Typhoon Financial Services Ltd., Ahmedabad V. The Income tax Officer,Ward-8(1), Ahmedabad

ITA 514/AHD/2012

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9572 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 26-05-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 29-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: G C PIPARA
• Keywords: Depreciation; Speculation loss; Capital expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD .. , ( .) , ! BEFORE SHRI BEFORE SHRI G.D. AGARWAL,VICE PRESIDEN T (AZ) AND SHRI KUL BHARAT, JUDICIAL MEMBER ./ I.T.A. NO.514/AHD/2012 ( / ASSESSMENT YEAR : 2008-09) TYPHOON FINANCIAL SERVICES PVT.LTD. 35, OMKAR HOUSE NR.SWASTIK 4 RASTA, NAVRANGPURA AHMEDABAD-380 009 / VS. THE INCOME TAX OFFICER WARD-8(1) AHMEDABAD-380 015 % & ./ ./ PAN/GIR NO. : AAACT 6902 F ( %( / APPELLANT ) .. ( )*%( / RESPONDENT ) %(+ / APPELLANT BY : SHRI G.C. PIPARA, AR )*%(,+ / RESPONDENT BY : SHRI NIMESH YADAV, SR.DR - ., /& / DATE OF HEARING 26/05/2015 0123 , /& / DATE OF PRONOUNCEMENT 29/05/2015 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE LD.COMMISSIONER OF INCOME TAX(APPEALS)-XIV, AHMEDAB AD (CIT(A) IN SHORT) DATED 10/02/2012 PERTAINING TO ASSESSMEN T YEAR (AY) 2008-09. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL:- ITA NO.514/AHD/ 2012 TYPHOON FINANCIAL SERVICES PVT.LTD. VS. ITO ASST.YEAR 2008-09 - 2 - 1. THE LEARNED CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN CONFIRMING THE STAND OF THE AO IN TREATING LOSS ON SALE OF SHARES OF RS.15,50,000/- AS SPECULATIVE LOSS APPLYING THE PRO VISIONS OF EXPLANATION TO SECTION 73(1) OF THE INCOME TAX ACT, 1961 WITHOUT PROPER CONSIDERATION AND APPRECIATION OF THE FACTS OF THE CASE AS WELL AS RELEVANT PROVISIONS OF THE ACT. 2. THE LEARNED CIT(A) HAS ERRED IN NOT CONSIDERING/APP RECIATING THE FACT THAT THE APPELLANT COMPANY IS AN NBFC, WHICH I S SPECIALLY EXCLUDED FROM THE PURVIEW OF EXPLANATION TO SECTION 73 OF THE ACT. THEREFORE, THE IMPUGNED LOSS OF RS.15,50,000/- REQU IRES TO BE SET-OFF AGAINST PROFIT FROM BUSINESS/OTHER SOURCES/CAPITAL GAIN. 3. THE LEARNED CIT(A) HAS FURTHER ERRED IN NOT CONSIDE RING THE VARIOUS DECISIONS RELIED UPON BY THE APPELLANT INCLUDING TH E DECISION OF THE HONBLE ITAT, AHMEDABAD BENCH IN SUPPORT OF THE PRO POSITION THAT THE APPELLANT COMPANY IS NOT COVERED BY THE EXPLANA TION TO SECTION 73 OF THE ACT ON FACTS OF THE CASE. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, MO DIFY OR DELETE ANY OF THE ABOVE GROUNDS AS WELL AS TO SUBMIT ADDITIONAL G ROUNDS AT THE TIME OF HEARING OF THE APPEAL. 2. BRIEFLY STATED FACTS ARE THAT THE CASE OF THE AS SESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S.143( 3) OF THE INCOME TAX ACT,1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRAMED VIDE ORDER DATED 17/12/2010, THEREBY THE ASSESSING OFFICER (AO IN SHORT) TREATED THE LOSS ON THE SALE OF SHARES AS SPECULATION LOSS AND TO BE CARRIED FORWARD AND TO BE ADJUSTED AGAINST FUTURE SPECULATION PROFI T ONLY. AGAINST THE SAID ASSESSMENT ORDER, THE ASSESSEE FILED AN APPEAL BEFO RE THE LD.CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, DISMISSED THE APPEAL. AGAINST THIS, THE ASSESSEE IS FURTHER IN APPEAL BEF ORE US. ITA NO.514/AHD/ 2012 TYPHOON FINANCIAL SERVICES PVT.LTD. VS. ITO ASST.YEAR 2008-09 - 3 - 3. THE ONLY EFFECTIVE GROUND IN THIS ASSESSEES APP EAL IS AGAINST TREATING THE LOSS ON THE SALE OF SHARES OF RS.15,50 ,000/- AS SPECULATION LOSS. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED TH AT THE ASSESSEE IS A NON- BANKING FINANCE COMPANY. HE DREW OUR ATTENTION TOW ARDS PAGE-38 OF THE PAPER-BOOK, WHEREIN CERTIFICATE OF REGISTRATION OF THE ASSESSEE AS A NON- BANKING FINANCE COMPANY ISSUED BY THE RESERVE BANK OF INDIA, AHMEDABAD IS ENCLOSED. THE LD.COUNSEL FOR THE ASSE SSEE SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF NON-BANK ING FINANCE COMPANY FOR ADVANCING LOANS, ETC. HE SUBMITTED THAT THE L D.CIT(A) GROSSLY ERRED IN APPLYING THE PROVISIONS OF EXPLANATION TO SECTIO N 73(1) OF THE ACT. 3.1. ON THE CONTRARY, LD.SR.DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE CONTENTION OF THE LD.COUNSEL FOR THE ASSESSEE I S THAT THE LD.CIT(A) ERRED IN APPLYING THE PROVISIONS OF EXPLANATION TO SECTION 73(1) OF THE ACT. FOR THE SAKE OF CLARITY, EXPLANATION TO SECTI ON 73 OF THE ACT IS REPRODUCED HEREUNDER:- SECTION 73 : LOSSES IN SPECULATION BUSINESS. (1) ANY LOSS, COMPUTED IN RESPECT OF A SPECULATION BU SINESS CARRIED ON BY THE ASSESSEE, SHALL NOT BE SET OFF EXCEPT AGAINST PROF ITS AND GAINS, IF ANY, OF ANOTHER SPECULATION BUSINESS. ITA NO.514/AHD/ 2012 TYPHOON FINANCIAL SERVICES PVT.LTD. VS. ITO ASST.YEAR 2008-09 - 4 - (2) WHERE FOR ANY ASSESSMENT YEAR ANY LOSS COMPUTED IN RESPECT OF A SPECULATION BUSINESS HAS NOT BEEN WHOLLY SET OFF UND ER SUB-SECTION (1), SO MUCH OF THE LOSS AS IS NOT SO SET OFF OR THE WHOLE LOSS WHERE THE ASSESSEE HAD NO INCOME FROM ANY OTHER SPECULATION BUSINESS SHALL , SUBJECT TO THE OTHER PROVISIONS OF THIS CHAPTER, BE CARRIED FORWARD TO THE FOLLOWING ASSESSMENT YEAR, AND (I) IT SHALL BE SET OFF AGAINST THE PROFITS AND GAIN S, IF ANY, OF ANY SPECULATION BUSINESS CARRIED ON BY HIM ASSESSABLE FOR THAT ASSESSMENT YEAR; AND (II) IF THE LOSS CANNOT BE WHOLLY SO SET OFF, THE AMOU NT OF LOSS NOT SO SET OFF SHALL BE CARRIED FORWARD TO THE FOLLOWING ASSE SSMENT YEAR AND SO ON. (3) IN RESPECT OF ALLOWANCE ON ACCOUNT OF DEPRECIATION OR CAPITAL EXPENDITURE ON SCIENTIFIC RESEARCH, THE PROVISIONS OF SUB-SECTION (2) OF SECTION 72 SHALL APPLY IN RELATION TO SPECULATION BUSI NESS AS THEY APPLY IN RELATION TO ANY OTHER BUSINESS. (4) NO LOSS SHALL BE CARRIED FORWARD UNDER THIS SECTI ON FOR MORE THAN [FOUR ASSESSMENT YEARS] IMMEDIATELY SUCCEEDING THE ASSESS MENT YEAR FOR WHICH THE LOSS WAS FIRST COMPUTED. EXPLANATION : WHERE ANY PART OF THE BUSINESS OF A COMPANY [OTHER THAN A COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOM E WHICH IS CHARGEABLE UNDER THE HEADS 'INTEREST ON SECURITIES' , 'INCOME FROM HOUSE PROPERTY', 'CAPITAL GAINS' AND 'INCOME FROM OTHER SO URCES'], OR A COMPANY [THE PRINCIPAL BUSINESS OF WHICH IS THE BUSI NESS OF TRADING IN SHARES OR BANKING] OR THE GRANTING OF LOANS AND ADVA NCES) CONSISTS IN THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, SUCH COMPANY SHALL, FOR THE PURPOSES OF THIS SECTION, BE DEEMED TO BE CARRYIN G ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSIST S OF THE PURCHASE AND SALE OF SUCH SHARES. 4.1. FROM A BARE READING OF THE ABOVE EXPLANATION , IT IS EVIDENT THAT 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 SO URCES, OR A COMPANY THE PRINCIPAL BUSINESS OF WHICH IS THE BUSI NESS OF BANKING OR THE ITA NO.514/AHD/ 2012 TYPHOON FINANCIAL SERVICES PVT.LTD. VS. ITO ASST.YEAR 2008-09 - 5 - GRANTING OF LOANS AND ADVANCES ARE EXCLUDED FROM DE EMING PROVISION CREATED BY THE EXPLANATION. THE LD.CIT(A) HAS DEC IDED THE ISSUE BY OBSERVING AS UNDER:- 2.3 DECISION: I HAVE CAREFULLY PERUSED THE ASSESSMENT ORDER AND T HE SUBMISSIONS GIVEN BY THE APPELLANT. THE A. O. HAS DISALLOWED LO SS OF RS.15,50,000/- ON PURCHASE AND SALE OF SHARES BY APPLYING THE EXPLANA TION TO SUB-SECTION 4 OF SECTION 73 OF THE ACT. IT HAS BEEN HELD BY HIM THAT SINCE THE BUSINESS OF THE APPELLANT WAS PURCHASE AND SALE OF SHARES WAS SPECU LATIVE IN NATURE AND IT CAN BE ONLY SET OFF AGAINST THE SPECULATIVE INCOME AND, THEREFORE, HE ASSESSED THE INCOME DERIVED BY THE APPELLANT ON SALE OF HOUS E PROPERTY DURING THE YEAR UNDER CONSIDERATION. THE APPELLANT HAS SUBMITTED TH AT EXPLANATION TO SUB- SECTION 4 OF 73 IS NOT APPLICABLE TO THE APPELLANT COMPANY AS THE APPELLANT COMPANY WAS A NON - BANKING FINANCE COMPANY AND THE SAME IS ALSO SUPPORTED BY MEMORANDUM AND ARTICLES OF ASSOCIATION OF THE APPELLANT COMPANY. IN ORDER TO CLEARLY UNDERSTAND THE ISSUE INVOLVED E XPLANATION TO SUB-SECTION 4 OF SECTION 73 IS REPRODUCED HEREUNDER: '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 GAIN' AND 'INCOME FROM OT HER SOURCES') OR(A COMPANY THE PRINCIPLE BUSINESS OF WHICH IS THE BUSINESS OF BANKING OR THE GRANTING OF LOANS AND ADVANCES) CONS ISTS IN THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, SUC H AMOUNT SHALL, FOR THE PURPOSE OF THIS SECTION, BE DEEMED TO BE CA RRYING ON A SPECULATIVE BUSINESS TO THE EXTENT TO WHICH THE BUS INESS CONSISTS OF PURCHASE AND SALE OF SUCH SHARES.' A CAREFUL PERUSAL OF THE ABOVE EXPLANATION REVEALS THAT THE IT IS APPLICABLE TO TWO CATEGORIES OF COMPANIES. IN FIRST CATEGORY, AN EXCEPTION HAS BEEN PROVIDED TO THE COMPANIES WHOSE GROSS TOTAL IN COME CONSISTS MAINLY OF INCOME UNDER THE HEAD INTEREST ON SECURITIES, INTER EST FROM HOUSE PROPERTY, CAPITAL GAIN AND INCOME FROM OTHER SOURCES. IN SECO ND CATEGORY, THE COMPANIES WHICH ARE IN THE BUSINESS OF BANKING OR G RANTING OF LOANS AND ITA NO.514/AHD/ 2012 TYPHOON FINANCIAL SERVICES PVT.LTD. VS. ITO ASST.YEAR 2008-09 - 6 - ADVANCES HAVE BEEN INCLUDED FOR THE PURPOSE OF DEEM ING TO BE CARRYING ON THE SPECULATION BUSINESS. THE USE OF WORD 'OR' BETWEEN THE COMAS CLEARLY CHANGES THE CATEGORIES WHICH HAVE BEEN MENTIONED IN THE EXP LANATION. THE COMPANIES MENTIONED BEFORE THE WORD 'OR' ARE EXEMPTED FROM TH E DEEMING FICTION AS THAT CATEGORY STARTS WITH THE WORDS 'OTHER THAN THE COMP ANY'. THE COMPANIES MENTIONED AFTER THE WORD 'OR' ARE COVERED BY THE DE EMING FICTION AS IF DOES NOT BEGIN WITH THE EXCLUSION CLAUSE. IN THE LIGHT OF TH IS EXPLANATION, THE SUBMISSION GIVEN BY THE APPELLANT IS NOT FOUND TO B E ACCEPTABLE. THE APPELLANT HAS SOUGHT TO SAY THAT EVEN IF THE PRINCIPLE BUSINE SS IS OF BANKING OR GIVING LOAN, THE INCOME FROM SALE AND PURCHASE OF SHARES W ILL ALSO NOT BE SPECULATIVE. THE EXPLANATION SOUGHT TO BE TAKEN BY THE APPELLANT IS NOT CORRECT AS IT IS TAKING THE OPPOSITE MEANING. THE APPELLANT HAS HIMSELF STATED THAT IT WAS A NBFC AND THE BUSINESS ARE THE ONE WHICH ARE C OVERED IN THE SECOND PART OF THE EXPLANATION. THEREFORE, THE DEEMING PRO VISION WOULD BE APPLICABLE IN THE CASE OF THE APPELLANT. IN VIEW OF THE ABOVE DISCUSSION, THE DISALLOWANCE M ADE BY THE A.O. IS UPHELD AND THE GROUND OF APPEAL IS DISMISSED. 4.2. THE UNDISPUTED FACTS IN THE CASE IN HAND IS TH AT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF FINANCING AND SUBSTANTIA L INCOME HAS BEEN DERIVED FROM INTEREST. THE ASSESSEE CLAIMED LOSS O N SALE OF SHARES OF RS.15,50,000/-. THE ASSESSING OFFICER TREATED THE SAME AS SPECULATION LOSS AND ALLOWED IT TO BE CARRIED FORWARD AND TO BE ADJUSTED AGAINST FUTURE SPECULATION PROFIT ONLY. THE LD.CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER. THE GRIEVANCE OF THE ASSESSEE I S THAT BOTH THE AUTHORITIES BELOW HAVE WRONGLY INTERPRETED THE EXPL ANATION TO SECTION 73 OF THE ACT. IT IS UNDISPUTED FACT THAT THE PRINCI PAL BUSINESS OF THE ASSESSEE-COMPANY IS GRANTING OF LOANS AND ADVANCES AND THE SUBSTANTIAL INCOME HAS BEEN DERIVED THEREFROM. THE R.B.I. HAS GRANTED TO THE ASSESSEE CERTIFICATE OF REGISTRATION U/S.45-IA OF T HE RESERVE BANK OF INDIA ACT, 1934 TO COMMENCE/CARRY ON THE BUSINESS O F NON-BANKING ITA NO.514/AHD/ 2012 TYPHOON FINANCIAL SERVICES PVT.LTD. VS. ITO ASST.YEAR 2008-09 - 7 - FINANCIAL INSTITUTION SUBJECT TO CERTAIN CONDITIONS . UNDER THESE FACTS, THE AUTHORITIES BELOW HAVE ERRED AND ARE NOT JUSTIFIED IN APPLYING THE PROVISIONS OF EXPLANATION TO SECTION 73 OF THE I.T. ACT, 1961. THEREFORE, THE IMPUGNED ORDER IS HEREBY SET ASIDE AND THE ASSE SSING OFFICER IS DIRECTED NOT TO TREAT THE LOSS AS SPECULATION LOSS. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE COURT ON FRIDAY, THE 29 TH DAY OF MAY, 2015 AT AHMEDABAD. SD/- SD/- ( .. ) ( ) ( .) ( G.D. AGARWAL ) ( KUL BHARAT ) VICE PRESIDENT (AZ) JUDICIAL MEMBER AHMEDABAD; DATED 29/ 05 /2015 6/..- , .-../ T.C. NAIR, SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. %( / THE APPELLANT 2. )*%( / THE RESPONDENT. 3. 789 : / CONCERNED CIT 4. : ( ) / THE CIT(A)-XIV, AHMEDABAD 5. ; <)-89 , /893 , 7 / DR, ITAT, AHMEDABAD 6. < => . / GUARD FILE. / BY ORDER, * ;) //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD