ACIT- 4(2)(1), MUMBAI V. QUANT SECURITIES PVT. LTD., MUMBAI

ITA 4218/MUM/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 2205 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-06-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 08-06-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D G
• Keywords: Speculation loss

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D, MUMBAI BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA NO.4218/M/2017 ASSESSMENT YEAR: 2013-14 ACIT 4(2)(1), ROOM NO.642, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 VS. M/S. QUANT SECURITIES PVT. LTD., 612-617, 6 TH FLOOR, MAKER CHAMBERS IV, NARIMAN POINT, MUMBAI 400 021 PAN: AAACQ1648R (APPELLANT) (R ESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI JITENDRA SANGHAVI, A.R. SHRI AMIT KHATIWALA, A.R. REVENUE BY : SHRI D.G. PANSARI, D.R. DATE OF HEARING : 06.06.2019 DATE OF PRONOUNCEMENT : 26.06.2019 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVEN UE AGAINST THE ORDER DATED 24.03.2017 OF THE COMMISSIO NER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS TH E CIT(A)] RELEVANT TO ASSESSMENT YEAR 2013-14. 2. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE U/S 73 OF THE I. T. AC T OF RS.69,76,286/- ON ACCOUNT OF TREATING SHARE TRADING LOSS AS SPECULATIVE LOSS MAD E BY THE A.O. 2. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER A NY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY.' ITA NO.4218/M/2017 M/S. QUANT SECURITIES PVT. LTD. 2 3. THE FACTS IN BRIEF ARE THAT THE AO DURING THE CO URSE OF ASSESSMENT PROCEEDINGS NOTICED THAT MAJOR ACTIVITIE S OF THE ASSESSEE WERE FROM PURCHASE/SALE OF SHARES FROM WH ICH THE ASSESSEE HAS SHOWN TRADING LOSS OF RS.21,39,273/- I N TRADING ITS OWN SHARES. THEREFORE, THE AO CALLED UPON THE ASS ESSEE TO EXPLAIN AS TO WHY THE TRADING LOSS SHOULD NOT BE TR EATED AS SPECULATION LOSS WHICH WAS REPLIED BY THE ASSESSEE VIDE LETTER DATED 07.12.2015. THE AO OBSERVED THAT ASSESSEE WA S ENGAGED IN THE BUSINESS OF SHARE TRADING AND SHARE BROKING. THE AO NOTED THAT SHARE BROKER IS AN INTERMEDIARY BETWEEN THE BUYERS AND SELLERS OF THE SHARES THROUGH STOCK EXCHANGE AN D THE SHARES BROUGHT AND SOLD BY THE ASSESSEE ARE NOT OWN ACCOUN T BUT IT MERELY EXECUTES THE TRANSACTIONS ON BEHALF OF ITS CLIENTS. AS A SHARE BROKER THE ASSESSEE IS NOT RESPONSIBLE FOR AN Y PROFIT EARNED OR LOSS INCURRED OUT OF THE TRANSACTIONS IN PURCHASE/SALES ON BEHALF OF THE CLIENTS BUT ONLY RE CEIVED BROKERAGE INCOME FROM THE CLIENTS ON WHOSE BEHALF T HE TRANSACTIONS WERE EXECUTED. WHEREAS, ON THE OTHER HAND AS TRADER THE ROLE OF THE ASSESSEE IS DISTINCT FROM TH AT OF SHARE BROKER. THUS ASSESSEE IS ENGAGED IN THE BUSINESS O F SHARE TRADING WHEREIN THE ENTIRE SALES AND PURCHASES WERE DONE ON ITS OWN BEHALF AND WHATEVER PROFIT/LOSSES OCCURS OR INC URRED WOULD BELONG TO THE ASSESSEE AS SHARE TRADER. ACCORDING TO THE AO THE ASSESSEE IS COVERED BY THE EXPLANATION TO SECTION 7 3 OF THE ACT AND DOES NOT FALL WITHIN THE EXCEPTIONS AS PROVIDED THEREIN AS THE BUSINESS OF THE ASSESSEE COMPRISED THE SALE AND PURCHASE OF SHARES OF ITS OWN AND OTHER COMPANIES AND THEREFORE THE ASSESSEE IS DEEMED TO HAVE CARRIED ON THE SPECULATI ON BUSINESS WITHIN THE MEANING OF SECTION 73 TO THE EXTENT THE BUSINESS ITA NO.4218/M/2017 M/S. QUANT SECURITIES PVT. LTD. 3 COMPRISED THE PURCHASE AND SALE OF SHARES AND FINAL LY DISALLOWED LOSSES OF RS.21,39,273/- INCURRED IN THE SHARE TRADING BUSINESS. MOREOVER, THE AO ALSO DISALLOWED EXPENSES RELATING TO SHARE TRADING TO THE TUNE OF RS.48,37,0 13/- BY OBSERVING THAT THE TOTAL EXPENSES AS PER PROFIT & L OSS ACCOUNT WERE RS.4,83,70,130/- AND APPORTIONED THE SAME AS R ELATING TO SPECULATIVE BUSINESS IN THE PROPORTION OF TURNOVER IN THE SPECULATIVE BUSINESS TO THE TOTAL TURNOVER. 4. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) ALL OWED THE APPEAL OF THE ASSESSEE BY HOLDING THAT THE BUSINESS OF THE ASSESSEE OF SHARE TRADING AND BROKING IS COVERED IN THE EXCEPTIONS PROVIDED TO EXPLANATION TO SECTION 73 OF THE ACT AND THEREFORE REVERSED THE ORDER OF AO. 5. THE LD. A.R. AT THE OUTSET CANDIDLY ADMITTED THA T THE ISSUE IN THE PRESENT CASE AS RAISED BY THE REVENUE IS COV ERED AGAINST THE ASSESSEE BY THE ORDER OF HONBLE SUPREME COURT IN THE CASE OF SUN TAX INVESTMENT LTD. VS. PCIT (2019) 105 TAXM AN.COM 282 (SC). HOWEVER, THE LD. A.R. SUBMITTED THAT THE CAL CULATION AS MADE BY THE AO WHILE DISALLOWING THE EXPENSES PERT AINING TO THE SPECULATIVE BUSINESS IS FALLACIOUS AND WRONG AS THE TOTAL TURNOVER HAS BEEN TAKEN AS RS.390,14,24,958/- AS AG AINST THE ACTUAL TOTAL TURNOVER OF RS.39,01,42,49,580/-. THE LD. A.R. FILED A NECESSARY DOCUMENTS TO CORROBORATE HIS ARGUMENTS AND THUS PRAYED BEFORE THE BENCH THAT TO THIS EXTENT THE AO BE DIRECTED TO CALCULATE THE DISALLOWANCE OF EXPENSES RELATING TO SPECULATIVE BUSINESS ON THE BASIS OF CORRECT FIGURE OF TURNOVER . THE LD. A.R. ALSO MENTIONED THAT AS PER THE CORRECT TURNOVER THE DISALLOWANCE WORKED OUT TO RS.29,022/-. ITA NO.4218/M/2017 M/S. QUANT SECURITIES PVT. LTD. 4 6. THE LD. D.R., ON THE OTHER HAND, RELIED ON THE G ROUNDS OF APPEAL AND ORDER OF AO. 7. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE OBSERVE THAT IN THIS CASE THE ASSESSEE I S ENGAGED IN THE BUSINESS OF BUYING AND SELLING OF SHARES AND AL SO AS BROKER. THUS THE ASSESSEE IS DOING TWO TYPES OF BUSINESSES (1) THE DEALING IN SHARES AND OTHER RENDERING SERVICES OF B UYING AND SELLING OF SHARES TO OTHER CLIENTS FOR WHICH THE AS SESSEE CHARGES COMMISSION/BROKERAGE. WE HAVE EXAMINED THE STATEME NT FILED BY THE LD. A.R. DURING THE HEARING AND OBSERVED THA T THE TOTAL DISALLOWANCE OF EXPENSES ATTRIBUTABLE TO SPECULATIO N BUSINESS WORKED OUT TO RS.29,022/-. THE RELEVANT DETAILS AR E REPRODUCED AS UNDER: TABLE-A(DETAILS FILED WITH THE AO) SALES PURCHASES TOTAL TURNOVER RATIO OWN 20,49,22,641 20,69,42,057 41,18,64,698 1% CLIENT 19,38,47,71,313 19,21,76,13,569 38,60,23,84,882 99% 19,58,96,93,954 19,42,45,55,626 39,01,42,49,580 TABLE-B(AOS WORKING IN THE ASSESSMENT ORDER) SALES PURCHASES TOTAL TURNOVER RATIO OWN 20,49,22,641 20,69,42,057 41,18,64,698 1% CLIENT 19,38,47,71,313 19,21,76,13,569 38,60,23,84,882 99% 19,58,96,93,954 19,42,45,55,626 39,01,42,49,580 (WHILE CALCULATING THE RATIO FO OWN TURNOVER TO TOT AL TURNOVER THE AO WRONGLY TAKEN THE FIGURE OF TOTAL TURNOVER AT RS . 390,14,24,958/- INSTEAD OF 3901,42,49,580/-) AND TH US THE EXPENSES PERTAINING TO SPECULATIVE BUSINESS WAS CAL CULATED AT RS. 48,37,013/- OUT OF THE TOTAL EXPENSES RS. 4,83, 70,130/- ITA NO.4218/M/2017 M/S. QUANT SECURITIES PVT. LTD. 5 TABLE-C(CORRECT WORKING AS FILED BEFORE LD CIT(A) SEGMENT TURNOVER RATIO OWN - CAPITAL MARKET SEGMENT 41,18,64,698 0.06% CLIENT - CAPITAL MARKET SEGMENT 38,60,23,84,882 TOTAL OF CAPITAL MARKET SEGMENT (AS CONSIDERED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER) 39,01,42,49,580 ADD: FUTURE & OPTION SEGMENT 6,40,51,50,32,886 ADD: CURRENCY DERIVATIVE SEGMENT 5,95,18,015 TOTAL 6,79,58,88,00,481 100% 8. WE OBSERVE FROM THE ABOVE TABLES THAT THE TURNOV ER OF THE ASSESSEE HAS BEEN TAKEN ERRONEOUSLY BY OMITTING THE LAST DIGIT I.E. ZERO FROM THE TURNOVER. THE CORRECT TURNOVER OF THE ASSESSEE IS RS.3901,42,49,580/- WHEREAS THE AO HAS WRONGLY T AKEN RS.390,14,24,958/- WHILE CALCULATING THE DISALLOWAN CE OF EXPENSES RELATING SPECULATIVE BUSINESS. WE HAVE AL SO EXAMINED THE DISALLOWANCE AS CALCULATED BY THE ASSESSEE IN T ABLE C ABOVE AND ARE OF THE CONSIDERED VIEW THAT DISALLOWANCE OF EXPENSES ATTRIBUTABLE TO SPECULATION BUSINESS HAS TO BE MADE TO THE EXTENT OF RS.29,022/- ONLY. ACCORDINGLY, WE SET AS IDE THE ORDER OF LD. CIT(A) AND DIRECT THE AO TO RESTRICT THE DIS ALLOWANCE OF EXPENSES RELATING TO SHARE TRADING IN OWN SHARES AT RS.29,022/- IN PLACE OF RS.48,37,013/-.FINALLY WE ,RESPECTFULLY FOLLOWING THE APEX COURT DECISION IN THE CASE OF SUN TAX INVEST MENT LTD. VS. PCIT(SUPRA), REVERSE THE ORDER OF CIT(A) AND RESTOR E THE ORDER OF ITA NO.4218/M/2017 M/S. QUANT SECURITIES PVT. LTD. 6 AO WITH THE MODIFICATION THAT EXPENSES TO BE DISALL OWED RELATING TO THE SPECULATIVE BUSINESS BE RESTRICTED TO RS.29, 022/-. 9. THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26.06.2019. SD/- SD/- ( RAM LAL NEGI) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 26.06.2019. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORDER DY/ASS TT. REGISTRAR, ITAT, MUMBAI.