Girish Fashion Pvt. Ltd., Ahmedabad V. The Income Tax Officer, Ward-2(1)(1), Ahmedabad

ITA 2811/AHD/2015

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 4064 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 28-12-2015
• Assessment Year: 2012-2013
• Appeal Filed On: 06-10-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Principle of natural justice; Speculation loss; Set aside
• Section: 153A; 6

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD , , BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER ./ I.T.A. NO.2811/AHD/2015 ( / ASSESSMENT YEAR : 2012-13) GIRISH FASHION PVT.LTD. B/9, HARE KRISHNA APARTMENT OPP. MADHURAM TOWER NR,.METROPOLE HOTEL,RTO 380 027 / VS. THE ITO WARD-2(1)(1) # ./ ./ PAN/GIR NO. : AAACG 6987 B ( #& / APPELLANT ) .. ( '#& / RESPONDENT ) #&( / APPELLANT BY : SHRI VIJAY RANJAN, AR '#& )( / RESPONDENT BY : SHRI ADITYA SHUKLA, SR.DR *+ ), / DATE OF HEARING 07/02/2019 -./0 ), / DATE OF PRONOUNCEMENT 06/ 05/2019 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANC E OF THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-2, AHMEDABAD [CIT(A) IN SHORT] DATED 31/07/2015 IN THE MATTER OF ASSESSMENT ORDER UNDER S.143(3) R.W.S. 153A OF THE INCOME TAX ACT, ITA NO.2811/AHD /2015 GIRISH FASHION PVT.LTD. VS. ITO ASST.YEAR 2012-13 - 2 - 1961 (HEREINAFTER REFERRED TO AS 'THE ACT') DATED 15/01/2015 RELEVANT TO ASSESSMENT YEAR (AY) 2012-13. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE READ AS UNDER:- 1. LEARNED COMMISSIONER OF APPEALS-(2) HAS ERRED I N NOT CONSIDERING THE SUBMISSION MADE BY THE APPELLANT IN RESPECT OF APPLICABILITY OF SECTION 73. 1.1. WITHOUT POINTING OUT ANY SPECIFIC DEFECT, SUCH TRA DING IN SHARES TRANSACTION CAN NOT BE TREATED AS SPECULATION BUSIN ESS BY THE LEARNED COMMISSIONER OF APPEALS-(2) ON THE BASIS OF APPLYING THE SECTION 73 OF THE INCOME-TAX ACT WHICH ITSELF I S BASED ON SURMISES AND PRESUMPTIONS, IS NOT SUSTAINABLE AND D ESERVES TO BE QUASHED. 1.2. THE LEARNED COMMISSIONER OF APPEALS-(2) HAS FAILED TO APPRECIATE THE FACT THAT THE APPELLANT PRINCIPAL BU SINESS IS HOTEL BUSINESS ALONG WITH BUSINESS IN DERIVATIVES TRADING BUSINESS IN SHARES AND SECURITIES, INCOME FROM HOUSE PROPERTY, INCOME FROM OTHER SOURCES AND CAPITAL GAINS. 1.3. THAT THE LEARNED COMMISSIONER OF APPEALS-(2) HAS ER RED IN DISALLOWING RS.11,67,097/- ON PROPORTIONATE BASIS, TOWARDS SHARE TRADING EXPENSES ON ASSUMPTION THAT THE APPEL LANT HAS INCURRED EXPENDITURE TOWARDS SPECULATION BUSINESS A ND ALLOCATED ON PROPORTION BASIS THE TOTAL EXPENDITURE WITHOUT A NALYZING THE NATURE OF EXPENDITURE WHICH ARE DIRECTLY RELATED TO HOTEL BUSINESS. THAT THE APPELLANT ALSO SUBMITS THAT THE DEALING IN SHARES BY THE COMPANY IS OUTSIDE THE PURVIEW OF EXP LANATION TO SECTION 73 OF THE INCOME TAX ACT. 1.4. THAT THERE ARE HOWEVER TWO EXCEPTIONS TO THIS DEEMI NG FICTION TO SECTION 73 - ONE IS FOR A COMPANY WHOSE GROSS TOTA L INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS INTEREST IN SECURITIES, INCOME FROM HOUSE PROPER TY, CAPITAL GAINS AND INCOME FROM OTHER SOURCES AND THE SECO ND IS FOR A COMPANY THE PRINCIPAL BUSINESS OF WHICH IS THE BUSI NESS OF BANKING OR THE GRANTING OF LOANS AND ADVANCE. ITA NO.2811/AHD /2015 GIRISH FASHION PVT.LTD. VS. ITO ASST.YEAR 2012-13 - 3 - 1.5. THE REJECTION OF THE APPELLANTS BONAFIDE EXPLANATI ON WITHOUT GIVING ANY VALID REASON FOR THE SAME, IS AGAINST TH E PRINCIPLE OF NATURAL JUSTICE AND IS BAD IN LAW. THE ADDITION MA DE THUS, IS NOT ONLY BAD IN LAW BUT ALSO ON FACTS AND CAN NOT BE SU STAINED BEING BASED MORE ON PRESUMPTIONS AND INFERENCES THAN THE ACTUAL STATE OF AFFAIRS, AND THEREFORE, IT DESERVES TO BE QUASHE D. 2. UNDER THE CIRCUMSTANCES APPROPRIATE RELIEF BE GRANT ED TO THE APPELLANT. 3. BRIEFLY STATED, ASSESSEE-COMPANY DERIVES INC OME FROM HOTEL BUSINESS, TRADING IN SHARE AND RENTAL INCOME FROM L ETTING OUT THE PROPERTIES AND UNDER THE HEAD CAPITAL GAINS. THE C OMPOSITION OF GROSS TOTAL INCOME OF THE ASSESSEE IS STATED TO BE AS UND ER. I) INCOME FROM HOUSE PROPERTY RS. 949452 II) INCOME FROM OTHER SOURCES RS. 1481126 (INTEREST 635757 + DIV.845369) III) CAPITAL GAINS RS.-1316827 IV) BUSINESS INCOME LOSS OF HOTEL 380401 PROFIT IN SHARE TRADING 1630 LOSS IN DERIVATIVES 198651 -------- RS.-577422 3.1. THE RETURN FILED BY THE ASSESSEE WAS SUBJECTED TO SCRUTINY ASSESSMENT. THE ASSESSING OFFICER INTER ALIA NOTICED THAT ASSESSEE HAS INCURRED LOSS IN DERIVATIVES AMOUNTING TO RS.1,98,6 51/-. THE ASSESSING OFFICER THUS SOUGHT EXPLANATION FROM THE ASSESSEE F OR APPLICABILITY OF EXPLANATION TO SECTION 73 OF THE ACT IN THE FACTS A ND CIRCUMSTANCES OF THE CASE. THE ASSESSING OFFICER ALSO OBSERVED THAT EXP ENSES TO THE TUNE OF ITA NO.2811/AHD /2015 GIRISH FASHION PVT.LTD. VS. ITO ASST.YEAR 2012-13 - 4 - RS.22,34,798/- IS ATTRIBUTABLE TO THE AFORESAID TRA DING IN DERIVATIVES. THE ASSESSING OFFICER ACCORDINGLY DETERMINED AN AGGREG ATE AMOUNT OF RS.24,36,149/- (RS.22,34,798 + RS.1,98,651) TO BE S PECULATIVE LOSS AND CONSEQUENTLY HELD THAT THE ASSESSEE IS NOT ENTITL ED FOR SET OFF OF SUCH SPECULATIVE LOSS FROM OTHER SOURCE OF INCOME. THE SET OFF OF RS.24,36,149/- WAS ACCORDINGLY DISALLOWED AND ASSES SED INCOME WAS ACCORDINGLY ENHANCED TO THIS EXTENT. THE ASSESSING OFFICER HOWEVER, ALLOWED THE AFORESAID LOSS TO BE CARRIED FORWARD FO R SET OFF AGAINST THE INCOME FROM SPECULATIVE BUSINESS IN THE SUBSEQUENT ASSESSMENT YEAR UNDER S.73 OF THE ACT. 4. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). THE CIT(A) ACCEPTED THE LOSS IN DERIVATIVES AMOUNTING T O RS.1,98,651/- TO BE NON-SPECULATIVE AND THUS NOT SUSCEPTIBLE TO EXPLAN ATION TO SECTION 73 OF THE ACT. THUS, RELIEF TO THE EXTENT OF RS.1,98,651 /- WAS GRANTED BY THE CIT(A). HOWEVER, AS AGAINST ALLOCATION OF EXPENSES OF RS.22,34,798/- MADE BY THE ASSESSING OFFICER IS RELATABLE TO TRADI NG IN SHARES, THE CIT(A) REWORKED THE ALLOCABLE EXPENSES TO RS.11,67, 097/- AND GRANTED RELIEF FOR THE REMAINING AMOUNT. 5. AGGRIEVED BY THE DENIAL OF SET OFF TO THE EXTENT OF RS.11,67,097/- IN TERMS OF EXPLANATION TO SECTION 73, THE ASSESSEE HAS PREFERRED THE APPEAL BEFORE THE TRIBUNAL. ITA NO.2811/AHD /2015 GIRISH FASHION PVT.LTD. VS. ITO ASST.YEAR 2012-13 - 5 - 6. WE HAVE HEARD RIVAL SUBMISSIONS ON THE ISSUE. T HE APPLICABILITY OF EXPLANATION TO SECTION 73 OF THE ACT HAS BEEN CHALL ENGED BY THE ASSESSEE IN THE FACTS OF THE CASE NARRATED ABOVE. IN TERMS OF EXPLANATION TO SECTION 73, IF A COMPANY INCURS A SPECULATIVE LOSS IN A MAN NER DEEMED IN THE EXPLANATION, SUCH LOSS SHALL NOT BE SET OFF EXCEPT AGAINST THE PROFITS AND GAINS IF ANY, OF OTHER SPECULATION BUSINESS. THE E XPLANATION HAS PROVIDED TWO EXCEPTIONS. THE FIRST EXCEPTION IS AVAILABLE I N THE CASE OF COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS INTEREST ON SECURITIES, INCOME F ROM HOUSE PROPERTY, CAPITAL GAINS AND INCOME FROM OTHER SOURCES. T HE SECOND EXCEPTION IS IN THE CASE OF A COMPANY WHOSE PRINCIPAL BUSINES S IS THE BUSINESS OF BANKING OR THE GRANTING OF LOANS AND ADVANCES. 6.1. WE ARE NOT CONCERNED WITH THIS SECOND EXPRE SSION IN THE INSTANT CASE. IN TERMS OF FIRST LIMB OF EXCEPTION TO THE E XPLANATION TO SECTION 73, EXPLANATION IS ATTRACTED TO THE GROSS OF TOTAL INCO ME OF THE COMPANY WHICH DOES NOT CONSIST MAINLY OF INCOME UNDER NON-B USINESS HEAD. THUS, THE TEST TO BE APPLIED ON FIRST CATEGORY OF COMPANY IS THE CHARACTER OF ITS GROSS TOTAL INCOME. AS NOTICED ABOVE, THE AGGREGAT E INCOME UNDER NON- BUSINESS HEAD (HOUSE PROPERTY, INCOME FROM OTHER SO URCES AND CAPITAL GAINS) CLEARLY EXCEEDS THE BUSINESS INCOME. EXPLA NATION TO SECTION 73 OF THE ACT THUS CANNOT BE APPLIED WHILE CONSIDERING T HE SET OFF OF LOSS UNDER ITA NO.2811/AHD /2015 GIRISH FASHION PVT.LTD. VS. ITO ASST.YEAR 2012-13 - 6 - SECTIONS 70 & 71 AND CARRIED FORWARD OF SUCH LOSS U NDER S.72 OF THE ACT. THE ASSESSEES CASE CLEARLY FALLS WITHIN THE PURVIE W OF FIRST EXCEPTION CARVED OUT IN THE EXPLANATION TO SECTION 73 AND THE ASSESSEE THUS COULD NOT BE DEEMED TO BE CARRYING ON A SPECULATIVE BUSIN ESS. SUPPORT IS DRAWN FROM THE DECISION OF SPECIAL BENCH IN ACIT V S. CONCORD COMMERCIALS (P.) LTD. [2005] 95 ITD 117 (MUM.)[SB] AND CIT VS. DARSHAN SECURITIES PVT.LTD. (2012) 249 CTR 199 (BOM ). 6.2. THUS, WE FIND MERIT IN THE PLEA RAISED ON BEHA LF OF THE ASSESSEE. THE ORDER OF THE CIT(A) ACCORDINGLY IS SET ASIDE AN D THE ASSESSING OFFICER IS DIRECTED TO RESTORE THE ACTION OF THE AS SESSEE IN THIS REGARD. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . THIS ORDER PRONOUNCED IN OPEN COURT ON 06/ 05/2019 SD/- SD/- ( ) ( ) ( MAHAVIR PRASAD ) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 06/ 05 /2019 4..*,.*../ T.C. NAIR, SR. PS ITA NO.2811/AHD /2015 GIRISH FASHION PVT.LTD. VS. ITO ASST.YEAR 2012-13 - 7 - !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. #& / THE APPELLANT 2. '#& / THE RESPONDENT. 3. 567, 8, / CONCERNED CIT 4. 8, ( ) / THE CIT(A)-2, AHMEDABAD 5. 9:;,*67 , 67 0 , 5 / DR, ITAT, AHMEDABAD 6. ;<+ / GUARD FILE. / BY ORDER, '9,, //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 6.5.19 (DICTATION-PAD 14- PAGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 6.5.19 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.6.5.19 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 6.5.19 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER