Sadashiv Buildcon Pvt. Ltd., V. ITO, Ward-7(2),

ITA 783/DEL/2006

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3712 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 3 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 01-06-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 08-03-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS MONA MOHANTY
• Assessee Lawyers: NIKHIL MEHTA
• Keywords: Business income; Depreciation; Business expenditure; Speculation loss; Capital expenditure
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : C : NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NO.783/DEL/2006 ASSESSMENT YEAR : 2001-02 SADASHIV BUILDCON PVT. LTD., Y-42, HAUZ KHAS, NEW DELHI. PAN : AACCS0507K VS. ITO, WARD 7(2), NEW DELHII. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K. SAMPATH, ADVOCATE & SHRI NIKHIL MEHTA, CA REVENUE BY : MRS. MONA MOHANTY, SR. DR ORDER PER I.P. BANSAL, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE. IT IS DIRECTED AGAINST THE ORDER OF THE CIT (A) DATED 22 ND NOVEMBER, 2005 FOR ASSESSMENT YEAR 2001-02. THE GROUNDS OF APPEAL FILED WITH ORIGINAL APPEAL READ AS UNDER:- 1. THAT THE CIT (A) HAS ERRED IN HOLDING THAT THE APPELLANT COMPANY IS NOT AN NBFC COMPANY AND THUS DOES NOT COME UNDER THE EXCEPTION TO SECTION 73 OF INCOME TAX ACT. 2. THAT THE CIT (A) HAS ERRED IN TREATING THE ENTIR E BUSINESS OF THE ASSESSEE COMPANY AS SPECULATION BUSINESS ONLY AND DISALLOWING ALL THE GENUINE BUSINESS EXPENSES. ITA NO.783/DEL/2006 2 3. THE CIT (A) HAS ERRED IN TREATING THE BUSINESS RECEIPTS AS INCOME FROM OTHER SOURCES AND DISALLOWING THE ACTUAL BUSINESS EXPENSES AGAINST THE SAME. 2. AT THE TIME OF HEARING OF THE APPEAL ON 31 ST MAY, 2011, IT WAS POINTED OUT BY LD. AR THAT THE GROUNDS OF APPEAL FIL ED ORIGINALLY DOES NOT REPRESENT THE REAL GRIEVANCE OF THE ASSESSEE. THE R EAL GRIEVANCE OF THE ASSESSEE IS THAT THE ASSESSEE CANNOT BE HELD TO HAVE EAR NED INCOME FROM SALE AND PURCHASE OF SHARES AS SPECULATIVE IN COME AS HAS BEEN DONE BY THE ASSESSING OFFICER AS THE CASE OF THE ASSESSE E FALLS WITHIN THE EXCEPTION OF EXPLANATION TO SECTION 73. HE PLEADED THAT THE SHORT ISSUE WHICH IS TO BE ARGUED IN THE PRESENT APPEAL IS REGARDING THE TREATMENT OF INCOME/LOSS ARISING OUT OF SALE AND PURCHA SE OF SHARES, WHICH, ACCORDING TO THE ASSESSEE IS INCOME FROM NORMAL B USINESS OF THE ASSESSEE AS AGAINST INCOME/LOSS TREATED BY THE ASSESSING OF FICER AS FROM SPECULATIVE BUSINESS BY APPLYING THE PROVISIONS OF EXPLANATION TO SECTION 73 OF THE INCOME TAX ACT, 1961 (THE ACT) . HE SUBMITTED THAT THE ASSESSEE WILL ACCORDINGLY FURNISH THE AMENDED GROUND S OF APPEAL. 3. THE AMENDED GROUND OF APPEAL WAS FILED BY THE ASSESSE E VIDE LETTER DATED 31.05.2011 SUBSTITUTING THE ORIGINAL GRO UNDS WHICH WAS TAKEN ON RECORD AND A COPY OF THE SAME WAS GIVEN TO L D. DR, WHO AGREED THAT ON THIS AMENDED GROUND THE HEARING CAN T AKE PLACE. THE AMENDED GROUND OF APPEAL READ AS UNDER:- THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE AUTHORITIES BELOW ERRED IN INTERPRETING THE BUSI NESS INCOME FROM SHARES AS SPECULATIVE IN TERMS OF THE EXPL ANATION OF SECTION 73 OF THE ACT WHEREAS IN FACT IN TERMS OF THE SAI D EXPLANATION ITSELF THE APPELLANT WAS TO BE CONSIDERED FO R EXCLUSION AND RELIEFS. 4. HE TOOK US THROUGH THE COMPUTATION OF INCOME DONE BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER WHICH IS AS UNDER:- ITA NO.783/DEL/2006 3 INCOME FROM OTHER SOURCES : GROSS INTEREST RECEIVED: 677865/- LESS: INTEREST PAID 567931/- 109934/- OTHER INCOME AS DECLARED 78878/- 188812/- LESS: EXPENSES BANK CHARGES 40/- PRINTING CHARGES 149/- AUDITORS REMUNERATION 5250/- 5439/- 183373/- INCOME FROM SPECULATION BUSINESS TOTAL SALE OF SHARES 6867137/- ADD: CLOSING STOCK 182873/- 1951510 LESS: OPENING STOCK 101725/- PURCHASE 1811129/- 1942854/- TOTAL PROFIT FROM SPECULATION BUSINESS 8656/- LESS: EXPENSES CLAIMED BY THE ASSESSEE 694183 LESS: EXPENSES ALREADY ALLOWED AGAINST INCOME FROM OTHER SOURCES (AS ABOVE) 573370 120813/- TOTAL LOSS FROM SPECULATION BUSINESS (-)112157 /- (LOSS FROM SPECULATION BUSINESS SHALL BE ALLOWED AGAINST INCOME FROM SPECULATION BUSINESS) NIL TOTAL TAXABLE INCOME 183373/- RO 183370/- 5. REFERRING TO THE AFOREMENTIONED COMPUTATION DONE BY THE ASSESSING OFFICER, HE SUBMITTED THAT APART FROM THE BUSIN ESS OF SALE AND PURCHASE OF SHARES, THE INCOME OF THE ASSESSEE FALLS UN DER THE HEAD INCOME FROM OTHER SOURCES WHICH HAS BEEN ASSESSED A T AN AMOUNT OF ` 1,83,373/-. HE FURTHER SUBMITTED THAT I NCOME FROM SPECULATION BUSINESS WHICH ACTUALLY IS AN INCOME OF THE ASSESSEE OF THE TRANSACTIONS RELATING TO SALE AND PURCHASE OF SHARES ON D ELIVERY BASIS HAS BEEN COMPUTED AT NIL AS LOSS OF RS.1,12,157/- HAS BEE N IGNORED BY TREATING THE SAME AS SPECULATION LOSS. THUS, HE SUBMITTED THAT THE INCOME OF THE ASSESSEE FROM OTHER SOURCES MAINLY REPRESENT ING THE ASSESSED INCOME OF THE ASSESSEE. ITA NO.783/DEL/2006 4 6. THEN, HE REFERRED TO THE PROVISIONS OF SECTION 73 WHICH READ AS UNDER:- LOSSES IN SPECULATION BUSINESS. LOSSES IN SPECULATION BUSINESS. LOSSES IN SPECULATION BUSINESS. LOSSES IN SPECULATION BUSINESS. SECTION 73. SECTION 73. SECTION 73. SECTION 73. (1) ANY LOSS, COMPUTED IN RESPECT OF A SP ECULATION BUSINESS CARRIED ON BY THE ASSESSEE, SHALL NOT BE SET OFF EXCEPT AGAINST PROFITS AND GAINS, IF ANY, OF ANOTHER SPECULATI ON BUSINESS. (2) WHERE FOR ANY ASSESSMENT YEAR ANY LOSS COMPUTED I N RESPECT OF A SPECULATION BUSINESS HAS NOT BEEN WHOLLY SET OFF UNDER SUB-SECTION (1), SO MUCH OF THE LOSS AS IS NOT S O 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 F OLLOWING ASSESSMENT YEAR, AND ( I ) IT SHALL BE SET OFF AGAINST THE PROFITS AND GAINS, IF ANY, OF ANY SPECULATION BUSINESS CARRIED ON BY HIM ASSESSABL E FOR THAT ASSESSMENT 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 FOLLOWIN G ASSESSMENT YEAR AND SO ON. (3) IN RESPECT OF ALLOWANCE ON ACCOUNT OF DEPRECIATION OR CAPITAL EXPENDITURE ON SCIENTIFIC RESEARCH, THE PROVISI ONS OF SUB-SECTION (2) OF SECTION 72 SHALL APPLY IN RELATION TO SPECULATION BUSINESS AS THEY APPLY IN RELATION TO ANY O THER BUSINESS. (4) NO LOSS SHALL BE CARRIED FORWARD UNDER THIS SECTI ON FOR MORE THAN FOUR ASSESSMENT YEARS IMMEDIATELY SUCCEEDING THE ASSESSMENT YEAR FOR WHICH THE LOSS WAS FIRST COMPUTED. EXPLANATION. WHERE ANY PART OF THE BUSINESS OF A COMPANY OTHER 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 SOURCES, OR A COMPANY THE PRINCIPAL BUSINESS OF WHICH IS THE BUSINE SS OF BANKING OR THE GRANTING OF LOANS AND ADVANCES) CONSIS TS IN THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, SUCH COMPANY SHALL, FOR THE PURPOSES OF THIS SECTION, BE DEEMED TO B E CARRYING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF THE PURCHASE AND SALE OF SUCH SH ARES. 7. HE SUBMITTED THAT SECTION 73 REGULATES LOSSES IN THE SPECULATION BUSINESS AND, ACCORDING TO EXPLANATION THEREOF, A DEE MING SITUATION HAS BEEN CREATED ACCORDING TO WHICH WHERE ANY PART O F BUSINESS OF A COMPANY CONSIST IN THE PURCHASE AND SALE OF SHARES OF OTH ER ITA NO.783/DEL/2006 5 COMPANIES, SUCH COMPANY SHALL, FOR THE PURPOSE OF SECTI ON 73 BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF THE PURCHASE AND SALE OF SUCH SHARES. HE SUBMITTED THAT AN EXCEPTION HAS BEEN CREATED IN TH IS REGARD THAT THE COMPANIES WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS INTEREST ON SECURI TY, INCOME FROM HOUSE PROPERTY, CAPITAL GAINS AND INCOME FR OM OTHER SOURCES OR A COMPANY THE PRINCIPAL BUSINESS OF WHICH IS THE BUSI NESS OF BANKING OR THE GRANTING OF LOANS AND ADVANCES ARE EXC LUDED FROM SUCH DEEMING FICTION. HE SUBMITTED THAT THE ASSESSEE COMPANY FALLS WITHIN THE SAID EXCEPTION AS ITS INCOME MAINLY HAS BEEN CHARGE D UNDER THE HEAD INCOME FROM OTHER SOURCES AS IS APPARENT FROM TH E COMPUTATION MADE BY THE ASSESSING OFFICER. HE SUBMITTED THAT THOUGH IT WAS THE CASE OF THE ASSESSEE THAT INTEREST INCOME EARNED BY THE A SSESSEE AND EXPENDITURE MADE BY IT ON THAT CONSTITUTED BUSINESS INC OME, BUT THAT HAS NOT BEEN ACCEPTED BY THE ASSESSING OFFICER AND COMPU TATION IN THE AFOREMENTIONED MANNER HAS BEEN MADE ACCORDING TO WHI CH INCOME FROM OTHER SOURCES OF THE ASSESSEE HAS BEEN ASSESSED AT ` 1,8 3,373/-. THUS, THE INCOME OF THE ASSESSEE BEING CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCES THE PROVISIONS OF EXPLANATI ON WILL NOT APPLY TO THE CASE OF THE ASSESSEE. HENCE, THE NORMAL BU SINESS OF THE ASSESSEE OF SALE AND PURCHASE OF SHARES COULD NOT BE CONSIDE RED TO BE INCOME/LOSS OF THE ASSESSEE FROM SPECULATION BUSINESS. HE SUB MITTED THAT IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT ANY EXPENDITURE CLAIMED BY THE ASSESSEE OR INCOME SHOWN BY THE ASSESSEE IS NO T GENUINE AND THIS FACT WILL BE APPARENT FROM THE DETA ILS OF INCOME AND EXPENDITURE WHICH IS GIVEN AT PAGE 15A OF THE APPEAL PAPERS AND WHICH IS REPRODUCED BELOW:- ITA NO.783/DEL/2006 6 SADASHIV BUILDCON PVT. LTD ASSTT. YEAR 2001-02 DETAILS OF INCOME & EXPENSES INCOME INCOME INCOME INCOME AMOUNT AMOUNT AMOUNT AMOUNT INTEREST RECEIVED 677,865 PROFIT FROM SHARE TRADING 8,656 HIRE CHARGES 34,000 RELOCATION CHARGES 42,153 DIVIDEND 2,725 TOTAL INCOME 765,399 EXPENDITURE EXPENDITURE EXPENDITURE EXPENDITURE INTEREST PAID 567,931 DIRECTORS REMUNERATION 90,000 ADMINISTRATIVE EXPENSES 23,963 DEPRECIATION 10,741 MISC. EXPENSES W/OFF 1,548 TOTAL EXPENSES 694,183 8. HE ALSO DREW OUR ATTENTION TO THE COMPUTATION OF INCOME FILED BY THE ASSESSEE WITH REFERENCE TO THE AFOREMENTIONED INCOM E AND EXPENDITURE:- SADASHIV BUILDCON PVT. LTD 59, GAUTAM NAGAR, NEW DELHI 110 049. PREVIOUS YEAR ENDED ON 31 ST MARCH, 2001 ASST. YEAR 2001-2002 COMPUTATION OF TAXABLE INCOME & TAX LIABILI TY I. INCOME FROM BUSI INCOME FROM BUSI INCOME FROM BUSI INCOME FROM BUSINESS OR PROFESSION NESS OR PROFESSION NESS OR PROFESSION NESS OR PROFESSION NET PROFIT AS PER PROFIT & LOSS ACCOUNT 71,217 LESS : INCOME TO BE CONSIDERED SEPARATELY 2,725 68,492 ADD EXPENSES TO BE CONSIDERED SEPARATELY: DEPRECIATION 10,741 LESS ALLOWABLE EXPENSES: DEPRECIATION ALLOWABLE U/S 32 35,810 35,810 INCOME FROM BUSINESS AND PROFESSION 43,423 ITA NO.783/DEL/2006 7 II. INCOME FROM OTHER SOURCES INCOME FROM OTHER SOURCES INCOME FROM OTHER SOURCES INCOME FROM OTHER SOURCES DIVIDENDS FROM INDIAN COMPANIES 2,725 LESS: AMOUNT EXEMPT U/S 10(33) 2,725 TOTAL TAXABLE INCOME 43,423 TAXABLE INCOME ROUNDED OFF 43,420 INCOME TAX ON ABOVE INCOME @ 35% 15,197 SURCHARGE @ 13% 1,976 17,173 LESS INCOME TAX DEDUCTED AT SOURCE 44,969 AMOUNT REFUNDABLE (27,796) FOR SADASHIV BUILDCON P. LTD. SD/- DIRECTOR 9. HE, THUS, PLEADED THAT THE SOLE REASON TO TREAT THE INCOME FROM SALE AND PURCHASE OF SHARES AS INCOME FROM SPECULATIVE B USINESS IS THE APPLICATION OF EXPLANATION TO SECTION 73 AND THE CA SE OF THE ASSESSEE FALLS WITHIN THE EXCEPTION MENTIONED IN EXPLANATION ITSELF, THEREFORE, HE PLEADED THAT THE INCOME OF THE ASSESSEE FROM BUSINESS O F SALE AND PURCHASE OF SHARES COULD NOT BE TREATED AS INCOME FROM SPECULATION BUSINESS. 10. ON THE OTHER HAND, RELYING UPON THE ORDER OF TH E ASSESSING OFFICER AND CIT (A) IT WAS PLEADED BY LD. DR THAT TH E ASSESSEE BEING A COMPANY HAS DONE THE BUSINESS OF SALE AND PURCHASE OF SHAR ES AND TO THAT EXTENT THE ASSESSING OFFICER WAS RIGHT IN TREATING THE INCOME ARISING FROM THE BUSINESS OF SALE AND PURCHASE OF SHARES AS SPECULATION INCOME AND, THEREFORE, THE ORDER OF THE ASSESSING OFFIC ER AND CIT (A) SHOULD BE UPHELD. 11. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS I N THE LIGHT OF THE MATERIAL PLACED BEFORE US. THE PROVISIONS OF EXPL ANATION TO SECTION 73 HAVE ALREADY BEEN REPRODUCED IN THE ABOVE PART O F THIS ORDER. IT HAS BEEN DEMONSTRATED BY THE LD. COUNSEL OF THE ASSESSEE T HAT ITS INCOME IS MAINLY UNDER THE HEAD INCOME FROM OTHER SO URCES. THIS FACT HAS NOT BEEN CONTROVERTED BY THE DEPARTMENT. I F IT IS SO, THEN, THE CASE OF THE ASSESSEE WILL FALL WITHIN THE EXCEPTION MENT IONED IN THE EXPLANATION ITSELF. THEREFORE, WE FIND NO JUSTIFICAT ION IN THE CLAIM OF THE ITA NO.783/DEL/2006 8 ASSESSING OFFICER THAT THE INCOME OF SALE AND PURCHASE OF SHARES OF THE ASSESSEE SHOULD BE TREATED AS INCOME FROM SPECULATION BUSIN ESS BY VIRTUE OF APPLICATION OF EXPLANATION TO SECTION 73. THEREFORE, THE TREATMENT GIVEN BY THE ASSESSING OFFICER TO THE INCOME OF THE ASSESSEE FROM SALE AND PURCHASE OF SHARES AS SPECULATIVE IN NATUR E IS CONTRARY TO THE EXPRESS PROVISIONS OF LAW AND CANNOT BE SUSTAINED. THEREFORE, REQUISITE RELIEF IS DIRECTED TO BE GIVEN TO THE ASSESSEE. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS AL LOWED IN THE MANNER AFORESAID. THE ORDER PRONOUNCED IN THE OPEN COURT ON 10.06.20 11. SD/- SD/- [SHAMIM YAHYA] [I.P. BANSAL] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED, 10.06.2011. DK COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES