The ACIT, Circle-1, Bhavnagar V. M/s. Rushil Industries Ltd., Bhavnagar

ITA 1966/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6736 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 06-04-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 16-06-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJEEB JAIN
• Assessee Lawyers: B R POPAT
• Keywords: Business income; Speculation loss; Capital expenditure; Set aside; Capital Gains
• Section: 14A; 43(5); 274; 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'C' BEFORE SHRI D K TYAGI,JM & SHRI A N PAHUJA, AM ITA NO.1966/AHD/2009 WITH CO NO.126/AHD/2009 (ASSESSMENT YEAR:-2006-07) ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1, JASHONATH CHOWK, BHAVNAGAR-364001 V/S M/S RUSHIL INDUSTRIES LTD. D-202, SARTHIK COMPLEX, ATABHAI CHOWK, BHAVNAGAR PAN: AABCR 0170 N [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI RAJEEB JAIN, DR ASSESSEE BY:- SHRI B R POPAT, AR O R D E R A N PAHUJA: THIS APPEAL BY THE REVENUE AND THE CORRESPONDING CROSS OBJECTION[CO] BY THE ASSESSEE DIRECTED AGAI NST AN ORDER DATED 23-03-2009 OF THE LD. CIT(APPEALS)-XX, AHMEDA BAD, FOR THE ASSESSMENT YEAR 2006-07, RAISE THE FOLLOWING GROUND S:- ITA NO.1966/AHD/2009 1 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOL DING THAT THE PROFIT ON SALE OF SHARES AMOUNTING TO RS.14,06,919/ - HAS TO BE TREATED AS LONG-TERM CAPITAL GAINS AND NOT AS PROFIT FROM SPEC ULATION BUSINESS, WITHOUT APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD BY THE ASSESSING OFFICER. 1.2 IN DOING SO, THE LD. CIT(A) HAS ERRED IN LAW AN D ON FACTS IN NOT APPRECIATING THAT, TAKING INTO ACCOUNT THE SUBSTANT IAL NATURE OF TRANSACTIONS AND THE MAGNITUDE OF PURCHASES AND SALES, THE SAID PURCHASES AND SALES OF SHARES WERE CARRIED OUT BY THE ASSESSEE COMPANY WITH THE MOTIVE OF EARNING PROFIT AND THE SAID SHARES WERE NOT HELD BY THE ASSESSEE AS INVESTMENT; AND THEREFORE THE AO WAS JUSTIFIED IN T REATING THE SAID PROFIT ON SALE OF SHARES AS THE PROFIT FROM SPECULATION BUSIN ESS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO. 3. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE C IT(A) BE SET ASIDE AND THAT OF THE AO BE RESTORED TO THE ABOVE EXTENT . ITA NO.1966/AHD/09 & CO NO. 126/AHD/09 2 CO NO.126/AHD/2009 1 NOT GIVING A CLEAR FINDING THAT IN A SITUATION OF T HE RETURNED CAPITAL GAIN BEING TREATED AS SPECULATION BUSINESS INCOME, THE SET OFF OF THE SAME HAS TO BE ALLOWED AGAINST THE RETURNED AND ADM ITTED BROUGHT FORWARD SPECULATION BUSINESS LOSS. 2 CONFIRMING THE DISALLOWANCE OF A SUM OF RS.39,076 /- UNDER SECTION 14A OF THE ACT. 3 NOT GIVING A CLEAR FINDING THAT IN A SITUATION OF THE RETURNED CAPITAL GAIN BEING TREATED AS SPECULATION BUSINESS INCOME, A CORRESPONDING REBATE UNDER SECTION 88E OF THE ACT IN RESPECT OF T HE SECURITY TRANSACTION TAX PAID HAS TO BE ALLOWED. THE ASSESSEE CRAVES LEAVE TO ADD, AMEND, DELETE OR ALTER ONE OR MORE GROUNDS OF APPEAL. 2 FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING INCOME OF RS.39,26,662/- FILED ON 30-11-2006 BY THE ASSESSEE, ENGAGED IN THE BUSINESS OF SHIP BREAKING AND TRADIN G OF SCRAP MATERIAL, WAS SELECTED FOR SCRUTINY WITH THE SERVIC E OF A NOTICE U/S 143(2) OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REF ERRED TO AS THE ACT] ON 16.10.2007.DURING THE COURSE OF ASSESSMEN T PROCEEDINGS, THE ASSESSING OFFICER[AO IN SHORT] ASKED THE ASSESS EE AS TO WHY EXPLANATION TO SECTION 73 OF THE ACT BE NOT INVOKED IN THEIR CASE IN RESPECT OF TRANSACTIONS RELATING TO CAPITAL GAINS R EFLECTED IN THE RETURN. IN RESPONSE, THE ASSESSEE REPLIED THAT SINC E THE COMPANY DID NOT NOT SUFFER LOSS IN SHARE TRANSACTIONS WHILE THE PR INCIPAL BUSINESS OF THE COMPANY BEING GRANTING LOANS AND ADVANCES, THE EXPLANATION TO SECTION 73 OF THE ACT DID NOT APPLY. ALTERNATIVELY, IT WAS CLAIMED THAT IF T HE RESULTANT SHORT TERM CAPITAL GAIN WAS TREATED AS SPECULATIVE BUSINESS INCOME, THE SAM E WAS ELIGIBLE FOR SET OFF AGAINST THE SPECULATION LOSS SUFFERED BY THE COMPAN Y .HOWEVER, THE AO DID NOT ACCEPT THE SUBMISSIONS ON BEHALF OF THE ASSESSEE O N THE GROUND THAT THE BUSINESS OF PURCHASE AND SALE OF SHARES BY THE COM PANIES, WHICH WERE NOT INVESTMENT OR BANKING COMPANIES OR COMPANIES CARRYI NG ON BUSINESS OF GRANTING ITA NO.1966/AHD/09 & CO NO. 126/AHD/09 3 LOANS OR ADVANCES, HAD TO BE TREATED ON SAME FOOTIN G AS A SPECULATION BUSINESS. WHILE RELYING UPON CIRCULAR NO. 204, DATED 24TH JUL Y 1976 AND REFERRING TO DECISIONS IN APPOLLO TYRES VS CIT, 255 ITR 273 (SC ), AMAN PORTFOLIO (P) LTD. V. DEPUTY COMMISSIONER OF INCOME-TAX (2005) 92 ITD 324 (DEL), ADI(LNV.)V.KUM.A.B.SHANTI [1997] 225 ITR 258 (SC), ALLIED MOTORS (P.) LTD. V. CIT [1997] 224 ITR 677 (SC) AND CIT V. PODAR CEMENT (P.) LTD. [1997] 226 ITR 625 (SC), THE AO ASSESSED PROFIT FROM THE PURCHA SE AND SALE OF SHARES AMOUNTING TO RS.14,06,919/- AS SPECULATION PROFIT A ND NOT AS SHORT TERM CAPITAL GAIN OR LONG TERM CAPITAL GAIN AS CLAIMED BY THE AS SESSEE. 3. ON APPEAL, THE LEARNED CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE IN THE FOLLOWING TERMS:- 2.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AND SUBMISSION MADE BY THE ID. COUNSEL OF THE APPELLANT. THE A.O H AS APPLIED THE PROVISIONS OF EXPLANATION TO SECTION 73 OF THE I.T. ACT AND TREATED THE STCG SHOWN BY THE APPELLANT AS SPECULATIVE INCOME. PROVISIONS OF SECTION 73 AS IT IS CLEAR FROM THE HEADLINE 'LOSSES IN SPEC ULATION BUSINESS' MENTIONED BEFORE DEALING THE PROVISIONS OF SECTION CLARIFIES THAT THIS SECTION HAS BEEN BROUGHT TO CHECK OVER THE TACTICS OF SOME OF THE PERSONS SETTING OFF OF THE LOSSES INCURRED IN PURCHASES AND SALE OF SHARES TO MINIMIZE THEIR TAX LIABILITY. IN THIS CASE, THE FAC TS ARE DIFFERENT THERE BEING NO LOSS ON ACCOUNT OF SHARE TRANSACTIONS INSTEAD TH ERE AROSE THE INCOME ON SUCH TRANSACTIONS. IF THE APPELLANT HAD CLAIMED THE SET OFF OF LOSS INCURRED ON SHARE TRANSACTION, THE AO COULD THINK I NVOKING EXPLANATION TO SECTION 73. I FIND THAT IN THE FACTS AND CIRCUMSTAN CES OF THE CASE, EXPLANATION TO SECTION 73 IS NOT AT ALL ATTRACTE D BECAUSE FOR THE YEAR UNDER CONSIDERATION, THE APPELLANT HAS NOT SUFFERED ANY LOSS ON THE SALE OF SHARES. THE SECTION AS WELL AS THE EXPLANATION APPE NDED TO IT ARE DEEMING PROVISIONS AND THEY COME INTO OPERATION ONLY WHEN A N ASSESSEE SUFFERS A LOSS. THIS VIEW FIND SUPPORT FROM THE DECISION OF THE ITAT, HYDERABAD IN THE CASE OF GODAVARI CAPITAL VS. DCIT, 273 ITR (AT) 10. IN VIEW OF THESE FACTS AND CIRCUMSTANCES OF THE CASE, I AM INCLINED TO HOLD THAT WITH REGARD TO RS.14,06,919/- STAND TAKEN BY THE AO TREATING TH E LTCG SHOWN BY THE APPELLANT AS SPECULATION BUSINESS INCOME IS NOT JUS TIFIED WHICH IS HEREBY DELETED. THIS GROUND OF APPEAL IS THEREFORE, ALLOWE D. 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED DR SUPP ORTED THE ORDER OF THE AO WHILE THE LD. AR ON BEHALF OF THE ASSESS EE SUPPORTED THE ITA NO.1966/AHD/09 & CO NO. 126/AHD/09 4 FINDINGS OF THE LD. CIT(A) IN THE LIGHT OF DECISION OF THE ITAT HYDERABAD BENCH IN THE CASE OF GODAVARI CAPITAL LTD . V. DCIT [2004] 91 ITD 274 (HYD). 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. THE ISSUE BEFORE US AS TO WHETHER THE S HORT TERM CAPITAL GAIN REFLECTED BY THE ASSESSEE IN THEIR RETURN IS SPECULATION PROFIT. THE TERM SPECULATION TRANSACTION IS DEFINED IN SECT ION 43(5) OF THE ACT AS UNDER: 5) SPECULATIVE TRANSACTION MEANS 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 DEL IVERY OR TRANSFER OF THE COMMODITY OR SCRIPS: 5.1 THE AO HAS INVOKED EXPLANATION TO SEC. 73 OF THE ACT. THE SAID SECTION READS AS UNDER: 73. LOSSES IN SPECULATION BUSINESS. (1) ANY LOSS, COMPUTED IN RESPECT OF A SPECULATION BUSINESS CARRIED ON BY THE ASSESSEE, SHALL NOT BE SET OFF EXCEPT AGAINST P ROFITS AND GAINS, IF ANY, OF ANOTHER SPECULATION BUSINESS. (2) WHERE FOR ANY ASSESSMENT YEAR ANY LOSS COMPUTED IN RESPECCT OF A SPECULATION BUSINESS HAS NOT BEEN WHOLLY SET OFF UN DER SUB-SECTION (1), SO MUCH OF THE LOSS AS IS NOT SO SET OFF OR THE WHOLE LOSS WHERE THE ASSESSEE HAD NO INCOME FROM ANY OTHER SPECULATION BUSINESS, SHALL, SUBJECT TO THE OTHER PROVISIONS OF THIS CHAPTER, BE CARRIED FORWAR D TO THE FOLLOWING ASSESSMENT YEAR, AND- (I) IT SHALL BE SET OFF AGAINST THE PROFITS AND GAI NS, IF ANY, OF ANY SPECULATION BUSINESS CARRIED ON BY HIM ASSESSABLE F OR THAT ASSESSMENT YEAR; AND (II) IF THE LOSS CANNOT BE WHOLLY SO SET OFF, THE A MOUNT OF LOSS NOT SO SET OFF SHALL BE CARRIED FORWARD TO THE FOLLOWING A SSESSMENT YEAR AND SO ON. (3) IN RESPECT OF ALLOWANCE ON ACCOUNT OF DEPRECIAT ION OR CAPITAL EXPENDITURE ON SCIENTIFIC RESEARCH, THE PROVISIONS OF SUB-SECTION (2) OF ITA NO.1966/AHD/09 & CO NO. 126/AHD/09 5 SECTION 72 SHALL APPLY IN RELATION TO SPECULATION B USINESS AS THEY APPLY IN RELATION TO ANY OTHER BUSINESS. (4) NO LOSS SHALL BE CARRIED FORWARD UNDER THIS SEC TION FOR MORE THAN FOUR ASSESSMENT YEARS IMMEDIATELY SUCCEEDING THE ASSESSM ENT YEAR FOR WHICH THE LOSS WAS FIRST COMPUTED. EXPLANATION.-WHERE ANY PART OF THE BUSINESS OF A CO MPANY (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 S OURCES', OR A COMPANY THE PRINCIPAL BUSINESS OF WHICH IS THE BUSINESS OF BANKING OR THE GRANTING OF LOANS AND ADVANCES) CONSISTS IN THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, SUCH COMPANY SHALL, FOR THE PURPOS ES 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 SUCH SHARES. 5.2 THE AFORESAID EXPLANATION TO SECTION 73 OF THE ACT TREATS ANY PURCHASE AND/OR SALE OF SHARES BY CERTAIN COMPANIES TO BE SP ECULATIVE FOR THE PURPOSE OF SECTION 73 ONLY. FOR THE PURPOSE OF SETTING OFF AND CARRYING FORWARD OF LOSS, BUYING AND SELLING OF SHARES OF CERTAIN COMPANIES IS REGAR DED BY THE STATUTE AS SPECULATION BUSINESS, EVEN THOUGH THE TRANSACTION O F PURCHASE AND SALE WAS FOLLOWED BY DELIVERY OF SCRIPS AND AS SUCH CANNOT B E TREATED AS 'SPECULATIVE TRANSACTION' AS DEFINED IN SECTION 43(5) OF THE INC OME-TAX ACT. THE EXPLANATION TO SECTION 73 INTRODUCES A LEGAL FICTION. THE SECTION APPLIES ONLY TO A COMPANY. THE SAID EXPLANATION DOES NOT APPLY TO 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 PRINCIPAL BUSINESS OF WHICH IS THE BU SINESS OF BANKING OR THE GRANTING OF LOANS AND ADVANCES .IF THE BUSIN ESS OF A COMPANY WHICH DOES NOT FALL WITHIN THE EXCLUDED CATEGORIES CONSISTS OF PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, THEN SUCH A COMPANY SHALL BE DEEME D TO BE CARRYING ON SPECULATION BUSINESS FOR THE PURPOSE OF SECTION 73 TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF THE PURCHASE AND SALE OF SUCH SHARES. NEITHER IN THE IMPUGNED ORDER THERE IS ANY SUCH FINDING NOR THE L D. AR APPEARING BEFORE US ESTABLISHED THAT THE CASE OF ASSESSEE FALLS IN AN Y OF THE EXCEPTED CATEGORIES OF COMPANIES SPECIFIED IN THE EXPLANATION TO SECTION 7 3 IBID. FIRSTLY, IT IS NOT A COMPANY WHOSE MAIN SOURCE OF INCOME IS FROM 'INTERE ST ON SECURITIES' OR 'INCOME ITA NO.1966/AHD/09 & CO NO. 126/AHD/09 6 FROM HOUSE PROPERTY', OR FROM 'CAPITAL GAINS', OR ' OTHER SOURCES'. SECONDLY, IT IS ALSO NOT A COMPANY WHOSE PRINCIPAL BUSINESS IS THAT OF 'BANKING OR GRANTING OF LOAN AND ADVANCE. THE UNDISPUTED FACTS ARE THAT TH E ASSESSEE RETURNED SHORT TERM CAPITAL GAIN ON SALE OF SHARES AND THE AO IN VOKED EXPLANATION TO SEC. 73 OF THE ACT. THERE IS NOTHING TO SUGGEST IN THE ASSESSM ENT ORDER OR IN THE IMPUGNED ORDER THAT THE ASSESSEE CARRIED ON THE BU SINESS OF PURCHASE AND SALE OF SHARES OF OTHER COMPANIES NOR THE LD. DR PL ACED BEFORE US ANY SUCH MATERIAL. THE LD. CIT(A) FOLLOWING THE DECISION IN GODAVARI CAPITAL(SUPRA) ALLOWED THE CLAIM ON THE GROUND THAT SECTION 73 IS NOT AT ALL ATTRACTED, THE ASSESSEE HAVING NOT SUFFERED ANY LOSS ON THE SALE OF SHARES IN THE YEAR UNDER CONSIDERATION. THE REVENUE HAVE NOT PLACED BEFORE U S ANY CONTRARY DECISION NOR ESTABLISHED THAT THE ASSESSEE CARRIED ON BUSINESS O F PURCHASE OR SALE OF SHARES OF OTHER COMPANIES. IN THESE CIRCUMSTANCES, ESPECI ALLY WHEN THERE IS NO MATERIAL BEFORE US SO AS TO ENABLE US TO TAKE A DIFFERENT VI EW IN THE MATTER, WE ARE NOT INCLINED TO INTERFERE. THEREFORE, GROUND NOS.1 & 1. 2 IN THE APPEAL ARE DISMISSED. 6. GROUND NO.2 IN THE CO RELATES TO DISALLOWANCE U/S 14A OF THE ACT. SINCE THE LD. AR APPEARING BEFORE US DID NOT M AKE ANY SUBMISSIONS ON THIS GROUND WHILE BEFORE THE LD. CIT (A) ,INDISPUTABLY, THE LD. AR ACCEPTED THAT THIS ISSUE IS TO BE DECIDE D IN FAVOUR OF THE REVENUE, WE HAVE NO HESITATION IN REJECTING GROUND NO.2 IN THE CO. 7. GROUND NOS.2 & 3 IN THE APPEAL OF THE REVENUE B EING GENERAL IN NATURE NOR ANY SUBMISSIONS HAVING BEEN MADE ON THES E GROUNDS ,DO NOT REQUIRE ANY SEPARATE ADJUDICATION WHILE GROUND NOS. 1 & 3 IN THE CO BEING ADMITTEDLY CONSEQUENTIAL AND HAVING NOT BE EN PRESSED BEFORE US AND NO ADDITIONAL GROUND HAVING BEEN RAIS ED IN TERMS OF RESIDUARY GROUND IN THE CO, ALL THESE GROUNDS ARE D ISMISSED. 8. NO OTHER PLEA OR ARGUMENT WAS MADE BEFORE US. ITA NO.1966/AHD/09 & CO NO. 126/AHD/09 7 9. IN THE RESULT, APPEAL OF THE REVENUE AND CO ARE DISMISSED. ORDER PRONOUNCED IN THE COURT TODAY ON 6 -05-2011 SD/- SD/- (D K TYAGI) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATED : 6-05-2011 COPY OF THE ORDER FORWARDED TO: 1. M/S RUSHIL INDUSTRIES LTD. D-202, SARTHIK COMPLE X, ATABHAI CHOWK, BHAVNAGAR 2. THE ACIT, CIRCLE-1, BHAVNAGAR 3. CIT CONCERNED 4. CIT(A)-XX, AHMEDABAD 5. DR, ITAT, AHMEDABAD BENCH-C, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD