Surya Commercials Ltd., Kanpur V. Dy. Commissioner of Income Tax, Range-6, Kanpur

ITA 507/LKW/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 1603 (ITAT-LUCKNOW)
• Duration Of Justice: 2 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 03-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Speculation loss; Unabsorbed depreciation; Capital Gains
• Section: 154; 143(3); 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A, LUCKNOW BEFORE SHRI. A. D. JAIN, VICE PRESIDENT AND SHRI T. S. KAPOOR, ACCOUNTANT MEMBER ITA NO. 507/LKW/2017 ASSESSMENT YEAR: 2010 - 11 SURYA COMMERCIALS LTD. 22/134, SHRI DWARIKADHEESH ROAD KANPUR V. DCIT RANGE 6 KANPUR T AN /PAN : AADCS3675D (APP ELL ANT) (RESPONDENT) APPELLANT BY: SHRI RAKESH GARG, ADVOCATE RESPONDENT BY: SHRI AJAY KUMAR, D.R. DATE OF HEARING: 05 09 201 9 DATE OF PRONOUNCEMENT: 06 0 9 201 9 O R D E R PER A. D. JAIN, V.P.: THIS IS ASSESSEES APPEAL AGAINST THE ORDER OF THE LD. CIT(A)-II, KANPUR, DATED 23/5/2017 FOR THE ASSESSMENT YEAR 2010-11, TAKING THE FOLLOWING GROUNDS OF APPEAL: (1) LEARNED C.I.T.(A) HAS ALTOGETHER FAILED TO APPRECIATE THAT THERE WAS NO MISTAKE IN THE ASSESSMENT ORDER PASSED BY LEARNED A.O. SO AS TO WARRANT ANY RECTIFICATION U/S 154 OF THE ACT. (2) LEARNED C.I.T.(A) HAS BEEN GUIDED BY IRRELEVANT CONSIDERATIONS AND MISAPPRECIATION OF FACTS ON RECORD, AS ALSO SECTION 73 OF THE ACT AND THE EXPLANATION THERETO READ WITH THE LAW ENSHRINED IN SECTION 154 OF THE ACT, IN AS MUCH AS HE HAS FAILED TO APPRECIATE THAT THE LEARNED DY. C.I.T. ALTOGETHER IGNORED, OR HAD OTHERWISE NOT CONSIDERED THE REPLIES FILED ON RECORD IN RESPONSE TO THE SHOW CAUSE NOTICE U/S 154 OF THE ACT. ITA NO.507/LKW/2017 PAGE 2 OF 9 2. IN THIS CASE, THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT WAS COMPLETED ON 31.10.2012 AT A TOTAL INCOME OF RS.28,10,880/-, AFTER SET OFF OF BROUGHT FORWARD BUSINESS LOSS OF RS.42,50,204/- FOR ASSESSMENT YEARS 2008-09 & 2009-10 AND UNABSORBED DEPRECIATION OF RS.49,208/- FOR ASSESSMENT YEARS 2008-09 & 2009-10. FURTHER, IT HAD BEEN NOTICED FROM THE ASSESSMENT ORDER AND CASE RECORD BY THE A.O THAT INCOME FROM 'NON-SPECULATIVE BUSINESS' HAD BEEN SET-OFF AGAINST BROUGHT FORWARD BUSINESS LOSS, FOR ASSESSMENT YEARS 2008-09 & 2009- 10 OF RS.42,50,204/- [19,03,967+23,46,237], WHICH WERE DETERMINED AS SPECULATIVE LOSS DURING SCRUTINY ASSESSMENT FOR THE RELEVANT ASSESSMENT YEAR AND WAS, IN THE OPINION OF THE ASSESSING OFFICER, NOT PERMISSIBLE AS PER I.T. ACT. THEREFORE, A NOTICE UNDER SECTION 154 OF THE ACT WAS ISSUED ON 13.01.2016 TO THE ASSESSEE COMPANY, PROPOSING THE ABOVE MISTAKE TO BE RECTIFIED, AS THE MISTAKE WAS APPARENT FROM RECORD. THE RELEVANT PORTION OF THE NOTICE IS REPRODUCED AS UNDER: 'FROM THE PERUSAL OF RECORD & COMPUTATION OF INCOME IT HAS BEEN NOTICED THAT BUSINESS LOSSES FOR THE A.Y RS. 2008-09 & 2009-10 OF RS. 19,03,967/- & RS. 23,46,237/- RESPECTIVELY HAVE BEEN SET-OFF FROM THE BUSINESS INCOME OF A. Y. 2010-11. HOWEVER, THE SAME WERE DETERMINED AS SPECULATIVE LOSSES IN THE RELEVANT ASSESSMENT ORDER. AS PER SECTION 73 OF THE IT ACT, 1961 SPECULATIVE LOSSES CAN BE SET OFF AGAINST FUTURE SPECULATIVE INCOME ONLY. THEREFORE, ALLOWED SET OFF LOSSES AMOUNTING TO RS.42,50,204/- SHOULD HAVE BEEN DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE COMPANY' 3. VIDE ORDER DATED 16/3/2016, PASSED UNDER SECTION 154 OF THE ACT, THE A.O DISALLOWED THE BROUGHT FORWARD BUSINESS LOSS OF RS.42,50,204/- (RS.19,03,967/- + RS.23,46,237/-), WHICH HAD ORIGINALLY BEEN SET OFF AGAINST THE BUSINESS INCOME OF RS.87,04,503/-, FOR THE YEAR UNDER CONSIDERATION, I.E., ASSESSMENT YEAR 2010-11, OBSERVING THUS: ITA NO.507/LKW/2017 PAGE 3 OF 9 IN RESPONSE TO THE NOTICE U/S 154 DATED 13.01.2016, THE ASSESSEE COMPANY HAS NOT SUBMITTED ANY REPLY TILL THE GIVEN PERIOD, THIS SHOWS THAT THE ASSESSEE COMPANY HAS NOTHING TO SAY IN THIS REGARD, FURTHER IT IS PERTINENT TO MENTION HERE THAT THE ASSESSEE COMPANY HAS NOT APPEALED AGAINST THE ASSESSMENT ORDER FOR A.YS 2008-09 & 2009-10 THIS SHOWS THAT THE ASSESSEE HAS NO OBJECTION IN TREATING THE BUSINESS LOSS FOR A.YS 2008-09 & 2009-10 AS SPECULATIVE LOSSES, THEREFORE ASSESSMENT ORDER DATED 31.10.2012 IS ACCORDINGLY PROPOSED TO BE REVISED CONSIDERING THAT THE ASSESSEE COMPANY HAS NOTHING TO SAY IN THIS REGARD. 4. THE LD. CIT(A) HAS CONFIRMED THE ORDER PASSED UNDER SECTION 154 OF THE ACT, OBSERVING, INTER ALIA, THAT: A SPECULATIVE BUSINESS LOSS CANNOT BE ADJUSTED AGAINST THE NORMAL BUSINESS INCOME OF THE APPELLANT EVEN THOUGH THEY ARE FROM SALE/PURCHASE OF SHARES. APPELLANT HAS ACCEPTED THE CONTENTION OF THE AO WHO TREATED THE SAID ACTIVITY AS SPECULATIVE, BY NOT FILING ANY APPEAL AGAINST THE SAID ORDER. ONCE THE FINDINGS OF THE AO HAVE BEEN ACCEPTED THEN APPELLANT CANNOT AGITATE THE SAME ISSUE BY OBJECTING TO THE RECTIFICATION PROCEEDINGS. MORE SO, WHEN THE APPELLANT HAS NOTHING TO SAY LEGALLY OR FACTUALLY AS TO WHY THE ORDER OF AO IS INCORRECT AS FAR AS APPLICABILITY OF THE PROVISIONS OF S. 154 OR S. 73 ARE CONCERNED. AT THIS STAGE, APPLICABILITY OF S. 73 OF THE I.T ACT CANNOT BE GONE INTO AS THAT MATTER HAS REACHED ITS FINALITY. IN SUCH CIRCUMSTANCES, I AM UNABLE TO APPROVE THE CONTENTION OF THE APPELLANT THAT S. 154 WAS NOT APPLICABLE. IN THIS CASE, ASSESSMENT U/S 143(3) OF THE ACT WAS COMPLETED ON 31.10.2012 AT TOTAL INCOME OF RS.28,10,880/- AFTER SET OFF OF BROUGHT FORWARD BUSINESS LOSS OF RS.42,50,204/- FOR A.Y 2008-09 & 2009-10 AND UNABSORBED DEPRECIATION OF RS.49,208/- A.Y 2008- 09 & 2009-10. IT WAS NOTICED BY AO FROM THE ASSESSMENT ORDER AND CASE RECORD THAT INCOME FROM 'NON-SPECULATIVE BUSINESS' HAS BEEN SET-OFF FROM BROUGHT FORWARD 'BUSINESS LOSS FOR A.Y 2008-09 & 2009-10 OF RS.42,50,204/- [19,03,967+23,46,237], WHICH WERE ASSESSED AS SPECULATIVE LOSS DURING SCRUTINY ASSESSMENT FOR ITA NO.507/LKW/2017 PAGE 4 OF 9 RELEVANT ASSESSMENT YEAR. APPELLANT ACCEPTED THIS FINDING OF THE AO AND HAS ALSO NOT CHALLENGED DURING THIS APPELLATE PROCEEDING. IT IS CLEARLY NOT PERMISSIBLE AS PER I.T. ACT. THEREFORE, ACTION OF AO UNDER SECTION 154 OF THE I.T. ACT 1961 PROPOSING TO TREAT THE ABOVE MISTAKE AND TO RECTIFY THE SAME AS THE MISTAKE THAT IS APPARENT FROM RECORD IS LEGALLY CORRECT. FROM THE PERUSAL OF RECORD & COMPUTATION OF INCOME, IT IS ESTABLISHED THAT BUSINESS LOSSES FOR THE AYS 2008-09 & 2009-10 OF RS.19,03,967/- & RS.23,46,237 RESPECTIVELY HAVE BEEN INCORRECTLY SET-OFF FROM THE BUSINESS INCOME OF AY 2010-11, EVEN THOUGH THE SAME WERE DETERMINED AS SPECULATIVE LOSSES IN THE RELEVANT ASSESSMENT ORDER. AS PER SECTION 73 OF THE I.T ACT, 1961, SPECULATIVE LOSSES CAN BE SET OFF AGAINST FUTURE SPECULATIVE INCOME ONLY. THEREFORE, ALLOWED SET OFF LOSSES AMOUNTING TO RS.42,50,204/- SHOULD HAVE BEEN DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE COMPANY, WHICH WAS NOT DONE. ASSESSEE HAS BEEN UNABLE TO DEMONSTRATE WITH REFERENCE TO ANY MATERIAL THAT THE INCOME THAT WAS SET OFF AGAINST THE BUSINESS INCOME WAS SPECULATIVE IN NATURE OR THERE ARE TWO VIEWS APPLICABLE ON SUCH A SITUATION AND SET OF, FACTS. APPELLANT HAS NOT BEEN ABLE TO DEMONSTRATE THAT SPECULATIVE LOSSES CAN BE SET OF AGAINST REGULAR BUSINESS INCOME. 5. HEARD. AS PER THE OPERATIVE PORTION OF THE NOTICE ISSUED TO THE ASSESSEE UNDER SECTION 154 OF THE ACT, AS REPRODUCED HEREINABOVE, AS PER SECTION 73 OF THE IT ACT, 1961 SPECULATIVE LOSSES CAN BE SET OFF AGAINST FUTURE SPECULATIVE INCOME ONLY. THE QUESTION IS, WHETHER THIS IS CORRECT. THE LOSSES OF EARLIER YEARS, I.E., ASSESSMENT YEARS 2008-09 AND 2009-10 WERE CLAIMED BY THE ASSESSEE TO BE SET OFF AGAINST THE PROFIT OF THE YEAR UNDER CONSIDERATION, FOR THE REASON THAT THERE WAS NO CHANGE IN THE NATURE OF THE BUSINESS OF THE ASSESSEE COMPANY. THE SET OFF OF THE LOSS CLAIMED BY THE ASSESSEE WAS ALLOWED BY THE AO VIDE ORDER ITA NO.507/LKW/2017 PAGE 5 OF 9 PASSED U/S. 143(3) OF THE ACT. THE ASSESSEE COMPANY IS A LIMITED COMPANY ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF SHARES DURING THE YEAR UNDER CONSIDERATION AND HAS ALSO EARNED INCOME FROM RENT AND DIVIDEND, ETC. THE ASSESSEE IS A NON-BANKING FINANCIAL COMPANY (NBFC) AND MAY BE CATEGORIZED AS AN INVESTMENT COMPANY. THE BUSINESS OF THE ASSESSEE-COMPANY UNDISPUTEDLY REMAINS THE SAME AS THAT IN THE EARLIER TWO ASSESSMENT YEARS, I.E., PURCHASE AND SALE OF SHARES. THE FACT THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE CARRIED ON THE BUSINESS OF PURCHASE AND SALE OF SHARES STANDS ESTABLISHED FROM THE ASSESSEES DIRECTORS REPORT/ANNUAL REPORT (APB-36), CONSISTING OF 30 PAGES, FOR THE YEAR UNDER CONSIDERATION. THEREIN, IN THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED ON 31/3/2010, THE FOLLOWING OBTAINING POSITION VIS--VIS THE ASSESSEES BUSINESS ACTIVITY OF DEALING IN SHARES DURING THE YEAR HAS BEEN DEPICTED: OPENING STOCK OF SHARES RS.5,19,09,372.02 PURCHASE OF SHARES RS.0,72,93,266.11 SHARE TRANSFER AGENTS EXPENSES RS.0,00,12,685.00 DEMA T CHARGES RS.0,00,32,018.19 SECURITIES TRANSACTION TAX RS.0,01,45,983.55 SALE OF SHARES RS.5,69,18,371.34 PROFIT ON SALE OF SHARES RS.0,00,01,028.76 CLOSING STOCK OF SHARES RS.4,47,70,860.44 6. FURTHER, A SCANNED COPY OF PAGES 20 AND 21 OF THE REPORT, COMPRISING OF SCHEDULE B, I.E., THE SCHEDULE OF STOCK IN TRADE ANNEXED TO AND FORMING PART OF THE BALANCE SHEET AS ON 31/3/2010 AND THE PROFIT AND LOSS ACCOUNT (SUPRA) FOR THE YEAR ENDED ON THAT DATE, IS BEING APPENDED AS UNDER, FOR READY REFERENCE: ITA NO.507/LKW/2017 PAGE 6 OF 9 ITA NO.507/LKW/2017 PAGE 7 OF 9 7. THE EXPLANATION TO SECTION 73 OF THE ACT, AS APPLICABLE TO THE YEAR UNDER CONSIDERATION, READS: EXPLANATION.-WHERE ANY PART OF THE BUSINESS OF A COMPANY OTHER THAN A COMPANY 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 A COMPANY 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, SUCH COMPANY SHALL, FOR THE PURPOSES OF THIS SECTION, BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF THE PURCHASE AND SALE OF SUCH SHARES 8. THUS, AS PER THE EXPLANATION, IF THE GROSS TOTAL INCOME OF A COMPANY DOES NOT CONSIST MAINLY OF INCOME CHARGEABLE AS INTEREST ON SECURITIES'', 'INCOME FROM HOUSE PROPERTY', 'CAPITAL GAINS' AND 'INCOME FROM OTHER SOURCES' AND IF ITS PRINCIPAL BUSINESS IS NOT THE BUSINESS OF BANKING OR THAT OF GRANTING OF LOANS OR ADVANCES, ITS BUSINESS OF PURCHASE AND SALE OF SHARES OF OTHER COMPANIES SHALL BE DEEMED TO BE A SPECULATIVE BUSINESS. 9. THIS EXPLANATION HAS BEEN MADE APPLICABLE W.E.F. 1/4/2015. IN THE EXPRESSION THE PRINCIPLE BUSINESS OF WHICH IS THE BUSINESS OF TRADING IN SHARES OR BANKING, THE PHRASE TRADING IN SHARES OR HAS BEEN INSERTED OVER THE ERSTWHILE EXPLANATION. 10. SECTION 73(1) OF THE ACT STATES: 73(1) ANY LOSS, COMPUTED IN RESPECT OF A SPECULATION BUSINESS CARRIED ON BY THE ASSESSEE, SHALL NOT BE SET OFF EXCEPT AGAINST PROFITS AND GAINS, IF ANY, OF ANOTHER SPECULATION BUSINESS. ITA NO.507/LKW/2017 PAGE 8 OF 9 11. SO, A SPECULATIVE LOSS CAN BE SET OFF ONLY AGAINST ANOTHER SPECULATIVE LOSS. 12. ADMITTEDLY, THE GROSS TOTAL INCOME OF THE ASSESSEE COMPANY DOES NOT CONSIST MAINLY OF INCOME CHARGEABLE AS INTEREST ON SECURITIES'', 'INCOME FROM HOUSE PROPERTY', 'CAPITAL GAINS' AND 'INCOME FROM OTHER SOURCES' AND ITS PRINCIPAL BUSINESS IS NOT THE BUSINESS OF BANKING OR OF GRANTING OF LOANS OR ADVANCES. THE ASSESSEE COMPANY IS A LIMITED COMPANY ENGAGED IN THE BUSINESS OF PURCHASE AND SALES OF SHARES DURING THE YEAR UNDER CONSIDERATION AND HAS ALSO EARNED INCOME FROM RENT AND DIVIDEND, ETC. THE ASSESSEE IS A NON-BANKING FINANCIAL COMPANY (NBFC) AND MAY BE CATEGORIZED AS AN INVESTMENT COMPANY. THE LOSSES OF EARLIER YEARS, I.E., ASSESSMENT YEARS 2008-09 AND 2009-10 WERE CLAIMED BY THE ASSESSEE TO BE SET OFF AGAINST THE PROFIT OF THE YEAR UNDER CONSIDERATION FOR THE REASON THAT THERE WAS NO CHANGE IN THE NATURE OF THE BUSINESS OF THE ASSESSEE COMPANY. THE SET OFF OF LOSS CLAIMED BY THE ASSESSEE WAS ALLOWED BY THE AO VIDE ORDER PASSED U/S.143(3) OF THE ACT, IN ACCORDANCE WITH THE EXPLANATION TO SECTION 73 OF THE ACT, AS PER WHICH, THE BUSINESS OF THE ASSESSEE COMPANY IS DEEMED TO BE A SPECULATIVE BUSINESS. TO REITERATE, IN THE EARLIER TWO YEARS, THE BUSINESS OF THE ASSESSEE WAS A SPECULATIVE BUSINESS. ERGO, THE BUSINESS OF THE ASSESSEE COMPANY IN THE YEAR UNDER CONSIDERATION REMAINS THE SAME AS THAT IN THE EARLIER TWO ASSESSMENT YEARS. 13. IN VIEW OF THE ABOVE, WE HOLD THAT THERE WAS NO MISTAKE APPARENT FROM THE RECORD IN THE ORIGINAL ASSESSMENT ORDER DATED 16/3/2016 AND THE BROUGHT FORWARD LOSSES OF RS.42,50,204/- HAD CORRECTLY BEEN SET OFF AGAINST THE SPECULATIVE BUSINESS INCOME OF RS.87,04,503/-, FOR THE YEAR UNDER CONSIDERATION. ITA NO.507/LKW/2017 PAGE 9 OF 9 14. HENCE, FINDING MERIT IN THE GRIEVANCE SOUGHT TO BE RAISED BY THE ASSESSEE, THE SAME IS ACCEPTED. THE ORDER UNDER APPEAL IS REVERSED. 15. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 06/09/2019. SD/ - SD/ - [ T. S. K APOOR ] [ A. D. JAIN ] ACCOUNTANT MEMBER VICE PRESIDENT DATED:06/09/2019 JJ:0509 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER ASSISTANT REGISTRAR