THE DY CIT RG 3(3), V. M/S. SAVLANI TRADING & OINVESTMENTS CO. P. LTD, MUMBAI

ITA 2343/MUM/2005

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9134 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 8 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 06-12-2012
• Assessment Year: 2001-2002
• Appeal Filed On: 28-03-2005
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Speculation loss

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G , MUMBAI BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 2343/MUM/2005 ASSESSMENT YEAR : 2001-02 DY. COMMISSIONER OF INCOME TAX , RANGE 3(3) ROOM NO.609, 6 TH FLOOR, AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 021. VS. M/S. SAVLANI TRADING & INVESTMENTS CO. P. LTD. 86 FREE PRESS HOUSE 216 NARIMAN POINT MUMBAI-400 021. PAN NO. AAACS 7796 L (APPELLANT) (RESPONDENT) APPELLANT BY : NONE RESPONDENT BY : SHRI PAVAN VED DATE OF HEARING : 06.12.2012 DATE OF PRONOUNCEMENT : 14.12.2012 O R D E R PER RAJENDRA SINGH, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDE R DATED 9.12.2004 OF CIT(A) FOR THE ASSESSMENT YEAR 2001-02. T HE REVENUE HAS CHALLENGED THE DECISION OF CIT(A) TREATING THE SHARE TRADING LOSS OF RS.3.25 CRORES AS NORMAL BUSINESS LOSS AND ALLOWING EXPENSE S RELATING THERETO OF RS.31,12,030/- WHICH HAD BEEN DISALLOWED BY THE AO WHO HAD TREATED THE LOSS AS SPECULATION LOSS. ITA NO.2343/M/05 A.Y. 01-02 2 2. FACTS IN BRIEF ARE THAT THE AO DURING THE ASSESSMENT P ROCEEDINGS AFTER EXAMINING THE DETAILS FURNISHED BY THE ASSESSEE NOT ED THAT THE ASSESSEE HAD SHOWN INCOME FROM HOUSE PROPERTY AT RS.35,73,9 50/-, INCOME FROM OTHER SOURCES AT RS.24,92,129/- AND CAPITAL GAIN ON SALE OF FLAT AT RS.62,285/-. THE ASSESSEE HAD ALSO MADE PURCHASE AND SALE OF SHARES IN WHICH IT HAD INCURRED LOSS OF RS.3,25,23,981/ - AS PER DETAILS GIVEN BELOW :- OPENING STOCK RS.4,13,68,458/- PURCHASES RS.697,73,83,642/- SALES RS.698,41,67,611/- CLOSING STOCK RS .20,60,608/- LOSS RS.3,25,23,981/- 2.1 THE AO REFERRED TO THE PROVISIONS OF EXPLANATION TO SECTION 73 AS PER WHICH IN CASE GROSS TOTAL INCOME DOES NOT CONSIST MAINLY OF INCOME FROM HOUSE PROPERTY, CAPITAL GAIN AND OTHER SOURCES OR T HE PRINCIPAL BUSINESS IS NOT OF BUSINESS OF BANKING OR GRANTING OF LOAN S AND ADVANCES THEN ANY LOSS INCURRED BY THE ASSESSEE FROM SALE AND PURCHASE OF SHARES HAS TO BE TREATED AS SPECULATION LOSS. I N THIS CASE, THE AO OBSERVED THAT THE MAIN BUSINESS OF THE ASSESSEE WA S PURCHASE AND SALE OF SHARES. THE AO THEREFORE, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE LOSS FROM TRADING OF SHARES SHOULD NOT BE TR EATED AS SPECULATION LOSS AND EXPENSES RELATING THERETO SHOULD NOT BE DISALLOWED. THE ASSESSEE SUBMITTED THAT MAIN SOURCE OF INCOM E WAS ITA NO.2343/M/05 A.Y. 01-02 3 INCOME FROM HOUSE PROPERTY AND THEREFORE, PROVISIONS TO EXPLANATION TO SECTION 73 WERE NOT APPLICABLE. THE AO HOWEVER, DI D NOT ACCEPT THE EXPLANATION GIVEN. THE AO OBSERVED THAT THE PROVISION S OF EXPLANATION TO SECTION 73 WERE APPLICABLE WHEN PART OF THE BUSINESS CO NSISTED OF PURCHASE AND SALE OF SHARES WHICH WAS ALSO APPLICABLE WHEN T HE ENTIRE BUSINESS WAS ONLY OF PURCHASE AND SALE OF SHARES. FURTHER, T HE ASSESSEE HAD INCURRED LOSS OF RS.3,25,23,981/- IN PURCHASE AN D SALE OF SHARES AND, THEREFORE, IT COULD NOT BE SAID THAT THE G ROSS TOTAL MAINLY CONSISTED OF INCOME FROM HOUSE PROPERTY AND OTHER SOURCES. THE AO PLACED RELIANCE ON THE JUDGMENT OF HONBLE HIGH COURT OF CALCUTTA IN THE CASE OF ARVIND INVESTMENTS (192 ITR 265) AND ON TH E JUDGMENT OF SAME COURT IN THE CASE OF EASTERN AVIATION AND INDUSTRIE S LTD. VS. CIT (208 ITR 1023). THE AO THUS TREATED THE LOSS FROM TRA DING OF SHARES AS SPECULATION LOSS. AS REGARDS ALLOCATION OF EXPENSES, THE AO OBSERVED THAT THE ASSESSEE HAD CLAIMED COMPOSITE EXPENSES O F RS.31,37,574/- IN RELATION TO ALL ACTIVITIES WHICH CONSIS TED OF SALE OF SHARES TO THE TUNE OF 698 CRORES AND OTHER INCOME OF RS.2 5.54 LACS. HE, THEREFORE ALLOCATED EXPENSES RELATING TO OTHER INCOM E AT 1% OF SUCH INCOME I.E., RS.25,540/- AND EXPENSES RELATING TO SHA RE TRADING WERE ESTIMATED AT RS.31,12,030/-. THE AO THEREFORE, D ISALLOWED EXPENSES TO THE TUNE OF RS.31,12,030/- (WRONGLY MENTIO NED AS ITA NO.2343/M/05 A.Y. 01-02 4 RS.27,36,426/- IN THE COMPUTATION) AND SPECULATION LOSS W AS ALLOWED TO BE CARRIED FORWARD AND NOT ADJUSTED AGAINST OTHER INCOME. 2.2 THE ASSESSEE DISPUTED THE DECISION OF AO AND SUBMITTED BEFORE CIT(A) THAT GROSS TOTAL INCOME OF ASSESSEE CONSISTED OF HUGE LOSS INCURRED IN SHARE TRADING AND, THEREFORE, IT DID NOT HAVE ANY POSITIVE GROSS TOTAL INCOME. ACCORDINGLY IT WAS ARGUED THAT PROVISI ONS OF EXPLANATION TO SECTION 73 WERE NOT APPLICABLE. IT WAS ALSO SUBMITTED THAT THE GROSS TOTAL INCOME WHICH HAD TO BE CONSIDERED A S POSITIVE INCOME CONSISTED OF HOUSE PROPERTY INCOME AND INCOME FROM OTHER SOURCES AND, THEREFORE, PROVISIONS OF EXPLANATION TO SEC TION 73 WERE NOT APPLICABLE. CIT(A) AFTER REFERRING TO SOME DECISIO NS OF THE TRIBUNAL ACCEPTED THE CLAIM OF THE ASSESSEE THAT IN APPLYING PROVISI ONS OF EXPLANATION TO SECTION 73, ONLY POSITIVE INCOME UNDER DIFFERENT HEADS HAS TO BE CONSIDERED. HE, THEREFORE, HELD THAT PROVISION S OF EXPLANATION TO SECTION 73 WERE NOT APPLICABLE AND ACCEPT ED TRADING LOSS AS NORMAL BUSINESS LOSS AGGRIEVED, BY WHICH, THE REVE NUE IS IN APPEAL. 3. AT THE TIME OF HEARING OF THE APPEAL, NO ONE APP EARED ON BEHALF OF THE ASSESSEE THOUGH NOTICE SENT BY REGISTRY HAD BEEN SER VED ON ASSESSEE WELL IN ADVANCE. NEITHER SOMEONE APPEARED NOR WA S ANY ADJOURNMENT APPLICATION RECEIVED. ON EARLIER DATE OF HEARING I.E. ITA NO.2343/M/05 A.Y. 01-02 5 15.10.12 ALSO NO ONE HAD APPEARED ON BEHALF OF THE A SSESSEE. TEREFORE, WE PROCEED TO DECIDE THE APPEAL ON THE BASIS OF MATERIAL AVAILABLE ON RECORD AND AFTER HEARING THE LD. DR WHO ARGUED THAT THE ISSUE RAISED IN THE APPEAL WAS COVERED BY THE JUDGMENT OF HON'BLE HIGH COURT OF CALCUTTA IN CASE OF EASTERN AVIATION AND INDUSTRIES LTD. (208 ITR 1023) SUPRA; THE JUDGMENT IN CASE OF ARVIND INVESTMENTS (192 ITR 265) AND JUDGMENT IN CASE OF CIT VS. PARK VIE W PROPERTIES P. LTD. (261 ITR 473). IT WAS ACCORDINGLY ARGUED THAT T HE APPEAL OF THE REVENUE HAS TO BE ALLOWED. 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING APPLICATI ON OF PROVISIONS OF EXPLANATION TO SECTION 73 AS PER WHICH IN CASE OF A COM PANY, OTHER THAN A COMPANY GROSS TOTAL INCOME OF WHICH CONSISTS MAINLY OF INCOME FROM HOUSE PROPERTY, CAPITAL GAIN AND OTHER SOURCES OR T HE COMPANY PRINCIPAL BUSINESS OF WHICH CONSISTS OF BANKING OR OF GRAN TING LOAN/ADVANCES, ANY PART OF THE BUSINESS CONSISTS OF PURCHASE AND SALE OF SHARES OF OTHER COMPANIES LOSS ARISING THEREFROM HAS TO BE TREATED AS SPECULATION LOSS. THE ASSESSEE IS A COMPANY WHOSE GROSS TOTA L INCOME CONSISTS OF HOUSE PROPERTY, CAPITAL GAIN, OTHER SOUR CES AND LOSS FROM TRADING OF SHARES. IN SO FAR AS THE BUSINESS IS CONCERNE D, ENTIRE BUSINESS CONSISTS OF PURCHASE AND SALE OF SHARES. ITA NO.2343/M/05 A.Y. 01-02 6 4.1 THERE ARE TWO ISSUES ARISING IN THIS CASE WHICH NEED TO BE ADDRESSED. FIRST ISSUE IS WHETHER THE PROVISIONS OF EXPLAN ATION TO SECTION 73 WOULD APPLY WHEN THE ENTIRE BUSINESS CONSISTS OF PURCHASE AND SALE OF SHARES. THIS ISSUE IS COVERED BY THE JUDGMENT OF HON'BLE HIGH COURT OF CALCUTTA IN THE CASE OF ARVIND INVESTMENTS ( 192 ITR 265) (SUPRA), IN WHICH IT HAS BEEN HELD THAT EXPLANATI ON TO SECTION 73 WOULD APPLY EVEN WHEN ENTIRE BUSINESS CONSISTS OF PURCHASE AND SALE OF SHARES. THE SECOND ISSUE IS REGARDING TREATMENT OF LOSS FROM DIFFERENT HEADS INCLUDED IN THE GROSS TOTAL INCOME. THI S ISSUE IS ALSO COVERED BY THE JUDGMENT OF HON'BLE HIGH COURT OF CALCUT TA IN THE CASE OF PARK VIEW PROPERTIES P. LTD. (261 ITR 473) (SUPRA ). IN THE SAID JUDGMENT, THE HON'BLE HIGH COURT OF CALCUTTA FOLLOWING THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. HARPRASAD AND CO. P. LTD. (99 ITR 118) AND THE JUDGMENT OF SUPREME COUR T IN THE CASE OF CIT VS. J.H. GOTLA (156 ITR 323) IN WHICH IT WAS HELD THAT LOSS IS NEGATIVE INCOME, HELD THAT WHILE CONSIDERING THE DIFFE RENT CONSTITUENTS OF GROSS TOTAL INCOME, THE FIGURES IN ABSOLUTE TERMS SHOU LD BE CONSIDERED WHETHER POSITIVE OR NEGATIVE. THE HONBLE CO URT FOLLOWED THE EARLIER JUDGMENT IN CASE OF M/S. EASTERN AVIATION & INDUSTRIES (208 ITR 1023) (SUPRA), IN WHICH IT WAS HELD THAT WHEN THE INCOME FROM HOUSE PROPERTY, CAPITAL GAIN AND OTHER SOURCES EVEN IF P OSITIVE IS LOWER THAN FIGURE OF LOSS FROM BUSINESS ACTIVITIES, IT WILL NOT BE A CASE OF ITA NO.2343/M/05 A.Y. 01-02 7 GROSS TOTAL INCOME CONSISTING MAINLY OF INCOME FROM HOUSE PROPERTY, CAPITAL GAIN AND OTHER SOURCES. SINCE THE FIGURE OF LOSS I N ABSOLUTE TERMS IN SHARE TRADING WAS HIGHER THEN INCOME FROM OTH ER SOURCES TAKEN TOGETHER, IT WAS HELD THAT THE PROVISIONS OF EXP LANATION TO SECTION 73 WOULD BE APPLICABLE. SITUATION IN THE PRESE NT CASE IS IDENTICAL. THEREFORE, FOLLOWING THE ABOVE JUDGMENTS I T HAS TO BE HELD THAT CASE OF THE ASSESSEE WILL BE COVERED BY THE PROVISIONS OF EXPLANATION TO SECTION 73. NO CONTRARY JUDGMENT OF ANY OTHER HIGH COURT OR APEX COURT HAS BEEN BROUGHT TO OUR NOTICE OR HAS BEEN REFERRED TO BY CIT(A) WHO HAS ONLY RELIED ON THE DECI SIONS OF THE TRIBUNAL. WE, THEREFORE, HOLD THAT TRADING LOSS IN TH IS CASE HAS BEEN RIGHTLY TREATED AS SPECULATION LOSS BY AO AND ACCORDINGLY WE CONFIRM THE DISALLOWANCE OF EXPENSES OF RS. 31,12,030/- ATTRIBUTABLE BY AO TOWARDS TRADING ACTIVITIES. THUS, ORDER OF CIT(A) IS SE T ASIDE AND ORDER OF AO IS UPHELD. 5. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14.12.2012 SD/- (AMIT SHUKLA ) JUDICIAL MEMBER SD/- (RAJENDRA SINGH) ACCOUNTANT MEMBER MUMBAI, DATED: 14.12.2012. JV. ITA NO.2343/M/05 A.Y. 01-02 8 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.