DCIT CC-47, MUMBAI V. NAINRAJ INVESTMENT P. LTD, MUMBAI

ITA 4553/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0894 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 27-07-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 04-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMARD EEP
• Keywords: Business income; Rule of consistency; Speculation loss; Reassessment proceedings

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H : MUMBAI BEFORE SHRI D.K. AGARWAL, (JM) AND SHRI A.L. GEHLO T ,(AM) ITA NO.4553/MUM/2009 ASSESSMENT YEAR : 2003-04 DY. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-47 MUMBAI-20. ..( APPELLANT ) VS. M/S. NAINRAJ INVESTMENT PVT. LTD. 16-B, SAMHITA INDL. ESTATE OFF ANDHERI KURLA ROAD SANTACRUZ (W) MUMBAI-400 072. ..( RESPONDENT ) P.A. NO. (AABCN 4200 H) APPELLANT BY : SHRI AMARDEEP RESPONDENT BY : SHRI DH IREN P. TALATI O R D E R PER D.K. AGARWAL (JM). THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER DATED 18.5.2009 PASSED BY THE LD. CIT(A) FOR TH E ASSESSMENT YEAR 2003-04. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE COM PANY IS ENGAGED IN THE BUSINESS OF MARKETING AND SALE OF JEWELL ERY. APART FROM THE ABOVE, THE COMPANY ALSO HAS INVESTMENT IN SHARE S OF PAREKH PLATINUM LTD. (PPL) AND OTHER COMPANIES. THE RETURN WAS FILED ITA NO.4553/M/09 A.Y:03-04 2 DECLARING LOSS OF ` 3,19,47,765/-. DURING THE COURSE OF ASSESSMENT IT WAS INTERALIA OBSERVED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS CLAIMED LOSS OF ` 2,81,71,716/- ON ACCOUNT OF SALE OF SHARES OF PPL WHICH WERE PURCHASED IN THE YEAR 1993-94. THE ASSESSEE T REATED THE LOSS AS LONG TERM CAPITAL LOSS. HOWEVER, THE ASSESSING OFFICE R WAS OF THE VIEW THAT THE COMPANY IS NOT AN INVESTMENT OR BANK ING COMPANY, EXPLANATION TO SEC.73 OF THE INCOME TAX ACT, 1961(THE A CT) IS ATTRACTED AND HENCE, LOSS ON SALE OF SHARES IS LIABLE TO BE TREATED AS SPECULATION LOSS AND ACCORDINGLY HE DISALLOWED THE LONG TERM CAPITAL LOSS OF ` 2,81,71,716/-AND COMPLETED THE ASSESSMENT AT A LOSS OF ` 37,76,049/ VIDE ORDER DATED 23.12.2008 PASSED U/S.143( 3) R.W.S. 147 OF THE ACT. 3. ON APPEAL, IT WAS CONTENDED BY THE ASSESSEE THAT TH E ASSESSEE IS MAINTAINING A SHOWROOM FOR THE MARKETING AND SALE O F JEWELLERY. APART FROM THE ABOVE, THE COMPANY HAS ALSO MADE INVESTM ENTS IN SHARES OF PPL. REFERRING TO THE MEMORANDUM AND ARTICL ES OF ASSOCIATION OF THE COMPANY IT WAS SUBMITTED THAT THE MA IN OBJECT OF THE COMPANY WAS TO CARRY ON BUSINESS AS AN INVESTMENT COMPAN Y. BASED ON THIS, THE ASSESSEE HAS INVESTED IN SHARES OF PPL. SI MILARLY, BASED ON THE AUTHORITY DERIVED FROM CLAUSE 46A OF THE MEMORANDUM AND ARTICLE OF ASSOCIATION, THE ASSESSEE HAS CARRIED ON THE BUSINESS OF ITA NO.4553/M/09 A.Y:03-04 3 MAINTAINING A SHOWROOM FOR THE MARKETING AND SALE OF JEWELLERY. IT WAS FURTHER SUBMITTED THAT ASSESSEE IS IN THE BUSINESS OF MAR KETING AND SALE OF JEWELLERY AND IT IS NOT IN THE BUSINESS OF T RADING IN SHARES. THE PURCHASE OF SHARES IS ONLY FOR THE PURPOSE OF INVESTME NT AND NOT FOR THE PURPOSE OF BUSINESS. REFERRING TO THE BALANCE SHEET AND P&L ACCOUNT IT WAS SUBMITTED THAT THE ENTIRE SALES AS REFLECTE D IN THE P&L ACCOUNT IS ON ACCOUNT OF SALE OF JEWELLERY AND OTHER PRECI OUS METALS. THE PURCHASE OF SHARES OF PPL IS REFLECTED AS AN INVESTMENT IN SHARES AS PER SCHEDULE-D OF THE BALANCE SHEET. IT WAS FURTHER S UBMITTED THAT NAINRAJ ENTERPRISES PVT. LTD. WAS INCORPORATED AS NAINRA J INVESTMENT PVT. LIMITED AND HAS INVESTED IN SHARES OF ITS SISTER CO NCERN PPL WHICH IS A LISTED PUBLIC LIMITED COMPANY. NAINRAJ INVESTED IN THE SHARES OF PPL IN THE YEAR 1993-94. THESE INVESTMENTS HAVE SINCE THEN BEEN TREATED AS QUOTED LONG TERM INVESTMENTS IN ITS AUDITED BALAN CE SHEET. NAINRAJ ALSO RECEIVED BONUS SHARES IN THE YEAR 1995 AND ALSO ACQUIRED RIGHT SHARES IN THE YEAR 1995. THEREAFTER, NAINRAJ A LSO RECEIVED BONUS SHARES IN THE YEAR 1998. ALL THIS DEPICTS THE CLEAR INTE NTION OF THE COMPANY TO TREAT THE INVESTMENT IN SHARES AS INVESTMENT AND NOT AS TRADING STOCK. THE COMPANY HAS NO TRANSACTIONS OF DEALIN G IN SHARES AND ALSO IS NOT ENGAGED IN ANY SPECULATIVE BUSINESS IN THE STOCK MARKET. IN RESPECT OF THE INVESTMENTS IN SHARES, NAINRA J HAS ACTUALLY RECEIVED THE SHARES IN ITS OWN NAME WHICH SHOWS THAT THE D ELIVERY OF ITA NO.4553/M/09 A.Y:03-04 4 SHARES HAS ALSO BEEN TAKEN BY THE COMPANY. THE TRANSACTION S IN RESPECT OF THESE INVESTMENTS HAVE IN THE PAST ALSO BEEN TR EATED AS CAPITAL LOSS AND NOT AS SPECULATIVE LOSS. DURING YEAR U NDER CONSIDERATION THE LOSS OF ` 2,81,71,715/- HAS ALSO BEEN TREATED AS LOSS FROM CAPITAL GAINS. THIS IS IN VIEW OF THE FACT TH AT IT IS NOT THE BUSINESS OF THE COMPANY TO PURCHASE AND SALE SHARES OF OTH ER COMPANIES. THE EXPLANATION TO SECTION 73 OF THE ACT, R EQUIRES THE TREATING OF THE BUSINESS LOSS IN RESPECT OF PURCHASE AND SALE OF SHARES OF OTHER COMPANIES AS SPECULATION BUSINESS LOSS. HOWEVER, SINCE IN THE PRESENT CASE NAINRAJ IS NOT IN THE BUSINESS OF PURCHASE AND SALE OF SHARES, THE LOSS CANNOT BE TREATED AS SPECULATION LOSS. I T WAS FURTHER SUBMITTED THAT IN THE IMMEDIATELY PRECEDING PREVIOUS Y EAR RELATING TO ASSESSMENT YEAR 2002-03 ALSO THERE WAS SIMILAR TRANSACTION O F SALE OF SHARES HELD AS AN INVESTMENT BY THE COMPANY. THE ASSESSEE CLAIMED THE SAID LOSS AS LONG TERM CAPITAL LOSS. THE ORIGINAL A SSESSMENT WAS MADE U/S.143(3) OF THE ACT, WHEREBY THE SAID LOSS WAS ASSESSE D AS LONG TERM CAPITAL LOSS. THIS ASSESSMENT WAS ALSO REOPENED U/ S.148 AND IN THE FRESH REASSESSMENT PROCEEDINGS THE ASSESSEES CONTENT ION WAS ACCEPTED AND THE LOSS ON SALE OF SHARES WAS ACCEPTED AS LON G TERM CAPITAL LOSS. IT WAS, THEREFORE, SUBMITTED THAT THERE IS NO JUSTIFICATION IN TREATING THE SAME IN ASSESSMENT YEAR 2003-04 AS ARISIN G FROM THE BUSINESS OF THE ASSESSEE AND INVOKING THE PROVISIONS OF THE ITA NO.4553/M/09 A.Y:03-04 5 EXPLANATION TO SECTION 73 AND TREATING THE SAID LOSS AS SP ECULATIVE LOSS. IT WAS FURTHER SUBMITTED THAT THE EXPLANATION TO SECTIO N 73 CAN BE INVOKED ONLY IN CASE WHERE THE ASSESSEE IS IN THE BUSINESS OF PURCHASE AND SALES OF SHARES AND CANNOT BE APPLIED WHERE THE INVE STOR IN SHARES. THE PROVISIONS OF CIRCULAR NO.104 (INFACT IT IS CIRCULAR NO.204) DATED 24-07-1996 ALSO SUPPORTS THE ASSESSEES CONTENTION. THE RELIANCE WAS ALSO PLACED ON THE FOLLOWING CASES. A) MYSORE ROLLING MILLS PVT. LTD. VS. CIT (1992) 195 ITR 404(KAR) B) TRADE TEAM (P.) LTD. VS. DCIT (1995) 54 ITD 306 (BOM .) C) CIT VS. SUN DISTRIBUTORS & MINING CO. LTD. (1993) 68 TAXMAN 223 (CAL.) [IN THIS CASE THE JUDGMENT IS IN FAVOUR OF THE REVENUE. HOWEVER, THE PRINCIPLE IS ESTABLISHED THAT TH ERE HAS TO BE BUSINESS OF PURCHASE AND SALE OF SHARES.] 4. THE LD. CIT(A) AFTER CONSIDERING THE ASSESSEE'S SUBMISSIO NS AND MATERIAL ON RECORD HAS HELD AS UNDER :- 3.4 I HAVE CAREFULLY CONSIDERED THE FACTS AND SUBMISSIONS AND HAVE SEEN THE RELEVANT DETAILS. IT IS SEEN THAT DURING THE YEAR THE APPELLANT HAD SHOWN T HE BUSINESS OF MARKETING AND SALES OF JEWELLERY. THE SHARES OF PAREKH PLATINUM LTD. WERE SHOWN AS LONG TERM INVESTMENTS IN THE BALANCE SHEET AND STOOD PURCHASE D IN THE YEAR 1993-94. ON PERUSAL OF THE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT, IT IS NOTICEABLE THAT THE APPELLANT COMPANY WAS NOT ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF SHARES; WHATEVER STOCKS IT WAS HOLDING WERE SHOWN IN THE BALANCE SHEET AS INVESTMENTS ONLY. T HUS THE COMPANY CANNOT BE SAID TO BE DEALING IN SHARES. IT WAS PRIMARILY ENGAGED IN THE BUSINESS OF THE JEWELL ERY. IN THE CIRCUMSTANCES, THE ASSESSING OFFICERS ACTIO N IN TREATING THE LOSS ARISING OUT OF SALE OF SHARES OF PAREKH PLATINUM LTD AS SPECULATIVE LOSS BY INVOKING EXPLAN ATION TO SECTION 73 WAS NOT JUSTIFIED. IT WAS FURTHER S EEN THAT IN THE EARLIER YEARS ALSO, THE APPELLANT HAD SHOWN THE SALE OF SHARES OF PAREKH PLATINUM LTD AND THE LOSS ARISI NG OUT OF SUCH SALE STOOD ACCEPTED AS LONG TERM CAPITAL LO SS BY ITA NO.4553/M/09 A.Y:03-04 6 THE ASSESSING OFFICER. THE JUDGMENTS IN THE CASE OF MYSORE ROLLING MILLS PVT. LTD. VS. CIT 195 ITR 404 AND TRADE TEAM PVT. LTD. VS. DY.CIT 54 ITD 306 LEND FUL L SUPPORT TO THE ARS CONTENTION. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO TREAT THE LOSS ON ACCOUNT OF SALE OF SHARES OF PAREKH PLATINUM LTD. AS LONG T ERM CAPITAL LOSS. THIS GROUND OF APPEAL IS ALLOWED. 5. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) T HE REVENUE IS IN APPEAL BEFORE US TAKING FOLLOWING GROUNDS OF APPEAL : - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS NOT JUSTIFIED I N HOLDING THAT LOSS OF RS.2,81,71,716/- WAS NOT SPECULATIVE L OSS. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF ASSESSING OFFICER BE RESTORED. 6. AT THE TIME OF HEARING THE LD. DR WHILE RELYING ON THE ORDER OF THE ASSESSING OFFICER FURTHER SUBMITS THAT BEFORE THE LD. CIT(A) IT WAS SUBMITTED BY THE ASSESSEE THAT THE MAIN OBJECT OF THE COM PANY WAS TO CARRY ON BUSINESS AS AN INVESTMENT COMPANY. THEREFORE, TH E ASSESSEE'S BUSINESS OF MAINTAINING THE SHOWROOM FOR MARKETIN G AND SALE OF JEWELLERY IS ONLY AN ANCILLARY BUSINESS AND NOT THE MAIN PURPOSE FOR WHICH THE COMPANY WAS INCORPORATED. IT IS ALSO EVIDE NT FROM CLAUSE 46A OF THE MEMORANDUM AND ARTICLE OF ASSOCIATION REFERR ED BY THE ASSESSEE BEFORE THE LD. CIT(A). HE FURTHER SUBMITS THAT T HE NAME OF THE COMPANY ITSELF PROVES THAT IT IS AN INVESTMENT COMPAN Y FORMED FOR THE PURPOSE OF CARRYING ON BUSINESS OF INVESTMENT AND DE ALING IN SHARES. HE FURTHER SUBMITS THAT MERELY BECAUSE THE ASSESSEE COMPANY ITA NO.4553/M/09 A.Y:03-04 7 WAS MAINTAINING THE SHOW ROOM FOR MARKETING AND SALE O F JEWELLERY DOES NOT CHANGE THE CHARACTER OR THE PURPOSE FOR WHICH TH E ASSESSEE COMPANY WAS INCORPORATED. THEREFORE, ANY SALE OF SHARES HELD BY THE ASSESSEE COMPANY CONSTITUTES ITS BUSINESS INCOME. HE FURTHER SUB MITS THAT THE LD. CIT(A) FAILED TO APPRECIATE THAT THE IN VESTMENT IN SHARES MADE BY THE ASSESSEE COMPANY CONSTITUTES THE BUSINESS OF THE COMPANY WHEN THE SHARES WERE SUBSEQUENTLY SOLD BY THE ASSE SSEE COMPANY. HE FURTHER SUBMITS THAT THE LD. CIT(A) FAILED TO VIEW THE ENTIRE TRANSACTION IN THIS PERSPECTIVE. THE ASSESSEE COMPANY IS CLEARLY HIT BY THE PROVISIONS OF EXPLANATION TO SEC.73 SINCE EXPL ANATION PROVIDES THAT WHERE ANY PART OF THE BUSINESS OF A COMPAN Y CONSISTS IN PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, SUCH INCOME SHALL, FOR THE PURPOSE OF THIS SECTION, BE DEEMED TO BE CARRYING O N A SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF THE P URCHASE AND SALE OF SUCH SHARES. HE THEREFORE, SUBMITS THAT THE OR DER PASSED BY THE LD. CIT(A) BE REVERSED AND THAT OF ASSESSING OFF ICER BE RESTORED. 7. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSESSEE WH ILE REITERATING THE SAME SUBMISSIONS AS SUBMITTED BEFORE THE ASSESSING OFFICER AND THE LD. CIT(A) FURTHER SUBMITS THAT DURING THE YEAR THE ASSESSEE'S SOURCE OF INCOME IS FROM PURCHASE AND SALE OF JEWELL ERY ONLY WHICH IS ALSO EVIDENT FROM AUDITED ANNUAL ACCOUN TS WITH ITA NO.4553/M/09 A.Y:03-04 8 COMPUTATION OF INCOME, P&L ACCOUNT AND BALANCE SHEET ET C. FOR THE YEAR ENDED ON 31.3.2003 APPEARING AT PAGE 39 TO 55 OF THE ASSESSEE'S PAPER BOOK. HE FURTHER SUBMITS THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS NOT PURCHASED ANY SUCH SHARES O F PPL, IT HAS SOLD 666026 SHARES OF PPL WHICH WERE KEPT BY THE ASSESSEE AS AN INVESTMENT, THEREFORE, THE LOSS ARISING FROM SALE OF SUCH SHARES IS A LONG TERM CAPITAL LOSS AND NOT A BUSINESS LOSS. HE FURTHER SUBMITS THAT IN THE IMMEDIATELY PRECEDING PREVIOUS YEAR RELATING T O ASSESSMENT YEAR 2002-03 THERE WAS SIMILAR TRANSACTION OF SALE OF SH ARES HELD AS AN INVESTMENT BY THE COMPANY. THE ASSESSEE CLAIMED THE SAID L OSS AS LONG TERM CAPITAL LOSS AND THE ASSESSING OFFICER EVEN IN TH E ASSESSMENT MADE U/S.143(3) R.W.S.148 HAS ACCEPTED THE SAME A S SUCH VIDE ORDER DATED 4.12.2007 APPEARING AT PAGE-56 TO 65 OF ASSESSEE'S PAPER BOOK . HE FURTHER SUBMITS THAT SINCE THE ASSE SSEE IS NOT IN THE BUSINESS OF PURCHASE AND SALE OF SHARES AND DER IVES INCOME FROM SALE OF JEWELLERY, THEREFORE, THE EXPLANATION T O SEC.73 CANNOT BE INVOKED AND HENCE, THE LD. CIT(A) WAS FULLY JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO TREAT THE LOSS ON ACCOUNT OF SALE SHARES O F PPL AS LONG TERM CAPITAL LOSS. THE RELIANCE WAS ALSO PLACED ON T HE SAME DECISIONS CITED BEFORE THE LD. CIT(A) COPY OF WHICH AR E APPEARING AT PAGE 66 TO 84 OF ASSESSEE'S PAPER BOOK. ITA NO.4553/M/09 A.Y:03-04 9 8. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RI VAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THERE IS NO DISPUTE THAT DURING THE YEAR THE ASSESSEE HAS SHOWN INCOME FROM PURCHASE AND SALE OF JEWELLERY AS BUSINESS INCOME. WE FURT HER FIND THAT IT IS ALSO NOT IN DISPUTE THAT THE INVESTMENT IN S HARES INCLUDING THE SHARES OF PPL WAS SHOWN BY THE ASSESSEE AS INVESTMENT IN IT S BALANCE SHEET FOR THE YEAR ENDED 31.3.2003. IT IS ALSO NOT IN DISPUTE THAT IN THE IMMEDIATELY PRECEDING PREVIOUS YEAR RELATING TO ASSESSMENT YEAR 2002-03 THERE WAS SIMILAR TRANSACTION OF SALE OF SHARES H ELD AS AN INVESTMENT BY THE COMPANY. THE ASSESSEE CLAIMED THE SAID L OSS AS LONG TERM CAPITAL LOSS AND THE ASSESSING OFFICER EVEN IN TH E ASSESSMENT MADE U/S.143(3) R.W.S.148 HAS ACCEPTED THE SAME A S SUCH VIDE ORDER DATED 4.12.2007. IT IS ALSO NOT THE CASE OF THE REVENUE THAT DURING THE YEAR THE ASSESSEE HAS PURCHASED ANY SHARES O R THERE ARE MORE THAN ONE SUCH TRANSACTIONS OF SALE OF SHARES. 9. THE EXPLANATION TO SECTION 73 INSERTED BY TAXATION LAWS (AMENDMENT) ACT, 1975, W.E.F. 1.4.1977 READS AS UNDER : WHERE ANY PART OF THE BUSINESS OF A COMPANY (OTHER THAN A COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MA INLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS INTE REST ON SECURITIES, INCOME FROM HOUSE PROPERTY, CAPIT AL GAINS AND INCOME FROM OTHER SOURCES, OR A COMPAN Y THE PRINCIPAL BUSINESS OF WHICH IS THE BUSINESS OF BANKING OR THE GRANTING OF LOANS AND ADVANCES) CONSISTS IN THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, SUC H COMPANY SHALL, FOR THE PURPOSE OF THIS SECTION, BE DEEMED ITA NO.4553/M/09 A.Y:03-04 10 TO BE CARRYING ON A SPECULATION BUSINESS TO THE EXT ENT TO WHICH THE BUSINESS CONSISTS OF THE PURCHASE AND SAL E OF SUCH SHARES. 10. A PERUSAL OF THE EXPLANATION, WOULD, THEREFORE, MAKE IT CLEAR THAT WHERE ANY PART OF THE BUSINESS OF THE COMPANY CONSISTS IN THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, FOR THE PU RPOSE OF SEC. 73 SUCH COMPANIES SHALL BE DEEMED TO BE CARRYING ON SPE CULATION BUSINESS. ON CONSIDERATION OF THE SAID PROVISION CONSIDER ING THE LANGUAGE OF THE EXPLANATION THERE IS AT LEAST NO SCOPE FOR AMBIGUITY. THE LANGUAGE OF THE EXPLANATION IS CLEAR, INASMUCH AS A COMPANY CARRYING ON BUSINESS OF PURCHASE AND SALE OF SHARES SHALL BE DEEMED TO BE CARRYING ON SPECULATION BUSINESS. 11. HERE IT IS NECESSARY TO TAKE NOTE OF THE CASES RELIED O N BY THE LD. COUNSEL FOR THE ASSESSEE. 12. IN MYSORE ROLLING MILLS PVT. LTD. SUPRA, IT HAS BE EN OBSERVED AND HELD (HEADNOTES):- THE FACTS OF EACH CASE WILL HAVE TO BE EXAMINED TO ARRIVE AT A CONCLUSION WHETHER THE TRANSACTION IN QUESTION IS A SPECULATIVE VENTURE OR BUSINESS. THE NATURE OF THE ASSESSEE'S BUSINESS IN GENERAL, THE PURPOSE BEHIND THE PARTICULAR TRANSACTION, THE EFFECT OF THE TRANSACTI ON, ETC., ARE ALL TO BE CONSIDERED. UNLESS IT IS CONCLUSIVELY ESTABLISHED THAT THE ASSESSEE ENTERED INTO THE TRAN SACTION CLEARLY AS A SPECULATIVE VENTURE, THE COURTS CANNOT INFER THE TRANSACTION TO BE A SPECULATIVE VENTURE ONLY BE CAUSE THE ASSESSEE DERIVED SUBSEQUENTLY THE BENEFIT OF TA X REDUCTION. ITA NO.4553/M/09 A.Y:03-04 11 THE ASSESSEE, A PRIVATE LIMITED COMPANY, PURCHASED 12,070 SHARES OF ANOTHER COMPANY, P, IN 1976, AT TH E RATE OF RS. 100 PER SHARE AND SUBSEQUENTLY SOLD THE M AT THE RATE OF RS. 10 PER SHARE IN 1977. IN THIS PROCE SS, THE ASSESSEE-COMPANY SUSTAINED A LOSS OF RS. 10,86,300. THIS THE ASSESSEE CLAIMED AS A SHORT-TERM CAPITAL LOSS. IT WAS DISALLOWED BY THE INCOME-TAX OFFICER AS SPECULATION LOSS WITHIN THE MEANING OF THE EXPLANATION TO SECTION 73 OF THE INCOME-TAX ACT, 1961. THE COMMISSIONER OF INCOME-TA X (APPEALS) FOUND THAT THE ASSESSEE-COMPANY WAS NOT DEALING IN SHARES AT ANY TIME AND THAT THE TRANSACT ION IN QUESTION WAS A SOLITARY TRANSACTION AND THAT THE AS SESSEE- COMPANY DID NOT PURCHASE THE SHARES OF P WITH A VIE W TO SPECULATE AT ALL. THE SAID COMPANY WANTED TO MODERN ISE ITS PLANT AND THE ASSESSEE-COMPANY ACQUIRED THE SHA RES AS AN INVESTMENT. THE COMMISSIONER OF INCOME-TAX (APPEALS) FURTHER FOUND THAT P WAS A SISTER CONCERN OF THE ASSESSEE-COMPANY AND THAT IT WAS OBVIOUS THAT THE ASSESSEE INTENDED TO HELP THE SISTER CONCERN TO COM E OUT OF ITS DIFFICULTIES. HAVING REALISED THAT IT WAS NOT POSSIBLE TO REVIVE P AND THAT THE SHARES WERE WORTHLESS, THE ASSESSEE-COMPANY SOLD THEM AGAIN. THE COMMISSIONER OF INCOME-TAX (APPEALS) ALLOWED THE DEDUCTION BUT THE TRIBUNAL RESTORED THE ORDER OF THE INCOME-TAX OFFIC ER. HELD, THAT THE TRIBUNAL HAD ASSUMED THAT THE ASSESSEE- COMPANY HAD PURCHASED THE SHARES AS A DEALER BUT NO T AS, AN INVESTOR. IT WAS DIFFICULT TO APPRECIATE THE REASONING OF THE TRIBUNAL. THE TRIBUNAL HAD NOT CONSIDERED THE FACT THAT IT WAS POSSIBLE TO PURCHAS E SHARES AS A PERSON INTERESTED IN RESCUING ANOTHER P ERSON WHO WAS CLOSELY RELATED TO THE FORMER. THE COMMISSI ONER OF INCOME-TAX (APPEALS) HAD FOUND THAT THE ASSESSEE - COMPANY WAS INTERESTED IN P AND OBVIOUSLY PURCHASED THE SHARES TO HELP P TO MODERNISE ITS PLANT. HAVING REAL ISED THAT IT WAS NOT POSSIBLE TO DEVELOP P, THE ASSESSEE - COMPANY SOLD THE SHARES. THE TRANSACTION WAS NOT SPECULATIVE. THE LOSS OF RS.10,86,300 COULD NOT BE DISALLOWED BY APPLYING THE EXPLANATION TO SECTION 7 3 OF THE INCOME-TAX ACT, 1961. 13. IN TRADE TEAM (P.) LTD. VS. DCIT SUPRA, THE ASSESSEE HAD PURCHASED 484 SHARES OF A CERTAIN COMPANY ON 3.1.1980 AN D 1800 SHARES ON 21.12.1981 AT THE RATE OF RS.100 PER SHARE. AFTER ABOUT ITA NO.4553/M/09 A.Y:03-04 12 THREE YEARS, ON FINDING THAT THE COMPANY CONCERNED WAS M AKING LOSSES, THE ASSESSEE SOLD THESE SHARES AT THE RATE OF RE.1 PER SHARE. THE TRANSACTION RESULTED IN A LOSS OF RS.2,26,116/- TO TH E ASSESSEE WHICH WAS CLAIMED BY IT AS A SHORT-TERM CAPITAL LOSS. THIS WAS A SOLITARY TRANSACTION OF SALE AND PURCHASE OF SHARES BY THE ASSESSEE COMPANY. THE ASSESSING OFFICER DISALLOWED THE ASSESSEE'S CLAIM, INVOKING THE PROVISIONS OF EXPLANATION TO SECTION 73. ON APPEAL THE COMMISSIONER(APPEALS) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. IT HAS BEEN HELD THAT IT IS WELL-SETTLED LAW THAT DEEMING PROVISION ARE TO BE CONSTRUED STRICTLY AND THE ONUS IS ON THE DEPARTME NT TO BRING THE CASE WITHIN THE FOUR CORNERS OF THE DEEMI NG PROVISIONS. A BARE READING OF THE PROVISIONS OF TH E EXPLANATION TO SECTION 73 SHOWS THAT A PART OF THE BUSINESS OF THE ASSESSEE-COMPANY MUST CONSIST IN TH E PURCHASE AND SALE OF SHARES OF OTHER COMPANIES. HOWEVER, THERE IS AN EXCEPTION THAT THESE PROVISIONS WOULD NOT BE APPLICABLE WHERE THE ASSESSEE IS AN INVESTMENT COMPANY. IN THE INSTANT CASE, ADMITTEDL Y, THE ASSESSEE WAS NOT AN INVESTMENT COMPANY; THEREFORE, THE QUESTION THAT REMAINED TO BE DECIDED WAS WHETHER TH E ASSESSEE WAS CARRYING ON BUSINESS IN PURCHASE AND S ALE OF SHARES OF OTHER COMPANIES. THE FACTS OF THE CAS E DID NOT INDICATE THAT THE ASSESSEE WAS DEALING IN SHARE S. THE ASSESSEE HAD PURCHASED AND SOLD THE SHARES ONLY OF ONE COMPANY. THERE WAS NO MATERIAL TO HOLD THAT IT HAD BEEN DEALING IN SHARES OF OTHER COMPANIES. THE WORD BUSINESS HAS BEEN DEFINED IN SECTION 2(1 3) ACCORDING TO WHICH IT INCLUDES ANY TRADE, COMMERCE OR MANUFACTURE OR ANY ADVENTURE OR CONCERN IN THE NATU RE OF TRADE , COMMERCE OR MANUFACTURE. IN THE CASE OF NA RAIN SWADESHI WEAVING MILLS V. CEPT (1954) 26 ITR 765, T HE SUPREME COURT HELD THAT THE WORD BUSINESS CONNOTE S SOME REAL, SUBSTANTIVE AND SYSTEMATIC OR ORGANIZED ACTIVITY WITH THE SAID PURPOSE. IT IS ALSO SETTLED LAW THAT, ITA NO.4553/M/09 A.Y:03-04 13 IN A GIVEN CASE, A SOLITARY TRANSACTION MAY BE HELD AS A BUSINESS ACTIVITY, BUT IN SUCH A CASE THE ONUS LIES ON THE DEPARTMENT TO PROVE THE SAME. THIS VIEW IS FORTIFI ED BY THE SUPREME COURTS JUDGMENT IN THE CASE OF SAROJ KUMAR MAZUMDAR V. CIT (1959) 37 ITR 242. IN THE INSTANT CASE, THE TRANSACTION ENTERED INTO BY THE A SSESSEE WAS A SOLITARY ONE AND THE PRESUMPTION WAS THAT IT WAS HELD AS AN INVESTMENT, UNLESS REBUTTED BY THE DEPARTMENT. THERE WAS NOT AN IOTA OF EVIDENCE TO HOLD THE TRANSACTION TO BE A BUSINESS TRANSACTION. THER EFORE, THE PROVISIONS OF THE EXPLANATION TO SECTION 73 COU LD NOT BE INVOKED. 14. APPLYING THE PROVISION OF THE EXPLANATION TO SECTI ON 73 OF THE ACT IN THE LIGHT OF THE RATIO OF THE ABOVE DECISIONS TO TH E FACTS OF THE PRESENT CASE WE FIND THAT THERE IS NO MATERIAL ON RECORD TO SHOW THAT THE SHARES OF PPL WERE NOT HELD BY THE ASSESSEE COMPANY AS AN INVESTMENT BUT HELD AS A STOCK-IN-TRADE OR TRADED IN TH E NORMAL COURSE OF BUSINESS. AS A MATTER OF FACT THE ASSESSEE HAS PROVED T HAT THE SAID SHARES WERE HELD BY THE ASSESSEE AS AN INVESTMENT AND THE SAME HAS BEEN ACCEPTED BY THE REVENUE IN THE IMMEDIATELY PRECED ING ASSESSMENT YEAR 2002-03 BY ACCEPTING THE LONG TERM CAPITAL LOSS AS SHOWN BY THE ASSESSEE. FURTHER, THE TRANSACTION ENTERED I NTO BY THE ASSESSEE IS A SOLITARY ONE AND WE DO NOT FIND ANY IOTA OF EVIDENCE TO HOLD THAT THE SAID TRANSACTION AS BUSINESS TRANSACTION. AS T HE ONUS LIES ON THE DEPARTMENT TO PROVE THAT THE SAID TRANSACTION I S A BUSINESS TRANSACTION WHICH HE FAILED TO DO. THIS BEING SO, AND KE EPING IN VIEW THE RULE OF CONSISTENCY WE ARE OF THE VIEW THAT THE PR OVISIONS OF EXPLANATION TO SEC.73 CANNOT BE INVOKED AND ACCORDINGLY WE ARE ITA NO.4553/M/09 A.Y:03-04 14 INCLINED TO UPHOLD THE FINDING OF THE LD. CIT(A) IN DIRECTING THE ASSESSING OFFICER TO TREAT THE LOSS ON ACCOUNT OF LOSS OF SALE OF SHARES OF PPL AS LONG TERM CAPITAL LOSS. THE GROUNDS TAKEN BY THE REVENUE ARE THEREFORE, REJECTED. 15. IN THE RESULT, THE REVENUES APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30.7.2010. SD/- SD/- (A.L. GEHLOT) ( D.K. AGARWAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 30.7.2010. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.