Lokpriya Trade & Agency Pvt. Ltd., Kolkata V. ITO, Ward - 10(4), Kolkata, Kolkata

ITA 1781/KOL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 9270 (ITAT-KOLKATA)
• Duration Of Justice: 5 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-03-2011
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Next Hearing Date: 25-01-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 15-09-2010
• Court: TRIBUNAL
• Department Lawyers: K K TRIPATHI
• Keywords: Speculation loss

Judgement Text

1 , SMC , , IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH- SMC , KOLKATA [ . .. . . .. . , , , , ] BEFORE SHRI C.D. RAO, ACCOUNTANT MEMBER / ITA NO. 1781 (KOL) OF 2010 !' #$ / ASSESSMENT YEAR 2004-05 LOKPRIYA TRADE & AGENCY P. LTD. KOLKATA. (PAN-AAACL5143Q) INCOME-TAX OFFICER, WARD- 10(4), KOLKATA. ('( / APPELLANT ) - ! - - VERSUS - (+,'(/ RESPONDENT ) '( - . / FOR THE APPELLANT: / SRI SUBASH AGARWAL +,'( - . / FOR THE RESPONDENT: / SRI K.K.TRIPATHI / / ORDER ( . .. . . .. . ), (C.D. RAO), ACCOUNTANT MEMBER : THE ASSESSEE HAS FILED THIS APPEAL AGAINST THE OR DER DATED 22.06.2010 OF LD. C.I.T.(A)-XXIV, KOLKATA PERTAINING TO ASSESSMENT YE AR 2004-05. THE ASSESSEE HAS FILED REVISED GROUND OF APPEAL, WHICH READS AS UNDER :- 1. FOR THAT THE LD. CIT(A) ERRED IN CONF IRMING THE ACTION OF THE A.O. IN TREATING THE LOSS OF RS.1,76,478/- INCURRED IN SHARE TRADING BUS INESS AS SPECULATION LOSS BY WRONGLY INVOKING EXPLANATION TO SECTION 73. 2. AT THE TIME OF HEARING BEFORE US, IT IS STATED BY THE LEARNED COUNSEL THAT THE ASSESSEE-COMPANY DERIVED INCOME FROM GRANTING OF LO ANS & ADVANCES. IT WAS ALSO DEALINGS IN SHARES & SECURITIES BOTH AS INVESTMENT AND TRADING. DURING THE YEAR UNDER CONSIDERATION, THE COMPANY EARNED INTEREST INCOME O F RS.92,459/- AND ITS INVESTMENT IN LOANS WERE RS.24.25 LAKHS OUT OF THE TOTAL AVAILABL E FUND OF RS.1,382 LAKHS AS ON 31/3/2004 (AS MENTIONED ON PAGE2, PARA-3.1 OF CIT(A )S ORDER). THE ASSESSEE-COMPANY SUFFERED A LOSS OF RS.1,12,100/- IN DELIVERY BASED TRANSACTIONS OF DEALING IN SHARES & SECURITIES DURING THE YEAR UNDER APPEAL AND ALSO EA RNED PROFIT OF RS.1,72,656/- IN CERTAIN TRANSACTIONS WHICH WAS SHOWN UNDER THE HEAD OTHER INCOME. ACCORDING TO THE ASSESSEES LEARNED COUNSEL, THIS SUM OF RS.1,72,656 /- WAS NEVER TREATED BY THE ASSESSEE 2 CHARGEABLE AT A CONCESSIONAL RATE AS PER SEC. 111A OF THE ACT. ACCORDING TO HIM, THERE WAS NO LOSS DURING THE YEAR UNDER APPEAL IN SHARES TRADED AS THE NET RESULT OF SHARE TRADING ACTIVITIES WAS A PROFIT OF RS.60,556/- [RS. 1,72,656 RS.1,12,100]. THE A.O. OBSERVED THAT THE ASSESSEE HAD INCURRED A LOSS OF RS.1,12,100/- IN SHARE TRADING WHICH WAS SET OFF AGAINST INTEREST INCOME OF RS.92,459/- AND PROFIT ON SALE OF INVESTMENT OF RS.1,72,656/-. HE FURTHER OBSERVED THAT AS PER RET URN OF INCOME, THE NATURE OF BUSINESS OF THE ASSESSEE-COMPANY WAS TRADING IN SHARES & INV ESTMENT AND THE DEPLOYMENT OF FUNDS TOWARDS LOANS & ADVANCES WAS LESS THAN THAT O F SHARES & SECURITIES. HE, THEREFORE, HELD THAT THE ASSESSEE IS A COMPANY WHOSE PRINCIPAL BUSINESS IS OTHER THAN THAT OF BANKING OR GRANTING OF LOANS AND ADVANCES AND HENCE THE COMPANY WAS COVERED BY THE EXPLANATION TO SEC. 73 OF THE ACT AND THE EXCEPTION S CONTAINED IN THE EXPLANATION BELOW SEC. 73 OF THE ACT ARE NOT APPLICABLE TO THE CASE O F THE ASSESSEE. HE, THEREFORE, HELD THAT THE LOSS OF RS.1,12,100/- FROM SHARE TRADING BEING LOSS FROM SPECULATIVE BUSINESS CAN ONLY BE SET OFF AGAINST INCOME FROM SPECULATIVE BUS INESS. ON APPEAL, THE LD. C.I.T.(A) UPHELD THE ACTION OF THE A.O. BY HOLDING AS UNDER : - ACCORDINGLY, THE MAIN INCOME OF THE APPELLANT FO R THE YEAR UNDER CONSIDERATION IS UNDER THE HEAD PROFITS & GAINS OF BUSINESS WHICH IS RS.92,459/- + RS.1,12,100/- TOTALING RS.2,04,559/-. AS AGAINST THIS THE ONLY O THER INCOME SHOWN BY THE APPELLANT IN ITS COMPUTATION IS UNDER THE HEAD CAPITAL GAINS WHICH IS RS.1,72,656/-. IT THEREFORE CANNOT BE SAID THAT THE APPELLANT IS COVE RED BY THE EXCEPTION (1) REFERRED TO ABOVE. THUS THE APPELLANT IS NOT RED BY ANY OF THE EXCEPTIONS PROVIDED IN EXPLANATION TO SECTION 73. IT IS ALSO EVIDENT THAT THE APPELLANT IS TRADING IN SHARES OF OTHER COMPANIES AND THEREFORE IT WOULD BE COVERED B Y THE DEEMING PROVISIONS OF EXPLANATION 73 AND THUS WOULD BE CONSIDERED TO BE C ARRYING OUT SPECULATION BUSINESS. ACCORDINGLY, THE LOSS ON TRADING OF SHAR ES WOULD BE A LOSS IN SPECULATION BUSINESS AND AS PER THE PROVISIONS OF SECTION 73 IT WOULD NOT BE ELIGIBLE FOR SET OFF AGAINST INCOME UNDER THE HEAD CAPITAL GAINS SHOWN B Y THE ASSESSEE. IN VIEW OF THE ABOVE THE LOSS OF RS.1,12,100 /- HAS BEEN THEREFORE RIGHTLY HELD TO BE LOSS ON SPECULATION BUSINESS AS PER THE PROVISIO NS OF EXPLANATION TO SECTION 73 AND THE ABOVE ACTION OF THE AO IS CONFIRMED IN APPE AL. 3. THE PARTIES HAVE BEEN HEARD AND MATERIAL PLACED WERE ALSO CONSIDERED. DURING THE COURSE OF HEARING, THE ASSESSEE FILED A COPY O F ORDER OF I.T.A.T., KOLKATA BENCH IN THE CASE OF ITO VS. CAIRO NIRAYAT PVT. LTD. [ITA NO .1267/K/2008] AND DECISION OF 3 HONBLE CALCUTTA HIGH COURT IN THE CASE OF EASTERN AVIATION & INDS. LTD. VS. CIT [208 ITR 1023]. EXPLANATION TO SEC. 73 OF THE ACT READS AS UNDER :- EXPLANATION. WHERE ANY PART OF THE BUSINESS OF A COMPANY [OTHER THAN A COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS INTEREST ON SECURITIES, INCOME FROM HOUSE PROPERTY, CAPITAL GAINS AND INCOME FROM OTHER SOURCES], OR A COMPANY THE PRIN CIPAL BUSINESS OF WHICH IS THE BUSINESS OF BANKING OR THE GRANTING OF LOANS AND AD VANCES) CONSISTS IN THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, SUCH COMPANY SHALL, FOR THE PURPOSES OF THIS SECTION, BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF THE PURCHASE AND SALE OF S UCH SHARES. THUS, AS PER EXPLANATION TO SEC. 73, WHERE ANY PART OF THE BUSINESS OF A COMPANY CONSISTS OF PURCHASE AND SALE OF SHARES, SUCH BUSIN ESS SHALL BE DEEMED TO BE SPECULATION BUSINESS. HOWEVER, THERE ARE EXCEPTIONS WHERE THIS EXPLANATION WILL NOT BE APPLICABLE. THE EXCEPTIONS ARE - (I) THE GROSS TOTAL INCOME OF THE ASSESSEE CONSISTS MAI NLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS INTEREST ON SECURITIES , INCOME FROM HOUSE PROPERTY, CAPITAL GAINS AND INCOME FROM OTHER S OURCES. (II) THE PRINCIPLE BUSINESS OF THE ASSESSEE IS BANKING O R GRANTING OF LOANS AND ADVANCES. THEREFORE, FOR COMING UNDER THE EXCEPTION (I) OF EX PLANATION TO SEC. 73, REFERRED TO ABOVE, THE NON-BUSINESS HEAD INCOME, I.E. INCOME FR OM INTEREST ON SECURITIES, HOUSE PROPERTY, CAPITAL GAINS AND INCOME FROM OTHER SOURC ES OF A COMPANY, SHOULD BE MORE THAN THE BUSINESS HEAD INCOME. AS PER COMPUTATION O F PROFITS & GAINS FROM BUSINESS OR PROFESSION SUBMITTED BY THE ASSESSEE FOR THE YEAR U NDER CONSIDERATION, THE NET LOSS FROM SHARE TRADING WAS FOR RS.1,76,478/- AND NET INCOME FROM FINANCE BUSINESS WAS FOR RS.39,361/-, WHICH ARE AS UNDER :- PROFITS & GAINS FROM BUSINESS OR PROFESSION : (A) INTEREST RECEIVED RS.92,459 LESS: PROPORTIONATE ADMINISTRATIVE EXPENSES RS.53,098 RS.39,361 (B) SHARE TRADING LOSS (1,12,100) LESS: PROPORTIONATE EXPENSES OF SHARE TRADI NG 64,378 (1,76,478) (1,37,117) 4 THE A.O. IN HIS ASSESSMENT ORDER HAS ALSO TAKEN THE INCOME FROM GRANTING OF LOAN & ADVANCES UNDER THE HEAD PROFITS AND GAINS FROM BUS INESS OR PROFESSION AT THE SAME FIGURE SHOWN BY THE ASSESSEE, I.E. RS.39,361/- AND NET LOS S IN SHARE TRADING AT RS.1,76,478/- AND ULTIMATELY THERE WAS A LOSS OF RS.1,37,117/- UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS OR PROFESSION. IT IS AN ESTABLISHED LEGAL PRINCIPL E THAT INCOME FOR THE PURPOSE OF I.T. ACT ALSO INCLUDES THE LOSS. IT IS FURTHER OBSERVED THAT THE INTEREST INCOME HAS ALSO BEEN ASSESSED UNDER THE BUSINESS HEAD. WHEREAS, THE INCOME FROM C APITAL GAIN SHOWN BY THE ASSESSEE AND HAS NOT BEEN DISPUTED BY THE A.O., I.E. NON-BUSINES S HEAD INCOME, COMES TO RS.1,72,656/- AS AGAINST BUSINESS HEAD INCOME OF RS.1,37,117/-. FROM THE ABOVE, IT IS EVIDENT THAT THE NON-BUSINESS HEAD INCOME IS MORE THAN THE BUSINESS HEAD INCOME AND, THEREFORE, EXCEPTION (I) BELOW EXPLANATION TO SEC. 73 OF THE ACT IS APPL ICABLE TO THE CASE OF THE ASSESSEE AND THE LOSS IN SHARE TRADING BUSINESS SHOULD BE TREATED AS NORMAL SHARE TRADING BUSINESS AND NOT SPECULATION LOSS. THE ABOVE VIEW IS ALSO SUPPORTED BY THE DECISION OF COORDINATE BENCH OF I.T.A.T., KOLKATA IN THE CASE OF ITO VS. CAIRO NIRA YAT PVT. LTD. (SUPRA), A COPY OF WHICH HAS BEEN FILED BY THE ASSESSEE, WHEREIN THE TRIBUNAL ON SIMILAR SET OF FACTS AND FOLLOWING THE DECISION OF SPECIAL BENCH, I.T.A.T., MUMBAI IN THE CASE OF ACIT VS. CONCORD COMMERCIAL PVT. LTD. [95 ITD 117 (SB)] HAS HELD THAT THE EXPLA NATION TO SEC. 73 OF THE ACT IS NOT APPLICABLE TO THE CASE OF THE ASSESSEE. THE OBSERV ATION OF THE TRIBUNAL IN THE CASE OF CAIRO NIRAYAT PVT. LTD. (SUPRA) IS AS UNDER :- 10. DURING THE COURSE OF HEARING, THE LD. AUTHORISE D REPRESENTATIVE OF THE ASSESSEE CLARIFIED THAT CARRYING ON THE BUSINESS OF SALE AND PURCHASE OF SHARES IS A REGULAR BUSINESS OF THE ASSESSEE. WE OBSERVE THAT THE ASSE SSEE IS ALSO HAVING THE REGULAR INCOME FROM COMMISSION. IN THE ASSESSMENT YEAR UND ER CONSIDERATION, THE INCOME FROM COMMISSION IS RS.30,31,698/- AND WHEREAS THE S HARE TRADING LOSS IS OF RS.35,52,223/-. IT IS ALSO OBSERVED THAT THE ASSES SEE IS HAVING INTEREST INCOME OF RS.4,29,370/-. THE INTEREST INCOME HAS ALSO BEEN A SSESSED IN THE PRECEDING ASSESSMENT YEAR AS ALSO IN THE SUCCEEDING ASSESSMEN T YEAR TO THE ASSESSMENT YEAR UNDER CONSIDERATION UNDER THE HEAD INCOME FROM BUS INESS. CONSIDERING THE ABOVE FACTS IT IS OBSERVED THAT THE LD. CIT(A) HAS STATED THAT THE NET LOSS UNDER THE HEAD BUSINESS AT RS.1,64,376/- WHICH IS LESS THAN THE INCOME FROM OTHER SOURCES, I.E. RS.1,82,661/-. THE DEPARTMENT HAS NOT BROUGHT ANY FACTS ON RECORD TO CONTROVERT THE ABOVE FACTS. THEREFORE, FOLLOWING T HE DECISION OF THE ITAT, SPECIAL BENCH, MUMBAI IN THE CASE OF CONCORD COMMERCIAL PVT . LTD. (SUPRA) WE HOLD THAT THE LD.CIT(A) HAS RIGHTLY HELD THAT THE EXPLANATION TO SECTION 73 OF THE ACT IS NOT APPLICABLE TO THE ASSESSEE. ACCORDINGLY, WE UPHOLD THE ORDER OF THE LD. CIT(A) AND REJECT THE GROUND OF APPEAL TAKEN BY THE DEPARTMENT . 5 THEREFORE, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL, I T IS HELD THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN APPLYING EXPLANATION TO SEC. 73 OF THE ACT TO THE CASE OF THE ASSESSEE. THEREFORE, THE GROUND RAISED BY THE ASSE SSEE IS ALLOWED. 4. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. 0 / 1 2 1! 3 04 THIS ORDER IS PRONOUNCED IN OPEN COURT ON 10.3.2011. SD/- ( . .. . . .. . ) (C.D.RAO) , ACCOUNTANT MEMBER ( (( ( ) )) ) DATE: 10-03-2011 / - + 5 65#7- COPY OF THE ORDER FORWARDED TO : 1. '( / THE APPELLANT : M/S.LOKPRIYA TRADE & AGENCY P. LTD. C/O. MR. N.K. GOYAL, 16, N. S. ROAD, 2 ND FLOOR, KOLKATA-700 001. 2 +,'( / THE RESPONDENT : I.T.O., WARD-10(4), KOLKATA. 3. /! () : THE CIT(A)-XXIV, KOLKATA. 4. /!/ THE CIT, KOL- 5 . ; 3 + ! / DR, ITAT, KOLKATA BENCHES, KOLKATA 6 . GUARD FILE . ,5 + / TRUE COPY, /!1/ BY ORDER, (DKP) < = / DY/ASSTT. REGISTRAR .