Lotus Capital Financial Services Pvt. Ltd., Kolkata V. ITO, Wd-6(2), Kolkata, Kolkata

ITA 410/KOL/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100163 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 9 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2015
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2004-2005
• Appeal Filed On: 10-03-2014
• Court: TRIBUNAL
• Keywords: Business income; Speculation loss
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH: K OLKATA [BEFORE SHRI MAHAVIR SINGH, JM] I.T.A NO.410 & 411/KOL/2014 ASSESSMENT YEARS: 2004-05 & 2005-06 LOTUS CAPITAL FINANCIAL SERVICES (P) LTD. VS. INCO ME-TAX OFFICER, WD-6(2), KOLKATA (PAN: AAACL4520B) ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 08.12.2015 DATE OF PRONOUNCEMENT: 16.12.2015 FOR THE APPELLANT: SHRI SUNIL SURANA, CA FOR THE RESPONDENT: SHRI TANUJ NIYOGI, JCIT, SR. DR ORDER BOTH THESE APPEALS BY ASSESSEE ARE ARISING OUT OF S EPARATE ORDERS OF CIT(A)-VI, KOLKATA VIDE APPEAL NOS. 118 & 194/CIT(A)-VI/06-07/ WD.6(2)/KOL DATED 02.12.2013. ASSESSMENTS WERE FRAMED BY ITO, WD-6(2), KOLKATA U/ S. 143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASS ESSMENT YEARS 2004-05 AND 2005-06 VIDE HIS SEPARATE ORDERS DATED 30.11.2006 AND 30.04 .2007 RESPECTIVELY. 2. THE ONLY COMMON ISSUE IN THESE TWO APPEALS OF AS SESSEE IS AS REGARDS TO THE ORDERS OF LOWER AUTHORITIES TREATING THE LOSS ON AC COUNT OF TRADING IN SHARES AS SPECULATION LOSS NOT ALLOWABLE IN VIEW OF EXPLANATI ON TO SEC. 73 OF THE ACT. FACTS AND CIRCUMSTANCES IN BOTH THE YEARS ARE COMMON AND HENC E, I WILL DECIDE THE ISSUE AFTER TAKING THE FACTS FROM AY 2004-05 IN ITA NO. 410/K/2 014. 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE HAD P URCHASED AND SOLD SHARES OF VARIOUS COMPANIES ON WHICH IT HAS INCURRED LOSS AT RS.49,77 ,455/-. THE ASSESSEE CLAIMED SPECULATION PROFIT ALSO AMOUNTING TO RS.40,02,193/- AND THEREBY NET LOSS WAS CLAIMED AT RS.9,55,524/-. THE AO APPLYING THE PROVISIONS OF S ECTION 73 OF THE ACT, DISALLOWED THE LOSS BY OBSERVING THAT ASSESSEE WAS ALL ALONG SHOWN INTEREST INCOME UNDER THE HEAD BUSINESS INCOME AND IT HAD DURING THE YEAR GAVE LOA NS AND ADVANCES OF SUBSTANTIAL AMOUNT. THEREFORE, ACCORDING TO HIM, THE INTEREST INCOME WAS TAXABLE UNDER THE HEAD BUSINESS INCOME AND NOT FROM INCOME FROM OTHER SOUR CES. ACCORDING TO HIM, THE EXPLANATION TO SEC. 73 OF THE ACT APPLIES TO ASSESS EES CASE AND LOSS ARISING OUT OF SHARE DEALING WAS DISALLOWED TO THE EXTENT OF RS.9,55,524 /- OUT OF WHICH ALREADY ADDITION MADE U/S. 94(7) OF THE ACT AT RS.98,750/- THEREBY N ET SPECULATION LOSS WAS DISALLOWED AT 2 ITA NOS.410 & 411/K/2014 LOTUS CAPITAL FIN. SERVICES P. LTD. AY 2004-05 & 2 005-06 RS.8,56,744/-. AGGRIEVED, ASSESSEE PREFERRED APPEA L BEFORE CIT(A), WHO ALSO CONFIRMED THE ACTION OF AO. AGGRIEVED, NOW ASSESSEE IS IN SE COND APPEAL BEFORE TRIBUNAL. 4. I HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. I FIND THAT THE AO HAS TREATED THE INTEREST INCOME AS INCOME FROM BUSINESS ON THE GROUND THAT SUBSTANTIAL PORTION OF THE FUND OF THE ASSESSEE WAS DEPLOYED IN LOANS TO DIFFERENT PARTIES THROUGHOUT THE YEAR. THE AO ALSO VIEWED THAT THE ASSESSEE HAS DISCLOSED INCOME FROM INTEREST AS INCOME FROM BUSIN ESS IN EARLIER YEAR AS WELL AS IN CURRENT YEAR WHILE FILING RETURN OF INCOME BUT CHAN GED THIS STAND AFTERWARD. FROM THE BALANCE SHEET, I FIND THAT THE NET OWN FUND OF THE ASSESSEE WERE AT RS.727 LACS OUT OF WHICH RS.618 LACS WERE LYING INVESTED IN TRADING OF STOCK OF SHARES WHICH CONSTITUTE ABOUT 85% OF THE NET OWN FUNDS. ANOTHER RS.33 LACS WAS LYING WITH SUNDRY DEBTORS ON ACCOUNT OF SALE OF SHARES WHICH CONSTITUTE ABOUT 4. 5% AND TOTAL COMES TO 88.5% OF THE CAPITAL LYING BLOCKED IN SHARE BUSINESS, WHEREAS TH E AMOUNT INVESTED IN LOAN WAS ONLY RS.22 LACS WHICH CONSTITUTE 3% OF THE NET OWN FUNDS . THE ASSESSEE HAS ENCLOSED THIS COPY OF BALANCE SHEET IN ITS PAPER BOOK. THE DETAI LS OF LOAN GIVEN FROM WHICH IT IS CLEAR THAT THERE ARE IN ALL 11 PARTIES TO WHOM LOANS WER E GIVEN OUT OF WHICH FOUR PARTIES WERE BROUGHT FORWARD FROM EARLIER YEARS. THE TOTAL TRAN SACTIONS OF THE LOAN GIVEN DURING THE YEAR WERE ONLY 16, WHERE THERE ARE 100S OF TRANSACT IONS IN DEALING IN SHARES AND SPECULATIONS DURING THE YEAR. I FIND THAT THE AO W HILE ASSUMING THAT EVEN IF INTEREST INCOME IS ACCEPTED AS INCOME FROM OTHER SOURCES THE N EVEN THE SHARE DEALING LOSS HAS TO BE TREATED AS SPECULATION LOSS IN VIEW OF EXPLANATI ON TO SECTION 73 OF THE ACT. THE AO VIEWED THAT THE LOSS IN PURCHASE AND SALE OF SHARES FOR THE PURPOSE OF APPLICATION OF EXPLANATION TO SECTION 73 OF THE ACT TO BE RESTRICT ED AT RS.49,77,945/- IS TOTALLY WRONG AND INCOME FROM INTEREST WAS LESS THAN THAT. AS RI GHTLY CONTENDED BY THE ASSESSEE BEFORE ME THAT IT IS THE ENTIRE BUSINESS OF PURCHASE AND S ALE OF SHARES WHETHER DELIVERY WAS TAKEN OR NOT, THERE IS OTHERWISE NOT IN DISPUTE THA T THE INCOME FROM INTEREST AND INCOME FROM DIVIDEND WHICH WAS RS.13,54,819/-, WHICH WAS M ORE THAN THE LOSS IN BUSINESS OF PURCHASE AND SALE OF SHARES. LD. COUNSEL FOR THE A SSESSEE BEFORE ME, GAVE THE DETAILS OF INCOME WHICH IS AS UNDER: LOSS IN SHARE DEALING (-) RS. 8,56,744/- INTEREST INCOME RS.11,32,471/- RS. 2,75,727/- 3 ITA NOS.410 & 411/K/2014 LOTUS CAPITAL FIN. SERVICES P. LTD. AY 2004-05 & 2 005-06 LESS: EXPENSES RS. 1,48,091/- TOTAL INCOME BEFORE APPLYING EXPLANATION TO SEC. 73 RS. 1,27,636/- TOTAL INCOME AS COMPUTED BY AO BY ADDING BACK THE RS. 8,56,744/- LOSS BY APPLYING EXPLANATION TO SEC. 73 RS. 9,84,380/- ACCORDING TO LD. COUNSEL, SINCE INTEREST INCOME IS MORE THAN THE LOSS IN SHARE DEALING AS IS EVIDENT FROM THE ABOVE COMPUTATION, THE ASSESSEE WILL NOT COME UNDER THE AMBIT OF EXPLANATION TO SECTION 73 OF THE ACT AS INTEREST IN COME WILL BE ASSESSED AS INCOME FROM OTHER SOURCES EVEN OTHERWISE IF THE INTEREST INCOME IS TREATED AS BUSINESS INCOME THEN ALSO THE DIVIDEND INCOME IS AT RS.2,22,348/-, WHICH IS MORE THAN THE INCOME UNDER THE HEAD BUSINESS OF RS.1,27,636/- BEFORE APPLYING EXPL ANATION TO SECTION 73 OF THE ACT. THIS POSITION HAS BEEN APPROVED BY HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. MIDDLETON INVESTMENT & TRADING CO. LTD. IN ITA NO. 196 OF 1999 DATED 15.01.2014. 5. IN VIEW OF THE ABOVE, I ALSO FIND THAT THE ISSU E IS ALSO COVERED BY THE DECISION OF CALCUTTA HIGH COURT IN THE CASE OF CIT VS MIDDLETON INVESTMENT & TRADING CO. LTD IN ITA NO. 196 OF 1999 DATED 15.1.2014 WHICH IN TURN R ELIED ON THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF CIT VS DARSHAN SECURITIES (P) LTD REPORTED IN 341 ITR 556 (BOM). I FIND THAT THE INTENTION BEHIND PROVISIONS OF SECTION 73 IS ONLY TO PROHIBIT THE SETTING OFF OF A LOSS WHICH HAS RESULTED FROM A SPE CULATION BUSINESS, SAVE AND EXCEPT AGAINST THE PROFITS AND GAINS OF ANOTHER SPECULATIO N BUSINESS. FURTHER IN ORDER TO DETERMINE WHETHER THE EXCEPTION THAT IS CARVED OUT BY THE EXPLANATION APPLIES TO THE FACTS OF THIS CASE, I HOLD THAT THE LEGISLATURE HAS FIRST MANDATED THE COMPUTATION OF GROSS TOTAL INCOME OF ASSESSEE. THE WORDS CONSISTS MAINL Y IN EXPLANATION TO SECTION 73 ARE INDICATIVE OF THE FACT THAT THE LEGISLATURE HAD IN ITS CONTEMPLATION THAT THE GROSS TOTAL INCOME CONSISTS PREDOMINANTLY OF INCOME FROM THE FO UR HEADS THAT ARE REFERRED TO THEREIN. HENCE IN COMPUTING THE GROSS TOTAL INCOME, THE NORMAL PROVISIONS OF THE ACT MUST BE APPLIED AND IT IS ONLY THEREAFTER, THAT IT HAS TO BE DETERMINED AS TO WHETHER THE GROSS TOTAL INCOME SO COMPUTED CONSISTS MAINLY OF I NCOME WHICH IS CHARGEABLE UNDER THE HEADS REFERRED TO IN THE EXPLANATION. THE GROSS TOTAL INCOME HAS TO BE COMPUTED BY COMPUTING THE INCOME UNDER THE HEAD PROFITS AND GAI NS OF BUSINESS INCLUDING THE BUSINESS INCOME FROM COMMISSION OF RS. 9,48,852/- A ND LOSS FROM SHARE TRADING OF RS. ITA NO.1079/KOL/2012 M/S. PARROT AGENCIES & CREDITE D PVT.LTD. A.YR.1997-98 4 12,21,800/- FOR THE SIMPLE REASON THAT BOTH BEING S OURCES UNDER THE SAME HEAD. THE 4 ITA NOS.410 & 411/K/2014 LOTUS CAPITAL FIN. SERVICES P. LTD. AY 2004-05 & 2 005-06 ASSESSEE ALSO HAD REPORTED INCOME FROM OTHER SOURCE S AT RS. 2,77,572/-. HENCE I FIND LOT OF FORCE IN THE ARGUMENTS OF THE LEARNED AR THAT TH E COMPARISON SHOULD BE DONE HEAD WISE AND NOT SOURCE WISE. ACCORDINGLY I HOLD THAT T HE FACTS OF THE CASE OF THE ASSESSEE SQUARELY FALLS WITHIN THE PURVIEW OF THE EXCEPTION CARVED OUT IN THE EXPLANATION TO SECTION 73 OF THE ACT AND CONSEQUENTLY I HOLD THAT THE ASSESSEE WOULD NOT BE DEEMED TO BE CARRYING ON SPECULATIVE BUSINESS. THE CASE LAW R ELIED UPON BY THE REVENUE IS DISTINGUISHABLE FROM THE FACTS OF THE INSTANT CASE. I ALSO FIND THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S THAKORLAL HIRALAL EXPORTS PVT LTD VS ITO IN ITA NO. 903 / KOL /2010 FOR ASST YEAR 2004-05 DATED 19.12.2014. IN VIEW OF THE CLEAR PROV ISIONS OF THE ACT AND IN VIEW OF THE FACTS OF THE CASE AND THE JUDICIAL PRECEDENTS RELIE D UPON INCLUDING THE JURISDICTIONAL HIGH COURT DECISION AND COORDINATE BENCH OF TRIBUNAL DEC ISION, I REVERSE THE ORDERS OF THE LOWER AUTHORITIES ON THIS GROUND. ACCORDINGLY, THE GROUND NO.1 RAISED BY THE ASSESSEE IS ALLOWED. 6. SIMILAR IS THE ISSUE AND FACTS ARE EXACTLY IDENT ICAL IN ITA NO. 411/KOL/2014 FOR AY 2005-06, TAKING A CONSISTENT VIEW IN THIS YEAR A LSO, WE ALLOW THIS ISSUE OF ASSESSEES APPEAL. 7. IN THE RESULT, APPEALS OF ASSESSEE ARE ALLOWED. 8. ORDER IS PRONOUNCED IN THE OPEN COURT ON 16.12.2 015. SD/- (MAHAVIR SINGH) JUDICIAL MEMBER DATED : 16TH DECEMBER, 2015 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1. APPELLANT LOTUS CAPITAL FINANCIAL SERVICES P. LT D., ROOM NO. 59, 4 TH FLOOR, 113, NETAJI SUBHAS ROAD, KOLKATA-700 001. 2 RESPONDENT ITO, WD-6(2), KOLKATA. 3. THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .