ITO 4(3)(3), MUMBAI V. MOTHER INDIA SECURITIES P. LTD, MUMBAI

ITA 3271/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100559 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 20-07-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 29-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A RAMCHANDRAN SR ARDR
• Assessee Lawyers: BEHARILAL
• Keywords: Capital asset; Speculation loss
• Section: 14A

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI SANJAY ARORA, ACCOUNTANT MEMBER ITA NO.3271/MUM/2013 ASSESSMENT YEAR:2009-10 INCOME TAX OFFICER-4(3)(3), ROOM NO.367, 6 TH FLOOR, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 / VS. M/S MOTHER INDIA SECURITIES PVT. LTD. 23/154 GREAT WESTERN BUILDING, 4 TH FLOOR, MCC LANE, FORT, MUMBAI-400023 ( / REVENUE) ( !'# $ /ASSESSEE) P.A. NO. AACCM0588L / REVENUE BY SHRI A.RAMCHANDRAN. SR.AR-DR !'# $ / ASSESSEE BY SHRI BEHARILAL % & ' $ ( / DATE OF HEARING 20/07/2015 ' $ ( / DATE OF ORDER: 07/08/2015 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DAT ED 06/02/2013, OF THE LD. FIRST APPELLATE AUTHORITY, M UMBAI. ITA NO.3271/MUM/2013 , M/S MOTHER INDIA SECURITIES PVT. LTD. 2 2. THE FIRST GROUND PERTAINS TO DIRECTING THE ASSE SSING OFFICER NOT TO TREAT THE LONG TERM CAPITAL GAIN AND SHORT TERM CAPITAL GAIN LOSS AS SPECULATION TRANSACTIONS. THE CRUX OF ARGUMENT ADVANCED BY LD. DR, SHRI A. RAMACHANDRAN, IS BROADLY IN SUPPORT OF THE ASSESSMENT ORDER BY ADVAN CING ARGUMENTS WHICH IS IDENTICAL TO THE GROUND RAISED. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE, SHRI BIHARILAL DEFENDED THE CONCLUSION ARRIVED AT IN THE IMPUGNED ORDER. 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS , IN BRIEF, ARE THAT THE ASSESSEE IS A SHARE BROKER AND TRADER IN SHARES/INVESTOR. DURING THE YEAR UNDER CONSIDERATIO N, THE ASSESSEE RECEIVED BROKERAGE OF RS.26,61,904/- AND A LSO LOSS ON ACCOUNT OF TRADING IN SHARES AMOUNTING TO RS.1,72,33,233/-, WHICH WAS TREATED AS DEEMED SPECU LATION. THE ASSESSEE CARRIED FORWARD THE LOSS ON ACCOUNT OF ALLEGED SPECULATIVE INCOME AND RS.30,54,731/-. PURSUANT TO A NOTICE BY THE ASSESSING OFFICER, THE ASSESSEE VIDE LETTER DATED 05/10/2011 FILED STATEMENT OF SHORT TERM CAPITAL LO SS AND LONG TERM CAPITAL GAINS. THE REPLY OF THE ASSESSEE IS REPRODUCED HEREUNDER:- IN THIS CONTEXT IT IS SUBMITTED THAT THE ASSESSEE DECIDED TO CARRY ON SHARE INVESTMENT ACTIVITY. WITH THAT INTENTION THE ASSESSEE BOUT THE SHARES AND HELD THEM AS INVESTMENTS IN THE BOOKS OF ACCOUNTS. THE MEMORANDUM AND ARTICLE OF ASSOCIATION ALSO AUTHORIZE T HE COMPANY TO MAKE INVESTMENT IN THE SHARES AND SECURITIES OF O THER COMPANIES. YOUR HONOURS ATTENTIONS IS ALSO INVITED TO THE DEFINI TION OF SHORT TERM ITA NO.3271/MUM/2013 , M/S MOTHER INDIA SECURITIES PVT. LTD. 3 CAPITAL ASSET AS PROVIDED U/S 2(42A) OF THE INCOME T AX ACT WHICH STATES THAT IF THE SHARES ARE HELD BY AN ASSESSEE FOR NOT MORE THAN 12 MONTHS THE SAME ARE TO BE TREATED AS SHORT TERM CAPITAL ASSET AND ACCORDINGLY AS PER SECTION 2(42B) THE CAPITAL GAIN ARI SING ON THE TRANSFER OF SUCH ASSET SHOULD BE TREATED AS SHORT TERM C APITAL GAIN. HOWEVER, THE LD. ASSESSING OFFICER IN VIEW OF EXPL ANATION TO SECTION 73 OF THE ACT HELD THE TRANSACTION AS SP ECULATIVE IN NATURE AND THE ENTIRE LONG TERM CAPITAL GAIN OF RS. 41,24,265/- AND SHORT TERM CAPITAL LOSS OF RS.30,54,731/- WERE TREATED AS SPECULATIVE INCOME AND ADJUSTED WITH THE SPECULATIV E INCOME/LOSS OF RS.1,72,33,233/-. 2.2. ON APPEAL, BEFORE THE LD. COMMISSIONER OF IN COME TAX (APPEALS), THE SUBMISSIONS OF THE ASSESSEE WERE CON SIDERED. THE STAND OF THE ASSESSEE BEFORE THE LD. COMMISSION ER OF INCOME TAX (APPEALS) WAS THAT APPLICATION OF EXPLAN ATION TO SECTION 73 OF THE ACT IS QUITE UNJUSTIFIED AS THE P ROVISION IS NOT APPLICABLE, WHERE INCOME ON SALE OF SHARES HELD AS INVESTMENT OFFERED UNDER THE HEAD CAPITAL GAIN/CAPITAL LOSS BY FURTHER CLAIMING THAT SECTION 73 IS APPLICABLE IN RESPECT O F LOSS IN SPECULATION BUSINESS. THE LD. COMMISSIONER OF INCOM E TAX (APPEALS) GRANTED RELIEF TO THE ASSESSEE. 2.3. THE REVENUE IS AGGRIEVED AND IS IN APPEAL BEF ORE THIS TRIBUNAL. WE FIND THAT THE ASSESSEE IS ADMITT EDLY ENGAGED IN THE BUSINESS OF TRADING OF SHARES AS INVESTMENT. THE ASSESSEE EARNED LOSS OF RS.1,72,33,233/-. THE QUEST ION FOR CONSIDERATION IS WHETHER THE LONG TERM CAPITAL GAIN /SHORT TERM CAPITAL LOSS OF THE ASSESSEE ARE IN THE NATURE OF S PECULATIVE ITA NO.3271/MUM/2013 , M/S MOTHER INDIA SECURITIES PVT. LTD. 4 TRANSACTION WITHIN THE MEANING OF EXPLANATION TO SE CTION 73 OF THE ACT. WE NOTE THAT EVEN THE LD. ASSESSING OFFICE R HAS NOT DISPUTED THAT CERTAIN SHARES WERE HELD AS INVESTMEN T ON WHICH LTCG/STCL WAS SUFFERED BY THE ASSESSEE. BROA DLY, WE ARE IN AGREEMENT THAT THE ASSESSEE HELD THE SHARES AS INVESTMENT ON STCG BY INCURRING LOSS. THE PROVISO/EXPLANATION TO SECTION 73 APPLIES IN RESPEC T OF BUSINESS OF COMPANY CONSISTING OF PURCHASE OF SHARE S OF OTHER COMPANIES. HOWEVER, THE ASSESSEE IS IN THE BUSINESS OF SALE AND PURCHASE OF SHARE BUT THE TRANSACTION IN SHARE, HELD AS INVESTMENT, GIVE RISE TO LTCG/STCL, WHICH CANNOT BE HELD TO BE BUSINESS OF THE ASSESSEE AS HAS BEEN ASSERTED BY THE REVENUE. IN SUCH A SITUATION, EVEN IF, IT IS HELD TO BE SPECULATIVE TRANSACTION, THE LOSSES EXPECTED TO BE SET OFF AGAINST PROFIT. NO POSITIVE INCOME IS AVAILABLE FO R TAXATION FOR THE CURRENT YEAR, THEREFORE, THE PROFIT OF RS.41,24 ,261/- (CAPITAL GAINS) IS ADJUSTABLE AGAINST OTHER LOSSES DURING THE YEAR ITSELF. AS PER SECTION 73(2) OF THE ACT WHER E FOR ANY ASSESSMENT YEAR, ANY LOSS IS COMPUTED IN RESPECT OF SPECULATION BUSINESS, WHICH HAS NOT BEEN WHOLLY SET OFF UNDER SUB-SECTION (1), SO MUCH OF THE LOSS IS NOT TO BE S ET OFF ARE WHOLE LOSS, WHERE THE ASSESSEE HAS NO INCOME FROM A NY OTHER SPECULATION BUSINESS, SHALL, SUBJECT TO THE OTHER P ROVISIONS OF THIS CHAPTER, BE CARRIED FORWARD TO THE FOLLOWING A SSESSMENT YEARS AND (I) IT SHALL BE SET OFF AGAINST THE PROFIT AND GAIN S, IF ANY, OF ANY SPECULATION BUSINESS CARRIED ON BY HIM ASSESSAB LE FOR THAT ASSESSMENT YEAR AND ITA NO.3271/MUM/2013 , M/S MOTHER INDIA SECURITIES PVT. LTD. 5 (II) IF THE LOSS CANNOT BE WHOLLY SET OFF, THE AMO UNT OF LOSS NOT SO SET OFF SHALL BE CARRIED FORWARD TO THE FOLL OWING ASSESSMENT YEAR AND SO ON. THUS, WE FIND NO INFIRMITY IN THE CONCLUSION OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) BECAUSE THERE IS NO POSITIVE INCOME AVAILABLE FOR TAXATION FOR THE CURR ENT YEAR AND EVEN IF, THESE ARE HELD TO BE SPECULATIVE TRANSACTI ONS, THE LOSS WAS REQUIRED TO BE SET OFF AGAINST THE PROFIT DURIN G THE YEAR ITSELF AS PER SUB-SECTION 1 TO SECTION 73. HOWEVER , WE ARE IN AGREEMENT WITH THE FINDING OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) THAT THE LTCG AND STCG WERE NOT SPECU LATIVE TRANSACTIONS. 3. NEXT GROUND RAISED BY THE REVENUE IS DIRECTING T O DELETE RS.19,76,717/- OUT OF THE APPORTIONED EXPENDITURE O F RS.32,22,247/- TOWARDS SPECULATION ACTIVITY. THE F ACTS, IN BRIEF, ARE THAT THE ASSESSING OFFICER APPORTIONED T HE EXPENDITURE TO THE EXTENT OF RS.32,22,247/- TOWARDS SPECULATION ACTIVITY OUT OF THE TOTAL EXPENSES OF RS.38,04,755/- DEBITED TO THE PROFIT & LOSS ACCOUNT . THE ASSESSEE HAD ALREADY ALLOCATED STT, STAMP DUTY AND TRANSACTION CHARGES, TOTALING TO RS.6,76,103/-. THE ASSESSEE DULY FILED THE STATEMENT OF ALLOCATION OF INDIRECT EXPENSES TOWARDS SHARE TRADING INCOME WHICH WAS BASED ON TUR NOVER. ON THE BASIS OF PERCENTAGE TURNOVER, THE ASSESSEE F URNISHED DETAILS OF EXPENSES OF RS.5,69,427/- TO THE SHARE T RADING ACTIVITIES AND THE ASSESSEE ITSELF TREATED SHARE TR ADING LOSS OF RS.1.72 CRORES AS SPECULATION LOSS. THE TOTAL EXPEN DITURE ITA NO.3271/MUM/2013 , M/S MOTHER INDIA SECURITIES PVT. LTD. 6 DEBITED IN THE ACCOUNT WAS RS.38,04,754/-, THUS, TH E TOTAL SPECULATIVE LOSS WAS WORKED OUT AT RS.1,93,85,950/- BY THE ASSESSING OFFICER. WE NOTE THAT WHILE DEALING WIT H GROUND NO.1 (SUPRA), WE HAVE UPHELD THE STAND OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) THAT SUCH GAIN S/LOSSES WERE NOT SPECULATIVE TRANSACTION, THUS, UNDER THESE CIRCUMSTANCES, ALLOCATION OF EXPENSES WAS NOT REQUI RED. THE ASSESSING OFFICER TREATED THE ALLOCATION OF EXPENSE S TO BE SPECULATIVE ACTIVITY OF THE ASSESSEE ON THE BASIS O F PERCENTAGE OF INCOME/PROFIT. ULTIMATELY, IT IS THE TURNOVER, W HICH REQUIRES INCURRING OF EXPENSES, THUS, WE ARE IN AGREEMENT WI TH THE FINDING OF THE LD. COMMISSIONER OF INCOME TAX (APPE ALS) THAT THE ALLOCATION OF EXPENSES WAS REQUIRED TO BE MADE ON THE BASIS OF TURNOVER AS OFFERED BY THE ASSESSEE BECAUS E THE ASSESSEE ITSELF CONSIDERED STAMP DUTY EXPENSES OF RS.1,00,729/-, TRANSACTION CHARGES OF RS, 51,832/- AND STT OF RS.5,23,542/- AS EXPENSES, THUS, WE FIND NO INFIRMI TY IN DIRECTING TO CONSIDER STAMP DUTY EXPENSES, STT AND TRANSACTION CHARGES/ADDITIONAL EXPENSES PERTAINING TO SPECULATION ACTIVITY GRANTING PART RELIEF TO THE AS SESSEE. THE STAND OF THE LD. COMMISSIONER OF INCOME TAX (APPEAL S) IS AFFIRMED. 4. THE LAST GROUND PERTAINS TO DIRECTION TO THE ASS ESSING OFFICER TO RE-WORK THE DISALLOWANCES MADE U/S 14A B Y EXCLUDING THE STOCK IN TRADE FROM THE VALUE OF INVE STMENTS. THE LD. DR, DEFENDED THE CONCLUSION ARRIVED AT IN T HE ASSESSMENT ORDER, WHEREAS, THE LD. COUNSEL FOR THE ASSESSEE ITA NO.3271/MUM/2013 , M/S MOTHER INDIA SECURITIES PVT. LTD. 7 SUPPORTED THE ORDER OF THE LD. COMMISSIONER OF INCO ME TAX (APPEALS) 4.1. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE RE CEIVED DIVIDEND OF RS.7,86,419/- WHICH WAS CLAIMED AS EXEM PT. THE ASSESSEE IN ITS RETURN OF INCOME ITSELF MADE DISALL OWANCE OF RS.78,642/- AS EXPENSES, BEING, 10% OF DIVIDEND INC OME AS DISALLOWANCE U/S 14A OF THE ACT. HOWEVER, THE ASSES SING OFFICER ESTIMATED AND MADE DISALLOWANCE OF RS.2,46, 169/- BY INVOKING RULE-8D OF THE RULES. THE STAND OF THE ASS ESSEE BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AS WELL AS BEFORE THIS TRIBUNAL IS THAT THERE WAS NO NEXUS BET WEEN EXPENDITURE INCURRED AND THE DIVIDEND INCOME, THUS, THERE SHOULD BE NO DISALLOWANCE AS THE DOMINANT OBJECT OF THE ASSESSEE WAS TO EARN PROFIT ON SALE OF SHARES AS A INVESTOR AND RULE 8D IS APPLICABLE ONLY TO THE INVESTMENT AND TO THE STOCK IN TRADE. WITHOUT GOING INTO MUCH DELIBERATION, WE NOTE THAT UNDER THE FACTS AVAILABLE ON RECORD TO THIS LIMITED EXTENT, WE ARE IN AGREEMENT WITH THE LD. DR/ASSESSING OFFICER THAT THE PROVISION OF SECTION 14A READ WITH RULE-8D OF THE R ULES ARE APPLICABLE. THE TRIBUNAL, IN THE CASE OF DY.CIT VS DAMANI ESTATES AND FINANCE PVT. LTD. (2013) 25 ITR 683 (MU M.) AND D.H. SECURITIES PVT. LTD. VS DCIT (2014) 146 ITD 1(MUMBAI)(TM), HAS CLARIFIED THAT RULE 8D SHALL APP LY QUA THE SHARES HELD AS STOCK-IN-TRADE. THE TRIBUNAL HAS, TH EREFORE, IN EFFECT CONFIRMED ITS EARLIER ORDER, PASSED BY ITS S PECIAL BENCH, IN ITO VS DAGA CAPITAL MANAGEMENT PVT. LTD. (2009) 312 ITR (AT) 1 (MUM.) (SB). HOWEVER, THE TRIBUNAL HAS CLAR IFIED THAT THE DISALLOWANCE IN RESPECT OF PROPORTIONATE INTERE ST SHALL BE ITA NO.3271/MUM/2013 , M/S MOTHER INDIA SECURITIES PVT. LTD. 8 RESTRICTED TO 20% OF SUCH INTEREST. SUBJECT TO THIS MODIFICATION, WE CONFIRM THE APPLICATION OF SECTION 14A READ WITH RULE-8D. THUS, THIS GROUND OF THE REVENUES APPEAL IS PARTLY ALLOWED. FINALLY, THE APPEAL OF THE REVENUE IS PARTLY ALLOWE D. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN TH E PRESENCE OF LD. REPRESENTATIVE OF BOTH SIDES, AT TH E CONCLUSION OF HEARING ON 20/07/2015 . SD/- SD/- ( SANJAY ARORA ) (JOGINDER SINGH) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER % & MUMBAI; ) DATED : 07/08/2015 F{X~{T? P.S/. . . %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. +,- / THE APPELLANT 2. ./,- / THE RESPONDENT. 3. 0 0 % 1$ ( + ) / THE CIT, MUMBAI. P4. 0 0 % 1$ / CIT(A)- , MUMBAI 5. 34 .$ ! , 0 +( ! 5 , % & / DR, ITAT, MUMBAI 6. ' 7 & / GUARD FILE. / BY ORDER, /3+$ .$ //TRUE COPY// / (DY./ASSTT. REGISTRAR) , % & / ITAT, MUMBAI