Appeal details
Counselvise Citation
[2009] 115 COUNSELVISE.COM (IT) 1602 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 6 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
26-10-2009
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
E
Next Hearing Date
23-10-2009
Assessment Year
2003-2004
Appeal Filed On
20-10-2006
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH: MUMBAI BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI V D RAO, JUDICIAL MEMBER ITA NO 5524/MUM/2006 (ASSESSMENT YEAR: 2003-04) SIDDHANT EXPORTS PVT LTD , 401, SUMER KENDRA, P B MARG, WORLI, MUMBAI -400 018 PAN: AABCT 1578 Q VS ITO-7(2)(3) , AAYAKAR BHAVAN, M K ROAD, MUMBAI -400 020 APPELLANT RESPONDENT APPELLANT BY: SMT ARATI VISSANJI RESPONDENT BY: DR U ANJANEYULU ORDER PER PRAMOD KUMAR 1. THIS IS AN APPEAL FILED BY THE ASSESSEE AND IS D IRECTED AGAINST THE ORDER DATED 31ST JULY 2006 PASSED BY THE CIT (A) IN THE MATTER OF ASSESSMENT U/S 143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2003- 04. 2. GROUND NOS 1 TO 4, WHICH ARE SOMEWHAT INTERCONNE CTED AND WHICH ARE WILL TAKE UP TOGETHER, ARE AS FOLLOWS:- 1. (A) THE LEARNED AUTHORITIES BELOW ERRED IN TREA TING THE FULL AMOUNT OF VALUE OF SHARES I.E. RS 5,97,000/- CONVERTED FROM S TOCK IN TRADE INTO INVESTMENT AS INCOME UNDER THE HEAD OF INCOME FROM OTHER SOURCES WITHOUT ANY REASONABLE BASIS AND GROUND AND WITHOUT APPRECIATING AND CONSIDERING ALL THE MATERIAL FACTS AND CIRCUMSTANCE S OF THE CASE. (B) THE LEARNED AUTHORITIES BELOW FURTHER ERRED IN NOT APPRECIATING THAT IN CONVERSION OF STOCK IN TRADE INTO INVESTMEN T, THERE WAS NO SALE AND HENCE NO GAIN ARISE ON SUCH CONVERSION. 2. THE LEARNED AUTHORITIES BELOW FAILED TO APPRECIA TE THAT THE PROVISIONS OF EXPLANATION TO SECTION 73 ARE NOT APPLICABLE TO THE FACTS OF THE APPELLANT COMPANYS CASE AND THE APPELLANT FALLS UNDER THE EX EMPTED CATEGORY AS PROVIDED UNDER EXPLANATION TO SEC 73 AND THE LOSS R ELATED TO SHARES AND SECURITIES IS A BUSINESS LOSS AND NOT A SPECULATION LOSS. SIDDHANT EXPORTS PVT LTD 2 3. THE LEARNED AUTHORITIES BELOW ERRED IN APPLYING THE PROVISIONS OF EXPLANATION TO SEC 73 BY COMPARING THE LOSS SUFFERE D UNDER THE HEAD BUSINESS AND THE INCOME EARNED UNDER THE HEAD IN COME FROM OTHER SOURCES OVERLOOKING TO THE FACT THAT FOR THE PURPO SE OF COMPARISON, THE LOSS SUFFERED SHOULD HAVE BEEN CONSIDERED AS NIL INCOM E AND THE INCOME FROM OTHER SOURCES BEING HIGHER THAN THE NIL INCOME, THE APPELLANT COMPANY WOULD FALL UNDER THE EXEMPTED CATEGORY PRESCRIBED IN EXPL ANATION TO SEC 73. THE APPELLANT, THEREFORE, SUBMITS THAT THE LEARNED AUTH ORITIES BELOW ERRED IN TREATING THE LOSS SUFFERED BY THE APPELLANT COMPANY AS SPECULATION LOSS WITHOUT REASONABLE BASIS AND GROUND AND APPELLANT P REYS THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNE D AUTHORITIES BELOW OUGHT NOT TO HAVE APPLIED THE PROVISIONS OF EXPLANATION T O SEC 73. 4. THE LEARNED CIT (A) ERRED IN NOT CONSIDERING THE GROUND NO.5 OF THE GROUNDS OF APPEAL BEFORE HIM, WHICH READS AS UNDER, WITHOUT ASSIGNING ANY REASON IN RESPECT THEREOF: 3. THE RELEVANT MATERIAL FACTS ARE LIKE THIS. THE ASSESSEE IS A COMPANY AND THE PROVISIONS OF EXPLANATION TO SECTION 73 ARE ATTRACT ED TO THE FACTS OF THIS CASE. IN THE RELEVANT PREVIOUS YEAR, THE ASSESSEE HAD A NOTIONAL INCOME OF RS 5,97,000 ON CONVERSION OF INVESTMENTS IN SHARES INTO STOCK IN T RADE OF SHARES. THE ASSESSEE ALSO HAD A DIVIDEND INCOME OF RS 45,366 IN RESPECT OF SH ARES SO HELD AS STOCK IN TRADE. THE ASSESSEE ALSO HAD A LOSS OF RS 48,38,956 ON ACC OUNT OF TRADING IN SHARES. WHILE THE ASSESSING OFFICER TREATED THE ENTIRE LOSS OF RS 48,38,956 AS LOSS OF SPECULATION BUSINESS HIT BY EXPLANATION TO SECTION 73, DIVIDEND INCOME OF RS 45,366 AND INCOME OF RS 5,97,000 ON ACCOUNT OF CONVERSION OF INVESTME NT INTO STOCK IN TRADE, WAS BROUGHT TO TAX. IN APPEAL BEFORE THE CIT (A), THIS STAND OF THE ASSESSING OFFICER WAS CONFIRMED. NOT SATISFIED BY THE STAND SO TAKEN BY THE CIT (A), THE ASSESSEE IS IN SECOND APPEAL BEFORE US. 4. MRS VISSANJI, LEARNED COUNSEL FOR THE ASSESSEE, SUBMITS THAT ONCE IT IS HELD THAT ONCE IT IS HELD THAT THE ASSESSEES BUSINESS O F DEALING IN SHARES IS TO BE HELD AS SPECULATION BUSINESS, NOTIONAL PROFIT OF RS 5,97,00 0 ON ACCOUNT OF CONVERSION OF SHARE INVESTMENT INTO SHARES HELD AS STOCK IN TRADE, AND DIVIDEND OF RS 45,366 CANNOT BE VIEWED IN ISOLATION OF THE SAID SPECULATION BUSINES S. IT IS THUS SUBMITTED THAT NET SPECULATION LOSS TO BE CARRIED FORWARD NEEDS TO BE COMPUTED AFTER TAKING INTO ACCOUNT THESE TWO RECEIPTS. IN SUPPORT OF THIS PROPOSITION , SHE RELIES UPON DECISION OF THIS TRIBUNAL IN THE CASE OF STARLINE ISPAT & ALLOYS LTD VS DCIT (14 SOT 140). TO THIS SIDDHANT EXPORTS PVT LTD 3 EXTENT, SHE URGES US TO MODIFY THE IMPUGNED ORDER, DR U ANJANEYULU, LEARNED DEPARTMENTAL REPRESENTATIVE, SUBMITS THAT SINCE THE RE IS NO SPECIFIC PROVISION ENABLING SUCH ADJUSTMENT IN COMPUTATION OF SPECULAT ION LOSSES TO BE CARRIED FORWARD, WE SHOULD NOT DISTURB THE WELL REASONED ORDERS OF T HE AUTHORITIES BELOW. HE ALSO SUBMITS THAT DIVIDEND ARE SPECIFICALLY TAXABLE AS I NCOME FROM OTHER SOURCES AND INCOME FROM OTHER SOURCES AS SUCH CANNOT BE SET OFF AGAINST SPECULATION LOSSES. HE ALSO SUBMITS THAT PROFIT ON CONVERSION OF INVESTMEN T INTO STOCK IN TRADE IS AN INDEPENDENT INCOME AND CANNOT BE VIEWED AS PART OF THE SPECULATION BUSINESS. LEARNED DEPARTMENTAL REPRESENTATIVE ALSO TAKES US T HROUGH THE ORDERS OF THE AUTHORITIES BELOW, RELIES UPON THE SAME, AND URGES US TO DECLINE TO INTERFERE IN THE MATTER. 5. WE SEE MERITS IN LEARNED COUNSELS PLEA. AS H ELD BY THIS TRIBUNAL IN THE CASE OF STARLINE ISPAT & ALLOYS LTD (SUPRA), WHAT IS DEF INED BY EXPLANATION TO SECTION 73 IS SPECULATION BUSINESS AND THEREFORE WHILE ARRIVING AT PROFITS OR LOSSES OF SPECULATION BUSINESS, ALL THE RELATED INCOMES AND EXPENDITURE, WHICH ARE INTEGRAL PART OF THAT BUSINESS ACTIVITY, ARE TO BE TAKEN INTO ACCOUNT. T HE SHARES WHICH WERE CONVERTED INTO STOCK IN TRADE WERE ESSENTIALLY HELD AS A PART OF SPECULATION BUSINESS, AND, THEREFORE NOTIONAL PROFITS ON SUCH CONVERSION CANNO T BE CONSIDERED IN ISOLATION WITH SPECULATION BUSINESS. AS FOR DIVIDENDS, THAT ASPEC T OF THE MATTER IS DIRECTLY COVERED BY THE STARLINE ISPAT & ALLOYS DECISION (SUPRA). I N VIEW OF THESE DISCUSSION AND FOLLOWING TRIBUNALS DECISION IN THE CASE OF STARLI NE ISPAT & ALLOYS LTD (SUPRA), WE UPHOLD THE GRIEVANCE OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO COMPUTE SPECULATION LOSS TO BE CARRIED FORWARD AFTER TAKING INTO ACCOUNT NOTIONAL PROFIT ON CONVERSION OF INVESTMENTS INTO STOCK IN TRADE AND D IVIDEND ON SHARES HELD AS STOCK IN TRADE IN DEEMED SPECULATION BUSINESS. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 6. GROUND NOS 1 TO 4 ARE ALLOWED IN THE TERMS INDIC ATED ABOVE. 7. IN GROUND NO 5, THE ASSESSEE HAS RAISED THE FOLL OWING GRIEVANCE:- GROUND NO.5 SIDDHANT EXPORTS PVT LTD 4 THE LEARNED ASSESSING OFFICER ERRED IN NOT APPRECIA TING THE FACT THAT THE APPELLANT COMPANY BEING A DEALER AND INVESTOR IN SH ARES AND SECURITIES, THE DIVIDEND RECEIVED ON SHARES SHOULD HAVE BEEN ASSESS ED AS BUSINESS INCOME AND OUGHT TO HAVE CONSIDERED ONLY THE NET AMOUNT OF LOSS AFTER ADJUSTING THE DIVIDEND AS BUSINESS LOSS. 5. THE LEARNED AUTHORITIES BELOW ERRED IN CONSIDERI NG THE AMOUNT OF AMORTIZATION OF PRELIMINARY EXPENDITURE AS CAPITAL WITHOUT REASONABLE BASIS AND GROUND AND WITHOUT APPRECIATING ALL THE MATERIA L FACTS AND CIRCUMSTANCES OF THE CASE. THE LEARNED AUTHORITIES BELOW FURTHER ERRED IN NOT ALLOWING THE SAME AS DEDUCTION U/S 35D BEING A DETERMINED AMOUNT ALLOWABLE U/S 35D ALLOWED IN THE EARLIER ASSESSMENT YEARS BEGINNING F ROM ASSESSMENT YEAR 1994-95. 8. LEARNED REPRESENTATIVES AGREE ON THE FACTUAL ASP ECT THAT THE DISALLOWANCE IS IN RESPECT OF THE AMOUNT SPENT IN EARLIER YEARS WHICH WAS HELD TO BE PERMISSIBLE, FOR AMORTIZATION U/S 35D IN EARLIER ASSESSMENT YEARS. ONCE THIS IS ACCEPTED POSITION AND IT IS ALSO AN ADMITTED POSITION THAT IT WAS ALLOWED FOR AMORTIZATION U/S 35D IN EARLIER ASSESSMENT YEARS, IT IS ONLY CONSEQUENTIAL THAT IT HAS TO BE ALLOWED AS DEDUCTION IN THIS YEAR AS WELL. THERE IS NO GOOD REASON FOR DIS TURBING THE ABOVE POSITION. 9. THE DISALLOWANCE WAS MADE BY THE ASSESSING OFFIC ER ON THE GROUND THAT THE DEDUCTION WAS IN RESPECT OF PRELIMINARY EXPENSES WH ICH WERE CAPITAL EXPENSES IN NATURE. THE CIT (A) HAS ALSO HELD SO. HOWEVER, AL L THIS IS NOT RELEVANT AT THIS STAGE, BECAUSE, AS WE HAVE NOTED ABOVE, NO EXPENDITURE IS INCURRED IN THIS YEAR AND AS THE EXPENDITURE WAS HELD TO BE COVERED BY PROVISIONS OF SECTION 35D FOR AMORTIZATION, WHEN THE EXPENDITURE WAS INCURRED. THE ACTION AND ANALYSIS NATURE OF EXPENDITURE BY THE AUTHORITIES BELOW IS UNCALLED FOR. FOR ALL THESE REASONS, WE UPHOLD THIS GRIEVANCE OF THE ASSESSEE AS WELL. THE ASSESSING O FFICER IS DIRECTED TO DELETE IMPUGNED DISALLOWANCE OF RS 12,104/-. 10. IN THE RESULT, GROUND NO.5 IS ALSO ALLOWED. SIDDHANT EXPORTS PVT LTD 5 11. IN THE RESULT, APPEAL IS ALLOWED IN THE TERMS I NDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON THE 26TH OCTO BER 2009. SD/- (V D RAO) JUDICIAL MEMBER SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER MUMBAI, DATE: 26TH OCTOBER 2009 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A)-VII, MUMBAI. 4) THE CIT CITY- VII, MUMBAI. 5) THE D.R. E BENCH, ITAT, MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR CHAVAN* I.T.A.T., MUMBAI SIDDHANT EXPORTS PVT LTD 6 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 26.10.09 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 26.10.09 SR.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 SR.PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS 7 FILE SENT TO THE BENCH CLERK SR.PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER
