ITO 9(2)(3), MUMBAI V. MEHRAULI TRADERS P. LTD, MUMBAI

ITA 5443/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1427 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2006-2007
• Appeal Filed On: 01-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIRENDRA OJHA
• Keywords: Business income; Speculation loss

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F MUMBAI BEFORE SHRI R.S. SYAL (AM) AND SMT. ASHA VIJAYARAG HAVAN (JM) ITA NO. 5443/MUM/2009 ASSESSMENT YEAR-2006-07 THE ITO-9(2)(3), AAYAKAR BHAVAN, MUMBAI-400 020 VS. M/S. MEHRAULI TRADERS PVT. LTD., 14-A, PAPER BOX ESTATE, MAHAKALI CAVES ROAD, ANDHERI (E), MUMBAI-400 093 PAN-AAACM3556G (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI VIRENDRA OJHA RESPONDENT BY: SHRI PIYUSH CHATURVEDI O R D E R PER SMT. ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED A GAINST THE ORDER DT. 27.5.2009 PASSED BY THE LD. CIT(A)-VIII, MUMBAI FOR THE ASSESSMENT YEAR 2006-07. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMP ANY IS ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND CLOTHES. THE ASSESSEE HAS SHOWN INTEREST INCOME FOR THE YEAR UNDER APPEAL. IN THE COURSE OF ASSESSMENT PROCEEDINGS VIDE LETTER DT. 4.8.2008, THE ASSESSEE WAS ASKED TO SHOW CAUSE AND EXPLAIN AS TO WHY THE LOSS ON TRADING IN SHARES SHOULD NOT BE TREATED AS SPECULATIVE LOSS IN VIEW OF THE EXPLANAT ION TO SEC. 73 OF THE I.T. ACT, 1961. IN RESPONSE TO THIS SHOW CAUSE NOT ICE, THE ASSESSEE COMPANY HAS SUBMITTED THAT THE ASSESSEE IS AN INVES TMENT COMPANY CONSISTING OF BUSINESS INCOME OF RS. 19,95,404/- A ND INTEREST INCOME OF RS. 20,35,718/-. THE ASSESSEE HAS ALSO SUBMITTED T HAT SINCE THE ASSESSEE COMPANY HAS SHOWN INCOME MAINLY CONSISTING OF INCOME ITA NO. 5443/M/09 2 CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCE S AND CAPITAL GAINS WHICH IS RS. 20.36 LAKHS POSITIVE AS AGAINS T NEGATIVE BUSINESS INCOME OF RS. 19.95 LAKHS, EXPLANATION TO SEC. 73 I S NOT APPLICABLE TO THE CASE OF THE ASSESSEE. IN SUPPORT OF ITS CLAIM, THE ASSESSEE COMPANY RELIED UPON VARIOUS CASE LAWS WHICH IS AT PAGE 3 OF ASSESSMENT ORDER. AFTER CONSIDERING THE REPLY OF THE ASSESSEE COMPANY , THE AO HAS HELD THAT THE EXPLANATION TO SEC. 73 AS PROVIDED IN THE SECTION IS AS UNDER: 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 SECURITI ES, INCOME FROM HOUSE PROPERTY, CAPITAL GAINS AND INCOME FROM O THER SOURCES, OR A COMPANY THE PRINCIPAL BUSINESS OF WHICH IS THE BU SINESS OF BANKING OR THE GRANTING OF LOANS AND ADVANCES) CONS ISTS 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 BUS INESS CONSISTS OF THE PURCHASE AND SALE OF SUCH SHARES. 3. AFTER DISCUSSING THE PROVISIONS OF EXPLANATION T O SEC. 73 AT LENGTH ON PAGE 4 AND 5 OF THE ASSESSMENT ORDER, THE AO FIN ALLY CONCLUDED THAT BY VIRTUE OF PROVISIONS OF SEC. 73, THE LOSS OF RS. 19,06,674/- INCURRED BY THE ASSESSEE COMPANY IN SHARE TRADING BUSINESS IS N OT ALLOWED TO BE SET OFF AGAINST THE PROFIT AND GAINS OF HIS CLOTH BUSIN ESS. 4. BEFORE THE LD. CIT(A), THE ASSESSEE CONTENDED AS FOLLOWS: FROM THE ABOVE IT IS EVIDENT THAT INCOME WHICH SHO ULD BE COVERED UNDER THE HEAD INCOME FROM OTHER SOURCES AR E TO THE TUNE OF RS. 20.36 LACS WHERE AS BUSINESS INCOME ARE RS. 19.95 LACS ONLY. THUS THE ASSESSEE IS EARNING SUBS TANTIAL INCOME FROM INCOME COVERED UNDER THE HEAD INCOME FR OM OTHER SOURCES. WE WOULD LIKE TO DRAW YOUR KIND ATTENTION TO EXPLAN ATION OF SEC. 73 WHICH PROHIBITS SET OFF OF SPECULATION LOSS INCURRED BY THE COMPANY OTHER THAN A COMPANY WHOSE GROSS TOTAL INCOME ITA NO. 5443/M/09 3 CONSIST MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEAD INTEREST ON SECURITIES, INCOME FROM HOUSE PROPERTY, CAPITAL GAIN AND INCOME FROM OTHER SOURCES OR A COMPANY WHO SE PRINCIPLE BUSINESS IS BANKING OR GRANTING OF LOAN. APPARENTLY, THIS EXPLANATION EXCLUDES TWO TYPES OF COMPANIES FROM ITS APPLICATION I.E. A COMPANY WHOSE GROSS TOTAL INCOMES CONSISTS MAINL Y OF INCOME WHICH IS CHARGEABLE UNDER THE HEAD INTEREST ON SECURITIES, INCOME FROM HOUSE PROPERTY, CAPITAL GAI N AND INCOME FROM OTHER SOURCES. A COMPANY WHOSE PRINCIPAL BUSINESS IS BANKING OR GR ANTING OF LOAN. HERE THE ASSESSEE COMPANY COVERS UNDER FIRST CATEGO RY OF EXCEPTION. ITS INCOME MAINLY CONSISTS OF THE INCOM E CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCES AND CAPITAL GAIN, WHICH IS RS. 20.36 LAKHS POSITIVE AGA INST BUSINESS INCOME OF RS. (19.95) LAKHS NEGATIVE. SO INCOME CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCES IS 50.51% OF ITS INCOME BEFORE SETTING OF THE LOSS. T HEREFORE EXPLANATION OF SEC. 73 IS NOT APPLICABLE ON THE ASS ESSEE. FOR THAT PURPOSE THE APPELLANT HAS RELIED ON THE FOLLOW ING CASES: 1) C.N.M.P INVESTMENTS PVT. LTD (78 ITD 29(DEL) 2) M. GULABSINGH & SONS PVT. LTD. 43 ITD 308(CHANDI GARH 3) RAJAN ENTERPRISES PVT. LTD. 41 ITD 469 (MUM. TRI BUNAL D BENCH) 4) ARYASTHAN CORPN. LTD. 253 ITR 401 (CAL. HIGH COU RT) 5) PARKVIEW PROPERTIES PVT. LTD. 261 ITR 473 (CAL. HIGH COURT. IT WAS FURTHER SUBMITTED THAT THIS ISSUE NOW CONCLU SIVELY DECIDED BY THE MUMBAI TRIBUNAL SPECIAL BENCH IN THE CASE OF M/S. CONCORD COMMERCIAL PVT. LTD. 95 ITD 11 7. 5. THE LD. CIT(A) HELD AS FOLLOWS: I HAVE CONSIDERED THE EXPLANATION OF THE APPELLANT COMPANY AND ORDER OF THE AO AND THE DECISION OF TH E HONBLE TRIBUNAL, SPECIAL BENCH MUMBAI IN THE CASE OF M/S. CONCORD COMMERCIAL PVT. LTD. 95 ITD 117. THE SPECIAL BENCH S DECISIONS OF MUMBAI TRIBUNAL SQUARELY COVERS THE FA CTS OF THE CASE BASED ON THE FOLLOWING REASONS: ITA NO. 5443/M/09 4 IN THE ASSESSEE COMPANY CASE ALSO THERE IS A PROFIT OF RS. 16,005/- IN CLOTH TRADING AND A LOSS OF RS. 10,09,674/- IN SHARE TRADING AFTER TAKING ADMINISTR ATIVE EXPENSES AND OTHER INCOME INTO COUNT TOTAL INCOME UNDER THE BUSINESS HEAD COMES TO (-)19,94,404/- WHE RE THE INCOME FROM OTHER SOURCES COMES TO RS. 20,35,41 8/- THUS THE NET INCOME RS. 40,314 MAINLY CONSISTS OF INCOME FROM OTHER SOURCES ONLY. THE INTEREST INCOME IS BEING THE INTEREST RECEIVED FROM FD MADE OUT OF SURPLUS FUND NOT CURRENTLY REQUIRED THUS TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. SO THE APPELLANT COMPANY INCOME MAINLY CONSISTS OF INCOME FROM OTHER SOURCES AND THUS OUTSIDE THE PURV IEW OF EXPLANATION TO SECTION 73. 6. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED ON TH E ORDER OF THE AO. 7. WE HEARD BOTH THE PARTIES. THE INCOME OF THE AS SESSEE COMPANY FROM OTHER SOURCES IS MORE THAN BUSINESS INCOME AND THEREFORE THE PROVISIONS OF EXPLANATION TO SEC. 73 ARE NOT APPLIC ABLE TO THE CASE OF THE ASSESSEE COMPANY. WE FIND THAT THE ASSESSEES CASE IS SQUARELY COVERED BY THE DECISION OF HONBLE ITAT MUMBAI SPECIAL BENC H IN THE CASE OF M/S. CONCORD COMMERCIAL PVT. LTD. HENCE WE CONFIRM THE ORDER OF THE LD. CIT(A) AND DISMISS THE REVENUES APPEAL. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THIS 18 TH DAY OF JUNE, 2010 SD/- SD/- (R.S. SYAL ) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 18 TH JUNE, 2010 RJ ITA NO. 5443/M/09 5 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR F BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 5443/M/09 6 DATE INITIALS 1 DRAFT DICTATED ON: 8.6.2010 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 9. 6 .2010 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/ PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: _________ ______ 9. DATE OF DISPATCH OF ORDER: _________ ______