JAMNADAS MORARJEE SEC.LTD., MUMBAI V. ITO WD.4(3)(1), MUMBAI

ITA 6077/MUM/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1471 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 11-06-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 08-10-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KISHAN VYAS
• Keywords: Depreciation; Speculation loss

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I, MUMBAI BEFORE SHRI D.K. AGARWAL, J.M AND SHRI A.L. GEHLOT , A.M. ITA NO. 6077/M/2008 ASSESSMENT YEAR: 2002-03 JAMNADAS MORARJEE SEC. LTD., APPELLANT 204, STOCK EXCHANGE TOWER, DALAL STREET, FORT, MUMBAI 400 023. (PAN AAACJ2850J) VS. INCOME TAX OFFICER, WARD 4(3)(1), RESPONDENT MUMBAI. APPELLANT BY : MR. PRAMOD KUMAR PARIDA RESPONDENT BY : MR. KISHAN VYAS ORDER PER A.L. GEHLOT, A.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT(A)-XV, MUMBAI, PASSED ON 23 RD JULY, 2008 FOR THE ASSESSMENT YEAR 2002-03. 1. GROUND NO.1 IS IN RESPECT OF DISALLOWANCE OF DIM INUTION IN VALUE OF CLOSING STOCK OF RS. 10,23,038/- BY TREATI NG THE SAME AS SPECULATION LOSS. 2. FROM THE PERUSAL OF TRADING ACCOUNT AS WELL AS B ALANCE SHEET, THE AO FOUND THAT THE ASSESSEE HAD SHOWN LOSS ON AC COUNT OF VALUATION OF CLOSING STOCK AT RS. 10,23,038/- DUE T O DECREASE IN THE MARKET VALUE OF SHARES. ON BEING ASKED TO SHOW CAUS E AS TO WHY THE PROVISION OF EXPLANATION TO SECTION 73 SHOULD N OT BE APPLIED TO THE ALLEGED DEPRECIATION OF CLOSING STOCK OF SHARES AS SPECULATION LOSS, THE ASSESSEE ARGUED THAT INCOME FROM OTHER SO URCES COMPRISING INTEREST FROM BANK ETC. AND DIVIDEND INC OME REPRESENTED THE MAJOR CHUNK OF INCOME SHOWN IN THE TOTAL INCOME AT RS. 2,70,796/-. THE AO DID NOT ACCEPT THE ARGUM ENT OF THE ASSESSEE AND HE FOUND THAT THE ASSESSEE HAS SHOWN B USINESS LOSS TO THE EXTENT OF RS. 29,31,247/- AGAINST THE INCOME FORM OTHER ITA NO. 6077/M/08 JAMNADAS MORARJEE SEC. LTD . 2 SOURCES AT RS. 2,70,796/-. THE AO HELD THAT FOR TH E PURPOSE OF EXPLANATION TO SECTION 73, THE ASSESSEE HAD GOT THE MAJOR INCOME ONLY FROM BUSINESS, AS IT HAS SHOWN A LOSS OF RS. 2 9,31,247/- AS AGAINST THE INCOME FROM OTHER SOURCES AT RS. 2,70,7 96/-. THE AO WAS OF THE VIEW THAT EXPLANATION TO SECTION 73 IS A LSO APPLICABLE IN VALUATION OF CLOSING STOCK. THE CIT(A) CONFIRMED TH E ACTION OF THE AO. 3. AT THE OUTSET, LEARNED AR SUBMITTED THAT THIS IS SUE IS COVERED AGAINST THE ASSESSEE BY THE JUDGMENT OF THE JURISDI CTIONAL HIGH COURT IN THE CASE OF PRASAD AGENTS (P) LTD. V. ITO, 226 CTR 13 (BOM.) WHEREIN IT WAS HELD THAT EXPLANATION TO S. 7 3 IS NOT RESTRICTED ONLY TO GROUP COMPANIONS, AND IS APPLICA BLE TO ALL COMPANIES WHICH CARRY ON BUSINESS OF PURCHASE AND S ALE OF SHARES; LOSS ORIGINATING FROM AND TRACEABLE TO THE VALUATIO N OF STOCK OF SHARES IS ALSO COVERED BY EXPLANATION TO S. 73. 4. AFTER HEARING THE LEARNED DR, WE FIND THAT THE I SSUE IS COVERED AGAINST THE ASSESSEE BY THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF PRASAD AGENTS (P) LTD. CI TED SUPRA AND IN THE LIGHT OF THAT WE DO NOT FIND ANY INFIRMITY IN T HE ORDER OF CIT(A), HENCE, THE ORDER OF CIT(A) IS CONFIRMED ON THIS ISS UE. 5. 2 ND GROUND IS IN RESPECT OF DISALLOWANCE OF EXPENSES O F RS. 8,81,281/- BY ATTRIBUTING THE SAME TOWARDS SPECULAT ION BUSINESS. 6. THE AO NOTICED THAT THE ASSESSEE DID NOT ALLOCAT E EXPENSES IN RESPECT OF SPECULATION BUSINESS. THE AO ALLOCATED T HE EXPENDITURE IN THE PROPORTIONATE OF TURNOVER OF SPECULATION BUS INESS AS WELL AS NON-SPECULATION BUSINESS. THE ORDER OF THE AO HAS B EEN CONFIRMED BY THE CIT(A). 7. THE CONTENTION OF THE ASSESSEE IS THAT CERTAIN E XPENSES WHICH ARE NOT RELATED TO SPECULATION BUSINESS HAVE ALSO B EEN WRONGLY ALLOCATED TO SPECULATION BUSINESS BY ADOPTING THE T URNOVER FORMULA. THE LEARNED AR SUBMITTED THAT THERE ARE CERTAIN EXP ENSES WHICH ITA NO. 6077/M/08 JAMNADAS MORARJEE SEC. LTD . 3 ARE NOT RELATED AT ALL TO THE SPECULATION BUSINESS LIKE, SHARE TRANSFER EXPENSES OF RS. 30,714/-, BROKERS CONTINGE NCY FUND EXPENSES OF RS. 54,813/-, ETC. THE LEARNED AR SUBMI TTED THAT ONLY THE FOLLOWING EXPENSES COULD BE APPROPRIATED IN THE RATIO OF TURNOVER:- OUT OF PAYMENT TO EMPLOYEES DIRECTORS REMUNERATION 4,60,000 OUT OF ADMINISTRATIVE EXPENSES MOTOR CAR EXP. 2,24,214 ELEC. CHARGES 2,04,597 OFFICE REPAIR & MAINT. 31,498 COMPUTER EXP. 1,74,160 OUT OF INTEREST & FIN. CHG. NONE DEPRECIATION DEPRECIATION 1,22,293 12,16,762/- ========= 8. THE LEARNED DR, ON THE OTHER HAND, RELIED UPON T HE ORDER OF CIT(A). 9. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND PERUSED THE RECORD. AT THE TIME OF HEARING, IT WAS SPECIFICALLY TO FURNISH THE DETAILS OF EXPENSES, WHICH ARE NOT RELA TED TO SPECULATION BUSINESS BUT THE ASSESSEE FAILED FURNIS H THE SAME. ON PERUSAL OF RECORD WE FIND THAT ON THE BASIS OF FORM ULA ADOPTED BY THE AO, EXPENSES ATTRIBUTABLE TO SPECULATION BUSINE SS COMES TO 22% OF THE TOTAL EXPENSES. THE ASSESSEE SUBMITTED T HAT ONLY THE ABOVE DETAILED EXPENSES ARE TO BE APPROPRIATED IN T HE RATIO OF TURNOVER BUT THE ASSESSEE FAILED TO FURNISH THE DET AILS OF OTHER EXPENSES WHETHER THEY WERE RELATED TO SPECULATION B USINESS OR NOT. IN THE ABSENCE OF SUCH DETAILS AND AFTER CONSIDERIN G THE ASSESSEES SUBMISSIONS, IT WILL BE FAIR AND JUST IF 10% OF THE EXPENSES ARE ALLOCATED TO SPECULATION BUSINESS. THE AO IS DIRECT ED TO ALLOCATE 10% OF THE TOTAL EXPENSES IN RESPECT OF SPECULATION BUSINESS. THUS, THIS GROUND OF APPEAL OF THE ASSESSEE IS PART LY ALLOWED. ITA NO. 6077/M/08 JAMNADAS MORARJEE SEC. LTD . 4 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. PRONOUNCED IN OPEN COURT ON THIS 18 TH DAY OF JUNE, 2010. SD/- SD/- (D.K. AGARWAL) (A.L. GEHLO T) JUDICIAL MEMBER ACCOUNTAN T MEMBER DATED: 18 TH JUNE, 2010. COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, I BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI. KV S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON 14.6.10 SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR 15.6.10 SR.P.S/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.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER