DCIT, CHENNAI V. M/s. Hi-Tech Housing Projects Pvt. Ltd., CHENNAI

ITA 2638/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7373 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 20-03-2017
• Assessment Year: 2001-2002
• Appeal Filed On: 12-09-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SUPRIYO PAL
• Keywords: Speculation loss
• Section: 143(3)

Judgement Text

, .. , IN THE INCOME TAX APPELLATE TRIBUNAL , SMC A BENCH, CHENNAI . , BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.2638/MDS/2016 ( / ASSESSMENT YEAR: 2001-02) THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 2(2), CHENNAI 34. VS M/S. HI-TECH HOUSING PROJECTS PVT. LTD., STERLING TOWER, NO.327, ANNA SALAI, TEYNAMPET, CHENNAI 600 006. PAN: AAACH2527C ( / APPELLANT) ( / RESPONDENT) / APPELLANT BY : SHRI SUPRIYO PAL, JCIT /RESPONDENT BY : NONE ! /DATE OF HEARING : 20.03.2017 '# ! /DATE OF PRONOUNCEMENT : 21.03.2017 / O R D E R THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEA LS)-6, CHENNAI DATED 27.06.2016 IN ITA NO.138/CIT(A)-6/200 8-09 PASSED U/S. 250(6) R.W.S.143(3) OF THE ACT FOR THE ASSESSMENT YEARS 2001-02. 2. THE REVENUE HAS RAISED THREE GROUNDS IN ITS APPE AL, HOWEVER THE CRUX OF THE ISSUE IS THAT THE LD. CIT(A ) HAD ERRED IN 2 I.T.A. NO.2638/MDS/2016 DELETING THE ADDITION MADE BY THE LD. AO WHO HAD TR EATED THE LOSS ON SALE OF SHARES AS LOSS IN SPECULATION BUSINESS I NVOKING THE EXPLANATION TO SECTION 73 OF THE ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PRIVATE LIMITED COMPANY ENGAGED IN THE REAL ESTATE BUSINESS , TRADING IN SHARES AND MONEY LENDING, FILED ITS RETURN OF INCOM E ADMITTING LOSS OF RS.1,93,68,860/- ON 21.10.2011. INITIALLY THE R ETURN WAS PROCESSED U/S.143(1) OF THE ACT AND THEREAFTER THE CASE WAS TAKEN UP FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED UN DER 147 R.W.S. 143(3) OF THE ACT ON 21.11.2008. DURING THE COURSE OF SCRUTINY ASSESSMENT, IT WAS OBSERVED BY THE LD. AO THAT DURING THE RELEVANT ASSESSMENT YEAR THE ASSESSEE HAD PURCHASED THE FOLLOWING SHARES:- SPIC -300 SHARES, RELIANCE PETRO L -760 SHARES, VSNL 13164 SHARES, ESSAR GUJARAT 114643 SHARES, HFCL 100 SHARES, ICICI 10000 SHARES, MTNL 427854 SHA RES AND SILVER LINE INDUSTRIES 120809 SHARES. IT WAS ALS O OBSERVED THAT THE ASSESSEE HAD SOLD ALL THESE SHARES DURING THE R ELEVANT PREVIOUS YEAR BARRING 300 SHARES OF SPIC. THE ENTI RE PURCHASE CONSIDERATION PAID FOR THE SHARES WAS RS.23,82,42,0 32/- AND THE SALE CONSIDERATION RECEIVED AGAINST THE SALE OF SHA RES WAS RS.21,53,73,752/-. THUS THE ASSESSEE HAD DECLARED LOSS ON SALE 3 I.T.A. NO.2638/MDS/2016 OF SHARE. THE LD. AO DRAWING STRENGTH FROM EXPLANA TION TO SECTION 73 OF THE ACT, TREATED THE LOSS ON SALE ON EQUITY SHARES AS SPECULATION LOSS. 4. ON APPEAL, THE LD. CIT(A) DELETED THE ADDITION B ECAUSE THE PROPORTION OF LOAN AND ADVANCES AS AGAINST THE TOTA L CURRENT ASSETS OF THE COMPANY WORKS OUT TO APPROXIMATELY 70%, HENC E FOR THE YEAR UNDER CONSIDERATION GRANTING OF LOAN AND ADVAN CES HAS TO BE TREATED AS THE PRINCIPAL BUSINESS OF THE APPELLANT COMPANY AND THEREFORE THE APPELLANT COMPANY WILL FALL OUTSIDE T HE SCOPE OF EXPLANATION TO SECTION 73 OF THE ACT. WHILE DOING SO, THE LD.CIT(A) HAS OBSERVED AS FOLLOWS: 7.1 THE MATTER IS CONSIDERED. IN THE ORDER, THE AO HAS NOT DISPUTED THAT THE SHARE TRANSACTIONS HAVE BEEN SETT LED BY DELIVERY OF SHARES. THE MOOT ISSUE ON WHICH THE DEC ISION ON THE RECOGNITION OF LOSS HINGES IS WHETHER GRANTI NG OF LOANS AND ADVANCES CAN BE CONSTRUED TO BE 'PRINCIPA L BUSINESS' OF THE APPELLANT COMPANY. THE CASE OF THE AO IS THAT AS PER THE MEMORANDUM OF AGREEMENT, THE MAIN OBJECT OF THE APPELLANT COMPANY WAS BUSINESS OF REA L ESTATE, AND NOT THE BUSINESS OF BANKING OR GRANTING LOAN OR ADVANCES. ON THE CONTRARY, THE CASE OF THE APPELLAN T IS THAT SINCE 'PRINCIPAL BUSINESS' IS NOT DEFINED BY T HE ACT, THEREFORE, THE PHRASE SHOULD BE GIVEN ITS USUAL DIC TIONARY MEANING, AND THE IDENTITY OF THE APPELLANT'S BUSINE SS SHOULD BE DETERMINED WITH REFERENCE TO THE FACTS AN D CIRCUMSTANCES OF THE YEAR UNDER CONSIDERATION. 7.2 IN MY CONSIDERED OPINION, THE PATTERN OF DEPLOY MENT OF FUNDS AT THE DISPOSAL OF AN ENTITY FOR GENERATION O F INCOME 4 I.T.A. NO.2638/MDS/2016 GIVES A DEFINITIVE IDEA ABOUT ITS NATURE OF BUSINES S. RELIANCE IN THIS REGARD IS PLACED ON THE DECISION O F THE ID. KOLKATA TRIBUNAL IN THE CASE OF ITO VS. WINSOME BRO THERS PVT. LTD. REPORTED IN [2016] 46 CCH 0087 (KOL. TRIB UNAL). OUT OF THE TOTAL CURRENT ASSETS OF THE COMPANY OF R S.6.22 CRORES, AN AMOUNT OF RS.6.12 CRORES WAS GIVEN AS LO ANS, AND AN AMOUNT OF RS.75.19LAKHS WAS HELD AS STOCK IN TRADE. THE PROPORTION OF LOANS AND ADVANCES TO THE TOTAL CURRENT ASSETS OF THE COMPANY IS ROUGHLY 70 PER CEN T. HENCE, FOR THE YEAR UNDER CONSIDERATION GRANTING OF LOAN AND ADVANCES HAS TO BE CONSTRUED AS THE 'PRINCIPAL BUSINESS' OF THE APPELLANT COMPANY WITHIN THE MEANI NG OF EXPLANATION TO SECTION 73 OF THE ACT. IN VIEW OF TH E SAME, THE CASE OF THE APPELLANT GETS COVERED BY THE EXCEP TION PROVIDED BY EXPLANATION TO SECTION 73 OF THE ACT, A ND HENCE CANNOT BE HELD AS A SPECULATION LOSS. THE TRE ATMENT OF THE AO IN TREATING THE IMPUGNED LOSS AS SPECULAT IVE, IS THEREFORE, NOT SUSTAINABLE AND THE SAME STANDS DELE TED. THE GROUNDS OF APPEAL SUCCEED AND THE AO IS DIRECTE D TO ALLOW THE APPELLANT CONSEQUENTIAL RELIEF BY SETTING OFF THE IMPUGNED LOSS AGAINST THE INTEREST INCOME. 5. AT THE TIME OF HEARING NONE APPEARED ON BEHALF OF THE ASSESSEE BEFORE US. ON THE EARLIER OCCASION ON 14. 12.2016 AND 31.01.2017 ALSO THE ASSESSEE DID NOT REPRESENT BEFO RE THE BENCH. THEREFORE, I PROCEEDED TO HEAR THE APPEAL OF THE RE VENUE ON MERITS. 6. THE LD. DR ARGUED BEFORE US BY STATING THAT THE FINDINGS OF THE LD. CIT(A) IS ERRONEOUS BECAUSE EXPLANATION TO SECTION 73 OF THE ACT, CLEARLY PROVIDES THAT THE ASSESSEES TRADI NG BUSINESS OF 5 I.T.A. NO.2638/MDS/2016 EQUITY SHARES SHALL BE TREATED AS LOSSES IN SPECULA TION BUSINESS. HE THEREFORE PLEADED THAT THE ORDER OF THE LD. AO M AY BE UPHELD. 7. I HAVE HEARD THE LD. DR AND CAREFULLY PERUSED TH E MATERIALS ON RECORD. THE LD. CIT(A) HAS GRANTED RELIEF TO TH E ASSESSEE COMPANY BASED ON THE PREMISES THAT THE PRINCIPAL BU SINESS OF THE ASSESSEE WAS ADVANCING LOAN. AT THIS JUNCTURE, FOR THE SAKE OF CONVENIENCE, THE EXPLANATION TO SECTION 73 OF THE A CT IS EXTRACTED HEREIN BELOW AS IT STOOD WITH RESPECT TO THE RELEVA NT ASSESSMENT YEAR: WHERE ANY PART OF THE BUSINESS OF A COMPANY ([OTHE R THAN A COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS INTEREST ON SE CURITIES, INCOME FROM HOUSE PROPERTY, CAPITAL GAINS AND INCOME FROM OTHER SOURCES,] OR A COMPANY THE PRINCIPAL BU SINESS OF WHICH IS THE BUSINESS OF BANKING OR THE GRANTING OF LOANS AND ADVANCES) CONSISTS IN THE PURCHASE AND SALE OF SHAR ES 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 SUCH SHARES. THE LD. CIT(A) OPINED THAT SINCE THE PROPORTIONA TE OF LOAN AND ADVANCES AS AGAINST THE TOTAL CURRENT ASSET OF THE COMPANY IS ROUGHLY 70%, THEREFORE THE PRINCIPAL BUSINESS OF TH E COMPANY IS GRANTING OF LOANS AND ADVANCES AND WILL FALL OUTSID E THE AMBIT OF 6 I.T.A. NO.2638/MDS/2016 EXPLANATION TO SECTION 73 OF THE ACT. BEFORE US, NEITHER THE ASSESSEE NOR THE REVENUE HAS FILED THE BALANCE SHEE T TO EXAMINE THESE FACTS. FURTHER THE LD. AO HAS ALSO NOT MADE ANY FINDING WITH RESPECT TO THESE FACTS. THEREFORE, IN THE INTEREST OF JUSTICE, I HEREBY REMIT THE MATTER BACK TO THE FILE OF LD. AO FOR DE- NOVA CONSIDERATION. 8. IN THE RESULT, THE APPEALS OF THE REVENUE IS ALLOW ED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 21 ST MARCH, 2017 AT CHENNAI. SD/- ( . ) (A. MOHAN ALANKAMONY) / ACCOUNTANT MEMBER $% /CHENNAI, &' /DATED 21 ST MARCH, 2017 JR. ' )* +* /COPY TO: 1. APPELLANT 2. RESPONDENT 3. , ( ) /CIT(A) 4. , /CIT 5. *-. / /DR 6. .0 /GF.