DCIT, Circle - 9, Kolkata, Kolkata V. M/s. Ritona Vinimay Pvt. Ltd., Kolkata

ITA 359/KOL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91917 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2015
• Appeal Filed By: Department
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 07-03-2012
• Court: TRIBUNAL
• Department Lawyers: K L KANAK
• Assessee Lawyers: V N PUROHIT
• Keywords: Business income; Earning of tax free income; Speculation loss
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOLKATA [BEFORE SHRI MAHAVIR SINGH, JM & SHRI B. P. JAIN, AM ] I.T.A NO. 359 /KOL/20 12 ASSESSMENT YEAR : 200 8 - 0 9 DEPUTY COMMISSIONER OF INCOME - TAX, VS. M/S. RITONA VINIMAY PVT. LTD. CIRCLE - 9, KOLKATA. (PAN:AABCR6288H) ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 22 .0 4 .2015 DATE OF PRONOUNCEMENT: 30 . 04 . 2015 FOR THE APPELLANT: SHRI K. L. KANAK, JCIT FOR THE RESPONDENT: S HRI V. N. PUROHIT, FCA ORDER PER SHRI MAHAVIR SINGH, JM: THIS APPEAL BY REVENUE IS ARISING OUT OF ORDER OF CIT(A) - V I I I , KOLKATA IN APPEAL NO. 144 / CIT(A) - VIII/KOL/10 - 11 DATED 16 . 12 .20 11 . ASSESSMENT WAS FRAMED BY ITO, WARD - 9 ( 3 ), KOLKATA U/S. 143(3) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) FOR ASSESSMENT YEAR 200 8 - 0 9 VIDE HIS ORDER DATED 3 0 .12.20 1 0. 2. THE FIRST ISSUE IN THIS APPEAL OF ASSESSEE IS AGAINST THE ORDER OF CIT(A) DELETING THE DISALLOWANCE OF SPECULATION LOSS BY INVOKING THE PROVISIONS OF EXPLANATION TO SEC. 73 OF THE ACT. FOR THIS, REVENUE HAS RAISED FOLLOWING THREE GROUNDS: 1 . THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER THE LD. CIT(A) IS JUSTIFIED IN DELETING THE ADDITION MADE BY THE A.O. TO THE TUNE OF RS. 1,05,10,702/ - ON ACCOUNT OF ' SPECULATION LOSS' AND TO TREAT THE PRINCIPAL BUSINESS OF THE ASSESSEE IS GRANTING OF LOAN & ADVANCES EVEN THOUGH THE DEPLOYMENT OF FUND INVESTED IN SHARE TRADING BUSINESS IS HIGHER THAN THE BUSINESS OF GRANTING OF LOANS AND ADVANCES? 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER THE LD. CIT(A) IS JUSTIFIED TO TREAT THE PURCHASE & SALE OF SHARE AS BUSINESS INCOME/LOSS INSTEAD OF 'SPECULATION PROFIT/LOSS' THOUGH THE QUANTUM OF PROFIT OR LOSS AS WELL AS DEPLOYMENT OF FUND INVESTED IN SHARE TRADING BUSINESS IS HIGHER THAN THE BUSINESS OF GRANTING OF LOANS AND ADVANCES. 2 . THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER THE LD. CIT ( A) IS JUSTIFIED TO TREAT THE PURCHASE & SALE OF SHARE AS BUSINESS INCOME/LOSS INSTEAD OF 'SPECULATION PROFIT/LOSS' EVEN THOUGH THE TRANSACTION WAS MADE BETWEEN ITS GROUP COMPANIES SO AS TO MERELY TO MANIPULATE OR REDUCE THE TAXABLE INCOME? 2 ITA NO. 359 /K/201 2 RITONA VINIMAY PVT. LTD. AY 200 8 - 0 9 3 . BRIEFLY STATED FACTS ARE THAT THE ASSESSEE AS PER ASSESSMENT ORDER IS ENGAGED IN THE BUSINESS O F SHARE TRADING AS WELL AS GRANTING OF LOANS. THE ASSESSEE HAS EARNED DIVIDEND INCOME, INTEREST INCOME AGAINST LOANS AND ADVANCES. THE AO NOTED THAT THE ASSESSEE IS ENGAGED PRIMARILY IN THE BUSINESS OF TRADING IN SHARES OF OTHER COMPANIES AND SUFFERED LO SSES TO THE TUNE OF RS.1,05,10,702/ - IN SHARE TRADING BUSINESS. THE AO HAS NARRATED THE FACTS IN PAGE 2 OF THE ASSESSMENT ORDER WHEREIN COMPLETE CALCULATION IS GIVEN. THE AO REQUIRED THE ASSESSEE TO EXPLAIN HOW THIS SPECULATION LOSS IS ALLOWABLE DESPITE THE FACT THAT ASSESSEE S CASE FALLS UNDER EXPLANATION 73 OF THE ACT. ACCORDING TO AO, ASSESSEE S PRIMARY BUSINESS IS THAT OF TRADING IN SHARES OF OTHER COMPANIES. BUT THE ASSESSEE EXPLAINED THAT FACTUALLY THE ASSESSEE S INCOME DURING AY 2006 - 07 TO THE EX TENT OF 83.10% IS FROM OTHER SOURCES OTHER THAN SHARE DEALING AND INCOME TO THE EXTENT OF 16.90% IS FROM SHARE TRADING IN AY 2007 - 08. THE INCOME FROM TRADING IN SHARES COMES TO 51.15% AS AGAINST INCOME FROM OTHER THAN SHARE TRADING AT 48.55%. SIMILARLY, IN THE PRESENT AY I.E. AY 2008 - 09, THE INVESTMENT IN SHARES IS TO THE EXTENT OF 14.51% AS AGAINST THE INVESTMENT IN OT HER ACTIVITIES OR OTHER BUSINESS AT 85.49% OF THE TOTAL NET WORTH. HE NARRATED THE FACTS RELATING TO AY 2008 - 09, WHICH READS AS UNDER: C) IN THE ASST. YEAR 2008 - 09 THAT IS THE ASST. YEAR UNDER SCRUTINY IT WILL BE NOT OUT OF THE PLACE TO MENTION THAT THE TOTAL NET WORTH OF THE COMPANY WAS RS.9,64,88,653/ - OUT OF THE SAME INVESTMENT IN SHARES WERE RS.1,50,00,000/ - AND INVESTMENTS IN OTHER THAN SHARES WERE RS.8,24,88,653/ - (OUT OF WHICH RS.8,07,74,436/ - IN LOANS) WHICH COMES TO 14.51% OF THE TOTAL NET WORTH INVESTED IN SHARES AND 85.49% OF THE TOTAL NET WORTH INVESTED IN OTHER THAN SHARES. THIS MAKES IT CLEAR THAT THE MAIN AREA OF INVESTMENT OF THE COMPANY IS NOT IN SHARE DEALINGS. THE AO WAS NOT CONVINCED WITH THE EXPLANATION OF THE ASSESSEE AND HE NOTED THE DEPLOYMENT OF FUNDS AS ON 31.03.2005, 31.03.2006 AND 31.03.2007 AS UNDER: YEAR (AS ON) TOTAL FUND AVAILABLE FUND UTILIZED IN LOAN & ADVANCES % UTILIZED OUT OF TOTAL FUND FUND UTILIZED IN INVESTMENT IN SHARE AS WELL AS STOCK - IN - TRADE (%) UTILIZED OUT OF TOTAL FUND 1 31.03.2005 10,19,45,912/ - 1,71,54,948 16.82 8,38,99,060 82.29 2 31.03.2006 12,93,43,754 5,36,34,741 41.46 7,51,20,400 58.07 3 31.03.2007 10,14,51,638 3,32,38,597 32.76 6,74,27,902 66.46 AND FINALLY HELD THAT ASSESSEE S PRINCIPAL BUSINESS IS THAT OF DEALING IN SHARES AND HENCE, THE SAME IS COVERED BY EXPLANATION TO SECTION 73 OF THE ACT. THEREFORE, HE DISALLOWED THE LOSS CLAIMED BY THE ASSESSEE AT RS.1,05,10,702/ - AS DEEMED SPECULATION LO SS NOT TO BE 3 ITA NO. 359 /K/201 2 RITONA VINIMAY PVT. LTD. AY 200 8 - 0 9 ALLOWED AGAINST OTHER BUSINESS INCOME I.E. INTEREST INCOME ETC. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO SIMPLY RELYING ON THE SUBMISSIONS OF THE ASSESSEE DELETED THE DISALLOWANCE VIDE PARA 5.2(II) AND (VII) AS UNDER: 5.2(II) AS PER THE LD. AR THERE WAS NO PURCHASE OF SHARES IN THIS YEAR. ONLY THE OLD STOCK WAS MOSTLY DISPOSED OF AND SO FAR AS THE SHARES OF M/S. HOSPET ISPAT LTD. ARE CONCERNED, THE ENTIRE STOCK, BROUGHT FORWARD FROM THE EARLIER YEAR, WAS FULLY SOLD OFF TO IN CREASE THE DEPLOYMENT OF FUNDS IN MAKING LOANS AND ADVANCES ON INTEREST. DUE TO THIS REASON THE LOANS AND ADVANCES HAS INCREASED FROM RS.3,38,33,668/ - (AS ON 31.03.2007) TO RS.8,07,74,436/ - (AS ON 31.03.2008.) (VII) IN VIEW OF THE ABOVE, I AM OF THE OPI NION THAT THE LOSS OF RS.1,05,10,702/ - ON SHARE TRADING IS NOT A SPECULATIVE LOSS AND THE PROVISION OF SECTION 73 OF THE I.T. ACT, 1961 DOES NOT APPLY THE THIS LOSS INCURRED BY THE APPELLANT. IN THE RESULT THIS GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE APPELLANT COMPANY. THE ASSESSING OFFICER IS, THEREFORE, DIRECTED TO ALLOW SET OFF OF THE BUSINESS LOSS OF RS.L,05,10,702/ - INCURRED IN THE TRANSACTION OF THE SHARES. AGGRIEVED, REVENUE IS NOW IN APPEAL BEFORE US. 4. WE HAVE HEARD LD. SR. DR AND GONE THR OUGH FACTS AND CIRCUMSTANCES OF THE CASE. LD. SR. DR RELIED ON THE ASSESSMENT ORDER. ON THE OTHER HAND, LD. COUNSEL FOR THE ASSESSEE FILED COMPLETE DETAILS OF DEPLOYMENT OF FUND DURING LAST THREE YEARS INCLUDING THE POSITION OF INCOME AND TURNOVER OF THE ASSESSEE IN DIFFERENT BUSINESS. AT THIS STAGE IT IS NOT POSSIBLE TO VERIFY THESE DETAILS BECAUSE THIS IS BEING FILED NOW FOR THE FIRST TIME BEFORE US. WE FIND THAT THE AO HAS ONLY VERIFIED THE DEPLOYMENT OF FUNDS FOR LAST THREE YEARS AND HAS NOT GONE IN TO THE PROFITS EARNED FROM VARIOUS SOURCES AND ALSO THE TURNOVER OF THE ASSESSEE FROM VARIOUS SOURCES. HOWEVER, CIT(A) HAS ONLY EXAMINED INCREASE IN LOANS AND ADVANCES AND NOT COMPARED IT WITH INVESTMENT IN SHARES. AS THE AUTHORITIES BELOW HAVE LACKED IN THEIR INVESTIGATION INTO THE CORRECT FACTS, WE FEEL THAT THIS ISSUE NEEDS RE - EXAMINATION. IN TERM OF THE ABOVE, WE SET ASIDE THIS ISSUE TO THE FILE OF THE AO FOR FRESH EXAMINATION OF THIS ISSUE IN TERMS OF THE EXPLANATION TO SECTION 73 OF THE ACT, WHEREI N THE AO WILL FIRST DETERMINE THE PRINCIPAL BUSINESS OF THE ASSESSEE. FOR THIS, THE AO WILL FIND OUT THE DEPLOYMENT OF FUNDS IN SHARES AND IN OTHER BUSINESS. THE AO WILL ALSO FIND OUT THE PROFIT OR LOSS FROM SHARES AND ALSO IN OTHER BUSINESS. THE AO WIL L ALSO FIND OUT THE TURNOVER OF THE ASSESSEE IN ALL THE BUSINESS AND THEN COMPARE THE SAME ON COMPARATIVE BASIS. HE HAS TO GIVE A FINDING QUA THE PRINCIPAL BUSINESS OF THE ASSESSEE 4 ITA NO. 359 /K/201 2 RITONA VINIMAY PVT. LTD. AY 200 8 - 0 9 AND THEN DECIDE THE ISSUE. IN TERM OF THE ABOVE, THIS ISSUE OF REVENUE S APPEAL IS SET ASIDE TO THE FILE OF AO FOR FRESH EXAMINATION. THIS ISSUE OF REVENUE S APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 5. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGAINST THE ORDER OF CIT(A) DELETING THE ADDITION MADE BY AO IN RESPECT TO EX PENSES INCURRED FOR EARNING THE EXEMPT INCOME BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT. FOR THIS, REVENUE HAS RAISED FOLLOWING GROUND NO. 4: 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(A) HAS ERRED IN DELETING THE A DDITION MADE U/S. 14A EVEN THOUGH THE ADDITION HAS ONLY RELEVANCY IN RESPECT OF EXPENSES TO EARN AN INCOME WHICH DO NOT FORMING THE PART OF TAXABLE INCOME IRRESPECTIVE OF STATUS OF ASSESSEE, NATURE OF INCOME OR SOURS OR HEAD OF INCOME' 6. WE HAVE HEARD R IVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE AO HAS SIMPLY INVOKED THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE I. T. RULES, 1962 (HEREINAFTER REFERRED TO AS THE RULES ) FOR THE REASONS THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.58,311/ - . ADMITTEDLY, THE ASSESSEE HAS EARNED DIVIDEND INCOME. THE AO SIMPLY APPLIED THE FORMULA PRESCRIBED UNDER RULE 8D OF THE RULES AND DISALLOWED % OF THE AVERAGE INVESTMENT AT RS.2,03,570/ - . AGGRIEVED , ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO DELETED THE DISALLOWANCE BY OBSERVING IN PARA 5.3 AS UNDER: 5.3 GROUND NO.3: IN THIS GROUND, THE APPELLANT IS AGGRIEVED BY THE ACTION OF THE ASSESSING OFFICER TREATING THE SHARES OF THE NATURE OF STOCK - IN - TRADE HELD BY THE APPELLANT COMPANY AS 'INVESTMENT' SHARES AND CONSEQUENTLY, IN DISALLOWING EXPENSES TO THE EXTENT OF RS. 2,03,5701 - U/S. 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES, 1962, AGAINST DIVIDEND INCOME RS. 58,311/ - ONLY. SINCE I HAVE ALREADY HELD THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LOSS IN SHARE TRADING IS A BUSINESS LOSS, THE DISALLOWANCE OF EXPENSES TO THE EXTENT OF RS. 2,03,570 / - UNDER SEC. 14A OF THE ACT IS ALSO NOT . THEREFORE, THE ADDITION BY WAY OF THIS DISALLOWANCE IS DELETED. AGGRIEVED, NOW REVENUE IS IN APPEAL BEFORE US. 7. WE FIND THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.58,311/ - AND THE SAME IS EXEMPT INCOME INVITING THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULE S. WE FIND FROM THE ASSESSMENT ORDER THAT THERE IS NO SATISFACTION RECORDED FOR APPLICATION OF RULE 8D OF THE IT RULES 1962 AND SIMPLY FORMULA PRESCRIBED UNDER THE SAID RULE IS APPLIED WITHOUT GIVING ANY FINDING QUA THE NEXUS OF EXPENDITURE WITH 5 ITA NO. 359 /K/201 2 RITONA VINIMAY PVT. LTD. AY 200 8 - 0 9 EXEMPTED INCOME. HENCE, WE CONFIRM THE ORDER OF THE CIT(A) AND THIS ISSUE OF APPEAL OF REVENUE IS DISMISSED. 8 . IN THE RESULT, APPEAL OF REVENU E IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . 6 . ORDER IS PRONOUNCED IN THE OPEN COURT . SD/ - SD/ - ( B. P. JAIN ) (MAHAVIR SINGH) ACCOUNTANT MEMBER J UDICIAL MEMBER DATED : 30TH APRIL , 201 5 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . A PPELLANT DCIT, CIRCLE - 9, KOLKATA . 2 RESPONDENT M/S. RITONA VINIMAY PVT. LTD., 21, HEMANTA KR. BASU SARANI, 2 ND FLOOR, SUIT NO. 204, KOLKATA - 700001. . 3 . THE CIT (A), KOLKATA 4. 5. CIT KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .