DY.C.I.T-4(1), MUMBAI V. M/S. GUPTA EQUITIES P. LTD., MUMBAI

ITA 5993/MUM/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7763 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 28-01-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 03-10-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Opportunity of being heard; Speculation loss
• Section: 73

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G,MUMBAI BEFORE SHRI D.K.AGARWAL(J.M) & SHRI R.K.PANDA, ( A.M) ITA NO.5993/MUM/08(A.Y.2004-05) THE DCIT 4(1), 6 TH FLOOR, ROOM NO.640, AAYKAR BHAVAN, MUMBAI 20. (APPELLANT) VS. M/S. GUPTA EQUITIES P. LTD. 37, HAMAM STREET, OPP.HAMAM HOUSE, AMBALAL DOSHI MARG, FORT, MUMBAI 23. PAN:AAACG 5741M (RESPONDENT) ASSESSEE BY : SHRI MOHD USMAN REVENUE BY : SHRI HARESH P. SHAH ORDER PER R.K.PANDA, A.M, THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAI NST THE ORDER DATED 21/7/08 OF THE CIT(A) IV, MUMBAI RELATING TO A.Y 04-05. 2. THE GROUND OF APPEAL NO.1 BY THE REVENUE RELATES TO ORDER OF THE CIT(A) IN ALLOWING DEPRECIATION OF RS. 10.28 LACS ON THE MEMB ERSHIP CARD OF THE BOMBAY STOCK EXCHANGE. 3. THE LD. COUNSEL FOR THE ASSESSEE AT THE VERY OUT SET SUBMITTED THAT THIS GROUND BY THE REVENUE IS COVERED AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE BY THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CA SE OF TECHNO SHARES & STOCKS LTD. VIDE ITA (L) NO 971 OF 2006 & INCOME TAX APPEAL NO. 218 OF 2007, ORDER DATED 11.9.2009IN VIEW OF THE ABOVE SUBMISSION BY THE LD. COUNSEL FOR THE ASSESSEE THIS GROUND BY THE REVENUE IS ALLOWED. 3. GROUND OF APPEAL NO.2 BY THE REVENUE READS AS UN DER:- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF VANDHA LOSS OF RS. 3,12,724/- BY TREATING THE SAME AS OUTSIDE THE PURVIEW OF SEC. 73 OF THE I.T. ACT, WITHOUT APPRECIATING THE FACT, THAT THE ASSESSEE HAD BEEN H OLDING ON TO SUCH SHARES AS ITA NO.5993/M/08 (A.Y.2004-05) 2 HIS STOCK-IN-TRADE AND HAD NOT SQUARED THEM OFF I MMEDIATELY AS IS THE PRACTICE IN ERROR TRADES. 4. THE FACTS OF THE CASE IN BRIEF ARE THAT THE A.O DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE HAS INCURRED LOSS OF RS. 3,12,724/- ON TRADING IN SHARES AND SECURITIES. ON BEING QUESTIO NED BY THE A.O TO EXPLAIN AS TO WHY THIS LOSS COULD NOT BE TREATED AS SPECULATIVE L OSS AS PER EXPLANATION TO SECTION 73 AND SHOULD BE ALLOWED TO BE CARRIED FORWARD AND SET OFF IN FUTURE AGAINST SPECULATIVE INCOME THE ASSESSEE REPLIED AS UNDER (P AGE 7 &8 OF THE AOS ORDER):- THE ASSESSEE HAS CLAIMED LOSS OF RS.3,12,724/- AS LOSS IN SHARES AND SECURITIES BUT AS EXPLAINED IN THE EARLIER HEARING THEY ARE IN FACT VANDHA LOSS WHICH HAS RESULTED FROM ERROR IN EXECUTION OF CERTAIN TRANSACTION WHICH ARE DISOWNED BY THE CLIENT. AS A RESULT OF SUCH DI SOWNING BY THE CLIENT MANY A TIME DELIVERY OF SHARES WRONGLY PURCHASED REMAINS W ITH THE ASSESSEE COMPANY AND WHEN THEY ARE SOLD IN THE MARKET A LOSS IS SUFFERED. SIMILARLY, DUE TO WRONG EXECUTION OF ORDER OF SALE, ASSESSEE C OMPANY HAS TO PURCHASE SHARES FROM THE MARKET TO SQUARE UP THE TRANSACTION AND PROFIT OR LOSS ARISING FROM SUCH TRANSACTION ARE ACCOUNTED IN THIS SEPARAT E ACCOUNT. YOUR ASSESSEE DID NOT DO ANY TRADING OF SHARES ON THEIR OWN ACCOU NT AND WHATEVER SHARES THAT ARE ON THE HAND IS ON ACCOUNT OF SUCH ERRONEOU S TRANSACTION ONLY. THE STOCK IN TRADE OF SHARES AS ON BALANCE SHEET DATE I S ACCUMULATED STOCK OF SUCH TRANSACTION AND WHENEVER ASSESSEE TRIES TO SALE THE M IN THE MARKET THE PROFIT OR LOSS IS RESULTED AND SAME IS ACCOUNTED FOR IN TH E PROFIT AND LOSS ACCOUNT. WE WILL LIKE TO PUT ON RECORD THAT TOTAL OF SUCH ER RONEOUS TRANSACTION DURING THE YEAR IS ONLY A FRACTION OUT OF TURNOVER OF RS.7411. 83 CRORES ON NSE ALONE. HENCE, WE REQUEST YOUR GOODSELVES TO ALLOW THE LOSS OF RS. 3,12,724/- AS INCIDENTAL BUSINESS LOSS OF THE ASSESSEE. 5. NOT BEING SATISFIED BY THE EXPLANATION GIVEN BY THE ASSESSEE AND RELYING ON A COUPLE OF DECISIONS THE AO HELD THAT THE SHARE TRAD ING LOSS CLAIMED BY THE ASSESSEE AT RS. 3,12,724/- HAS TO BE HELD AS SPECULATIVE LOS S IN VIEW OF EXPLANATION TO SECTION 73 OF THE IT ACT AND THE SAME IS PERMITTED TO BE CA RRIED FORWARD AND MAY BE SET OFF WITH SIMILAR SPECULATIVE INCOME IN FUTURE. 6. BEFORE LD. CIT(A) THE ASSESSEE REITERATED THE S AME SUBMISSIONS AS MADE BEFORE THE A.O. THE CIT(A) RELYING ON THE DECISIO N OF THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF PARKER SECURITIES LTD. VS. DCIT REPORTED IN 102 TTJ (AHD) 235 HELD THAT SINCE THE TRANSACTION HAS BEEN FORCED UPO N THE ASSESSEE IN THE COURSE OF ITS ITA NO.5993/M/08 (A.Y.2004-05) 3 BROKERAGE BUSINESS, APPLYING EXPLANATION UNDER SECT ION 73 IS NOT JUSTIFIED. HE ACCORDINGLY ALLOWED THE CLAIM OF THE ASSESSEE. 7. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE R EVENUE IS IN APPEAL BEFORE US. 8. THE LD. D.R SUBMITTED THAT THE SOME EVIDENCE SHO ULD BE FILED BY THE ASSESSEE TO DEMONSTRATE THAT IT HAS NOT TRADED IN SHARES. S INCE ASSESSEE IS A BROKER, THEREFORE, ON MERE PRESUMPTION IT CANNOT BE SAID TH AT IT HAS NOT TRADED IN SHARES . HE ACCORDINGLY SUBMITTED THAT THE MATTER MAY BE SENT B ACK TO THE A.O. 9. THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER HA ND, REITERATED THE SAME SUBMISSIONS AS MADE BEFORE THE A.O AND LD. CIT(A). REFERRING TO THE DECISION OF AHMEDABAD BENCH OF THE ITAT IN THE CASE OF PARKAR S ECURITIES LTD. (SUPRA) HE SUBMITTED THAT EXPLANATION TO SECTION 73 IS ATTRAC TED ONLY WHEN PART OF THE BUSINESS OF THE ASSESSEE COMPANY CONSISTS OF PURCHASE AND SA LE OF SHARES OF OTHER COMPANIES. TTRANSACTION IN SHARES UNDERTAKEN BY SHA RE BROKER AS ITS OWN UNDER COMPULSION AFTER CERTAIN CLIENTS DISOWNED PART OF S UCH TRANSACTIONS DID NOT CONSTITUTE BUSINESS OF THE ASSESSEE IN SHARE TRADING AND THE REFORE, LOSS INCURRED BY THE ASSESSEE IN SUCH TRANSACTIONS DID NOT FALL WITHIN T HE AMBIT OF EXPLANATION TO S.73. 10. REFERRING TO THE DECISION OF THE KOLKATA BENCH OF THE ITAT IN THE CASE OF ITO VS. GDB SHARES & STOCK BROKING SERVICES LTD., REPOR TED IN 88 TTJ (CAL) 352 HE SUBMITTED THAT THE LOSS INCURRED BY AN ASSESSEE S UB-BROKER CANNOT BE TREATED IN ISOLATION BY DISREGARDING INCOME EARNED BY ASSESSEE BY WAY OF BROKERAGE IN THE SHARE TRADING BUSINESS ITSELF AND TREATING SUCH LOS S TO BE SPECULATION LOSS BY INVOKING EXPLANATION TO SECTION 73. HE ACCORDINGLY SUBMITTE D THAT THE MATTER BEING A COVERED MATTER, THE ORDER OF THE CIT(A) BE UPHELD AND THE G ROUND RAISED BY THE REVENUE BE DISMISSED. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE B Y BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE PAPER BOOK FILED BY THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BY THE LD. COUNSEL FOR THE REVENUE. WE ITA NO.5993/M/08 (A.Y.2004-05) 4 FIND MERIT IN THE SUBMISSIONS OF THE LD. D.R THAT S OME EVIDENCE SHOULD BE FILED BY THE ASSESSEE TO DEMONSTRATE THAT IT HAS NOT TRADED IN S HARES ESPECIALLY WHEN THE ASSESSEE IS A SHARE BROKER. THEREFORE, MERELY BE STATING THAT THE LOSS HAS ARISEN DUE TO CERTAIN TRANSACTIONS DISOWNED BY THE CUSTOM ERS WILL NOT ABSOLVE THE ASSESSEE FROM THE ONUS CAST ON IT. THE VARIOUS DECISIONS RE LIED ON BY THE LD. COUNSEL FOR THE ASSESSEE WILL BE APPLICABLE ONLY WHEN IT IS PROVED BEYOND DOUBT THAT THE TRANSACTIONS ARE FORCED UPON THE ASSESSEE BY THE CLIENTS. WE F IND THE CIT(A) HAS MERELY ACCEPTED THE CONTENTION OF THE ASSESSEE WITHOUT ANY MATERIAL BEFORE HIM THAT THE TRANSACTIONS WERE FORCED UPON THE ASSESSEE BY SOME OF THE CLIENTS. WE THEREFORE, DEEM IT PROPER TO RESTORE THE MATTER TO THE FILE OF THE CIT(A) FOR ADJUDICATION OF THE ISSUE AFRESH AND IN ACCORDANCE WITH LAW AFTER GIVIN G DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY THI S GROUND RAISED BY THE REVENUE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 12. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 15TH DAY OF FEB..2010. SD/- SD/- (D.K.AGARWAL) (R.K.PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED. 15 TH FEB.2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CITY CONCERNED MUMBAI THE CIT(A)- CONCERNED 5. THE D.RG BENCH . (TRUE COPY) BY ORDER ASST. REGISTRAR, ITAT, MUMBAI BENCHES MUMBAI. VM. ITA NO.5993/M/08 (A.Y.2004-05) 5 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 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 THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER ITA NO.5993/M/08 (A.Y.2004-05) 6