The ITO, Ward-8(3), Ahmedabad V. Shree Developers Pvt. Ltd., Ahmedabad

ITA 3864/AHD/2004

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51118 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 year(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 15-12-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 28-12-2004
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KARTAR SINGH
• Keywords: Business income; Opportunity of being heard; Proportionate interest; Speculation loss

Judgement Text

ITA NO. 3864/AH D/2004 ASSESSMENT YEAR 2001-02 1 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD (BEFORE SHRI G. C. GUPTA, V. P. & B. P. JAIN, A.M.) I. T.A. NO. 3864 /AHD/2004 (ASSESSMENT YEAR : 2001-2002) INCOME TAX OFFICER, WARD 8(3), DIRECT TAX BHAVAN, NR. PANJARA POLE, AMBAWADI. AHMEDABAD. (APPELLANT) VS. SHREE DEVELOPERS PVT. LTD., RAMNIWAD NO.1, 3 RD FLOOR, KHANPUR, AHMEDABAD. (RESPONDENT ) PAN: AACS 7853 E APPELLANT BY : MR. KARTAR SINGH, CIT (DR) RESPONDENT BY : NONE ( )/ ORDER DATE OF HEARING : 15-12-2011 DATE OF PRONOUNCEMENT : 30-12-2011 PER: SHRI B. P. JAIN, A.M. THIS APPEAL OF THE REVENUE ARISES FROM THE ORDER OF THE LD. CIT (A)-XIV, AHMEDABAD DATED 21-10-2004 FOR ASSESSMENT YEAR 2001 -02. ITA NO. 3864/AH D/2004 ASSESSMENT YEAR 2001-02 2 2. NONE APPEARED ON BEHALF OF THE ASSESSEE INSPITE OF VALID SERVICE OF NOTICE AND THE MATTER BEING VERY OLD, THEREFORE, WE PROCEE D TO DECIDE THE APPEAL AFTER HEARING THE LD. DR AND THE MATERIAL AVAILABLE ON RE CORD. 3. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.3,33,33,333/- ON ACCOUNT OF DISCOUNT CLAIMED ON DEEP DISCOUNT BOND. 2. THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 22,50,000/- ON ACCOUNT OF INTEREST ATTRIBUTA BLE TO TATA FIN LTD., DEBENTURES. 3. THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 1,03,41,416/- ON ACCOUNT OF SPECULATION LOSS . 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT (A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFF ICER. 5. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD. CIT (A) MAY BE SET- ASIDE AND THAT OF THE ORDER OF THE ASSESSING OFFICE R BE RESTORED TO THE ABOVE EXTENT. 4. AS REGARDS GROUND NO.1 OF THE REVENUE THE BRIEF FACTS ARE THAT THE ASSESSEE- COMPANY RECEIVED RS. 20 CRORES TOWARDS ISSUANCE OF 40 SECURED REDEEMABLE OPTIONALLY CONVERTIBLE DEEP DISCOUNT BONDS EACH OF THE NOMINAL VALUE OF RS.1 CRORE WHICH WERE REDEEMABLE AFTER A PERIOD OF 6 YEA RS AT A NOMINAL VALUE. THUS, AGAINST THE AMOUNT OF RS.20- CRORES RECEIVED AT PRE SENT THE ASSESSEE WAS TO REDEEM THEM AT RS.40 CRORES AFTER A PERIOD OF 6 YEARS. THE HOLDERS OF DEBENTURE HAD THE OPTION TO GET THE FACE VALUE OF THE DEBENTURES CONV ERTED EITHER PARTIALLY OR FULLY INTO EQUITY SHARES OF THE ASSESSEE-COMPANY AT PAR AFTER THE EXPIRY OF SIX MONTHS BUT ITA NO. 3864/AH D/2004 ASSESSMENT YEAR 2001-02 3 BEFORE THE EXPIRY OF 72 MONTHS FROM THE DATE OF APP LICATION OF DEBENTURES. THE ASSESSEE THEREFORE CLAIMED RS. 3,33,33,333/- AS REV ENUE EXPENDITURE OUT OF THE TOTAL OF RS. 20 CRORES WHICH WAS PAYABLE ON REDEMPT ION ON MATURITY AFTER SIX YEARS. THE ASSESSEE RELIED UPON THE HONBLE SUPREME COURT DECISION IN THE CASE OF MADRAS INVESTMENT CORPORATION LTD. VS. CIT 225 ITR 802 (SC) IN SUPPORT OF THE ABOVE CLAIM. THE ASSESSING OFFICER HAS NOTED THAT I N THE SUBSEQUENT YEAR RELEVANT TO ASSESSMENT YEAR 2002-03 SAID DEBENTURES HAVE BEE N REDEEMED AT 4.5% INTEREST. HE REJECTED THE CLAIM OF THE ASSESSEE FOR THE SAID AMOUNT OF RS.3,33,33,333/- ON THE GROUNDS SUMMARIZED AS UNDER:- 1. THE ASSESSEE HAS NOT BEEN ABLE TO SHOW THAT THE SAID AMOUNT HAS BEEN SHOWN AS INCOME IN THE HANDS OF THE BOND HOLDERS FOR YEAR . 2. THE BONDS HAVE BEEN REPAID IN THE SUBSEQUENT YEA R AND THE ASSESSEE HAS SHOWN THE ABOVE AMOUNT AS INCOME IN ASSESSMENT YEAR 2002-03. 3. THE ASSESSEE HAS SHOWN INCOME BY WAY OF COMMISSI ON OF RS.3.60 CRORES FROM SHREE RAM POLYSYNTH PVT. LTD., AND VIMPSON AGE NCY TO ACCOMMODATE THE SISTER CONCERNS AND TO NULLIFY THE TAX LIABILIT Y ON SUCH COMMISSION INCOME CONTINGENT LIABILITY IN THE ABOVE FORM IS CL AIMED AS EXPENDITURE. HE HAS REFERRED TO THE CASE OF MC DOWELLS. 4. IDENTICAL ISSUE HAD ARISEN IN THE CASE VIMPSON I NVESTMENT PVT. LTD. IDENTICAL EXPENDITURE WAS CLAIMED IN THAT CASE AND ON THE SAM E GROUNDS THE EXPENDITURE INCURRED AS AGAINST ON DEEP DISCOUNT BO ND WAS DISALLOWED. 5. THE LD. CIT (A) DELETED THE ADDITION MADE BY THE AO FOR THE REASONS MENTIONED IN HIS ORDER. 6. WE HAVE HEARD THE CONTENTIONS OF THE LD. DR WHO HAS SUPPORTED THE ORDER OF THE AO AND THE DECISIONS OF VARIOUS COURTS OF LAW R ELIED UPON BY THE AO. AFTER HEARING THE LD. DR AND MATERIAL AVAILABLE ON RECORD WE CONCUR WITH THE VIEWS OF ITA NO. 3864/AH D/2004 ASSESSMENT YEAR 2001-02 4 THE LD. CIT (A) THAT THE POSSIBILITY OF CONVERSION INTO THE EQUITY SHARES AT SOME FUTURE DATE DOS NOT CONVERT THE EXISTING LIABILITY OF INTEREST INTO A CONTINGENT ONE. THE RELIANCE WAS PLACED ON THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. SHREE RAJASTHAN SYNTEX LTD., REPORT ED IN 269 ITR 461 AND THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F CIT VS S.M. HOLDINGS & FINANCE PVT. LTD., 180 CTR 312. 7. AS REGARDS THE ARGUMENTS MADE BY LD. CIT (DR) MR . KARTAR SINGH WITH REGARD TO THE ACCOMMODATION OF SISTER CONCERN BY WA Y OF SHOWING COMMISSION INCOME AND CREATION OF LIABILITY ON ACCOUNT OF DEBE NTURES TO SET OFF THE TAX LIABILITY ON SUCH INCOME CANNOT BE ACCEPTED AS RIGHTLY OBSER VED BY THE LD. CIT (A) FOR THE REASONS THAT SHREE RAMA POLYSYNTH PVT. LTD., WAS HA VING AGENCY OF RELIANCE INDUSTRIES LTD. THEY HAD APPOINTED THE ASSESSEE AS SELLING AGENT FOR GUJARAT AND AS PER TERMS OF MEMORANDUM OF UNDERSTANDING BETWEEN SH REE RAMA POLYSYNTH PVT. LTD., AND THE ASSESSEE-COMPANY THE COMMISSION OF RS .3 CRORES WAS RECEIVED IN RESPECT OF THE SERVICES PROVIDED TO THEM. THEREFORE , BOTH RECEIPT OF COMMISSION AND THE PAYMENT OF INTEREST ON DEBENTURES WAS AS PE R THE AGREEMENT AND ARE NOT RELATED TO EACH OTHER AND THEREFORE QUESTION OF APP LYING THE CASE OF MAC DOWELL AS VEHEMENTLY ARGUED BY LD. CIT (DR) MR. KARTAR SINGH DOES NOT ARISE IN THE PRESENT FACTS AND CIRCUMSTANCES OF THE CASE. 8. AS REGARDS THE ARGUMENT OF LD. CIT (DR) TO RESTR ICT THE AMOUNT OF DEDUCTION OF INTEREST TO RS. 244 CRORES ON THE GROUND THAT TH E INTEREST IS CUMULATIVE INTEREST, THE SUBMISSION OF THE ASSESSEE ARE CONVINCED THAT W HAT IS PAYABLE IS DIFFERENCE BY WAY OF PREMIUM OR DISCOUNT ON DEBENTURES AND IT IS CLAIMED PROPORTIONATE IN TERMS OF PERIOD AS PER THE RATIO LAID DOWN BY THE SUPREME COURT DECISION IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION REPORTED I N 225 ITR 802. THERE IS NO ITA NO. 3864/AH D/2004 ASSESSMENT YEAR 2001-02 5 TERM OF INTEREST RATE PRESCRIBED IN THE DEBENTURES AND THEREFORE, IT IS NOT CORRECT TO PRESUME THAT THE INTEREST IS CUMULATIVE. THEREFORE, THE ARGUMENT MADE BY THE LD. CIT (DR) MR. KARTAR SINGH ARE NOT FOUND CONVINCING AND THE CONTENTION OF THE AO IS NOT TENABLE. 9. MOREOVER THE INCOME SHOWN ON THE DATE OF REDEMPT ION, THERE IS NO SUCH EVENT AS OBSERVED BY THE LD. CIT (A) WHICH PROHIBIT S THE ASSESSEE TO CLAIM DEDUCTION AS INTEREST FOR THE YEAR. THE PRE-MATURED SURRENDER OF THE BOND TAKES PLACE IN THE NEXT YEAR, WHICH ASSESSEE CANNOT TAKE NOTE OF IN THE RELEVANT YEAR UNDER THE CIRCUMSTANCES IT IS NOT POSSIBLE FOR THE ASSESSEE TO FORESEE THE CIRCUMSTANCES. THEREFORE, THIS CANNOT BE A CONTING ENT LIABILITY AND THERE WAS ONE OF THE OPTIONS AVAILABLE WITH THE BOND-HOLDERS THAT THEY CAN GET IT CONVERTED INTO SHARES OF THE COMPANY AFTER SIX MONTHS OF THE BOND OR BEFORE 72 MONTHS OF BOND PERIOD. IN THE FACTS AND CIRCUMSTANCES OF THE CASE , THE OPTION AVAILABLE BEFORE THE ASSESSEE IN ANY CASE, DOES NOT MAKE PAYMENT OF INTE REST AS A CONTINGENT LIABILITY AND THE ASSESSEE IS ELIGIBLE TO CLAIM DEDUCTION THE REON. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE AO IS NOT JUSTIFIED IN DISALLOWING THE DEDUCTION AS CLAIMED BY THE ASSESSEE AND THE ORDER OF THE LD. CI T (A) IS CONFIRMED ACCORDINGLY. THUS GROUND NO I OF THE REVENUE IS DISMISSED. 10. AS REGARDS GROUND NO.2, THE BRIEF FACTS ARE THA T THE ASSESSING OFFICER HAS STATED THAT THE ASSESSEE HAS SHOWN INVESTMENTS IN D EBENTURES OF TATA FINANCE LTD., AMOUNTING TO RS.1,50,00,000/-.THE DEBENTURES WERE I N THE NAME OF VARIOUS PERSONS AND COMPANIES AND TRANSFER MEMO PRODUCED DID NOT BE AR STAMP OF ROC. THE DEBENTURES ARE SOLD AT THE END OF THE YEAR THROUGH STRAT CAP SECURITIES INDIA PVT. LTD. IT IS THEREFORE, OBSERVED BY HIM THAT IT IS A COLLUSIVE TRANSACTIONS AND THE AMOUNT HAS BEEN ADVANCED FOR THE PURPOSE OTHER THAN BUSINESS TO ACCOMMODATE ITA NO. 3864/AH D/2004 ASSESSMENT YEAR 2001-02 6 PERSONS OF NIRMA GROUP. HE HAS ACCORDINGLY DISALLOW ED RS.22,50,000/- AS INTEREST ATTRIBUTABLE INVESTMENT MADE IN THE SAID DEBENTURES BY TREATING THE SAME AS INCURRED FOR THE PURPOSE OTHER THAN BUSINESS. 11. THE LD. CIT (A) DELETED THE ADDITION FOR THE RE ASONS MENTIONED IN PARAGRAPH 6.6.2. OF HIS ORDER. 12. THE LD. CIT (DR) MR. KARTAR SINGH ARGUED THAT D EBENTURES WERE IN THE NAME OF VARIOUS NAMES AND COMPANIES AND TRANSFER MEMO PR ODUCED BY THE ASSESSEE DID NOT BEAR STAMP OF ROC. THE DEBENTURES ARE SOLD AT T HE END OF THE YEAR THROUGH THE COMPANIES WITH WHOM THE ASSESSEE HAD COLLUSIVE TRAN SACTIONS AND THE ASSESSEE HAS ADVANCED MONEY FOR THE PURPOSE OTHER THAN THE BUSIN ESS. THEREFORE, THE LD. CIT (DR) MR. KARTAR SINGH PRAYED TO UPHOLD THE ORDER OF THE AO AND REVERSE THE ORDER OF THE LD. CIT (A). 13. WE HAVE HEARD THE LD. CIT(DR) AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. THE SUBMISSION MADE BY THE ASSESSEE BEFORE THE LD. CIT (A) ARE OF UTTER IMPORTANCE TO DECIDE THE PRESENT ISSUE WHICH ARE RE PRODUCED FOR THE SAKE OF CLARITY. THOUGH THE SAME ARE AVAILABLE AT PARAGRAPH 6.1 OF T HE LD. CIT(A)S ORDER AS UNDER:- 3.1. WITH REFERENCE TO THE ABOVE, THE ASSESSEE MAY STATE THAT THE INVESTMENT IN DEBENTURES OF TATA FINANCE LTD WAS MA DE IN THE EARLIER YEAR AND THE BALANCE CONTINUED THIS YEAR. IT IS SUBMITTE D THAT THE FACTS BEING SAME THERE WAS NO QUESTION OF TAKING DIFFERENT VIEW IN T HIS YEAR BY THE ASSESSING OFFICER. INTHIS CONNECTION RELIANCE IS PLACED ON TH E CASE OF SRIDEV ENTERPRISES 192 ITR 165 (KAR). WITHOUT PREJUDICE TO WHAT IS STATED ABOVE THE APPEL LANT MAY REFER TO THE FACTS RELATING TO DEBENTURES OF TATA FINANCE LTD., PURCHA SED BY IT. ITA NO. 3864/AH D/2004 ASSESSMENT YEAR 2001-02 7 (A) THE APPELLANT PURCHASED 12 DEBENTURES OF TATA F INANCE LTD. (PART-A). THE DEBENTURES WERE REPAYABLE AT THE END OF 63 MONT HS AND WERE OF THE VALUE OF RS.25 LAKH EACH. THE SAME WERE PURCHAS ED BY THE APPELLANT AT RS.12,50,000/- PER DEBENTURE. AS PER T HE TERMS OF THE SAID DEBENTURE PART-A DID NOT CARRY ANY INTEREST. THE DE BENTURES WERE HAVING DETACHABLE INTEREST WARRANTS (PART B C D E & F) AND THE DEBENTURE PART A AND EACH INTEREST WARRANT WERE TRA NSFERABLE SEPARATELY. THIS FACT MAY BE APPRECIATED FROM THE COPY OF LETTER OF ALLOTMENT OF THE SAID DEBENTURES BY TATRA FINANCE L TD. AND THE RELEVANT DEBENTURE CERTIFICATE. THE DEBENTURES WERE HAVING DETACHABLE INTEREST WARRANT BEING PART B C D E & F AND IN TEREST WARRANT WERE NOT PURCHASED BY THE APPELLANT. (B) THE APPELLANT PURCHASED THE DEBENTURES AT RS.12 .50 LAKH PER DEBENTURE SO THAT HE WOULD BE ABLE TO GET APPRECIAT ION OF RS.12.50 LAKH PER DEBENTURE IN THE VALUE OF FUTURE DATE. THU S THIS INVESTMENT WAS FOR THE PURPOSE OF BUSINESS OF MAKING INVESTMEN TS AND HENCE THERE WAS NO QUESTION OF DISALLOWING PROPORTIONATE INTEREST ON ACCOUNT OF SUCH INVESTMENT. (C) THE APPELLANT COMPANY MAY POINT OUT THAT IN THE SUBSEQUENT ASSESSMENT YEAR I.E. 2002-03 THE APPELLANT COMPANY DECIDED TO SELLOUT THESE DEBENTURES AND SUCH SALE WAS AT THE RATE OF R S.15,25,000/- PER DEBENTURE. THUS IT EARNED PROFIT OF RS.33 LAKH AND THIS PROFIT HAS BEEN CONSIDERED IN THE RETURN OF INCOME AND IN THE PROFI T AND LOSS ACCOUNT FOR A.Y. 2002-03. THE APPELLANT MAY ALSO STATE THAT THE ASSESSING OFF ICER DID NOT GRANT ANY OPPORTUNITY OF BEING HEARD BEFORE REACHING TO THE A BOVE CONCLUSION. IN THE ABSENCE OF ANY SUCH OPPORTUNITY PROVIDED TO THE APP ELLANT THE DISALLOWANCE MADE BY HIM IS NOT VALID. THERE IS ALSO CONTRADICTI ON IN STATEMENT OF ASSESSING OFFICER WHEN HE SAY THAT THESE DEBENTURES ARE SOLD AT THE END OF THE YEAR AND ALSO STATES THAT THE CO. HELD THESE DE BENTURES ON CLOSE OF THE YEAR. IN FACT IT IS NOT SOLD DURING THIS YEAR. 14. ON PERUSING THE SUBMISSION MADE BY THE ASSESSEE BEFORE THE LD. CIT (A) AND THE MATERIAL AVAILABLE ON RECORD AND THE ARGUME NT MADE BY THE LD. CIT (DR) ITA NO. 3864/AH D/2004 ASSESSMENT YEAR 2001-02 8 MR. KARTAR SINGH WE AGREE WITH THE VIEWS OF THE LD. CIT (A) THAT THE ASSESSEE HAD SHOWN THE INVESTMENT OF RS.1.5 CRORE IN THE DEBENTU RES AT THE END OF THE YEAR AND AT THE SAME TIME HE STATED THAT THE SAID DEBENTURES WE RE SOLD DURING THE YEAR. APART FROM THE ABOVE, ON PERUSAL OF THE FACTS IT IS NOTIC ED THAT THE DEBENTURES WERE ACQUIRED AT RS.12.50 LACS PER DEBENTURE AND THE SAI D DEBENTURES WERE REDEEMABLE AT THE END OF THE PRESCRIBED PERIOD FOR RS.25 LACS EAC H. THE COMPANY IS ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND SECURITIES. T HUS, IN THE COURSE OF SUCH BUSINESS, IN ORDER TO EARN APPRECIATION IN THE INVE STMENT, THE APPELLANT HAD ACQUIRED DEBENTURES AT VALUE OF RS.12.50 LACS WHICH WOULD YI ELD IT RS.25 LACS IN SUBSEQUENT YEAR. THUS, THE INVESTMENT WAS WITH A VIEW TO EARN PROFIT FROM TRADING ACTIVITIES. THE DEBENTURES ARE SOLD BACK BY THE ASSESSEE IN THE SUBSEQUENT YEAR AT THE VALUE OF RS.15.25 LACS PER DEBENTURE IN THIS PROCESS THE ASS ESSEE HAS SHOWN PROFIT OF RS.33 LACS FROM THIS INVESTMENT IN ASSESSMENT YEAR 2002-0 3. IN VIEW OF THE CIRCUMSTANCES AND FACTS OF THE CASE, WE FIND NO INF IRMITY IN THE ORDER OF THE LD. CIT (A). THUS GROUND NO.2 OF THE REVENUE IS DISMISS ED. 15. AS REGARDS GROUND NO.3 THE FACTS IN BRIEF ARE T HAT THE ASSESSING OFFICER HAS IN THE ASSESSMENT ORDER STATED THAT THE FUNDS ARE U TILIZED IN THE BUSINESS OF SHARE TRADING AND, THEREFORE, INTEREST EXPENDITURE IS TO BE APPORTIONED TO THE APPELLANTS SHARE TRADING ACTIVITY. HE HAS REFERRED TO SECTION 73 AND EXPLANATION THEREOF AND STATED THAT THE APPELLANTS TRANSACTIONS IN SHARE T RADING ACTIVITY ARE TO BE CONSIDERED AS SPECULATIVE BUSINESS IN VIEW OF THE SAID PROVISI ONS. IT IS STATED BY HIM THAT THE MAIN BUSINESS OF THE COMPANY IS OF TRADING IN PAPER AND PRINTED LABELS. IT IS ALSO OBSERVED THAT THE RESULT SHOWN BY THE ASSESSEE IS U NDER THE HEAD BUSINESS INCOME. THEREFORE, ACCORDING TO HIM THE COMPANY CA NNOT BE TREATED AS COMPANY, THE GROSS TOTAL INCOME OF WHICH IS CHARGEABLE UNDER THE HEAD INCOME FROM ITA NO. 3864/AH D/2004 ASSESSMENT YEAR 2001-02 9 SECURITY, INCOME FROM HOUSE PROPERTY, CAPITAL GAIN , INCOME FROM OTHER SOURCES OR A COMPANY THE PRINCIPAL BUSINESS OF WHICH IS BANKIN G OF GRANTING LOANS AND ADVANCES. HENCE, IT IS STATED THAT THE EXCEPTION OF THE PROVISO OF SECTION 73 ARE NOT APPLICABLE. THE BUSINESS OF SALE AND PURCHASE OF S HARES IS TO BE CONSIDERED AS SPECULATION BUSINESS. HE HAS STATED THAT THE APPELL ANT HAS SHOWN COMBINED RESULT OF ITS MAIN BUSINESS AND SHARE TRADING BUSINESS. HE HA S ACCORDINGLY PREPARED SHARE TRADING ACTIVITY ACCOUNT AS UNDER AND WORKED OUT TH E SPECULATION LOSS OF RS.1,33,18,939/-. OPENING STOCK 16,99,99,154 SALES 6,10,48,672 PURCHASE NIL CLOSING STOCK 10 ,12,08,698 INTEREST 46,77,155 LOSS 1,33,18,939 (10545255-3618100- 50000 17,46,76,309 17,46,76,309 16. THE LD. CIT (A) DELETED THE ADDITION MADE BY T HE AO FOR THE REASONS MENTIONED IN HIS ORDER IN PARAGRAPH 7.2. 17. IT WAS ARGUED BY THE LD. CIT (DR) MR. KARTAR SI NGH THAT THE FUNDS ARE UTILIZED BY THE ASSESSEE IN THE BUSINESS OF SHARE T RADING AND THEREFORE, INTEREST EXPENDITURE IS TO BE APPORTIONED TO THE ASSESSEES SHARE TRADING ACTIVITY. THE MAIN BUSINESS OF THE ASSESSEE-COMPANY IS TRADING IN PAPE R AND PRINTING OF LABELS AND THEREFORE, THE EXPLANATION TO PROVISO OF SECTION 73 IS NOT APPLICABLE. 18. WE HAVE HEARD THE LD. CIT (DR) AND PERUSED THE FACTS OF THE CASE. THE ASSESSEE HAD MADE THE SUBMISSIONS BEFORE THE LD. CI T (A) WHICH ARE APPEARING IN PARAGRAPH 7.1 AT PAGES 14 TO 17 WHICH HAVE BEEN PER USED BY US AND FOUND TO BE ITA NO. 3864/AH D/2004 ASSESSMENT YEAR 2001-02 10 CONVINCING AND THEREFORE, WE FIND NO INFIRMITY IN T HE ORDER OF THE LD. CIT (A) AND WE CONCUR WITH THE VIEWS OF LD. CIT (A) WHICH HAVE BEEN FOUND TO BE REASONED ONE AND FOR THE SAKE OF CLARITY SAME ARE REPRODUCED AS UNDER:- IF THE INCOME IS MAINLY CONSISTING OF INCOME UNDE R THE HEAD INCOME FROM SECURITIES, INCOME FROM HOUSE PROPERTIES, INCO ME FROM CAPITAL GAIN OR INCOME FROM OTHER SOURCES, THAT IS MAJORITY OF INC OME ASSESSED IS UNDER THESE HEADS AS COMPARED TO TOTAL INCOME OTHER THAN PURCHASE AND SALE OF SHARES, THE PROVISIONS OF SECTION 73 ARE NOT APPLIC ABLE. HOWEVER, THIS HAS NOT BEEN ESTABLISHED BEFORE THE ASSESSING OFFICER. THER EFORE, THIS ARGUMENT OF THE ASSESSEE IS NOT ACCEPTED. HOWEVER, WE FIND MUCH FORCE IN THE SUBMISSIONS OF THE ASSESSEE THAT THE LOSS FROM PURC HASE AND SALE OF SHARES ONLY ARE TO BE CONSIDERED AS SPECULATION LOSS AND T HEREFORE, ANY PART OF THE INTEREST CANNOT BE ATTRIBUTABLE TO SUCH SPECULATION LOSS BY VIRTUE OF DEEMING PROVISIONS OF EXPLANATION BELOW SEC. 73. THE ASSESS ING OFFICER WAS THEREFORE, NOT JUSTIFIED IN CONSIDERING INTEREST OF RS.46,77,155/- AS PART OF THE SPECULATION LOSS. THE SAID INTEREST HAVING BEEN INCURRED U/S. 36(1)(III) PROPORTIONATE DISALLOWANCE OF SUCH INTEREST U/S. 73 WAS NOT AT ALL JUSTIFIED. THE ASSESSING OFFICER IS THEREFORE, DIRECTED TO DEL ETE THE ADDITION OF RS. 46,77,155/- MADE ON THIS ACCOUNT. FURTHER WE ALSO A PPRECIATE THE FACT THAT THE ASSESSEE HAS CREDITED PROFIT ON SALE OF SHARES AMOU NTING TO RS.56,64,261/- IN THE PROFIT AND LOSS ACCOUNT AND THE SAID AMOUNT HAS BEEN TAXED BY THE ASSESSING OFFICER AS PART OF THE BUSINESS PROFIT. I F HE INVOKES PROVISIONS OF SECTION 73 IN RESPECT OF THE ACTIVITY OF PURCHASE A ND SALE OF SHARES, HE HAS TO CONSIDER THE ENTIRE PURCHASE AND SALE OF SHARES AND ITS RESULT FOR THE PURPOSE OF COMPUTING THE PROFIT U/S. 73. HOWEVER, HE HAS NO T CONSIDERED THE ABOVE PROFIT AGAINST THE LOSS DETERMINED BY HIM IN THE AB OVE COMPUTATION. HE IS DIRECTED TO ADJUST THE SAID PROFIT OF RS. 56.64 LAC S AGAINST THE SPECULATION LOSS DETERMINED BY HIM AND TO WORKOUT THE NET LOSS. THUS , THE ADDITION ON ACCOUNT OF SPECULATION LOSS IS REDUCED BY THE AFORE SAID TWO AMOUNTS NAMELY INTEREST OF RS.46.88 LAKHS AND THE PROFIT ON SALE O F SHARES OF RS.56.64 LAKHS. THE BALANCE ADDITION OF RS.29.78 LAKHS MADE BY THE ASSESSING OFFICER HAS RIGHTLY BEEN CONFIRMED. 19. IN THE CIRCUMSTANCES AND FACTS OF THE CASE, WE DISMISS GROUND NO.3 OF THE REVENUE. ITA NO. 3864/AH D/2004 ASSESSMENT YEAR 2001-02 11 20. GROUND NO.4 AND 5 OF THE REVENUE ARE GENERAL IN NATURE AND THEREFORE, DO NOT REQUIRE ADJUDICATION. 21. THUS IN THE RESULT, APPEAL OF THE REVENUE IN IT A NO.3864/AHD/2004 IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 30 - 12 - 2011. SD/- SD/- (G. C. GUPTA) (B. P.JAIN) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. S.A.PATKI. COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS)-XIV, AHMEDABAD. 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD. ITA NO. 3864/AH D/2004 ASSESSMENT YEAR 2001-02 12 1.DATE OF DICTATION 15 - 12 -2011 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 16 / 12 / 2011 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S 19 - 12 -2011. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 30 - 12 -2011 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 30 - 12 -2011 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 30 - 12 -2011. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..