ITO,Ward-4(2), Kolkata, Kolkata V. M/s Manu Vanijya & Holdings Pvt Ltd., Kolkata

ITA 585/KOL/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83121 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2014
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 13-04-2012
• Court: TRIBUNAL
• Department Lawyers: S M SURANA; N M BH ANSALI ADVO
• Assessee Lawyers: SOURAV KUMAR
• Keywords: Speculation loss

Judgement Text

, A , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA () BEFORE , /AND , ! ) [BEFORE SHRI MAHAVIR SINGH, JM & SHRI SHAMIM YAHYA, AM] ' / I.T.A NO.585/KOL/2012 #$ %&/ ASSESSMENT YEAR: 2004-05 & ' / I.T.A NO.586/KOL/2012 #$ %&/ ASSESSMENT YEAR: 2005-06 INCOME-TAX OFFICER, WD-4(2), KOLKATA. VS. M/S. MA NU VANIJYA & HOLDINGS PVT. LTD. (PAN: AABCM7140D (() /APPELLANT ) (*+()/ RESPONDENT ) DATE OF HEARING: 27.08.2014 DATE OF PRONOUNCEMENT: 05.09.2014 FOR THE ASSESSEE: SHRI SOURAV KUMAR, JCIT, SR. DR FOR THE REVENUE : S/SHRI S. M. SURANA & N. M. BH ANSALI, ADVOCATES / ORDER PER SHRI MAHAVIR SINGH, JM : BOTH THESE APPEALS BY REVENUE ARE ARISING OUT OF SE PARATE ORDERS OF CIT(A)-IV, KOLKATA IN APPEAL NOS. 179&195/CIT(A)-IV/08-09 BOTH DATED 0 9.01.2012. ASSESSMENTS WERE FRAMED BY ITO, WD-4(2), KOLKATA U/S. 143(3)/147 OF THE INC OME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEARS 2004-05 AND 2005 -06 RESPECTIVELY VIDE HIS SEPARATE ORDERS BOTH DATED 26.12.2008. 2. THE ONLY COMMON ISSUE IN THESE TWO APPEALS OF RE VENUE IS AGAINST THE ORDER OF CIT(A) DELETING THE DISALLOWANCE OF LOSS INCURRED IN PURCH ASE AND SALE OF SHARES AS BUSINESS LOSS AND NOT AS DEEMED SPECULATION LOSS AS HELD BY AO. FOR THIS, REVENUE HAS RAISED IDENTICALLY WORDED GROUNDS IN BOTH THE YEARS. HENCE, WE WILL TAKE THE GROUNDS, FACTS AND CIRCUMSTANCES FROM ITA NO. 585/KOL/2012 FOR AY 2004-05 AND DECIDE THE ISSU E. THE RELEVANT GROUNDS I.E GROUND NOS. 1 AND 2 READ AS UNDER: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , LD. CIT(A) ERRED IN LAW IN RULING THAT THE LOSS INCURRED IN PURCHASE AND SALE OF SHAR ES SHOULD BE ASSESSED AS BUSINESS LOSS AND NOT AS DEEMED SPECULATION LOSS. 2 ITA NOS. 585 & 586/K/2012 MANU VANIJYA & HOLDINGS PVT. LTD. AY 2004-05 & 20 05-06 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) ERRED IN LAW IN KEEPING THE ASSESSEE COMPANY IN THE EXEMPTED CATEOGRY FROM THE PURVIEW OF EXPLANATION OF SECTION 73 BY TREATING GRANTING OF LOANS & ADVANCES AS THE PRINCIPAL BUSINESS ACTIVITY OF THE ASSESSEE COMPANY. 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS EN GAGED IN TRADING IN SHARES AS WELL AS TRADING OF FABRICS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTICED THAT THE ASSESSEE HAD SET OFF LOSS OF RS.2,28,43,710/- INCURRED FROM TRADING IN SHARES AGAINST THE INCOME EARNED FROM TRADING OF FABRICS OF RS.3,76,98,629/-. THE A SSESSEE ALSO EARNED RENTAL INCOME OF RS.2,76,000/-, INTEREST INCOME OF RS.3,457/- AND CO MMISSION OF RS.23,31,892/-. THE AO HAS GIVEN THE COMPLETE TRADING ACCOUNT OF SHARES IN THE ASSESSMENT ORDER AS UNDER: OPENING STOCK 4,28,95,994.00 SALES 39,70,8 00.00 PURCHASE NIL CLOSING STOCK 1,60,81,484.00 GROSS LOSS 2,28,43,710.00 TOTAL 4,28,95,994.00 TOTAL 4,28,95,994.00 THE AO ALSO REPRODUCED THE TRADING ACCOUNT OF FABRI CS, WHICH IS AS UNDER: OPENING STOCK NIL SALES 23,26,55,818.00 PURCHASE 22,58,93,863.00 CLOSING STOCK 3,09 ,36,674.00 GROSS PROFIT 3,76,98,629.00 __________________________________________________ _____________________ TOTAL 26,35,92,492.00 TOTAL 26,35,92,492.00 THE AO REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY THE LOSS INCURRED FROM TRADING IN SHARES BE NOT TREATED AS DEEMED SPECULATION LOSS IN VIEW OF E XPLANATION TO SECTION 73 OF THE ACT AND WHY THE SAME SHOULD NOT BE DISALLOWED? THE ASSESSEE EX PLAINED THAT EXPLANATION TO SECTION 73 IS NOT APPLICABLE IN THIS CASE FOR THE REASON THAT THE RE IS NO PURCHASE OF SHARES DURING THE YEAR UNDER CONSIDERATION. THE AO DISCUSSED THE DEPLOYME NT OF FUND FROM THE BALANCE SHEET AS UNDER: 3 ITA NOS. 585 & 586/K/2012 MANU VANIJYA & HOLDINGS PVT. LTD. AY 2004-05 & 20 05-06 IN VIEW OF THE ABOVE, HE OBSERVED THAT THE ASSESSEE S FUNDS ARE MAINLY UNSECURED LOANS AND IT HAS APPLIED FUNDS TOWARDS CLOSING STOCK AND SUNDRY DEBTORS. ACCORDINGLY, HE NOTED THAT THAT THE ASSESSEE IS NOT A COMPANY WHOSE GROSS TOTAL INC OME 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 BANKING OR THAT OF GRANTING LOANS AND ADVANCES. THE AO FOUND THAT ASSESSEES BUSINESS IS THAT OF TRADING ACTIVITIES IN SHARES. THEREFORE, HE APPLIED EXPLAN ATION TO SECTION 73 OF THE ACT AND DISALLOWED THE CLAIM OF LOSS OF RS.2,28,43,710/- INCURRED ON A CCOUNT OF SHARE TRADING BY TREATING THE SAME AS SPECULATION LOSS. 4. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT( A), WHO ALLOWED THE CLAIM OF THE ASSESSEE BY NOTING THAT THERE ARE ADVANCING OF LOAN S AND ADVANCES AND IN THIS PARTICULAR YEAR THERE IS MORE THAN RS. 2 CR. AS AN ADVANCE AND HEN CE HE HELD THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF GRANTING LOANS AND ADVANCES. THEREFORE , FOLLOWING THE DECISION OF SPECIAL BENCH OF ITAT, KOLKATA BENCHES IN THE CASE OF DCIT VS. VENKA TESWER INVESTMENT & FINANCE PVT. LTD. 93 ITD 177 DELETED THE DISALLOWANCE OF LOSS BY OBSE RVING IN PARA 4.1 AS UNDER: I HAVE GONE THROUGH THE SUBMISSION OF THE APPELLANT . SUBMISSION NO. 2(A) OF THE APPELLANT THAT THERE WAS NO PURCHASE OF SHARES DURI NG THE YEAR IS OF NO RELEVANCE IN THE LIGHT OF THE DECISION OF THE CALCUTTA HIGH COUR T IN THE CASE OF EASTERN AVIATION & INDUSTRIES LTD. VS. CIT REPORTED IN 208 ITR 1023. HOWEVER THE OTHER SUBMISSION I.E. SUBMISSION NO. 2(B) TAKEN BY THE APPELLANT HAS FORC E. THE CAPITAL OF THE APPELLANT IS OF RS.3,00,000/- ONLY WHEREAS LOANS AND ADVANCES GI VEN IN THE LAST FIVE YEARS WERE SUBSTANTIAL. THEY ARE MORE THAN RS.2 CRORES IN EAC H YEAR FROM WHICH IT CAN BE ACCEPTED THAT THE APPELLANT WAS ENGAGED IN GRANTING OF LOANS AND ADVANCES. I, THEREFORE, FOLLOWING THE DECISION OF HONBLE SPECIA L BENCH OF ITAT, KOLKATA IN THE CASE OF DCIT VS. VENKATESWER INVESTMENT AND FINANCE PVT. LTD. REPORTED IN 93 ITD 177 HOLD THAT SINCE THE APPELLANT IS ENGAGED IN GRA NTING OF LOANS AND ADVANCES THE EXPLANATION TO SEC. 73 IS NOT APPLICABLE TO THE APP ELLANT AND THE LOSS INCURRED IN PURCHASE AND SALE OF SHARES AMOUNTING TO RS.2,28,43 ,710/- SHOULD BE ASSESSED AS BUSINESS LOSS AND NOT AS DEEMED SPECULATION LOSS BY INVOKING THE EXPLN. TO SEC. 73. AGGRIEVED, REVENUE CAME IN APPEALS BEFORE US. 5. WE FIND FROM THE SOURCES OF FUNDS AND APPLICATIO N OF FUNDS AS ON 31.03.2004 AND 31.03.2005 CONSIDERED BY THE AO IN HIS ASSESSMENT O RDER AND THE CHART REPRODUCED BY HIM, WHICH IS AGAIN REPRODUCED IN OUR ORDER AT PARA 3 AB OVE, WHICH REVEALS THAT THE LOANS AND ADVANCES AS ON 31.03.2004 IS AT RS.2,29,94,635/- AN D AS ON 31.03.2005 IS AT RS.2,18,55,005/-. THE SHARE CAPITAL OF THE ASSESSEE AS ON 31.03.2004 IS AT RS. 1 LAC AND AS ON 31.03.2005 IS AT RS. 3 LACS. THE UNSECURED LOAN AS ON 31.03.2004 IS AT R S.12,12,08,273/- AND AS ON 31.03.2005 IS AT RS.12,12,00,000/-. THE ASSESSEES INCOME FROM TRAD ING OF FABRICS AS ADMITTED BY AO IS AT 4 ITA NOS. 585 & 586/K/2012 MANU VANIJYA & HOLDINGS PVT. LTD. AY 2004-05 & 20 05-06 RS.3,76,98,679/- AS AGAINST THE LOSS OF THE ASSESSE E FROM SHARE TRADING IS AT RS.2,28,43,710/-. THE PROFIT ELEMENT AS WELL AS ADVANCING OF LOAN AND DEPOSITS IS MUCH HIGHER THAN THE TRADING IN SHARES AS IS EVIDENT FROM THE FACTS AND FIGURES. T HE ASSESSEE HAS ALSO FILED COMPLETE SET OF COMPUTATION OF INCOME ALONG WITH AUDITED ACCOUNTS. FROM THESE, WE HAVE ANALYSED THE FACTS AND FIGURES AND FOUND FROM THE AUDITED ACCOUNTS THA T THERE IS NO PURCHASE OF SHARES DURING THE YEAR BY THE ASSESSEE. SIMILARLY, PURCHASES IN AY 2 005-06 ON ACCOUNT OF TRADING OF SHARES IS RS.1,60,00,000/- AS AGAINST THE PURCHASE OF FABRICS AT RS.19,45,61,656/-. LD. COUNSEL FOR THE ASSESSEE HEAVILY RELIED ON THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF MIDDLETON INVESTMENT & TRADING CO. LTD. IN ITA NO. 196 OF 199 9 DATED 15.01.2014, WHEREIN HONBLE HIGH COURT HAS HELD AS UNDER: THE COURT : THE INCOME OF THE ASSESSEE ARISING FR OM DIFFERENT HEADS WAS AS FOLLOWS: 1. LOSS IN THE PURCHASE AND SALE OF SHARES (-) RS.1 0,83,091/- INCLUDING INTEREST LIABILITY ATTRIBUTABLE TO IT. II. INCOME FROM THE BUSINESS OF GRANTING (+) RS.2,1 0,218/- LOANS, ADVANCES ETC. III. SHORT TERM CAPITAL GAINS IN SALE OF SHARES (+) RS.6.425 (AS PER COMPUTATION FILED) IV. INCOME FROM OTHER SOURCES (AS PER (+) RS. 10,13 ,798/- COMPUTATION FILED) THE ASSESSEE WAS INTERESTED IN CONTENDING AND, IN F ACT, CONTENDED AS FOLLOWS: THE LOSS IN PURCHASE AND SALE OF SHARES IS TO T HE TUNE OF RS.10.83,091/- AND INCOME FROM THE BUSINESS IS RS.2,10,119/-. THE NET LOSS UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION COMES TO RS.8,72,972/ - WHEREAS, THE INCOME EARNED UNDER THE HEADS INCOME FROM OTHER SOURCES IS GREATER I.E., TO THE TUNE OF RS.10,13,798/- AND, THEREFORE, THE CASE OF THE A SSESSEE FALLS OUTSIDE THE PURVIEW OF EXPLANATION TO SECTION 73. THE LEARNED TRIBUNAL HELD AS FOLLOWS: THE NET LOSS UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION WOULD BE RS.8,72,972/- WHEREAS, THE INCOME SHOWN BY THE ASSESSEE UNDER THE HEAD INCOME FROM OTHER SOURCES IS TO THE TUNE OF RS.10,13,798/-. WE ARE, THEREFORE, OF THE OPINION THAT THE ASSESSEES GROSS TOTAL INCOME CONSISTED MAINLY OF INCOME ASSESSABLE UNDER THE HEAD INCOME FROM OT HER SOURCES. IT THEREFORE, FOLLOWS THAT THE LOSS IN SHARE TRADING HAS TO BE TR EATED AS BUSINESS LOSS. WE DIRECT THE A.O. ACCORDINGLY. AGGRIEVED BY THE ORDER OF TH E LEARNED TRIBUNAL, THE REVENUE HAS COME UP IN APPEAL. AT THE TIME OF HEARI NG, MR. SARAF, LEARNED ADVOCATE VERY FAIRLY DREW OUR ATTENTION TO THE JUDG MENT IN THE CASE OF CIT VS. 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 OFF OF A LOSS WHICH HAS RESULTED FROM A SPECULATION BUSINESS , SAVE AND EXCEPT AGAINST THE PROFITS 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 MANDATED A COMPUTATION OF THE GROSS TOTAL INC OME OF THE COMPANY. THE WORDS CONSISTS MAINLY ARE INDICATIVE OF THE FACT THAT THE LEGISLATURE HAD IN ITS CONTEMPLATION THAT THE GROSS TOTAL INCOME CONSISTS PREDOMINANTLY OF INCOME FROM THE FOUR HEADS THAT ARE REFERRED TO THEREIN. OBVIOU SLY, IN COMPUTING THE GROSS 5 ITA NOS. 585 & 586/K/2012 MANU VANIJYA & HOLDINGS PVT. LTD. AY 2004-05 & 20 05-06 TOTAL INCOME THE NORMAL PROVISIONS OF THE ACT MUST BE APPLIED AND IT IS ONLY THEREAFTER, THAT IT HAS TO BE DETERMINED AS TO WHET HER THE GROSS TOTAL INCOME SO COMPUTED CONSISTS MAINLY OF INCOME WHICH IS CHARGEA BLE UNDER THE HEADS REFERRED TO IN THE EXPLANATION. CONSEQUENTLY, IN TH E 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 BUSIN ESS OR PROFESSION AS WELL. 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 SO URCES UNDER THE SAME HEAD. THE ASSESSEE HAD A DIVIDEND INCOME OF RS.4.7 LAKHS (INCOME FROM OTHER SOURCES). THE TRIBUNAL HAS JUSTIFIED, IN COMING TO THE CONCLU SION THAT THE ASSESSEE FELL WITHIN THE PURVIEW OF THE EXCEPTION CARVED OUT IN T HE EXPLANATION TO SECTION 73 AND THAT CONSEQUENTLY THE ASSESSEE WOULD NOT BE DEE MED 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 AGI TATED BY THE REVENUE. THERE IS NOTHING TO SHOW THAT THE VIEW TAKEN BY THE BOMBAY H IGH COURT IS ERRONEOUS. WE ARE, AS SUCH, OF THE OPINION THAT THE APPEAL MUST F AIL AND IS HEREBY DISMISSED. URGENT PHOTOSTAT CERTIFIED COPY OF THIS ORDER, IF A PPLIED FOR, BE SUPPLIED TO THE PARTIES SUBJECT TO COMPLIANCE WITH ALL REQUISITE FO RMALITIES. 6. IN THE PRESENT CASE ALSO EVEN THE TURNOVER AS WE LL AS THE CONCEPT OF TOTAL INCOME AS CANVASSED BY JURISDICTIONAL HIGH COURT IS MUCH HIGH ER THAN THE TURNOVER AS WELL AS LOSS OF SHARE TRADING. HENCE, PRINCIPAL BUSINESS OF THE ASSESSEE IS THAT OF GRANTING LOANS AND ADVANCES AND ITS CASE FALLS UNDER EXCEPTION TO EXPLANATION OF SECTIO N 73 OF THE ACT. RESPECTFULLY FOLLOWING THE HONBLE HIGH COURT IN THE CASE OF MIDDLETON INVESTM ENT & TRADING CO. LTD., SUPRA, WE CONFIRM THE ORDER OF CIT(A) AND THIS ISSUE OF REVEN UES APPEALS ARE DISMISSED. 7. IN THE RESULT BOTH THE APPEALS OF REVENUE ARE DI SMISSED. 8. ORDER IS PRONOUNCED IN THE OPEN COURT ON 05.09.2 014 SD/- SD/- , ! , (SHAMIM YAHYA) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 5 TH SEPTEMBER, 2014 ,- #./ 0 JD.(SR.P.S.) 6 ITA NOS. 585 & 586/K/2012 MANU VANIJYA & HOLDINGS PVT. LTD. AY 2004-05 & 20 05-06 1 *2 3 2%4- COPY OF THE ORDER FORWARDED TO: 1 . () / APPELLANT ITO, WARD-4(2), KOLKATA. 2 *+() / RESPONDENT M/S. MANU VANIJYA & HOLDINGS PVT. LT D., 11, POLLOCK STREET, 3 RD FLOOR, KOLKATA-700 001.. 3 . # ( )/ THE CIT(A), KOLKATA 4. 5. # / CIT KOLKATA 2:; *# / DR, KOLKATA BENCHES, KOLKATA +2 */ TRUE COPY, #