KHANDWALA SECURITIES LTD, MUMBAI V. DCIT 4(3), MUMBAI

ITA 7677/MUM/2012

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7762 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 01-10-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 27-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R P MEENA
• Assessee Lawyers: DR PRAYAG JHA
• Keywords: Speculation loss; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 7677/MUM/2012 ASSESSMENT YEAR: 2009-10 M/S. KHANDWALA SECURITIES LTD. VS. DCIT 4(3) G-7 VIKAS BLDG. GR. FLOOR, AAYAKAR BHAVAN, GREEN STREET FORT, MUMBAI - 400020 MUMBAI 400 023 PAN NO. AAACK2214P (APPELLANT) (RESPONDENT) ASSESSEE BY : DR. PRAYAG JHA, AR REVENUE BY: SHRI R.P. MEENA, CIT(DR) DATE OF HEARING : 22/1 2/2016 DATE OF PRONOUNCEMENT: 17/03/2017 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVA NT ASSESSMENT YEAR IS 2009-10. THE APPEAL IS DIRECTED AGAINST THE ORDER COMMISSIONER (APPEALS) 8, MUMBAI AND ARISES OUT O F ORDER U/S 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT). 2. THE GROUNDS OF APPEAL FILED BY THE ASSESSEE READ AS UNDER:- I. THE COMMISSIONER OF INCOME TAX (APPEAL) -8 ERRED IN CONFIRMING THE TREATMENT OF LOSSES OF RS. 62,60,473/- ON ACCOUNT O F SHARE TRADING BUSINESS AND STOCK VALUATION AS DEEMED SPECULATION CO VERED UNDER EXPLANATION TO SECTION 73 AND THEREBY TREATING THE S AME AS SPECULATION LOSSES INSTEAD OF BUSINESS LOSS. 3. BRIEFLY STATED, THE FACTS ARE THAT THE ASSESSEE HAS CLAIMED THE FOLLOWING LOSSES: ITA NO. 7677/MUM/2012 2 LOSS ON STOCK VALUATION RS. 47,36,865/- LOSS ON MARKET OPERATION RS. 35,42,917/- THE FURTHER BREAK UP OF LOSS FROM MARKET OPERATION IS AS UNDER: TRADING LOSS ON DELIVERY BASIS RS. 2,69,386/- LOSS IN FUTURES AND OPTIONS RS. 20,19,309/- LOSS ON SPECULATION RS. 12,54,222/- TOTAL RS. 35,42,917/- 3.1 IN RESPONSE TO A QUERY RAISED BY THE AO TO EXPL AIN WHY SECTION 73 SHALL NOT BE INVOKED, THE ASSESSEE FILED A REPLY WHICH HAS BEEN EXTRACTED AT PAGE 2-8 OF THE ASSESSMENT ORDER. THE AO WAS NOT CONVINCED WITH THE SAID REPLY. HE TREATED THE STOCK VALUATION LOSS OF RS. 47,36,865/- AS DEEMED SPECULATION LOSS. CONSID ERING THAT THE MAJOR PORTION OF THE ASSESSEES INCOME IS FROM BROK ERAGE, ADVISORY FEES AND INTEREST INCOME, THE AO APPORTIONED AN APP ROXIMATE AMOUNT OF RS. 5,00,000/- OUT OF THE BALANCE EXPENSES AND T REATED THE SAME AS EXPENDITURE INCURRED ON SHARE TRADING. THEREAFTER H E TREATED THE TOTAL LOSS IN SHARE DEALING OF RS. 68,20,061/- AS DEEMED SPECULATION LOSS AS PER EXPLANATION TO 73 OF THE ACT. THE AO ALLOWED THE ABOVE AMOUNT TO BE CARRIED FORWARD AND SET OFF AGAINST SPECULATION INCOME. 4. THE ASSESSEE PREFERRED AN APPEAL AGAINST THE ORD ER OF THE AO BEFORE THE LEARNED CIT(A). WE FIND THAT THE LEARNED CIT(A) RELYING ON THE DECISION IN THE CASE OF PRASAD AGENTS (P) LTD. VS. ITO (2009) 180 TAXMAN 178 (BOM) CONFIRMED THE DISALLOWANCE OF LOSS OF RS. 62,60,473/- MADE BY THE AO. 5. BEFORE US THE LEARNED COUNSEL OF THE ASSESSEE FI LES A COPY OF THE ANNUAL REPORT FOR THE FINANCIAL YEAR 2008-09 AND TH EN RELIES ON THE ORDER OF THE ITAT IN ASSESSEES OWN CASE FOR THE A. Y. 2002-03 (ITA NO. 6415/MUM/2009). ITA NO. 7677/MUM/2012 3 6. ON THE OTHER HAND, THE LEARNED DR RELIES ON THE ORDER OF THE LEARNED CIT(A) CONFIRMING THE DISALLOWANCE OF LOSS OF RS. 62,60,473/- MADE BY THE AO. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND FROM THE ANNUAL REPORT FOR THE F.Y. 2008- 09 THAT THE OVERALL OPERATION OF THE ASSESSEECOMPA NY INCLUDE INVESTMENT BANKING, CORPORATE ADVISORY SERVICES, I NSTITUTIONAL BROKING, PRIVATE CLIENT BROKING AND INVESTMENT ADVI SORY SERVICES. THE BROKERAGE SERVICES INCLUDE EQUITY AND DEBT BROK ING. THE CORPORATE ADVISORY SERVICES INCLUDE EQUITY CAPITAL MARKETS TRANSACTION EXECUTION, MERGERS AND ACQUISITIONS ADV ISORY AND CAPITAL RAISING ADVISORY AND TRANSACTION EXECUTION RELATING TO STRUCTURED FINANCE, REAL ESTATE AND INFRASTRUCTURE. ONE MAY R EFER TO PAGE 9 12 OF THE SAID ANNUAL REPORT. THE INCOME OF THE ASSESS EE COMPANY AS PER THE P&L ACCOUNT FOR THE YEAR ENDED 31.03.2009 I S AS UNDER: BROKERAGE RS. 39,547,677/- CORPORATE ADVISORY SERVICES RS. 74,369,513/- INCOME FROM CAPITAL MARKET OPERATIONS RS. 33,090/- PROFIT ON SALE OF LONG TERM INVESTMENTS RS. 457,750/- OTHER INCOME RS. 8,698,874/- TOTAL RS. 123,106,904/- THE INVESTMENT IN SHARES AS AT MARCH 31, 2008 WAS R S. 20,447,073/-. AS AT MARCH 31, 2009, IT IS RS. 28,423,250/- 7.1 LET US NOW REFER TO SECTION 73 OF THE ACT: LOSSES IN SPECULATION BUSINESS. 73. (1) ANY LOSS, COMPUTED IN RESPECT OF A SPECULATION BUSINESS CARRIED ON BY THE ASSESSEE, SHALL NOT BE SET OFF EXCEPT AGAINST PROFI TS AND GAINS, IF ANY, OF ANOTHER SPECULATION BUSINESS. ITA NO. 7677/MUM/2012 4 (2) WHERE FOR ANY ASSESSMENT YEAR ANY LOSS COMPUTED IN RESPECT OF A SPECULATION BUSINESS HAS NOT BEEN WHOLLY SET OFF UN DER SUB-SECTION (1), SO MUCH OF THE LOSS AS IS NOT SO SET OFF OR THE WHOLE LOSS WHERE THE ASSESSEE HAD NO INCOME FROM ANY OTHER SPECULATION BUSINESS, SHALL, SUBJECT TO THE OTHER PROVISIONS OF THIS CHAPTER, BE CARRIED FORWARD TO THE FOLLOWING ASSESSMENT YEAR, AND ( I ) IT SHALL BE SET OFF AGAINST THE PROFITS AND GAINS, IF ANY, OF ANY SPECULATION BUSINESS CARRIED ON BY HIM ASSESSABLE FOR THAT ASSES SMENT YEAR; AND ( II ) IF THE LOSS CANNOT BE WHOLLY SO SET OFF, THE AMOUNT OF LOSS NOT SO SET OFF SHALL BE CARRIED FORWARD TO THE FOLLOWING ASSESSMENT YEAR AND SO ON. (3) IN RESPECT OF ALLOWANCE ON ACCOUNT OF DEPRECIATI ON OR CAPITAL EXPENDITURE ON SCIENTIFIC RESEARCH, THE PROVISIONS OF SUB-SECTION (2) OF SECTION 72 SHALL APPLY IN RELATION TO SPECULATION BUSINESS AS THEY APPLY IN R ELATION TO ANY OTHER BUSINESS. (4) NO LOSS SHALL BE CARRIED FORWARD UNDER THIS SECTIO N FOR MORE THAN [FOUR] ASSESSMENT YEARS IMMEDIATELY SUCCEEDING THE ASSESSM ENT YEAR FOR WHICH THE LOSS WAS FIRST COMPUTED. [ EXPLANATION. WHERE ANY PART OF THE BUSINESS OF A COMPANY ( [OTH ER THAN A COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS 'INTEREST ON SECURITIES', 'INCOME FROM HOUSE PROPERTY', 'CAPITAL GAINS' AND 'INCOME FROM OTHER SO URCES'], OR A COMPANY [THE PRINCIPAL BUSINESS OF WHICH IS THE BUSINESS OF BANK ING] OR THE GRANTING OF LOANS AND ADVANCES) CONSISTS IN THE PURCHASE AND SALE OF SHA RES OF OTHER COMPANIES, SUCH COMPANY SHALL, FOR THE PURPOSES OF THIS SECTIO N, BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH TH E BUSINESS CONSISTS OF THE PURCHASE AND SALE OF SUCH SHARES.] 7.2 TRANSACTIONS OF PURCHASE AND SALE OF SHARES WOU LD BE HELD AS SPECULATIVE BUSINESS ONLY IF A COMPANY IS HIT BY EXPLANATION TO SECTION 73 OF THE ACT. THE SAME HAS NOT BEEN DEALT BY THE AO OR THE LEARNED CIT(A). BEFORE EXAMINING THE DECISIONS RELI ED ON BY THE LEARNED CIT(A) AND COUNSEL OF THE ASSESSEE, WE HAVE TO VERIFY THE FACTUAL SCORE. 7.3 IN VIEW OF THE ABOVE, THE ORDER OF LEARNED CIT( A) ON THE ABOVE GROUND OF APPEAL IS SET ASIDE AND THE AO IS DIRECTE D TO VERIFY THE CLAIM OF THE ASSESSEE KEEPING IN MIND THE FACTS DEL INEATED AT PARA 7 HERE-IN-ABOVE IN THE LIGHT OF EXPLANATION TO SECTION 73 OF THE ACT AND THEN PASS AN ORDER AFTER GIVING REASONABLE OPPO RTUNITY OF BEING HEARD TO THE ASSESSEE. THE ASSESSEE IS ALSO DIRECTE D TO FILE BEFORE THE AO THE REQUIRED DETAILS. ITA NO. 7677/MUM/2012 5 8. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATI STICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 17/03/2017 SD/- SD/- (MAHAVIR SINGH) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBE R MUMBAI; DATED: 17/03/2017 BISWAJIT, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI