THE DY CIT 4(1), MUMBAI V. M/S. B.M. GANDHI SECURITIES PVT. LTD, MUMBAI

ITA 2959/MUM/2008

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49374 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 13-06-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 01-05-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Assessee Lawyers: REEPAL G TRALSHAWALA
• Keywords: Speculation loss; Bad and doubtful debts
• Section: 143(3); 43(5); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, I, MUMBAI BEFORE S/SHRI D.K.AGARWAL (JM) AND T.R.SOOD (A.M ) ITA NO.2842/MUM/2008 (ASSESSMENT YEAR:2004-05) M/S B.M.GANDHI SECURITIES PVT.LTD., 9A, HOMI MODY STREET, FORT, MUMBAI-400023 PAN:AABCB3557B INCOME TAX OFFICER 4(1)(2), AAYAKAR BHAVAN, MAHARSHI KARVE ROAD, MUMBAI-400020 APPELLANT V/S RESPONDENT ITA NO.2959/MUM/2008 (ASSESSMENT YEAR:2004-05) DY.COMMISSIONER OF INCOME TAX, 4(1), ROOM NO.640, 6 TH FLOOR, AAYAKAR BHAVAN, MAHARSHI KARVE ROAD, MUMBAI-400020 M/S B.M.GANDHI SECURITIES PVT.LTD., 9A, HOMI MODY STREET, FORT, MUMBAI-400023 PAN:AABCB3557B APPELLANT V/S RESPONDENT ASSESSEE BY : MS.REEPAL G.TRALSHAWALA REVENUE BY : SHRI S.K.S INGH O R D E R PER D.K.AGARWAL (JM) THESE CROSS-APPEALS BY THE ASSESSEE AND REVENUE ARE DIRECTED AGAINST THE ORDER DATED 15.2.2008 PAS SED BY THE LEARNED COMMISSIONER OF INCOME TAX (A) FOR THE ASSESSMENT YEAR 2004-05. BOTH THESE APPEALS ARE DI SPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE . ITA NO.2842/MUM/2008 AND 2959/MUM/2008 (ASSESSMENT YEAR:2004-05) 2 [ 2 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE A SSESSEE FIRM IS ENGAGED IN THE BUSINESS OF SHARE AND STOCK BROKING. IT IS A MEMBER OF THE STOCK EXCHANGE, MUMBAI. TH E ASSESSEE COMPANY DERIVES INCOME FROM BROKERAGE, SH ARE TRADING INCOME, DIVIDEND AND INTEREST. RETURN WAS FILED DECLARING TOTAL INCOME OF RS.35,72,910/-. HOWEVER, THE ASSESSMENT WAS COMPLETED AT AN INCOME OF RS.11,183, 550/- VIDE ORDER DATED 22.12.2006 PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961(IN SHORT THE ACT). ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX (A) PARTLY ALLOWED THE APPEAL. 3. BEING AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (A), THE ASSESSEE AND RE VENUE BOTH ARE IN APPEAL BEFORE US. ITA NO.2842/MUM/2008(BY ASSESSEE) 4. GROUND NO.1,2,3 AND 4 TAKEN BY THE ASSESSEE READ AS UNDER: 1) THE COMMISSIONER (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF BAD DEBTS/BUSINESS LOSS OF RS.14,27,169/- 2) THE COMMISSIONER (APPEALS) ERRED IN HOLDING AS UNDER: 4.13 THE ALTERNATE CLAIM OF THE APPELLANT THAT IF THE DEDUCTION IS NOT ALLOWABLE AS BAD DEBTS, THE SAME ITA NO.2842/MUM/2008 AND 2959/MUM/2008 (ASSESSMENT YEAR:2004-05) 3 [ 3 ARE ADMISSIBLE AS BUSINESS LOSS U/S 28 OF THE ACT BECAUSE THE SAME HAS BEEN INCURRED IN ORDINARY COURSE OF BUSINESS IS NOT WELL FOUND 3) THE COMMISSIONER (APPEALS) OUGHT TO HAVE ALLOWED THE BUSINESS LOSS OF RS.15,79,267/- BEING T HE AMOUNT WHICH COULD NOT BE RECOVERED FROM MR.DILIP MOHATTA IN THE COURSE OF THE BUSINESS, MORE PARTI CULARLY WHEN THE COMMISSIONER (APPEALS) HAS HELD THAT THE D EBT WITH RESPECT TO MR. DILIP MOHATTA HAD BECOME BAD. 4) THE ORDER OF THE COMMISSIONER (APPEALS) CONFIRMING THE DISALLOWANCE OF RS.14,27,169/- OUT O F BAD DEBTS/ BUSINESS LOSS IS BAD IN LAW AND WITHOUT JURISDICTION 5. THE BRIEF FACTS OF THE ABOVE ISSUES ARE THAT DU RING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO INTERALIA OBSERVED THAT IN THE AUDITED ACCOUNTS THE ASSESSEE COMPANY HAS DEBITED BAD DEBTS/ BUSINESS LOSS OF RS.32,75,585/-. IN THE COURSE OF THE BUSINESS AS A SHARE BROKER, THE ASSESSEE COMPANY COULD NOT RECOVER OUTS TANDING BALANCES FROM THE FOLLOWING FOUR PARTIES AND THEREF ORE, THE SAID BALANCES WERE WRITTEN OFF AS BAD DEBTS / BUSI NESS LOSS BY THE ASSESSEE FIRM IN THE YEAR UNDER CONSIDERATIO N : S.NO. NAME OF PARTIES AMOUNT 1 MR.DILIP MALHOTRA RS.29,49,053.46 2 MR. BHARAT SHAH RS.1,15,077.50 3 M/S OM INVESTMENT RS.3,63,553.75 4 MRS.SUNITA KOTHARI RS.18,394.56 ITA NO.2842/MUM/2008 AND 2959/MUM/2008 (ASSESSMENT YEAR:2004-05) 4 [ 4 THE AO DISALLOWED THE AFORESAID BAD DEBTS/ BUSINESS LOSS ON THE GROUND THAT THE PART OF THE DEBIT BALANCE OF T HE CLIENT WHICH DOES NOT PERTAIN TO BROKERAGE INCOME BUT IT P ERTAINS TO VALUE OF SHARES PURCHASED BY THE CLIENT IS NOT COVE RED BY SECTION 36(2) AND THEREFORE, IT IS OUTSIDE THE PURV IEW OF SECTION 36(1)(VII). THE AO FURTHER OBSERVED THAT T HE DEBTS HAVE NOT BECOME BAD IN THE YEAR UNDER CONSIDERATIO N AND THE ASSESSEE HAS NOT ADDUCED SATISFACTORY EVIDENCE . THE AO FURTHER OBSERVED THAT THE CLAIM OF THE ASSESSEE COMPANY AS BUSINESS LOSS UNDER SECTION 28 ALSO COULD NOT B E ALLOWED AS THE ASSESSEE COMPANY DID NOT ADDUCE EVIDENCE IN SUPPORT OF ITS CLAIM TO FULFIL THE PARAMETERS OF GENUINENE SS OF THE LOSS, ESTABLISHMENT OF THE FACT THAT THE LOSS IS IR RECOVERABLE AND ESTABLISHING THAT THE LOSS CRYSTALLIZED IN THE RELEVANT PREVIOUS YEAR AND ACCORDINGLY HE DISALLOWED BAD DEBTS/BUSINESS LOSS OF RS.32,75,585/-. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX (A) AFTER EXAMIN ING THE EVIDENCE FILED BY THE ASSESSEE OBSERVED THAT THE A MOUNT DUE FROM MR.DILIP MALHOTRA, MR.BHARAT SHAH AND M/S OM INVESTMENT HAVE BECOME BAD. THE BAD DEBTS IS ALLOW ABLE UNDER SECTION 36(1)(VII) SUBJECT TO PROVISIONS OF S ECTION 36(2) WHICH STATES THAT THE DEDUCTION CAN BE ALLOWED IN A CASE WHERE SUCH DEBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF ANY PREV IOUS ITA NO.2842/MUM/2008 AND 2959/MUM/2008 (ASSESSMENT YEAR:2004-05) 5 [ 5 YEAR. HE FURTHER OBSERVED THAT IN THE PRESENT CASE, ONLY THE AMOUNT OF BROKERAGE RECEIVED FROM THE THREE PARTIES CAN BE CONSIDERED TO HAVE BEEN TAKEN INTO ACCOUNT IN COMPU TING THE INCOME OF THE ASSESSEE OF ANY PREVIOUS YEAR. THE AM OUNT OF BAD DEBTS AND BROKERAGE EARNED ARE AS UNDER :- S.NO. NAME OF PARTIES BAD DEBTS CLAIMED BROKERAGE EARNED DIFFERENCE (A) (B) (C) (D) (E) 1 MR.DILIP MALHOTRA 29,49,053 13,69,786 15,79,267 2 MR. BHARAT SHAH 1,15,077 1,29,113 (- )14,036 3 M/S OM INVESTMENT 3,63,553 7,42,846 (- )3,79,293 ACCORDINGLY, THE LEARNED COMMISSIONER OF INCOME TA X (A) ALLOWED THE BAD DEBTS IN THE ACCOUNT OF MR.DILIP MALHOTRA RS.13,69,786/-, MR. BHARAT SHAH RS.1,15,077/- AND M /S OM INVESTMENT RS.3,63,553/- AGGREGATING TO RS.18,48,4 16/- AND CONFIRMED THE BALANCE DISALLOWANCE OF RS.14,27,169 /-. 6. AT THE TIME OF HEARING, BOTH PARTIES HAVE AGREED THAT THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN DCIT V/S M/S B.M.GANDHI SECU RITIES P.LTD. IN ITA NO.5693/MUM/2006 (AY-2003-04) ORDER D ATED 3.12.2010 AND ALSO BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN DCIT V/S SHREYAS S.MORAKHIA (2010) 5 ITR ITA NO.2842/MUM/2008 AND 2959/MUM/2008 (ASSESSMENT YEAR:2004-05) 6 [ 6 (TRIB) 1 (MUM)(SB), THEREFORE THE ISSUE MAY BE DECI DED ACCORDINGLY. AT THIS STAGE, THE LEARNED COUNSEL FO R THE ASSESSEE FURTHER SUBMITS THAT IN VIEW OF THE ABOVE, HE DOES NOT WANTS TO PRESS THE GROUND NO.3 TAKEN BY THE ASS ESSEE. 7. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE RI VAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON REC ORD, WE FIND THAT THERE IS NO DISPUTE THAT THE AMOUNT DUE, CLAIMED AS BAD DEBTS WAS MONEY RECEIVABLE BY THE ASSESSEE AS SHARE BROKER FROM HIS CLIENTS AGAINST THE PURCHASE OF SHA RE MADE ON THEIR BEHALF. IT IS ALSO NOT IN DISPUTE THAT TH E BROKERAGE PAYABLE BY THE CLIENTS WAS A PART OF THAT DEBT AND THAT PART HAD BEEN TAKEN INTO ACCOUNT IN COMPUTATION OF THE I NCOME OF THE ASSESSEE. 8. IN SHREYAS S.MORAKHIA (SUPRA) IT HAS BEEN HELD ( PAGE 4 OF HEADNOTES) AS UNDER :- HELD, THAT THE AMOUNT RECEIVABLE BY THE ASSESSEE, A SHARE BROKER, FROM HIS CLIENTS AGAINST TRANSACTIONS OF PURCHASE OF SHARES ON THEIR BEHALF CONSTITUTED A TR ADING DEBT. THE BROKERAGE INCOME ARISING FROM SUCH TRANSACTIONS VERY MUCH FORMED PART OF THE DEBT AND WHEN THE AMOUNT OF SUCH BROKERAGE HAD BEEN TAKEN INTO ACCOUNT IN COMPUTATION OF INCOME OF THE ASSESSEE OF THE RELEVANT PREVIOUS YEAR OR ANY EARLIER YEAR, IT SATI SFIED THE CONDITION STIPULATED IN SECTION 36(2)(I) AND THE AS SESSEE WAS ENTITLED TO DEDUCTION UNDER SECTION 36(1)(VII) BY WAY OF BAD DEBTS AFTER HAVING WRITTEN OFF THE SAID DEBT S FROM HIS BOOKS OF ACCOUNT AS IRRECOVERABLE. ITA NO.2842/MUM/2008 AND 2959/MUM/2008 (ASSESSMENT YEAR:2004-05) 7 [ 7 IN THE ABSENCE OF ANY DISTINGUISHING FEATURES BROU GHT ON RECORD BY THE LEARNED D.R., WE RESPECTFULLY FOLLOWI NG THE DECISION OF THE TRIBUNAL (SUPRA) HOLD THAT SINCE T HE ASSESSEE HAS SATISFIED THE CONDITION STIPULATED IN SECTION 36(2)(I) AND THE ASSESSEE WAS ENTITLED TO DEDUCTION UNDER SECTIO N 36(1)(VII) BY WAY OF BAD DEBTS AFTER HAVING WRITTEN OFF THE SAID DEBTS FROM HIS BOOKS OF ACCOUNT AS IRRECOVERAB LE AND ACCORDINGLY GROUND NO.1,2 AND 4 TAKEN BY THE ASSESS EE ARE ALLOWED AND THE GROUND NO.3 TAKEN BY THE ASSESSEE I S REJECTED BEING NOT PRESSED. ITA NO.2959/MUM/2008(BY REVENUE) 9. GROUNDS OF APPEAL NO.1,2, AND 4 TAKEN BY THE REVENUE READ AS UNDER : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING SET OFF AGAINST CURRENT YEARS SHARE TRADING PROFIT OF THE BROUGHT FORWARD SPECULATION LOSS AND CURRENT YEARS SPECULA TION LOSS ON ACCOUNT OF DEEMING PROVISIONS OF EXPLANATI ON TO SECTION 73 OF THE IT ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE EXPENSES OF RS.11,72,037/- AS ATTRIBUTABLE TO SPECULATION BUSINESS. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE IMPUGNED ORDER OF THE LD. CI T(A) IS CONTRARY TO LAW AND CONSEQUENTLY ON MERITS IT DESER VES TO BE SET ASIDE AND THAT OF THE AO RESTORED. ITA NO.2842/MUM/2008 AND 2959/MUM/2008 (ASSESSMENT YEAR:2004-05) 8 [ 8 10. BRIEFLY STATED FACTS OF THE ABOVE ISSUE ARE TH AT THE AO OBSERVED THAT (PARA 3 OF THE ASSTT. ORDER) : THE ASSESSEE HAS DERIVED INCOME OF RS.69,88,920/- FROM TRADING IN SHARES. THIS AMOUNT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT. THE ASSESSEE HAS HOWEVER , CONSIDERED THE SAID INCOME FROM SHARE TRADING AS SPECULATION INCOME WHICH HAS BEEN SET OFF AGAINST T HE BROUGHT FORWARD SHARES TRADING LOSS OF EARLIER YEAR S TO THE EXTENT OF RS.19,64,469/-. THE ASSESSEE HAS AL SO ALLOCATED EXPENSES OF RS.25,79,285/- TOWARDS SUCH S HARE TRADING ACTIVITY AND THE NET AMOUNT OF RS.24,45,1 66/- IS OFFERED AS SPECULATION INCOME. THE AO AFTER CONSIDERING THE ASSESSEES EXPLANATIO N HAS HELD AS UNDER : 3.8 IN THE CASE OF THE ASSESSEE, FOR THE ASSESSMEN T YEAR 2001-02 THE LOSS INCURRED FROM PURCHASE AND SA LE OF SHARES OF OTHER COMPANIES HAS BEEN HELD TO BE DEEME D SPECULATION LOSS BY INVOKING THE PROVISION OF EXPLANATION TO SECTION 73 IRRESPECTIVE OF THE FACT THAT SUCH TRANSACTIONS ARE DELIVERY BASED OR NOT. THIS IS SPECIALLY DUE TO THE LEGAL FICTION INTRODUCED IN TH E SAID PROVISIONS. HAVING SAID SO, THE BUSINESS OF PURCHA SE AND SALE OF SHARES OF OTHER COMPANIES, DOES NOT BECOME A SPECULATION BUSINESS FOR ALL ASSESSMENT Y EARS PERPETUALLY. 3.9 THE PROVISIONS OF EXPLANATION TO SECTION 73 CAN BE INVOKED ONLY WHEN THE ASSESSEE INCURS A LOSS CONSIDERING THE FACT THAT THE SAID EXPLANATION IS INTRODUCED IN SECTION 73-LOSSES IN SPECULATION BUS INESS WHICH FORMS PART OF CHAPTER VI-AGGREGATION OF INCO ME AND SET OFF OF LOSS. IN OTHER WORDS, THE SAID PROV ISIONS ARE INVOKED TO DECIDE WHETHER THE LOSS INCURRED IS SPECULATION OR NOT. 3.10 IT IS ESSENTIAL TO TAKE INTO COGNIZANCE THAT T HE LEGISLATURE HAS NOT INTRODUCED THE LEGAL FICTION O F DEEMED SPECULATION BUSINESS IN SECTION 28 OR IN THE ITA NO.2842/MUM/2008 AND 2959/MUM/2008 (ASSESSMENT YEAR:2004-05) 9 [ 9 EXPLANATION 2 TO SECTION 28. THE VERY FACT THAT SU CH LEGAL FICTION WAS INTRODUCED IN SECTION 73 OF CHAP TER VI OF THE IT ACT, 1961, INDICATES THE INTENTION OF THE LEGISLATURE TO APPLY SUCH LEGAL FICTION TO ONLY LOS SES AND NOT PROFITS. 3.11 IN THE PRESENT CASE, THE ASSESSEE SEEKS SET O FF SPECULATION LOSS INCURRED DURING THE YEAR AND BROUG HT FORWARD SPECULATION LOSSES AGAINST THE NON-SPECULAT ION SHARE TRADING INCOME HENCE, THE RELEVANT PROVISIONS WHICH HAVE TO BE CONSIDERED ARE THE PROVISIONS OF SUB SECTION 1 AND 2 TO SECTION 73 OF THE IT ACT, 1961 AND NOT THE PROVISIONS OF EXPLANATION TO SECTION 73. 3.12 THE PROVISIONS OF SUB-SECTION 1 TO SECTION 73 OF THE IT ACT, 1961 REFER TO PROFITS AND GAINS OF ANOT HER SPECULATION BUSINESS AGAINST WHICH THE SPECULATION LOSS OF A SPECULATION BUSINESS IS SET OFF. THE PROVISION S OF SUB-SECTION 2 TO SECTION 73 OF THE IT ACT, 1961 R EFER TO PROFITS AND GAINS OF SPECULATION BUSINESS AGAINST WHICH THE LOSS OF A SPECULATION BUSINESS IS SET OFF. 3.13 THE PROVISIONS OF SECTION 73 DO NOT DEFINE THE TERM SPECULATION BUSINESS. THE REFERENCE OF SPECULATION BUSINESS IN EXPLANATION TO SECTION 73 IS OF NO HELP TO THE ASSESSEE AS IT DOES NOT DEFINE IT EX CEPT TO INTRODUCING A LEGAL FICTION OF DEEMED SPECULATION BUSINESS, WHICH AGAIN WILL BE INVOKED ONLY IF ASSE SSEE HAS INCURRED A LOSS. THERE IS NOTHING IN THE LAN GUAGE OF THE EXPLANATION TO SECTION 73 TO SUGGEST THAT A SHARE TRADING BUSINESS WILL BE DEEMED SPECULATION BUSINES S PERPETUALLY FOR ALL SUBSEQUENT ASSESSMENT YEARS ON CE IT IS HELD TO BE SUCH DEEMED SPECULATION BUSINESS IN T HE CIRCUMSTANCES OF HAVING INCURRED A LOSS IN ANY PART ICULAR ASSESSMENT YEAR 11. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME T AX (A) DIRECTED THE AO TO TREAT PROFIT FROM SHARE TR ADING TRANSACTION AS SPECULATION PROFIT AND SET OFF SPECU LATION LOSS OF THE CURRENT YEAR AND BROUGHT FORWARD SPECULATION LOSS ITA NO.2842/MUM/2008 AND 2959/MUM/2008 (ASSESSMENT YEAR:2004-05) 10 [ 10 AGAINST THE SPECULATION INCOME AND FURTHER DIRECTED TO ALLOW THE EXPENSES AS PER THE FINDING GIVEN IN GROUND NO .1 AS ABOVE. 12. AT THE TIME OF HEARING, THE LEARNED D.R. SUBMI TS THAT FOR THE REASONS AS DISCUSSED IN THE ASSESSMENT ORDE R, THE LEARNED COMMISSIONER OF INCOME TAX (A) WAS NOT JUST IFIED IN ALLOWING THE RELIEF TO THE ASSESSEE. HE, THEREFORE , SUBMITS THAT THE ORDER PASSED BY THE AO BE RESTORED. 13. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE WHILE RELYING ON THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (A) FURTHER SUBMITS THAT THE ISSUE STANDS COVERED AGAINST THE REVENUE AND IN FAV OUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE JURISD ICTIONAL HIGH COURT IN CIT V/S LOKMAT NEWSPAPERS P.LTD (20 10) 322 ITR 43 (BOM). HE THEREFORE SUBMITS THAT THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (A) BE UPHEL D. 14. WE HAVE CAREFULLY HEARD THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECO RD. WE FIND THAT THE FACTS ARE NOT IN DISPUTE. WE FURTHER FIND THAT THE LEARNED COMMISSIONER OF INCOME TAX(A) HELD THAT THE FINDING OF THE AO THAT EXPLANATION TO SECTION 73 CAN BE INV OKED ONLY ITA NO.2842/MUM/2008 AND 2959/MUM/2008 (ASSESSMENT YEAR:2004-05) 11 [ 11 WHEN THE ASSESSEE INCURS THE LOSS IS NOT CORRECT A S THE PROVISIONS OF EXPLANATION TO SECTION 73 REFERS TO DEEMING OF BUSINESS AS SPECULATION BUSINESS. IN A BUSINESS TH ERE MAY BE A PROFIT OR LOSS. A DEEMING PROVISION OF EXPLAN ATION TO SECTION 73 IS APPLICABLE IN BOTH THE CASES OF PROF IT OR LOSS. THE DEEMING PROVISION OF EXPLANATION TO SECTION 73 WOULD THEREFORE APPLY TO CURRENT YEARS PROFITS ON PURCHA SE AND SALE OF SHARES AND THE SAME IS REQUIRED TO BE DEEME D TO BE FROM SPECULATION BUSINESS AND HENCE HE DIRECTED THE AO TO TREAT PROFIT FROM SHARE TRADING TRANSACTION AS SPEC ULATION PROFIT AND SET OFF SPECULATION LOSS OF THE CURRENT YEAR AND BROUGHT FORWARD SPECULATION LOSS AGAINST THE SPECUL ATION INCOME AND FURTHER DIRECTED TO ALLOW THE EXPENSES. 15. IN LOKMAT NEWSPAPERS P.LTD (SUPRA) IT HAS BEE N HELD (PAGES 44-45 HEADNOTE) :- THE EXPLANATION TO SECTION 73 OF THE INCOME-TAX AC T, 1961 CREATES A DEEMING FICTION THAT WHERE THE ASSES SEE IS A COMPANY AND WHERE ANY PART OF THE BUSINESS OF THE COMPANY CONSISTS OF THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, THE ASSESSEE IS FOR THE PURPOSES O F SECTION 73 DEEMED TO CARRY ON A SPECULATION BUSINES S, TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF THE PU RCHASE AND SALE OF SHARES. THE DEFINITION OF THE EXPRESSION 'SPECULATIVE TRANS ACTION' IN SECTION 43(5) WHICH DEFINES IT TO MEAN A TRANSAC TION IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY, INCLUDING STOCKS AND SHARES, IS PERIODIC ALLY OR ULTIMATELY SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY ITA NO.2842/MUM/2008 AND 2959/MUM/2008 (ASSESSMENT YEAR:2004-05) 12 [ 12 OR TRANSFER OF THE COMMODITY OR SCRIPS, CANNOT BE R EAD INTO THE PROVISIONS OF SECTION 73 HAVING REGARD TO THE PLAIN MEANING OF THE EXPLANATION TO SECTION 73. THE CONTENTION THAT A LOSS WHICH ARISES ON ACCOUNT OF A TRANSACTION OF THE SALE AND PURCHASE OF SHARES WOUL D CONSTITUTE A LOSS FROM A SPECULATION BUSINESS FOR T HE PURPOSES OF THE EXPLANATION BUT THAT THE PROFIT WHI CH ARISES FROM A TRANSACTION INVOLVING THE ACTUAL DELI VERY OF SHARES WOULD NOT CONSTITUTE A PROFIT FOR THE PURPOS ES OF SUB-SECTIONS (1) AND (2) OF SECTION 73 IN RESPECT O F WHICH A SET-OFF CAN BE GRANTED, INTRODUCES A RESTRICTION INTO THE SCOPE AND AMBIT OF THE DEEMING FICTION WHICH IS CRE ATED BY THE EXPLANATION TO SECTION 73, WHICH IS NOT CONTEMPLATED BY PARLIAMENT. THE DEEMING FICTION CRE ATED BY THE EXPLANATION TO SECTION 73 ARISES SPECIFICALL Y IN THE CONTEXT OF THE PROVISIONS OF SECTION 73 AND IS CONF INED TO THAT PURPOSE ALONE. WHETHER IT IS A PROFIT OR LOSS THAT HAS RESULTED FROM CARRYING ON SUCH BUSINESS, IS A CONSIDERATION ALIEN TO THE MEANING OF WHAT CONSTITU TES A SPECULATION BUSINESS BY THE EXPLANATION TO SECTION 73. ONCE AN ASSESSEE IS DEEMED TO BE CARRYING ON A SPECULATION BUSINESS FOR THE PURPOSE OF SECTION 73, ANY LOSS COMPUTED IN RESPECT OF THAT SPECULATION BUSINE SS, CAN BE SET OFF ONLY AGAINST THE PROFITS AND GAINS O F ANOTHER SPECULATION BUSINESS. SIMILARLY, FOR THE PU RPOSES OF SUB-SECTION (2), THE LOSS IN RESPECT OF A SPECUL ATION BUSINESS WHICH HAS NOT BEEN SET OFF EITHER IN WHOLE OR IN PART, CAN BE CARRIED FORWARD AND CAN BE SET OFF AGA INST PROFITS AND GAINS 'OF ANY SPECULATION BUSINESS'. TH E EXPRESSION 'ANY SPECULATION BUSINESS' MEANS A SPECULATION BUSINESS OF THE ASSESSEE IN RESPECT OF WHICH PROFITS AND GAINS FOR THE ASSESSMENT YEAR IN QUESTI ON HAVE ARISEN AND THERE IS NO JUSTIFICATION TO RESTRI CT THE CONTENT OF THAT SPECULATION BUSINESS WHERE PROFITS HAVE ARISEN BY EXCLUDING A BUSINESS INVOLVING ACTUAL DEL IVERY OF SHARES. NO SUCH RESTRICTION IS FOUND IN THE EXPLANATION. IN OTHER WORDS, ONCE THE ASSESSEE IS CARRYING ON A SPECULATION BUSINESS AND THE PROFITS AND GAINS HAVE ARISEN FROM THAT BUSINESS DURING THE COU RSE OF THE ASSESSMENT YEAR, THE ASSESSEE IS ENTITLED TO SET OFF THE LOSSES CARRIED FORWARD FROM A SPECULATION BUSINESS ARISING OUT OF A PREVIOUS ASSESSMENT YEAR. FOR THE ASSESSMENT YEAR 2003-04, THE ASSESSEE SHOWE D A PROFIT ON THE SALE OF SHARES AND SECURITIES HELD AS STOCK-IN-TRADE, OFFERED IT AS A PROFIT OF SPECULATI ON ITA NO.2842/MUM/2008 AND 2959/MUM/2008 (ASSESSMENT YEAR:2004-05) 13 [ 13 BUSINESS, SET IT OFF AGAINST SPECULATION LOSS BROUG HT FORWARD FROM THE ASSESSMENT YEARS 1996-97 TO 1998-9 9 AND SHOWED THE BALANCE AS SPECULATION INCOME. THE ASSESSING OFFICER DID NOT TREAT THE INCOME WHICH AR OSE FROM THE SALE OF SHARES AS INCOME FROM A SPECULATIO N BUSINESS ON THE GROUND THAT THE ASSESSEE HAD SETTLE D ITS TRANSACTIONS OF SALE AND PURCHASE OF SHARES THROUGH PHYSICAL DELIVERY, AND REFUSED TO ALLOW SET-OFF OF THE INCOME FROM THE SALE OF SHARES AGAINST THE LOSS ON ACCOUNT OF SPECULATION BUSINESS, BROUGHT FORWARD FR OM THE ASSESSMENT YEARS 1996-97 TO 1998-99. THE COMMISSIONER OF INCOME-TAX (APPEALS) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. THE TRIBUNAL HELD T HAT THE PROFIT FROM THE SALE OF SHARES FELL WITHIN THE PURV IEW OF THE EXPLANATION TO SECTION 73 AND WAS TO BE SET OFF AGAINST BROUGHT FORWARD LOSSES. ON APPEAL : HELD, DISMISSING THE APPEAL, THAT THE VIEW OF THE T RIBUNAL WAS CONSISTENT WITH THE PROVISIONS OF SECTION 73. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BROUG HT ON RECORD BY THE REVENUE, WE RESPECTFULLY FOLLOWING T HE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN LOKMAT NEWSPAPERS P.LTD (SUPRA) HOLD THAT THE PROFIT FROM SALE OF SHARES FELL WITHIN THE PURVIEW OF THE EXPLANATION T O SECTION 73 AND WAS TO BE SET OFF AGAINST THE CURRENT YEAR S AND BROUGHT FORWARD SPECULATION LOSSES AND ACCORDINGLY WE ARE INCLINED TO UPHOLD THE FINDINGS OF THE LEARNED COMM ISSIONER OF INCOME TAX (A) IN ALLOWING THE RELIEF TO THE AS SESSEE. THE GROUND NO.1,2 AND 4 TAKEN BY THE REVENUE ARE THEREF ORE REJECTED. ITA NO.2842/MUM/2008 AND 2959/MUM/2008 (ASSESSMENT YEAR:2004-05) 14 [ 14 16. GROUND NO.3 TAKEN BY THE REVENUE READS AS UNDER : 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN RESTRIC TING THE DISALLOWANCE TO RS.14,27,169/- AS AGAINST ASSESSEE COMPANY, HOLDING THAT THE ASSESSEE COMPANY HAS FULFILLED THE CONDITIONS LAID DOWN IN SECTION 36(1( VII). 17. AFTER HEARING RIVAL PARTIES AND PERUSING THE MA TERIAL AVAILABLE ON RECORD AND KEEPING IN VIEW OF OUR FIND INGS RECORDED IN ASSESSEES APPEAL IN PARAGRAPHS 7 AND 8 OF THIS ORDER, THE GROUND TAKEN BY THE REVENUE IS THE REFORE REJECTED. 18. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED AND REVENUES APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH JUNE, 2011. SD/- SD/- (T.R.SOOD) (D.K.AGARWAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 24TH JUNE, 2011 SRL: ITA NO.2842/MUM/2008 AND 2959/MUM/2008 (ASSESSMENT YEAR:2004-05) 15 [ 15 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH 6. GUARD FILE. BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI ITA NO.2842/MUM/2008 AND 2959/MUM/2008 (ASSESSMENT YEAR:2004-05) 16 [ 16 DATE INITIALS 1. DRAFT DICTATED ON 13.6.2011 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 14.6.2011 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM 5. APPROVED DRAFT COMES TO THE SR. PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. FILE SENT TO THE BENCH CLERK SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE ON WHICH FILE GOES TO AR 10. DATE OF DISPATCH OF ORDER