ELARA SECURITIES (INDIA) PVT. LTD., MUMBAI V. DCIT 4(1), MUMBAI

ITA 2885/MUM/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8517 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 20-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BEENA SANTOSH
• Keywords: Speculation loss

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES SMC, MUMBAI BEFORE SHRI R P TOLANI, JUDICIAL MEMBER ITA NO.2885/MUM/2016 ASSESSMENT YEAR : 2010-11 ELARA SECURITIES (INDIA) PVT LTD. INDIABULLS FINANCE CENTRE, TOWER 3, 21 ST FLOOR, SENAPATI BAPAT MARG, ELPHINSTONE ROAD (W), MUMBAI- 400 013 PAN AABCE7968D VS. DCIT 4 ( 1 ) , MUMBAI (APPELLANT) RESPONDENT) APPELLANTS BY : SHRI JITENDRA JAIN RESPONDENT BY : MS. BEENA SANTOSH DATE OF HEARING : 3 1 .01.2017 DATE OF PRONOUNCEMENT : 3 1 .0 1 . 201 7 O R D E R PER R P TOLANI, JUDICIAL MEMBER THIS IS ASSESSEES APPEAL. THE ASSESSEE HAS RAIS ED THE GROUND THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS I) IN APPLYING EXPLANATION TO SECTION 73 TO DEEM THE L OSS OF RS.2,0-4,640 AS A SPECULATION LOSS WITHOUT APPRECIATING THE FACT TH AT IT WAS INCURRED ON SQUARING OFF OF ERRONEOUS TRADES EXECUTED ON BEHALF OF THE CLIENTS AND DEVOLVED ON THE APPELLANT. II) IN CONFIRMING ALLOCATION OF EXPENSES AMOUNTING TO R S.7,28,560/- TO THE LOSS INCURRED ON SQUARING OFF OF ERRONEOUS TRADES A ND THEREBY FURTHER INCREASING THE DEEMED SPECULATION LOSS. ITA NO.2885/MUM/2016 ELARA SECURITIES (INDIA) PVT. LTD 2 III) THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THE FA CT THAT THE EXPENSES OF RS.7,28,560/- WERE INCURRED BY THE APPELLANT REL ATE TO ITS NORMAL BROKING ACTIVITY. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A MEMBER OF BSE, NSE AND MCX-SX AND ENGAGED IN THE BUSINESS OF SHARE AND STOCK BROKING AND TRADING. DURING THE YEAR IN QUESTION THE ASSESSEE CLAIMED LOSS FROM TRADING IN SECURITIES AT RS.2,04,640/- QUESTIONS WERE RAISED I N THIS BEHALF EXPLAINED THAT THIS WAS NOT A LOSS DIRECTLY INCURRED BY THE ASSESS EE IN ANY KIND OF TRADING BUT REPRESENTED BUSINESS EXIGENCIES IN WHICH SOME OF TH E SHARE DEALINGS OF CUSTOMERS WERE ERRONEOUSLY EXECUTED BY THE ASSESSEE S EMPLOYEES AND AS PER THE NORMS AND TO SAVE ITS REPUTATION THE ASSESSEE H AD TO SETTLE AND BEAR THE LOSSES DUE TO THE OPERATIONAL ERRORS AND BAD DELIVE RIES. SUCH EXIGENCIES ARE FACED BY THE ASSESSEE IN NORMAL COURSE OF ITS BUSIN ESS. THE ASSESSEE GAVE EVIDENCE IN THIS BEHALF WHICH HAS BEEN REJECTED MER ELY ON THE OBSERVATION THAT THEY ARE HANDWRITTEN. BESIDES, THE LEARNED AO FURT HER DISALLOWED EXPENSES OF RS.7,28,560/-ON THE ASSUMPTION THAT THE ASSESSEE WA S IN ABOVE DEEMED SPECULATIVE SHARE TRADING AND THESE EXPENDITURE WER E RELATED TO SPECULATION ACTIVITY. THE ASSESSEE GAVE COMPLETE DETAILS ALONG WITH EVIDENCE IN THIS BEHALF, WHICH ARE ADMITTEDLY MENTIONED IN THE WRITTEN SUBMI SSIONS FILED BEFORE THE CIT(A), AS UNDER : B) TRADING EXPENSES RS 728560 WITH RESPECT TO TR ADING EXPENSES OF RS.728,560, IT MAY BE NOTED THAT THESE INCLUDE VARI OUS LEVIES, FEES, CHARGES BY ENTITIES SUCH AS SEBI, NSE, BSE, DP ETC. THESE ARE LEVIES/FEES RELATED TO PERFORMANCE OF NORMAL BROKIN G ACTIVITY UNDERTAKEN BY A STOCK BROKER ITA NO.2885/MUM/2016 ELARA SECURITIES (INDIA) PVT. LTD 3 SOME OF THESE EXPENSES ARE LINKED TO VOLUME OF TRAD ES EXECUTED BY THE STOCK BROKER AND SOME ARE IN THE NATURE OF FIXED AN NUAL FEES. FURTHER IT MAY BE NOTED THAT THESE ARE ESSENTIAL FO R UNDERTAKING BROKING ACTIVITY, WHEREIN THE COMPANY BUYS/ SELLS SHARES ON BEHALF OF ITS CLIENTS AND HENCE ARE FULLY ALLOWABLE AS NORMAL BUSINESS EX PENDITURE. THESE EXPENSES ARE INCURRED FOR INSTITUTIONAL STOCK BROKI NG BUSINESS AS A WHOLE. THE DETAILS OF TRADING EXPENSES OF RS.728,560 INCUR RED FOR THE YEAR ALONG WITH SAMPLE SUPPORTING INVOICES IS ENCLOSED THE LEARNED CIT(A) DID NOT APPRECIATE THE FACTS AND SUBMISSIONS PROPERLY AND UPHELD THE ORDER OF THE AO. 3. IT IS CONTENDED THAT THERE IS NO CASE OF APPLYIN G EXPLANATION TO SECTION 73 AS THERE IS NO SPECULATION ACTIVITY. THE LOSS HAS BEE N INCURRED DUE TO THE FAULT OF THE EMPLOYEES AND THE EXPENDITURE IS FULLY ALLOWABLE IN CURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF REGULAR BUSINESS OF THE ASSESSEE BEI NG A CORPORATE BROKING HOUSE DULY REGISTERED ON STOCK EXCHANGES. 4. THE LEARNED DR RELIED ON ORDER OF THE AUTHORITIE S BELOW. THE LEARNED COUNSEL FURTHER CONTENDS THAT SIMILAR LOSS IN PRECEDING YEA R HAS NOT BEEN OBJECTED TO BY THE DEPARTMENT IN ORDER U/S. 143(3). 5. I HAVE HEARD BOTH THE PARTIES AND HAVE PERUSED T HE MATERIAL AVAILABLE ON RECORD. LOOKING AT THE TURNOVER AND ASSESSEES COM MISSION INCOME, OPERATIONAL DEFAULT BY ASSESSEES HUGE STAFF CANNOT BE HELD AS UNREASONABLE. THE ASSESSEES TOTAL INCOME IS A LOSS AND NOT A POSITIVE FIGURE. THE ACCOUNTS ARE DULY AUDITED AND FOLLOW THE ESTABLISHED RULES AND NORMS. THE LOSS C AUSED BY OPERATIONAL DEFAULT OF THE EMPLOYEES CANNOT BE TREATED AS LOSS ON ACCOUNT OF SPECULATION ACTIVITY OF THE ASSESSEE AND SUCH LOSS REPRESENTS NORMAL BUSINESS E XIGENCIES. SUCH TYPE OF ITA NO.2885/MUM/2016 ELARA SECURITIES (INDIA) PVT. LTD 4 BUSINESS EXIGENCIES CANNOT BE ASSUMED TO BE SPECULA TIVE ACTIVITY SO MUCH TO ATTRACT EXPLANATION TO SECTION 73. 6. APROPOS GROUND NO.2, SINCE IT IS HELD THAT THERE NO SPECULATION ACTIVITY CARRIED ON BY THE ASSESSEE CONSEQUENTLY; THERE IS NO JUSTIF ICATION IN DISALLOWING THE SAME EXPENDITURE ASSUMING SPECULATION ACTIVITY. BESIDES ASSESSEE HAS DEMONSTRATED THAT EXPENDITURE DISALLOWED REPRESENT INSTITUTIONAL FEES AND OTHER INCIDENTAL EXPENSES, WHICH HAS NOT BE FACTUALLY DISALLOWED BY THE AUTHOR ITIES BELOW. IN VIEW THEREOF, BOTH THE DISALLOWANCES ARE DELETED AND THE ASSESSEE S GROUNDS ARE ALLOWED. 7. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 3 1 ST JANUARY, 2017. SD/- (R P TOLANI) J UDICIAL MEMBER MUMBAI, DATED : 31 ST JANUARY, 2017. SA COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE C I T(A), MUMBAI. 4. THE C I T 5. THE DR, SMC BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, MUMBAI