ITO,Ward-9(4), Kolkata, Kolkata V. M/S Narmada Trexim (P) Ltd., Kolkata

ITA 549/KOL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91964 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-05-2015
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 10-04-2012
• Court: TRIBUNAL
• Department Lawyers: K L KANAK
• Assessee Lawyers: MIRAJ D. SHAH
• Keywords: Business income; Source of fund; Speculation loss
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOLKATA [BEFORE SHRI P. K. BANSAL, AM & SHRI MAHAVIR SINGH, JM ] I.T.A NO. 549 /KOL/201 2 ASSESSMENT YEAR : 200 8 - 0 9 INCOME - TAX OFFICER, WD - 9 ( 4 ), KOLKATA. VS. M/S. NARMADA TREXIM (P) LTD. (PAN: AA BCN6495N ) ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 1 9 .0 5 .2015 DATE OF PRONOUNCEMENT: 22 . 0 5 . 2015 FOR THE APPELLANT: SHRI K . L. KANAK , JCIT , SR. DR FOR THE RESPONDENT: S HRI MIRAJ D. SHAH, FCA ORDER PER SHRI MAHAVIR SINGH, JM: THIS APPEAL BY REVENUE IS ARISING OUT OF ORDER PASSED BY CIT (A) - VII I , KOLKATA VIDE APPEAL NO. 128 /CIT(A) - VII I/ KOL/10 - 11 DATED 24 . 0 2 .201 2 . ASSESSMENT WAS FRAMED BY ITO, WARD - 9 ( 4 ), KOLKATA U/S. 14 3(3) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) FOR ASSESSMENT YEAR 200 8 - 0 9 VIDE HIS ORDER DATED 31 . 12 .20 1 0 . 2. THE ONLY ISSUE IN THIS APPEAL OF REVENUE IS AGAINST THE ORDER OF CIT(A) DELETING THE ADDITION MADE BY AO ON ACCOUNT OF DISALLOWANCE OF SPECULATION LOSS BY INVOKING THE PROVISIONS OF EXPLANATION TO SECTION 73 OF THE ACT. FOR THIS, REVENUE HAS RAISED FOLLOWING TWO GROUNDS: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(A) WAS NOT JUSTIFIED IN DELE TING THE ADDITION MADE BY THE AO TO THE TUNE OF RS.55,26,446/ - ON ACCOUNT OF SPECULATION LOSS AND TO TREAT THE PRINCIPAL BUSINESS OF THE ASSESSEE AS GRANTING OF LOAN & ADVANCES EVEN THOUGH THE DEPLOYMENT OF FUND IN SHARE TRADING BUSINESS IS HIGHER THAN T HE BUSINESS OF GRANTING OF LOANS AND ADVANCES. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AS DISCUSSED IN AO S COMMENTS LD. CIT(A) WAS NOT JUSTIFIED TO HOLD THAT EXPLANATION SEC. 73 WAS NOT APPLICABLE. 3. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE CIT(A) HAS DEALT THE ISSUE IN RESPECT TO THREE SOURCES OF INCOME I.E. SHARE TRADING, COMMISSION INCOME AND INTEREST INCOME. THE AO PERUSED FROM THE AUD ITED ACCOUNTS OF THE ASSESSEE THAT THE FOLLOWING ARE COMPOSITE INCOME: 2 ITA NO .549 /K/201 2 NARMADA TREXIM (P) LTD. AY 200 8 - 09 INCOME FROM SHARES (BUSINESS INCOME) SALES CLOSING STOCK LESS: OPENING STOCK LESS: PURCHASES LOSS ON SHARES LESS: EXPENSES AS APPORTIONED BY THE ASSESSING OFFICER IN THE ORDER NET BUSINESS INCOME FROM SHARES INCOME FROM INTEREST & COMMISSION (UNDER HEAD INCOME FROM OTHER SOURCES) AS PER ASSESSEE INTEREST INCOME LESS: EXPENSES AS APPORTIONED BY THE ASSESSING OFFICER IN THE ORDER NET INTEREST INCOME FROM OTHER SOURCES INCOME F ROM COMMISSION LESS: EXPENSES AS APPORTIONED BY THE ASSESSING OFFICER IN THE ORDER NET INCOME FROM COMMISSION NET INCOME FROM OTHER BUSINESS 2,17,27,185 20,65,500 (2,42,73,185) (50,00,000) (54,80,500) (45,446) (55,25,946) 23,83,475 (52,434) 23,31,041 32,78,904 72,140 32,06,764 55,37,805 ACCORDING TO AO, THE FOLLOWING IS COMPUTATION OF INCOME: INCOME FROM BUSINESS INCOME FROM SHARES (55,25,946) INCOME FROM COMMISSION 32,06,764 INCOME UNDER THE HEAD INCOME FROM BUSINESS A 23,19,182 INCOME FROM OTHER SOURCES B 23,34,041 IN VIEW OF THESE FACTS, THE AO MADE DISALLOWANCE OF LOSS ARISING OUT OF SHARE TRANSACTIONS AS SPECULATIVE LOSS BY INVOKING EXPLANATION TO SECTION 73 OF THE ACT AS THE LOSS IN SHARE ACTIVITY IS MORE THAN OTHER INCOMES. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), 4. BUT THE CIT(A) AFTER RELYING ON THE DECISION OF HON BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. DARSHAN SECURITIES PVT. LTD. (2012) 341 ITR 556 (BOM) DELETED THE DISALLOWANCE OF LOSS BY OBSERVING AS UNDER: I HAVE PERUSED THE ASSESSMENT ORDER PASSED U/S. 143(3) OF THE I. T. ACT, 1961 AND THE AUDITED ACCOUNTS, COMPUTATION OF INCOME AND THE WRITTEN SUBMISSION BEFORE ME. I FIND THAT THE ASSESSING OFFICER HAS HELD THAT THE SHARE LOSS OF RS.55,25,946 WAS TO BE ASSESSED AS SPECULATIVE LOSS AS PER EXPLANATION TO SECTION 73 OF THE INCOME TAX ACT, 1961. THE PROVISIONS OF SECTION 73 PROVIDE FOR 3 ITA NO .549 /K/201 2 NARMADA TREXIM (P) LTD. AY 200 8 - 09 TWO KINDS OF EXCEPTIONS PROVIDED IN EXPLANATION TO SECTION 73 ARE B ASED ON TWO IN DEPENDENT T ESTS LAID DOWN M EXPLANATION ITSELF. THE TEST TO BE APPLIED ON THE FIRST CATEGORY OF COMPANY IS C HARACTER OF ITS GROSS TOTAL INCOME. THE TEST LA ID DOWN IN THE CASE OF THE SECOND CATEGORY OF COMPANY IS THE NATURE OF THE PRINCIPAL BU SINESS CARRIED ON IT. IN THE FIRST CATEGORY, WHERE THE TEST IS THAT OF THE CHARACTER OF GROSS TOTAL INCOME, THE OTHER TEST RELATING TO THE NATURE OF PRINCIPAL B USINESS CARRIED ON BY I T DOES NOT APPLY. LIKEWISE IN THE SECOND CATEGORY OF COMPANY WHERE TEST I S THE NATURE OF THE PRINCIPAL BUSINESS CARRIED ON BY IT, THE TEST OF THE GROSS TOTAL INCOME DOES NOT APPLY. THE TWO EXCEPTIONS PROVIDED IN EXPLANATION TO SECTION 73 ARE GOVERNED BY TWO DIFFERENT TESTS LAID DOWN IN THE SAID EXPLANATION ITSELF. IT IS EVIDEN T FROM THE COMPUTATION OF INCOME AS MADE BY THE ASSESSING OFFICER THAT THE INCOME FROM BUSINESS WAS (RS.32,06,764/ - - (55,25,946/ ) THAT IS A LOSS OF (RS.23,19,182/ - ) AND WHILE THE INCOME FROM OTHER SOURCES WAS RS.23,34,041/ - . THUS, BY IGNORING THE NEGATIVE SIGN THE INCOME FROM OTHER SOURCES WAS HIGHER BY RS.14,859/ - AND AS THE INCOME FROM OTHER SOURCES WAS HIGHER THE FIRST EXCEPTION TO THE PROVISIONS OF EXPLANATION TO SECTION 73 OF THE I. T. ACT, 1961 APPLIES AND HENCE THE PROVISIONS OF EXPLANATION TO SECTION 73 OF THE I. T. ACT, 1961 CANNOT BE APPLIED TO THE CASE OF THE APPELLANT. THIS VIEW IS DULY SUPPORTED BY THE ITAT, SPECIAL BENCH IN THE CASE OF COMMISSIONER OF INCOME - TAX, SPECIAL CIRCLE 18(1) VS. CONCORD COMMERCIALS (P) LTD. (2005) 95 ITD 117 (MUM, SB) AND ALSO THE BOMBAY HIGH COURT IN THE CASE OF THE COMMISSIONER OF INCOME - TAX 3 VS. M/S. DARSHAN SECURITIES PVT. LTD. INCOME TAX APPEAL NO. 2886 OF 2008 DATED 02 ND FEBRUARY, 2012 THE RELEVANT FINDING OF THESE TWO DECISIONS HAVE ALREADY BEEN REPR ODUCED HEREIN ABOVE HENCE ARE NOT BEING REPEATED. I THEREFORE HAVE NO HESITATION IN HOLDING THAT THE SHARE LOSS OF RS. 45,25,946/ - FELL WITHIN THE PURVIEW OF THE EXCEPTION CAPITAL AND IN THE EXPLANATION TO SECTION 73 AND CONSEQUENTLY THE APPELLANT WOULD N OT BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS FOR THE PURPOSE OF SEC. 73(1). THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE SET OFF OF LOSS ON SHARES AS CLAIMED BY THE APPELLANT ACCORDINGLY. THIS GROUND OF APPEAL IS, THUS, ALLOWED . AGGRIEVED, R EVENUE CAME IN SECOND APPEAL BEFORE TRIBUNAL. 5. WE FIND THAT EVEN HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. MIDDLETON INVESTMENT & TRADING CO. LTD. IN ITA NO. 196 OF 1999 DATED 15 - 01 - 2014 CONSIDERING THE DECISION OF HON'BLE BOMBAY HIGH COUR T IN THE CASE OF DARSHAN SECURITIES (P) LTD. (SUPRA) AND FOLLOWING THE SAME RATIO DELETED THE DISALLOWANCE OF LOSS BY OBSERVING AS UNDER: - AGGRIEVED BY THE ORDER OF THE LEARNED TRIBUNAL, THE REVENUE HAS COME UP IN APPEAL. AT THE T I ME OF HEARING, MR. SARAF , LEARNED ADVOCATE VERY FAIRLY DREW OUR ATTENTION TO THE JUDGMENT IN THE CASE OF CIT V. DARSHAN SECURITIES (P) LTD. REPORTED IN 341 ITR 556 WHEREIN THE FOLLOWING VIEW WAS TAKEN: THE AMBIT OF SUB SECTION (1) OF SECTION 73 IS ONLY TO PROHIBIT THE SETTING OF F OF A LOSS WHICH HAS RESULTED FROM A SPECULATION BUSINESS, SAVE AND EXCEPT AGAINST THE PROFIT AND GAINS OF ANOTHER SPECULATION BUSINESS. IN ORDER TO DETERMINE WHETHER THE EXCEPTION THAT IS CARVED OUT BY THE EXPLANATION APPLIES, THE LEGISLATURE HAS FIRST M ANDATED A COMPUTATION OF THE GROSS TOTAL INCOME OF THE COMPANY. THE WORDS CONSISTS MAINLY ARE INDICATIVE OF THE FACT THAT THE LEGISLATURE HAD IN ITS CONTENTION THAT THE GROSS TOTAL INCOME CONSISTS PREDOMINANTLY OF INCOME FROM THE FOUR HEAD THAT ARE REFER RED TO THEREIN.. OBVIOUSLY, IN COMPUTING THE GROSS TOTAL INCOME THE NORMAL PROVISIONS OF THE ACT MUST BE APPLIED AND IT IS ONLY THEREAFTER, IT HAS TO BE DETERMINED AS TO 4 ITA NO .549 /K/201 2 NARMADA TREXIM (P) LTD. AY 200 8 - 09 WHETHER THE GROSS TOTAL INCOME SO COMPUTED CONSISTS MAINLY OF INCOME WHICH IS CHARGEAB LE UNDER THE HEADS REFERRED TO IN THE EXPLANATION. CONSEQUENTLY, IN THE PRESENT CASE, THE GROSS TOTAL INCOME OF THE ASSESSEE WAS REQUIRED TO BE COMPUTED, INTER ALIA BY COMPUTING THE INCOME UNDER THE HEAD OF PROFITS AND GAINS OF BUSINESS OR PROFESSION AS WE LL, BOTH THE INCOME FROM SERVICE CHARGES IN THE AMOUNT OF RS.2.25 CRORES AND THE LOSS IN SHARE TRADING OF RS.2.23 CRORES, WOULD HAVE TO BE TAKEN INTO ACCOUNT IN COMPUTING THE INCOME UNDER THAT HEAD BOTH BEING SOURCES UNDER THE SAME HEAD. THE ASSESSEE HAD A DIVIDEND INCOME OF RS.4.7 LAKHS (INCOME FROM OTHER SOURCES). THE TRIBUNAL WAS JUSTIFIED, IN COMING TO THE CONCLUSION THAT THE ASSESSEE FELL WITHIN THE PURVIEW OF THE EXCEPTION CARVED OUT IN THE EXPLANATION TO SECTION 73 AND THAT CONSEQUENTLY THE ASSESSEE WOULD NOT BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS FOR THE PURPOSE OF SECTION 73(1). THE JUDGMENT CITED BY MR. SARAF IS DIRECTLY ON THE POINT SOUGHT TO BE AGITATED BY THE REVENUE. THERE IS NOTHING TO SHOW THAT THE VIEW TAKEN BY THE BOMBAY HIGH COURT IS ERRONEOUS. WE ARE, AS SUCH, OF THE OPINION THAT THE APPEAL MUST FAIL AND IS HEREBY DISMISSED. 6. IN VIEW OF THE FACTS OF THE PRESENT CASE AS DISCUSSED BY CIT(A) AND THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT AND HON BLE BOMBAY HIGH COURT, CITED SUPRA, WE DISMISS THE APPEAL OF REVENUE. 7 . IN THE RESULT, APPEAL OF REVENUE IS DISMISSED. 8 . ORDER IS PRONOUNCED IN THE OPEN COURT ON 22.05.2015 . SD/ - SD/ - ( P. K. BANSAL ) (MAHAVIR SINGH) ACCOUNTANT MEMBER J UDICIAL MEMBER DATED : 22ND MAY , 201 5 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . A PPELLANT ITO, WARD - 9 ( 4 ), KOLKATA . 2 RESPONDENT M/S. NARMADA TREXIM (P) LTD., 22, AMARTOLLA STREET, KOLKATA - 700 007. 3 . THE CIT (A), KOLKATA 4. 5. THE CIT, KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .