Appeal Details
Counselvise Citation
[2017] 126 COUNSELVISE.COM (IT) 9468 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 4 month(s) 7 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
29-09-2017
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
E
Assessment Year
2009-2010
Appeal Filed On
22-05-2014
Judgement Text
, , IN THE INCOME TAX APPELLATE TRIBUNAL BENCH I MUMBAI BEFORE SHRI D.T.GARASIA , JM AND SHRI RAJESH KUMAR, AM I.T.A. NO. 3672 AND 4977 /MUM/20 1 4 ( / ASSESSMENT YEAR : 20 09 - 10 AND 201 0 - 11 ) ASSTT. COMMISSIONER OF INCOME TAX - CENTRAL CIRCLE -- 21, CENTRAL RANGE - 5, ROOM NO.612, 4 TH FLOOR, AAYAKAR BHAVAN, MK ROAD, MUMBAI - 400020 / VS. M/S SATGURU CAPITAL AND FINANCE PVT LTD., (NOW KNOWN AS M/S SUNTECK WEALTHMAX CAPITAL PVT LTD.) 5 TH FLOO R, SUNTEK CENTR AL 37/40 SUBHASH ROAD, VILE PARLE (E), MUBMAI - 400057 ( / APPELLANT) : ( / RESPONDENT ) I.T.A. NO. 4564 AND 4914/M UM/20 1 4 ( / ASSESSMENT YEAR : 2009 - 10 AND 2010 - 11 ) M/S SW CAPITAL PVT LTD., (FORMERL Y KNOWN AS M/S SUNTECK WEALTHMAX CAPITAL PVT LTD.) 4 TH FLOOR, SUNTECK VILE PARLE (E), MUBMAI - 400057 / VS. DY. COMMISSIONER OF INCOME TAX - CENTRAL CIRCLE 3(4) OLD. CC - 21, MUMBAI. ./ PAN : A AACS7189K ( / APPELLANT) : ( / RESPONDENT ) / A SSESSEE BY : SHRI RISHABH SHAH / RE VENUE BY : SHRI SAURABH KUMAR / DATE OF HEARING : 2 7 .7 .2017 / DATE OF PRONOUNCEMENT : 29. 0 9 . 201 7 2 I.T.A. NO. 4914,4977,4564 AND 3672/ MUM/201 4 / O R D E R PER RAJESH KUMAR, A. M: THE CAPTIONED ARE A PPEAL S BY THE ASSESSEE S AND THE REVENUE PERTAINING TO ASSESSMENT YEAR 2 009 - 10 AND 2010 - 11 . THE APPEAL S FOR THE ASSESSMENT YEAR 2010 - 11 IS DIRECTED AGAINST THE ORDER OF LD.CIT(A) - 39, DATED 23.5.2014 AND AP PEALS FOR THE ASSESSMENT YEAR 2009 - 10 IS DIRECTED AGAINST THE ORDER OF LD.CIT(A) - 8, DATED 24.3.2014 . SINCE THE ISSUES AGITATED IN ALL THESE APPEALS FILED BY THE ASSESSEE AND REVENUE ARE ALMOST IDENTICAL IN NATURE, WE SHALL TAKE UP THE APPEAL RELATING TO THE ASSESSMENT YEAR 20 10 - 11 FILED BY THE ASSESSEE FIRST AS THIS BEING THE LEAD CASE. THE FACTS RELATING TO THE ISSUES UNDER CONSIDERATION ARE DISCUSSED HEREUNDER WITH REFERENCE TO A.Y 20 10 - 11 . ITA NO.4 914 /MUM/2016 2 . THE GROUNDS OF APPEAL TAKEN BY THE AS SESSEE ARE AS UNDER : 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF LEARNED ASSESSING IN DISALLOWING THE FURTHER EXPENSES OF RS.16,65,8031 - U/S.14A OF THE INCOME TAX ACT, 1961 B Y INVOKING THE RULE 80, WITHOUT CONSIDERING THE FACTS AND CIRCUMSTANCES OF TH E CASE. 2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF LEARNED ASSESSING IN DISALLOWING THE CLAIM OF B AD DEBTS, WITHOUT CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE. 3) ON THE FACT AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF LEARNED 3 I.T.A. NO. 4914,4977,4564 AND 3672/ MUM/201 4 ASSESSING OFFICER IN DISALLOWING RESEARCH AND PROCESSI NG FEES OF RS.11,75,000/ - WITHOUT CONSIDERING THE FACT AND CIRCUMSTANCES OF THE CASE. 3 . THE ISSUE RAISED IN THE FIRST GROUNDS OF APPEAL IS AGAINST THE CONFIRMATION OF DISALLOWANCE OF RS.16,65,803/ - U/S 14A OF THE INCOME TAX ACT, 1961 READ WITH RULE 8D OF THE INCOME TAX RULES, 1962. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO OBSERVED THAT THE ASSESSEE HAS EARNED INCOME OF RS.4,23,802/ - AND CLAIMED THE SAME AS EXEMPT INCOME AND THE SUO MOTTO DISALLOWANCE BY THE ASSESSEE WAS RS.3,64,985/ - . TH E AO WAS OF THE OPINION THAT THE DISALLOWANCE IS TO BE COMPUTED BY APPLYING THE PROVISIONS OF SECTION 14A R.W.R.8D. ACCORDINGLY, HE ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE WHICH WAS REPLIED BY THE ASSESSEE BY SUBMITTING THAT THE DISALLOWANCE AT THE RATE OF 0.5 % OF THE AVERAGE INVESTMENT S HAS BEEN MADE IN THE COMPUTATION OF INCOME AT THE TIME OF FILING OF THE RETURN AND NO FURTHER DISALLOWANCE IS REQUIRED TO BE MADE. ACCORDINGLY, THE AO CAME TO THE CONCLUSION THAT THE PROVISIONS OF SECTION 14A R. W.R 8D ARE APPLICABLE BY REJECT ING THE CONTENTION OF THE ASSESSEE THAT THE INVESTMENT S OF RS.4.20 CRORES AS ON 31.3.2010 WE R E MADE OUT OF OWN FUNDS , A S THE ASSESSEE H AS CONSOLIDATED FUNDS WHICH INCLUDE D OWN FUNDS AND CALCULATED THE DISALLOWANCE AT RS .20 , 30 , 788/ - COMPRISING RS.18,20,100/ - UNDER RULE 8D(2)(II) AND RS.2,10,688/ - UNDER RULE 8D(2)(III) . 4 I.T.A. NO. 4914,4977,4564 AND 3672/ MUM/201 4 THE NET DISALLOWANCE WAS MADE AT RS. 16,65,803/ - AFTER ALLOWING THE CREDIT OF SUO MOTTO DISALLOWANCE BY THE ASSESSEE OF RS.3,64,985/ - . IN THE APPELLATE P ROCEEDINGS, THE FAA CONFIRMED THE ORDER OF THE AO ON THE GROUND BY HOLDING AS UNDER : 5.3 I HAVE CAREFULLY CONSIDERED THE MATTER. THE APPELLANT HAD INDEED MADE SUO MOTU DISALLOWANCE UNDER SECTION 14A IN A SUM OF RS.3 , 64 , 985/ - . THIS INDEED IS A TACIT ADMISSION ON THE PART OF T HE APPELLANT THAT DISALLOWANCE UNDER SECTION14A IS INDEED CALLED FOR. THEREFORE, IT IS HELD THAT IN THE CA S E OF THE APPELLANT. AS COMMITTED BY THE APPELLANT HIMSELF, THE PROVISIONS OF SECTION 14A ARE APPLICABLE AND INDEED THE APP ROPRIATE DISALLOWANCE IS CALLED FORM. AS REGARDS THE QUANTUM OF DISALLOWANCE TO BE MADE , THE SUM DISALLOWED BY THE APPELLANT IN A SUM OF RS.3,64,985 IS INDEED AN ESTIMATED FIGURE. AS POINTED OUT BY THE AO, AS HELD BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFT. CO.LTD (2010) 328 ITR 81 F ROM AY 2008 - 09 AND ONWARDS. RULE 8D WILL APPLY . THE ASSESSING OFFICER HAS CLEARLY SHOWN FORTH THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CO M PUTATION AS MADE BY THE APPELLANT. IN FACT T HE APPELLANT HAS CERTAINLY NOT BEEN ABLE TO ESTABLISH THE BASIS OR APPROPRIATENESS OF THE DISALLOWANCE COMPUTED AT RS. 3,64,098/ - _ THEREFORE IT IS CATEGORICALLY HELD THAT IN THIS CASE THE ASSESSING OFFICER WAS CORRECT IN APPLYING RULE 80 LA COMPUTE THE DIS ALLOWANCE UNDER 8.14A. THE APPELLANT HAS RAISED A CONTENTION THAT IT HAS ENOUGH OWN FUNDS AND WHEN THE INVESTMENTS MADE ARC MUCH LESS THAT THE OWN FUNDS AVAILABLE, IT CAN BE DEDU CTED THAT THE INVESTMENT ARE MADE OUT OF OWN FUNDS. THIS IS TOO FACILE AN EXPL ANATION TO BE ACCEPTED. IN MATTERS WITH REGARD TO A FISCAL STATUTE THERE CAN BE NO ASSUMPTIONS/PRESUMPTIONS NOR CAN ANYTHING BE LEFT TO BE DEDUCED FROM. IT IS THE STATUTORY OBLIGATION OF A TAX PAYER TO PROVE THE CONTENTIONS AS RAISED BY HIM. THE APPELLANT HAS NOT MADE ANY EFFORT TO ESTABLISH THAT IT HAD ENOUGH OWN FREE FUNDS AVAILABLE TO MAKE THE INVESTMENTS. IT IS ONE THING TO HAVE ENOUGH OWN FUNDS AND ANOTHER THING TO HAVE ENOUGH OWN FREE FUNDS AVAILABLE. AS PER THE BALANCE SHEET AS AT 31.3.2010. THE APPE LLANT HAS A SHARE CAPITAL OF RS.3.26 CRORES AND RESERVE AND S URPLUS OF RS.1.84 CRORES. BUT THEN IT IS COMMON KNOWLEDGE THAT THE SHAREHOLDERS FUNDS HAVE BEEN DEPLOYED AS FIXED ASSETS AND OTHERWISE. HENCE, WHAT IS TO BE ESTABLISHED IS WHAT IS THE QUANTUM O F OWN FREE FUNDS AVAILABLE HAVE 5 I.T.A. NO. 4914,4977,4564 AND 3672/ MUM/201 4 NEITHER BEEN SUBMITTED NOR THE PRESENCE OF SUFFI CI ENT OWN FREE FUNDS ESTABLISHED. THE CASE LAWS AS RELIED UPON BY THE APPELLANT ARE DISTINGUISHABLE IN THAT IN THE APPELLANTS CASE THE APPELLANT HAS NOT BEEN ABLE TO SATISFY THE AUTHORITIES THAT IT HAD SUFFICIENT FREE FUND AVAILABLE TO SOURCE THE INVESTMENT. THEREFORE THE ACTION OF THE AO IN APPLYING RULE 8D TO COMPUTE THE DISALLOWANCE IS CONFIRMED. HOWEVER, THE AO WILL EXCLUDE THE VALUE OF STOCK, IF ANY, WHILE COMPUTING TH E DISALLOWANCE U/S 14A R.W.8D 3.1 . WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE RELEVANT MATERIAL PLACED BEFORE US INCLUDING THE IMPUGNED ORDER ON THE ISSUE AND THE DECISION S RELIED UPON BY THE LD.AR DURING THE COURSE OF HEARING. IN THIS CAS E, WE FIND THAT THE ASSESSEE HAS OWN AVAILABLE FUNDS SUFFICIENT TO COVER THE INVESTMENT S WHICH YIELDED TAX FREE INCOME AND THEREFORE NO DISALLOWANCE IS CALLED FOR U/R 8D(2)(II) OF RULES . T HE ASSESSEE HAS SHARE CAPITAL AND RESERVES & SURPLUS OF RS.3 .26 CRORES AND RS.1.84 CRORES RESPECTIVELY AS ON 31.3.2010 WHEREAS THE INVESTMENT WERE TO THE TUNE OF RS.4.20 CRORES AND THUS THE AS S ESSEES OWN TAX FEE FUNDS W E RE SUFFICIENT TO COVER THE AMOUNT OF INVESTMENT S FROM THE ASSESSEE YIELDING INCOME BY WAY O F DIVIDEND. WE FIND MERIT IN THE CONTENTIONS OF THE LD.AR THAT IN VIEW OF THE RATIO LAID DOWN IN THE CASE OF CIT V/S HDFC BANK LTD. [2014] 366 ITR 505 (BOM) WHERE THE MIXED FUNDS ARE AVAILABLE IN THE BUSINESS BOTH INTEREST FREE FUNDS AS WELL AS INTEREST B EARING FUNDS AND IF THE INVESTMENT S IN THE TAX FREE SECURIT IES ARE LESS THAN THE TAX FREE FUNDS THEN THE PRESUMPTION WOULD BE DRAWN AND THAT INVESTMENT S IN THE INTEREST FREE 6 I.T.A. NO. 4914,4977,4564 AND 3672/ MUM/201 4 SECURITY WAS MADE OUT OF OWN FUNDS. ACCORDINGLY, FOLLOWING THE RATIO LAID DOWN I N THE CASE OF HDFC BANK (SUPRA) WE ARE INCLINED TO DELETE THE DISALLOWANCE OF RS.16,65,803/ - BY REVERSING THE ORDER CIT(A) ON THIS ISSUE . THE AO IS DIRECTED ACCORDINGLY . THIS GROUND IS ALLOWED. 4 . GROUNDS OF APPEAL NO.2 IS AGAINST THE CONFIRMATION OF DISALLOWANCE BY THE LD. CIT(A) AS MA D E BY THE AO ON ACCOUNT OF BAD DEBTS. 4.1. DURING T HE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED TH A T THE ASSESSEE HAS CHARGED TO T HE PROFIT AND LOSS ACCOUNT A SUM OF RS.59,84,843/ - ON ACCOUNT OF BAD DEBTS AND SUNDRY BALANCES WRITTEN OFF AND ACCORDINGLY ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE AS TO WHY THE ASSESSEE FULFILLED THE CONDITIONS OF SECTION 36(1)(VII) R.W.S.36(2) OF THE ACT . THE ASSESSEE SUBMITTED BEFORE THE AO THAT THIS AMOUNT HA S BEEN WRITTEN OFF AS THE SAME PERTAINS TO CLIENTS THE RECEI PTS FROM WHOM STAND OFFERED AS INCOME IN THE PAST AND THE MONEY WHICH COULD NOT BE RECOVERED WAS CHARGED AS PER THE PROVISIONS OF THE ACT . HOWEVER, THE REPLY OF THE ASSESSEE DID NOT FIND FAVOUR WITH THE AO AN D HE DISALLOWED THE SAME BY OBSERVING THAT THE ASSESSEE HAS FAILED TO SATISFY THE CONDITIONS AS LAID DOWN IN SECTION 36(1)((VII) READ WITH SECTION 36(2). 7 I.T.A. NO. 4914,4977,4564 AND 3672/ MUM/201 4 4.2. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) AFTER TAKING INTO ACCOUNT THE CONTENTIONS AND SUBM ISSIONS OF THE ASSESSEE PARTLY ALLOWED THE APPEAL BY OBSERVING AND HOLDING AS UNDER VIDE PARA 6.3: 6.3 I HAVE CAREFULLY EXAMINED THE MATTER. AFTER THE AMENDMENT TO SECTION 36(1)(VII), THE ACT OF WRITING OFF A DEBT AS IRRECOVERABLE IN THE ACCOUNTS IS DEE MED TO BE DISCHARGING THE ONUS OF THE ASSESSEE IN HOLDING A DEBT AS BAD DEBT. FURHER, IN THE INSTANT CASE, THE APPELLANT IS IN THE BUSINESS OF SHARE BROKING. IN THE CASE OF SHRI VINOD KUMAR SHASTRI OF RS.21,69,307/ - AND BHARAT KUMART VACCHANI OF RS .24,36,361/ - THE DETAILS AS FURNISHED SHOW THAT ALL OUT EFFORTS HAVE BEEN MADE IN ORDER TO RECOVER THE DEBTS THAT HAD BECOME BAD. THE COPIES OF THE LEGAL NOTICE ISSUED ARE PLACED ON RECORD. FURTHER, THE APPELLANT BEING A SHARE - BROKER, THE MONIES RECOVE RABLE, FROM A CLIENT TO THE EXTENT OF BROKERAGE, IS TO BE TREATED AS A BAD DEBT, AS HELD IN THE CASE OF DCIT V/S SHREYAS J MORAKHIA. HENCE, IT IS HELD THAT TO THE EXTENT OF BROKERAGE PAYABLE, TAKEN AS PART OF INCOME , THE AO WILL ALLOW THE CLAIM IN RESPEC T OF ALL THE CLAIMS AS MADE BY THE APPELLANT 4.3. AT THE OUTSET, THE LD. AR SUBMITTED THAT THE ISSUE OF BAD DEBTS IS FULLY COVERED BY THE DECISION OF THE CO - ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.4939/MUM/2011 (AY - 2008 - 09) DA TED 20.6.2012 AND THEREFORE THE ADDITION MADE SHOULD BE ORDERED TO BE DELETED. THE LD. DR APPEARED TO BE FAIRLY AGREED WITH THE CONTENTION OF THE LD.AR. 4.4 . AFTER HEARING BOTH THE PARTIES AND ON PERUSAL OF THE RECORD AND AFTER GOING THROUGH THE ORDER O F THE TRIBUNAL IN ASSESSEES OWN CASE , WE FIND 8 I.T.A. NO. 4914,4977,4564 AND 3672/ MUM/201 4 THAT THE ISSUE STANDS COVERED IN FAVOUR OF T HE ASSESSEE. WE FOR THE READY REFERENCE REPRODUCE THE OPERATIVE PART OF THE TRIBUNAL ORDER AS UNDER: 5. ON PERUSAL OF THE SUBMISSIONS MADE BEFORE AO AND THE CIT (A) AND PERUSING THE PAPER BOOK IN THIS REGARD, WE ARE OF THE OPINION THAT ASSESSEE HAS SATISFIED THE CONDITIONS STIPULATED IN SECTION 36(2)(I) SINCE THESE ARE BUSINESS DEBTS WHICH COULD NOT BE RECOVERED AND WRITTEN OFF. FOLLOWING THE PRINCIPLES LAID DOWN BY THE SPECIAL BENCH IN THE CASE OF SHREYAS S. MORAKHIA (SUPRA) WE HOLD THAT ASSESSEE SATISFIED THE CONDITIONS PRESCRIBED UNDER SECTION 36(2). MOREOVER THE HON'BLE SUPREME COURT IN THE CASE OF TRF LTD VS. CIT 323 ITR 397 HAS ALREADY CONSIDERED THAT IT IS N OT NECESSARY TO ESTABLISH THAT THE DEBT HAD IN FACT HAD BECOME IRREVOCABLE AFTER THE PROVISIONS WERE AMENDED W.E.F. 1.4.1989. FOLLOWING THE ABOVE PRINCIPLES, SINCE NECESSARY DETAILS WERE ALREADY FILED BEFORE THE AUTHORITIES, WE HAVE NO HESITATION IN ALLOWI NG THE GROUND. AO IS DIRECTED TO ALLOW THE BAD DEBT AS CLAIMED. 4.5 . RESPECTFULLY FOLLOWING THE PRECEDENT LAID DOWN BY THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE , WE DIRECT THE AO TO ALLOW THE CLAIM OF THE ASSESSEE . THE GROUND IS A CCORDINGLY ALLOWED. 5 . THE ISSUE RAISED IN GROUNDS OF APPEAL NO.3 IS WITH REGARD TO THE DISALLOWANCE OF RESEARCH AND PROCESSING FEES OF RS.11,75,000/ - BY THE CIT(A) BY UPHOLDING THE ORDER OF AO ON THIS ISSUE. 5.1 . FACTS OF THE ISSUE IN BRIEF ARE THAT THE AO NOTICED THAT THE ASSESSEE HAS DEBITED TO PROFIT AND LOSS ACCOUNT AN AMOUNT OF RS.11 , 75,000/ - TOWARDS RESEARCH AND PROCESSING FEES. ACCORDINGLY, THE AO ISSUED NOTICE TO THE ASSESSEE AS TO WHY THE SAME SHOULD NOT BE DISALLOWED. IN 9 I.T.A. NO. 4914,4977,4564 AND 3672/ MUM/201 4 RESPONSE, THE ASSESSEE SUBMITTED THAT THE MAIN OBJECT OF THE ASSESSEE WAS TO PROVIDE OF BUSINESS CENTERS , HOUSEKEEPING AND INFRASTRUCTURAL FACILITIES, PROJECT CONSULTANCY AND MANAGEMENT SERVICES AND ALSO PROVE SERVICES IN RESEARCH DEVELOPMENT AND MARKETING, M ANPOWER AN D CONFERENCING INTERNET FACILITIES, DEVELOP E - COMMERCE AND ELECTRONICS FACILITIES AND ESTABLISH CENTR E S FOR PROVIDING FACILITIES IN SOFTWARE , HARDWARE AND WEB DESIGNING AND ALSO CHARGING REMUNERATION OF THE EMPLOYEES. HOWEVER, THE REPLY OF THE ASSESSEE DI D NOT FIND FAVOUR WITH T HE AO AND ACCORDINGLY, ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE FAILED TO PROVE THE GENUINENESS OF THE CLAIM AND TO FAILED TO PROVE THE WHOLLY AND EXCLUSIVITY U/S 37(1). 5.2. IN THE APPELL ATE PROCEEDINGS, THE LD.CIT(A) CONFIRMED THE ACTION OF THE AO BY OBSERVING AND HOLDING AS UNDER : 7.3 I HAVE CAREFULLY CONSIDERED THE MATTER. THE APPELLANT HAS MADE PAYMENT OF RS. 11,75,000/ - TO M/ S KEY TONE CORPORATE SOLUTIONS P. LTD. THE APPELLANT HAS F URNISHED BEFORE ME COPIES OF THE BILLS RAISED ON IT IN ORDER TO VOUCH FOR THE S AID EXPENDITURE. ON AN APPRECIATION OF THE MATTER, I AM OF THE VIEW THAT THE APPELLANT HAS NOT PRODUCED TANGIBLE MATERIAL IN ORDER TO PROVE ITS ASSERTION THAT THE SAID COMPANY H AD BEEN ENGAGED TO CARRY OUT RESEARCH AS REGARDS THE EQUITY MARKET. NOTWITHSTANDING TH E FACT THAT THE SAID COMPANY MAY BE A GENUINE ENTITY, IT IS THE BURDEN OF THE APPELLANT COMPANY TO PROVE THAT THE SAID ENTITY HAD CARRIED OUT THE WORK AS CLAIMED SO AS T O VOU CH FOR THE GENUINENESS SAID OF THE EXPENDITURE CLAIMED. MERELY BECAUSE A COMPANY IS GENUINE , EXPENSES AS DEBITED CANNOT BE ALLOWED UNLESS THE BONAFID ES OR THE CLAIM ARC PROVED. NOTHING HAS BEEN PLACED ON RECORD EITHER BEFORE THE AO OR BEFORE THE C IT (A) TO 10 I.T.A. NO. 4914,4977,4564 AND 3672/ MUM/201 4 EVIDENCE THE ASSERTION THAT TH E EXPENDITURE WAS INCURRED W HOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS CARRIED OUT. THOUGH THE APPELLANT HAD STATED THAT THE DAILY/WEEKLY RESEARCH REPORTS ARE RECEIVED THROUGH EMAIL AND OTHER MODES OF COMMUNICAT ION COPIES OF THE SAID RECORDS HAVE NOT BEEN PRODUCED. UNDER THE CIRCUMSTANCES. I DECLINE TO INTERFERE WITH THE ACTION OF THE AO. THE ADDITION OF RS.11,75,000/ - IS CONFIRMED. 5.3. AT THE TIME OF HEARING, THE LD.AR SUBMITTED THAT A SIMILAR ISSUE HA D COME UP BEFORE THE LD.CIT(A) IN THE ASSESSMENT YEAR 2009 - 10 AND THE LD.CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE ON THE IDENTICAL FACTS AND CIRCUMSTANCES AS ARE IN THE PRESENT CASE. THE REVENUE DID NOT CHALLENGE THE FINDINGS OF THE LD.CIT(A) BEFORE THE HIGHER FORUM AND HENCE THE ISSUE RAISED IN THIS GROUND IS STANDS COVERED BY THE EARLIER DECISION OF THE FIRST APPELLATE AUTHORITY AND THEREFORE PRAYED THAT SIMILAR STAND BE TAKEN HERE ALSO BY ORDERING THE DELETION OF THE ADDITION . 5.4 . THE LD. DR RELIED U PON THE ORDERS OF AUTHORITIES BELOW. 5.5 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL PLACED BEFORE US. WE FIND A SIMILAR ISSUE AROSE IN THE ASSESSMENT YEAR 2009 - 10 IN WHICH THE ADDITION WAS MADE BY THE AO TO THE TOTAL INCOME OF THE ASS ESSEE BUT IN THE PROCEEDINGS BEFORE THE FAA, THE LD. CIT(A) DELETED THE ADDITION MADE BY THE AO VIDE PARA 6.3 OF THE APPELLATE ORDER IN APPEAL NO.8/CIR - 4/344/11 - 12 AY - 2009 - 10 AND THE REVENUE HAS NOT CHALLENGED THE DECISION OF LD.CIT(A) BEFORE THE TRIB UNAL. THEREFORE, REVENUES PLEA CANNOT 11 I.T.A. NO. 4914,4977,4564 AND 3672/ MUM/201 4 BE RAISED AT THIS JUNCTURE TO RAKE UP THE SAME ISSUE IN THE SUBSEQUENT ISSUE AS THE ISSUE HAS BEEN SETTLED IN THE PREVIOUS YEAR. MOREOVER, EVEN ON MERITS THE CASE OF THE ASSESSEE IS VERY STRONG CASE AS THE PAYMEN T IS MADE TO THE SAME PARTY VIZ M/S KEY TONE CORPORATE SOLUTIONS P. LTD FOR PROVID ING DATA ANALYSIS AND RESEARCH ON THE STOCK MARKET AS WELL AS COMMODITY MARKET. IN VIEW OF THE SAID FACTS AND CIRCUMSTANCES, WE ARE INCLINED TO DIRECT THE AO TO DELETE TH E ADDITION BY REVERSING THE FINDINGS OF THE LD. CIT(A). THE APPEAL IS ALLOWED ON THIS GROUND. ITA NO.4977/MUM/2014 6 . GROUNDS OF APPEAL RAISED BY THE REVENUE ARE AS UNDER : 1) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CI T(A) HAS ERRED IN DELET ING THE DISALLOW ANCE OF CLAIM OF BAD DEBTS OF RS.59,84,843 MADE BY THE AO. 2) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DELET ING THE DISALLOW ANCE OF CLAIM OF REPAIRS AND MAINT ENANCE EXPENSES OF RS.23,83,275/ - 7 . THE GROUND RAISED BY THE REVENUE IN THE FIRST GROUNDS OF APPEAL IS IDENTICAL TO THAT OF GROUND NO.2 IN ITA NO.4914/MUM/2016 WHICH WE HAVE DECIDED IN FAVOUR OF ASSESSEE VIDE PARAGRAPH 4 OF THIS ORDER ABOVE. SINCE THE ISSUE HAS BEEN DECIDED BY US AND STANDS COVERED BY THE CO - ORDINATE BENCH OF THE TRIBUNAL (SUPRA), WE ARE INCLINED TO DISMISS THE GROUND NO.1 TAKEN BY THE REVENUE. ACCORDINGLY GROUND NO.1 IS DISMISSED. 12 I.T.A. NO. 4914,4977,4564 AND 3672/ MUM/201 4 8 . THE ISSUE RAISED BY THE REVENUE IN GROUNDS OF AP PEAL NO.2 IS AGAINST THE DELETION OF ADDITION OF RS.23,83,275/ - MADE BY THE AO ON ACCOUNT OF REPAIRS AND MAINTENANCE EXPENSES. 8. 1. BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.25,24,082 TO ITS PROFIT AND LOSS ACCOUNT ON A CCOUNT OF REPAIRS AND MAINTENANCE EXPENSES OUT OF WHICH RS.19,22,385/ - W ERE INCURRED ON PURCHASE OF MYANMAR GURJAN WOOD LOGS AND RS.4,60,890/ - ON ACCOUNT OF LABOUR CHARGES WHICH AS PER THE AO WERE OF CAPITAL NA TURE AS THE SAID EXPENSES WERE APPARENTLY INCURRED EITHER ON RENOVATION OR TO FABRICATE NEW STRUCTURES AND ACCORDINGLY TREAT ED THE SAME AS CAPITAL EXPENDITURE BY ADDING/ DISALLOW ING THE SAME. 8.2. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE AFTER CONSIDERING THE CONTENTIONS AND SUBMISSIONS OF THE ASSESSEE TREATING THE EXPENSES INCURRED ON REPAIRS AND MAINTENANCE AND ON RENOVATION OF OFFICE OF REVENUE IN NATURE. THE OBSERVATIONS AND FINDINGS OF THE LD.CIT(A) ARE AS UNDER : 8..3 ON A CONSIDERATION OF TH E MATTER, I AM OF THE VIEW THAT THE EXPENSES INCURRED TOWARDS PURCHASE OF MYANMAR GURJAN WOOD LOGS AND THE LABOUR CHARGES CANNOT BE TREATED AS HAVING RESULTED IN ADVANTAGE OF ENDURING NATURE SO AS TO BE TREATED AS CAPITAL. FURTHER, THE ASSESSING OFFICER HA S NOT BROUGHT ON RECORD THAT THE EXPENDITURE HAS RESULTED IN BRINGING INTO EXISTENCE ANY NEW ASSET OF AN ENDURING NATURE. NO CLEAR FINDING HAS BEEN GIVEN BY THE ASSESSING OFFICER IN THIS REGARD. ON AN ENTIRE APPRECIATION OF THE MATTER, THE EXPENDITURE INC URRED TOWARDS PURCHASE OF LOGS, FOR RENOVATION OF THE 13 I.T.A. NO. 4914,4977,4564 AND 3672/ MUM/201 4 RENTED PREMISES IS IN THE NATURE OF 'CURRENT REPAIRS' AND THEREFORE HELD AS REVENUE. THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE SUM OF RS.23,83,275/ - CLAIMED UNDER REPAIRS AND MAINTENANCE 8 .3 . AFTER HEARING THE RIVAL CONTENTIONS AND PERUSING THE MATERIAL PLACED BEFORE US, WE FIND THAT THE ASSESSEE HAS INCURRED AN EXPENDITURE ON REPAIRS AND MAINTENANCE AND RENOVATION OF OFFICE PREMISES AND THEREFORE THE SAME CANNOT BE TREATED AS CAPITAL IN NATURE . WE ARE , THEREFORE , IN COMPLETE AGREEMENT WITH THE LD.CIT(A) THAT THE SAID EXPEN SES ARE ADMISSIBLE AS REVENUE EXPENDITURE . A CCORDINGLY WE UPHOLD THE ORDER OF CIT(A) DISMISS ING THE GROUND RAISED BY THE REVENUE. ITA NO.4564/MUM/2014 9. ONLY GROUND RAISE D BY THE ASSESSEE IN THIS APPEAL IS AS UNDER : 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.29,77,239/ - MADE BY THE AO BY WRONGLY INTERPRETING AND APPLYING THE PROVISION S OF SECTION 14A OF THE IT ACT, 1961 R.W.RULE 8D OF THE INCOME TAX RULES, 1962 WHILE IGNORING HE SUBMISSIONS OF THE AR.: 1 0. THE FACTS OF THIS ISSUE ARE IDENTICAL TO THAT OF ITA NO. NO.4914/MUM/2016 , WHICH WE HAVE DECIDED IN PARA 3 AND 4 OF THIS ORDE R ABOVE IN FAVOUR OF THE ASSESSEE. THEREFORE, TO MAINTAIN THE CONSISTENCY WITH OUR FINDINGS, WE FOLLOW THE SAME AND DIRECT THE AO TO DELETE THE ADDITION OF RS. 29,77,239/ - . ACCORDINGLY THIS GROUND IS ALLOWED. 14 I.T.A. NO. 4914,4977,4564 AND 3672/ MUM/201 4 ITA NO.3672/MUM/2014 1 1. THE GROUNDS OF APPEAL TAKEN BY THE REVENUE ARE AS UNDER : 1. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE ON ACCOUNT OF TREATING THE LOSS INCURRED IN SHARE TRADING IN CASH SEGMENT OF RS.77,49, 221/ - AS SPECULATION LOSS U/S 73?' 2. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT (A) WAS JUSTIFIED IN DELETING DISALLOWANCE OF RS. 2,78,406/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF BAD DEBTS WHERE THE ASSESSEE HAS CLEARLY NOT FULFILLED THE CONDITIONS LAID DOWN IN SEC.36(2) OF THE INCOME TAX ACT, 1961?' 1 2. THE GROUNDS OF APPEAL NO.1 IS AGAINST THE DELETING THE DISALLOWANCE BY THE LD. CIT(A) BY TREATING THE SHARE TRADING LOSS AS SPECULATION LOSS U/S 73 OF THE ACT. 12.1 . FACTS IN BRIEF ARE THAT DURING THE ASSESSMENT PROCEEDINGS, THE AO NOTI CED THAT THE ASSESSEE HAS SET OFF LOSS FROM SHARE TRADING (CASH DIVISION) OF RS.77,49,222/ - AGAINST THE INCOME OF RS.1,15,64,503/ - EARNED FROM F&O SEGMENT AND THUS OFFERED AN INCOME OF RS.33,32,552/ - FROM SHARE TRADING. ACCORDING TO THE AO, THE LOSS INCURRED IN THE SAID TRADING DIVISION IS SPECULATION LOSS IN TERMS OF EXPLANATION (1) TO SECTION 73 OF THE ACT W HEREAS THE INCOME FROM F&O SEGMENT IS A NORMAL BUSINE SS INCOME AND THEREFORE THE SAID LOSS FROM TRADING DIVISION COULD NOT BE SET OFF AGAINST THE INCOME OF F&O SEGMENT. THE ASSESSEE REPLIED BEFORE THE AO 15 I.T.A. NO. 4914,4977,4564 AND 3672/ MUM/201 4 WHICH HAS BEEN INCORPORATED IN PARA 4.3 OF THE ASSESSMENT ORDER AND IS REPRODUCED AS UNDER : 4.3 T HE ASSESSEE COMPANY HAD FILED THE EXPLANATION - AS UNDER: ( A) AT THE OUTSET IT IS SUBMITTED THAT EVEN ON APPLICATION OF DEEMING PROVISIONS PURSUANT TO EXPLANATION TO SEC. 73 OF THE A CT THE NET RESULT OF DEALING OF THE ASSESSEE COMPANY IN THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES IS A PROFIT WHICH IS OFFERED FOR TAX AND THEREFORE THE QUESTION. OF CA RRY FORWARD OF THE SPECULATION LOSS AND. PROPORTIONATE EXPE NSE THERETO DOES NOT ARISE. B) IT APPEARS THAT YOUR GOOD SELF WHILE CALCULATING THE DEEM E D SPECULATION LOSS FOR. THE RELEVANT YEAR FOR THE ASSES SEE COMPANY HAS NOT TAKEN INTO ACCOUNT THE F&O PROFIT WHICH IS ALSO A RESULT OF TRANSACTIONS BY WAY OF PURCHASE AND S ALE OF SHARES . OF OTHER COMPANIES CARRIED OUT BY. THE ASSES SEE COMPANY AND AS PER THE DEEMING PROVISIONS OF EXPLANATION TO SEC. 73 OF THE ACT; ARE TO BE TREATED A SPECULATION PROFIT. IN THIS : REGARD ATTENTION OF YOUR GOODS ELF IS INVITED TO THE LEGAL POSITION WHEREIN - IT IS CLEAR THAT EXPLANATION TO SEC. 73 IS T O BE APPLIED IGNO RING THE DEFINITION OF SPECULATION PROFIT / LOSS U /S 43(5) OF THE ACT DEFINING A SPECULATIVE TRANSACTION.. ON ALL THE TRANSACTIONS BY WAY OF PURCHASE AND SALE OF SHARES OF OTHER COMPANIES. IN VIEW OF THE SAME ONE CANNOT APPLY THE D EEMING PROVISIONS OF E XPLANATION TO SEC. 73 ONLY TO THE TRADIN G IN DELIVERY BASED SHARE TRANSACTION AS THEY ARE NOT INCLUDE D IN SPECULATIVE TRANSACTION U/ S. 43(5) OF THE ACT AND EXCLUDE F&O TRANSACTIONS WHICH. ARE ALTHOUGH NON - DELIVERY BASED AND COVERED U/ S. 43(5) OF THE ACT BUT SPECIFICALLY EXCLUDED AS AN EXCEPTION TO SECTION 43(5) OF THE ACT BY WAY OF A PROVISO (D) W.E.F AS 1.4.2006 AS SUCH TRANSACTION ARE ALSO BY WAY OF PURCHASE AND SALE OF SHARES OF OTHER COMPANIES WITHIN THE DEFINITION OF THE SECURITIES CONTRACTS (R EGULATION) ACT, 1956 AND ARE CARRIED OUT AT RECOGNIZED STOCK EXCHANGES ONLY. 1 2 .2 . HOWEVER, THE REPLY OF THE ASSESSEE DID NOT FIND FAVOUR WITH THE AO AND HE REJECTED THE CONTENTIONS OF ASSESSEE REGARDING SAID LOSS OF RS.77,49,222/ - BY TREATING THE SAME AS SPECULATION LOSS UNDER EXPLANATION 16 I.T.A. NO. 4914,4977,4564 AND 3672/ MUM/201 4 (1) TO SECTION 73 OF THE ACT THEREBY REJECTING THE SETTING OFF CLAIM AGAINS THE F&O INCOME BY THE ASSESSEE RESULTING INTO ADDITION TO THE INCOME OF THE ASSESSEE. 12.3. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) A LLOWED THE APPEAL OF THE ASSESSEE AFTER CONSIDERING THE DETAIL ED SUBMISSIONS OF THE ASSESSEE INCORPORATED IN PARA 2.2 TO 2.6 OF THE APPELLATE ORDER . T HE LD.CIT(A) VIDE PARA 2.7 TO 2.15 DECIDED THE ISSUE AS UNDER (ONLY RELEVANT PARAS ARE REPRODUCED BELOW ): 2.7 I HAVE. 2.10 THE AO IS OF THE VIEW..IN THE CASE OF PRASAD AGENTS (P) LTD V/S ITO (2009) TAXMAN 178 (BOM) (HC), WHILE DEALING EXHAUSTIVELY, THE HONBLE HIGH COURT HELD AS UNDER: SECTION 73 OF THE INCOME - TAX ACT, 1961 - LOSSES - IN SPECULAT ION BUSINESS - ASSESSMENT YEAR 2001 - 02 - WHETHER IN VIEW OF CLEAR LANGUAGE OF EXPLANATION TO SECTION 73, A COMPANY CARRYING ON BUSINESS OF PURCHASE AND SALE OF SHARES SHALL BE DEEMED TO BE CARRYING ON SPECULATION BUSINESS - HELD, YES - WHETHER CIRCULAR NO. 204, DATED 24 - 7 - 1976, WHICH CONTAINS EXPLANATORY NOTES TO TAXATION LAWS (AMENDMENT) ACT, 1975, MAY BE CONSIDERED TO MEAN THAT EXPLANATION TO SECTION 73 ALSO INCLUDES CASES OF GROUP COMPANIES, BUT THAT DOES NOT MEAN THAT EXPLANATION MUST BE RESTRICTED ONLY TO GROUP COMPANIES AND NOT TO OTHER COMPANIES WHO CARRY ON BUSINESS OF SALE AND PURCHASE OF SHARES EITHER HAVING NO CONTROLLING INTEREST IN OTHER COMPANIES OR PURCHASING SHARES TO CONTROL OTHER COMPANIES - HELD, YES - WHETHER EXPLANATION TO SECTION 73 CAN NOT BE READ TO MEAN ONLY WHEN THERE IS PURCHASE AND SALE OF SHARES IN COURSE OF A FINANCIAL YEAR, BUT IT WILL COVER BOTH, SHARES WHICH ARE STOCK - IN - TRADE AND SHARES WHICH ARE TRADED IN COURSE OF FINANCIAL YEAR, FOR PURPOSE OF CONSIDERING LOSS AND PROFIT F OR THAT YEAR - HELD, YES - WHETHER, THEREFORE, LOSS OR PROFIT ON ACCOUNT OF VALUATION OF STOCK - IN - TRADE OF SHARES WOULD AMOUNT TO REVENUE LOSS OR REVENUE RECEIPT - HELD, YES 17 I.T.A. NO. 4914,4977,4564 AND 3672/ MUM/201 4 .THIS POSITION IS FURTHER SUPPORTED BY THE HONBLE DELHI HIGH COURT IN THE CAS E OF CIT V/S DLF COMMERCIAL DEVELOPERS LTD IN ITA NO.94/2013 VIDE ORDER DATED 11.7.2013) WHEREIN IT HAS BEEN HELD. 9. IN THIS CONTEXT, IT WOULD BE INSTRUCTIVE TO NOTICE THAT IN RAJSHREE SUGARS AND CHEMICALS LTD (SUPRA), THE MADRAS HIGH COURT NOTICED, RATH ER DRAMATICALLY, THAT ..'DERIVATIVES ARE TIME BOMBS AND FINANCIAL WEAPONS OF MASS DESTRUCTION' SAID WARREN BUFFETT, ONE OF THE WORLD'S GREATEST INVESTORS, WHO OVERTOOK MICROSOFT MAESTRO IN 2008 TO BECOME THE RICHEST MAN IN THE WORLD AND WHO IS KNOWN AS TH E 'SAGE OF OMAHA OR ORACLE OF OMAHA'. DERIVATIVES, ACCORDING TO HIM, CAN PUSH COMPANIES ON TO A SPIRAL THAT CAN LEAD TO A CORPORATE MELT DOWN.... THE HIGH COURT THEN, AFTER EXAMINING THE NATURE AND CHARACTERISTICS OF DERIVATIVES TRANSACTIONS, OBSERVED THA T: 5. WHAT ARE THESE 'DERIVATIVES' WHICH HAVE GAINED SUCH A GREAT DEAL OF NOTORIETY? IN SIMPLE TERMS, DERIVATIVES ARE FINANCIAL INSTRUMENTS WHOSE VALUES DEPEND ON THE VALUE OF OTHER UNDERLYING FINANCIAL INSTRUMENTS. THE INTERNATIONAL ACCOUNTING STANDARD ( IAS) 39, DEFINES 'DERIVATIVES' AS FOLLOWS: A DERIVATIVE IS A FINANCIAL INSTRUMENT: (A) WHOSE VALUE CHANGES IN RESPONSE TO THE CHANGE IN A SPECIFIED INTEREST RATE, SECURITY PRICE, COMMODITY PRICE, FOREIGN EXCHANGE RATE, INDEX OF PRICES OR RATES, A CREDIT RA TING OR CREDIT INDEX, OR SIMILAR VARIABLE (SOMETIMES CALLED THE 'UNDERLYING'); (B) THAT REQUIRES NO INITIAL NET INVESTMENT OR LITTLE INITIAL NET INVESTMENT RELATIVE TO OTHER TYPES OF CONTRACTS THAT HAVE A SIMILAR RESPONSE TO CHANGES IN MARKET CONDITIONS; A ND (C) THAT IS SETTLED AT A FUTURE DATE. ITA 94/2013 PAGE 10 ACTUALLY, DERIVATIVES ARE ASSETS, WHOSE VALUES ARE DERIVED FROM VALUES OF UNDERLYING ASSETS. THESE UNDERLYING ASSETS CAN BE COMMODITIES, METALS, ENERGY RESOURCES, AND FINANCIAL ASSETS SUCH AS SHA RES, BONDS, AND FOREIGN CURRENCIES. 10. IT IS NO DOUBT, TEMPTING TO HOLD THAT SINCE THE EXPRESSION 'DERIVATIVES' IS DEFINED ONLY IN SECTION 43 (5) AND SINCE IT EXCLUDES SUCH TRANSACTIONS FROM THE ODIUM OF S PECULATIVE TRANSACTIONS, AND FURTHER THAT SINCE THAT HAS NOT BEEN EXCLUDED FROM SECTION 73 , YET, THE COURT WOULD BE DOING VIOLENCE TO PARLIAMENTARY INTENDMENT. THIS IS BECAUSE A DEFINITION ENACTED FOR O NLY A RESTRICTED PURPOSE OR OBJECTIVE SHOULD NOT BE APPLIED TO ACHIEVE OTHER ENDS OR PURPOSES. 18 I.T.A. NO. 4914,4977,4564 AND 3672/ MUM/201 4 DOING SO WOULD BE CONTRARY TO THE STATUTE. THUS CONTEXTUAL APPLICATION OF A DEFINITION OR TERM IS STRESSED; WHEREVER THE CONTEXT AND SETTING OF A PROVISION INDIC ATES AN INTENTION THAT AN EXPRESSION DEFINED IN SOME OTHER PLACE IN THE ENACTMENT, CANNOT BE APPLIED, THAT INTENT PREVAILS, REGARDLESS OF WHETHER STANDARD EXCLUSIONARY TERMS (SUCH AS 'UNLESS THE CONTEXT OTHERWISE REQUIRES') ARE USED. IN THE VANGUARD FIRE & GENERAL INSURANCE CO. LTD., MADRAS V. M/S. FRASER AND ROSS & ANR AIR 1960 SC 971 IT WAS HELD THAT: IT IS WELL SETTLED THAT ALL STATUTORY DEFINITIONS OR ABBREVIATIONS MUST BE READ SUBJECT TO THE QUALIFICATION VARIOUSLY EXPRESSED IN THE DEFINITION CLAUSES WHICH CREATED THEM AND IT MAY BE THAT EVEN WHERE THE DEFINITION IS EXHAUSTIVE INASMUCH AS THE WORD D EFINED IS SAID TO MEAN A CERTAIN THING, IT IS POSSIBLE FOR THE WORD TO HAVE A SOMEWHAT DIFFERENT MEANING IN DIFFERENT SECTIONS OF THE ACT DEPENDING UPON THE SUBJECT OR THE CONTEXT. THAT IS WHY ALL ITA 94/2013 PAGE 11 DEFINITIONS IN STATUTES GENERALLY BEGIN WITH THE QUALIFYING WORDS SIMILAR TO THE WORDS USED IN THE PRESENT CASE, NAMELY, UNLESS THERE IS ANYTHING REPUGNANT IN THE SUBJECT OR CONTEXT. THEREFORE IN FINDING OUT THE MEANING OF THE WORD ' INSURER ' IN VARIOUS SECTIONS OF THE ACT, THE MEANING TO BE O RDINARILY GIVEN TO IT IS THAT GIVEN IN THE DEFINITION CLAUSE. BUT THIS IS NOT INFLEXIBLE AND THERE MAY BE SECTIONS IN THE ACT WHERE THE MEANING MAY HAVE TO BE DEPARTED FROM ON ACCOUNT OF THE SUBJECT OR CONTEXT IN WHICH THE WORD HAS BEEN USED AND THAT WILL BE GIVING EFFECT TO THE OPENING SENTENCE IN THE DEFINITION SECTION, NAMELY, UNLESS THERE IS ANYTHING REPUGNANT IN THE SUBJECT OR CONTEXT. IN VIEW OF THIS QUALIFICATION, THE COURT HAS NOT ONLY TO LOOK AT THE WORDS BUT ALSO TO LOOK AT THE CONTEXT, THE COLLOC ATION AND THE OBJECT OF SUCH WORDS RELATING TO SUCH MATTER AND INTERPRET THE MEANING INTENDED TO BE CONVEYED BY THE USE OF THE WORDS UNDER THE CIRCUMSTANCES. SIMILARLY, IN N.K. JAIN AND ORS. V C.K. SHAH AND ORS. AIR 1991 SC 1289, IT WAS HELD THAT: 4. THE SUBJECT MATTER AND THE CONTEXT IN WHICH A PARTICULAR WORD IS USED ARE OF GREAT IMPORTANCE AND IT IS AXIOMATIC THAT THE OBJECT UNDERLYING THE ACT MUST ALWAYS BE KEPT IN VIEW IN CONSTRUING THE CONTEXT IN WHICH A PARTICULAR WORD IS USED........... 11. THE S TATED OBJECTIVE OF SECTION 73 - APPARENT FROM THE TENOR OF ITS LANGUAGE IS TO DENY SPECULATIVE BUSINESSES THE BENEFIT OF CARRY FORWARD OF LOSSES. EXPLANATION TO SECTION 73 (4) HAS BEEN ENACTED TO CLARIFY BEYOND ANY SHADOW OF DOUBT THAT SHARE BUSINESS OF CERTAIN TYPES OR CLASSES OF COMPANIES ARE DEEMED TO BE SPECULATIVE. THAT IN ANOTHER PART OF THE STATUTE, WHICH DEALS WITH ITA 94/2013 PAGE 12 19 I.T.A. NO. 4914,4977,4564 AND 3672/ MUM/201 4 COMPUTATI ON OF BUSINESS INCOME, DERIVATIVES ARE EXCLUDED FROM THE DEFINITION OF SPECULATIVE TRANSACTIONS, ONLY UNDERLINES THAT SUCH EXCLUSION IS LIMITED FOR THE PURPOSE OF THOSE PROVISIONS OR SECTIONS. TO BORROW THE MADRAS HIGH COURT'S EXPRESSION, DERIVATIVES ARE A SSETS, WHOSE VALUES ARE DERIVED FROM VALUES OF UNDERLYING ASSETS; IN THE PRESENT CASE, BY ALL ACCOUNTS THE DERIVATIVES ARE BASED ON STOCKS AND SHARES, WHICH FALL SQUARELY WITHIN THE EXPLANATION TO SECTI ON 73 (4). THEREFORE, IT IS IDLE TO CONTEND THAT DERIVATIVES DO NOT FALL WITHIN THAT PROVISION, WHEN THE UNDERLYING ASSET ITSELF DOES NOT QUALIFY FOR THE BENEFIT, AS THEY (DERIVATIVES - ONCE REMOVED FROM IT AND ENTIRELY DEPENDENT ON STOCKS AND SHARES, FOR DETERMINATION OF THEIR VALUE). 12. IN THE LIGHT OF THE ABOVE DISCUSSION, IT IS HELD THAT THE TRIBUNAL ERRED IN LAW IN HOLDING THAT THE ASSESSEE WAS ENTITLED TO CARRY FORWARD ITS LOSSES; THE QUESTION FRAMED IS ANSWERED IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. THE APPEAL IS, THEREFORE, ALLOWED; THERE SHALL BE NO ORDER AS TO COSTS. THEREFORE, THE HONBLE DELHI HIGH COURT HAS CATEGORICALLY OBSERVED THAT THE PROVISIONS OF SECTION 73 OF T HE ACT WOULD BE APPLICABLE EVEN IN THE C ASE OF DERIVATIVES TO THE EXTENT THEY ARE BACKED BY STOCK AND SHARES. THEREFORE, IF THE AO INVOKED THE PROVI SION OF THE EXPLANATION OF SECTION 73, THE ENTIRE TRA NSACTION OF THE APPELLANT BECOME SPECULATIVE FOR THIS PURPOSE AS PER DELHI HIGH COURT AND THE APPELLANT IS ENTIT LED FOR THE SET OFF WHICH WILL MAKE THE ADDITION NULLIFIED AS MADE BY THE AO. 2.15 IN VIEW OF THE FOREGOING DISCUSSION, THE SET OFF OF PROFIT FROM F&O AGAINST LOSS IN CASH HAS TO BE ALLOWED, THE ADDITION MADE BY THE LD.AO CANNOT BE SUSTAINED BOTH ON FACT S AND CIRCUMSTANCES OF THE APPELLANTS CA S E, THE SAME ARE ACCORDINGLY DELETED . THIS GROUND OF APPEAL IS ALLOWED. 12.4. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS PLACED BEFORE US INCLUDING THE CASE LAW AND IMPUGNED OR DERS. THE UNDISPUTED FACTS ARE THAT DURING THE COURSE OF BUSINESS OF SHARE TRADING , THE ASSESSEE HAS SUFFERED A LOSS OF RS.77,49,222/ - IN THE SHARE TRADING BUSINESS AND EARNING INCOME FROM F&O SEGMENT TO THE TUNE OF 20 I.T.A. NO. 4914,4977,4564 AND 3672/ MUM/201 4 RS.1 , 15 , 64 , 503 / - AND AFTER CLAIMIN G THE SET OFF OF THE LOSS IN TRADING DIVISION AGAINST THE INCOME OF F&O THE NET INCOME OF RS.33,23,552/ - WAS OFFERED TO TAX. THE AO INVOKED THE PROVISIONS OF EXPLANATION (1) TO SECTION 73 TREATING IT THE LOSS FROM TRADING IN SHARES TO THE TUNE OF RS. 77,49,222/ - AS SPECULATION LOSS WHILE TREATING THE INCOME FROM F&O SEGMENT AS NORMAL BUSINESS INCOME AND THUS DENIED T HE SET OFF OF LOSS FROM TRADING IN SHARES AGAINST THE INCOME FROM F&O SEGMENT. FOR THE PUR POSE OF BETTER UNDERSTANDING THE EXPLANATION (1) TO SECTION 73 OF THE ACT WE WILL FIRST DWELL INTO THE PROVISIONS OF EXPLANATION 1 TO SECTION 73 OF THE ACT FIRST. T HE SAID EXPLANATION POSTULATE A SITUATION WHERE ANY PART OF BUSINESS OF THE COMPANY CONSISTED OF PURCHASES AND SALE OF SHARES OF OT HER COMPAN IES . IN THAT CASE, THE DEEMING FICTION HAS BEEN CREATED BY THE EXPLANATION WITH INCOME/LOSS FROM SHARE TRADING ACTIVITY IN SHARES AND SECURITIES BY WAY OF SALE AND PURCHASE WOULD BE DEEMED TO BE SPECULATION INCOME OR SPECULATION LOSS. THE SAID EXPLANATION ALSO PROVIDES FOR AN EXPLANATION BUT IT IS NOT APPLICABLE IN THE PRE S ENT CASE AND THEREFORE NOT DISCUSSED. WE FIND MERIT IN THE ARGUMENT S OF THE LD.AR THAT IF THE INCOME OF THE ASSESSEE IS TREATED AS SPECULATION INCOME IN THE TRADING DIVISION IN TERMS OF EXPLANATION (1) TO SECTION 73 OF THE ACT THEN SIMILAR TREATMENT HAS TO BE GIVEN TO THE INCOME FROM F&O SEGMENT WHERE THE TRANSACTIONS ARE PURELY NON - DELIVERY BAS ED . THE LD. CIT(A) HAS PASSED VERY DETAILED, 21 I.T.A. NO. 4914,4977,4564 AND 3672/ MUM/201 4 COMPREHENSIVE AND REASONED ORDER AS HAS BEEN REPRODUCED HEREIN IN ABOVE. WE ARE IN AGREEMENT WITH THE CONCLUSION DRAWN BY THE LD.CIT(A) THAT SET OFF OF LOSS IN CASH DIVISION IN SHARES TRADING FROM PROFIT FROM F&O SEGMENT HAS TO BE ALLOWED. ACCORDINGLY, WE UPHOLD THE ORDER OF THE LD.C IT(A) BY DISMISSING THE APPEAL OF THE REVENUE. 13 . THE SECOND GROUND OF APPEAL IS WITH REGARD TO DELETION OF DISALLOWANCE OF RS.2,78,406/ - MADE BY THE AO ON ACCOUNT OF BAD DEBTS. 13.1 . THE FACTS OF THE ISSUE ARE IDENTICAL TO THAT OF ONE WHICH HAS BEEN DECIDED BY US IN THIS ORDER WHILE DEALING WITH GROUND NO.2 IN ITA NO.4914/MUM/2014 AND THEREFORE OUR FINDINGS AND DECISION ON THE SAID GROUND WOULD MUTATIS MUTANT APPLY TO THIS GROUND AS WELL. ACCORDINGLY, APPEAL OF THE REVENUE STANDS DISMISSED. 14 . IN S UM AND SUBSTANCE, THE APPEALS OF THE ASSESSEE ARE ALLOWED AND THAT OF REVENUE STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29TH SEP T , 2017 . S D SD ( D.T.GARASIA ) ( RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : . 29 . 9 .2017 SR.PS:SRL: 22 I.T.A. NO. 4914,4977,4564 AND 3672/ MUM/201 4 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / T HE CIT(A) 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, T RUE COPY / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI
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