DCIT 10(2), MUMBAI V. BEST SHARE TRADEING CO. P. LTD, MUMBAI

ITA 5630/MUM/2013

• Counselvise Citation: 563019914 RSA 2013
• Duration Of Justice: 1 year(s) 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 08-07-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 04-09-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AKHILENDRA YADAV SR
• Assessee Lawyers: RAJU M GANDHI DIRECTOR
• Keywords: Speculation loss
• Section: 143(3)

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI B BENCH , , , BEFORE S/SH. JOGINDER SINGH ,JUDICIAL MEM BER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO. 5630 /MUM/201 3 , / ASSESSMENT YEAR - 200 9 - 10 DCIT - 10(2) ROOM NO.432, 4 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD MUMBAI - 400 020. VS M/S. BEST SHARE TRADING CO.PVT. LTD., SHOP NO.2, PLOT NO.1 5, NAND SMRUTI BUILDING, V.B. LANE OPP. KUKREJA PALACE , GHATKOPAR (E) MUMBAI - 400 077. PAN: AAACB 3282 G ( / APPELLANT ) ( / RESPONDENT ) /ASSESSEE BY : SHRI RAJU M. GANDHI - DIRECTOR / REVENUE BY : SHRI AKHILENDRA YADAV - SR.AR / DATE OF HEARING : 08 - 0 7 - 2015 / DATE OF PRONOUNCEMENT : 08 - 0 7 - 2015 , 1961 254 ( 1 ) ORDER U/S.254(1)OF THE INCOME - TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 24.6.2013 OF THE CIT(A) - 21, MUMBAI ,THE ASSESSING OFFICER(AO) HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LD. CIT(A) ERRED IN DELETING ADDITION OF RS.15,97,055/ - TREATED AS DEEMED SPECULATED LOSS AS PER EXPLANATION TO SEC.73 OF ACT.' 2. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, VARY, OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF APPEAL.' 3. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON T HE ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. ASSESSEE - CO MPANY, ENGAED IN THE BUSINESS OF T RADING IN SHARES AND SECURITIES, FILED ITS RETURN OF INCOME ON 29.9.09 AT 8.87 LACS. THE AO COMPLETED THE ASSESSMT U/S. 143(3) OF THE AC T ON 21.12.11 DETERMING THE INCOME OF THE ASSESSEE AT RS.25.09 LACS. 2. THE EFFECTIVE GROUND OF APPEAL IS ABOUT DELETING THE ADDI TI ON OF 15.97 LACS.DURING THE ASSESSMENT PROCEEDING , THE AO FOUND THAT THE AA HAD INCURRED LOSS ON PURCHASE AND SALE OF SHARES OF RS.15 , 97 , 055/ - ON PHYSICAL DELIVERY OF SHARES.HE DIRECTED THE AA TO JUSTIFY THE LOSS AND TO EXPLAIN AS TO WHY IT SHOULD NOT BE TREATED AS DEEMED SPECULATION IN VIEW OF EXPLANATION TO S.73 OF THE ACT. THE ASSESSEE FILED ITS REPLY ON 29.11.2011 AND RELIED UP ON THE DECISION OF THE ITAT DELIVERED IN THE CASE OF A MAN PORTFOLIO .HOWEVER, THE AO HELD THAT LOSS ON SHARE TRADING, AMOUNTING TO 15.97 LACS WAS DEEMED SPECULATION LOSS AS PER THE EXPLANATION TO S.73 OF THE ACT.HE REFERRED TO THE DECISION OF THE H ONBLE CAL CUTTA HC DELI VER ED IN THE CASE OF PAHARPUR COOLING TOWERS LTD . (ITA256 OF 2002) DT.5.10.2010) ITA/ 5630 /MUM/2013,AY. 0 9 - 10 - BEST SHARE 2 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA). BEFORE HIM, IT WAS ARGUED THAT EXPLANATION TO S.73 WAS APPLICABLE TO COMPANIES OTHER TH AN A COMPAN Y WHOSE GROSS TOTAL INCOME CONSISTED MAINLY OF INCOME WHICH WAS CHARGEABLE UNDER THE HEAD INT EREST ON SECURITIES, INCOME FROM HOUSE PROPERTY CAPITAL GAINS AND INC O ME FROM OTHER SOURCES OR A CO MPANY THE PRINCIPLE BUSINESS OF WHICH WAS THE BUSINESS OF BANKING AND GRANTING OF LOANS AND ADVANCES.THE ASSESSEE REFERRED TO THE JUDGMENT DELIVERED BY THE HBHC IN THE CASE OF DARSHAN SECURITES P.LTD. AND CONTENDED THAT IT HAD OFFERED I NCOME FROM ALL ITS ACTIVITIES U NDER THE HEAD PROFITS AND GAINS OF BUSINESS, THAT IT HAD PREPARED ONE COMMON P&L ACCOUNT, THAT COMPENSATION(85 LACS) INTEREST (18.01 LACS) AND DIVIDENC(14 , 062) CONSISTED INCOME FROM OTHER SOURCES, THAT ITS INCOME FROM OTHER SOUR C ES WAS 1.03 CRORES, THAT IT H A D SUFF ERED LOSS OF RS.94.28 LACS UNDER THE HEAD PROFITS AND GAINS OF BUSINESS, THAT IT WAS A COMPANY WHOSE MAIN INCOME WAS INCOME FROM OTHER SOURCERS, THAT IT WAS COVERED BY EXCEPTION TO EXPLANATION TO S ECTION 73 OF THE ACT. AFTER CONS IDERING THE ASSESSMENT ORDER AND COMPUTATION OF TOTAL INCOME OF THE ASSESSEE THE FAA HELD THAT THE ASSESSEE HAD SUFFERED SHARE TRADING BUSINESS LOSS OF RS.15.97 LACS, THAT THE OTHER INCOME OF THE ASSESSEE AMOUNTED TO RS.64.90 LACS, THAT IT HAD RECEIVED BANK INT EREST OF RS.768/ - BESI DES RECEIVING COMPENSATION OF RS. 18 , 01 , 265/ - , THAT INCOME FROM OTHER SOURCES WAS MORE THAN THE INCOME OF THE SHARE TRADING LOSS, THE ASSESSEE WAS COVERED BY THE EXEMPTIO N, THAT EXPLANATION TO S ECTION 73 WAS NOT APPLICABLE. THE FAA RELIED UPON CASE OF M/S. HERO TEXTILE AND TRADING LTD. (INCOME TAX APPEAL NO.296 OF 2001, 29.1.2008 AND MANSI TRADING PVT.LTD. ITA 47 OF 2001 DT.28.1.2008 . RELYING UPON THE DECI S IONS OF HERO TEXTILE AND TRADING LTD.(SUPRA), THE FAA DELETED THE AD DI TION MADE BY THE AO. 4. DURING THE COURSE OF HEARING B EFORE US, DEPARTMENTAL REPRESENTATIVE(DR)STATED THAT THE MATTER MAY BE DECIDED ON MERITS. DIRECTOR SUPPORTED THE ORDER OF THE FAA. 5. WE HAVE PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE LIMITED ISSUE TO BE DECIDED IS AS TO WHETHER THE INCOME OF THE ASSESSEE FROM OTHER SOURCES WAS MORE THAN THE SPECULATION LOSS AND AS TO WHETHER HE WAS COVERED BY THE EXPLANATION TO SECTION 73 OF THE ACT.WE FIND THAT SIMILAR QUESTION HAD ARISEN IN THE CASE OF DARSHAN SECURITIES P.LTD.( 341 ITR 556) .T HE HON BLE BOMBAY HIGH COURT HA D DECIDED THE ISSUE AS UNDER: THE EXPLANATION TO SECTION 73 INTRODUCES A DEEMING FICTION THAT WHERE ANY PART OF THE BUSINESS OF A COMPANY CONSISTS OF THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, SUCH COMPANY SHALL, FOR THE PURPOSES OF THE SECTION BE DEEMED TO CARRY ON SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF THE PURCHASE AND SALE OF SUCH SHARES. THE DEEMING FICTION APPLIES ONLY TO A COMPANY AND THE PROVISION MAKES IT CLEAR THAT THE DEEMING FICTIO N EXTENDS ONLY FOR THE PURPOSES OF THE SECTION. THE EXPLANATION, HOWEVER, CARVES OUT AN EXCEPTION THAT IT SHALL NOT APPLY TO 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 WHOSE PRINCIPAL BUSINESS IS OF BANKING OR THE GRANTING OF LOANS AND ADVANCES. THE EXPLANATION IS DESIGNED TO DEFINE A SITUATION WHERE A COMPANY IS DEEMED TO CARRY ON SPECULA TION BUSINESS. IT IS ONLY THEREAFTER THAT SUB - SECTION (1) OF SECTION 73 CAN APPLY. APPLYING THE PROVISIONS OF SECTION 73(1) TO DETERMINE WHETHER A COMPANY IS CARRYING ON SPECULATION BUSINESS WOULD REVERSE THE ORDER OF APPLICATION. THAT WOULD BE IMPERMISSIB LE, NOR IS IT CONTEMPLATED BY PARLIAMENT. FOR THE AMBIT OF SUB - SECTION (1) OF SECTION 73 IS ONLY TO PROHIBIT THE SETTING OFF OF A LOSS WHICH HAS RESULTED FROM A SPECULATION BUSINESS, SAVE AND EXCEPT AGAINST THE PROFITS AND GAINS OF ANOTHER SPECULATION BUSI NESS. IN ORDER TO DETERMINE WHETHER THE EXCEPTION THAT IS CARVED OUT BY THE EXPLANATION APPLIES, THE LEGISLATURE HAS FIRST MANDATED A COMPUTATION OF ITA/ 5630 /MUM/2013,AY. 0 9 - 10 - BEST SHARE 3 THE GROSS TOTAL INCOME OF THE COMPANY. THE WORDS CONSISTS MAINLY ARE INDICATIVE OF THE FACT THAT THE LEGI SLATURE HAD IN ITS CONTEMPLATION THAT THE GROSS TOTAL INCOME CONSISTS PREDOMINANTLY OF INCOME FROM THE FOUR HEADS THAT ARE REFERRED TO THEREIN. OBVIOUSLY, IN COMPUTING THE GROSS TOTAL INCOME THE NORMAL PROVISIONS OF THE ACT MUST BE APPLIED AND IT IS ONLY T HEREAFTER THAT IT HAS TO BE DETERMINED WHETHER THE GROSS TOTAL INCOME SO COMPUTED CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS REFERRED TO IN THE EXPLANATION . WE FIND THAT THE FAA HAS GIVEN A CATEGORICAL FINDING OF FACT THAT THE INCOME F ROM OTHER SOURCES WAS MORE THAN THE SPECULATION LOSS SUFFERED BY IT ,THAT THE ASSESSEE WAS COVERED BY THE EXCEPTION CARVED OUT BY THE EXPLANATION.IN OUR OPINION , THE ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL OR FACTUAL INFIRMITY.THERFORE,CONFIRMIN G IT AND RESPECTFULLY FOLLOWING THE DECISION OF D ARSHAN SECURITIES (SUPRA),WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. AS A RESULT,APPEAL FILED BY THE AO STANDS DISMISSED. . ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH JU LY ,2015. 8 TH , 2015 SD/ - SD/ - ( / JOGINDER SINGH ) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / MUMBAI, /DATE: 8.7. 2015 . . . JV . SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MU MBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , / ITAT, MUMBAI.