Mehta Securities Ltd., Ahmedabad V. The ACIT(Inv.), Circle-2(1), Ahmedabad

ITA 357/AHD/2005

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1814 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2009
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 29-10-2009
• Assessment Year: 1998-1999
• Appeal Filed On: 07-02-2005
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: S N SOPARKAR
• Keywords: Business income; Principle of natural justice; Speculation loss; Commercial expediency; Capital expenditure; Capital Gains
• Section: 143(1); 143(2); 192

Judgement Text

IN THE INCOME_TAX APPELLATE TRIBUNAL B BENCH, AH MEDABAD BEFORE SHRI H.L.KARWA ,JMAND SHRI A.N.PAHUJA.AM ITA NO.357/AHD/2 005 (ASSESSMENT YEAR : 1998-99) MEHTA SECURITIES LTD. NO.2, LAW GARDEN APARTMENTS SCHEME-I, ELLISBRIDGE, AHMEDABAD. [PAN:AACCM4416B] VS. ACIT(INV.), CIRCLE-2(1), AHMEDABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S.N.SOPARKAR, AR REVENUE BY : SHRI ANIL KUMAR, DR ( )/ ORDER AN PAHUJA: THIS APPEAL BY THE ASSESSEE DIRECTED AGAINST AN ORD ER DATED 17.11.2004 OF THE LD. CIT(A)-IX, AHMEDABAD, RAISES THE FOLLOWING GROUNDS: 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF A.O. IN TREATING BUSINESS LOSS ON SHARES AMOUNTING TO RS.L,26,04,2007- AS SPECULATION LOSS ERRONEOUSLY AP PLYING PROVISIONS OF EXPLANATION TO S. 73 OF THE ACT. 2. ALTERNATIVELY AND WITHOUT PREJUDICE TO THE GRO UND RAISED HEREINABOVE, ID. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT APP RECIATING THAT THE ENTIRE LOSS WAS SUFFERED ON ACCOUNT OF LOSS IN VALUATION OF THE CLOSING STOCK OF SHARES AND THEREFORE IN ANY CASE, PROVISIONS OF EXPLANATION TO S. 73 OF THE ACT ARE NOT APPLICABLE AT ALL. 3. ALTERNATIVELY AND WITHOUT PREJUDICE TO THE GROUND RAISED HEREINABOVE. ID.C1T.(A) HAS ERRED ON FACTS AND IN LAW IN NOT TRE ATING THE ENTIRE BUSINESS OF THE APPELLANT AS SPECULATIVE BUSINESS AND FURTHER E RRED IN NOT GRANTING SET OFF OF BROKERAGE INCOME OF RS.32,17,9787- AGAINST ALLEGED SPECULATION LOSS OF RS. 1,26,04,2007/-. 4. BOTH THE LOWER AUTHORITIES HAVE ERRED IN L AW AND ON FACTS IN NOT CONSIDERING AND GROSSLY IGNORING VARIOUS EXPLANATIO NS, SUBMISSIONS AND EVIDENCES PLACED ON RECORD BY THE APPELLANT IN ITS PROPER PERSPECTIVE AND FURTHER ERRED IN NOT APPRECIATING THE VIEW POINT OF THE APPELLANT. THIS ACTION OF BOTH THE LOWER AUTHORITIES IS IN CLEAR BREACH OF PR INCIPLES OF NATURAL JUSTICE AND THEREFORE DESERVES TO BE QUASHED. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, E DIT, DELETE, MODIFY OR CHANGE ALL OR ANY OF THE GROUNDS OF APPEAL AT THE T IME OF OR BEFORE HEARING OF THE APPEAL. ITA NO.357/AHD/2005 2 2. FACTS, IN BRIEF, AS PER RELEVANT ORDE RS ARE THAT RETURN DECLARING LOSS OF RS.1,16,24,025/- FILED ON 30.11.1998 BY THE ASSESSE E, TRADING IN SHARES, AFTER BEING PROCESSED U/S 143(1) OF THE INCOME-TAX ACT,1961[HER EINAFTER REFERRED TO AS THE ACT] WAS SELECTED FOR SCRUTINY WITH THE ISSUE OF NOTICE U/S 143(2) OF THE ACT ON 22.9.1999. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSING OFFICER[AO IN SHORT] NOTICED THAT THE ASSESSEE DEBITED AN AMOUNT OF RS. 1,26,04,200/- ON ACCOUNT OF DECREASE IN THE VALUE OF CLOSING STOCK. AFTER OBTAI NING SCRIPWISE TRADING ACCOUNT OF SHARE TRADING OPERATIONS OF THE ASSESSEE, THE AO FO UND THAT THE ASSESSEE HAD PURCHASED/SOLD A NUMBER OF SHARES DURING THE YEAR. IN THEIR SUBMISSION DATED 20/11/2000 , THE ASSESSEE STATED THAT SHARES WERE H ELD BY THE COMPANY AS STOCK IN TRADE. THE AO FURTHER NOTICED THAT (A) IN THE COPY OF TRADING ACCOUNT SUBMITTED ON 1 8/12/99, THE ASSESSEE HAD SHOWN A HUGE QUANTITY OF 1148500 SHARES AS HAVING B EEN PURCHASED DURING THE YEAR FOR A TOTAL AMOUNT OF RS 88,04,000. ON THE SE, VALUATION LOSS OF 77 LACS WAS CLAIMED. IN ITS SUBMISSIONS DATED 27/2/200 1, 1/3/2001 AND 15/3/2001, THE ASSESSEE STATED THAT THE SHARES WERE TRANSFERRED FROM ITS SISTER CONCERN MIFL IN THE CURRENT YEAR ITSELF AND NOT BEFORE AND ALSO STATED THAT THE PAYMENT FOR THESE SHARES WAS MADE IN THE CURRENT YEAR ITSELF. IN THE ABOVE SUBMISSIONS THE ASSESSEE ITSELF CATEGORISED THE SHARES AS SCHEDULE I - SHARES HELD BY THE ASSESSEE AS OPENING STOCK AND SCHEDULE II -SHARES ACQUIRED FROM MIFL IN THE CURRENT YEAR ITSELF. HOWE VER, ON 23/3/2001 THE ASSESSEE SUBMITTED A REVISED SCRIP WISE TRADING ACC OUNT WHERE ALL THE ABOVE SHARES HAVE BEEN SHOWN AS OPENING STOCK AND NOT UND ER THE HEAD PURCHASES. FURTHER, FOR THE FIRST TIME IN THESE PRO CEEDINGS, THE ASSESSEE REFLCTED BONDS OF RS 5025000 AND SHARES OF RS 43800 0 AS HAVING BEEN TRANSFERRED FROM INVESTMENTS INTO STOCK IN TRADE. T HESE DETAILS WERE TOTALLY INCONSISTENT WITH THE EARLIER DETAILS AND SUBMISSIO NS MADE IN THE COURSE OF ASSESSMENT PROCEEDINGS. (B) THE BALANCE SHEETS FILED ALONG WITH THE RETUR N FOR THE LAST THREE YEARS REVEALED THAT THE FIGURES OF STOCK-IN-TRADE AND INV ESTMENTS WERE INCONSISTENT I.E. THE OPENING AND CLOSING VALUES DID NOT TALLY F ROM YEAR TO YEAR. A SUMMARY OF THE DISCREPANCIES NOTED REVEALED AS UND ER: A,Y 96-97 A.Y 97-98 A.Y 98-99 OP.STOCK CG.STOCK OP.STOCK CG.STOCK OP.STOCK CG.STOCK STOCK.. - 53368126 24132226 11011894 19377894 10471810 INVEST - 29235900 29235900 20869900 1672900 ITA NO.357/AHD/2005 3 2.1 SINCE THE ASSESSEE DID NOT RECONCILE THE D ISCREPANCIES MENTIONED ABOVE, THE AO CONCLUDED THAT IT WAS NOT POSSIBLE TO ARRIVE AT THE TRUE AND ACCURATE PICTURE OF THE ASSESSEE'S TRANSACTIONS IN SHARES AND INVESTMEN TS DURING THE YEAR. ACCORDINGLY, THE AO DISALLOWED LOSS ON ACCOUNT OF VALUATION OF S HARES TO THE EXTENT OF RS 1,26,04,200/- . 2.2 THE AO FURTHER MENTIONED THAT A LARGE CHUNK OF SHARES OF RS 88 1ACS WERE PURCHASED DIRECTLY FROM THE SISTER CONCERN MEHTA IN TEGRATED FINANCE LTD.[MIFL] AND THE ASSESSEE CLAIMED VALUATION LOSS OF ABOUT RS.77. LACS . THE ASSESSEE STATED IN THE COURSE OF ASSESSMENT PROCEEDINGS THAT THESE SHA RES WERE PURCHASED AT THE FACE VALUE AND NOT AT THE PREVAILING MARKET PRICE WHILE VALUATION OF THE SHARES AT THE END OF THE YEAR HAD BEEN DONE ON THE BASIS OF MARKET PR ICE RESULTING IN A HUGE VALUATION LOSS. THE AO WAS OF THE OPINION THAT THE ASSESSEE PURCHASED THE SHARES AT AN ARTIFICIALLY HIGH FACE VALUE AND SUBSEQUENTLY USED THE LOWER PREVAILING MARKET PRICE FOR VALUING THE CLOSING STOCK. SINCE THESE TRANSACT IONS DID NOT CONFORM TO THE PRINCIPLES OF COMMERCIAL EXPEDIENCY , THE AO CONCLUDED THAT THE LOSS AS CLAIMED BY THE ASSESSEE WOULD BE SUBJECT TO DISALLOWANCE ON TH IS ACCOUNT AS WELL. 2.3. THE AO ALSO REJECTED THE CONTENTIONS OF THE ASSESSEE THAT HOLDING OF SHARES WOULD NOT CONSTITUTE A BUSINESS OF PURCHASE AND SAL E OF SHARES AS ENVISAGED U/S 73 OF THE ACT. THE AO NOTICED THAT THE SHARES WERE NOT IN THE NAME OF THE ASSESSEE COMPANY WHILE UNDERWRITER TO THE RESPECTIVE ISSUE W AS MIFL, A SISTER CONCERN OF THE ASSESSEE AND A LARGE QUANTITY OF SHARES HAD BEEN PU RCHASED FROM MIFL IN THE YEAR UNDER CONSIDERATION . CONSIDERING THE FACTS OF THE CASE, THE AO CONCLUDED THAT WHETHER LOSS IS ON ACCOUNT OF TRADING IN SHARES OR BECAUSE OF DIMINUTION IN THE VALUE OF CLOSING STOCK, IS IMMATERIAL SINCE THE ENTIRE GA MUT OF BUSINESS OF SALE AND PURCHASE OF SHARES IS TO BE SEEN. RELYING UPON THE DECISION IN THE CASE OF CIT VS. ARVIND MILLS LTD.,192 ITR 365(CAL), THE AO TREATED THE ENTIRE LOSS OF RS. 1,26,04,200/- AS SPECULATION LOSS IN TERMS OF EXPLA NATION TO SEC. 73 OF THE ACT 3. ON APPEAL, THE LD. CIT(A) CONCLUDED AS UN DER: 4.1 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MA DE. I FIND THAT THE ASSESSING OFFICER HAS GOT SOME CONFUSION REGARDING THE VALUE OF OPENING STOCK. IN FACT THE ITA NO.357/AHD/2005 4 SAME HAD ARISEN BECAUSE PART OF INVESTMENT WAS TRAN SFERRED AS STOCK IN TRADE. IF BOTH THE ITEMS ARE SUMMED UP, THE POSITION BECOMES VERY CLEAR AND SUMMARY OF THAT POSITION IS AS UNDER: A.Y. 96-97 A.Y. 96-97 A.Y. 96-97 OP. STOCK CL. STOCK OP. STOCK CL. STOCK OP. STOCK CL. STOCK STOCK - 53368126 24132226 11011894 19377894 10471810 INVEST. - - 29235900 29235900 20869900 16727900 SUM OF ABOVE TOTAL 53338126 53368126 40247794 40247794 27199710 AS PER BALANCE SHEET GR.TOTAL 53338126 53368126 40247794 40247794 271997 10 HOWEVER, DURING THE COURSE OF ASSESSMENT PROCEEDING S, THE APPELLANT HAS SUBMITTED DETAILED WORKING OF STOCK IN TRADE AND S UMMARY OF TRADING OF ACCOUNT IN WHICH DECREASE IN VALUE OF STOCK HAS BEEN WORKED OU T AND THE SAME IS AS BELOW: A. SHARE STOCK IN OP. STOCK PURCHASE SALES DEC. IN CLG. STOCK TRADE CLG. STOCK QTY. VALUE QTY. VALUE QTY. VALUE VALUE QTY. VALUE PRIMARY MARKET PAN AUTO LTD. 805900 3704758' 3193750 805900 511000 SYNTHETICS & 117500 1615625 117500 16156 25 ITA NO.357/AHD/2005 5 19377894 OP. STOCK (+) 82600 PURCHASE (+) 1409484 SALES AT COST (-) 12604200 DECREASE IN VALUE (-) 5025000 BONDS (+) THE ABOVE POSITION CLEARLY SHOWS THAT APPELLANT HAS SHOWN PART OF INVESTMENT AS- TRANSFERRED TO STOCK WHICH GOES TO SHOW THAT APPELL ANT'S INTENTION IS OF TRADING IN SHARES. THE SUMMARY OF TRANSACTIONS AS REPRODUCED A BOVE ALSO SHOWS THAT DURING THE YEAR UNDER CONSIDERATION THE APPELLANT HAS BEEN ENGAGED IN PURCHASE AND SALE OF SHARES. THEREFORE, THE TRANSACTIONS ARC CLEARLY SPECULATIVE IN NATURE IN VIEW OF EXPLANATION TO SECTION 73 OF THE ACT. HOWEVER, IN V IEW OF THE POSITION AS CLEARLY REPRODUCED ABOVE, IT CANNOT BE SAID THAT THE LOSS I TSELF WAS NON-GENUINE AND OBSERVATIONS OF THE A.O THAT DURING THE YEAR UNDER CONSIDERATION, SHARES WERE - PURCHASED FROM SISTER CONCERNS AND SHARES WERE NOT IN THE NAME OF THE APPELLANT IS NOT CORRECT BECAUSE MOST OF THE SHARES EXCEPT FOR A MEAGER PURCHASE WORTH RS. 82,600/- ARE OUT OF THE CLOSING STOCK OF EARLIER YE ARS. HOWEVER, IT IS A SPECULATION LOSS IS ALSO PROVED FROM THE DETAILED GROUNDS OF AP PEAL TAKEN BY THE APPELLANT. THEREFORE FROM THE PERUSAL OF ACCOUNT OF STOCK OF S HARES, IT IS APPARENT THAT APPELLANT HAD HIMSELF TRANSFERRED MANY OF THE INVESTMENT AND STOCK IN TRADE AND HAS ALSO ENGAGED IN PURCHASE AND SALES OF SHARES DURING THE YEAR UNDER CONSIDERATION. THIS ACT IS SUFFICIENT PROOF OF ACTUAL TRADING IN SHARES AND THERE CAN BE NO MOTIVE OTHER THAN TRADING IN SHARES WHEN THE APPELLANT HAS CHOSC N TO TRANSFER SHARES OUT OF ITA NO.357/AHD/2005 6 INVESTMENT AS STOCK IN TRADE. THUS, I FIND THAT AP PELLANT WAS WORKING AS A BROKER FOR HIS CLIENTS AND IT WAS ALSO TRADING IN SHARES ON IT S OWN. THUS, IT WAS ENGAGED IN TWO TYPES OF ACTIVITY. WHEN A FICTION IS CREATED BY LAW THAT A PARTICULAR TYPE OF ACTIVITY WILL BE DEALT WITH IN A DIFFERENT FASHION, THEN LEGAL CO NSEQUENCES WILL AUTOMATICALLY FOLLOW. HAVING A COMMON MANAGEMENT AND COMMON FUNDS, DOCS N OT MEAN THAT ENTIRE INCOME HAS TO BE TAXED UNDER ONE HEAD OF INCOME. IN COME HAS TO BE DETERMINED UNDER VARIOUS HEADS OF INCOME IN RESPECT OF EVERY A SSESSEE. UNDER THE HEAD 'BUSINESS INCOME' SPECIAL PROVISIONS HAVE BEEN MADE REGARDING SPECULATION BUSINESS, AND THERE ARC SPECIFIC PROVISIONS MADE TO DEAL WITH SPECULATION LOSSES. SO FAR THE CLAIM THAT EXPLANATION TO SECTION 73 IS APPLICABLE ONLY WHEN PART OF INCOME IS FROM SHARE TRADING IS CONCERNED, I FIND N O MERIT IN THIS CLAIM IN VIEW OF DECISION OF CALCUTTA HIGH COURT IN THE CASE OF CIT VS ARVIND INVESTMENTS LTD; 192 ITR PAGE 365. THUS, THIS LOSS HAS TO BE TREATED AS SPECULATION LOSS. SO FAR AS INCOME EARNED FROM BROKERAGE IS CONCERNED., THE SAM E CANNOT BE EQUATED WITH TRADING IN SHARES, BECAUSE IN CASE OF BROKERAGE, AP PELLANT IS ENGAGED IN SALE AND PURCHASE AS AN AGENT OF HIS CLIENT AND EARNS BROKER AGE, WHICH CANNOT BE EQUATED WITH PROFIT AND LOSS ARISING FROM BUSINESS OF PURCH ASE AND SALE OF SHARES ON ITS OWN. INCOME FROM BROKERAGE WOULD THUS RESULT IN NORMAL B USINESS INCOME, AS IN THAT CASE, ACTUAL SELLERS OR PURCHASERS ARE THE CLIENTS AND NOT THE APPELLANT. AS THESE TWO BUSINESSES ARC DISTINCT AND SEPARATE, NO SET OFF CA N BE GIVEN AGAINST BROKERAGE INCOME IN VIEW OF FOLLOWING DECISIONS: KANAHAYA PURAM MAL VS CIT 60 ITR 354 (PUNJ) CIT : VS PANGAL VITTAL NAYAK & CO. (P) LTD. 74 ITR 754 ( SC) CIT VS K.L.JHUNJHUNWAILA 139 ITR 371 (CAL) CIT VS PARK VIEW PROPERTIES (P)LTD. 261 ITR 473 (CA L) MERIFIX (INDIA) LTD. VS DCIT 80 ITR 399 (HYDERABAD) THUS, IT IS CLEAR THAT NO SET OFF OF THIS SPECULATI ON LOSS CAN BE ALLOWED AGAINST BROKERAGE INCOME EARNED BY THE APPELLANT. THE TREAT MENT GIVEN BY THE A.O IS CONFIRMED AS IT CANNOT BE ALLOWED TO BE SET OFF AGA INST BROKERAGE INCOME. HOWEVER, THE A.O IS DIRECTED TO CARRIED FORWARD THE SPECULAT ION LOSS . 4. THE ASSESSEE IS NOW IN APPEAL AGAINST THE AFO RESAID FINDINGS OF THE LD. CIT(A). AT THE OUTSET, BOTH THE PARTIES AGREED THAT ISSUE I S SQUARELY COVERED AGAINST THE ASSESSEE BY THE DECISION OF THE HONBLE CALCUTTA HI GH COURT IN THE CASE OF CIT VS ARVIND INVESTMENTS LTD; 192 ITR PAGE 365 . 5. WE HAVE HEARD BOTH THE PARTIES AND GONE TH ROUGH THE FACTS OF THE CASE. THE IMPUGNED ORDER REVEALS THAT THE LD. CIT(A) UPHELD THE FINDINGS OF THE AO TREATING THE ENTIRE LOSS OF RS. 1,26,04,200/- AS SPECULATION LO SS IN TERMS OF EXPLANATION TO SEC. 73 OF THE ACT, RELYING UPON THE DECISION IN THE CAS E OF ARVIND INVESTMENTS LTD. (SUPRA) . THE FACTS IN THE CASE UNDER CONSIDERATI ON ARE NOT IN DISPUTE. ITA NO.357/AHD/2005 7 ADMITTEDLY, THE ASSESSEE COMPANY IS IN THE BUSINESS OF STOCK BROKING AND PURCHASE AND SALE OF SHARES. THE ENTIRE LOSS OF RS. 1,26,04, 200/- IS ON ACCOUNT OF DECREASE IN THE VALUE OF CLOSING STOCK OF SHARES HELD BY THE AS SESSEE. BEFORE PROCEEDING FURTHER, WE MAY HAVE A LOOK AT THE RELEVANT PROVI SIONS OF SEC. 73 OF THE ACT, WHICH DEALS WITH LOSSES IN SPECULATION BUSINESS AND IS AS UNDER: ' 73. LOSSES IN SPECULATION BUSINESS. (1) ANY LOSS, COMPUTED IN RESPECT OF A SPECULATION BUSINESS CARRIED ON BY THE ASSESSEE, SHALL NOT BE SET OFF EXCEPT AGAINST PROFI TS AND GAINS, IF ANY, OF ANOTHER SPECULATION BUSINESS. (2) WHERE FOR ANY ASSESSMENT YEAR ANY LOSS COMPUTED IN RESPECT OF A SPECULATION BUSINESS HAS NOT BEEN WHOLLY SET OFF UN DER SUB-SECTION (1), SO MUCH OF THE LOSS AS IS NOT SO SET OFF OR THE WHOLE LOSS WHERE THE ASSESSEE HAD NO INCOME FROM ANY OTHER SPECULATION BUSINESS, SHALL, SUBJECT TO THE OTHER PROVISIONS OF THIS CHAPTER, BE CARRIED FORWAR D TO THE FOLLOWING ASSESSMENT YEAR, AND- (I) IT SHALL BE SET OFF AGAINST THE PROFITS AND GAI NS, IF ANY, OF ANY SPECULATION BUSINESS CARRIED ON BY HIM ASSESSABLE F OR THAT ASSESSMENT YEAR; AND (II) IF THE LOSS CANNOT BE WHOLLY SO SET OFF, THE A MOUNT OF LOSS NOT SO SET OFF SHALL BE CARRIED FORWARD TO THE FOLLOWING ASSES SMENT YEAR AND SO ON. (3) IN RESPECT OF ALLOWANCE ON ACCOUNT OF DEPRECIAT ION OR CAPITAL EXPENDITURE ON SCIENTIFIC RESEARCH, THE PROVISIONS OF SUB-SECTI ON (2) OF SECTION 72 SHALL APPLY IN RELATION TO SPECULATION BUSINESS AS THEY A PPLY IN RELATION TO ANY OTHER BUSINESS. (4) NO LOSS SHALL BE CARRIED FORWARD UNDER THIS SEC TION FOR MORE THAN EIGHT ASSESSMENT YEARS IMMEDIATELY SUCCEEDING THE ASSESSM ENT YEAR FOR WHICH THE LOSS WAS FIRST COMPUTED. EXPLANATION.-WHERE ANY PART OF THE BUSINESS OF A CO MPANY (OTHER THAN A COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS 'INTEREST ON SECURITIES' , 'INCOME FROM HOUSE PROPERTY', 'CAPITAL GAINS' AND 'INCOME FROM OTHER S OURCES', OR A COMPANY THE PRINCIPAL BUSINESS OF WHICH IS THE BUSINESS OF BANK ING OR THE GRANTING OF LOANS AND ADVANCES) CONSISTS IN THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, SUCH COMPANY SHALL, FOR THE PURPOSES OF THIS SECTION, BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS TO THE EXT ENT TO WHICH THE BUSINESS ITA NO.357/AHD/2005 8 CONSISTS OF THE PURCHASE AND SALE OF SUCH SHARES.. ' 5.1 THE EXPLANATION TO SECTION 73 INTRODUCES A L EGAL FICTION. THE SECTION APPLIES ONLY TO A COMPANY. IF THE BUSINESS OF A COMPANY, WH ICH DOES NOT FALL WITHIN THE EXCLUDED CATEGORIES, CONSISTS OF PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, THEN SUCH A COMPANY SHALL BE DEEMED TO BE CARRYING ON SPECULATION BUSINESS FOR THE PURPOSE OF SECTION 73 TO THE EXTENT TO WHICH TH E BUSINESS CONSISTS OF THE PURCHASE AND SALE OF SUCH SHARES. HONBLE CALCUTTA HIGH COURT IN THE CASE OF ARVIND MILLS LTD.(SUPRA) IN THE CONTEXT PROVISIONS OF SEC. 73 OF THE ACT HELD THAT THEREFORE, THE LEGAL IMPLICATION OF THE PHRASE 'AN Y PART OF THE BUSINESS OF A COMPANY' DOES NOT CREATE ANY DIFFICULTY. DR. PAL HA S NOT BEEN ABLE TO CITE ANY CASE WHERE THE WORD 'ANY' HAS BEEN USED IN A RESTRICTIVE SENSE SO AS NOT TO INCLUDE 'ALL'. MOREOVER, WE FAIL TO SEE WHY 'PART' SHOULD NOT INCL UDE 'THE WHOLE' IN THIS CASE AS SUGGESTED BY DR. PAL. SUCH CONSTRUCTION OF STATUTE ALWAYS LEADS TO ABSURDITY. IF THE MUNICIPALITY IS EMPOWERED TO DEMOLISH A PART OF THE BUILDING AND IF IT IS FOUND TO BE DANGEROUS, CAN IT BE RATIONALLY SUGGESTED THAT, IF THE ENTIRE BUILDING IS DANGEROUS, THE MUNICIPALITY HAS NO RIGHT TO ORDER DEMOLITION OF TH E ENTIRE BUILDING ? THERE IS NO REASON WHY THE PHRASE 'ANY PART OF THE BUSINESS' SH OULD BE GIVEN A RESTRICTIVE SENSE SO THAT WHEN A COMPANY'S BUSINESS CONSISTED OF PURC HASE AND SALE OF SHARES AS WELL AS SOME OTHER BUSINESS ACTIVITIES, SUCH COMPAN Y SHOULD NOT COME WITHIN THE MISCHIEF OF THE EXPLANATION TO SECTION 73. PLAIN WO RDS OF THE STATUTE DO NOT WARRANT THE CONSTRUCTION SUGGESTED BY DR. PAL. THE PHRASE 'TO THE EXTENT TO WHICH THE BUSINESS CON SISTED OF PURCHASE AND SALE OF SUCH SHARES' ALSO DOES NOT INDICATE THAT THE LEGISL ATURE HAD SEVERAL OTHER ACTUAL AND EXISTING NON-SPECULATIVE ACTIVITIES OF BUSINESS IN MIND. IT MERELY INDICATES THAT THE BUSINESS ACTIVITY WHICH CONSISTS OF PURCHASE AND SA LE OF SHARES WILL BE TREATED AS SPECULATION BUSINESS. IF THE ENTIRE BUSINESS ACTIVI TY OF A COMPANY CONSISTS OF PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, THE N THE ENTIRE BUSINESS WILL BE TREATED AS SPECULATION BUSINESS. BUT, IF, APART FRO M PURCHASE AND SALE OF SHARES, THE COMPANY HAS OTHER BUSINESS ACTIVITIES, THEN THOSE O THER ACTIVITIES WILL NOT BE TREATED AS SPECULATION BUSINESS. THE CIRCULAR ON WHICH RELIANCE HAS BEEN PLACED ALSO DOES NOT ADVANCE THE CASE OF THE ASSESSEE IN ANY WAY. THE OBJECT AS STATED IN TH E CIRCULAR IS TO CURB THE DEVICE TO MANIPULATE AND REDUCE THE TAXABLE INCOME OF A COMPA NY UNDER THE MANAGEMENT OF A CONTROLLING GROUP OF PERSONS. BUT THE CIRCULAR HA S CLEARLY STATED IN PARAGRAPH 19.1 THAT 'THE BUSINESS OF PURCHASE AND SALE OF SHARES B Y COMPANIES WHICH ARE NOT INVESTMENT OR BANKING COMPANIES OR COMPANIES CARRYI NG ON THE BUSINESS OF GRANTING LOANS AND ADVANCES WILL BE TREATED ON THE SAME FOOT ING AS SPECULATION BUSINESS'. THEREFORE, THE CIRCULAR DOES NOT LEAVE ANY ROOM FOR DOUBT THAT THE EXPLANATION WILL APPLY TO THE BUSINESS OF PURCHASE AND SALE OF SHARE S OF CERTAIN COMPANIES. NOWHERE ITA NO.357/AHD/2005 9 IN THE CIRCULAR HAS ANY INDICATION BEEN GIVEN THAT WHERE THE ONLY BUSINESS OF A COMPANY CONSISTS OF PURCHASE AND SALE OF SHARES, TH E EXPLANATION WILL NOT APPLY. 5.11 IT WAS ALSO HELD IN THE AFORESAID DECISION THAT SECTION 72 SPECIFICALLY EXCLUDES LOSS SUSTAINED IN SPECULATION BUSINESS FROM ITS AMB IT. THAT MEANS THAT, WHEN A LOSS IS SUSTAINED IN A SPECULATION BUSINESS, THAT CANNOT BE CARRIED FORWARD TO BE ADJUSTED AGAINST ANY OTHER BUSINESS LOSS. 5.2 HONBLE BOMBAY HIGH COURT IN THEIR DECISION IN THE CASE OF PRASAD AGENTS (P) LTD. VS. ITO,180 TAXMAN 178(BOM.) IN THE CONTEXT P F PROVISIONS OF 73 OF THE ACT AND LOSS AS A RESULT OF VALUATION OF CLOSING STOCK OF S HARES HELD THAT SUCH SPECULATION LOSS CAN BE SET OFF AGAINST SPECULATION INCOME ONLY. HO NBLE HIGH COURT OBSERVED THAT IN OUR OPINION THERE CAN BE NO DIFFERENCE BETWEEN T HE LOSSES SUFFERED IN THE COURSE OF TRADING BY DELIVERY AND LOSSES IN TERMS O F THE BOOK VALUE. AS LONG AS THE ASSESSEE IS CARRYING ON BUSINESS OF TRADING BY WAY OF PURCHASE AND SALE OF SHARES EVEN IF IN RESPECT OF ANY FINANCIAL YEAR, THERE ARE NO TRANSACTION AND YET THE COMPANY HAS STOCK-IN-TRADE OF SHARES, THE BOOK VALUE WILL H AVE TO BE CONSIDERED FOR THE PURPOSE OF CONSIDERING THE PROFIT AND LOSS IN CASE OF SPECULATIVE BUSINESS. THERE CAN BE NO DOUBT THAT THE EXPLANATION TO SECTION 73 CANN OT BE READ TO MEAN ONLY WHEN THERE IS A PURCHASE AND SALE OF SHARES IN THE COURS E OF THE FINANCIAL YEAR. THE EXPLANATION WILL COVER BOTH SHARES WHICH ARE STOCK- IN-TRADE AND SHARES WHICH ARE TRADED IN THE COURSE OF THE FINANCIAL YEAR FOR THE PURPOSE OF CONSIDERING THE LOSS AND PROFIT FOR THAT YEAR . 5.3 IN THE LIGHT OF AFORESAID DECISIONS , WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE LD. CIT(A) IN TREATING THE LOSS OF RS.1,26,0 4,200 SPECULATIVE IN NATURE AND DECLINING TO ALLOW THE SET OFF SAID SPECULATION LOS S AGAINST THE BROKERAGE INCOME. THEREFORE GROUND NOS. 1 TO 4 IN THE APPEAL ARE DISM ISSED. 6. NO ADDITIONAL GROUND HAVING BEEN RAISED IN TERMS OF THE RESIDUARY GROUND, ACCORDINGLY, THE SAID GROUND IS DISMISSED. ITA NO.357/AHD/2005 10 7. IN THE RESULT, APPEAL IS DISMISSED. SD/- (H.L.KARWA) JUDICIAL MEMBER SD/- (A.N.PAHUJA) ACCOUNTANT MEMBER AHMEDABAD, DATED:18.12.2009 COPY TO : (1) THE ASSESSEE (2) ACIT(INV.), CIRCLE-2(1),AHMEDABAD (3) CIT(A)-IX, AHMEDABAD (4) THE CIT, CONCERNED, (5) THE DR, ITAT, AHMEDABAD, (6) GUARD FILE. BY ORDER ASSTT. REGISTRAR / D EPUTY REGISTRAR ITAT, AHMEDABAD BENCHES AHMEDABAD. THE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 18 .1 2.2009.