. THE SAID INCOME SHOULD HAVE BEEN DISCLOSED UNDER THE HEAD SPECULATION INCOME. YOUR KIND ATTENTION IS INVITED TO RETURN OF INCOME WHEREIN BROUGHT FORWARD SPECULATION LOSS OF RS.809691 HAS BEEN DISCLOSED FOR A.Y 2007-08 WHICH HAS BEEN CARRIED FORWARD. IN VIE W OF THE FACT THAT NOW THE INCOME FROM SHARE TRADING OF RS.1620985/- IS TO BE ASSESSE D AS SPECULATIVE INCOME THE ASSESSEE IS THEREFORE ELIGIBLE TO SET OFF BROUGHT FORWARD SP ECULATION LOSS OF RS.809691/- AS ABOVE AGAINST THE ABOVE SPECULATION INCOME WHICH MAY PLEA SE BE SET OFF WHILE FINALIZING THE ASSESSMENT. IT IS SUBMITTED THAT EXPLANATION TO S ECTION 73 ENVISAGES TRANSACTIONS TO BE SPECULATIVE AND NOT RESULT. THE ERROR IN TREATING THE SHARE TRADING INCOME AS BUSINESS INCOME INSTEAD OF SPECULATION INCOME IS REGRETTED A ND WE HAVE TO REQUEST YOU TO KINDLY TREAT THE SHARE TRADING INCOME OF RS.1620985/- AS S PECULATION INCOME AND ALLOW SET OFF OF BROUGHT FORWARD SPECULATION LOSS OF RS.809691/-. 6.1 THUS, ASSESSEE SOUGHT SET OFF OF BROUGHT FORWARD S PECULATION LOSS OF RS.8,09,691/- AS SIMILAR INCOME IN THE YEAR UNDER C ONSIDERATION OF A SUM OF RS.16,20,985/- WAS WRONGLY SHOWN BY THE ASSESSEE AS BUSINESS INCOME AGAINST REAL NATURE OF THE INCOME BEING SPECULATIVE INCOME ARISING OUT OF SALE AND PURCHASE OF SHARES BY APPLICATION OF EXPLANATION TO SECTION 73 O F THE ACT. THE AO DID NOT CONSIDER SUCH SUBMISSION OF THE ASSESSEE AND ASSESSED THE INC OME WITHOUT GIVING SET OFF OF BROUGHT FORWARD SPECULATION LOSSES. AGGRIEVED BY SU CH TREATMENT GIVEN BY THE AO, THE ASSESSEE RAISED ADDITIONAL GROUND BEFORE LD. CIT(A) TO CLAIM THE SAME. FOR PROPER UNDERSTANDING OF THE SITUATION, THE RELEVANT PORTION OF O RDER OF LD. CIT(A),WHEREIN THE SAID ISSUE HAS BEEN DECIDED, IS REPRODUCED BELOW: 6 DURING THE COURSE OF APPELLATE PROCEEDINGS, THE LD. AR OF THE APPELLANT FILED A SUPPLEMENTARY GROUND OF APPEAL WITH REGARD TO SET O FF OF BROUGHT FORWARD SPECULATION LOSS OF RS.8,09,691 FOR AY 2007- 08 AGAINST THE DEEMED S PECULATION INCOME WITHIN THE MEANING OF EXPLANATION TO SECTION 73 OF THE ACT. 6.1 THE LD. AR OF THE APPELLANT HAS FILED SUPPLEMEN TARY GROUNDS OF APPEAL WITH REGARD TO SETTING OFF OF THE BROUGHT FORWARD SPECULATION LOSS OF RS.8,09,69L FOR AY 2007-08 AGAINST THE DEEMED SPECULATION INCOME OF THE YEAR UNDER APP EAL. I DO NOT FIND ANY DISCUSSION BY THE AO IN THE ASSESSMENT ORDER ON THIS ISSUE. THE L D. AR HAS HOWEVER, BROUGHT TO MY NOTICE THAT SUCH A CLAIM WAS MADE DURING THE COURSE OF ASSESSMENT PROCEEDINGS IN RESPONSE TO THE SHOW CAUSE BY THE AO REQUIRING THE APPELLANT TO EXPLAIN AS TO WHY EXPLANATION TO SECTION 73 BE NOT APPLIED IN RESPECT OF DEALING IN PURCHASE AND SALE OF SHARES. 6.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPEL LANT AND FIND THAT OMISSION OF THIS GROUND IN THE ORIGINAL MEMO OF APPEAL WAS NOT WILLF UL AND THE SAME RAISES A LEGAL GROUND WHICH DOES NOT REQUIRE INVESTIGATION OF FACTS. I A CCORDINGLY ADMIT THE SAME. HOWEVER, ON ITA NO.1516&1620/MUM/2012. C.O. NO.03/MUM/2015 8 MERITS I AM NOT INCLINED TO AGREE WITH THE APPELLA NT IN AS MUCH AS THE DEEMING PROVISIONS OF EXPLANATION TO SECTION 73 APPLIES ONL Y IN RESPECT OF LOSSES AND THEREFORE, APPELLANT CANNOT AVAIL THE SET OFF OF THE BROUGHT F ORWARD SPECULATION LOSS AGAINST THE DELIVERY BASED SHARE TRANSACTION CONSIDERED AS BUSI NESS INCOME OF THE YEAR UNDER APPEAL. THIS GROUND OF APPEAL IS, THUS, DISMISSED. 6.2 AFTER NARRATING THE FACTS, IT WAS SUBMITTED BY LD.AR THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. LOKMAT NEWSPAPERS PVT. LTD., 322 ITR 43(BOM), WHEREIN THEIR LORDSHIPS HAVE HELD THAT PROFIT FROM PURCHASE AND SALE OF SHARES BY ACTUAL DELIVERY ARE NOT REQUIRED TO BE EXCLUDED FRO M DEEMING FICTION AND COMPANY IS ENTITLED TO SET OFF OF PROFITS FROM SUCH TRANSACTIONS AGAINST SPECULATION LOSS BROUGHT FORWARD FROM EARLIER YEARS . THUS, IT WAS CLAIMED THAT LD. CIT(A) HAS COMMITTED AN ERROR IN HOLDING THAT B ROUGHT FORWARD SPECULATION LOSS CANNOT BE SET OFF AGAINST CURRENT YEARS INCOM E EARNED BY THE ASSESSEE FROM SALE AND PURCHASE OF SHARES WHICH REPRESENTED ACTUAL DELIVERY. 7. ON THE OTHER HAND, LD. DR RELIED UPON ORDER PASS ED BY LD. CIT(A). 8. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. THE ISSUE IS COVERED BY THE AFOREMENTI ONED DECISION OF HONBLE BOMBAY HIGH COURT. THE RELEVANT OBSERVATIONS OF TH EIR LORDSHIPS READ AS UNDER: 9. THE CONTENTION OF THE REVENUE IN THE PRESENT CAS E, IN ESSENCE IS THAT THE DEFINITION OF THE EXPRESSION 'SPECULATIVE TRANSACTION' IN SECTION 43(5) MUST BE READ INTO THE PROVISIONS OF SECTION 73, BECAUSE A BUSINESS CANNOT BE A SPECU LATION BUSINESS UNLESS THERE IS A SPECULATIVE TRANSACTION AND A SPECULATIVE TRANSACTI ON IS DEFINED BY THE FORMER AS ONE, NOT INVOLVING AN ACTUAL DELIVERY OF SHARES. HENCE, IT W AS SUBMITTED THAT A TRANSACTION WHICH INVOLVES AN ACTUAL DELIVERY OF SHARES WOULD NOT CON STITUTE 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 BUSINES S. 10. THE SUBMISSION WHICH HAS BEEN URGED ON BEHALF O F THE REVENUE, CANNOT BE ACCEPTED, HAVING REGARD TO THE PLAIN MEANING OF THE EXPLANATI ON TO SECTION 73. THE SUBMISSION OF THE REVENUE IS THAT A LOSS WHICH ARISES ON ACCOUNT OF A TRANSACTION OF THE SALE AND PURCHASE OF SHARES WOULD CONSTITUTE A LOSS FROM A S PECULATION BUSINESS FOR THE PURPOSES OF THE EXPLANATION. BUT, THAT THE PROFIT WHICH ARIS ES FROM A TRANSACTION INVOLVING THE ACTUAL DELIVERY OF SHARES WOULD NOT CONSTITUTE A PR OFIT FOR THE PURPOSES OF SUB-SECTIONS (1) AND (2) OF SECTION 73 IN RESPECT OF WHICH A SET OFF CAN BE GRANTED. TO ACCEPT THE ITA NO.1516&1620/MUM/2012. C.O. NO.03/MUM/2015 9 SUBMISSION OF THE REVENUE WOULD BE TO INTRODUCE A R ESTRICTION INTO THE SCOPE AND AMBIT OF THE DEEMING FICTION WHICH IS CREATED BY THE EXPLANA TION TO SECTION 73, WHICH IS NOT CONTEMPLATED BY PARLIAMENT. ONCE A DEEMING FICTION IS CREATED 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 EXPLANA TION TO SECTION 73 DEFINES WHEN AN ASSESSEE IS TO BE DEEMED TO BE CARRYING ON A SPECUL ATION BUSINESS FOR THE PURPOSES OF THE SECTION. THE DEEMING FICTION IS, THEREFORE, ONE WHI CH ARISES SPECIFICALLY IN THE CONTEXT OF THE PROVISIONS OF SECTION 73 AND IS CONFINED TO THA T PURPOSE ALONE. THE EXPLANATION STIPULATES THAT WHERE AN ASSESSEE IS A COMPANY WHOS E 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 B USINESS CONSISTS OF PURCHASE AND SALE OF SUCH SHARES. WHETHER OR NOT IT IS A PROFIT OR LO SS 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 BUSINESS FOR THE PURPOSE OF SECTION 73, ANY LOSS COMPUTED IN RESPECT OF THAT SPECULATION BUSINESS, CAN BE SET OF F ONLY AGAINST THE PROFITS AND GAINS OF ANOTHER SPECULATION BUSINESS. SIMILARLY, FOR THE PU RPOSES OF SUB-SECTION (2), THE LOSS IN RESPECT OF A SPECULATION BUSINESS WHICH HAS NOT BEE N SET OFF EITHER IN WHOLE OR IN PART, CAN BE CARRIED FORWARD AND CAN BE SET OFF AGAINST PROFI TS AND GAINS 'OF ANY SPECULATION BUSINESS'. THE EXPRESSION 'ANY SPECULATION BUSINESS ' MEANS A SPECULATION BUSINESS OF THE ASSESSEE IN RESPECT OF WHICH PROFITS AND GAINS FOR THE ASSESSMENT YEAR IN QUESTION HAVE ARISEN AND THERE IS NO JUSTIFICATION TO RESTRI CT THE CONTENT OF THAT SPECULATION BUSINESS WHERE PROFITS HAVE ARISEN BY EXCLUDING A BUSINESS I NVOLVING ACTUAL DELIVERY OF SHARES. NO SUCH RESTRICTION IS FOUND IN THE EXPLANATION. TO IM POSE ONE IS A LEGISLATIVE FUNCTION. IN OTHER WORDS, ONCE THE ASSESSEE IS CARRYING ON A SPE CULATION BUSINESS AND THE PROFITS AND GAINS HAVE ARISEN FROM THAT BUSINESS DURING THE COU RSE OF THE ASSESSMENT YEAR, THE ASSESSEE IS ENTITLED TO SET OFF OF THE LOSSES CARRI ED FORWARD FROM A SPECULATION BUSINESS ARISING OUT OF A PREVIOUS ASSESSMENT YEAR. 11. IN THESE CIRCUMSTANCES, THE VIEW WHICH HAS BEEN FORMED BY THE TRIBUNAL IS CONSISTENT WITH THE PROVISIONS OF SECTION 73. THE QUESTIONS OF LAW SHALL STAND ANSWERED ACCORDINGLY. THE APPEAL SHALL STAND DISMISSED. THERE SHALL BE NO ORDER AS TO COSTS. 8.1 ACCORDINGLY, WE HOLD THAT ASSESSEE SHOULD BE GI VEN BENEFIT OF SET OFF OF BROUGHT FORWARD SPECULATION LOSS AGAINST INCOME EAR NED BY THE ASSESSEE IN THE CURRENT YEAR FROM SALE AND PURCHASE OF SHARES EVEN THOUGH THE SALE AND PURCHASE OF SHARES IS BY WAY OF ACTUAL DELIVERY. T HE CROSS APPEAL FILED BY THE ASSESSEE IS ALLOWED. 9. IN THE CROSS OBJECTION FILED BY THE REVENUE, WE FIND THAT ASSESSEE HAS MADE SUBMISSIONS BEFORE THE AO REGARDING SET OFF OF UNABSORBED SPECULATION LOSS IN THE CURRENT YEAR. THE AO DID NOT ADJUDICAT E THE SAME. SUCH CLAIM WAS RAISED BY THE ASSESSEE BY WAY OF ADDITIONAL GROUND WHICH HAS BEEN ADMITTED BY LD. CIT(A). ACCORDING TO WELL ESTABLISHED LAW APPE LLATE AUTHORITY IS ENTITLED TO ITA NO.1516&1620/MUM/2012. C.O. NO.03/MUM/2015 10 ENTERTAIN A CLAIM WHICH WAS NOT RAISED BEFORE AO A ND IF ASSESSEE IS LEGALLY ENTITLED FOR THE SAME IT SHOULD BE ALLOWED. IN TH E PRESENT CASE, THE CLAIM WAS RAISED BEFORE AO, WHICH WAS NOT ADMITTED, HOWEV ER, LD. CIT(A) DID NOT COMMIT ANY ERROR IN ADMITTING THE ADDITIONAL GROUND . THE SAME HAS TO BE DECIDED ACCORDING TO PROVISIONS OF LAW AND ACCORDIN G TO PROVISIONS OF LAW THE ISSUE HAS BEEN DECIDED IN FAVOUR OF ASSESSEE IN TH E APPEAL FILED BY THE ASSESSEE. THEREFORE, THE CROSS OBJECTION FILED BY THE REVENUE HAS TO BE DISMISSED AND ACCORDINGLY DISMISSED. 10. TO SUM UP, THE APPEAL AND CROSS OBJECTION FIL ED BY THE REVENUE ARE DISMISSED AND THE APPEAL FILED BY THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19/05/2 015 ' )* + , 19/05/2015 ' SD/- SD/- ( . / D.KARUNAKARA RAO ) ( . . / I.P. BANSAL ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER ) MUMBAI; + DATED 19/05/2015 ! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. /# ( ) / THE CIT(A)- 4. /# / CIT 5. 01 #23 , $ 23 , ) / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, 0# # //TRUE COPY// / (DY./ASSTT. REGISTRAR) , ) / ITAT, MUMBAI . . ./ VM , SR. PS