DCIT, Circle-12, Kolkata, Kolkata V. M/s Endogram Leasing & Trading Co. Ltd., Kolkata

ITA 399/KOL/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70420 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 8 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2013
• Appeal Filed By: Department
• Bench Allotted: Not Allotted
• Assessment Year: 2008-2009
• Appeal Filed On: 13-03-2012
• Court: TRIBUNAL
• Department Lawyers: RANU BISWAS
• Assessee Lawyers: S M SURANA
• Keywords: Source of fund; Speculation loss
• Section: 143(3)

Judgement Text

, A , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA () BEFORE , /AND . . . . ''# ''# ''# ''#, $% ) [BEFORE SHRI MAHAVIR SINGH, JM & SHRI ABRAHAM P. GEORGE, AM] & & & & / I.T.A NO. 399/KOL/2012 '( )* '( )* '( )* '( )*/ // / ASSESSMENT YEAR: 2008-09 DEPUTY COMMISSIONER OF INCOME-TAX, VS. ENDOGRAM L EASING & TRADING CO. LTD. CIRCLE-12, KOLKATA. (PAN: AAACE6313P) (,- /APPELLANT ) (./,-/ RESPONDENT ) DATE OF HEARING : 06.11.2013 DATE OF PRONOUNCEMENT: 21.11.2013 FOR THE APPELLANT: SMT. RANU BISWAS, SR. DR FOR THE RESPONDENT: SHRI S. M. SURANA, ADVOCATE $0 / ORDER PER BENCH: THIS APPEAL BY REVENUE IS ARISING OUT OF ORDER OF C IT(A)-XII, KOLKATA IN APPEAL NO. 332/XII/12(2)/10-11 DATED 05.12.2011. ASSESSMENT W AS FRAMED BY ITO, WARD-12(2), KOLKATA U/S. 143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTE R REFERRED TO AS THE ACT) FOR ASSESSMENT YEAR 2008-09 VIDE HIS ORDER DATED 30.12.2010. 2. THE ONLY ISSUE IN THIS APPEAL OF REVENUE IS AGAI NST THE ORDER OF CIT(A) IN TREATING THE LOSS ARISING OUT OF SHARES AS BUSINESS LOSS. FOR T HIS, REVENUE HAS RAISED FOLLOWING GROUND NO.3: 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, LD. CIT(A) IS CORRECT IN TREATING LOSS ARISING OUT OF TRADING IN SHARES AS B USINESS LOSS IN CONTRAVENTION OF EXPLANATION TO SECTION 73. 3. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDIN G NOTICED THAT THERE IS A LOSS CLAIMED BY ASSESSEE AMOUNTING TO RS.2,56,77,693/- ON SHARE TRANSACTIONS AND THIS LOSS WAS SET OFF AGAINST INTEREST INCOME AMOUNTING TO RS.1,24,61,925 /- RECEIVED ON FIXED DEPOSITS AND ALSO INTEREST RECEIVED ON LOANS AND ADVANCES FROM OTHER PARTIES. ACCORDING TO AO, THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PURCHASE AND SALES OF SHARES OF OTHER COMPANIES AND IT FALLS UNDER EXPLANATION TO SECTION 73 OF THE ACT. ACCORDINGLY, A SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE. THE ASSESSEE EXPLAINED THE ENTIRE POSITION BUT THE AO NOTED THE FOLLOWING OBSERVATIONS: 2 ITA NO. 399/K/2012 ENDOGRAM LEASING & TRADING CO. LTD.., AY:2008-09 A) FROM THE MEMORANDUM OF ASSOCIATION (MOA) OF THE ASSESSEE COMPANY IT WAS ALSO SEEN THAT THERE WERE FIVE MAIN OBJECTS AS APPEARS IN PARA III A OF THE MOA WHICH THE COMPANY WAS SUPPOSED TO PURSUE ON ITS INCORPORATION. GRANTING OF LOANS AND ADVANCES WERE NOT MENTIONED AS THE MAI N OBJECTS. B) THE ASSESSEES FUND DEPLOYMENT, AS FOUND FROM TH E BALANCE SHEET IS GIVEN BELOW: AS ON 31.03.2008 SOURCE OF FUND RS.122,34,44,755/- APPLICATION OF FUND RS.122,34,44,755/- (A) INVESTMENT IN SHARES RS. 79,03,13,475/- (B) LOANS AND ADVANCES RS. 59,18,03,807/- (C) CASH AND BANK BALANCES RS. 11,50,931/- (D) CURRENT LIABILITIES & PROVISION RS. 180,538,05 7/- 4. IN VIEW OF THE ABOVE, THE AO WAS OF THE VIEW THA T THE ASSESSEE COMPANY IS DEEMED TO BE CARRYING ON SPECULATION BUSINESS WITHIN THE MEAN ING OF EXPLANATION TO SEC. 73 OF THE ACT AND CONSEQUENTLY LOSS SUFFERED FROM SUCH BUSINESS S HOULD BE TREATED AS SPECULATION LOSS AND SHOULD BE ALLOWED TO BE CARRIED FORWARD AND TO BE S ET OFF AGAINST ONLY SPECULATION INCOME, IF ANY, AS PER LAW. AGGRIEVED, ASSESSEE PREFERRED APP EAL BEFORE CIT(A), WHO AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE DELETED THE DISALLOWANCE OF LOSS VIDE PARA 4 OF HIS APPELLATE ORDER AS UNDER: 4. REGARDING GROUND NO.2 RELATES TO DISALLOWANCES OF BUSINESS LOSS AMOUNTING TO RS.2,56,77,693/-. AFTER CAREFUL CONSIDERATION O F THE ASSESSMENT ORDER, WRITTEN SUBMISSION FILED BY THE ASSESSEE AND CASE LAWS RELI ED UPON IT IS NOTICED THAT THE ASSESSEE HAD TOTAL FUNDS OF RS.122,32 CRORES AS ON 31.03.2008 AND LOAN AND ADVANCES ARE TO THE TUNE OF RS.59.18 CRORES AND IT HAD EARNED GROSS INTEREST INCOME OF RS.1.25 CRORES AND THE LOSS FROM SHARE TR ANSACTION IN THE FINANCIAL YEAR WAS RS.2.57 CRORES. THE ASSESSEE HAD CONTENDE D THAT THE ASSESSEE COMPANY IS HAVING PRINCIPLE BUSINESS OF GRANTING LOANS AND ADVANCES AS PER MEMORANDUM AND ARTICLES OF ASSOCIATION AND ACCORDINGLY ASSESSE E HAD PRODUCED THE AMOUNT OF LOANS AND ADVANCES AND INVESTMENT IN SHARE DETAI LS FROM 01.04.2004 TO 31.03.2009 AND HAD ALSO CONTENDED THAT INVESTMENT I N UNQUOTED SHARES CANNOT COME WITHIN THE PURVIEW OF PURCHASE. RELYING UPON SUPREME COURTS DECISION IN THE CASE OF SRI GOPAL JALAN VS. CALCUTTA STOCK EXCH ANGE ASSOCIATION IN SUPPORT OF ITS CONTENTION AND HAD ALSO RELIED UPON SPECIAL BENCH DECISION OF ITAT, KOLKATA IN THE CASE OF DCIT VSA. VENKETESWAR INVEST MENT & FINANCE PVT. LTD. IN SUPPORT OF ITS CONTENTION. KEEPING IN VIEW THIS FA CTUAL MATRIX THE ASSESSEE COMPANY IS COVERED BY EXCEPTION 2 OF EXPLANATION TO SEC. 73 OF THE I. T. ACT, 1961. SINCE, THE ASSESSEE IS ENGAGED IN THE PRINCI PAL BUSINESS OF GRANTING LOANS AND ADVANCES. HENCE, GROUND NO. 2 IS ALLOWED. 5. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. BEFORE US ASSESSEE EXPLAINED THAT EXPLANATIO N TO SEC. 73 OF THE ACT IS APPLICABLE WHERE ANY PART OF BUSINESS OF THE COMPANY CONSISTS OF THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES. FURTHER, THE EXPLANATION CRAVED OUT AN EXCEPTION AND EXPLANATION IS NOT APPLICABLE 3 ITA NO. 399/K/2012 ENDOGRAM LEASING & TRADING CO. LTD.., AY:2008-09 TO A COMPANY WHERE THE PRINCIPAL BUSINESS OF WHICH IS THE BUSINESS OF BANKING OR THE GRANTING OF LOANS AND ADVANCES. ACCORDING TO ASSESSEES COU NSEL, SINCE THE PRINCIPAL BUSINESS OF THE ASSESSEE COMPANY IS THAT OF GRANTING LOANS AND ADVA NCES AS IS EVIDENT FROM THE MEMORANDUM AND ARTICLE OF ASSOCIATION OF THE ASSESSEE COMPANY, HE REFERRED TO THE FOLLOWING CLAUSE: (A) THE OBJECT CLAUSES OF THE MEMORANDUM OF ARTIC LE OF ASSOCIATION OF THE COMPANY CLEARLY LAYS DOWN THAT THE MAIN OBJECTED TH E COMPANY IS LOANS AND ADVANCES (A COPY OF THE MEMORANDUM AND ARTICLE OF A SSOCIATION IS ENCLOSED. FOR THIS, HE REFERRED TO THE ASSESSEES INVESTMENT PATTERN IN THE BUSINESS OF PURCHASE AND SALE OF SHARES, WHICH IS MUCH LESS THAN THE AMOUNT INVESTED IN THE BUSINESS OF GRANTING LOANS AND ADVANCES AND HE REFERRED TO THE FOLLOWING STATISTIC S FOR OTHER YEARS: (FIGURES IN CRORES) 31.03.2009 31.03.2008 31.03.2007 31.03.2006 31.03.2005 LOANS & ADVANCES 62.49 59.18 199.04 85.09 6.93 QUOTED STOCKS 24.17 25.40 25.45 2.35 - FURTHER, ASSESSEES COUNSEL HAS GIVEN THE STATISTIC S AND EXPLAINED THE PAST HISTORY OF THE ASSESSEE COMPANY UNDER CONSIDERATION AS WELL AS OF THE SUBSE QUENT YEARS WHICH CLEARLY SHOWS THAT EVEN THE INCOME OF THE PAST YEARS IS AS UNDER: (FIGURES IN LACS) 31.03.2007 31.03.2006 31.03.2005 INTEREST 73.16 13.04 - CAPITAL (LOSS)/GAIN (97.27) 5.90 1.97 DIVIDEND 4.75 - - 6. FOR THIS PROPOSITION, LD. COUNSEL FOR THE ASSES SEE RELIED ON SPECIAL BENCH DECISION OF THIS TRIBUNAL, KOLKATA BENCH IN THE CASE OF DCIT VS . VENKATESHWAR INVESTMENT & FINANCE PVT. LTD. ITA NO.296/KOL/2002 DECIDED ON 01.12.2004 (93 ITD 177), WHERE IN IT HAS BEEN HELD THAT TO DECIDE WHETHER THE PRINCIPAL BUSINESS OF THE ASS ESSEE IS THAT OF GRANTING OF LOANS AND ADVANCES, THE DECISIVE FACTOR IS THE NATURE OF THE ACTIVITIES OF THE ASSESSEE AND NOT THE ACTUAL INCOME FROM SUCH ACTIVITIES DURING A PARTICULAR YEA R AS WELL AS IN THE PAST OR SUCCEEDING PERIOD. ACCORDING TO ASSESSEE THE STATISTICS GIVEN IN THE A BOVE PARAS EXPLAINING THE PAST HISTORY OF THE ASSESSEE COMPANY FOR THE YEAR UNDER CONSIDERATION A S WELL AS SUBSEQUENT YEARS, FACTS SPEAK LOUDER ABOUT ITS TRUE NATURE OF BUSINESS. TAKING I NTO CONSIDERATION, AS NOTED IN THE ABOVE PARAS, THE INCOME CRITERIA OF ASSESSEE COMPANY SINCE ITS I NCEPTION HAS NOT CARRIED OUT THE BUSINESS OF PURCHASES AND SALES OF SHARES EXCEPT FOR THE YEAR U NDER CONSIDERATION. FROM THE RELEVANT DETAILS IT IS CLEAR THAT THE ASSESSEE COMPANYS PRINCIPAL B USINESS WAS THAT OF MONEY LENDING AND EVEN ITS GROSS TOTAL INCOME MAINLY CONSISTS OF INCOME UN DER THE HEADS INCOME FROM CAPITAL GAINS, 4 ITA NO. 399/K/2012 ENDOGRAM LEASING & TRADING CO. LTD.., AY:2008-09 AND INCOME FROM OTHER SOURCES AND BOTH OF WHICH AR E DULY COVERED UNDER THE EXCEPTION CLAUSE AS PROVIDED IN EXPLANATION TO SEC. 73 OF THE ACT. SINCE THE ISSUE IS COVERED BY SPECIAL BENCH OF ITAT, KOLKATA IN THE CASE OF VENKATESHWAR INVESTMENT & FINANCE PVT. LTD. (SUPRA), WE CONFIRM THE ORDER OF CIT(A) AND APPEAL OF REVENU E IS DISMISSED. 7. IN THE RESULT, APPEAL OF REVENUE IS DISMISSED. 8. ORDER IS PRONOUNCED IN THE OPEN COURT ON 21 ST NOVEMBER, 2013 . SD/- SD/- . . . . ''# ''# ''# ''# , $% , (ABRAHAM P. GEORGE) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 21ST NOVEMBER, 2013 12 '3' 4 JD.(SR.P.S.) $0 5 . 6$ )7- COPY OF THE ORDER FORWARDED TO: 1 . ,- / APPELLANT DCIT, CIRCLE-12, KOLKATA . 2 ./,- / RESPONDENT M/S. EDOGRAM LEASING & TRADING CO. L TD., 224, A.J.C. BOSE ROAD, 10 TH FLOOR, KRISHNA BUILDING, ROOM NO. 1004/05, KOLKATA -700 017. 3 . 0' ( )/ THE CIT(A), KOLKATA 4. 5. 0' / CIT KOLKATA. <= .' / DR, KOLKATA BENCHES, KOLKATA / ./ TRUE COPY, $0'>/ BY ORDER, ' /ASSTT. REGISTRAR .