Paradise Merchants Pvt. Ltd., Delhi V. ITO, New Delhi

ITA 4993/DEL/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8109 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC 1
• Next Hearing Date: 08-03-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 12-09-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUBHAKANT SONU
• Keywords: Speculation loss
• Section: 14A; 43(5)

Judgement Text

1 I.T.A.NO. 4993/DEL/201 4 IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH SMC-I, NEW DELHI BEFORE SHRI N. K. SAINI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER I.T.A. NO.4993/DEL/2014 (ASSESSMENT YEAR 2009-10) PARADISE MERCHANTS PVT. LTD., VS. ITO, WAD 14(1), AD-97, SHALIMAR BAGH, NEW DELHI DELHI GIR / PAN :AAACP4847R (APPELLANT) (RESPONDENT) APPELLANT BY :SHRI VED JAIN, CA RESPONDENT BY :SHRI SUBHAKANT SONU, SR. DR DATE OF HEARING: 08.03.2016 DATE OF PRONOUNCEMENT: 29.04.2016 ORDER PER BEENA PILLAI, JM: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A)-XVII AGAINST TH E ORDER DATED 21/07/2014 FOR THE ASSESSMENT YEAR 2009-10 O N THE FOLLOWING GROUNDS OF APPEAL. 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [CIT(A) IS BAD BOTH IN THE EYES OF LA W AND ON FACTS. 2(I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW I N CONFIRMING THE ACTION OF THE AO IN DISALLOWING AN AMOUNT OF RS.35,76,559/- HOLDING THE SAME TO BE 2 I.T.A.NO. 4993/DEL/201 4 SPECULATIVE LOSS BY INVOKING THE PROVISIONS OF SECT ION 73 OF THE ACT. (II) THAT THE SAID ADDITION HAS BEEN CONFIRMED BY ARBITRARILY REJECTING THE EXPLANATION OF THE ASSESS EE THAT THE GROSS TOTAL INCOME OF THE ASSESSEE CONSIST MAINLY OF INCOME CHARGEABLE UNDER THE HEAD 'CAPITAL GAIN' AND 'INCOME FROM OTHER SOURCES' AND HENCE THE EXPLANATION TO SECTION 73 IS NOT APPLICABLE TO THE ASSESSEE COMPANY. 3. WITHOUT PREJUDICE TO THE ABOVE AND IN THE ALTERNATIVE THE LEARNED CIT(A) HAS ERRED IN IGNORIN G THE FACT THAT BROKERAGE INCOME OF RS. 15, 16,406/- IS I N THE NATURE OF SALE / PURCHASE OF SHARES AND THE SAME HA S TO BE CONSIDERED AND SET OFF AGAINST LOSS OF RS.35, 76,559.04 IN PURCHASE / SALE OF SHARES. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW I N IGNORING THE FACT THAT OUT OF THE TOTAL LOSS OF RS.35,76,559/- A SUM OF RS.11,05,708/- IS A LOSS IN DERIVATIVE TRANSACTIONS WHICH IS NOT CONSIDERED TO BE SPECULATIVE LOSS IN VIEW OF THE PROVISO (D) TO SECT ION 43(5) OF THE ACT AS INSERTED BY THE FINANCE ACT, 20 05. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW I N IGNORING THE FACT THAT A SUM OF RS.3,07,906/- OUT O F THE TOTAL LOSS OF RS.35,76,559/- IS ON ACCOUNT OF THE VALUATION OF THE SHARES AS ON THE CLOSING DATE OF T HE YEAR. 6(I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW I N CONFIRMING THE DISALLOWANCE OF RS.34,872/- UNDER SECTION 14A OF THE ACT AS AGAINST DISALLOWANCE OF RS.15,986/- COMPUTED BY THE ASSESSEE UNDER SECTION 14A OF THE ACT. (II) THAT THE ACTION OF THE CIT(A) IN CONFIRMING TH E DISALLOWANCE AT RS.34,872/- AS AGAINST RS.15,986/- IS AGAINST THE FACTS AND THE PROVISIONS OF SECTION 14A OF THE ACT. 3 I.T.A.NO. 4993/DEL/201 4 2. THE BRIEF FACTS OF THE CASE ARE AS UNDER; 2.1. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SHA RE BROKING AND ELECTRICITY GENERATION AND ITS TOTAL RE VENUE AS PER PROFIT AND LOSS ACCOUNT COMPRISES OF INCOME FRO M SALE/PURCHASE OF SHARES, DIVIDENDS EARNED AND INTER EST INCOME. DURING THE YEAR UNDER CONSIDERATION THE ASS ESSEE FILED ITS RETURN OF INCOME ON 29/09/2009 DECLARING A TOTAL BUSINESS LOSS OF RS. 79,94,913. THE ASSESSEE HAS AL SO PAID TAXES UNDER SECTION 115 JE ON THE BOOK PROFITS. THE CASE WAS SELECTED FOR SCRUTINY ASSESSMENT AND STATUTORY NOTICES UNDER SECTION 143 (2) WAS ISSUED TO THE ASSESSEE. T HE ASSESSEE ACCORDINGLY FILED THE DETAILS START BY THE ASSESSING OFFICER WHICH WERE BOOKS OF ACCOUNTS ALONG WITH SUP PORTING BILLS/VOUCHERS AND OTHER NECESSARY DOCUMENTARY EVID ENCE THIS. THESE DETAILS FILED BY THE ASSESSEE WERE EXAM INED ON TESTS CHECK BASIS. 2.2. AFTER GOING THROUGH THE DETAILS FILED BY THE A SSESSEE LD. AO INVOKED PROVISIONS OF EXPLANATION TO SECTION 73 (1) AND HELD THAT THE MAIN BUSINESS OF THE ASSESSEE IS SHARE SUB-BROKER AND ELECTRICITY GENERATION, AND SINCE AS SESSEE IS INVOLVED IN THE SALE AND PURCHASE OF THE SHARES, ASSESSEE CANNOT CLAIM THE LOSS IN VIEW OF EXPLANATI ON TO SECTION 73 (1) OF THE ACT AND ACCORDINGLY DISALLOWE D THE LOSS OF RS.(-)85,76,559.04 CLAIMED BY THE ASSESSEE TREATING THE SAME AS SPECULATION BUSINESS. THE LD.AO ALSO MA DE ADDITION UNDER SECTION 14 A OF THE ACT. 4 I.T.A.NO. 4993/DEL/201 4 3. AGGRIEVED BY THE ORDER OF THE LD. AO ASSESSEE PR EFERRED AN APPEAL BEFORE THE LD.CIT (A). 4. THE LD. CIT(A) CONFIRMED THE ADDITIONS WERE MADE BY THE LD. ASSESSING OFFICER 5. AGGRIEVED BY THE ORDER OF THE LD.CIT(A), ASSESSE E IS AN APPEAL BEFORE US NOW. 5.1 AT THE OUTSET THE LD. A.R. SUBMITTED THAT GROU ND NO. 6 RAISED IN THE APPEAL FOR THE YEAR UNDER CONSIDERA TION IS NOT PRESSED, CONSIDERING THE SMALLNESS OF THE AMOUN T INVOLVED. ACCORDINGLY WE ARE NOT INCLINED TO ADJUDI CATE UPON THE ISSUES OF SECTION 14A RAISED BY THE ASSESS EE IN GROUND NO. 6. THIS GROUND THEREFORE STANDS DISMISSE D UNANSWERED. 5.2 IN RESPECT OF GROUND NO. 2 THE LD. A. R. SUBMI TTED THAT EXPLANATION TO SECTION 73 HAS BEEN WRONGLY INV OKED TO THE FACTS AND CIRCUMSTANCES OF THE CASE BEFORE US. HE SUBMITTED THAT THIS EXPLANATION WOULD BE APPLICABLE TO A COMPANY OTHER THAN A COMPANY WHOSE GROSS TOTAL INCO ME MAINLY COMPRISES OF INCOME FROM HOUSE PROPERTY, CAP ITAL GAINS OR INCOME FROM OTHER SOURCES. 5.3 LD. A. R. SUBMITTED THAT THE LOSS ACCRUED BY T HE ASSESSEE IN PURCHASE/SALE OF SHARES, IS NOT TO BE CONSIDERED WHILE COMPUTING THE GROSS TOTAL INCOME O F THE ASSESSEE. HE FURTHER SUBMITTED THAT THE MANNER IN W HICH GROSS TOTAL INCOME IS TO BE RECKONED IS ONLY BY DIS REGARDING THE LOSS INCURRED ON THE PURCHASE AND SALE OF SHARE S. HE SUBMITTED THAT FOR ARRIVING AT THE GROSS TOTAL INCO ME THE 5 I.T.A.NO. 4993/DEL/201 4 CONSTITUENTS CAN ONLY COMPRISE OF POSITIVE INCOMES. THE LD. A.R. RELIED UPON JUDGMENTS OF VARIOUS HIGH COUR TS AND COORDINATE BENCHES OF THIS TRIBUNAL AND THE JUDGMEN T OF HONBLE JURISDICTIONAL HIGH COURT. 5.4 ON THE CONTRARY, LD. D. R. RELIED UPON THE ORD ERS PASSED BY THE AUTHORITIES BELOW. 6. WE HAVE PERUSED THE ORDERS PASSED BY AUTHORITIES BELOW, THE ARGUMENTS ADVANCED BY BOTH THE PARTIES A ND JUDGMENTS RELIED UPON BY THE LD. A. R. THE ONLY ISS UE THAT NEEDS TO BE ADJUDICATED, IS IN RESPECT OF TREATING THE LOSS ON ACCOUNT OF SALE/PURCHASE OF SHARES ARE SPECULATE D LOSS UNDER PROVISION TO SECTION 73 OF THE ACT. 6.1 IT IS OBSERVED THAT THE ASSESSEE HAS CALCULATE D THE TOTAL REVENUE AS PER THE PROFIT AND LOSS ACCOUNT IN THE FOLLOWING MANNER: PARTICULARS AMOUNT (RS.) INCOME FROM SALE/PURCHASE OF SHARES (-) 35,76,559.04 DIVIDEND RS. 55,955/- INTEREST RS. 21,484/- PROFIT ON SALE OF LONG-TERM INVESTMENTS RS. 71,60,836.68 72,38,275.68 6.2 THE AUTHORITIES BELOW HAS INVOKED EXPLANATION TO SECTION 73 TO THE FACTS OF THE PRESENT CASE AND DIS ALLOWED THE LAWS TREATING THE SAME AS SPECULATIVE BUSINESS. 6 I.T.A.NO. 4993/DEL/201 4 EXPLANATION TO SECTION 73 OF THE INCOME TAX ACT REA DS AS UNDER; EXPLANATION:- WHERE ANY PART OF THE BUSINESS OF A COMPANY ([OTHER THAN A COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABL E UNDER THE HEADS INTEREST ON SECURITIES, INCOME F ROM HOUSE PROPERTY, CAPITAL GAINS AND INCOME FROM OT HER SOURCES], OR A COMPANY [THE PRINCIPAL BUSINESS OF WHICH IS THE BUSINESS OF BANKING] OR THE GRANTING O F LOANS AND ADVANCES) CONSISTS IN THE PURCHASE AND SA LE OF SHARES OF OTHER COMPANIES, SUCH COMPANY SHALL, F OR THE PURPOSES OF THIS SECTION, BE DEEMED TO BE CARRY ING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH TH E BUSINESS CONSISTS OF THE PURCHASE AND SALE OF SHARE S.] 6.3 ON A PLAIN READING OF THE ABOVE EXPLANATION, I T IS CLEAR THAT IN CASE OF A COMPANY WHOSE GROSS TOTAL I NCOME CONSISTS MAINLY OF INCOME FROM INTEREST ON SECURITI ES, INCOME FROM HOUSE PROPERTY, CAPITAL GAINS AND INCOM E FROM OTHER SOURCES, THE LOSS FROM PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, SHALL NOT BE DEEMED TO B E CARRYING ON A SPECULATION BUSINESS. IN OTHER WORDS IF THE GROSS TOTAL INCOME OF THE ASSESSEE COMPRISES OF ANY OR ALL THE HEADS OF INCOME, THEN THE ASSESSEE WILL FALL WI THIN THE EXCEPTION CARVED OUT IN THE EXPLANATION TO SECTION 73 AND IT COULD NOT BE DEEMED TO BE CARRYING ON A SPECULAT IVE BUSINESS FOR THE PURPOSES OF SECTION 73 (1) OF THE ACT. 6.4 IT IS AN ADMITTED FACT THAT THE ASSESSEE IS HA VING INCOME FROM INTEREST, DIVIDEND INCOME AND INCOME FR OM CAPITAL GAINS FROM SALE OF LONG-TERM INVESTMENT. AP PLYING THE LAW TO THE FACTS OF THE PRESENT CASE BEFORE US, THE 7 I.T.A.NO. 4993/DEL/201 4 ASSESSEES CASE FALLS WITHIN THE PURVIEW OF EXCEPTI ON CARVED OUT IN THE EXPLANATION TO SECTION 73 OF THE ACT AND CONSEQUENTLY THE ASSESSEE SHALL NOT BE DEEMED TO BE CARRYING ON WITH THE SPECULATIVE BUSINESS FOR THE P URPOSES OF SECTION 73 (1) OF THE ACT. THIS VIEW HAS BEEN SU PPORTED BY THE VARIOUS JUDGMENTS RELIED UPON BY THE ASSESSE E WHICH ARE AS UNDER; 1. CIT CITY 4 VS. HSBC SECURITIES AND CAPITAL MARKETS INDIA (P) LTD (2012) 23 TAXMANN.COM 377 (BOM.) 2. A.K CAPITAL MARKETS LTD. VS. DCIT, CENTRAL CIRCLE-2 (2016) 65 TAXMAN.COM 62 (DELHI-TRIB.) 6. IN VIEW OF THE ABOVE DISCUSSION AND THE RATIO LA ID DOWN BY THE HONBLE COURT WE ARE INCLINED TO ALLOW THIS GROUND OF APPEAL RAISED BY THE ASSESSEE. 7. ACCORDINGLY THE APPEAL FILED BY THE ASSESSEE STA NDS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 29.04.2016. SD./- SD./- (N. K. SAINI) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 29.04.2016 SP. 8 I.T.A.NO. 4993/DEL/201 4 COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DELHI. TRUE COPY. BY ORDER (ITAT, NEW DELHI) S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR 2/5/16 SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS 29/4/16 SR. PS/PS 6 KEPT FOR PRONOUNCEMENT 29/4 SR. PS/PS 7 FILE SENT TO BENCH CLERK 3/5 SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER