ITO 6(3)-4, MUMBAI V. MITANK TRADING COMPANY P. LTD, MUMBAI

ITA 4651/MUM/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 2096 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2003-2004
• Appeal Filed On: 10-07-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AARSI PRASADANKUR GARG
• Keywords: Business income; Speculation loss; Speculative transactions; Set aside; Capital Gains
• Section: 143(3); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER ITA NO. 4651/M/2008 ASSESSMENT YEAR: 2003-04 INCOME TAX OFFICER, WARD 6(3)(4), APPELLANT 524, AAYAKAR BHAVAN, 5 TH FLOOR, M.K. MARG, MUMBAI 400 020. VS. M/S MITANK TRADING COMPANY PVT. LTD., RESPONDENT 67, TAMBAKHATA, HANUMAN BLDG., MUMBAI 400 020. APPELLANT BY : MR. AARSI PRASAD/ANKUR GARG RESPONDENT BY : NONE ORDER PER A.L. GEHLOT, A.M.: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF CIT(A)-XXVIII, MUMBAI, PASSED ON 24.4.2008 FOR THE ASSESSMENT YEAR 2003-04 WHEREIN THE REVENUE HAS RAISED THE FOL LOWING GROUNDS OF APPEAL:- I . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , LD. CIT(A) ERRED IN ALLOWING THE SET OFF OF BROUGHT FOR WARD SPECULATION LOSS OF RS. 6,00,591/- PERTAINING TO AY 2001-02 AGAINST THE BUSINESS PROFIT OF AY 2003-04 BY HOLDIN G THAT THE PROFIT OF AY 2003-04 IS SPECULATION PROFIT WITHIN T HE DEEMING PROVISIONS OF EXPLANATION TO SECTION 73 OF THE IT A CT. 2. THE LD. CIT(A) FAILED TO APPRECIATE THAT AS PER P&L ACCOUNT INTEREST INCOME IS RS. 13,58,510/- DIVIDEND INCOME IS RS. 11,491/- AND INCOME FROM SALE OF SHARES IS RS. 16,2 4,467/- (SALE PRICE) RS. 10,23,876/- (PURCHASE PRICE) = R S. 6,00,591/- ONLY AND THEREFORE DURING THE RELEVANT AY 2003-04 T HE GROSS TOTAL INCOME OF THE ASSESSEE CONSISTS MAINLY OF INT EREST INCOME AND THEREBY EXPLANATION TO SECTION 73 IS NOT APPLIC ATION IN AY 2003-04. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE AO NO TICED THAT THE ASSESSEE HAS CLAIMED SET OFF OF SPECULATION LOSS AG AINST BUSINESS INCOME. THE RELEVANT FINDING OF THE AO IS REPRODUCE D BELOW:- ITA NO. 4651/M/08 M/S MITANK TRADING COMPANY PVT. LTD.. 2 2.3 WHEREAS, IN THE YEAR CONSIDERATION, THE ASSESSE E HAS SHOWN THE FOLLOWING INCOME:- INTEREST RECEIVED RS. 13,58,510 DIVIDEND RS. 11,491 SALES (SHARES) RS. 16,24,467 TOTAL RS.29,94,468 ========== 2.4 AGAINST THE ABOVE INCOME, THE ASSESSEE HAS CLAI MED EXPENSES OF RS. 20,60,699/- AND RETURNED A PROFIT B EFORE TAX (PBT) OF RS. 9,33,770/-. HENCE, FROM THE ABOVE HEAD S OF INCOME, THE ASSESSEE IS NOT HIT BY DEEMING PROVISIO NS OF EXPLANATION TO SECTION 73 OF THE IT ACT AND ACCORDI NGLY THE BUSINESS OF THE ASSESSEE CANNOT BE CONSIDERED OR EQ UATED TO SPECULATION BUSINESS AS ENVISAGED UNDER EXPLANATION 2 TO SECTION 28 OF THE IT ACT. HENCE, THE BROUGHT FORWAR D SPECULATION LOSS OF AY 2001-02 CANNOT BE ALLOWED TO BE SET OFF AGAINST THE REGULAR BUSINESS PROFITS OF THE YEAR UN DER CONSIDERATION. THE BROUGHT FORWARD SPECULATION LOSS SHOULD ONLY BE ALLOWED TO BE SET OFF AGAINST THE SPECULATI ON PROFIT ONLY. ACCORDINGLY, THE SPECULATION LOSS OF AY 2001- 02 IS ALLOWED TO BE CARRIED FORWARD FOR AY 2004-05. 3. THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE BY OBSERVING AS UNDER:- 3. I HAVE CAREFULLY CONSIDERED THE REPLY GIVEN BY T HE APPELLANT AND PERUSED THE ASSESSMENT ORDER. THE AS SESSING OFFICER IN ASSESSMENT YEAR 2001-02 HAVE HELD THAT EXPLANATION TO SECTION 73 IS APPLICABLE IN THE CASE OF THE APPELLANT AND SPECULATION LOSS CLAIMED BY THE APPEL LANT AMOUNTING TO RS. 22,56,167/- IS A SPECULATION LOSS AND THE SAME HAS BEEN ALLOWED TO BE CARRY FORWARD SET OFF A GAINST THE SPECULATION PROFIT OF SUBSEQUENT YEAR. IN ASSESSMEN T YEAR 2003-04, IN THE YEAR UNDER CONSIDERATION, THE APPEL LANT HAS SHOWN SPECULATION PROFIT OF RS. 6,00,591/- AND SET OFF AGAINST THE BROUGHT FORWARD SPECULATION LOSS OF ASSESSMENT YEAR 2001- 02. THE FACTS AND CIRCUMSTANCES OF AY 2003-04 ARE S IMILAR TO THE AY 2001-02. THE PROVISIONS OF EXPLANATION TO SE CTION 73 IS STILL APPLICABLE IN THE AY 2003-04 ALSO AND THE SHA RE PROFIT SHOWN BY THE APPELLANT IS DEEMED TO BE SPECULATION PROFIT AS PER EXPLANATION TO SECTION 73. IN VIEW OF THIS FACT THE CLAIM OF THE APPELLANT REGARDING SET OFF OF SPECULATION PROF IT AGAINST THE BROUGHT FORWARD SPECULATION LOSS OF AY 2001-02 IS A LLOWABLE AS PER LAW. THE AO IN AY 2002-03 HAS ALLOWED SET OF F OF BROUGHT FORWARD SPECULATION LOSS OF RS. 49,210/- AG AINST THE SPECULATION PROFIT TO THE APPELLANT. SIMILAR SET OF F HAS BEEN ALLOWED IN AY 2004-05 ALSO EVEN IN THE ASSESSMENT O RDER PASSED U/S 143(3) OF THE IT ACT, 1961. THE APPELLAN T HAS FILED UNDERTAKEN THAT NO APPEAL HAS BEEN FILED BY THE APP ELLANT AGAINST THE ORDER OF AY 2001-02, THEREFORE, THE ISS UE HAS BEEN FINAL. ITA NO. 4651/M/08 M/S MITANK TRADING COMPANY PVT. LTD.. 3 4. NONE IS APPEARED ON BEHALF OF THE ASSESSEE. WE H AVE HEARD THE LEARNED DR, WHO HAS RELIED UPON THE ORDER OF AO AND SUBMITTED THE FOLLOWING DETAILS:- ASST. YEAR INTEREST DIVIDEND SUNDRY INCOME SHARES INCOME/LOSS SALES TURNOVER OF SHARES PURCHASE PRICE OF SHARES 2001- 02 2023856 17748 8820 -2256167 6928426 NOT AVAILABLE 2003- 04 1358510 11491 0 600591 1624467 1023876 5. ON CONSIDERATION OF THE FACTS WE FIND THAT CIT ( A) HAS ALLOWED THE CLAIM OF SET OF SPECULATION LOSS OF THE ASSESSE E MERELY BASED ON THE FACTS THAT IN AY 2001-02 WHERE THE AO INVOKED E XPLANATION TO SECTION 73 AND HELD THAT THE LOSS WAS A SPECULATION LOSS. THE CIT(A) FOUND THAT SIMILAR CIRCUMSTANCES EXISTED IN THE YEA R CONSIDERATION AS THAT OF AY 2001-02 AND OBSERVED THAT THE INCOME SHOULD BE THE INCOME FROM SPECULATION TRANSACTION. THEREFORE, SPE CULATION LOSS OF EARLIER YEARS WAS ALLOWED TO BE SET OFF AGAINST SPE CULATIVE PROFIT FOR THE YEAR UNDER CONSIDERATION. HOWEVER, THE ISSUE TO BE DECIDED HERE IN THE APPEAL FILED BY THE REVENUE THAT ON THE BASI S OF AVAILABLE FACTS ON RECORD WHETHER EXPLANATION TO SECTION 73 I S APPLICABLE TO THE FACTS OF THE YEAR UNDER CONSIDERATION OR NOT. S INCE THIS IS A LEGAL ISSUE AND WHAT SHOULD BE THE CORRECT COMPUTAT ION OF TOTAL INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERA TION IS TO BE SEEN. THE TRANSACTION OF PURCHASE AND SALE OF SHARE S WOULD BE HELD AS SPECULATIVE TRANSACTION ONLY IF THE COMPANY WAS HIT BY THE EXPLANATION TO SECTION 73. THE IMPLICATION OF THE E XPLANATION IS THAT IF A COMPANY INCURS A SPECULATION LOSS IN A MA NNER DEEMED IN THE EXPLANATION, SUCH LOSS SHALL NOT BE SET OFF EXC EPT AGAINST PROFITS AND GAINS, IF ANY, OF ANOTHER SPECULATION B USINESS. BUT, THE EXPLANATION HAS PROVIDED TWO EXCEPTIONS. THE FIRST EXCEPTION IS AVAILABLE IN THE CASE OF A COMPANY WHOSE GROSS TOTA L INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS INTEREST ON SECURITIES, INCOME FROM HOUSE PROPER TY, CAPITAL GAINS AND INCOME FROM OTHER SOURCES. THE SECOND EXCEPTI ON IS IN THE CASE OF A COMPANY WHOSE PRINCIPAL BUSINESS IS THE B USINESS OF ITA NO. 4651/M/08 M/S MITANK TRADING COMPANY PVT. LTD.. 4 BANKING OR THE GRANTING OF LOANS AND ADVANCES. THE ASSESSEE- COMPANY IS NOT CARRYING ON, AS ITS PRINCIPAL BUSINE SS, THE BUSINESS OF BANKING OR GRANTING OF LOANS AND ADVANCES AND DO ES NOT COME UNDER THE SECOND CATEGORY OF EXCEPTION. THEREFORE, IT HAS TO BE EXAMINED WHETHER THE GROSS TOTAL INCOME OF THE ASSE SSEE-COMPANY CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCES, OR NOT. . IF WE APPLY THE ABOVE DISCUSSION TO THE FACTS OF THE CASE UNDER CONSIDERA TION, WE FIND THAT THE ASSESSEE COMPANY WAS HAVING INCOME ON ACCO UNT OF INTEREST, DIVIDEND AND SUNDRY INCOME, WHICH ARE ASS ESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. FROM THESE FA CTS, IT IS CLEAR THAT EXPLANATION TO SECTION 73 IS NOT APPLICABLE, T HEREFORE, INCOME IN THE YEAR UNDER CONSIDERATION IS NOT THE INCOME F ROM SPECULATIVE TRANSACTIONS. THEREFORE, SPECULATION LOSS OF EARLIE R YEAR WOULD NOT BE ALLOWED TO SET OFF AGAINST THE OTHER INCOME FOR THE YEAR UNDER CONSIDERATION. AS STATED ABOVE, THE ASSESSEE DID NO T APPEAR ON THE DATE OF HEARING; THEREFORE, THE CASE HAS BEEN DECID ED ON THE FACTS AVAILABLE ON RECORD. HOWEVER, THE CIT(A) HAS STATED THAT FACTS OF THE CASE UNDER CONSIDERATION ARE IDENTICAL TO THAT OF A Y 2001-02. WHETHER THE ASSESSEE HAS CHALLENGED THE ORDER OF AY IN 2001-02 IS NOT ON RECORD NOR HAS THE ASSESSEE PRESENT AT THE T IME OF HEARING TO ASCERTAIN THE FACTS. THE APPEAL OF THE YEAR UNDER C ONSIDERATION HAS BEEN DECIDED ON THE BASIS OF FACTS ON RECORD IN ACC ORDANCE WITH LAW APPLICABLE INCLUDING EXPLANATION TO SECTION 73 OF T HE ACT FOR THE YEAR UNDER CONSIDERATION. IN THE LIGHT OF ABOVE DIS CUSSION, WE SET ASIDE THE ORDER OF CIT(A) AND RESTORE THAT OF THE A O. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLO WED. PRONOUNCED IN OPEN COURT ON THIS 14 TH DAY OF MAY, 2010. SD/- SD/- (D. MANMOHAN) (A.L. GEHLOT ) VICE PRESIDENT ACCOUNTANT MEMBER DATED:14 TH MAY, 2010. ITA NO. 4651/M/08 M/S MITANK TRADING COMPANY PVT. LTD.. 5 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, B BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI. KV S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON 30.4.2010 SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR 5.5.2010 SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER