DCIT 7(2), MUMBAI V. SHREE RADHEY SOFTWARE SOLUTION P. LTD, MUMBAI

ITA 3648/MUM/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7712 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 10 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-03-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 21-03-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 09-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VISHWAS MUNDHEDR
• Keywords: Speculation loss
• Section: 115JB; 139

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -EBENCH MUMBAI , , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND AMARJIT SINGH,JUDICIAL MEMBER ./I.T.A./3648/MUM/2013, / ASSESSMENT YEAR: 2008-09 DCIT,7(2) ROOM NO.624, MK ROAD MUMBAI-400 020. VS. M/S. SHREE RADHEY SOFTWARE SOLUTION PVT.LTD.8, STEEL YARD HOUSE, CARNAC BUNDER,MUMBAI. PAN:AAFCS 2347 J ( /APPELLANT ) ( / RESPONDENT) / REVENUE BY: SHRI VISHWAS MUNDHE-DR /ASSESSEE BY: NONE / DATE OF HEARING: 21/03/2017 / DATE OF PRONOUNCEMENT: 29.03.2017 / PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 25/02/2013 OF THE CIT ( A)-9 MUMBAI,THE ASSESSING OFFICER (AO) HAS FILED THE PRESENT APPEAL. ASSESSEE-COMPANY IS E NGAGED IN THE BUSINESS OF INVESTMENTS AND HAD FILED ITS RETURN OF INCOME ON 31/03/2010,DECLAR ING TOTAL INCOME AT RS. NIL UNDER THE NORMAL PROVISIONS AND BOOK PROFIT OF RS.30.07 LAKHS UNDER SECTION 115JB OF THE ACT. THE AO COMPLETED THE ASSESSMENT U/S.143(3),ON 16/12/2010,DETERMINING ITS INCOME AT RS. 20.52 LAKHS UNDER THE NORMAL PROVISIONS. 2. EFFECTIVE GROUND OF APPEAL IS ABOUT APPLICATION OF PROVISIONS OF EXPLANATION 1 TO SECTION 73 OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS,THE AO F OUND THAT THE ASSESSEE HAD SUFFERED A LOSS IN THE DELIVERY-BASED SHARE TRADING OF RS. 1.85 CRORES . HE DIRECTED IT TO EXPLAIN AS TO WHY THE LOSS SUFFERED IN SHARE TRADING ACTIVITY SHOULD NOT BE CO NSIDERED AS SPECULATION LOSS AS PER THE PROVISIONS OF EXPLANATION TO SECTION 73 OF THE ACT. AS PER THE AO,THE ASSESSEE DID NOT FILE ANY SATISFACTORY REPLY IN THAT REGARD.FINALLY,HE HELD T HAT LOSS SUFFERED BY IT HAD TO BE CONSIDERED A SPECULATION LOSS AND WAS NOT TO BE ALLOWED TO SET O FF AGAINST ANY OTHER HAD OF INCOME AS PER PROVISION OF SECTION 73.HE FURTHER HELD THAT LOSS C OULD NOT BE ALLOWED TO BE CARRIED FORWARD AS THE RETURN FOR THE YEAR UNDER APPEAL WAS NOT FILED WITH IN THE STRIP RELATED TIME ALLOWED UNDER SECTION 139 (3) OF THE ACT. ACCORDINGLY SHORT-TERM CAPITAL GAIN, DECLARED BY THE ASSESSEE, AMOUNTING TO RS. 20.52 LAKHS WAS BROUGHT TO TAX. 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA)AND MADE ELABORATE SUBMISSIONS. IT RE LIED UPON SEVERAL CASE LAWS AND ARGUED THAT PROVISIONS OF EXPLANATION 1 TO SECTION 73 WERE NOT APPLICABLE. AFTER CONSIDERING THE SUBMISSION 3648/M/13(08-09) M/S. SHREE RADHE SOFTWARE SOLUTION PVT.LTD. 2 OF THE ASSESSEE AND THE ASSESSMENT ORDER, THE FAA H ELD THAT THE ASSESSEE HAD ADJUSTED INCOME FROM SHORT-TERM CAPITAL GAIN AGAINST LOSS FROM SHAR E TRADING BUSINESS, THAT THE AO HAD HELD THAT LOSS WAS INCURRED IN THE DELIVERY-BASED SHARE TRADI NG TRANSACTIONS. HE REFERRED TO THE EXPLANATION TO SECTION 73 AND HELD THAT CASE OF THE ASSESSEE CO MPANY FELL OUT OF THE LIMBS OF EXPLANATION TO SECTION 73, THAT THE GROSS TOTAL INCOME OF THE ASSE SSEE CONSISTED MAINLY OF INCOME WHICH WAS CHARGEABLE UNDER THE HEAD CAPITAL GAINS,THAT THE EX PLANATION WAS NOT APPLICABLE, THAT THE BUSINESS OF THE ASSESSEE CANNOT BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTED OF THE PURCHASE AND SALE OF SHARES, THAT THE LOSSES ON SHARE TRADING COULD NOT BE TREATED AS SPECULATION LOSS,THAT THE PROVISI ONS OF THE EXPLANATION WERE NOT APPLICABLE TO A COMPANY THE PRINCIPAL BUSINESS OF WHICH WAS THE BUS INESS OF BANKING/GRANTING LOANS AND ADVANCES,THAT THE MAIN BUSINESS OF THE ASSESSEE WAS GRANTING OF LOANS AND ADVANCES, THAT THE ASSESSEE WAS NOT COVERED BY THE PROVISIONS OF EXPLA NATION TO SECTION 73 OF THE ACT. HE REFERRED TO CASES OF A N CORPORATION LTD. (6SOT 458),JINDAL EXP ORTS LTD.(2006 ITD129) AND CONCORD COMMERCIAL PRIVATE LTD.(94TTJ913) AND ALLOWED THE A PPEAL FILED BY THE ASSESSEE. 4. DURING THE COURSE OF HEARING BEFORE US, THE DEPARTM ENTAL REPRESENTATIVE (DR) RELIED UPON THE ORDER OF THE AO. NONE APPEARED ON BEHALF OF THE ASS ESSEE,AS STATED EARLIER.SO,WE ARE DECIDING THE MATERIAL ON THE BASIS OF THE AVAILABLE MATERIAL. WE FIND THAT THE ASSESSEE HAD DISCLOSED LOSS OF RS. 1.85CRORES FROM SHARE TRADING BUSINESS, LONG- TERM CAPITAL LOSS OF RS.1.68 CRORES AND SHORT-TERM CAPITAL GAIN OF RS. 20.52 LAKHS, THAT THE AO TREATED THE SHARE TRADING BUSINESS UNDER THE HEAD S PECULATIVE BUSINESS AND DENIED THE BENEFIT OF SETTING OFF OF LOSSES TO THE ASSESSEE,THAT THE FAA REVERSED HIS ORDER.THE ASSESSEE, BEING AN INVESTMENT COMPANY,WAS DEALING IN SHARES AND HAD SU FFERED A LOSS DURING ITS REGULAR COURSE OF BUSINESS.THEREFORE, IN OUR OPINION,THE AO WAS NOT J USTIFIED IN HOLDING IT TO BE SPECULATIVE BUSINESS .BEFORE PROCEEDING FURHTE,WE WOULD LIKE TO REFER TO THE MATTER OF DARSHAN SECURITIES P. LTD. ( 341 ITR 556),DELIVERED BY THE HONBLE BOMBAY HIGH C OURT.FACTS OF THE CASE WERE THAT THE ASSESSEE HAD RETURNED AN INCOME OF RS. 2,25,04,588/ - FROM SERVICE CHARGE AND IT HAD SUFFERED A LOSS OF RS.2,23,32,127/- IN SHARE TRADING .IT HAD E ARNED DIVIDEND INCOME OF RS.4,79,325/-.IT CLAIMED THAT IN COMPUTING THE GROSS TOTAL INCOME FO R THE PURPOSE OF THE EXPLANATION TO SECTION 73 OF THE ACT THE INCOME FROM SERVICE CHARGES HAD TO B E ADJUSTED AGAINST THE LOSS IN SHARE TRADING. THE AO DISALLOWED THE SHARE TRADING LOSS,HOLDING IT TO BE SPECULATION LOSS. THE ASSESSEES APPEAL WAS ALLOWED BY THE FAA AND THE TRIBUNAL CONFIRMED H IS ORDER.DISMISSING THE APPEAL FILED BY THE DEPARTMENT,THE HONBLE COURT HELD AS UNDER: 3648/M/13(08-09) M/S. SHREE RADHE SOFTWARE SOLUTION PVT.LTD. 3 AS A RESULT OF THE PROVISION OF SUB-SECTION (1) OF SECTION 73 OF THE INCOME-TAX ACT, 1961,A BAR IS INTRODUCED AGAINST THE SETTING OFF OF A LOSS WHICH HAS ARISEN IN RESPECT OF SPECULATION BUSINESS CARRIED ON BY THE ASSESSEE SAVE AND EXCEPT AGAINST THE PROFITS AND GAINS OF ANOTHER SPECULATION BUSINESS. THE EXPLANATION TO SECTION 73 INTRODUCES A DEEMING FICTION THAT WHERE ANY PART OF THE BUSINESS OF A COMPANY CONSISTS OF THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, SUCH COMPANY SHALL, FOR THE PURPOSES OF THE SECTION BE D EEMED TO CARRY ON SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF THE PURCHA SE AND SALE OF SUCH SHARES. THE DEEMING FICTION APPLIES ONLY TO A COMPANY AND THE PROVISION MAKES I T CLEAR THAT THE DEEMING FICTION EXTENDS ONLY FOR THE PURPOSES OF THE SECTION. THE EXPLANATION, H OWEVER, CARVES OUT AN EXCEPTION THAT IT SHALL NOT APPLY TO A COMPANY WHOSE GROSS TOTAL INCOME CON SISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS INTEREST ON SECURITIES, INCOME F ROM HOUSE PROPERTY, CAPITAL GAINS AND INCOME FROM OTHER SOURCES OR A COMPANY WHOSE PRIN CIPAL BUSINESS IS OF BANKING OR THE GRANTING OF LOANS AND ADVANCES. THE EXPLANATION IS DESIGNED TO DEFINE A SITUATION WHERE A COMPANY IS DEEMED TO CARRY ON SPECULATION BUSINESS. IT IS ONLY THEREAFTER THAT SUB-SECTION (1) OF SECTION 73 CAN APPLY. APPLYING THE PROVISIONS OF SE CTION 73(1) TO DETERMINE WHETHER A COMPANY IS CARRYING ON SPECULATION BUSINESS WOULD REVERSE THE ORDER OF APPLICATION. THAT WOULD BE IMPERMISSIBLE, NOR IS IT CONTEMPLATED BY PARLIAMENT . FOR THE AMBIT OF SUB-SECTION (1) OF SECTION 73 IS ONLY TO PROHIBIT THE SETTING OFF OF A LOSS WH ICH HAS RESULTED FROM A SPECULATION BUSINESS, SAVE AND EXCEPT AGAINST THE PROFITS AND GAINS OF ANOTHER SPECULATION BUSINESS. IN ORDER TO DETERMINE WHETHER THE EXCEPTION THAT IS CARVED OUT BY THE EXP LANATION APPLIES, THE LEGISLATURE HAS FIRST MANDATED A COMPUTATION OF THE GROSS TOTAL INCOME OF THE COMPANY. THE WORDS CONSISTS MAINLY ARE INDICATIVE OF THE FACT THAT THE LEGISLATURE HAD IN ITS CONTEMPLATION THAT THE GROSS TOTAL INCOME CONSISTS PREDOMINANTLY OF INCOME FROM THE FOUR HEAD S THAT ARE REFERRED TO THEREIN. OBVIOUSLY, IN COMPUTING THE GROSS TOTAL INCOME THE NORMAL PROVISI ONS OF THE ACT MUST BE APPLIED AND IT IS ONLY THEREAFTER THAT IT HAS TO BE DETERMINED WHETHER THE GROSS TOTAL INCOME SO COMPUTED CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEAD S REFERRED TO IN THE EXPLANATION. .. THE GROSS TOTAL INCOME OF THE ASSESSEE WAS REQU IRED TO BE COMPUTED, INTER ALIA, BY COMPUTING THE INCOME UNDER THE HEAD OF PROFITS AND GAINS OF B USINESS OR PROFESSION AS WELL. BOTH THE INCOME FROM SERVICE CHARGES IN THE AMOUNT OF RS. 2.25 CROR ES AND THE LOSS IN SHARE TRADING OF RS. 2.23 CRORES, WOULD HAVE TO BE TAKEN INTO ACCOUNT IN COMP UTING THE INCOME UNDER THAT HEAD, BOTH BEING SOURCES UNDER THE SAME HEAD. THE ASSESSEE HAD A DIV IDEND INCOME OF RS. 4.7 LAKHS (INCOME FROM OTHER SOURCES). THE TRIBUNAL WAS JUSTIFIED IN COMIN G TO THE CONCLUSION THAT THE ASSESSEE FELL WITHIN THE PURVIEW OF THE EXCEPTION CARVED OUT IN T HE EXPLANATION TO SECTION 73 AND THAT CONSEQUENTLY THE ASSESSEE WOULD NOT BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS FOR THE PURPOSE OF SECTION 73(1) . NOW,IF THE FACTS OF THE CASE ARE CONSIDERED IT BECO MES CLEAR THAT THE ASSESSEE WAS A INVESTMENT COMPANY AND THE SHARE WERE SOLD IN THE NORMAL COURS E OF ITS BUSINESS.THEREFORE,IN OUR OPINION,THE ORDER OF THE FAA DOES NOT SUFFER FROM A NY LEGAL OR FACTUAL INFIRMITY.UPHOLDING THE SAME,WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAIN ST THE AO. AS A RESULT APPEAL FILED BY THE AO STANDS DISMISSED . . ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH MARCH,2017. 29 TH ,2017, SD/- SD /- ( / AMARJIT SINGH ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 29.03.2017. JV.SR.PS. 3648/M/13(08-09) M/S. SHREE RADHE SOFTWARE SOLUTION PVT.LTD. 4 / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR E BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.