ITO, Ward - 12(1), Kolkata , Kolkata V. M/s. Natraj Vinimay Pvt. Ltd., , Kolkata

ITA 266/KOL/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 8250 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-07-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 16-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RADHEY SHYAM
• Keywords: Business income; Source of fund; Speculation loss
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH (B), KOLKATA [BEFORE SHRI P.M. JAGTAP, VICE PRESIDENT (KZ) & SHRI A.T. VARKEY, JUDICIAL MEMBER] I.T.A. NO. 266/KOL/2018 ASSESSMENT YEAR: 2011-12 ITO, WARD-12(1) KOLKATA..................................................................APPELLANT 7 TH FLOOR, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA 700 069. M/S. NATRAJ VINIMAY PVT. LTD....................RESPONDENT 2E, CORNFIELD ROAD, KOLKATA 700 019. [PAN: AACCN 4643 D] APPEARANCES BY: SHRI RADHEY SHYAM, CIT, DR APPEARING ON BEHALF OF THE REVENUE. SHRI SUBHASH AGARWAL, ADVOCATE APPEARING ON BEHALF OF THE ASSESSEE. DATE OF CONCLUDING THE HEARING : JULY 08, 2019 DATE OF PRONOUNCING THE ORDER : JULY 17, 2019 ORDER PER P.M. JAGTAP, VICE PRESIDENT (KZ) THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A) 6, KOLKATA DATED 16.11.2017 AND THE GROUNDS RAISED BY THE REVENUE THEREIN READ AS UNDER: 1. THAT THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN HOLDING THAT THE LOSS SUFFERED BY THE ASSESSEE ON ACCOUNT OF PURCHASE AND SALES OF SHARE WAS NOT SPECULATIVE LOSS. 2. THAT THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACT IN ALLOWING THE APPEAL OF THE ASSESSEE BY HOLDING THE CONTENTION OF THE ASSESSEE THAT THE BUSINESS INCOME OF THE ASSESSEE AMOUNTING TO RS. 13560/- IS LESS THAN RENTAL INCOME OF RS. 72,000. 3. THAT THE LD CIT(A) HAS ERRED IN ALLOWING THE CLAIM OF DETERMINING BUSINESS INCOME OF THE ASSESSEE BY AGGREGATION OF TRANSACTION DONE BY THE ASSESSEE ON ACCOUNT OF PROPERTY DEALINGS AS WELL AS THE TRANSACTION OF TRADING IN SHARES WHEREAS THE TRANSACTIONS ON ACCOUNT OF SHARE TRADING SHOULD BE EXCLUDED WHILE DETERMINING THE BUSINESS INCOME OF THE ASSESSEE FOR THE PURPOSE OF DETERMINING THE APPLICABILITY OF EXPLANATION TO SECTION 73 IN THE CASE OF THE ASSESSEE AND SUBSEQUENTLY THE BUSINESS INCOME IS TO 2 I.T.A. NO. 266/KOL/2018 ASSESSMENT YEAR: 2011-12 M/S. NATRAJ VINIMAY PVT. LTD. BE TREATED AS RS.21,35,98,808/- AND IS IN EXCESS OF INCOME OFFERED UNDER THE HEAD 'INCOME OF OTHER SOURCES'[RS. 72,000/-] 4. THAT THE LD CIT(A) HAS ERRED IN LAW AS WELL AS ON FACT IN ADJUDICATING THE APPEAL OF THE ASSESSEE BY TREATING THE ASSESSEE AN EXCEPTION TO THE APPLICABILITY OF EXPLANATION TO SECTION 73 WHEREAS THE ASSESSEE HAD NOT EARNED ANY INCOME UNDER THE HEAD 'INCOME FROM SECURITIES' 'INCOME FROM HOUSE PROPERTY' AND 'CAPITAL GAINS' WHICH CLEARLY INDICATES THAT THE ASSESSEE MAIN SOURCES OF INCOME ARE NOT FROM THE ABOVE MENTIONED HEADS AND IS THEREFORE, NOT AN EXCEPTION TO THE EXPLANATION TO SECTION 73. 5. THAT THE LD CIT(A) HAS ERRED IN LAW AS WELL AS ON FACT IN ADJUDICATING THE MATTER OF DECIDING THAT THE PRIMARY INCOME OF THE ASSESSEE IS ARISING OUT OF 'INCOME FROM SECURITIES' 'INCOME FROM HOUSE PROPERTY' 'INCOME FROM OTHER SOURCES 'AND 'CAPITAL GAINS' WHEREAS THE PRIMARY INCOME OF THE ASSESSEE IS ARISING OUT OF PROFIT AND GAINS FROM BUSINESS OR PROFESSION. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WHICH DERIVES INCOME FROM BROKERAGE, PROPERTY TRANSACTIONS AND RENT. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 28.09.2011 DECLARING A TOTAL INCOME OF RS. 58,440/-. IN THE SAID RETURN, INCOME EARNED FROM THE PROPERTY RELATED TRANSACTION WAS DECLARED BY THE ASSESSEE AT RS. 21,35,98,808/- AND THE SAME WAS SET OFF WITH THE LOSS IN SHARE TRANSACTIONS AMOUNTING TO RS. 21,31,95,265/-. ACCORDING TO THE AO, THE PROVISIONS OF EXPLANATION TO SECTION 73 WERE SQUARELY ATTRACTED IN THE CASE OF THE ASSESSEE AND THE ASSESSEE WAS NOT ELIGIBLE TO CLAIM SET OFF LOSS IN SHARE TRADING AGAINST THE PROFIT EARNED IN PROPERTY RELATED TRANSACTIONS. HE, THEREFORE, REQUIRED THE ASSESSEE TO OFFER ITS EXPLANATION AS TO WHY EXPLANATION TO SECTION 73 SHOULD NOT BE APPLIED IN ITS CASE. IN REPLY, THE FOLLOWING EXPLANATION WAS OFFERED BY THE ASSESSEE: (I) THAT OUR ACTIVITIES OF BUSINESS ARE TWOFOLD. A) INCOME FROM RENT. B) INCOME FROM SHARE TRANSACTIONS. 3 I.T.A. NO. 266/KOL/2018 ASSESSMENT YEAR: 2011-12 M/S. NATRAJ VINIMAY PVT. LTD. (II) THAT OUR INCOME FROM RENT IS RS.72,000.00 (INCOME FROM OTHER SOURCES). OUR INCOME/LOSS FROM SHARE TRANSACTIONS ARE LOSS OF RS.13,560.00 WHICH IS LESS THAN THE REND INCOME (INCOME FROM OTHER SOURCES.) (III) THAT WHEN OUR INCOME FROM OTHER SOURCES (RENT RS.72,000.00) IS HIGHER THAN INCOME/LOSS FROM SHARE TRANSACTIONS (RS.13,560.00) SEC.73 IS NOT ATTRACTED IN OUR CASE ON WHICH EXPLANATION TO SEC.73 IS CLEAR. THE ABOVE EXPLANATION WAS NOT FOUND ACCEPTABLE BY THE AO FOR THE FOLLOWING REASONS: (I) THE ASSESSEE HAS TRIED TO GIVE AN IMPRESSION THAT IT IS INVOLVED IN PURCHASE AND SALE OF LANDED PROPERTIES HOLDING THE SAME AS STOCK-IN- TRADE. FROM THE DEEDS OF CONVEYANCE SUBMITTED, IT IS SEEN THAT IN ONE CASE, THE ASSESSEES NAME IS APPEARING AS A CONFIRMING PARTY. THAT MEANS THE ASSESSEE IS NOT THE OWNER OF PROPERTY. IN OTHER CASES, THE ASSESSEES NAME IS APPEARING NEITHER AS VENDOR NOR AS CONFIRMING PARTY. THUS, IT IS CLEAR THAT THE ASSESSEE HAS ENTERED INTO THE TRANSACTIONS AS A MEDIATOR ONLY. THIS PROVES THAT THE ASSESSEE HAS EARNED COMMISSION/BROKERAGE INCOME AND NOT EARNED PROFIT FROM SALE OF LANDED PROPERTY. (II) THE ASSESSEE COMPANY HAD TREATED RENTAL INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. RENTAL INCOME CANNOT BE TREATED AS INCOME FROM OTHER SOURCES BY ANY STRETCH OF IMAGINATION. THE ASSESSEE COMPANY HAS NOT SHOWN ANY HOUSE PROPERTY IN THE BALANCE SHEET. HENCE, IT CANNOT BE TAXED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. FOR THE REASONS GIVEN ABOVE AND THE STAND TAKEN ON A SIMILAR ISSUE IN THE ASSESSMENT COMPLETED IN ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING YEAR I.E. AY 2009-10, THE AO DISALLOWED THE CLAIM OF THE ASSESSEE FOR SET OFF OF LOSS FROM SHARE TRADING BUSINESS AGAINST THE INCOME FROM PROPERTY RELATED TRANSACTIONS BY APPLYING EXPLANATION TO SECTION 73 IN THE ASSESSMENT COMPLETED U/S 143(3) VIDE AN ORDER DATED 15.11.2017. 3. AGAINST THE ORDER PASSED BY THE AO U/S 143(3), AN APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LD. CIT(A) AND AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE AS WELL AS MATERIAL AVAILABLE ON RECORD, THE LD. CIT(A) HELD THAT EXPLANATION TO SECTION 73 WAS NOT APPLICABLE IN THE ASSESSEES CASE AND 4 I.T.A. NO. 266/KOL/2018 ASSESSMENT YEAR: 2011-12 M/S. NATRAJ VINIMAY PVT. LTD. DIRECTED THE AO TO TREAT THE LOSS INCURRED IN SHARE TRADING AS NORMAL BUSINESS LOSS FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH NO. 3.3 OF HIS IMPUGNED ORDER: 3.3 I HAVE EXAMINED THE ASSESSMENT ORDER AND PERUSED THE SUBMISSIONS OF THE A/R OF THE APPELLANT ALONG WITH THE VARIOUS CASE-LAWS RELIED UPON BY HIM. THE ISSUE RELATES TO THE INSTANT GROUND IS WHETHER THE A.O WAS JUSTIFIED IN TREATING THE SHARE TRADING LOSS AS SPECULATION LOSS BY APPLYING THE PROVISION OF EXPLANATION TO SEC.73 OF THE ACT. FIRSTLY, I FIND THAT THE A.O HAD RAISED AN ALLEGATION THAT THE APPELLANT EARNED COMMISSION OR BROKERAGE INCOME INSTEAD OF PROFIT FROM SALE OF LANDED PROPERTY SINCE ITS NAME WAS NEITHER APPEARING AS VENDOR NOR AS CONFIRMING. IN THIS REGARD, THE APPELLANT SUBMITTED THAT WHENEVER THE APPELLANT FOUND THAT THE PRICE OF LAND PURCHASED HAD APPRECIATED AFTER PURCHASE, IT HAD SOLD THE SAME BEFORE GETTING IT REGISTERED IN ITS NAME. THEREFORE, THE NAME OF THE APPELLANT WAS SOMETIMES APPEARING AS THE CONFIRMING PARTY AND SOMETIMES ITS NAME WAS NOT APPEARING AT ALL. I FIND FORCE IN THE SUBMISSIONS OF THE APPELLANT. FURTHER IN THE INSTANT CASE, I DO NOT FIND ANY DIFFERENCE WHETHER THE ASSESSEE EARNED PROFIT ON SALE OF LANDED PROPERTY OR EARNED COMMISSION AGAINST SALE OF PROPERTY SINCE THE BOTH INCOME IS ASSESSABLE UNDER THE HEAD BUSINESS. SECONDLY, THE ISSUE OF TREATMENT OF RENTAL INCOME AS BUSINESS INCOME BY THE A.O, I FIND THAT THE APPELLANT HAD SUB-LET THE PROPERTY ON THE BASIS OF LEAVE AND LICENSE FOR A TEMPORARY PERIOD FOR A MONTHLY PAYMENT OF RS.6,000/- PER MONTH. I HAVE GONE THROUGH THE CASE-LAWS RELIED UPON BY THE A/R OF THE APPELLANT AND FIND THAT THE COURTS HAVE CONSISTENTLY HELD THAT THE RENTAL INCOME DERIVED FROM SUB-LETTING OF THE PROPERTY SHOULD BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES. FURTHER, I FIND THAT IN APPELLANTS OWN CASE RELATING TO A.Y 2009-10, THE LD. CIT(A)-9 ALSO HELD THAT THE RENTAL INCOME HAD BEEN RIGHTLY CLAIMED UNDER THE HEAD INCOME FROM OTHER SOURCES. THEREFORE, IN MY VIEW, THE APPELLANT HAD RIGHTLY CLAIMED THE RENTAL INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. I HAVE FURTHER PERUSED THE VARIOUS JUDGMENTS RELIED UPON BY THE APPELLANT IN RESPECT OF NON-APPLICABILITY OF THE PROVISION OF EXPLANATION TO SEC.73 IN THE CASE OF THE APPELLANT. AS PER THE SAID JUDICIAL PRECEDENTS, BEFORE APPLICATION OF THE PROVISION OF EXPLANATION TO SEC.73 OF THE ACT, BUSINESS PROFIT/LOSS IS TO BE WORKED OUT AND THEN THE INCOME UNDER THE HEAD BUSINESS HEAD IS REQUIRED TO BE COMPARED WITH THE OTHER HEADS OF INCOME. IN THE INSTANT CASE, BEFORE THE APPLICATION OF THE EXPLANATION OF SEC.73 OF THE ACT, THE BUSINESS LOSS WAS RS.13,560/- WHEREAS THE INCOME FROM OTHER SOURCES WAS RS.72,000/- WHICH WAS MUCH HIGHER THAN THE BUSINESS LOSS. 5 I.T.A. NO. 266/KOL/2018 ASSESSMENT YEAR: 2011-12 M/S. NATRAJ VINIMAY PVT. LTD. THEREFORE I FIND THAT AS PER THE INCOME CRITERION, THE APPELLANTS CASE FALLS OUTSIDE THE AMBIT OF THE EXPLANATION TO SEC.73 OF THE ACT SINCE THE INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES IS HIGHER THAN THE INCOME OR LOSS UNDER THE HEAD BUSINESS. FURTHER, I FIND THAT IN APPELLANTS OWN CASE RELATING TO A.Y 2009-10, THE LD. CIT(A)-9 TREATED SHARE TRADING LOSS AS BUSINESS LOSS. THEREFORE CONSIDERING THE FACTS OF THE APPELLANTS CASE AND VARIOUS DECISIONS, I AM OF THE VIEW THAT THE EXPLANATION TO SEC.73 OF THE ACT IS NOT APPLICABLE IN THE INSTANT CASE. HENCE, I DIRECT THE A.O TO TREAT THE LOSSES SUFFERED IN SHARE TRADING AS NORMAL BUSINESS LOSS. THIS GROUND IS ALLOWED. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERVED THAT THE CLAIM OF THE ASSESSEE FOR SET OFF OF THE LOSS FROM SHARE TRADING AGAINST THE INCOME FROM THE PROPERTY RELATED TRANSACTIONS WAS DISALLOWED BY THE AO INTER ALIA FOLLOWING THE ASSESSMENT ORDER PASSED IN ASSESSEES OWN CASE FOR AY 2009-10 WHILE THE SAID CLAIM WAS ALLOWED BY THE LD. CIT(A) VIDE HIS IMPUGNED ORDER BY RELYING ON THE APPELLATE ORDER OF HIS PREDECESSOR PASSED IN ASSESSEES OWN CASE FOR AY 2009-10. AT THE TIME OF HEARING BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE TRIBUNAL VIDE ITS ORDER DATED 10.01.2018 PASSED IN ITA NO. 1401/KOL/2016 HAS UPHELD THE ORDER OF THE LD. CIT(A) PASSED IN ASSESSEES OWN CASE FOR AY 2009-10 DECIDING A SIMILAR ISSUE IN FAVOUR OF THE ASSESSEE. HE HAS ALSO PLACED ON RECORD A COPY OF THE SAID ORDER AND PERUSAL OF THE SAME SHOWS THAT A SIMILAR ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE FOR THE IMMEDIATELY PRECEDING YEAR FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH NO 6 AND 7: 6. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT THE RENTAL INCOME DERIVED BY THE ASSESSEE HAS BEEN CORRECTLY HELD BY THE LD. CIT(A) AS INCOME 6 I.T.A. NO. 266/KOL/2018 ASSESSMENT YEAR: 2011-12 M/S. NATRAJ VINIMAY PVT. LTD. FROM OTHER SOURCES AS ADMITTEDLY THE ASSESSEE IS NOT THE OWNER OF THE PROPERTY AND HAD MERELY SUBLET THE PROPERTY TO ANOTHER CONCERN THEREBY DERIVING RENTAL INCOME OF RS. 60,000/-. HENCE, THE LD. CIT(A) HAD RIGHTLY TREATED THE SAME AS INCOME FROM OTHER SOURCES AS HAS BEEN REPORTED BY THE ASSESSEE IN ITS RETURN OF INCOME. 7. WE FIND THAT THE INCOME FROM OTHER SOURCES IS MORE THAN THE LOSS INCURRED BY THE ASSESSEE IN THE SUM OF RS. 17,917/- UNDER THE HEAD INCOME FROM BUSINESS. HENCE, THE ASSESSEES CASE SQUARELY FALLS UNDER THE FIRST EXCEPTION UNDER INCOME CRITERION PROVIDED IN EXPLANATION TO SECTION 73 OF THE ACT WHICH READS AS UNDER: 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 PRINCIPAL BUSINESS OF WHICH IS THE BUSINESS OF TRADING IN SHARES OR BANKING] OR THE GRANTING OF LOANS AND ADVANCES) 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 SUCH SHARES.] HENCE, WE HOLD THAT THE LD. CIT(A) HAD RIGHTLY OBSERVED AND TREATED THIS LOSS ON ACCOUNT OF SHARE TRANSACTION AS NORMAL BUSINESS LOSS OF THE ASSESSEE AND NOT AS SPECULATION LOSS. HENCE, WE HOLD THAT THE IMPUGNED TRANSACTION IS FALLING WITHIN THE AMBIT OF EXCEPTION PROVIDED IN EXPLANATION TO SECTION 73 OF THE ACT. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) IN THIS REGARD. 5. THE LD. DR, ON THE OTHER HAND, HAS RELIED ON THE DECISION OF HONBLE KOLKATA HIGH COURT IN THE CASE OF CIT VS EUREKA STOCK & SHARE BROKING SERVICES LIMITED (2016) 74 TAXMANN.COM 114 (CALCUTTA) IN SUPPORT OF THE REVENUES CASE ON THE ISSUE UNDER CONSIDERATION. HOWEVER, AS RIGHTLY SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE FACTS INVOLVED IN THE SAID CASE WERE ALTOGETHER DIFFERENT IN AS MUCH AS THE IMPUGNED LOSS WAS INCURRED BY THE ASSESSEE ON SALE AND PURCHASE OF SHARES WHICH HAD NO CONNECTION WITH THE BUSINESS OF THE ASSESSEE AS A SHARE BROKER AND THE SAME, THEREFORE, WAS TREATED AS SPECULATION LOSS AS PER PROVISIONS OF EXPLANATION TO SECTION 73. IN THE 7 I.T.A. NO. 266/KOL/2018 ASSESSMENT YEAR: 2011-12 M/S. NATRAJ VINIMAY PVT. LTD. PRESENT CASE, THE FACTS INVOLVED ARE DIFFERENT IN AS MUCH AS THE RENTAL INCOME EARNED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION WAS RS. 72,000/- AND SINCE THE GROSS TOTAL INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION AMOUNTING TO RS. 58,440/- MAINLY CONSISTED THE SAID INCOME WHICH WAS CHARGEABLE TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES, WE ARE OF THE VIEW THAT EXPLANATION TO SECTION 73 WAS NOT ATTRACTED IN THE FACTS OF THE ASSESSEES CASE AS RIGHTLY HELD BY THE LD. CIT(A) AND THE ASSESSEE WAS ENTITLED FOR SET OFF OF THE LOSS INCURRED IN SHARE TRADING AGAINST THE INCOME FROM THE PROPERTY RELATED TRANSACTIONS. WE ACCORDINGLY UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE AND DISMISS THIS APPEAL OF THE REVENUE. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH JULY, 2019. SD/- SD/- (A.T. VARKEY) (P.M. JAGTAP) JUDICIAL MEMBER VICE PRESIDENT DATED: 17/07/2019 BISWAJIT, SR. PS COPY OF ORDER FORWARDED TO: 1. M/S. NATRAJ VINMAY PVT. LTD., 2E, CORNFIELD ROAD, KOLKATA 700 019. 2. ITO, WARD 12(1), KOLKATA. 3. THE CIT(A) 4. THE CIT 5. DR TRUE COPY, BY ORDER, ASSISTANT REGISTRAR / H.O.O. ITAT, KOLKATA