MATHAKIA INVESTMENTS P. LTD, MUMBAI V. ITO WD 2(2)-3, MUMBAI

ITA 2989/MUM/2010

• Counselvise Citation: 298919914 RSA 2010
• Duration Of Justice: 1 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 21-06-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 15-04-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T T JACOB
• Keywords: Reopening of assessment; Recovery proceedings; Business income; Opportunity of being heard; Speculation loss; Rule 8D; Set aside
• Section: 143(3); 14A; 43(5); 43D

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F, MUMBAI BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER & SMT. ASHA VIJAYRAGHAVAN, JUDICIAL MEMBER. ITA NOS. 2 989 TO 2993/MUM/2010 ASSESSMENT YE ARS : 2001-02 TO 2005-06. M/S MATHAKIA INVESTMENTS P. LTD., THE INCOME-TAX OFFICER, 7 TH FLOOR, INDIAN GLOBLE CHAMBERS, VS. 2(2)(3), MUMBAI. 142, W.H. MARG, FORT, MUMBAI 400 001. PAN AAALM 5656K. APPELLANT. RESPONDENT. ITA NOS. 4055 TO 4058/ MUM/2010&3314/MUM/2010 ASSESSMENT YE ARS : 2001-02 TO 2005-06. THE INCOME-TAX OFFICER, M/S MATHAKIA INVESTMENTS P. LTD., 2(2)(3), MUMBAI. VS . MUMBAI. APPELLANT. RESPONDENT. ASSESSEE BY : SHRI FIROZ ANDHYRUJINA, SHRI DEEPAK S. SUKHIJA. DEPARTMENT BY: SHRI T.T. JACOB. O R D E R PER BENCH : THESE TEN APPEALS, FIVE FILED BY THE ASSESSEE AND FIVE FILED BY THE REVENUE, ARE CROSS APPEALS WHICH ARE DIRECTED AGAINST FIVE S EPARATE ORDERS PASSED BY THE LEARNED CIT(APPEALS)-5, MUMBAI FOR ASSESSMENT YEAR S 2001-02, 2002-03, 2003- 04, 2004-05 AND 2005-06. AS SOME COMMON ISSUES ARE INVOLVED IN THESE APPEALS, 2 ITA NOS.289 TO 2993/MUM/2010& ITA NOS.4055 TO 4058/MUM/2010& ITA NO . 3314/MUM/2010 THE SAME HAVE BEEN HEARD TOGETHER AND ARE BEING DIS POSED OF BY THIS SINGLE COMPOSITE ORDER FOR THE SAKE OF CONVENIENCE. 2. THE MAIN ISSUE INVOLVED IN THIS CASE AS RAISED I N THE RELEVANT GROUNDS OF THE APPEALS OF THE ASSESSEE FOR ALL THE FIVE YEARS UNDE R CONSIDERATION RELATES TO THE ADDITION MADE BY THE AO AND CONFIRMED BY THE LEARNE D CIT(APPEALS) ON ACCOUNT OF INTEREST INCOME ON THE AMOUNT CLAIMED TO BE PAID BY THE ASSESSEE FOR RIGHTS ASSIGNED BY A BANK IN A PENDING SUIT. 3. THE FACTS OF THE CASE RELEVANT TO THIS ISSUE AS STATED BY THE AO IN THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2005-06 ARE TH AT SHRI BUDHIDHAN P. TAKKAR, SHRI PRATAP K. TAKKAR AND SHRI JAYSINH P. TAKKAR, T HE PROMOTER DIRECTORS OF THE ASSESSEE COMPANY, WERE ALSO THE DIRECTORS IN M/S IN TERNATIONAL COTTON CORPN. PVT. LTD. AND PARTNERS IN M/S KARNATAKA TRADERS ALONG W ITH THEIR OTHER FAMILY MEMBERS AS WELL AS MEMBERS OF ASHAR FAMILY. THE BANK OF BAR ODA HAD PROVIDED VARIOUS CREDIT FACILITIES TO M/S INTERNATIONAL COTTON CORPN . P. LTD. AND M/S KARNATAKA TRADERS ON THE BASIS OF SURETY GIVEN BY THE TAKKAR BROTHERS. THE PROPERTY, NAMELY, MADHAV KUNJ OWNED BY TAKKAR BROTHERS WAS ALSO MOR TGAGED TO THE BANK ON 09- 08-1983 AS A SECURITY FOR THE CREDIT FACILITIES AVA ILED BY M/S INTERNATIONAL COTTON CORPN. LTD. AND M/S KARNATAKA TRADERS. THE SAID PAR TIES WHO HAD AVAILED THE LOAN/CREDIT FACILITIES DEFAULTED IN PAYING THE SAME TO THE BANK. CONSEQUENTLY THE BANK STARTED RECOVERY PROCEEDINGS AGAINST THE DEFAU LTERS AS WELL AS SURETIES BY FILING SUIT IN THE BOMBAY HIGH COURT. THE PROPERTY WAS ALSO PUT TO AUCTION IN THE YEAR 1999. SINCE THE TAKKAR FAMILY MEMBERS WHO OWNE D THE SAID PROPERTY DID NOT WANT THE PROPERTY TO BE AUCTIONED, THE ASSESSEE COM PANY ENTERED INTO AN UNDERSTANDING WITH THE BANK VIDE DEED OF ASSIGNMENT AND TRANSFER DATED 26 TH FEB., 1999 TO PAY ALL THE LOAN AMOUNT ALONG WITH INTEREST AGGREGATING TO RS.84,97,400/- 3 ITA NOS.289 TO 2993/MUM/2010& ITA NOS.4055 TO 4058/MUM/2010& ITA NO . 3314/MUM/2010 TO THE BANK. THE SAID REPAYMENT WAS IN LIEU OF ASSI GNMENT OF ALL THE RIGHTS OF THE BANK TO THE ASSESSEE COMPANY, TO SUE, DEMAND, RECOV ER MONEYS DUE ALONG WITH INTEREST THEREON AND COST WITH ALL RIGHTS, TITLE, I NTEREST, PRIVILEGE, BENEFIT, ENTITLEMENT, CLAIM IN THE PLEDGE/HYPOTHECATED MOVA BLE PROPERTY AND MORTGAGED IMMOVABLE PROPERTY. THE ASSESSEE COMPANY DID NOT HA VE THE REQUIRED FUNDS TO PAY ENTIRELY THE SAID AMOUNT TO THE BANK OF BARODA AND IT, THEREFORE, BORROWED FUNDS FROM ITS DIRECTORS ON INTEREST AT THE RATE OF 12% P ER ANNUM. THE ASSESSEE COMPANY CLAIMED THAT BY MAKING THE SAID PAYMENT, IT HAD ACQ UIRED THE RIGHTS IN THE IMMOVABLE PROPERTY. THIS CLAIM OF THE ASSESSEE COMP ANY, HOWEVER, WAS NOT FOUND ACCEPTABLE BY THE AO DURING THE COURSE OF ASSESSMEN T PROCEEDINGS FOR ASSESSMENT YEAR 2005-06 U/S 143(3). ACCORDING TO HIM, IF THE A SSESSEE COMPANY WAS INTERESTED IN ACQUIRING THE RIGHT IN THE PROPERTY, IT SHOULD HAVE ALWAYS PURCHASED THE PROPERTY IN AUCTION ON OWNERSHIP BASIS. HE WAS ALSO OF THE O PINION THAT AS PER THE DEED OF ASSIGNMENT AND TRANSFER EXECUTED WITH BANK OF BAROD A, THE ASSESSEE COMPANY HAD NOT ACQUIRED THE RIGHT IN THE PROPERTY BUT WHAT IT ACQUIRED WAS THE RIGHT TO RECOVER THE DEBT OUTSTANDING AGAINST THE DEFAULTER ALONG WI TH INTEREST AND COST THEREOF. HE HELD THAT THE ASSESSEE THUS HAD ACQUIRED THE DEBT F ROM BANK OF BARODA ALONG WITH ALL INCIDENTAL RIGHTS ATTACHED TO THE SAID DEBT. SI NCE THE ASSESSEE COMPANY WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THE AO H ELD THAT IT SHOULD HAVE ACCOUNTED FOR INTEREST ON THE SAID DEBT ON ACCRUAL BASIS AT THE MINIMUM RATE OF 18% PER ANNUM WITH EFFECT FROM ASSESSMENT YEAR2000-01 O NWARDS. ACCORDINGLY HE WORKED OUT THE INTEREST ACCRUED AND DUE TO THE ASSE SSEE FOR ASSESSMENT YEARS 2001- 02 TO 2005-06 AS UNDER : 4 ITA NOS.289 TO 2993/MUM/2010& ITA NOS.4055 TO 4058/MUM/2010& ITA NO . 3314/MUM/2010 A.Y. AMOUNT + INTT. DUE TAXABLE INTEREST 2000-01 84,97,400 15,29,532 2001-02 1,00,26,932 18,04,848 2002-03 1,18,31,780 21,29,720 2003-04 1,39,61,500 25,13,070 2004-05 1,64,74,570 29,65,423 2005-06 1,94,39,993 34,99,199 ACCORDINGLY, INTEREST STATED TO BE ACCRUED TO THE A SSESSEE FOR ASSESSMENT YEAR 2005- 06 WAS ADDED BY THE AO TO THE TOTAL INCOME OF THE A SSESSEE UNDER THE HEAD INCOME FROM OTHER SOURCES. HE ALSO REOPENED THE A SSESSMENTS FOR ASSESSMENT YEARS 2000-01 TO 2004-05 AND INTEREST STATED TO BE ACCRUED TO THE ASSESSEE FOR THESE YEARS WAS ADDED BY HIM TO ITS TOTAL INCOME IN THE A SSESSMENTS COMPLETED U/S 143(3) READ WITH SECTION 147. 4. ADDITIONS MADE BY THE AO ON ACCOUNT OF INTEREST ALLEGEDLY ACCRUED TO THE ASSESSEE IN ALL THE FIVE YEARS UNDER CONSIDERATION WERE CHALLENGED BY THE ASSESSEE IN APPEALS PREFERRED BEFORE THE LEARNED CIT(APPEALS ) AND A DETAILED WRITTEN SUBMISSION WAS FILED BY THE ASSESSEE IN SUPPORT OF ITS CASE ON THIS ISSUE. A GIST OF THE SAID SUBMISSIONS AS SUMMARIZED BY THE LEARNED C IT(APPEALS) IN PARAGRAPH NO. 4, 4.1 AND 4.2 OF HIS IMPUGNED ORDER IS EXTRACTED BELOW : 4. IN THE WRITTEN SUBMISSION MADE, IT IS STATED TH AT ON PERUSAL OF THE MEMORANDUM OF ASSOCIATION AND THE MAIN OBJECTS OF T HE COMPANY, IT IS CLEAR THAT THE BUSINESS OF THE ASSESSEE IS OF AN IN VESTMENT COMPANY WHICH INCLUDES BUYING AND SELLING OF SHARES, STOCKS, ETC. , INVESTMENT OF MONEY IN IMMOVABLE AND IMMOVABLE PROPERTIES AND INVESTMENT O F ALL KINDS INCLUDING THAT OF PURCHASING RIGHTS IN IMMOVABLE PROPERTIES E TC. RIGHT FROM THE FIRST ASSESSMENT YEAR 1986/87 THE INCOME OF THE ASSESSEE COMPANY FROM THE ABOVE ACTIVITIES WAS ASSESSED AS BUSINESS. THE ASSE SSEE COMPANY AS ONE OF ITS BUSINESS ACTIVITIES RIGHTS IN SUITS FILED BY BA NKS. DURING THE PREVIOUS YEAR 5 ITA NOS.289 TO 2993/MUM/2010& ITA NOS.4055 TO 4058/MUM/2010& ITA NO . 3314/MUM/2010 OF THE RELEVANT PERIOD ASSESSMENT YEAR 1999/2000, B ANK OF BARODA INDICATED TO THE ASSESSEE COMPANY THAT IT WAS WILLING TO ASSI GN ITS RIGHTS IN PENDING SUIT NO. 105/1986 FOR A NEGOTIATED PRICE. THE ASSES SEE AFTER VARIOUS NEGOTIATIONS AGREED TO TAKE ASSIGNMENT RIGHTS IN THE PENDING SUIT NO. 105/1986 FOR A NEGOTIATED PRICE. THE ASSESSEE AFTER VARIOUS NEGOTIATIONS AGREED TO TAKE ASSIGNMENT RIGHTS IN THE PENDING SU IT NO. 105/1986 FROM BANK OF BARODA FOR A NEGOTIATED PRICE OF RS.84,97,4 00/-. THE TERMS AND CONDITIONS OF THE ASSIGNMENT OF RIGHTS ARE INCORPOR ATED IN THE REGISTERED DEED OF ASSIGNMENT DATED 22-2-1999 (COPY ENCLOSED). THE ASSESSEE IN ITS BOOKS SHOWED THIS AMOUNT AS AN INVESTMENT AND IN TH E BALANCE SHEET AS RIGHTS IN IMMOVABLE PROPERTY IN ORDER TO PURCHASE THE RIGHTS FROM THE BANK IT HAD BORROWED FUNDS AND THE INTEREST ON THES E BORROWED FUNDS WERE CAPITALIZED AS PART OF THE INVESTMENT. 4.1 IT IS FURTHER CONTENDED THAT THE ASSIGNMENT OF THE SUIT ALSO INCLUDED THE IMMOVABLE PROPERTIES MORTGAGED TO THE BANK. ON PERU SAL OF THE PLAINT, IT WOULD BE OBSERVED THAT THE CLAIM OF THE BANK WAS FA R MORE THAN THE CONSIDERATION PRICE AT WHICH IT HAD ASSIGNED THE RI GHTS TO THE ASSESSEE COMPANY. THE BANK HAD STOPPED ACCRUING INTEREST ON AMOUNTS CLAIMED FROM 1984 ONWARDS. THE ASSIGNMENT OF THE RIGHTS IN THE S UIT IS IN RESPECT OF THE PENDING SUIT AND NOT A CLAIM WHICH HAS LEGALLY BECO ME ENFORCEABLE BY THE BANK. THUS, THE ASSESSEE GOT ASSIGNMENT OF ALL THE RIGHTS IN SUIT AND NOT ANY CLAIM WHICH GAVE ANY LEGAL RIGHT TO RECOVER THE AMO UNT FROM THE DEFENDANTS. IN FACT, THE SUIT WAS BEING CONTESTED BY THE DEFEND ANTS. TILL DATE THE ABOVE SUIT IS PENDING DISPOSAL AND THUS THE ASSESSEE HAS NO LEGAL RIGHT TO RECOVER EITHER THE LOAN OR THE SECURITY ATTACHED TO IT. 4.2 IT IS FURTHER ARGUED THAT DEBT WAS NOT LEGALLY DUE AND CONSEQUENTLY THE INTEREST WAS NOT DUE AS THE SUIT IS PENDING DISPOSA L EVEN TODAY AND IS CONTESTED BY THE RESPONDENTS IN THE SUIT. IT IS FUR THER STATED THAT THE AS IT IS EVIDENT FROM THE ASSIGNMENT DEED THAT THE ASSESSEE HAS ONLY PURCHASED THE RIGHTS IN THE PENDING SUIT AND THUS NO RIGHTS WERE AVAILABLE TO THE ASSESSEE COMPANY IN THE DEBT ON THE DAY OF ASSIGNMENT OF RIG HTS AND EVEN TILL DATE AS THE SUIT IS STILL PENDING DISPOSAL AND THE ASSESSEE COMPANY HAS NO RIGHT WHATSOEVER TO RECOVER THE DEBT. CONSEQUENTLY RECOVE RY OF INTEREST DOES NOT ARISE. THUS BY NO STRETCH OF IMAGINATION CAN ONE SA Y THAT LEGALLY THE DEBT HAS BECOME DUE FOR RECOVERY FROM THE DEFENDANTS. THUS, THE QUESTION OF RECOVERING THE INTEREST ALSO DOES NOT ARISE. CONSEQ UENTLY THE INTEREST ALSO CANNOT BE ACCRUED EVEN BY FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. AS STATED ABOVE, EVEN THE BANK HAS STOPPED ACCRUING THE INTEREST FROM 1984 6 ITA NOS.289 TO 2993/MUM/2010& ITA NOS.4055 TO 4058/MUM/2010& ITA NO . 3314/MUM/2010 ONWARDS BECAUSE THE DEBT ITSELF HAD BECOME DOUBTFUL OF RECOVER. IN CASE OF UCO BANK VS. CIT REPORTED IN 237 ITR PAGE 889, THE SUPREME COURT HAS HELD THAT NO INTEREST CAN ACCRUE IN THE CASE OF STI CKY LOANS I.E. DOUBTFUL FOR RECOVERY. WITHOUT PREJUDICE TO THE ABOVE SUBMISSIONS, IT WAS ALSO CONTENDED ON BEHALF OF THE ASSESSEE COMPANY THAT INTEREST INCOME SHOULD BE TAX ED IN ITS HANDS AS BUSINESS INCOME AND NOT AS INCOME FROM OTHER SOURCES. THE AS SESSEE ALSO DISPUTED THE RATE OF INTEREST AT 18% ADOPTED BY THE AO FOR WORKING OU T THE AMOUNT OF INTEREST ACCRUED. THE ASSESSEE FURTHER CLAIMED THAT INTEREST EXPENDITURE INCURRED BY IT IN RESPECT OF FUNDS BORROWED FROM THE DIRECTORS FOR MA KING THE PAYMENT TO BANK OF BARODA SHOULD BE ALLOWED AS DEDUCTION IF THE INTERE ST INCOME WAS HELD TO BE CHARGEABLE TO TAX IN ITS HANDS. 5. AFTER CONSIDERING THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE COMPANY AND PERUSING THE RELEVANT MATERIAL ON RECORD, THE L EARNED CIT(APPEALS) CONFIRMED THE ADDITION MADE BY THE AO ON ACCOUNT OF INTEREST ACCRUED TO THE ASSESSEE IN ALL THE FIVE YEARS UNDER CONSIDERATION FOR THE FOLLOWIN G REASONS GIVEN IN PARAGRAPH NO.7, 7.2, 7.3 OF HIS IMPUGNED ORDER : 7. I HAVE CAREFULLY CONSIDERED THE ABOVE FACTS AND FIND NO MERIT IN THE CONTENTIONS OF THE APPELLANT. WITH REGARD TO THE CL AIM THAT IT WAS IN SIMILAR BUSINESS SINE LONG AND HAS RELIED HEAVILY ON THE ME MORANDUM OF ARTICLES OF ASSOCIATION, PERUSAL OF THE SAME REVEALS THAT ITS M AIN ACTIVITY IS THAT OF INVESTMENT COMPANY AND SUCH A FACT IS ALSO APPARENT S DURING THE YEAR, THE APPELLANT IS ONLY TRADING IN SHARES AND IT IS PRESU MED THAT SIMILAR ACTIVITIES WERE CARRIED ON IN THE PAST AS WELL IN THE ABSENCE OF ANY CONTRARY MATERIAL BROUGHT ON RECORD. THOUGH THE APPELLANT HAS CLAIMED THAT ITS ANCILLARY BUSINESS ACTIVITY ALSO COMPRISED OF INVESTMENT IN M OVABLE AND IMMOVABLE PROPERTIES, SUCH A CONTENTION DOE NOT HELP AS IN TH E PRESENT CASE AS RIGHTLY BROUGHT ON RECORD BY THE AO FROM THE CONTENTS OF AS SIGNMENT DEED THAT WHAT WAS ASSIGNED TO THE APPELLANT WAS OUTSTANDING DEBTS AND ALL THE RELATED RIGHTS, TITLE, INTEREST ETC. THE APPELLANT HAS NOT ACQUIRED OWNERSHIP OF ANY OF THE ASSETS. IT HAS ALSO BEEN ADMITTED BY THE APPELL ANT THAT BY THE SAID 7 ITA NOS.289 TO 2993/MUM/2010& ITA NOS.4055 TO 4058/MUM/2010& ITA NO . 3314/MUM/2010 ASSIGNMENT, IT HAS STEPPED INTO THE SHOES OF THE BA NK FOR THE PURPOSES OF RECOVERY OF THE DUES ALONGWITH INTEREST AND COST OF SUIT AND INTEREST ETC. AND CANNOT BE CONSIDERED TO BE ENGAGING IN THE BUSINESS OF ACQUIRING SUCH RIGHTS. IN FACT SEEN IN THE BACKGROUND OF THE CASE, THE APP ELLANT AND ITS DIRECTORS APPROACHED THE BANK FOR TRANSFER AND ASSIGNMENT OF THE ASSIGNORS RIGHT, TITLE, INTEREST AND CLAIM IN THE SUIT NO. 105 WITH THE MAI N INTENT OF RETAINING THE OWNERSHIP OF FAMILY PROPERTY WHICH WAS MORTGAGED AS SECURITY AGAINST LOAN TAKEN BY THE TWO FAMILY CONCERNS. THEREFORE, THE CL AIM THAT SUCH ACTIVITY WOULD CONSTITUTE BUSINESS IS APPARENTLY INCORRECT. THE AO IS JUSTIFIED IN STATING THAT THE TRANSACTION UNDER CONSIDERATION IS A SINGLE INSTANCE OF ITS OWN. THE APPELLANT HAS NOT REFUTED SUCH AN OBSERVAT ION BY BRINGING ON RECORD ANY MATERIAL TO SHOW THAT SIMILAR TRANSACTIO NS WERE ENTERED EITHER DURING THE YEAR OR EVER SINCE ITS INCORPORATION. TH OUGH IT IS CLAIMED THAT BUSINESS OF THE APPELLANT INTER ALIA COMPRISES OF I NVESTMENT IN MOVEABLE AND IMMOVABLE PROPERTIES, THE QUESTION INVOLVES HERE IS THE RIGHT TO DEBT ACQUIRED BY THE APPELLANT IN THE PRESENT CASE WHICH IS NOT ITS BUSINESS ACTIVITY. IN SUCH A SITUATION, THE TRANSACTION UNDE R CONSIDERATION CANNOT BE CONSIDERED AS BUSINESS ACTIVITY AND IN SUCH A SITUA TION, THE INTEREST ACCRUED HAS TO BE TREATED AS INCOME FROM OTHER SOURCES AS R IGHTLY DONE BY THE AO. THE SAME IS LIABLE TO BE TAXED ON ACCRUAL BASIS AS THE APPELLANT IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. IN FACT, PERUSAL O F THE BALANCE SHEET CLEARLY REVEALS THAT THE APPELLANT IS ALREADY WORKI NG OUT THE INTEREST ACCRUED ON THE SAID TRANSACTION THOUGH THE SAME IS BEING CA PITALIZED. THUS THE RIGHT TO INTEREST HAS BEEN DULY RECOGNIZED IN THE BOOKS O F ACCOUNT BY THE APPELLANT ITSELF. THE BOOKS OF ACCOUNT ALSO REVEAL APPARENT C ONTRADICTION IN THE APPROACH OF THE APPELLANT IN THE MATTER. 7.2 THE APPELLANT HAS CLAIMED THAT IT HAS NO RIGHT TO RECEIVE THE INTEREST. THE FACT THAT THE BORROWERS AND THE APPELLANT, PLAY ING THE ROLE OF LENDER BANK BELONG TO THE SAME GROUP OF COMPANIES, THE WHOLE AR RANGEMENT SMACKS OF CONNIVANCE. THE APPELLANT IS MAINTAINING MERCANTILE SYSTEM OF ACCOUNTING AND SUCH INCOME IRRESPECTIVE OF THE RECEIPT HAD ALR EADY ACCRUED TO IT AND WOULD BE SUBJECTED TO IN THE YEAR UNDER CONSIDERATI ON. THERE IS VIRTUALLY NO LIGHT THROWN ON THE FINANCIAL HEALTH OF THE BORROWE RS AND THE EFFORTS PUT IN BY THE APPELLANT TO RECOVER THE DUES. MOREOVER, CASE O F THE APPELLANT IS ALSO NOT COVERED BY HE PROVISIONS OF SECTION 43D WHICH PROVI DE FOR ACCOUNTING OF INTEREST ON STICKY LOANS ON CASH/RECEIPT BASIS. THU S, FROM ALL POSSIBLE ANGLES THE ACTION OF THE APPELLANT IN NOT ACCOUNTING FOR T HE INTEREST INCOME DOES NOT APPEAR TO BE JUSTIFIED. THE APPELLANT HAS ALSO NOT BEEN ABLE TO REFUTE THE OBSERVATION OF THE AO THAT THE ASSESSEE HAD ACQUIRE D THE DEBT FROM BANK OF 8 ITA NOS.289 TO 2993/MUM/2010& ITA NOS.4055 TO 4058/MUM/2010& ITA NO . 3314/MUM/2010 BARODA ALONG WITH ALL INCIDENTAL RIGHTS ATTACHED TO THE DEBT WHICH WAS EVIDENT FROM THE DEED OF ASSIGNMENT RELEVANT PORTIO N OF WHICH HAS BEEN REPRODUCED IN PARA 3.1 ABOVE. ACCORDINGLY, IT IS FU LLY ENTITLED TO THE INTEREST INCOME IN PLACE OF THE LENDER BANK. 7.3 IN THIS CONNECTION, IT IS WORTHWHILE TO STATE H ERE THAT IN THE LANDMARK CASE OF STATE BANK OF TRAVANCORE VS. CIT (1986) 158 ITR 102, 154 (SC), IT WAS HELD THAT ONCE THE INCOME HAS ACCRUED, NON-CHAR GING OF THE SAME ON THE BASIS OF CERTAIN CONDUCT BASED ON THE IPSE DIXIT OF A PARTICULAR ASSESSEE CANNOT BE ACCEPTED. IN DETERMINING THE QUESTION WHE THER IT IS HYPOTHETICAL INCOME OR REAL INCOME, VARIOUS FACTORS HAVE TO BE T AKEN INTO ACCOUNT. IT WOULD BE IMPROPER TO DENY ACCRUAL BY EXTENDING THE CONCEPT OF REAL INCOME IN ALL CASES DEPENDING UPON THE IPSE DIXIT OF THE A SSESSEE WHICH WOULD THEN BECOME A VALUE JUDGMENT. WHAT HAS REALLY ACCRUED MU ST BE CONSIDERED FROM THE POINT OF VIEW OF REAL INCOME TAKING THE PROBABI LITY OR IMPROBABILITY OF REALIZATION IN A REALISTIC MANNER BUT ONCE THE ACCR UAL OF INCOME TAKES PLACE THE CONDUCT OF THE PARTIES SUBSEQUENT TO THE YEAR O F CLOSING CAN NOT BE SO READ AS TO DEFEAT THE OBJECT AND THE PROVISION OF T HE STATUTE. FOLLOWING THE SUPREME COURT DECISION IN THE CASE OF STATE BANK OF TRAVANCORE, THE HONBLE BOMBAY HIGH COURT IN THEIR DECISION IN THE CASE OF WESTERN INDIA OIL DISTRIBUTING COMPANY LTD. VS. CIT [1994] 206 IT R 359 (BOM.) HELD THAT IN THE MERCANTILE SYSTEM OF ACCOUNTING WAIVER OF IN TEREST WAS NOT POSSIBLE AFTER IT HAD ACCRUED. IN THE CASE OF NAVIN R. KAMAN I VS ITO 185 ITR 408 (BOM), AGAIN ON THE BASIS OF THIS DECISION, IT WAS HELD THAT UNDER THE MERCANTILE SYSTEM OF ACCOUNTING, DIMINISHED HOPE OF RECOVERY OF INTEREST AND PRINCIPAL WAS NOT SUFFICIENT TO NEGATE THE ACCR UAL ON THE BASIS OF REAL INCOME THEORY. THE LEARNED CIT(APPEALS) THUS CONFIRMED THE ADDITIO N MADE BY THE AO ON ACCOUNT OF INTEREST ACCRUED TO THE ASSESSEE COMPANY AND ALS O UPHELD THE RATE OF INTEREST AT 18% ADOPTED BY THE AO FOR COMPUTING SUCH INTEREST I NCOME. HE ALSO UPHELD THE ACTION OF THE AO IN BRINGING TO TAX THE SAID INTERE ST INCOME IN THE HANDS OF THE ASSESSEE COMPANY UNDER THE HEAD INCOME FROM OTHER SOURCES. HE, HOWEVER, ACCEPTED THE ALTERNATIVE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF INTEREST EXPENSES INCURRED IN RESPECT OF FUNDS BORROWED FROM THE DIRECTORS FOR MAKING 9 ITA NOS.289 TO 2993/MUM/2010& ITA NOS.4055 TO 4058/MUM/2010& ITA NO . 3314/MUM/2010 PAYMENT TO THE BANK OF BARODA. HE HELD THAT WHATEVE R INTEREST EXPENSE HAS BEEN INCURRED WHICH HAS A DIRECT NEXUS WITH THE INTEREST INCOME ACCRUED TO THE ASSESSEE IS ALLOWABLE U/S 57 OF THE ACT. HE, THEREFORE, DIR ECTED THE AO TO WORK OUT SUCH INTEREST EXPENDITURE AND ALLOW DEDUCTION TO THAT EX TENT FROM INTEREST INCOME. 6. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS POINTED OUT BY THE LEARNED C OUNSEL FOR THE ASSESSEE, THERE ARE CERTAIN MISTAKES APPARENT FROM RECORD IN THE ASSESS MENT ORDER PASSED BY THE AO FOR ASSESSMENT YEAR 2005-06. AS FURTHER SUBMITTED B Y HIM, AN APPLICATION U/S 154 HAS ALREADY BEEN MOVED BY THE ASSESSEE BEFORE THE A O ON 8 TH SEPT., 2010 SEEKING RECTIFICATION OF THE SAID MISTAKES. A COPY OF THE S AID APPLICATION IS PLACED AT PAGE NOS. 1 TO 4 OF THE ASSESSEES PAPER BOOK WHEREIN FO LLOWING MISTAKES HAVE BEEN POINTED OUT BY THE ASSESSEE : 1. ON PAGE 2 IN PARA 3, IT HAS BEEN STATED THAT SHR I PRATAP K. TAKKAR WAS A PROMOTER DIRECTOR OF THE COMPANY. THIS IS FACTUAL LY INCORRECT AS SHRI PRATAP K. TAKKAR WAS NEITHER A PROMOTER DIRECTOR NO R A DIRECTOR AT ANY POINT OF TIME IN THE COMPANY. 2. ON PAGE 2 IN PARA 3, IT HAS BEEN STATED THAT THE PROPERTY MORTGAGED TO THE BANK WAS PUT TO AUCTION IN 1999. THIS IS FACTUA LLY INCORRECT AS AT NO POINT OF TIME THE MORTGAGED PROPERTY WAS PUT TO AUCTION. 3. ON PAGE 2 PARA 3, IT HAS BEEN STATED THAT THE AS SIGNMENT DEED DATED 26 TH FEBRUARY, 1999 WAS TO PAY OFF THE LOAN ALONG WITH THE INTEREST OUTSTANDING OF RS.84,97,400/- TO THE BANK. THIS IS FACTUALLY INCORRECT AS THE SAID AMOUNT OF RS.84,97,400/- WAS THE AMOUNT AGREED WITH THE BANK FOR ASSIGNING THE RIGHTS IN THE PENDING SUIT N O: 105 OF 1986. THE LOAN AMOUNT ALONG WITH THE INTEREST WAS FAR IN EXCE SS OF RS.84,97,400/-. 4. ON PAGE 2 IN PARA 3, IT HAS BEEN STATED THAT THE REPAYMENT OF LOAN WAS IN LIEU OF ASSIGNMENT OF ALL RIGHTS OF THE BANK TO THE COMPANY. THIS IS FACTUALLY INCORRECT AS THERE WAS NO REPAYMENT OF LO AN. THE AMOUNT OF 10 ITA NOS.289 TO 2993/MUM/2010& ITA NOS.4055 TO 4058/MUM/2010& ITA NO . 3314/MUM/2010 RS.84,97,400/- PAID TO THE BANK WAS FOR ASSIGNMENT OF RIGHTS IN PENDING SUIT NO: 105 OF 1986 AND NOT FOR REPAYMENT OF LOAN. 5. ON PAGE 2 IN PARA 3.1, IT HAS BEEN STATED THAT T HE COMPANY COULD HAVE PURCHASED THE PROPERTY IN AUCTION ON OWNERSHIP BASI S. THIS IS FACTUALLY INCORRECT AS AT NO POINT OF TIME WAS THE PROPERTY P UT IN AUCTION. 6. ON PAGE 3 IN PARA 3.2, IT HAS BEEN STATED THAT W E HAVE NOT ENFORCED OUR RIGHT TO RECOVER THE DEBT BY WAY OF AUCTION OF THE IMMOVABLE PROPERTY WHICH WAS MORTGAGED AS A SURETY FOR RECOVERY. THIS IS FACTUALLY INCORRECT AS THE SUIT NO: 105 OF 1986 WHICH WAS ASS IGNED TO US WERE PENDING AND AS SUCH, WE HAD NO RIGHT OF RECOVERY OF THE DEBT IN ANY MANNER. 7. ON PAGE 3 IN PARA 3.2, IT HAS BEEN STATED THAT W E HAD NOT ACCOUNTED FOR ANY INTEREST ON THE DEBT THOUGH IT WAS LEGALLY DUE TO US. THIS IS FACTUALLY INCORRECT AS WE HAD NO RIGHT OF RECOVERIN G THE DEBT AS THE SUIT WAS PENDING. CONSEQUENTLY, THE QUESTION OF THE INTE REST BEING LEGALLY DUE TO US ALSO DOES NOT ARISE. 8. ON PAGE 3 IN PARA 3.2, IT HAS BEEN STATED THAT T HE DEBTS WERE RECOVERABLE FROM TWO PARTIES. THIS IS FACTUALLY INC ORRECT AS THE DEBT WAS RECOVERABLE FROM MORE THAN TWO PARTIES AS IS EV IDENT FROM THE COY OF PENDING SUIT ON RECORD. 9. ON PAGE 4 IN PARA 3.2, IT HAS BEEN STATED THAT W E COULD HAVE RECOVERED THE DEBT BY ENFORCING THE AUCTION OF MORTGAGED IMMO VABLE PROPERTY. THIS IS FACTUALLY INCORRECT AS WE HAD NO RIGHT OF R ECOVERY OF THE PRINCIPAL SUM AS THE SUIT WAS PENDING. 10. ON PAGE 4 IN PARA 3.2, IT HAS BEEN STATED THAT WE HAD PAID A TOTAL CONSIDERATION OF RS.84,97,400/- INCLUSIVE OF PRINCI PAL AMOUNT, INTEREST, ETC., FOR ACQUIRING THE RIGHTS IN DEBS AN D PROPERTIES. THIS IS FACTUALLY INCORRECT AS THE CONSIDERATION OF RS.84,9 7,400/- WAS PAID FOR ASSIGNMENT OF RIGHTS IN A PENDING SUIT AND NOT REPA YMENT OF LOAN, INTEREST, ETC. 11. ON PAGE 7 IN PARA 7, IT HAS BEEN STATED THAT A PERUSAL OF THE BALANCE SHEET CLEARLY REVEALS THAT THE APPELLANT IS ALREADY WORKING OUT THE INTEREST ACCRUED ON THE SAID TRANSACTION THOUGH THE SAME IS BEING CAPITALIZED. THUS, THE RIGHT TO INTEREST HAS BEEN D ULY RECOGNIZED IN THE BOOKS OF ACCOUNT BY THE APPELLANT ITSELF. THE BOOKS OF ACCOUNT ALSO 11 ITA NOS.289 TO 2993/MUM/2010& ITA NOS.4055 TO 4058/MUM/2010& ITA NO . 3314/MUM/2010 REVEAL APPARENT CONTRADICTION IN THE APPROACH OF TH E APPELLANT IN THE MATTER. THIS IS FACTUALLY INCORRECT AND CONTRARY T O THE RECORDS/BOOKS OF ACCOUNT AS WE HAD NEVER ACCRUED ANY INTEREST ON RS.84,97,400/- IN THE BOOKS OF ACCOUNT AT ANY POINT OF TIME. IN FACT, SINCE WE HAVE NOT ACCRUED THE INTEREST, THE ASSESSING OFFICER WORKED OUT THE SAME ON RS.84,97,400/- AND CONSIDERED THE SAME AS NOTIONAL INCOME. 12. ON PAGE 8 IN PARA 7.2, IT HAS BEEN STATED THAT THE INTEREST HAD ALREADY ACCRUED TO US. THIS IS FACTUALLY INCORRECT AS EVEN THE PRINCIPAL AMOUNT HAD NOT ACCRUED TO US AS THE SUIT WAS PENDING AND I S PENDING TILL DATE. 13. ON PAGE 8 IN PARA 7.2, IT HAS BEEN STATED THAT NO EFFORTS WERE PUT IN BY US TO RECOVER THE DUES. THIS IS FACTUALLY INCORRECT AS THE QUESTION OF PUTTING ANY EFFORTS TO RECOVER THE DUES COULD NOT A RISE AS THE SUIT WAS PENDING AND THUS WE HAD NO RIGHTS WHATSOEVER TO REC OVER THE DUES. 14. ON PAGE 8 IN PARA 7.2, IT HAS BEEN STATED THAT WE ARE FULLY ENTITLED TO THE INTEREST INCOME IN PLACE OF THE LENDER BANK. TH IS IS FACTUALLY INCORRECT AS EVEN THE LENDER BANK WAS NOT ENTITLED TO THE INTEREST INCOME AS THE SUIT WAS PENDING AND CONTESTED. IN FA CT TILL DATE THE SUIT IS PENDING AND CONTESTED BY THE DEFENDANTS. AS POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSES SEE, THE ABOVE MISTAKES COMMITTED BY THE AO WHILE PASSING THE ASSESSMENT OR DER WERE ALSO BROUGHT TO THE NOTICE OF THE LEARNED CIT(APPEALS) IN THE WRITTEN S UBMISSIONS FILED DURING THE COURSE OF APPELLATE PROCEEDINGS. A PERUSAL OF THE I MPUGNED ORDER OF THE LEARNED CIT(APPEALS) PASSED FOR ASSESSMENT YEAR 2005-06, HO WEVER, SHOWS THAT HE HAS NOT TAKEN COGNIZANCE OF THE SAME. AS SUBMITTED BY THE L EARNED COUNSEL FOR THE ASSESSEE, THE AO ALSO HAS NOT PASSED ANY ORDER DISP OSING OF THE APPLICATION FILED BY THE ASSESSEE U/S 154 SEEKING RECTIFICATION OF THE S AID MISTAKES. AS IS EVIDENT FROM THE RECORD AND AS AGREED EVEN BY THE LEARNED DR, TH ESE FACTUAL MISTAKES ALLEGEDLY POINTED OUT BY THE ASSESSEE IN THE ASSESSMENT ORDER PASSED BY THE AO GO TO THE ROOT OF THE MATTER AND THE SAME HAVE A DIRECT BEARING ON THE MAIN ISSUE INVOLVED IN THESE APPEALS RELATING TO ADDITION MADE ON ACCOUNT OF INTEREST INCOME STATED TO BE ACCRUED TO THE ASSESSEE. THE LEARNED REPRESENTATIVE S OF BOTH THE SIDES HAVE AGREED 12 ITA NOS.289 TO 2993/MUM/2010& ITA NOS.4055 TO 4058/MUM/2010& ITA NO . 3314/MUM/2010 THAT THIS ISSUE NEEDS TO BE SENT BACK TO THE AO FOR DECIDING THE SAME AFRESH AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD O N THE ISSUE OF VARIOUS FACTUAL MISTAKES CLAIMED TO BE COMMITTED WHILE FRAMING THE ASSESSMENT WHICH ARE CRUCIAL TO DECIDE THE SAID ISSUE. ACCORDINGLY THE IMPUGNED ORDERS OF THE LEARNED CIT(APPEALS) ON THIS ISSUE ARE SET ASIDE AND THE MA TTER IS RESTORED TO THE FILE OF THE AO WITH A DIRECTION TO DECIDE THE SAME AFRESH AFTER GIVING THE ASSESSEE AN OPPORTUNITY TO PUT FORTH ITS CONTENTION ON THE FACT UAL MISTAKES COMMITTED IN THE ASSESSMENT ORDER WHICH ARE CRUCIAL AND WHICH HAVE A DIRECT BEARING ON THE ULTIMATE DECISION. 7. GROUND NO.1A OF THE ASSESSEES APPEAL FOR ASSESS MENT YEAR 2005-06 AND GROUND NO.2A OF THE ASSESSEES APPEAL FOR ASSESSMEN T YEARS 2001-02 TO 2004-05 ARE ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURP OSES. 8. AS REGARDS THE ISSUE RAISED IN GROUND NO.1B OF T HE ASSESSEES APPEAL FOR ASSESSMENT YEAR 2005-06 AND IN GROUND NO.2B OF ASSE SSEES APPEAL FOR ASSESSMENT YEARS 2001-02 TO 2004-05 RELATING TO RATE OF INTERE ST ADOPTED BY THE AO, THE ISSUE RAISED IN GROUND NO.2A OF ASSESSEES APPEAL FOR ASS ESSMENT YEAR 2005-06 AND IN GROUND NO.3A OF ASSESSEES APPEAL FOR ASSESSMENT YE ARS 2001-02 TO 2004-05 RELATING TO HEAD OF INCOME UNDER WHICH INTEREST INC OME IS TO BE BROUGHT TO TAX, THE ISSUE RAISED IN GROUND NO.2B OF ASSESSEES APPEAL F OR ASSESSMENT YEAR 2005-06 AND IN GROUND NO. 3B OF THE ASSESSEES APPEAL FOR ASSES SMENT YEAR 2001-02 TO 2004-05 RELATING TO ALLOWING THE SET OFF OF BROUGHT FORWARD LOSSES AGAINST INTEREST INCOME AND THE SOLITARY ISSUE RAISED IN REVENUES APPEAL F OR ASSESSMENT YEARS 2001-02 TO 2005-06 RELATING TO ASSESSEES CLAIM FOR DEDUCTION ON ACCOUNT OF EXPENDITURE AGAINST INTEREST INCOME ALLOWED BY HE LEARNED CIT(A PPEALS), THE LEARNED REPRESENTATIVES OF BOTH THE SIDES HAVE AGREED THAT ALL THESE ISSUES ARE CONSEQUENTIAL 13 ITA NOS.289 TO 2993/MUM/2010& ITA NOS.4055 TO 4058/MUM/2010& ITA NO . 3314/MUM/2010 AND INCIDENTAL TO THE MAIN ISSUE INVOLVED IN THIS C ASE RELATING TO THE ADDITION MADE TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF I NTEREST INCOME STATED TO BE ACCRUED TO THE ASSESSEE. THEY HAVE SUBMITTED THAT S INCE THE MAIN ISSUE IS BEING RESTORED TO THE FILE OF THE AO, THESE CONSEQUENTIAL AND INCIDENTAL ISSUES MAY ALSO BE RESTORED TO THE FILE OF THE AO FOR DECIDING THE SAM E AFRESH DEPENDING ON HIS DECISION ON THE MAIN ISSUE IN THE SET ASIDE PROCEED INGS. ACCORDINGLY ALL THESE ISSUES ARE ALSO RESTORED TO THE FILE OF THE AO FOR DECIDING THE SAME AFRESH DEPENDING UPON HIS ULTIMATE DECISION ON THE MAIN IS SUE. THE RELEVANT GROUNDS ARE ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURP OSES. 9. THE NEXT COMMON ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 1 OF ITS APPEAL FOR ASSESSMENT YEARS 2001-02 TO 2004-05 CHALLENGING THE VALIDITY OF REOPENING OF ASSESSMENTS MADE BY THE AO FOR THOSE YEARS HAS NOT BEEN PRESSED BY THE LEARNED COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING BEF ORE US. THE RELEVANT GROUNDS OF THE ASSESSEES APPEALS ARE ACCORDINGLY DISMISSED AS NOT PRESSED. 10. AS REGARDS THE NEXT COMMON ISSUE INVOLVED IN GR OUND NO. 4 OF THE ASSESSEES APPEALS FOR ASSESSMENT YEARS 2001-02, 20 02-03 AND 2004-05 RELATING TO DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE LE ARNED CIT(APPEALS) U/S 14A, THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMI TTED THAT THE QUANTUM OF SUCH DISALLOWANCE HAS BEEN WORKED OUT BY THE AUTHORITIES BELOW BY APPLYING RULE 8D OF INCOME-TAX RULES, 1962. AS HELD BY THE HONBLE BOM BAY HIGH COURT IN THE CASE OF GODREJ BOYCE MANUFACTURING CO. LTD. (2010) 234 CTR (BOM) 1, RULE 8D IS APPLICABLE ONLY FROM ASSESSMENT YEAR 2008-09 AND PR IOR TO ASSESSMENT YEAR 2008- 09, THE QUANTUM OF DISALLOWANCE TO BE MADE U/S 14A HAS TO BE DETERMINED BY ADOPTING SOME REASONABLE METHOD. KEEPING IN VIEW TH E SAID DECISION OF HONBLE JURISDICTIONAL HIGH COURT, WE SET ASIDE THE IMPUGNE D ORDERS OF THE LEARNED 14 ITA NOS.289 TO 2993/MUM/2010& ITA NOS.4055 TO 4058/MUM/2010& ITA NO . 3314/MUM/2010 CIT(APPEALS) ON THIS ISSUE AND RESTORE THE MATTER T O THE FILE OF THE AO WITH A DIRECTION TO DETERMINE THE QUANTUM OF DISALLOWANCE OF EXPENSES TO BE MADE U/S 14A BY ADOPTING SOME REASONABLE METHOD. THE RELEVAN T GROUNDS OF ASSESSEES APPEALS ARE ACCORDINGLY TREATED AS PARTLY ALLOWED. 11. AS REGARDS THE NEXT COMMON ISSUE RAISED IN GROU ND NO. 5 OF THE ASSESSEES APPEALS FOR ASSESSMENT YEARS 2001-02 AND 2002-03 AN D IN GROUND NO.4 OF THE ASSESSEES APPEAL FOR ASSESSMENT YEAR 2003-04 RELAT ING TO TREATMENT GIVEN BY THE AUTHORITIES BELOW TO THE ACTIVITY OF THE ASSESSEE O F TRADING IN SHARES AS SPECULATIVE ACTIVITY AND TREATING THE LOSS SUFFERED IN THE SAID ACTIVITY AS SPECULATION LOSS BY INVOKING EXPLANATION TO SECTION 73, IT IS OBSERVED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE REVENUE AND AGAINST THE AS SESSEE INTER ALIA, BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F CIT VS. LOKMAT NEWSPAPER P. LTD. 322 ITR 43. AS HELD BY THE HONBLE BOMBAY H IGH COURT IN THE SAID CASE, THE EXPLANATION TO SECTION 73 OF THE INCOME-TAX ACT , 1961 CREATES A DEEMING FICTION THAT WHERE THE ASSESSEE IS A COMPANY AND WH ERE ANY PART OF THE BUSINESS OF THE COMPANY CONSISTS OF THE PURCHASE AND SALE OF SH ARES OF OTHER COMPANIES, THE ASSESSEE IS FOR THE PURPOSES OF SECTION 73 DEEMED T O CARRY ON A SPECULATION BUSINESS, TO THE EXTENT TO WHICH THE BUSINESS CONSI STS OF THE PURCHASE AND SALE OF SHARES. IT WAS ALSO HELD THAT THE DEFINITION OF THE EXPRESSION SPECULATIVE TRANSACTION IN SECTION 43(5) WHICH DEFINES IT TO M EAN A TRANSACTION IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY, INCLUDING STOCKS AND SHARES, IS PERIODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN B Y THE ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY OR SCRIPS, CANNOT BE READ INTO THE PROVISIONS OF SECTION 73 HAVING REGARD TO THE PLAIN MEANING OF THE EXPLANATION TO S ECTION 73. IT WAS FURTHER HELD THAT THE CONTENTION THAT A LOSS WHICH ARISES ON ACC OUNT OF A TRANSACTION OF THE SALE AND PURCHASE OF SHARES WOULD CONSTITUTE A LOSS FROM A SPECULATIOM BUSINESS FOR THE 15 ITA NOS.289 TO 2993/MUM/2010& ITA NOS.4055 TO 4058/MUM/2010& ITA NO . 3314/MUM/2010 PURPOSES OF THE EXPLANATION BUT THAT THE PROFIT WHI CH ARISES FROM A TRANSACTION INVOLVING THE ACTUAL DELIVERY OF SHARES WOULD NOT C ONSTITUTE A PROFIT FOR THE PURPOSES OF SUB-SECTION (1) AND (2) OF SECTION 73 I N RESPECT OF WHICH A SET-OFF CAN BE GRANTED, INTRODUCES A RESTRICTION INTO THE SCOPE AND AMBIT OF THE DEEMING FICTION WHICH IS CREATED BY THE EXPLANATION TO SECTION 73, WHICH IS NOT CONTEMPLATED BY PARLIAMENT. IT WAS HELD THAT THE DEEMING FICTION CR EATED BY THE EXPLANATION TO SECTION 73 ARISES SPECIFICALLY IN THE CONTEXT OF PR OVISIONS OF SECTION 73 AND IS CONFINED TO THAT PURPOSE ALONE. RESPECTFULLY FOLLOW ING THE SAID DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF LOKMAT NEWSPAPERS P. LTD. (SUPRA), WE UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) CONF IRMING THE ACTION OF THE AO IN TREATING THE ACTIVITY OF THE ASSESSEE IN TRADING IN SHARES AS SPECULATIVE IN NATURE U/S 73 AND DISMISS THE RELEVANT GROUNDS OF THE ASSE SSEES APPEALS. 12. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE TREATED AS PARTLY ALLOWED AND THE REVENUES APPEALS ARE TREATED AS ALLOWED FOR STATIS TICAL PURPOSES. ORDER PRONOUNCED ON THIS 30 TH DAY OF MAY, 2011. SD/- SD/- (ASHA VIJAYRAGHAVAN) (P.M. JAGTAP) JUDICIAL MEMBER AC COUNTANT MEMBER MUMBAI, DATED: 30 TH MAY, 2011. WAKODE 16 ITA NOS.289 TO 2993/MUM/2010& ITA NOS.4055 TO 4058/MUM/2010& ITA NO . 3314/MUM/2010 COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, F-BENCH (TRUE COPY) BY ORDE R ASSTT. REG ISTRAR, ITAT, MUMBAI BEN CHES, MUMBAI.