MAYEKAR INVESTMENTS P. LTD, MUMBAI V. ITO (4) (3) (4), MUMBAI

ITA 4829/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1571 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-06-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 01-06-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 20-08-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KESHAVE SAXENA
• Keywords: Proportionate interest; Speculation loss
• Section: 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI R.K. PANDA, AM & SMT. ASHA VIJAYARAGHAV AN, JM I.T.A. NO. 4829/MUM/2009 (ASSESSMENT YEAR 2003-04) M/S. MAYEKAR INVESTMENTS PVT. LTD., SHOP NO. 2, GROUND FLOOR, MANGAL BUILDING, 76/C, R.A. KIDWAI ROAD, MATUNGA, MUMBAI-400 019 PAN: AAACM3475G VS. I.T.O. 4(3)(4) MUMBAI APPELLANT RESPONDENT APPELLANT BY: MR. VIJAY MEHTA RESPONDENT BY: MR. KESHAVE SAXENA O R D E R DATE OF HEARING: 01.06.2010 DATE OF ORDER: 04.06.2010 PER R.K. PANDA, AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER DATED 18 TH OCTOBER, 2007 OF THE CIT(A)-XIV, MUMBAI RELATING T O ASSESSMENT YEAR 2003-04. 2. GROUNDS OF APPEAL NO. 1 BY THE ASSESSEE READS AS UN DER: THE HON. CIT(A) HAS ERRED IN LAW AND FACTS IN UPHO LDING ORDER OF AO BY TREATING THE LOSS OF RS.4,71,506/- F ROM PURCHASE AND SALES OF SHARES AS SPECULATION LOSS BY APPLYING THE EXPLANATION TO SEC. 73 OF THE ACT. THE HON. CI T(A) HAS FAILED TO PROPERLY CONSTRUE THE PROVISIONS OF EXPLA NATION TO SEC. 73 OF I.T. ACT, 1961. 3. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE TIME O F HEARING FAIRLY CONCEDED THAT THIS GROUND IS AGAINST THE ASSESSEE I N VIEW OF THE DECISION REPORTED IN 180 TAXMAN 178. ACCORDINGLY THIS GROUN D BY THE ASSESSEE IS DISMISSED. 4. GROUNDS OF APPEAL NO. 2 BY THE ASSESSEE READS AS UN DER: I.T.A. NO. 4829/MUM/2009 M/S. MAYEKAR INVESTMENTS PVT. LTD. ======================== 2 HON. CIT(A) HAS ERRED IN LAW AND FACTS IN ESTIMATI NG THE EXPENSES OF RS.3,69,269/- AS INCURRED FOR THE PURPO SE OF SPECULATION BUSINESS AND CONSEQUENTLY TREATING THE SAME AS SPECULATIVE LOSS. HE OUGHT TO HAVE BIFURCATED THE EXPENSES IN PROPORTION OF SPECULATION LOSS AND OTHER INCOME. 5. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE HAS INCURRED EXPENSES OF RS.4,19,269 DURING THE YEAR AN D THE ENTIRE EXPENSES IS MAINLY ON ACCOUNT OF SHARE TRADING ACTIVITIES. HE NOTED THAT IN VIEW OF PROVISIONS OF SECTION 73 THE DETERMINATION OF THE S HARE TRADING LOSS CANNOT BE POSSIBLE WITHOUT ALLOCATING EXPENSES WHIC H ARE INVARIABLY INCURRED FOR SHARE TRADING ON PROPRIETARY ACCOUNT. HE REFERRED TO EXPLANATION 2 TO SECTION 28 WHICH STATES THAT THE S PECULATION BUSINESS SHOULD BE SEPARATED FROM NON-SPECULATION BUSINESS. ACCORDING TO THE ASSESSING OFFICER IT IS DIFFICULT TO CONCEIVE THE S PECULATION BUSINESS WITHOUT INCURRING ANY EXPENDITURE. IN THE COURSE OF SHARE TRADING BUSINESS, TRANSACTION COSTS OF VARIOUS NATURE ARE N ECESSARILY INCURRED FOR SHARE TRADING BUSINESS ON OWN ACCOUNT. RELYING ON A NUMBER OF DECISIONS, HE CAME TO THE CONCLUSION THAT PROPORTIONATE EXPENS ES ARE TO BE ALLOCATED FROM SPECULATION ACTIVITIES. HE ACCORDINGLY ALLOC ATED AN AMOUNT OF RS.50,000 FOR THE PURPOSE OF EARNING INCOME FROM OT HER SOURCES AND THE BALANCE EXPENDITURE OF RS.3,69,269 WAS TREATED AS H AVING EXPENDED FOR THE PURPOSE OF ASSESSEES OWN SHARE TRADING BUSINES S. HE ACCORDINGLY DISALLOWED THE AMOUNT OF RS.3,69,269 AS DEEMED SPEC ULATION LOSS ALONG WITH THE LOSS ON ACCOUNT OF TRANSACTION. 6. IN APPEAL, THE LEARNED CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 7. THE LEARNED COUNSEL FOR THE ASSESSEE REFERRED TO T HE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR VIDE I.T.A. NO. 6782/MUM/07 ORDER D ATED 12 TH AUGUST, 2009. REFERRING TO PARA 3 OF THE SAID ORDER, HE SU BMITTED THAT THE I.T.A. NO. 4829/MUM/2009 M/S. MAYEKAR INVESTMENTS PVT. LTD. ======================== 3 ASSESSEE HAS FILED A REVISED WORKING ALLOCATING PRO PORTIONATE ADMINISTRATIVE EXPENDITURE TO SHARE TRADING ACTIVIT IES AND THE TRIBUNAL AT PARA 6 OF THE ORDER HAS HELD THAT THE REVISED WORKI NG GIVEN BY THE ASSESSEE ON THE BASIS OF THE INCOME SEEMS TO BE REA SONABLE AND ACCORDINGLY THE CONTENTION OF THE ASSESSEE WAS ACCE PTED. THE LEARNED COUNSEL FOR THE ASSESSEE FILED THE FOLLOWING CHART SHOWING ALLOCATION OF EXPENSES AND CALCULATION OF SPECULATION LOSS AS PER ORDER OF ITAT FOR A.Y. 2003-03 WHICH IS AS UNDER: CHART SHOWING ALLOCATION OF EXPENSES AND CALCULATIO N OF SPECULATION LOSS AS PER ORDER OF ITAT FOR A.Y. 2002 -03 NET PROFIT/LOSS FROM SHARE TRADING ACTIVITY AND NET INTEREST INCOME SR. NO. PARTICULARS AMOUNT AMOUNT 1. NET PROFIT/(LOSS) FROM SHARE TRADING ACCOUNT (4 71,506) OTHER INCOME 2. INCOME FROM INTEREST 749,798 DEBENTURE INTEREST 776 DIVIDEND INCOME 78,192 828,766 TOTAL 1,300,272 PROPORTIONATE ADMINISTRATIVE AND INTEREST EXPENSES TO BE ALLOCATED TO SHARE TRADING ACTIVITY 471,506 X 404,484 = 1,46,674 1,300,272 THEREFORE, IT IS HUMBLY PRAYED THAT THE TOTAL SPECU LATION LOSS MAY BE KINDLY DETERMINED. SR. NO. PARTICULARS AMOUNT (RS) 1. DIFFERENCE BETWEEN PURCHASE AND SALES PRICE OF SHARES 471,506 2. PROPORTIONATE ADMINISTRATIVE EXPENSES AND INTEREST TO BE ALLOCATED AS WORKED OUT ABOVE. 146,674 TOTAL SPECULATION LOSS 618,180 HE ACCORDINGLY SUBMITTED THAT AN AMOUNT OF RS.1,46, 674 ONLY HAS TO BE ALLOCATED TO SHARE TRADING ACTIVITIES. 8. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE OR DER OF THE CIT(A). I.T.A. NO. 4829/MUM/2009 M/S. MAYEKAR INVESTMENTS PVT. LTD. ======================== 4 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BO TH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE FIND IDEN TICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN THE I MMEDIATELY PRECEDING ASSESSMENT YEAR AND THE TRIBUNAL VIDE PARA 6 OF THE ORDER HAS HELD AS UNDER: 6. WE HAVE CONSIDERED THE ISSUE. AS SEEN FROM THE REVISED WORKING THE ASSESSEE ACCEPTS THE LOSS OF RS .2,13,495/- AND FURTHER ALLOCATION OF PROPORTIONATE INTEREST EX PENSES AS DONE BY THE LEARNED CIT(A). THE ONLY ISSUE IS WITH REFERENCE TO ALLOCATION OF PROPORTIONATE EXPENSES OF ADMINIST RATIVE EXPENSES. THE REVISED WORKING GIVEN BY THE ASSESSE E ON THE BASIS OF THE INCOME SEEMS TO BE REASONABLE AND ACCO RDINGLY THE ABOVE AMOUNT OF RS.1,97,963/- IS ALLOCATED TOWA RDS THE ADMINISTRATIVE EXPENSES. ACCORDINGLY THE CONTENTION OF THE ASSESSEE IS ACCEPTED ON THESE FACTS. THE ASSESSING OFFICER IS DIRECTED TO RE-WORK OUT THE EXPENSES ACCORDINGLY. 10. SINCE THE FACTS OF THE IMPUGNED YEAR ARE IDENTICAL TO THAT OF THE FACTS OF THE PRECEDING ASSESSMENT YEAR AND SINCE TH E CHART FILED BY THE LEARNED COUNSEL FOR THE ASSESSEE IS AS PER THE ORDE R OF THE ITAT FOR THE A.Y. 20030-03, THEREFORE, RESPECTFULLY FOLLOWING THE ORD ER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING A SSESSMENT YEAR, WE DIRECT THE ASSESSING OFFICER TO VERIFY THE CALCULAT ION GIVEN BY THE ASSESSEE IN THE CHART REPRODUCED AT PARA 9 AND UPON SATISFAC TION ALLOCATE RS.1,46,674 ONLY TO SHARE TRADING ACTIVITIES. THI S GROUND BY THE ASSESSEE IS ACCORDINGLY PARTLY ALLOWED FOR STATISTICAL PURPO SES. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 4 TH JUNE, 2010. SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/- (R.K. PANDA) ACCOUNTANT MEMBER MUMBAI, DATED 4 TH JUNE, 2010 I.T.A. NO. 4829/MUM/2009 M/S. MAYEKAR INVESTMENTS PVT. LTD. ======================== 5 COPY TO: (1) THE APPELLANT, (2) THE RESPONDENT, (3) THE CIT(A)-XIV, MUMBAI, (4) THE CIT-4, MUMBAI, (5) THE DR, H BENCH, ITAT, MUMBAI. //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI TPRAO