M/s. Varun Finstock Pvt. Ltd., Ahmedabad V. The ACIT., Circle-3, Ahmedabad

ITA 156/AHD/2005

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9142 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2009
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 17-08-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 18-01-2005
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NEETA SHAH
• Keywords: Speculation loss; Speculative transactions
• Section: 43(5)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'B' [BEFORE SHRI R V EASWAR VICE-PRESIDENT] [AND SHRI P K BANSAL ACCOUNTANT MEMBER] ITA NO.156/AHD/2005 [ASSESSMENT YEAR:- 2001-02] M/S VARUN FINSTOCK PVT. LTD., 27, NEW CLOTH MARKET, O/S RAIPUR GATE, AHMEDABAD V/S THE ASSISTANT COMMISSIONER OF INCOME- TAX, CIRCLE-3, AHMEDABAD (APPELLANT) (RESPONDENT) APPELLANT BY :- SHRI TUSHAR P HEMANI RESPONDENT BY:- SMT. NEETA SHAH O R D E R PER P K BANSAL (ACCOUNTANT MEMBER) : THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT( A) DATED 29 TH OCTOBER, 2004 FOR ASSESSMENT YEAR 2001-02. 2 THE ONLY DISPUTE IN THIS APPEAL RELATES TO THE DISALLOWANCE OF SHARE TRADING LOSS AMOUNTING TO RS. 13,64,400/-. IN THE YEAR UNDER CONSIDERATION THE ASSESSEE PURCHA SED 75800 SHARES OF SHARDUL SECURITIES LTD. @ RS.22/- PER SHA RE FOR A TOTAL CONSIDERATION OF RS.16,67,600/-. THESE SHARES WERE HELD AS A CLOSING STOCK AS ON 31-03-2001 WHEN THE MARKET VALU E FELL TO RS.4/- PER SHARE. THESE SHARES WERE VALUED AT RS.3, 03,200/- AND WERE SHOWN IN THE TRADING ACCOUNT AS WELL AS IN THE BALANCE- SHEET AT RS.3,03,200/-. THUS THE ASSESSEE INCURRED A LOSS OF RS.13,64,400/-. THE AO TOOK THE VIEW THAT THIS LOSS IS A SPECULATION LOSS IN VIEW OF THE PROVISIONS OF EXPLA NATION TO 2 SECTION 73 AND ALLOWED IT TO BE CARRIED FORWARD FOR BEING SET OFF AGAINST THE SPECULATION PROFIT OF THE SUBSEQUENT AS SESSMENT YEARS. WHEN THE MATTER WENT BEFORE THE CIT(A), THE CIT(A) CONFIRMED THE ORDER OF THE AO. 3 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND PERUSED THE MATERIAL ON RECORD. WE NOTED THAT T HIS ISSUE IS DULY COVERED BY THE DECISION OF THE SPECIAL BENCH O F ITAT AHMEDABAD IN THE CASE OF AMP SPG. & WVG. MILLS (P) LTD. V ITO [2006] 100 ITD 142 (AHD) (SB) , IN WHICH IT HAS BEEN HELD AS UNDER:- THE PROVISIONS OF EXPLANATION TO SECTION 73 ARE AP PLICABLE TO ALL THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES OF THE COMPANIES WHOSE BUSINESS CONSISTS OF SUCH PURCHASES AND SALE OF SHA RES AND THE SAME CANNOT BE RESTRICTED TO ONLY THOSE TRANSACTIONS WHI CH ARE FOUND TO BE A DEVICE SOMETIMES RESORTED TO BY BUSINESS HOUSES CON TROLLING GROUPS OF COMPANIES TO MANIPULATE AND REDUCE THE TAXABLE INCO ME OF COMPANIES UNDER THEIR CONTROL. IT WAS CONTENDED BY THE ASSESSEE THAT THE EXPLANATI ON TO SECTION 73 DID NOT APPLY TO TRANSACTION OF ACQUIRING SHARES BY ALL OTMENT. IT IS APPARENT THAT THE SHARES BECOME EXISTING PROPERLY, THE MOMEN T THEY ARE ALLOTTED. ONCE ALLOTMENT IS MADE, THE SHARES CANNOT THEREAFTER BE SAID TO BE PROPERTY NOT IN EXISTENCE. IT WOULD BE A CASE OF PURCHASE OR SALE OF EXISTING GOODS OR PROPERTY ON ALLOTMENT. BE THAT AS IT MAY, EVEN IF THE SHARES ALLOTTED WERE NOT IN EXISTENCE AND CONSE QUENTLY NOT THE SHARES PURCHASED, IT DOES NOT MAKE ANY DIFFERENCE I N THE MATTER BECAUSE THERE CAN BE A PURCHASE AND SALE OF FUTURE PROPERTY OR GOODS AS PROVIDED UNDER THE SALE OF GOODS ACT. FURTHER, ON A CLOSE READING OF THE MEANING OF THE T ERMS SALE SALE OF GOODS; ACQUIRE, ACQUIRED, ALLOT, ALLOTMENT AND PURCHASE, IT BECOMES EVIDENT THAT ACQUISITION IS GETTING BY SELF -EXERTION OR BY CHANGE OF OWNERSHIP OF SOMETHING, ALLOTMENT IS APPO RTIONING A PREVIOUSLY UNAPPORTIONED CAPITAL OF A COMPANY. WHEN THE ACQUISITION BY ALLOTMENT IS FOR A CONSIDERATION, IT IS A SALE. THEREFORE, WHEN A PRICE IS PAID FOR ALLOTMENT OF SHARES, IT IS A PURCHASE O F SHARES IN GENERAL LAW AS WELL AS FOR THE PURPOSE OF EXPLANATION TO SECTIO N 73. 3 WHAT THE EXPLANATION TO SECTION 73 PROVIDES IS THAT ANY BUSINESS OF A COMPANY CONSISTS OF PURCHASE AND SALE OF SHARES OF ANOTHER COMPANY. THEREFORE, ONE HAS TO SEE WHETHER BUSINESS IS OF PU RCHASE AND SALE OF SHARES AND NOT WHAT IS THE NATURE AND MODE OF SUCH PURCHASE. THE ASSESSEE DID NOT DISPUTE THAT ON ALLOTMENT, SHARES WERE ACQUIRED. HE ONLY DISPUTED THAT THEY WERE NOT PURCHASES. WHEN AC QUISITION WAS WITH A PRICE, IT WAS A PURCHASE. FURTHER, SALE IN T HE CASE OF A SELLER IS PURCHASE IN THE HANDS OF THE PURCHASER AND, THEREFO RE, WHERE UNDER A CONTRACT OF SALE THE PROPERTY IS TRANSFERRED FROM T HE SELLER TO THE BUYER, THE CONTRA IS CALLED A SALECONVERSELY A PURCHASE. THE SALE OF SHARES IS COMPLETE WHEN THE SHARES ARE ALLOTTED AS ON ALLO TMENT IT BECOMES AN ASCERTAINED GOODS/PROPERTY. A CAREFUL PERUSAL OF THE EXPLANATION TO SECTION 73 INDICATES THIS EXPLANATION LAYS DOWN THAT THE EXPRESSION SPECULAT ION BUSINESS UNDER THE SPECIFIED CIRCUMSTANCES, WILL COVER THE A SSESSEES BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF TH E PURCHASE AND SALE OF SUCH SHARES. UNLIKE THE DEFINITION UNDER SECTIO N 43(5) WHICH DEFINES SPECULATIVE TRANSACTIONS, THE PROVISIONS OF EXPLANATION TO SECTION 73 LAY DOWN THE CIRCUMSTANCES IN WHICH, AND THE EXTENT TO WHICH, A BUSINESS IS TO BE DEEMED AS SPECULATION B USINESS. THE THRUST OF THE PROVISIONS UNDER EXPLANATION TO SECTI ON 73 IS ON THE NATURE OF BUSINESS, RATHER THAN NATURE OF TRANSA CTION. EVEN THE CIRCULAR NO. 204, DATED 24-7-1976 ITSELF PROVIDES T HAT THE EXPLANATION WOULD APPT TO THE BUSINESS OF PURCHASE AND SALE OF SHARES OF CERTAIN COMPANIES. THEREFORE, THE ASSESSEE WAS COVERED BY THE PLAIN, C LEAR AND UNAMBIGUOUS STATUTORY LANGUAGE OF THE PROVISIONS OF EXPLANATION TO SECTION 73 WHICH REQUIRES NO EXTERNAL AID, LIKE OBJ ECT, ETC., TO CONSTRUE IT DIFFERENTLY AND, THEREFORE, THE LOSS SUFFERED ON ACCOUNT OF ACQUISITION BY ALLOTMENT AND SALE THEREOF BEING IN THE NATURE O F LOSS ARISING ON PURCHASE AND SALE OF SHARES OF A COMPANY AND ALSO B EING IN THE NATURE OF BUSINESS OF THE ASSESSEE BEING PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, WAS TO BE TAKEN AS A SPECULATIVE LOSS. HENCE, THE APPEAL WAS LIABLE TO BE DISMISSED. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF TH E SPECIAL BENCH OF THE TRIBUNAL, WE ARE OF THE VIEW THAT NO I NTERFERENCE IS 4 CALLED FOR IN THE ORDER OF THE CIT(A). WE ACCORDING LY UPHOLD THE SAME. 4 IN THE RESULT, THE ASSESSEES APPEAL IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 04-09-2009 SD/- SD/- (R V EASWAR) VICE-PRESIDENT (P K BANSAL) ACCOUNTANT MEMBER DATE : 04-09-2009 COPY OF THE ORDER FORWARDED TO : 1. M/S VARUN FINSTOCK PVT. LTD., 27, NEW CLOTH MARK ET, O/S RAIPUR GATE, AHMEDABAD 2. THE ACIT, CIRCLE-3, AHMEDABAD 3. THE CIT CONCERNED 4. THE CIT(A)-VI, AHMEDABAD 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY.R/AR, ITAT, AHMEDABAD