GANDIV INVESTMENT P. LTD, MUMBAI V. ACIT 9(1), MUMBAI

ITA 3030/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 2354 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-04-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 05-04-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 11-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K M KESHKAMAT
• Assessee Lawyers: VISHWAS V MEHENDALE
• Keywords: Speculation loss

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, G BENCH, MUMBAI. BEFORE S/SHRI S.V.MEHROTRA, AM & V.DURGA RAO,JM I.T.A. NO.3030/MUM/2009 ASSESSMENT YEAR: 2005-06 GANDIV INVESTMENT P.LTD., V. THE ACIT 9(1), P.S.PRABHUDESAI & CO., CAS,. MUMBAI. GANPATI DARSHAN, CHOGLE NAGAR, SVARPADA, NEAR SHANI MANDIR, BORIVLI(E), MUMBAI. PA NO.AACCG3017 C (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI VISHWAS V MEHENDALE RESPONDENT BY : SHRI K.M.KESHKAMAT O R D E R PER S.V.MEHROTRA, AM THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 6.3.2009 OF LD CIT (A)-IX, MUMBAI FOR THE ASSESSMENT YEAR 2005- 06. GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER:- 1. THE LD CIT (A) ERRED IN LAW AND IN FACTS HOLDIN G THAT THE PROFIT OF RS.58,84,452/- ON ACCOUNT OF BUSINESS OF PURCHASE A ND SALE OF SHARES AS BUSINESS PROFIT AND NOT SPECULATION PROFIT WITHIN T HE MEANING OF EXPLANATION TO SECTION 73. 2. THE LD CIT (A) ERRED IN LAW AND IN FACTS HOLDING THAT THE LOSS OF RS.1,28,61,829/- ON ACCOUNT OF DEALINGS IN DERIVATI VE INSTRUMENTS (LOSS ON FUTURE AND OPTIONS) COULD NOT BE SET OFF AGAINST TH E PROFIT OF RS.58,84,452/- ARISING FROM THE BUSINESS OF PURCHASE AND SALE OF S HARES. 3. THE LD CIT (A) ERRED IN LAW IN HOLDING THAT EXPL ANATION TO SECTION 73 APPLIES ONLY TO LOSS AND DOES NOT APPLY TO PROFIT O F RS.58,84,452/- EARNED FROM THE BUSINESS OF PURCHASE AND SALE OF SHARES. ITA NO.3030/M/2009 M/S. GANDIV INVESTMENT P.LTD. 2 4. THE LD CIT (A) ERRED IN LAW IN NOT ALLOWING CARR Y FORWARD OF SPECULATION LOSS OF RS.69,90,877/- OR RS.1,28,61,82 9/- AS THE CASE MAY BE. 2. BRIEF FACTS OF THE CASE ARE THAT WHILE GIVING EF FECT TO THE ORDER OF LD CIT (A), THE AO OBSERVED THAT LD CIT (A) HAD NOT GIVEN ANY CONCL USIVE FINDINGS IN REGARD TO ASSESSEES GROUND AGAINST THE NON-SETTING OFF SPECU LATION LOSS OF RS.1,28,61,829/- AGAINST THE PROFIT OF RS.58,84,452/-, WHICH WAS DERIVED FRO M THE BUSINESS OF PURCHASE AND SALE OF SHARES. HE HAD DIRECTED THE AO TO CONSIDER THE CLA IM OF THE ASSESSEE AS PER THE PROVISIONS OF LAW ON THIS POINT AND HAD RESTORED THE MATTER TO THE FILE OF THE AO. ACCORDINGLY, THE AO EXAMINED THE RECORDS AND NOTED THAT THE ASSESSEE S CONTENTION WAS THAT WHILE THERE WAS NO DELIVERY MECHANISM AS A RULE IN TRANSACTIONS DERIVATIVES SEGMENT, THERE WERE NO ACTUAL DELIVERY OF SHARES IN THE REGULAR SHARE T RADING ALSO. FOR THIS REASON, IT WAS CONTENDED THAT AS PER EXPLANATION 1 TO SECTION 73, WHERE ANY PART OF THE BUSINESS OF A COMPANY CONSISTS IN THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, SUCH COMPANY, FOR THE PURPOSE OF THIS SECTION BE DEEMED TO BE CAR RYING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSIST OF THE PURCHAS E AND SALE OF SUCH SHARES. THE AO AFTER CONSIDERING THE ASSESSEES SUBMISSIONS REJECT ED THE ASSESSEES CLAIM. 3. LD CIT(A) CONFIRMED THE AOS ACTION, INTER ALIA, OBSERVING THAT SECTION 73 CANNOT BE INVOKED IN A CASE WHERE THERE IS A PROFIT FROM A SPECULATION TRANSACTION AS THE SAME DEALS WITH ONLY LOSS AS OCCURRED IN SPECULATION BUS INESS. HE, THEREFORE, HELD THAT THE PROFITS FROM BUSINESS OF PURCHASE AND SALE OF SHARE S CANNOT BE TREATED AS SPECULATION PROFITS WITHIN THE MEANING OF EXPLANATION 1 TO SECT ION 73. HE, ACCORDINGLY, REJECTED THE ALTERNATE CONTENTION OF THE ASSESSEE THAT THE LOSS ON DERIVATIVES INSTRUMENTS BE SET OFF AGAINST DEEMED SPECULATION PROFIT AND BALANCE TO BE CARRIED FORWARD AS EITHER BUSINESS LOSS OR SPECULATION LOSS. 4. HAVING HEARD BOTH THE SIDES, WE FIND THAT THIS I SSUE IS COVERED BY THE DECISION DATED 16 TH FEBRUARY, 2010 OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V LOKMAT NEWSPAPERS PVT. LTD., IN INCOME TAX APPEAL ( L) NO.3005 OF 2009, WHEREIN, IN PARA 10, IT WAS HELD AS UNDER:- THE SUBMISSION WHICH HAS BEEN URGED ON BEHALF OF TH E REVENUE, CANNOT BE ACCEPTED, HAVING REGARD TO THE PLAIN MEANING OF THE EXPLANATION TO SECTION 73. THE SUBMISSION OF THE REVENUE IS THAT A LOSS WHICH ARISES ON ACCOUNT OF A TRANSACTION OF THE SALE AND PURCHASE OF SHARES WOUL D CONSTITUTE A LOSS FROM A ITA NO.3030/M/2009 M/S. GANDIV INVESTMENT P.LTD. 3 SPECULATION BUSINESS FOR THE PURPOSES OF THE EXPLAN ATION. BUT, THAT THE PROFIT WHICH ARISES FROM A TRANSACTION INVOLVING THE ACTUA L DELIVERY OF SHARES WOULD NOT CONSTITUTE A PROFIT FOR THE PURPOSES OF SUB-SECTION S (1) AND (2) OF SECTION 73 IN RESPECT OF WHICH A SET OFF CAN BE GRANTED. TO ACCE PT THE SUBMISSION OF THE REVENUE WOULD BE TO INTRODUCE A RESTRICTION INTO TH E SCOPE AND AMBIT OF THE DEEMING FICTION WHICH IS CREATED BY THE EXPLANATION TO SECTION 73, WHICH IS NOT CONTEMPLATED BY PARLIAMENT. ONCE A DEEMING FICTION IS CREATED BY LAW, IT MUST BE GIVEN FULL AND FREE EFFECT, OF COURSE, IN RELATION TO THE AMBIT WITHIN WHICH IT IS INTENDED TO OPERATE. THE DEEMING FICTION CREATED BY THE EXPLANATION TO SECTION 73 DEFINES WHEN AN ASSESSEE IS TO BE DEEMED TO BE CARR YING ON A SPECULATION BUSINESS FOR THE PURPOSES OF THE SECTION. THE DEEMING FICTI ON IS, THEREFORE, ONE WHICH ARISES SPECIFICALLY IN THE CONTEXT OF THE PROVISION S OF SECTION 73 AND IS CONFINED TO THAT PURPOSE ALONE. THE EXPLANATION STIPULATES THA T WHERE AN ASSESSEE IS A COMPANY WHOSE BUSINESS CONSISTS IN ANY PART OF THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, IT SHALL BE DEEMED TO BE CARRYING ON SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSIST OF PURCHASE AN D SALE OF SUCH SHARES. WHETHER OR NOT IT IS A PROFIT OR LOSS THAT HAS RESULTED FRO M CARRYING ON SUCH BUSINESS, IS A CONSIDERATION WHICH IS ALIEN TO THE MEANING OF WHAT CONSTITUTES 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 BUSINESS, C AN BE SET OFF ONLY AGAINST THE PROFITS AND GAINS OF AN OTHER SPECULATION BUSINESS. SIMILARLY, FOR THE PURPOSES OF SUB-SECTION(2), THE LOSS IN RESPECT OF A SPECULATIO N BUSINESS WHICH HAS NOT BEEN SET OFF AGAINST PROFITS AND GAINS OF ANY SPECULATION B USINESS. THE EXPRESSION ANY SPECULATION BUSINESS MEANS A SPECULATION BUSINESS OF THE ASSESSEE IN RESPECT OF WHICH PROFITS AND GAINS FOR THE ASSESSMENT YEAR IN QUESTION HAVE ARISEN AND THERE IS NO JUSTIFICATION TO RESTRICT THE CONTENT OF THAT SPECULATION BUSINESS WHERE PROFITS HAVE ARISEN BY EXCLUDING A BUSINESS INVOLVING ACTUA L DELIVERY OF SHARES. NO SUCH RESTRICTION IS FOUND IN THE EXPLANATION. TO IMPOSE ONE IS A LEGISLATIVE FUNCTION. IN OTHER WORDS, ONCE THE ASSESSEE IS CARRYING ON A SPE CULATION BUSINESS AND THE PROFITS AND GAINS HAVE ARISEN FROM THAT BUSINESS DU RING THE COURSE OF THE ASSESSMENT YEAR, THE ASSESSEE IS ENTITLED TO SET OF F THE LOSSES CARRIED FORWARD FROM A SPECULATION BUSINESS ARISING OUT OF A PREVIOUS AS SESSMENT YEAR. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF LOKMAT NEWSPAPERS PVT LTD (SUPRA), WE ALLOW THE GRO UNDS TAKEN BY THE ASSESSEE. 5. IN THE RESULT, APPEAL FILED BY THE ASSESSEE STAN DS ALLOWED. PRONOUNCED ON 16 TH APRIL, 2010 SD/- (V. DURGA RAO) (JUDICIAL MEMBER) SD/- (S.V. MEHROTRA) (ACCOUNTANTMEMBER) MUMBAI, DATED 16 TH APRIL, 2010 PARIDA ITA NO.3030/M/2009 M/S. GANDIV INVESTMENT P.LTD. 4 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)-, MUMBAI 4. COMMISSIONER OF INCOME TAX, CITY-, MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH G, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI ITA NO.3030/M/2009 M/S. GANDIV INVESTMENT P.LTD. 5 DATE INITIALS 1. DRAFT DICTATED ON 13.4.2010 PS 2. DRAFT PLACED BEFORE AUTHOR 15.4.2010 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER AM/JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/J M 5. APPROVED DRAFT COMES TO THE SR. PS PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER ITA NO.3030/M/2009 M/S. GANDIV INVESTMENT P.LTD. 6