The ACIT, 2(1), V. M/s. Vinayak Equity Brokers India Pvt. Ltd.,

ITA 604/IND/2007

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1532 (ITAT-INDORE)
• Duration Of Justice: 2 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 21-10-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 16-10-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K KARAN
• Assessee Lawyers: P D NAGAR

Judgement Text

PAGE 1 OF 4 IN THE INCOME TAX APPELATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JM AND SHRI V.K. GUPTA, AM ITA NO.604/IND/2007 AY 2001-02 ACIT-2(1), INDORE ..APPELLANT V/S. M/S. VINAYAK EQUITY BROKERS INDIA P. LTD., 17, P.Y. ROAD, INDORE (PAN AABCV 3975 F) ..RESPONDENT CROSS OBJECTIONS NOS.134, 135 & 136/IND/2007 ARISING OUT OF ITA NOS.603, 604 & 605/IND/2007 AYS 2000-01, 01-02 & 02-03 M/S. VINAYAK EQUITY BROKERS INDIA P. LTD., 17, P.Y. ROAD, INDORE (PAN AABCV 3975 F) ..OBJECTOR V/S. ACIT-2(1), INDORE ..RESPONDENT DEPARTMENT BY : SHRI V.K. KARAN, SR. DR ASSESSEE BY : SHRI P.D. NAGAR, CA ORDER PER JOGINDER SINGH, JM THE REVENUE HAS PREFERRED THIS APPEAL AND CROSS OBJ ECTIONS BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A) DATED 13.7.2007. FI RST WE SHALL TAKE APPEAL OF THE REVENUE WHEREIN THE ONLY GROUND RAISED IS THAT THE FIRST APPELLATE AUTHORITY ERRED IN DELETING THE DISALLOWANCE OF RS.5,84,465/- MADE ON ACCOUNT OF LOSS PAGE 2 OF 4 RELATING TO CLIENTS TRANSACTIONS. DURING HEARING OF THE APPEAL, WE HAVE HEARD LD. REPRESENTATIVES FROM BOTH SIDES AND CONSIDERED THE ARGUMENTS ADVANCED BY THEM. THE CRUX OF ARGUMENTS ON BEHALF OF THE REV ENUE IS THAT THE ASSESSEE CLAIMED SHARE TRADING LOSS OF RS.6,14,786/- AND ALS O SHOWED BROKERAGE INCOME OF RS.35,45,568/-. IT WAS PLEADED THAT THE A SSESSEE DID NOT SATISFACTORILY EXPLAIN THE REASONS OF SUCH LOSSES I N THE BUSINESS, CONSEQUENTLY, THE STAND OF THE ASSESSING OFFICER WAS DEFENDED. ON THE OTHER HAND, THE LD. COUNSEL FOR ASSESSEE STRONGLY DEFENDED THE IMPUGNED ORDER BY CONTENDING THAT IT WAS A BUSINESS LOSS. 2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF LD. REPRESENTATIVES OF BOTH SIDES AND PERUSED THE MATERIAL AVAILABLE ON THE FIL E. BRIEF FACTS ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN SHARE BROKERAGE BUSI NESS FILED RETURN FOR THREE AYS ON DIFFERENT DATES DECLARING INCOME AS ME NTIONED IN RESPECTIVE ASSESSMENT ORDER. IN ITS P & L A/C, A SHARE TRADING LOSS OF RS.6,14,786/- WAS CLAIMED. A SHOW-CAUSE NOTICE REGARDING APPLICABILIT Y OF EXPLANATION TO SEC. 73 WAS ISSUED TO THE ASSESSEE. THE ASSESSEE CLAIMED TH AT ONE OF THE MAIN OBJECTS OF THE COMPANY IS TO CARRY ON THE BROKERAGE SERVICE WHEREIN SOME OF THE TRANSACTIONS WERE REPUDIATED BY THE CLIENTS DUE TO VARIOUS REASONS WHICH RESULTED INTO HUGE LOSSES. DURING THE YEAR, THE ASS ESSEE COMPANY EFFECTED SALES AND PURCHASE TRANSACTION OF OVER RS.20 CRORES IN SHARES. THE ASSESSEE ALSO FURNISHED ELABORATE REASONS FOR SUCH LOSSES AN D ALSO FURNISHED THE BREAKUP OF LOSSES INCURRED DURING FYS 1099-00, 2000 -01, AND 2001-02 UNDER PAGE 3 OF 4 DIFFERENT HEADS. HOWEVER, THE CLAIM OF THE ASSESSEE WAS REJECTED WHICH RESULTED INTO ADDITION OF RS.6,14,786/- TO THE TOTA L INCOME OF THE ASSESSEE BY INVOKING EXPLANATION TO SEC. 73 OF THE ACT. ON APPE AL, THE LD. FIRST APPELLATE AUTHORITY DECIDED THE ISSUE IN FAVOUR OF THE ASSESS EE WHICH IS UNDER CHALLENGE BEFORE THIS TRIBUNAL. 3. UNDER THE ABOVESTATED FACTS, IT IS SEEN THAT THE ASSESSEE SUFFERED LOSSES AT RS.12.11 LAKHS DUE TO CLIENTS DEFAULTS. THE BROK ERAGE INCOME IS RS.317 CRORES, RS.546 CRORES & 160 CRORES FOR DIFFERENT AY S. HOWEVER, THE FACT REMAINS THAT THE IMPUGNED LOSSES ARE OUT OF BUSINES S ACTIVITY OF THE ASSESSEE, CONSEQUENTLY, WE ARE IN AGREEMENT WITH THE FINDING OF THE LD. FIRST APPELLATE AUTHORITY THAT THE DEEMING PROVISION MAY NOT BE EXT ENDED IN SUCH A SITUATION. WE HAVE PERUSED THE DETAILS OF THE LOSSES DUE TO CU STOMERS SHARES AUCTION, WANDA ACCOUNT ETC. (PAGES 4 TO 7 OF THE PAPER BOOK) . IT IS SETTLED LAW THAT CLAIMED LOSSES MUST SPRING DIRECTLY FROM CARRYING O N THE BUSINESS AND IT SHOULD BE INCIDENTAL TO IT, CONSEQUENTLY, THE LOSSE S INCURRED DUE TO THE MISTAKE OF THE STAFF OR CLIENTS, IT IS DEFINITELY B USINESS LOSS, CONSEQUENTLY, IT IS ALLOWABLE DEDUCTION. WE FIND SUPPORT FROM THE RATIO LAID DOWN IN ANAMALI TIMBER TRUST VS. CIT (47 ITR 814)(KER.). THE RATIO LAID DOWN IN SHREE LEKHA BENARJI & OTHERS VS. CIT (49 ITR 112)(SC) FURTHER S UPPORTS OUR VIEW. SINCE IT IS PURELY A BUSINESS LOSS, THEREFORE, THERE IS NO I NFIRMITY IN THE IMPUGNED ORDER, CONSEQUENTLY, IT IS UPHELD, THEREFORE, THIS APPEAL OF THE REVENUE IS HAVING NO MERIT. IT IS DISMISSED. PAGE 4 OF 4 4. NOW WE SHALL TAKE UP CROSS OBJECTIONS OF THE ASS ESSEE WHEREIN CONFIRMING THE DISALLOWANCE OF RS.10,68,741/-, RS.3 0,321/- & RS.98,665, BEING LOSS INCURRED IN SHARE TRADING ACTIVITIES ON OWN ACCOUNT RESPECTIVELY HAS BEEN CHALLENGED BY THE ASSESSEE. AT THE OUTSET, THE LD. SR. DR CONTENDED THAT THE IMPUGNED ISSUE HAS BEEN SETTLED BY THE HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. INTER METAL TRADE LTD. (285 ITR 536) (MP ). THIS ASSERTION OF THE REVENUE WAS NOT CONTROVERTED BY THE ASSESSEE. THE H ONBLE HIGH COURT HAS CONSIDERED THE SCOPE OF EXPLANATION TO SEC. 73 OF T HE ACT AND HELD THAT THE LOSS SUFFERED BY THE ASSESSEE IN SHARE BUSINESS CAN NOT BE SET OFF AGAINST THE PROFIT EARNED BY THE ASSESSEE FROM NON-SPECULATIVE BUSINESS AND CAN BE SET OFF ONLY AGAINST INCOME FROM SPECULATION BUSINESS. THE CBDT CIRCULAR NO.204 DATED 24.7.1976 WAS ALSO CONSIDERED. IN VIEW OF THE SE JUDICIAL PRONOUNCEMENTS AND SPECIFICALLY NOT CONTROVERTED BY THE ASSESSEE, THE IMPUGNED CROSS OBJECTIONS ARE DISMISSED. IN THE RESULT, THE APPEAL OF THE REVENUE AS WELL AS RESPECTIVE CROSS OBJECTIONS OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES ON THE CONCLUSION OF THE HEARING ON 21.10.2009. SD/- SD/- (V.K. GUPTA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 21.10.2009 !VYAS! COPY TO: APPELLANT/RESPONDENT/CIT/ CIT(A)/DR