D.C.I.T Cir - 6,kolkata, Kolkata V. M/S J.M.Textiles (P) Ltd, Kolkata

ITA 757/KOL/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 5149 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 9 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 09-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NONGRTHUNG JUNGIO JCITSRDR
• Assessee Lawyers: N D SHAH
• Keywords: Speculation loss
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO.757/KOL/2013 ASSESSMENT YEAR :2008-09 DCIT, CIRCLE-6, ROOM NO.-6, 6 TH FLOOR, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 V/S . M/S J.M.TEXTILES (P) LTD., C/O J SHAW & CO., KALYAN BHAWAN, 2, ELGIN ROAD, KOLKATA 20 [ PAN NO.AAACJ 6507C ] /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI NONGRTHUNG JUNGIO, JCIT-SR-DR /BY RESPONDENT SHRI N.D.SHAH, AR /DATE OF HEARING 24-11-2015 /DATE OF PRONOUNCEMENT 13-01-2016 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE REVENUE IS ARISING OUT OF ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-VI, KOLKATA IN APPEAL NO.123/CIT(A)-V I/CIR-6/10-11/KOL DATED 31.01.2013. ASSESSMENT WAS FRAMED BY DCIT, CIRCLE-6 , KOLKATA U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS T HE ACT) VIDE HIS ORDER DATED 29.12.2010 FOR ASSESSMENT YEAR 2008-09. ITA NO.757/KOL/2013 A.Y. 2008-09 DCIT CIR-6, KOL. V. M/S J.M. TEXTILES (P) LTD. PAGE 2 2. ISSUE RAISED BY REVENUE IN THIS APPEAL IS THAT L D. CIT(A) ERRED IN LAW IN HOLDING THAT LOSS ON ACCOUNT OF PURCHASE AND SALE O F SHARE OF 29,59,702/- IS NOT COVERED BY EXPLANATION TO SEC. 73 OF THE ACT. 3. BRIEFLY STATED FACTS ARE THAT ASSESSEE IS A PRIV ATE LIMITED COMPANY AND REGISTERED WITH RESERVE BANK OF INDIA AS NON-BANKIN G FINANCE COMPANY. ASSESSEE IS ENGAGED IN TRADING OF SHARE AND ALSO DEALS IN IN VESTMENT OF SHARE AND SECURITIES. DURING THE YEAR UNDER CONSIDERATION, ASSESSEE HAS I NCURRED A LOSS OF 29,59,702/- FROM DELIVERY BASED TRANSACTIONS I.E. NON-SPECULATI ON LOSS. ON THE OTHER HAND THE ASSESSEE HAS GAINED A PROFIT OF RS. 19,41,219/- FRO M NON-DELIVERY BASED I.E. SPECULATION PROFIT. THE AO TREATED THE LOSS ARISING FROM DELIVERY BASED TRANSACTIONS AS SPECULATION LOSS IN TERMS OF THE PROVISION OF EX PLANATION TO SECTION 73 OF THE ACT. HOWEVER THE ASSESSEE SUBMITTED THAT THE LOSS FROM D ELIVERY BASED TRANSACTIONS IS OUT OF THE PURVIEW OF THE EXPLANATION TO SECTION 73 OF THE ACT FOR THE FOLLOWING COUNTS AS ENUMERATED BELOW : 1) COMPANIES CARRYING ON BUSINESS OF GRANTING LOANS OR ADVANCES ARE OUTSIDE THE PURVIEW OF SECTION 73 OF THE ACT. 2) THE MAJOR INCOME OF THE COMPANY IS FROM INTEREST ON THE LOANS & ADVANCE. 3) THE COMPANYS PRINCIPAL BUSINESS IS OF GRANTING LOANS AND IT IS REGISTERED AS NBFC WITH RBI. HOWEVER, THE AO DISREGARDED THE CLAIM OF THE ASSESS EE BY OBSERVING THE FOLLOWING FACTS:- 1) AS PER PROFIT & LOSS ACCOUNT- THE COMPONENTS OF INTEREST INCOME IS AS UNDER : A) INTEREST ON FIXED DEPOSITS RS. 33,69,024.00 B) INTEREST ON LOANS RS. 4,56,233.00 C) INTEREST ON TDS RS. 11,747.0 IN VIEW OF ABOVE THE AO FOUND THAT THE BUSINESS INC OME OF THE ASSESSEE FROM GRANTING THE LOANS IS JUST RS. 4,56,233/- ONLY 2) VALUE OF THE SHARES HELD AS INVESTMENT AT THE YE AR END IS RS. 17,79,50,000/- AND HELD AS STOCK IN TRADE RS. 2,69, 07,895/- ITA NO.757/KOL/2013 A.Y. 2008-09 DCIT CIR-6, KOL. V. M/S J.M. TEXTILES (P) LTD. PAGE 3 3) WHEREAS THE LOANS AND ADVANCES ARE APPEARING JUS T RS. 3,40,00,236/- 4) BESIDES ABOVE THE TURNOVER OF SALES OF SHARES IS RS. 30,60,52,377/- AND WHEREAS THE TOTAL INTEREST INCOME IS RS. 38,37,004. 00 ONLY. IN VIEW OF ABOVE THE AO HELD THE LOSS ARISING FROM DELIVERY BASED TRANSACTIONS OF RS. 29,59,702/- IS SPECULATION LOSS. THE SAME WAS ADDED BACK WITH THE INCOME OF THE ASSESSEE AND ALLOWED TO BE CARRIED FORWARD FOR FUTU RE ADJUSTMENT WITH SPECULATION PROFIT. THE SET OFF OF SUCH LOSS AGAINST INCOME FRO M NON-DELIVERY BASED TRANSACTION IN SHARES WAS ALSO REJECTED BY THE AO. 4. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A) WHO DELETED THE ADDITION MADE BY AO BY OBSERVING IN PARA-11 TO 13 W HICH REPRODUCED AS UNDER:- 11. THE ASSESSING OFFICER HAS OBSERVED THAT THE AS SESSEE EARNED RS.19,41,219 PROFIT ON NON-DELIVERY SHARE TRADING A ND INCURRED A LOSS OF RS.29,59,702 ON DELIVERY BASED SHARE TRANSACTION. B ASED ON THIS FINDING THE ASSESSING OFFICER HELD THAT THE LOSS FOR THE PURPOS E OF EXPLANATION TO SECTION 73 WAS TO BE CONSIDERED AT RS.29,59,702/-. THERE IS NO BAR IN THE PROVISIONS OF THE IT ACT 1961 TO SET OFF DELIVERY BASED LOSS W ITH NON-DELIVERY PROFIT. THEREFORE, THE LOSS ON DELIVERY BASED SHARES CAN BE SET OFF AGAINST THE NON- DELIVERY PROFIT OF SHARES AND DERIVATIVES. THEREFOR E, THE LOSS ON SHARES IS HELD TO BE RS.10,18,483 (RS.29,59,702 RS.19,41,219) 12. BOTH THE SHARES TRANSACTIONS ARE TO BE CONSIDER AS A COMPOSITE BUSINESS EVEN FOR THE PURPOSES EXPLANATION TO SECTION 73 AND EVEN IN THAT SITUATION THE SET OFF OF NON-DELIVERY PROFIT AND THE LOSS ON SHAR ES DELIVERY BASED WOULD BE RS.10,18,483 (RS.29,59,702 RS.19,41,219). THE ASS ESSEE IS A NBFC HOLDING A LICENSE FROM THE RESERVE BANK OF INDIA. T HE APPELLANT HAS SUBMITTED THAT THE PRINCIPAL BUSINESS IS LENDING AS THE INTEREST INCOME WAS RS.38,37,004 AND LOSS ON SHARES OF RS.10,18,483 AND THEREFORE, THE INTEREST INCOME BEING 3.76 ITEMS THE LOSS ON SHARES THE PRIN CIPAL BUSINESS OF THE ASSESSEE IS TO BE CONSIDERED TO BE THAT OF BUSINESS OF BANKING OR THE GRANTING OF LOANS AND ADVANCES. IN THESE FACTS THE EXPLANATI ON TO SECTION 73 OF THE IT ACT 1961 DOES NOT APPLY TO THE ASSESSEE AS HELD BY THE HON'BLE CALCUTTA HIGH COURT IN APPEAL NO ITA NO. 860 OF 2008 COMMISSIONER OF INCOME TAX, KOLKATA-II VS SHREE SALASAR PROPERTIES & FINANCE (P ) LTD. AND HON'BLE ITAT A BENCH KOLKATA IN THE CASE OF M/S SONAL TIE UP ( P) LTD., (SUPRA). THE INTEREST INCOME AMOUNTING TO RS.33,69,024/- FROM FI XED DEPOSITS EVEN, IF IS TREATED AS INCOME FROM OTHER SOURCES AND EVEN THEN THE INCOME FROM OTHER SOURCES BEING HIGHER THAN THE SHARE LOSS THE EXPLAN ATION TO SECTION 73 OF THE IT ACT 1961 DOES NOT APPLY TO THE ASSESSEE. 13. IN VIEW OF THE ABOVE IT IS HELD THAT THE EXPLAN ATION TO SECTION 73 OF THE IT ACT 1961 DOES NOT APPLY TO THE SHARE LOSS INCURRED BY THE ASSESSEE AND THE ITA NO.757/KOL/2013 A.Y. 2008-09 DCIT CIR-6, KOL. V. M/S J.M. TEXTILES (P) LTD. PAGE 4 ASSESSEE FALLS IN THE EXCEPTIONS PROVIDED BY IT. TH IS GROUND OF APPEAL IS ALLOWED. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS:- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, LD. CIT(A) ERRED IN LAW IN HOLDING THAT THE SHARE LOSS OF RS.29,59,702/ - IS NOT COVERED BY THE EXPLANATION TO SECTION 73 OF THE IT ACT, 1961. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, LD. CIT(A) ERRED IN LAW IN HOLDING THAT DELIVERY BASED SHARE LOSS COULD BE SET OFF WITH NON DELIVERY BASED SHARE PROFIT. 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, LD. CIT(A) ERRED IN LAW IN HOLDING THAT THE NATURE OF BUSINESS OF THE A SSESSEE WILL BE DETERMINED ON THE BASIS OF INCOME EARNED INSTEAD OFF ON THE BA SIS OF DEPLOYMENT OF FUND. SHRI M.D. SHAH, LD. AUTHORIZED REPRESENTATIVE APPEA RING ON BEHALF OF ASSESSEE AND SHRI NONGOTHUNG JUNGIO, LD. DEPARTMENTAL REPRESENTA TIVE APPEARING ON BEHALF OF REVENUE. 5. WE HAVE HEARD RIVAL SUBMISSIONS OF BOTH THE PART IES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. LD. DR VEHEMENTLY SU PPORTED THE ORDER OF ASSESSING OFFICER WHEREAS LD. AR SUPPORTED THE ORDER OF LD. C IT(A). LD. AR SUBMITTED THAT AS FAR AS THE PROVISION OF IT ACT IS CONCERN, THE LOSS ARISING FROM SPECULATION BUSINESS CANNOT BE SET OFF AGAINST THE NON SPECULATION PROFI T. HOWEVER, VICE-VERSA IS VERY MUCH POSSIBLE IN TERMS OF THE PROVISION OF IT ACT. IN THE INSTANT CASE, ASSESSEE HAS CLAIMED THE LOSS ARISING FROM NON-SPECULATIVE TRANS ACTION AGAINST THE INCOME OF SPECULATIVE TRANSACTION AND THIS SET OFF IS VERY MU CH VALID UNDER THE IT ACT. HOWEVER, AO IS TREATING THE LOSS ARISING FROM NON-SPECULATIO N BUSINESS AS SPECULATION BUSINESS THEN IT MEANS THE GAIN OF AMOUNTING TO 19,41,219/- FROM SPECULATION PROFIT AND LOSS OF 29,59,702/- FROM NON-SPECULATION BUSINESS, BOTH AR E FALLING UNDER THE SAME CATEGORY OF INCOME AND RELIED ON THE ORDER OF LD. CIT(A). FROM THE AFORESAID DISCUSSION, WE FIND THAT AO HAS TREATED THE LOSS AR ISING FROM THE DELIVERY BASED TRANSACTION AS SPECULATION LOSS AND DISALLOWED THE SET OFF OF THE SAME FROM THE GAIN DECLARED BY ASSESSEE FROM SPECULATION PROFIT FOR AN AMOUNT OF 19,41,219/-. THEREFORE, THE CALCULATION OF AO IS TOTALLY INCORRE CT. BESIDES THE AO TREATED THE NON- SPECULATION LOSS OF RS. 29,52,702/- AS SPECULATION LOSS BY VIRTUE OF THE PROVISIONS OF ITA NO.757/KOL/2013 A.Y. 2008-09 DCIT CIR-6, KOL. V. M/S J.M. TEXTILES (P) LTD. PAGE 5 EXPLANATION OF SECTION 73 OF THE ACT. THE AO HAS AP PLIED THE TURNOVER AND INVESTMENT IN CAPITAL CRITERIA TO CATEGORIES THE LO SS FROM THE NON SPECULATION BUSINESS AS SPECULATION BUSINESS IN THE INSTANT CASE IN TERM S OF EXCLUSION CLAUSE PROVIDED IN THE EXPLANATION TO SECTION 43 OF THE ACT. THE AO AL SO DID NOT CONSIDER THE CRITERIA LAID DOWN IN THE EXPLANATION TO SECTION 73 OF THE ACT FO R THE COMPANY WHOSE PRINCIPAL BUSINESS IS OF GRANTING OF LOANS AND ADVANCES. THE REASON FOR CONSIDERING THESE CRITERIA WAS THAT THE INCOME FROM INTEREST WAS LESS THAN THE INCOME FROM SHARES HELD AS STOCK AND INVESTMENT. THE DECISION OF HONBLE JU RISDICTIONAL HIGH COURT IN THE CASE OF CIT VS M/S SHREE SALASAR PROPERTIES AND FINANCE PVT . LTD. IN ITA NO. 860 OF 2008 DATED 12.01.2009 HAS HELD THAT THE INCOME COMPOSIT ION CRITERIA IS TO BE CONSIDERED TO DETERMINE THE PRINCIPAL BUSINESS. THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED BELOW : IT APPEARS THAT THE COMMISSIONER OF INCOME TAX (AP PEALS) AS EXTENSIVELY DEALT WITH THE MATTER AND DULY INVOKED SECTION 73 O F THE INCOME TAX ACT, 1961 AND INTERPRETED THE SAME IN THE LIGHT OF THE DECISI ON IN THE CASE OF K.P.VARGEESE VS. INCOME TAX OFFICER [1981] 24 CTR ( SC)358, (1981) 131 ITR 597 (SC)] WHERE THE HON'BLE SUPREME COURT LAID DOWN THE PROPOSITION REGARDING THE RULE OF INTERPRETATION, WHICH IS STAT ED HEREINBELOW: THE LANGUAGE OF SUCH A PROVISION SHOULD BE CONSTRU ED HAVING REGARD TO THE OBJECT AND PURPOSE WHICH THE LEGISLAT OR HAD IN VIEW IN ENACTING THAT PROVISION AND IN THE CONTEXT OF TH E SETTING IN WHICH IT OCCUR IT APPEARS THAT THE COURT HELD IN A CATENA OF DECI SION THAT THE INTERPRETATION OF THE STATUTORY PROVISION MUST CONFORM TO THE OBJECT THAT FOR WHICH IT WAS INTRODUCED, AND IF THIS PRINCIPLE IS APPLIED TO THE FACTS OF THIS CASE, IT MUST BE HELD THAT THE EXPLANATION TO SECTION 73 OF THE INCO ME TAX ACT, 1961 CANNOT BE INVOKED AS THERE IS NO DEVICE OR MANIPULATION BY ANY CONTROLLING GROUP OF COMPANIES TO REDUCE THEIR TAXABLE INCOME. THE TRIBUNAL AFTER TAKING INTO CONSIDERATION OF ALL THESE FACTS AND THE FACT WHICH COULD REVEAL THAT THE COMPANY HAS DERIVED ITS MAJOR INCOME BY WAY OF INTEREST. THEREFORE THE FACT OF PRINCIPAL BUSINESS OF THE COMPANY BEING THAT OF GRANTING OF LOANS AND ADVANCES DOES NOT REMAIN IN D OUBT AND THEREFORE IT WAS HELD THAT THE ASSESSEES PRINCIPAL BUSINESS WOULD F ALL IN EXEMPTED CATEGORY AND SHOULD NOT HIT BY THE EXPLANATION TO SECTION 73 OF THE INCOME TAX ACT, 1961. ON THIS GROUND THE APPEAL WAS ALLOWED AND THE LEARNED TRIBUNAL ALSO AFTER DEALING WITH THE MATTER IN QUESTION CAME TO T HE CONCLUSION THAT THE FACT, AS HAS BEEN DEALT WITH BY THE COMMISSIONER OF INCOM E TAX, IS CORRECT AND UPHOLD THE DECISION OF THE COMMISSIONER OF INCOME T AX (APPEALS). AFTER CONSIDERING ALL THESE FACTS AND THE DECISIONS , WE DO NOT FIND THAT THERE IS ANY ILLEGALITY OR IRREGULARITY IN THE SAID ORDER UN DER APPEAL. WE ALSO DO NOT FIND ITA NO.757/KOL/2013 A.Y. 2008-09 DCIT CIR-6, KOL. V. M/S J.M. TEXTILES (P) LTD. PAGE 6 THAT THERE IS ANY SUBSTANTIAL QUESTION OF INVOLVED IN THE MATTER IN THE GIVEN FACTS. ACCORDINGLY, THE APPEAL IS DISMISSED. IN VIEW OF THE ABOVE, WE HOLD THAT THE LOSS FROM D ELIVERY BASED TRANSACTIONS IS A NON SPECULATIVE LOSS AND ITS SET OFF AGAINST THE INCOME OF SPECULATION GAIN IS ALLOWED. IN VIEW OF ABOVE, WE DO NOT FIND ANY REASON TO INTERFE RE IN THE ORDER OF LD. CIT(A) HENCE, GROUND RAISED BY REVENUE IS DISMISSED. 6. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 13/ 01/2016 SD/- SD/- (N.V.VASUDEVAN) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP !- 13 / 0 1/201 6 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-DCIT, CIR-6,ROOM NO.6, 6 TH FLOOR, AAYAKAR BHAWAN, AAYAKAR BHAWA, P -7, CHOWRINGHEE SQUARE, KOLKATA-69 2. / RESPONDENT-M/S J.M.TEXTILES, C/O DJ SHAW & CO. K ALYAN BHAWAN, 2, ELGIN ROA D, KOLKATA-20 3. ) *+, , - / CONCERNED CIT KOLKATA 4. , , -- / CIT (A) KOLKATA 5.01233*+, , *+ , / DR, ITAT, KOLKATA 6.26789 / GUARD FILE. BY ORDER/ ,, / , *+ ,