M/s. R.Wadiwala Securities Pvt. Ltd., Surat V. The ACIT, Circle-4, Surat

ITA 2165/AHD/2015

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 8184 (ITAT-SURAT)
• Duration Of Justice: 5 year(s) 7 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-03-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 22-07-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANUPAMA SINGLA
• Keywords: Business income; Question of law; Speculation loss; Condonation of delay; Speculative transactions; Capital Gains
• Section: 208; 192; 43; 73(1); 73; 72; 28

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, HON'BLE JUDICIAL MEMBER AND DR. ARJUN LAL SAINI, HON'BLE ACCOUNTANT MEMBER (VIRTUAL HEARING) .../ I.T.A NO.2165/AHD/2015 / ASSESSMENT YEAR: 2011-12 M/S.R.WADIWALA SECURITIES PVT. LTD., 9/2003-04, LIMDA CHOWK MAIN ROAD, SURAT 395003. [PAN: AACCR 7642 A] VS . THE ASST. CO MMISSIONER OF INCOME TAX, CIRCLE-4, SURAT. / APPELLANT /RESPONDENT /ASSESSEE BY SHRI MANISH J.SHAH AR /REVENUE BY SMT. ANUPAMA SINGLA SR.DR / DATE OF HEARING: 11.01.2021 / P RONOUNCEMENT ON: .03.2021 /O R D E R PER PAWAN SINGH, JUDICIAL MEMBER: 1. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-II, SURAT HEREINAFTER REFERRED AS LD.CIT(A) DATED 29.06.2015 FOR THE A.Y.2011-12. THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE LEARNED CIT(A)-II SURAT'S ORDER IS CONTRADICTORY TO LAW AND FACTS OF THE CASE AND THEREFORE, THE ADDITION MADE BY THE ASSESSING OFFICER AS WELL AS CONFIRMED BY CIT (A) TO THE EXTENT OF RS. 13,86,843 MAY PLEASE BE DELETED. 2. THE LEARNED CIT(A)-II SURAT GROSSLY ERRED IN CONFIRMING ADDITION OF RS.13,76,206/- TREATED SHARE TRADING LOSS AS SHARE SPECULATION LOSS WITHIN THE AMBIT OF EXPLANATION TO SEC. 73 OF THE I.T. ACT. 3. THE LEARNED COMMISSIONER OF INCOME TAX APPEALS CONSIDERED SHARE TRADING AS SPECULATION LOSS AND NOT ALLOWED TO ADJUST AGAINST THE NORMAL BUSINESS INCOME AND ALLOWED TO CARRY FORWARD SPECULATION LOSS. M/S.R.WADIWALA SECURITIES PVT. LTD., VS. ACIT, CIR-4, SURAT./ ITA NO.2165/AHD/2015 FOR A.Y.2011-12 2 4. THE LEARNED COMMISSIONER OF INCOME TAX APPEALS ERRED IN CONFIRMING THE ADDITION OF RS. 10,637/- OF VATAV KASAR A/C. 5. THE COMMISSIONER OF INCOME TAX APPEALS NOT BELIEVED THAT THE SHARE BROKER NEED TO PROVIDE VATAV KASAR FOR WRONG TRANSACTIONS OR SOME DEALERS MISTAKE AND HENCE DISALLOWED THE EXPENSES AND ADDED TO THE TOTAL INCOME. 6. IN VIEW OF ALL THESE AND OTHER GROUNDS WHICH MAY BE PRODUCED DURING THE HEARING OF APPEAL, THE APPEAL MAY PLEASE BE ALLOWED AND JUSTICE RENDERED. 7. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, AMEND, MODIFY, SUBSTITUTE, DELETE AND / OR RESCIND ALL OR ANY OF THE GROUNDS OF APPEAL ON OR BEFORE THE FINAL HEARING, IF NECESSITY SO ARISES. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY DEALING IN SHARES AND A STOCK BROKER. THE ASSESSEE IS ALSO A MEMBER OF BOMBAY STOCK EXCHANGE (BSE) AND NATIONAL STOCK EXCHANGE (NSE). THE ASSESSEE WHILE FILING THE RETURN OF INCOME DECLARED INCOME OF RS.1.51 CRORE. DURING THE ASSESSMENT, THE ASSESSING OFFICER (AO) NOTED THAT ASSESSEE HAS ADJUSTED/SET-OFF THE SPECULATION BUSINESS LOSS OF RS.13,76,206/- ON ACCOUNT OF TRADING OF SHARES AND SECURITIES AGAINST THE BUSINESS INCOME. THE AO ISSUED SHOW CAUSE NOTICE SEEKING THE COMPLETE DETAILS OF SPECULATION BUSINESS LOSS, INCLUDING SCRIP WISE DETAILS OF SALE AND PURCHASE OF SHARE AND SHOW CAUSED AS TO WHY THE LOSS SHOULD NOT BE TREATED AS SPECULATION BUSINESS LOSS AS PER EXPLANATION TO SECTION 73 OF THE ACT. THE ASSESSEE FILED ITS REPLY DATED 31.01.2014. IN THE REPLY, THE ASSESSEE STATED THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE EARNED INCOME FROM BUSINESS AND PROFESSION OF RS.70,94,288/-, CAPITAL GAIN OF RS.1,47,843/- AND INCOME FROM OTHER SOURCES OF RS.94,28,211/-. THE TOTAL INCOME CONSIST MAINLY INCOME WHICH M/S.R.WADIWALA SECURITIES PVT. LTD., VS. ACIT, CIR-4, SURAT./ ITA NO.2165/AHD/2015 FOR A.Y.2011-12 3 IS CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCES AND CAPITAL GAIN OF RS.95,76,054/-. THUS, THE ASSESSEE IS DEEMED TO BE NOT CARRYING ON SPECULATION BUSINESS FOR THE PURPOSE OF SECTION 73(1) OF THE ACT. THE ASSESSEE ALSO RELIED ON VARIOUS CASE LAWS. THE SUBMISSION OF ASSESSEE WAS NOT ACCEPTED BY THE ASSESSING OFFICER(AO) BY TAKING VIEW THAT ASSESSEE TOTAL INCOME CONSIST OF RS.79,43,244/- UNDER THE HEAD INCOME FROM OTHER SOURCES AND RS.70,94,288/- UNDER THE HEAD PROFIT AND GAIN FROM BUSINESS AND PROFESSION. THUS, EXPLANATION TO SECTION 73 OF THE ACT WILL APPLICABLE ONLY WHEN THE ASSESSEES GROSS TOTAL INCOME CONSIST MAINLY INCOME WHICH IS CHARGEABLE UNDER THE HEAD INTEREST ON SECURITIES, INCOME FROM HOUSE PROPERTY, CAPITAL GAINS AND INCOME FROM OTHER SOURCES. THE ASSESSEES GROSS TOTAL INCOME CONSIST OF PROFIT AND GAIN OF BUSINESS OF RS.70,94,288/- AND INCOME FROM OTHER SOURCES OF RS.79,43,244/-. THE AO FURTHER HELD THAT IT MAY NOT BE SAID THAT ASSESSEES GROSS TOTAL INCOME MAINLY CONSIST OF INCOME FROM OTHER SOURCES. THE BUSINESS INCOME OF ASSESSEE INCLUDES LOSS IN SHARE TRADING OF RS.13,76,206/-. ACCORDINGLY, THE AO HELD THAT LOSS IS TREATED AS A SPECULATION LOSS AND CANNOT BE SET-OFF AGAINST THE NORMAL BUSINESS INCOME. THE A.O. ALSO DISALLOWED RS. 10,637/- DEBITED ON ACCOUNT OF EXPENDITURE OF VATAV KASAR BY TAKING VIEW THAT SUCH CLAIM CAN BE MADE BY DEALERS ONLY. M/S.R.WADIWALA SECURITIES PVT. LTD., VS. ACIT, CIR-4, SURAT./ ITA NO.2165/AHD/2015 FOR A.Y.2011-12 4 3. ON APPEAL BEFORE THE LD.CIT(A), THE ACTION OF AO WAS UPHELD. THUS, FURTHER AGGRIEVED, THE ASSESSEE HAS FILED THE PRESENT APPEAL BEFORE THIS TRIBUNAL. 4. WE HAVE HEARD THE SUBMISSIONS OF LEARNED AUTHORISED REPRESENTATIVE (AR) OF THE ASSESSEE AND THE LEARNED DEPARTMENTAL REPRESENTATIVE (DR ) FOR THE REVENUE. AT THE OUTSET, ON HEARING, THE LD. AR OF THE ASSESSEE SUBMITS THAT THE ASSESSEE IS NOT PRESSING GROUND NO.4 & 5, DUE TO SMALLNESS OF AMOUNT AND THE SAME MAY BE DISMISSED AS NOT PRESSED. CONSIDERING THE SUBMISSION OF LD.AR OF THE ASSESSEE, GROUND NO.4 &5 ARE DISMISSED AS NOT PRESSED. 5. GROUND NO.1 TO 3 RELATES TO THE DENIAL OF THE LOSS BY TREATING AS SPECULATION LOSS. THE LD.AR OF THE ASSESSEE SUBMITS THAT DURING THE PERIOD UNDER CONSIDERATION, THE ASSESSEE EARNED INCOME COMPRISING INCOME FROM BUSINESS OF RS.70,94,288/- CAPITAL GAIN OF RS.1,47,843/- AND INCOME FROM OTHER SOURCES OF RS.94,28,211/-, WHICH INCLUDES THE DIVIDEND INCOME OF RS.14,84,967/-. THE ASSESSEES GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER HEAD INCOME FROM OTHER SOURCES AND CAPITAL GAIN. THE INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES AND CAPITAL GAIN IS OF RS.95,76,054/- . THUS, THE CASE OF ASSESSEE FALLS WITHIN THE PURVIEW OF THE EXCEPTION CARVED OUT IN THE EXPLANATION TO SECTION 73 OF THE ACT AND CONSEQUENTLY THE ASSESSEE IS NOT DEEMED TO BE CARRYING ON M/S.R.WADIWALA SECURITIES PVT. LTD., VS. ACIT, CIR-4, SURAT./ ITA NO.2165/AHD/2015 FOR A.Y.2011-12 5 SPECULATION BUSINESS. THE LD. AR FOR THE ASSESSEE INVITED OUR ATTENTION TO THE COMPUTATION OF STATEMENT OF TOTAL INCOME. THE ASSESSEE HAS SHOWN SHORT TERM CAPITAL GAIN OF RS.48,252/-, DIVIDEND INCOME OF RS.14,84,967/-. INTEREST INCOME OF RS.79,43,244/-. THUS, THE LD.AR FOR THE ASSESSEE REITERATED THAT THE GROSS TOTAL INCOME FROM OTHER SOURCES AND CAPITAL GAIN IS RS.95,76,054/- AND THUS, THE ASSESSEE CLEARLY FALLS WITHIN THE EXCEPTION OF EXPLANATION TO SECTION 73 OF THE ACT. IN SUPPORT OF HIS SUBMISSION, THE LD.AR OF THE ASSESSEE RELIED UPON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN CIT VS. DARSHAN SECURITIES PVT. LTD., IN ITA NO.2886 OF 2009 DATED 02.02.2012 AND THE DECISION OF HON'BLE KOLKATA TRIBUNAL IN ITO VS. DHARMJYOTI VINIMAY PVT. LTD., [2004] 3 SOT 902 (KOL). 6. THE LD.AR FURTHER SUBMITS THAT THE HON'BLE BOMBAY HIGH COURT IN DARSHAN SECURITIES (SUPRA) HELD THAT IN ORDER TO DETERMINE WHETHER THE EXCEPTION CARVED OUT BY THE EXPLANATION TO SECTION 73 OF THE ACT, THE LEGISLATURE HAD FIRST MENTIONED OF COMPUTATION OF GROSS INCOME OF THE COMPANY. THE WORD CONSIST MAINLY ARE INDICATIVE OF THE FACT THAT LEGISLATURE HAD IN ITS CONTEMPLATION THAT GROSS TOTAL INCOME CONSIST PREDOMINANTLY INCOME FROM FOUR HEADS THAT ARE REFERRED TO THEREIN. IN COMPUTING GROSS TOTAL INCOME, THE NORMAL PROVISIONS OF ACT MUST BE APPLIED AND IT IS ONLY THEREAFTER, I.E. HAS TO BE DETERMINED AS TO WHETHER THE GROSS M/S.R.WADIWALA SECURITIES PVT. LTD., VS. ACIT, CIR-4, SURAT./ ITA NO.2165/AHD/2015 FOR A.Y.2011-12 6 TOTAL INCOME SO COMPUTED CONSIST MAINLY OF THE INCOME WHICH IS CHARGEABLE UNDER THE HEAD REFERRED TO IN THE EXPLANATION. 7. ON THE OTHER HAND, THE DEPARTMENTAL REPRESENTATIVE (SR. DR) FOR THE REVENUE SUPPORTED THE ORDER OF LOWER AUTHORITIES. THE SR.DR FURTHER SUBMITS THAT THE CIT(A) IN PARA 6.1.4 AND 6.1.5 HAS CLEARLY HELD THAT IF GROSS TOTAL INCOME OF ASSESSEE IS MAINLY FROM INCOME UNDER THE HEAD PROFIT UNDER THE HEAD BUSINESS INCOME AS IN THE PRESENT CASE IT WILL BE COVERED BY MISCHIEF OF EXPLANATION TO SECTION 73 OF THE ACT. THE FIRST EXCEPTION IS MADE ON THE BASIS OF COMPOSITION OF GROSS TOTAL INCOME, WHICH PROVIDES ANY LOSS COMPUTED IN RESPECT OF HIS SPECULATION BUSINESS CARRIED OUT BY THE ASSESSEE, SHALL NOT BE SET-OFF AGAINST THE PROFIT AND GAINS, IF ANY OF OTHER SPECULATION BUSINESS. THE WHOLE SCHEME IS THAT IF THE SPECULATION TRANSACTION WHICH CONSTITUTE A BUSINESS ARE TO BE TREATED AD SPECULATING BUSINESS AND LOSSES ARISING THEREFROM SHALL BE SET-OFF AGAINST PROFIT AND GAIN OF ANOTHER SPECULATION BUSINESS. 8. WE HAVE CONSIDERED THE RIVAL CONTENTION OF BOTH THE PARTIES AND HAVE GONE THROUGH THE ORDER OF AUTHORITIES BELOW. WE HAVE ALSO DELIBERATED ON VARIOUS CASE LAWS RELIED BY THE LD.AR OF THE ASSESSEE AS WELL AS BY THE LD.CIT(A) IN THE IMPUGNED ORDER. THE AO TREATED THE LOSS IN SALE TRADING AS A SPECULATION LOSS BY TAKING VIEW THAT PROFIT AND GAIN OF BUSINESS OF ASSESSEE IS ONLY RS.70,79,288/- AND INCOME FROM OTHER SOURCES OF M/S.R.WADIWALA SECURITIES PVT. LTD., VS. ACIT, CIR-4, SURAT./ ITA NO.2165/AHD/2015 FOR A.Y.2011-12 7 RS.79,43,244/-, THUS, IT MAY NOT BE SAID THAT ASSESSEES GROSS TOTAL INCOME MAINLY CONSIST FROM OTHER SOURCES AS MENTIONED IN SECTION 73 OF THE ACT.THE PROFIT AND GAIN OF BUSINESS OR PROFESSION ALSO INCLUDES LOSS IN SHARE TRADING OF RS.13,76,206/. 9. BEFORE THE LD.CIT(A), THE ASSESSEE MADE SIMILAR SUBMISSION AS MADE BEFORE THIS TRIBUNAL. THE ASSESSEE BROUGHT TO THE NOTICE OF THE LD.CIT(A) THAT ASSESSEE EARNED INCOME FROM BUSINESS AND PROFESSION OF RS.70,94,288/- AND CAPITAL GAIN OF RS.47,843/-. THE ASSESSEES INCOME FROM OTHER SOURCES IS RS.94,28,211/- WHICH INCLUDES THE DIVIDEND INCOME OF RS.14,84,967/-. THE ASSESSEE, ACCORDINGLY CLAIMED THAT THE TOTAL INCOME CONSIST OF MAINLY OF INCOME WHICH IS CHARGEABLE TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES AND CAPITAL GAIN. THE LD.CIT(A) UPHELD THE ACTION OF AO BY REFERRING THE DECISION OF HON'BLE KOLKATA HIGH COURT IN CIT VS. ARVIND INVESTMENTS LTD., 192 ITR 365/58 TAXMAN 216 AND EASTERN AVIATION & INDUSTRIES LTD., VS. CIT 208 ITR 1023/74 TAXMAN 641. 10. BEFORE US, THE LD.AR OF THE ASSESSEE VEHEMENTLY RELIED UPON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN CASE OF CIT VS. DARSHAN SECURITIES PVT. LTD., (SUPRA). THE HON'BLE BOMBAY HIGH COURT WHILE AFFIRMING THE DECISION OF THE TRIBUNAL HELD THAT GROSS TOTAL INCOME OF ASSESSEE WAS REQUIRED TO BE COMPUTED INTER-ALIA BY COMPUTING THE INCOME UNDER HEAD PROFIT AND GAIN OF BUSINESS AND PROFESSION AS A WHOLE, BOTH THE INCOME FROM M/S.R.WADIWALA SECURITIES PVT. LTD., VS. ACIT, CIR-4, SURAT./ ITA NO.2165/AHD/2015 FOR A.Y.2011-12 8 SERVICE CHARGES IN THE AMOUNT OF RS.2.25 CRORE AND LOSS IN SHARE TRADING OF RS.2.23 CRORE WOULD HAVE TO BE TAKEN INTO ACCOUNT IN COMPUTING THE INCOME UNDER THAT HEAD, BOTH THE BEING SOURCES UNDER THE SAME HEAD. FURTHER, THE ASSESSEE HAS A DIVIDEND INCOME OF RS.4.7 LAKHS UNDER THE HEAD INCOME FROM OTHER SOURCES, THUS, THE TRIBUNAL WAS JUSTIFIED IN COMING TO THE CONCLUSION THAT ASSESSEE FALLS WITHIN THE PURVIEW OF EXCEPTION CARVED OUT IN EXPLANATION TO SECTION 73 OF THE ACT AND ASSESSEE WOULD NOT BE DEEMED TO BE CARRYING ON SPECULATION BUSINESS FOR THE PURPOSE OF SECTION 73(1) OF THE ACT. FOR COMPLETENESS OF THIS ORDER, THE RELEVANT PART OF DECISION REFERRED BELOW: 5. UNDER SECTION 28, INCOME WHICH IS CHARGEABLE TO INCOME TAX UNDER THE HEAD OF PROFITS AND GAINS OF BUSINESS OR PROFESSION INCLUDES THE PROFITS AND GAINS OF ANY BUSINESS OR PROFESSION, WHICH WAS CARRIED ON BY THE ASSESSEE AT ANY TIME DURING THE PREVIOUS YEAR. EXPLANATION (2) TO SECTION 28 PROVIDES THAT WHERE SPECULATIVE TRANSACTIONS CARRIED ON BY AN ASSESSEE ARE OF SUCH A NATURE AS TO CONSTITUTE A BUSINESS, THE BUSINESS SHALL BE DEEMED TO BE DISTINCT AND SEPARATE FROM ANY OTHER BUSINESS. SECTION 43 WHICH CONTAINS A STATUTORY DICTIONARY OF DEFINITIONS OF CERTAIN TERMS RELEVANT TO INCOME FROM PROFITS AND GAINS OF BUSINESS OR PROFESSION DEFINES THE EXPRESSION 'SPECULATIVE TRANSACTION' IN SUB SECTION (5). THAT EXPRESSION IS DEFINED TO MEAN 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 DELIVERY OR TRANSFER OF THE COMMODITY OR SCRIPS. CONSEQUENTLY, WHERE A CONTRACT FOR PURCHASE OR SALE OF SHARES IS SETTLED BY ACTUAL DELIVERY, IT DOES NOT FALL WITHIN THE DEFINITION OF THE EXPRESSION. SECTION 70(1) PROVIDES FOR A SETTING OFF OF LOSS FROM ONE SOURCE AGAINST INCOME FROM ANOTHER SOURCE UNDER THE SAME HEAD. SECTION 72 MAKES PROVISION FOR CARRY FORWARD AND SET OFF OF BUSINESS LOSSES, UNDER THE HEAD OF PROFITS AND GAINS OF BUSINESS OR PROFESSION OTHER THAN A LOSS SUSTAINED IN A SPECULATION BUSINESS. SUB SECTION (1) OF SECTION 73 PROVIDES THAT ANY LOSS, M/S.R.WADIWALA SECURITIES PVT. LTD., VS. ACIT, CIR-4, SURAT./ ITA NO.2165/AHD/2015 FOR A.Y.2011-12 9 COMPUTED IN RESPECT OF A SPECULATION BUSINESS CARRIED ON BY THE ASSESSEE, SHALL NOT BE SET OFF EXCEPT AGAINST PROFITS AND GAINS, IF ANY, OF ANOTHER SPECULATION BUSINESS. AS A RESULT OF THE PROVISION OF SUB SECTION (1) OF SECTION 73, A BAR IS INTRODUCED AGAINST THE SETTING OFF OF A LOSS WHICH HAS ARISEN IN RESPECT OF SPECULATION BUSINESS CARRIED ON BY THE ASSESSEE SAVE AND ACCEPT AGAINST THE PROFITS AND GAINS OF ANOTHER SPECULATION BUSINESS. THE EXPLANATION TO SECTION 73 PROVIDES AS FOLLOWS : '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 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 PURPOSE 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 .' 6. THE EXPLANATION TO SECTION 73 INTRODUCES A DEEMING FICTION. THE DEEMING FICTION STIPULATES THAT WHERE ANY PART OF THE BUSINESS OF A COMPANY CONSISTS IN THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, SUCH COMPANY SHALL, FOR THE PURPOSES OF THE SECTION BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF THE PURCHASE AND SALES OF SUCH SHARES. THE DEEMING FICTION APPLIES ONLY TO A COMPANY AND THE PROVISION MAKES IT CLEAR THAT THE DEEMING FIXATION EXTENDS ONLY FOR THE PURPOSES OF THE SECTION. THE BRACKETED PORTION OF THE EXPLANATION, HOWEVER CARVES OUT AN EXCEPTION. THE EXCEPTION IS THAT THE PROVISION OF THE EXPLANATION SHALL 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 WHOSE PRINCIPAL BUSINESS IS OF BANKING OR THE GRANTING OF LOANS AND ADVANCES. 7. THE SUBMISSION WHICH HAS BEEN URGED ON BEHALF OF THE REVENUE IS THAT IN COMPUTING THE GROSS TOTAL INCOME FOR THE PURPOSE OF THE EXPLANATION TO SECTION 73, INCOME UNDER THE HEADS OF PROFITS AND GAINS OF BUSINESS OR PROFESSION MUST BE IGNORED. ALTERNATIVELY, IT HAS BEEN URGED THAT WHERE THE INCOME FROM BUSINESS INCLUDES A LOSS IN THE TRADING OF SHARES, SUCH A LOSS SHOULD NOT BE ALLOWED TO BE SET OFF AGAINST THE INCOME FROM ANY OTHER SOURCE UNDER THE HEAD OF PROFITS AND GAINS OF BUSINESS OR PROFESSION. M/S.R.WADIWALA SECURITIES PVT. LTD., VS. ACIT, CIR-4, SURAT./ ITA NO.2165/AHD/2015 FOR A.Y.2011-12 10 8. IN OUR VIEW, THE SUBMISSION WHICH HAS BEEN URGED ON BEHALF OF THE REVENUE CANNOT BE ACCEPTED. LEAVING ASIDE FOR A MOMENT, THE EXCEPTION, WHICH IS CARVED OUT BY THE EXPLANATION TO SECTION 73, THE EXPLANATION CREATES A DEEMING FICTION BY WHICH A COMPANY IS DEEMED TO BE CARRYING ON A SPECULATION BUSINESS WHERE ANY PART OF ITS BUSINESS CONSISTS IN THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES. NOW, THE EXCEPTION WHICH IS CARVED OUT APPLIES TO A SITUATION WHERE THE GROSS TOTAL INCOME OF A COMPANY CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS 'INTEREST ON SECURITIES', 'INCOME FROM HOUSE PROPERTY', 'CAPITAL GAINS' AND 'INCOME FROM OTHER SOURCES'. NOW, ORDINARILY INCOME WHICH ARISES FROM ONE SOURCE WHICH FALLS UNDER THE HEAD OF PROFITS AND GAINS OF BUSINESS OR PROFESSION CAN BE SET OFF AGAINST THE LOSS WHICH ARISES FROM ANOTHER SOURCE UNDER THE SAME HEAD. SUB SECTION (1) OF SECTION 73 HOWEVER SETS UP A BAR TO THE SETTING OFF OF A LOSS WHICH ARISES IN RESPECT OF SPECULATION BUSINESS AGAINST THE PROFITS AND GAINS OF ANY OTHER BUSINESS. CONSEQUENTLY, A LOSS WHICH HAS ARISEN ON ACCOUNT OF SPECULATION BUSINESS CAN BE SET OFF ONLY AGAINST THE PROFITS AND GAINS OF ANOTHER SPECULATION BUSINESS. HOWEVER, FOR SUB SECTION (1) OF SECTION 73 TO APPLY THE LOSS MUST ARISE IN RELATION TO A SPECULATION BUSINESS. THE EXPLANATION PROVIDES A DEEMING DEFINITION OF WHEN A COMPANY IS DEEMED TO BE CARRYING ON A SPECULATION BUSINESS. IF, THE SUBMISSION OF THE REVENUE IS ACCEPTED, IT WOULD LEAD TO AN INCONGRUOUS SITUATION, WHERE IN DETERMINING AS TO WHETHER A COMPANY IS CARRYING ON A SPECULATION BUSINESS WITHIN THE MEANING OF THE EXPLANATION, SUB SECTION (1) OF SECTION 73 IS APPLIED IN THE FIRST INSTANCE. THIS WOULD IN OUR VIEW NOT BE PERMISSIBLE AS A MATTER OF STATUTORY INTERPRETATION, BECAUSE THE EXPLANATION IS DESIGNED TO DEFINE A SITUATION WHERE A COMPANY IS DEEMED TO CARRY ON SPECULATION BUSINESS. IT IS ONLY THEREAFTER THAT SUB SECTION (1) OF SECTION 73 CAN APPLY. APPLYING THE PROVISIONS OF SECTION 73(1) TO DETERMINE WHETHER A COMPANY IS CARRYING ON SPECULATION BUSINESS WOULD REVERSE THE ORDER OF APPLICATION. THAT WOULD BE IMPERMISSIBLE, NOR, IS IT CONTEMPLATED BY PARLIAMENT. FOR, THE AMBIT OF SUB SECTION (1) OF SECTION 73 IS ONLY TO PROHIBIT THE SETTING OFF OF A LOSS WHICH HAS RESULTED FROM A SPECULATION BUSINESS, SAVE AND ACCEPT AGAINST THE PROFITS AND GAINS OF ANOTHER SPECULATION BUSINESS. IN ORDER TO DETERMINE WHETHER THE EXCEPTION THAT IS CARVED OUT BY THE EXPLANATION APPLIES, THE LEGISLATURE HAS FIRST MANDATED A COMPUTATION OF THE GROSS TOTAL INCOME OF THE COMPANY. THE WORDS 'CONSISTS MAINLY' ARE INDICATIVE OF THE FACT THAT THE LEGISLATURE HAD IN ITS CONTEMPLATION THAT THE GROSS TOTAL M/S.R.WADIWALA SECURITIES PVT. LTD., VS. ACIT, CIR-4, SURAT./ ITA NO.2165/AHD/2015 FOR A.Y.2011-12 11 INCOME CONSISTS PREDOMINANTLY OF INCOME FROM THE FOUR HEADS THAT ARE REFERRED TO THEREIN. OBVIOUSLY, IN COMPUTING THE GROSS TOTAL INCOME THE NORMAL PROVISIONS OF THE ACT MUST BE APPLIED AND IT IS ONLY THEREAFTER, THAT IT HAS TO BE DETERMINED AS TO WHETHER THE GROSS TOTAL INCOME SO COMPUTED CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS REFERRED TO IN THE EXPLANATION. 9. CONSEQUENTLY, IN THE PRESENT CASE THE GROSS TOTAL INCOME OF THE ASSESSEE WAS REQUIRED TO BE COMPUTED INTER ALIA BY COMPUTING THE INCOME UNDER THE HEAD OF PROFITS AND GAINS OF BUSINESS OR PROFESSION AS WELL. BOTH THE INCOME FROM SERVICE CHARGES IN THE AMOUNT OF RS. 2.25 CRORES AND THE LOSS IN SHARE TRADING OF RS. 2.23 CRORES, WOULD HAVE TO BE TAKEN INTO ACCOUNT IN COMPUTING THE INCOME UNDER THAT HEAD, BOTH BEING SOURCES UNDER THE SAME HEAD. THE ASSESSEE HAD A DIVIDEND INCOME OF RS. 4.7 LACS (INCOME FROM OTHER SOURCES). THE TRIBUNAL WAS JUSTIFIED, IN COMING TO THE CONCLUSION THAT THE ASSESSEE FELL WITHIN THE PURVIEW OF THE EXCEPTION CARVED OUT IN THE EXPLANATION TO SECTION 73 AND THAT CONSEQUENTLY THE ASSESSEE WOULD NOT BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS FOR THE PURPOSE OF SEC. 73(1). 10. THE VIEW, WHICH WE HAVE TAKEN, ALSO ACCORDS WITH THE JUDGMENTS OF THIS COURT IN CIT V. HERO TEXTILES & TRADING LTD. (IT APPEAL NO. 296 OF 2001 DECIDED ON 29 JANUARY, 2008) AND IN CIT V. MAANSI TRADING (P.) LTD. (INCOME TAX APPEAL NO.47 OF 2001, DECIDED ON 29 JANUARY, 2008). THE TRIBUNAL HAS RELIED UPON ITS EARLIER DECISION IN THE CASE OF CONCORD COMMERCIAL PVT. LTD. OF 18 MARCH 2008. A DIVISION BENCH OF THIS COURT HAD DISMISSED NOTICE OF MOTION NO. 1921 OF 2007 IN INCOME TAX APPEAL (LODGING) NO.852 OF 2007 FOR CONDONATION OF DELAY AGAINST THE DECISION OF CONCORD COMMERCIAL (P.) LTD. ( SUPRA ) HOLDING THAT EVEN OTHERWISE ON MERITS, THE ISSUE WAS COVERED BY THE DECISION RENDERED BY THE DIVISION BENCH IN HERO TEXTILES & TRADING LTD. ( SUPRA ). 11. FOR THE AFORESAID REASONS, WE ANSWER THE QUESTION OF LAW IN THE AFFIRMATIVE. THE APPEAL IS ACCORDINGLY DISPOSED OF. M/S.R.WADIWALA SECURITIES PVT. LTD., VS. ACIT, CIR-4, SURAT./ ITA NO.2165/AHD/2015 FOR A.Y.2011-12 12 11. THE FACTS IN CASE LAW OF ARVIND INVESTMENTS LTD (SUPRA), RELIED BY LD. CIT(A) ARE AT VARIANCE. IN THE SAID CASE TRIBUNAL HELD THAT THE SOLE BUSINESS OF THE COMPANY WAS IN SHARE DEALINGS. ACCORDINGLY, ACCEPTING THE ASSESSEE'S CONTENTION IT HELD THAT WHERE A PART OF THE BUSINESS OF A COMPANY CONSISTED OF THE PURCHASE AND SALE OF SHARES, THEN ONLY THE EXPLANATION TO SECTION 73 WOULD COME INTO PLAY AND NOT OTHERWISE WHEN THE SOLE BUSINESS OF THE COMPANY WAS IN SHARE DEALINGS. HOWEVER, THE FACTS IN THE PRESENT CASE IS ENTIRELY DIFFER THAT IS INCOME SHOWN BY ASSESSEE IS MAINLY CONSIST OF INCOME FROM OTHER SOURCES. 12. CONSIDERING THE AFORESAID FACTUAL AND LEGAL DISCUSSION, WE FOUND THAT THE INCOME SHOWN BY ASSESSEE IS MAINLY CONSIST OF INCOME FROM OTHER SOURCES OF RS.94,28,211/-. THUS, IN OUR VIEW THE ASSESSEE FALL WITHIN THE PURVIEW OF SECTION 73 OF THE ACT, ACCORDINGLY, GROUND NO.1 TO 3 OF ASSESSEE ARE ALLOWED. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 17.03.2021 BY PLACING RESULT ON NOTICE BOARD. SD/- SD/- (DR. ARJUN LAL SAINI) (PAWAN SINGH) ( /ACCOUNTANT MEMBER ( /JUDICIAL MEMBER) / SURAT, DATED : 17 MARCH , 2021 /# SGR COPY OF ORDER SENT TO- ASSESSEE/AO/PR. CIT/ CIT (A) ITAT (DR)/GUARD FILE OF ITAT. BY ORDER / / TRUE COPY / / ASSISTANT REGISTRAR, SURAT