SAKSHAM HOLDINGS LTD, MUMBAI V. ACIT CEN CIR 33, MUMBAI

ITA 6051/MUM/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8441 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 04-01-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 16-11-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D SANGATE PER R K
• Assessee Lawyers: ANANT M PAI
• Keywords: Business income; Transactions in derivatives; Speculation loss
• Section: 143(3); 14A

Judgement Text

1 ITA NO.6051/MUM/2009 IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI MUMBAI MUMBAI MUMBAI E EE E BENCH BENCH BENCH BENCH MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI BEFORE SHRI R K PANDA, AM BEFORE SHRI R K PANDA, AM BEFORE SHRI R K PANDA, AM BEFORE SHRI R K PANDA, AM & SMT ASHA VIJAYARAGHAVAN, JM & SMT ASHA VIJAYARAGHAVAN, JM & SMT ASHA VIJAYARAGHAVAN, JM & SMT ASHA VIJAYARAGHAVAN, JM ITA NO. ITA NO. ITA NO. ITA NO. 6051/MUM/2009 6051/MUM/2009 6051/MUM/2009 6051/MUM/2009 ( (( ( ASST YEAR ASST YEAR ASST YEAR ASST YEAR 2005 2005 2005 2005- -- -06 0606 06 ) )) ) SAKSHAM HOLDINGS LTD 20 SONAWALA BLDG 25 BANK STREET, FORT MUMBAI 23 VS THE ASST COMMR OF INCOME TAX CEN.CIR .33, MUMBAI ( (( ( APPELLANT APPELLANT APPELLANT APPELLANT ) )) ) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) PAN NO. PAN NO. PAN NO. PAN NO.AAACS6309K AAACS6309K AAACS6309K AAACS6309K ASSESSEE BY SHRI ANANT M PAI REVENUE BY SHRI D SANGATE PER R K PANDA, AM PER R K PANDA, AM PER R K PANDA, AM PER R K PANDA, AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 31.8.2009 OF THE CIT(A) XXX, MUMBAI RELATING TO ASSESSMENT YEAR 2005-06. 2 THERE IS A DELAY OF 10 DAYS IN FILING OF THIS APP EAL BY THE ASSESSEE. THE ASSESSEE HAS FILED A CONDONATION PETITION DULY ACCO MPANIED WITH AFFIDAVIT EXPLAINING THE REASONS FOR SUCH DELAY. AFTER HEARI NG BOTH THE SIDES, THE DELAY IN FILING OF THIS APPEAL BY THE ASSESSEE IS CONDONED. 3 THE REVISED CONCISE GROUNDS OF APPEAL NO.1 BY THE ASSESSEE READS AS UNDER: THE LD CIT(A) ERRED IN CONFIRMING THE ACTION OF THE LD ASSESSING OFFICER IN TREATING THE LOSS OF ` . 78,08,304/- FROM DERIVATIVE TRANSACTIONS AS LOSS FROM SPECULATION TRANSACTIONS. 3.1 THE LD COUNSEL FOR THE ASSESSEE, AT THE OUTSET, SUBMITTED THAT THIS GROUND IS DECIDED AGAINST THE ASSESSEE BY THE DECISION OF THE KOLKATA SPECIAL BENCH OF 2 ITA NO.6051/MUM/2009 THE TRIBUNAL IN THE CASE OF SHREE CAPITAL SERVICES VS ACIT REPORTED IN 121 ITD 498(KOL)(SB). IN VIEW OF THE ABOVE SUBMISSION OF TH E LD COUNSEL FOR THE ASSESSEE, THE REVISED CONCISE GROUNDS OF APPEAL NO.1 IS DISMI SSED. 4 THE REVISED CONCISE GROUNDS OF APPEAL NO.2 BY THE ASSESSEE READS AS UNDER: WITHOUT PREJUDICE TO THE ABOVE, THE LD CIT(A) OUGH T HAVE TREATED THE ASSESSED PROFIT OF ` . 2,54,28,970/- DERIVED FROM THE BUSINESS OF TRADIN G IN SHARES AS DEEMED SPECULATION BUSINESS PROFITS UND ER EXPLANATION TO SC.73 AND ALLOWED THE SET OFF OF LOSS OF ` 78,08,304/- FROM DERIVATIVES TRANSACTIONS AGAINST THE SAME. 4.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE COMPANY IS ENGAGED IN THE ACTIVITY OF TRADING IN SHARES AND SECURITIES. THE ASSESSEE FILED ITS RETURN OF INCOME ON 28.10.2005 DECLARING THE TOTAL INCOME AT ` 1,74,96,343/-. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT U/S 143( 3) OF THE ACT DETERMINING THE TOTAL INCOME AT ` 2,54,28,970/-. WHILE DOING SO, HE TREATED THE SAM E AS BUSINESS PROFIT FROM TRADING IN SHARES AND DID NOT ALLOW THE SET OFF OF DERIVATIVES SPECULATION LOSS OF ` S. 78,08,304/-. 4.2 IN APPEAL, THE CIT(A) HELD THAT THE LOSS CANNO T BE SET OFF AGAINST OTHER BUSINESS PROFITS AS THE SAME IS NOT CONSIDERED DEE MED SPECULATION LOSS AS PER EXPLANATION TO SEC. 73 WHEREIN THE WHOLE BUSINESS IS CONSIDERED AS SPECULATIVE. ACCORDING TO HIM, IN THE INSTANT CASE, THE LOSS CLA IMED BY THE ASSESSEE IS SPECULATIVE LOSS AS PER THE PROVISION OF SEC. 43( 5). THEREFORE, IT CANNOT BE SET OFF AGAINST SHARE BUSINESS INCOME AND OTHER INCOME AND IT CAN ONLY BE SET OFF AGAINST SPECULATIVE PROFIT. 3 ITA NO.6051/MUM/2009 5 AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASSE SSEE IS IN APPEAL HERE BEFORE US. 6 THE LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT TH E BUSINESS OF THE ASSESSEE IS ADMITTEDLY TRADING IN SHARES. EVEN THE ASSESSING OFFICER IN THE ASSESSMENT ORDER RECOGNIZES THIS FACT. HOWEVER, THE ASSESSING OFFICER IN THE ASSESSMENT ORDER HAS TREATED THE SAME AS BUSINESS I NCOME. REFERRING TO THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF CIT VS LOKMAT NEWSPAPERS LTD REPORTED IN 230 CTR 521, HE SUBMITTE D THAT UNDER IDENTICAL FACTS AND CIRCUMSTANCES, THE JURISDICTIONAL HIGH COURT HA S HELD THAT WHERE ANY PART OF COMPANYS BUSINESS CONSISTS OF PURCHASE AND SALE OF SHARES, THE COMPANY IS DEEMED TO CARRY ON SPECULATION BUSINESS. ACCORDIN GLY, IT WAS HELD THAT THE COMPANY IS ENTITLED TO SET OFF THE PROFIT FROM SUCH TRANSACTIONS AGAINST SPECULATIVE LOSS BROUGHT FORWARD FROM EARLIER YEARS . HE ACCORDINGLY SUBMITTED THAT THIS GROUND IS COVERED IN FAVOUR OF THE ASSESS EE BY THE DECISION OF THE JURISDICTIONAL HIGH COURT. 6.1 THE LD DR, ON THE OTHER HAND STRONGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 7 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BOTH THE PARTIES, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE CASE LAW RELIED UPON BY THE LD COUNSEL FOR THE ASSESSEE. THERE IS NO DISPUTE TO T HE FACT THAT THE ASSESSEE 4 ITA NO.6051/MUM/2009 COMPANY IS ENGAGED IN THE ACTIVITY OF TRADING IN SH ARES AND SECURITIES. THERE IS ALSO NO DISPUTE TO THE FACT THAT THE ASSESSEE HAS I NCURRED SPECULATIVE LOSS OF ` . 78,08,304/- ON VARIOUS TRANSACTIONS FOR PURCHASE AND SALE OF SHARES. THERE IS ALSO NO DISPUTE TO THE FACT THAT THE ASSESSING OFFI CER COMPLETED THE ASSESSMENT U/S 143(3) DETERMINING THE TOTAL INCOME OF ` 2,54,28,970/- AFTER DISALLOWING SECURITY TRANSACTION TAX AND SPECULATION LOSS DEBIT ED IN P&L ACCOUNT. IT IS THE SUBMISSION OF THE LD COUNSEL FOR THE ASSESSEE THAT THE ENTIRE INCOME DETERMINED BY THE ASSESSING OFFICER AT ` 2,54,28,970/- SHOULD BE TREATED AS DEEMED SPECULATIVE PROFIT AS PER EXPLANATION TO SEC. 73 OF THE I T ACT AND DERIVATIVES SPECULATION LOSS OF ` 78,08,304/- SHOULD BE ALLOWED AGAINST THE SAME. 7.1 WE FIND THE ABOVE ISSUE STANDS COVERED IN FAVO UR OF THE ASSESSEE BY THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CA SE OF CIT VS LOKMAT NEWSPAPERS LTD REPORTED IN 230 CTR 521 WHEREIN IT HAS BEEN HEL D AS UNDER: ( SHORT NOTE ) THE SUBMISSION OF THE REVENUE THAT A LOSS WHICH AR ISES ON ACCOUNT OF A TRANSACTION OF THE SALE AND PURCHASE OF SHARES WOUL D CONSTITUTE A LOSS FROM A SPECULATION BUSINESS FOR THE PURPOSES OF THE EXPLANATION TO S. 73 BUT THE PROFIT WHICH ARISES FROM A TRANSACTION INVO LVING THE ACTUAL DELIVERY OF SHARES WOULD NOT CONSTITUTE A PROFIT FOR THE PUR POSES OF SUB-SS. (1) AND (2) OF S. 73 IN RESPECT OF WHICH A SET OFF CAN BE G RANTED, IS NOT SUSTAINABLE. TO ACCEPT THE SUBMISSION OF THE REVENUE WOULD BE TO INTRODUCE A RESTRICTION INTO THE SCOPE AND AMBIT OF THE DEEMING FICTION WHICH IS CREATED BY THE EXPLANATION TO S. 73, WHICH IS NOT C ONTEMPLATED BY PARLIAMENT. ONCE A DEEMING FICTION IS CREATED BY LA W, IT MUST BE GIVEN FULL AND FREE EFFECT, OF COURSE, IN RELATION TO THE AMBI T WITHIN WHICH IT IS INTENDED TO OPERATE. THE DEEMING FICTION CREATED BY THE EXPLANATION TO S. 73 DEFINES WHEN AN ASSESSEE IS TO BE DEEMED TO BE C ARRYING ON A SPECULATION BUSINESS FOR THE PURPOSES OF THE SECTIO N. THE DEEMING FICTION IS, THEREFORE, ONE WHICH ARISES SPECIFICALLY IN THE CONTEXT OF THE PROVISIONS OF S. 73 AND IS CONFINED TO THAT PURPOSE ALONE. THE EXPLANATION STIPULATES THAT WHERE AN ASSESSEE IS A COMPANY WHOSE BUSINESS CONSISTS IN ANY PART OF THE PURCHASE AND SALE OF SHARES OF OTHER COMPANI ES, IT SHALL BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS TO THE EXT ENT TO WHICH THE BUSINESS CONSISTS OF PURCHASE AND SALE OF SUCH SHAR ES. WHETHER OR NOT IT IS A PROFIT OR LOSS THAT HAS RESULTED FROM CARRYING ON SUCH BUSINESS, IS A 5 ITA NO.6051/MUM/2009 CONSIDERATION WHICH IS ALIEN TO THE MEANING OF WHAT CONSTITUTES A SPECULATION BUSINESS BY THE EXPLANATION TO S. 73. O NCE AN ASSESSEE IS DEEMED TO BE CARRYING ON A SPECULATION BUSINESS FOR THE PURPOSE OF S. 73, ANY LOSS COMPUTED IN RESPECT OF THAT SPECULATION BU SINESS, CAN BE SET OFF ONLY AGAINST THE PROFITS AND GAINS OF ANOTHER SPECU LATION BUSINESS. SIMILARLY, FOR THE PURPOSES OF SUB-S. (2), THE LOSS IN RESPECT OF A SPECULATION BUSINESS WHICH HAS NOT BEEN SET OFF EITHER IN WHOLE OR IN PART, CAN BE CARRIED FORWARD AND CAN BE SET OFF AGAINST PROFITS AND GAINS 'OF ANY SPECULATION BUSINESS'. THE EXPRESSION 'ANY SPECULAT ION BUSINESS' MEANS A SPECULATION BUSINESS OF THE ASSESSEE IN RESPECT OF WHICH PROFITS AND GAINS FOR THE ASSESSMENT YEAR IN QUESTION HAVE ARISEN AND THERE IS NO JUSTIFICATION TO RESTRICT THE CONTENT OF THAT SPECU LATION BUSINESS WHERE PROFITS HAVE ARISEN BY EXCLUDING A BUSINESS INVOLVI NG ACTUAL DELIVERY OF SHARES. NO SUCH RESTRICTION IS FOUND IN THE EXPLANA TION. TO IMPOSE ONE IS A LEGISLATIVE FUNCTION. ONCE THE ASSESSEE IS CARRYING ON A SPECULATION BUSINESS AND THE PROFITS AND GAINS HAVE ARISEN FROM THAT BUSINESS DURING THE COURSE OF THE ASSESSMENT YEAR, THE ASSESSEE IS ENTITLED TO SET OFF THE LOSSES CARRIED FORWARD FROM A SPECULATION BUSINESS ARISING OUT OF A PREVIOUS ASSESSMENT YEAR. CONCLUSION : ONCE AN ASSESSEE IS DEEMED TO BE CARRYING ON A SPEC ULATION BUSINESS FOR THE PURPOSE OF S. 73, ASSESSEE IS ENTITLED TO SET O FF BROUGHT FORWARD SPECULATION BUSINESS LOSS AGAINST THE PROFIT ON DEL IVERY BASED TRANSACTION OF SALE OF SHARES WHICH IS ALSO DEEMED TO BE PROFIT FROM SPECULATION BUSINESS. 8 RESPECTFULLY FOLLOWING THE DECISION OF THE JURISD ICTIONAL HIGH COURT CITED ABOVE, WE HOLD THAT THE INCOME DETERMINED BY THE AS SESSING OFFICER AT ` 2,54,28,970/- BEING PROFIT FROM TRADING IN SHARES SHOULD BE TREATED AS DEEMED SPECULATIVE PROFIT AS PER EXPLANATION TO SEC. 73 OF THE ACT AND THE ASSESSEE IS ENTITLED TO SET OFF OF THE DERIVATIVES SPECULATIVE LOSS OF ` 78,08,304/-. WE HOLD AND DIRECT ACCORDINGLY. THE GROUND RAISED BY THE AS SESSEE IS ACCORDINGLY ALLOWED. 9 THE LD COUNSEL FOR THE ASSESSEE DID NOT PRESS THE GROUND NO.2 IN THE ORIGINAL GROUNDS OF APPEAL REGARDING DISALLOWANCE O F ` 1,24,325/- OUT OF INTEREST PAID AS EXPENSES U/S 14A RELATING TO DIVIDEND INCOM E. THE LD DR DID NOT HAVE 6 ITA NO.6051/MUM/2009 ANY OBJECTION TO THE SAME. ACCORDINGLY, THE GROUND RELATING TO DISALLOWANCE U/S 14A IS DISMISSED AS NOT PRESSED. 10 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THE 11 TH , DAY OF FEB 2011. SD/- SD/- ( (( ( SMT ASHA VIJAYARAGHAVAN SMT ASHA VIJAYARAGHAVAN SMT ASHA VIJAYARAGHAVAN SMT ASHA VIJAYARAGHAVAN ) )) ) JUDICIAL MEMBER ( (( ( R K PANDA R K PANDA R K PANDA R K PANDA ) )) ) ACCOUNTANT MEMBER PLACE: MUMBAI : DATED: 11 TH , FEB 2011 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI