MUNJAL HOLDINGS P.LTD, MUMBAI V. ITO 6(3)(4), MUMBAI

ITA 4783/MUM/2012

• Counselvise Citation: 478319914 RSA 2012
• Duration Of Justice: 1 year(s) 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 04-02-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 19-07-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M L PERUMAL
• Assessee Lawyers: RAJESH S SHAH
• Keywords: Business income; Depreciation; Speculation loss

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL MUMBAI - B BENCH MUMBAI . . , / ! ! ! ! , BEFORE S/SH.B.R.MITTAL,JUDICIAL MEMBE R & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO. 4783/MUM/2012, ' ' ' ' # # # # / ASSESSMENT YEAR 2007-08 MUNJAL HOLDINGS P. LTD. 41 SAINARA, 17 CUFFE PARADE, MUMBAI-400005 VS. ITO 6(3)(4) MUMBAI. PAN: AAACM7461Q ( $% / APPELLANT ) ( &'$% / RESPONDENT) $% $% $% $% ( (( ( ) ) ) ) / ASSESSEE BY : SHRI RAJESH S. SHAH &'$% ( ) / REVENUE BY : SHRI M.L.PERUMAL ' ' ' ' ( (( ( *+ *+ *+ *+ / DATE OF HEARING : 04 . 02 .201 4 ,-# ( *+ / DATE OF PRONOUNCEMENT : 21.02 .201 4 ' ' ' ' , 1961 ( (( ( 254 )1( *.* *.* *.* *.* / / / / ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,A.M: CHALLENGING THE ORDER DATED 30.04.2012 OF THE CIT(A )-12,MUMBAI,ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: BEING AGGRIEVED AGAINST THE ORDER OF COMMISSIONER O F INCOME TAX (A), MUMBAI, THIS APPEAL PETITION IS BEING FILED TO CONSIDER THE FOLLOWING G ROUNDS OF APPEAL, WHICH ARE INDEPENDENT AND WITHOUT PREJUDICE TO EACH OTHER:- 1) ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE COMMISSIONER OF INCOME TAX (A) ERRED IN CONFIRMING TREATMENT GIVEN BY THE A.O. IN RESPECT O F BUSINESS LOSS AS SPECULATION LOSS THOUGH THE PROVISIONS OF SECTION 73 ARE NOT APPLICABLE TO THE FACTS OF THE CASE. 2)ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW , THE COMMISSIONER OF INCOME TAX (A) ERRED IN NOT CONSIDERING THE FACT THAT THE COMPANY WHOSE TOT AL INCOME IS CONSISTING MAINLY OF INCOME FROM OTHER SOURCES AND HENCE THE EXPLANATION TO SECTION 73 IS NOT APPLICABLE. 3)THE APPELLANT CRAVES LEAVE TO ADD, AMEND, SUBSTIT UTE, MODIFY AND/OR CANCEL ANY OF THE GROUNDS OF APPEAL. ASSESSEE,A FAMILY HOLDING AND INVESTMENT COMPANY,FI LED ITS RETURN OF INCOME ON 31.10.2007 DECLARING LOSS OF RS.9,30,576/-. THE RETURN WAS PROCESSED U/S 143(1) ON 03.10.2008.L ATER ON THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS.ASSESSING OFFICER(AO)FINALISED THE ASSESSMENT U/S.143 (3)OF THE ACT DETERMINING THE INCOME OF THE ASSESSE E AT RS.NIL. 2. DURING THE ASSESSMENT PROCEEDINGS AO FOUND THAT THE ASSESSEE HAD SHOWN SALES OF SHARES OF RS. 28,15,410/- AND DIVIDEND OF RS.85,72,462/-.AFTER SE TTING OF THE EXPENDITURE THE NET PROFIT AS PER P & L A/C WAS SHOWN AT RS.70,19,539/- AS AGAINST THE NET PROFIT OF RS.25,32,349/- FOR THE LAST YEAR,THAT SHARE TRADING ACTIVITY WAS THE ONLY ACTIVITY CARRIE D OUT BY THE ASSESSEE-COMPANY DURING THE YEAR UNDER CONSIDERATION,THAT IT HAD ALSO RECEIVED DIVID END OUT OF ITS INVESTMENT WHICH WAS TREATED AS EXEMPT BY THE ASSESSEE,THAT THE IT HAD COMPUTED A L OSS OF RS.9,30,576/- AND HAS CARRIED FORWARD THE SAME AS BUSINESS LOSS WHICH INCLUDED DEPRECIATION L OSS OF RS.7,54,457/-.ACCORDINGLY,DURING THE COURSE OF ASSESSMENT PROCEEDINGS,AO ASKED THE ASSES SEE TO EXPLAIN AS TO WHY THE LOSS OF RS.9,30, 576/- SHOULD NOT BE TREATED AS SPECULATION LOSS AS PER THE PROVISION OF EXPLANATION TO SECTION 73 OF THE ACT. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE,H E HELD THAT THE ASSESSEE BEING A CORPORATE ENTITY WAS HIT BY THE PROVISIONS OF EXPLANATION TO SECTIO N 73(EXPL.),THAT AS PER THE PROVISIONS OF THE 2 ITA NO. 4783/MUM/2012 MUNJAL HOLDINGS P. LTD. EXPLANATION WHERE ANY PART OF THE BUSINESS OF A COM PANY;OTHER THAN A COMPANY WHOSE GROSS TOTAL INCOME CONSISTED MAINLY OF INCOME WHICH IS CHARGEAB LE UNDER THE HEADS INTEREST ON SECURITIES, INCOME FROM HOUSE PROPERTY, CAPITAL GAINS AND INCOM E FROM OTHER SOURCES, OR A COMPANY THE PRINCIPAL BUSINESS OF WHICH IS THE BUSINESS OF BANK ING OR GRANTING OF LOANS AND ADVANCES;CONSISTED IN THE PURCHASE AND SALE OF SHARES OF OTHER COMPANI ES SUCH COMPANIES WOULD FOR THE PURPOSES OF THE SECTION, BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS TO THE EXTENT OF WHICH THE BUSINESS CONSISTED OF PURCHASE AND SALE OF SUCH SHARES.AS PE R THE AO EXPLANATION INTRODUCED A LEGAL FICTION AND APPLIED TO ALL COMPANIES WHOSE BUSINESS CONSIST ED OF PURCHASE AND SALE OF SHARES,THAT THE SECTION 73 DEALT WITH CARRY FORWARD AND SET OFF OF LOSES,THAT THE EXPL.INTRODUCED A LEGAL FICTION. HE FURTHER HELD THAT THE SHARE TRADING ACTIVITY OF THE ASSESSEE WAS DEEMED TO BE SPECULATIVE IN NATURE BY VIRTUE OF THE DEEMING PROVISION, THAT THE LOSS OF R S. 9,30,576/- COMPUTED BY THE ASSESSEE AROSE DUE TO THE SHARE TRADING ACTIVITY CARRIED OUT BY IT, WH ICH IS THE ONLY ACTIVITY OF THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION,THAT LOSS COULD NOT BE ALL OWED AS A BUSINESS LOSS,THE LOSS OF RS. 9,30,576/- WAS TO BE TREATED SPECULATION LOSS IN TERMS OF EXPL .HE FINALLY HELD THAT LOSS COULD BE CARRIED FORWARD SEPARATELY AND SET-OFF IN FUTURE YEARS AS PER PROVI SIONS OF SECTION 73. 3. ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPEL LATE AUTHORIRTY(FAA).AFTER CONSIDERING THE ORDER OF THE AO AND THE SUBMISSION OF THE ASSESSEE, HE HELD THAT SECTION 73 OF THE ACT PROVIDED FOR CARRY FORWARD AND SET-OFF OF LOSS INCURRED BY AN AS SESSEE IN A SPECULATION BUSINESS, THAT EXPL.73 WAS A DEEMING PROVISION,THAT UNDER THE SPECIFIED CIRCUM STANCES AND UNDER THE SAID EXPL. EVEN A NORMAL BUSINESS WAS REGARDED AS A SPECULATION BUSINESS AND THEREFORE, THE QUESTION WHETHER THE TRANSACTION WAS A SPECULATIVE TRANSACTION IN TERMS OF SECTION 4 3(5) OR NOT WAS IRRELEVANT,THAT UNDER EXPL.IF ANY PART OF BUSINESS OF A COMPANY;OTHER THAN COMPANY EX CLUDED BY EXPLANATION; CONSISTED OF PURCHASE & SALE OF SHARES OF OTHER COMPANIES, SUCH COMPANY W OULD BE DEEMED TO BE CARRYING ON SPECULATION BUSINESS TO THE EXTENT TO WHICH IT CONSISTED OF PUR CHASE AND SALE OF SHARES, THAT LOSS INCURRED WAS ELIGIBLE, ONLY TO BE SET-OFF AGAINST SPECULATION PR OFIT,THAT THE ASSESSEES PRINCIPAL BUSINESS WAS REGARDING RECEIPT OF DIVIDEND AND DEALING IN SHARES , SECURITIES, MUTUAL FUNDS, FIXED DEPOSITS, ETC., THAT THE ASSESSEE HAD DECLARED A NET PROFIT OF RS.7 0, 19,539/- AFTER TAKING INTO CONSIDERATION THE SAL E OF SHARES AND THE DIVIDEND RECEIVED AND SETTING OF EXPENDITURE INCURRED ON THE SAME,THAT IT WAS NOT A CASE WHERE A SOLITARY TRANSACTION OF PURCHASE & SAL E OF SHARES HAD TAKEN PLACE,THAT THE ASSESSEE WAS TREATING ITS TRANSACTION IN SHARES AS BUSINESS TRAN SACTION AND NOT AS INCOME EARNED FROM OTHER SOURCES,THAT NO INCOME FROM OTHER SOURCES WAS DECLA RED IN THE RETURN OF INCOME,THAT THE AO RIGHTLY HELD THAT THE LOSS COMPUTED BY THE ASSESSEE IN SHAR E TRADING ACTIVITY HAS TO BE COVERED UNDER THE TERMS OF EXPL.HE RELIED UPON THE CASES OF ARVIND IN VESTMENT LTD.(192ITR365-CAL.);,SAFFRON INVESTMENT LTD. (28 SOT 76 DELHI TRIBUNAL- ) AND AKROSH INVESTMENT & LEASING (PVT.) LTD.(90 ITD 287-MUMBAITRIBUNAL).HE ALSO REFERRED TO THE BOA RD CIRCULAR NO.204 DATED 24/07/1976, WHEREIN IT HAS BEEN MENTIONED THAT THAT EXPLANATION TO SECTION 73 APPLIES TO THE CASE OF THE ASSESSEE WHOSE BUSINESS CONSISTS OF DEALING IN SHARES.HE FIN ALLY HELD THAT THE LOSS INCURRED BY THE ASSESSEE WAS A PART OF SPECULATION LOSS,THAT OTHER ACTIVITIE S OF A COMPANY WHICH DID NOT INVOLVE DEALING WITH PURCHASES OR SALE OF SHARES WOULD BE NOT TREATED AS SPECULATION BUSINESS.HE DISMISSED THE APPEAL FILED BY THE ASSESSEE. 4. BEFORE US,AUTHORISED REPRESENTATIVE(AR) SUBMITTED T HAT EXPLANATION 2 TO SECTION 73 OF THE ACT WERE NOT APPLICABLE IN THE CASE UNDER CONSIDERATION , THAT ASSESSEE HAD DIVIDEND INCOME OF RS. 85 LACS,IT HAD MORE INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES THAN TRADING.DEPARTMENTAL REPRESENTATIVE(DR) SUBMITTED THAT EXPLANATION 2 TO SECTION 73 OF THE ACT WAS SQUARELY APPLICABLE IN THE CASE UNDER CONSIDERATION,THAT ASSESSEE HAD N OT DEMONSTRATED BEFORE THE AO/FAA AS TO HOW THE SAID EXPLANATION WAS NOT APPLICABLE IN ITS CASE . 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT ASSESSEE WAS DEALING IN SHARES AND THE ONLY SOURCES OF ITS I NCOME WAS TRADING IN SHARES.INCOME FROM THE SHARE ACTIVITIES AND DIVIDEND RECEIPT WAS PART OF T HE BUSINESS INCOME.IT DID NOT REFLECT ANY INCOME UNDER ANY OTHER HEADS OF INCOME IN THE RETURN FILED .IN THE AUDIT REPORT ALSO INCOME SHOWN BY THE 3 ITA NO. 4783/MUM/2012 MUNJAL HOLDINGS P. LTD. ASSESSEE WAS TREATED AS BUSINESS INCOME.EXPL.TO SEC TION 73 WAS INTRODUCED IN THE ACT WITH A SPECIFIC PURPOSE.IT INTRODUCES A LEGAL FICTION THAT APPLIES ONLY TO A COMPANY-IT DOES NOT APPLY TO INDIVIDUALS, FIRMS,HUFS OR ASSOCIATIONS OF PERSONS, IT ALSO DOES NOT APPLY TO AN INVESTMENT COMPANY OR A COMPANY WHOSE PRINCIPAL BUSINESS IS BANKING OR MONEY-LENDING. IF THE BUSINESS OF A COMPANY WHICH DOES NOT FALL WITHIN THE EXCLUDED CATEGORIES CONSISTS OF PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, THEN SUCH A COMPANY IS DEEMED TO BE CARR YING ON SPECULATION BUSINESS FOR THE PURPOSE OF SECTION 73 TO THE EXTENT TO WHICH THE BUSINESS C ONSISTS OF THE PURCHASE AND SALE OF SUCH SHARES. IN OTHER WORDS,ONLY THOSE COMPANIES WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS INTEREST ON SECURITIES, INCOME FROM HOUSE PROPERTY, CAPITAL GAINS AND INCOME FROM OTHER SOURCES OR COMPANIES WHOSE PRINCI PAL BUSINESS IS OF BANKING OR GRANTING OF LOANS AND ADVANCES ARE EXEMPT FROM THE APPLICABILIT Y OF SECTION 73.COURTS ARE OF THE VIEW THAT IN ORDER TO COME OUT OF THE CLUTCHES OF SECTION 73,IT IS NECESSARY FOR AN ASSESSEE TO SHOW THAT IT SATISFIES THE REQUIREMENT OF THE EXCEPTED CATEGORIE S BECAUSE OF ITS MAIN BUSINESS ACTIVITY. THE EMPHASIS ON THE WORD MAINLY AND/OR PRINCIPAL BUSINE SS USED IN SECTION 73 IS SIGNIFICANT.A PARTICULAR COMPANY MAY HAVE INCOME FROM ANY OF THESE SPECIFIED SOURCES BUT THAT IS NOT ENOUGH. IN ORDER TO EXCLUDE THE APPLICABILITY OF SECTION 73,IT MUST BE FURTHER PROVED THAT THE GROSS TOTAL INCOME OF COMPANY IS MAINLY FROM THESE OR ANY OF THESE SOURCE S.IT IS ONLY ON PROOF OF THIS FACT THAT THE IT CAN COME OUT OF THE RIGOUR OF SECTION 73.IN THE CASE UN DER CONSIDERATION IT IS FOUND THAT ASSESSEE- COMPANY WAS TRADING IN THE SHARES AND DURING THE YE AR UNDER APPEAL IT HAS NOT CARRIED OUT ANY OTHER ACTIVITY OTHER THAN TRADING IN SHARES.IN THESE CIRC UMSTANCES WE ARE OF THE OPINION THAT THE FAA HAS RIGHTLY HELD THAT PROVISIONS OF EXPL.ARE APPLICABL E AND THAT LOSS SUFFERED BY IT WAS SPECULATION LOSS.WE FIND THAT HE HAS ALSO HELD THAT OTHER ACTIV ITIES OF A COMPANY WHICH DID NOT INVOLVE DEALING WITH PURCHASES OR SALE OF SHARES WOULD BE NOT TREAT ED AS SPECULATION BUSINESS. THUS,HE HAS ENDORSED THE VIEW THAT IS APPROVED BY THE PROVISIONS OF THE ACT.AS WE DO NOT FIND ANY INFIRMITY WITH THE ORDER OF THE FAA, SO CONFIRMING HIS ORDER,WE DISMIS S THE EFFECTIVE GROUND OF APPEAL FILED BY THE ASSESSEE. AS A RESULT,APPEAL FILE D BY THE ASSESSEE STANDS DISMISSED. 1 2 '1* 3 4 5* ( * 67 . ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST FEBRUARY, 2014. / ( ,-# 8 21 9+ , 2014 - ( . . SD/- SD/- ( . . . B.R.MITTAL) ( ! ! ! ! / RAJENDRA) / JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, :' /DATE: 21.02.2014 SK / / / / ( (( ( &*; &*; &*; &*; < ;#* < ;#* < ;#* < ;#* / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / $% 2. RESPONDENT / &'$% 3. THE CONCERNED CIT(A)/ = > , 4. THE CONCERNED CIT / = > 5. DR B BENCH, ITAT, MUMBAI / ;?. &*' CH CHCH CH , . . . 6. GUARD FILE/ . 9 . ';* &* //TRUE COPY// /' / BY ORDER, @ / 6 DY./ASST. REGISTRAR , /ITAT, MUMBAI.