M/s Baljit Securities Pvt. Ltd., Kolkata V. ITO-Ward-8(1), Kolkata, Kolkata

ITA 788/KOL/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3155 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 1 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-06-2013
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 03-12-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 17-05-2012
• Court: TRIBUNAL
• Department Lawyers: L K S DEHIYA
• Keywords: Business income; Earning of tax free income; Question of law; Speculation loss; Futures and options; Speculative transactions
• Section: 143(3); 14A; 43(5)

Judgement Text

, B , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA () BEFORE . . . . . . . . , !' /AND ##$ %& %& %& %&, , , , ) [BEFORE SHRI K. K. GUPTA, AM & SHRI GEORGE MATHAN, JM] '' '' '' '' / I.T.A NO. 788/KOL/2012 (&) !*+ (&) !*+ (&) !*+ (&) !*+/ // / ASSESSMENT YEAR: 2005-06 M/S. BALJIT SECURITIES (P) LTD. VS. INCOME-TAX OF FICER, WD-8(1), KOLKATA (%- /APPELLANT ) (./%-/ RESPONDENT ) DATE OF HEARING: 22.05.2013 DATE OF PRONOUNCEMENT: 19.06.2013 FOR THE APPELLANT: SHRI RAVI TULSIYAN, FCA FOR THE RESPONDENT: SHRI L. K. S. DEHIYA, CIT(DR) 0 / ORDER PER SHRI GEORGE MATHAN, JM: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER PASSED U/S. 143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS T HE ACT) BY THE CIT(A)-XXIV, KOLKATA IN APPEAL NO. 1003/CIT(A)-XXIV/8(1)/11-12 DATED 29.03. 2012 FOR ASSESSMENT YEAR 2005-06. 2. SHRI RAVI TULSIYAN, FCA APPEARED ON BEHALF OF AS SESSEE AND SHRI L. K. S. DEHIYA, CIT(DR) APPEARED ON BEHALF OF REVENUE. 3. IN ASSESSEES APPEAL THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. COMMISSIONER OF INCOME TAX (APPEAL) ERRED IN CONFIRMING THE ADDITIO N OF RS.1,59,01,933/- AS MADE BY THE ASSESSING OFFICER, BY HOLDING THAT THE LOSS INCURRE D BY THE APPELLANT AS A STOCK EXCHANGE MEMBER, ON DERIVATIVE TRANSACTIONS ARE COVERED U/S 43(5) AND ARE SPECULATIVE TRANSACTIONS. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT(A) ERRED IN NOT THE ALLOWING SET-OFF OF LOSS ARISING ON DERIVATIVE TRAN SACTIONS AGAINST NORMAL BUSINESS INCOME. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.51,124/- UNDER SECTIO N 14A MADE BY THE ASSESSING OFFICER IN THE COURSE OF ASSESSMENT. 2 ITA NO.788/K/2012 M/S. BALJIT SECURITIES (P) LTD. AY 2005-06 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION OF RS.38,850/- U/S. 94(7 ) OFTHE ACT AS MADE BY THE ASSESSING OFFICER IN THE COURSE OF ASSESSMENT. 5. THAT THE ORDER OF THE LD. A.O. AND THE CIT(A) AC CORDINGLY BE MODIFIED AND YOUR APPELLANT BE GIVEN SUCH RELIEF(S) AS PRAYED FOR. THE ASSESSEE HAS ALSO FILED ADDITIONAL GROUND, WHIC H IS AS UNDER: THAT THE LD. AO AND LD. CIT(A) ERRED IN NOT APPLYIN G THE PROVISION OF EXPLANATION BELOW SECTION 73 AND TREATING THE ENTIRE BUSINESS OF PURC HASE AND SALE OF SHARES (DELIVERY BASED AND NON-DELIVERY BASED) OF THE APPELLANT AS SPECULA TIVE BUSINESS AND THEREBY NOT ALLOWING SET OFF OF LOSS ON FUTURES AND OPTIONS AGA INST PROFIT FROM DELIVERY BASED TRANSACTIONS IN SHARES. 4. IT WAS SUBMITTED BY LD. AR THAT THE ASSESSEE IS A COMPANY, WHICH IS DOING THE BUSINESS OF SHARE BROKERAGE. IT WAS THE SUBMISSION THAT THE ASSESSEE HAD ALSO DONE TRANSACTIONS OF PURCHASE AND SALE OF SHARES AND THE SPECULATION IN DERIVATIVES. IT WAS THE SUBMISSION THAT THE ASSESSEE HAD INCURRED A LOSS ON ACCOUNT OF THE DERI VATIVE TRANSACTIONS AS ALSO ON ACCOUNT OF DAY TRANSACTIONS OF SHARES. IT WAS THE SUBMISSION THAT THE ASSESSEE HAD IN ITS P&L ACCOUNT NETTED OFF THE LOSS ON THE DERIVATIVES AND DAY TRANSACTION S AGAINST THE PROFITS FROM ITS SHARE TRANSACTIONS AND BROKERAGE INCOME. IT WAS THE SUBM ISSION THAT IN THE COURSE OF ASSESSMENT, THE AO HAD HELD THAT THE LOSS ON ACCOUNT OF THE DERIVAT IVE TRANSCTIONS AND DAY TRANSACTIONS WAS IN THE NATURE OF SPECULATIVE TRANSACTIONS AND CONSEQUE NTLY DISALLOWED THE LOSS ON THE GROUND THAT THE SPECULATIVE LOSS COULD NOT BE SET OFF AGAINST T HE REGULAR BUSINESS INCOME. IT WAS THE SUBMISSION BY THE LD. AR THAT THE ASSESSEE WAS IN T HE BUSINESS OF PURCHASE AND SALE OF SHARES, WHICH AS PER THE PROVISIONS OF EXPLANATION TO SECTI ON 73 WAS LIABLE TO BE DEEMED AS SPECULATIVE BUSINESS. IT WAS THE SUBMISSION THAT ADMITTEDLY, I N VIEW OF THE PROVISIONS OF SECTION 43(5) OF THE ACT THE TRANSACTIONS DONE BY THE ASSESSEE IN TH E DAY TRANSACTIONS OF THE SHARES AS ALSO THE DERIVATIVES WAS SPECULATIVE TRANSACTION. IT WAS TH E SUBMISSION THAT AS THE ASSESSEE HAD A LOSS FROM SPECULATIVE TRANSACTION AND AS THE ASSESSEE AL SO HAD INCOME FROM THE PURCHASE AND SALE OF SHARES, WHICH AS PER THE DEEMING PROVISIONS OF EXPL ANATION TO SECTION 73 WAS LIABLE TO BE TREATED AS SPECULATION BUSINESS, THE LOSS FROM THE SPECULATION BUSINESS WAS LIABLE TO BE SET OFF AGAINST THE PROFITS FROM THE DEEMED SPECULATION BUS INESS CONSISTING OF THE PURCHASE AND SALE OF SHARES. IT WAS THE SUBMISSION THAT NEITHER THE AO NOR THE CIT(A) HAD GRANTED THIS DEDUCTION. IT WAS THE SUBMISSION THAT THE AO MAY BE DIRECTED TO G RANT THE ASSESSEE THE BENEFIT OF THE SET OFF OF THE SPECULATION LOSS COMPUTED AND DISALLOWED BY THE AO AND AS CONFIRMED BY THE LD.CIT(A) AGAINST THE DEEMED SPECULATION BUSINESS OF THE PURC HASE AND SALE OF SHARES. IN REGARD TO GROUND 3 ITA NO.788/K/2012 M/S. BALJIT SECURITIES (P) LTD. AY 2005-06 NO.3 OF ASSESSEES APPEAL, IT WAS THE SUBMISSION TH AT THE ISSUE WAS AGAINST THE ACTION OF THE LD. CIT(A) IN CONFIRMING THE ADDITION MADE BY THE AO BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT. IT WAS FAIRLY AGREED BY BOTH THE SIDES THAT AS THE ASSESSMENT YEAR UNDER APPEAL IS ASSESSMENT YEAR 2005-06, IN VIEW OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. M/S. R. R. SEN & BROTHERS (P) L TD. IN GA NO.3019 OF 2012, ITAT NO. 243 OF 2012 DATED 04.01.2013, THE DISALLOWANCE U/S. 14A OF THE ACT MAY BE RESTRICTED TO 1% OF THE EXEMPT INCOME. 5. WE HAVE HEARD RIVAL SUBMISSIONS ON THIS GROUND. IN VIEW OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE REFERRED TO A BOVE, RESPECTFULLY FOLLOWING THE SAME THE AO IS DIRECTED TO RESTRICT THE DISALLOWANCE U/S. 14A O F THE ACT TO 1% OF THE EXEMPT INCOME. 6. IN REGARD TO GROUND NO. 4, THE LD. AR DID NOT PR ESS THE SAME. CONSEQUENTLY, THE SAME IS DISMISSED AS NOT PRESSED. 7. IN REGARD TO GROUND NOS. 1, 2 AND ADDITIONAL GRO UND AS FILED BY THE ASSESSEE, IT WAS SUBMITTED BY THE LD. DR THAT THE SAID GROUND WAS NO T BEFORE THE LD. CIT(A) AND THE ISSUE OF TREATING THE SHARE TRANSACTIONS WHICH HAVE BEEN DIS CLOSED BY THE ASSESSEE AS BUSINESS INCOME AS SPECULATION BUSINESS WAS NOT PERMISSIBLE. IT WAS T HE SUBMISSION THAT THE ADDITIONAL GROUND ITSELF COULD NOT BE ADMITTED AS IT WAS NOT A LEGAL GROUND AND THE FACTS WERE NOT ON RECORD FOR THE PURPOSE OF ADJUDICATING THE SAME. HE PLACED RELIAN CE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF NATIONAL THERMAL POWER CO. LTD . REPORTED IN 229 ITR 383 (SC). IT WAS THE SUBMISSION THAT THE AO HAD NOT TINKERED WITH THE B USINESS INCOME AS DISCLOSED BY THE ASSESSEE AND CONSEQUENTLY, THE TRIBUNAL CANNOT DIRECT THE AO TO MODIFY OR CHANGE THE HEAD OF INCOME. 8. IN REPLY, THE LD. AR DREW OUR ATTENTION TO PAGE 14 OF THE PAPER BOOK, WHICH WAS A COPY OF THE P&L ACCOUNT. HE FURTHER DREW OUR ATTENTION TO SCHEDULE 12, WHICH SHOWED THE BROKERAGE AND OTHER INCOME AT PAGE 18 OF THE PAPER BOOK. IT WAS THE SUBMISSION THAT IN THE P&L ACCOUNT, ASSESSEE HAD SPECIFICALLY SHOWN THE IN COME FROM THE SALE OF SHARES AS ALSO THE COST OF SHARES AND SCHEDULE 12 AND 13 AT PAGE 18 OF THE PAPER BOOK CLEARLY SHOWED THE OTHER INCOMES AND THE LOSS FROM THE DERIVATIVES AND DAY S HARE TRANSACTIONS. IT WAS THE FURTHER SUBMISSION THAT IN SCHEDULE 13 TO THE P & L ACCOUNT THE ASSESSEE HIMSELF HAD REDUCED THE NET LOSS FROM THE DERIVATIVE TRANSACTIONS AND DAY SHARE TRANSANCTIONS FROM THE CLOSING STOCK OF THE COST OF SHARES THE NET OF WHICH WAS SHOWN IN THE P& L ACCOUNT. IT WAS THE SUBMISSION THAT THE 4 ITA NO.788/K/2012 M/S. BALJIT SECURITIES (P) LTD. AY 2005-06 AO HAD BIFURCATED THE INCOME WHEN HE DISALLOWED THE ASSESSEES CLAIM OF THE SPECULATION LOSS IN RESPECT OF THE LOSS IN THE TRANSACTIONS OF THE D ERIVATIVES AND DAY TRADING BY INVOKING THE PROVISIONS OF SECTION 43(5) OF THE ACT. IT WAS THE SUBMISSION THAT WHEN TREATING THE TRANSACTIONS OF THE DERIVATIVES AND THE DAY TRANSACTION AS SPECU LATION, THE AO OUGHT TO HAVE TREATED THE TRANSACTION OF THE PURCHASE AND SALE OF SHARES IN T HE REGULAR COURSE ALSO AS SPECULATIVE TRANSACTION IN VIEW OF THE EXPLANATION TO SECTION 7 3. IT WAS THE SUBMISSION THAT IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F NATIONAL THERMAL POWER CO. LTD., REFERRED TO SUPRA, ALL THE FACTS WERE AVAILABLE ON RECORD AND THE ADDITIONAL GROUND RAISED WAS A QUESTION OF LAW IN SO FAR AS IT RELATED TO THE TREA TMENT TO BE GIVEN TO THE SHARE TRANSACTIONS DONE BY THE ASSESSEE, WHICH IS A COMPANY. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AT TH E OUTSET, A PERUSAL OF P&L ACCOUNT OF THE ASSESSEE, IT CLEARLY SHOWS THAT THE SHARE TRANS ACTIONS AS ALSO THE TRANSACTION OF LOSS FROM THE DERIVATIVES AND DAY SHARE TRANSACTIONS WERE AVAILAB LE IN THE RETURN FILED. THE FACTS BEING AVAILABLE AND THE ADDITIONAL GROUND RAISED BEING IN RESPECT OF THE PROVISIONS OF EXPLANATION TO SECTION 73 AND AS TO WHETHER IT APPLIES TO SHARE TR ANSACTIONS BY A COMPANY SHOWS THAT ALL THE FACTS ARE AVAILABLE ON RECORD AND THAT ADDITIONAL G ROUND IS A LEGAL GROUND. IN THESE CIRCUMSTANCES, IN VIEW OF THE DECISION OF THE HONB LE SUPREME COURT IN THE CASE OF NATIONAL THERMAL CO. LTD., REFERRED TO SUPRA, THE SAID GROUN D IS ADMITTED AND THE SAME IS ADJUDICATED HEREUNDER. 10. A PERUSAL OF THE EXPLANATION TO SEC. 73 SHOWS T HAT THE BUSINESS OF THE ASSESSEE COMPANY INCLUDES PURCHASE AND SALE OF SHARES OF OTHER COMPA NIES I.E. WHERE ANY PART OF THE BUSINESS OF A COMPANY CONSISTS OF THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES SUCH COMPANY SHALL FOR THE PURPOSE OF EXPLANATION TO SECTION 73 BE DEEMED TO CARRY ON SPECULATION BUSINESS TO THE EXTENT TO WHICH SUCH BUSINESS CONSISTS OF THE PURCH ASE AND SALE OF SUCH SHARES. THUS, WHAT IS EVIDENT IS THAT THE PURCHASE AND SALE OF THE SHARES OF OTHER COMPANIES BY A COMPANY CAN BE THE BUSINESS OF THAT COMPANY BUT FOR THE PURPOSE OF INC OME TAX IN VIEW OF THE EXPLANATION TO SEC. 73, THE SAID BUSINESS WOULD BE DEEMED TO BE A SPECU LATION BUSINESS. THIS IS IN ADDITION TO THE SPECIFIC DEFINITION OF SPECULATION BUSINESS PROVIDE D IN SECTION 43(5) OF THE ACT DEFINING SPECULATIVE TRANSACTION. ADMITTEDLY, AS PER THE PR OVISIONS OF SECTION 73(1) ANY LOSS COMPUTED IN RESPECT OF SPECULATION BUSINESS CARRIED ON BY AN ASSESSEE CAN BE SET OFF ONLY AGAINST THE PROFITS AND GAINS, IF ANY, OF ANOTHER SPECULATION B USINESS. THE ASSESSEE, IN THE PRESENT CASE, ADMITTEDLY IS HAVING A LOSS IN THE SPECULATIVE TRAN SACTION BEING THE TRANSACTIONS IN THE 5 ITA NO.788/K/2012 M/S. BALJIT SECURITIES (P) LTD. AY 2005-06 DERIVATIVES AND IN THE DAY TRADING OF THE SHARES AN D IN VIEW OF THE PROVISIONS OF EXPLANATION TO SEC. 73, THE ASSESSEES TRANSACTIONS OF PURCHASE AN D SALE OF SHARES WOULD BE LIABLE TO BE HELD TO BE A DEEMED SPECULATION BUSINESS. UNDER THESE CIRC UMSTANCES, WE ARE OF THE VIEW THAT THE ASSESSEE IS ENTITLED TO THE SETTING OFF OF THE LOSS ON ACCOUNT OF ASSESSEES TRANSACTIONS IN RESPECT OF THE DERIVATIVES AND THE DAY TRADING OF SHARES AG AINST ITS PROFITS AND GAINS FROM THE PURCHASE AND SALE OF SHARES. IN VIEW OF THE ABOVE, THE AO I S DIRECTED TO GRANT THE ASSESSEE THE BENEFIT OF SET OFF OF THE SPECULATIVE LOSS AGAINST THE PROFITS AND GAINS OF THE DEEMED SPECULATION BUSINESS OF PURCHASE AND SALE OF SHARES IN THE REGULAR COURS E. 11. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. 12. ORDER PRONOUNCED IN THE OPEN COURT ON 19.06.201 3. SD/- SD/- . . . . . . . . , ##$ %& %& %& %& , (K. K. GUPTA) (GEORGE MATHAN) ACCOUNTANT MEMBER JUDICIAL MEMBER ( 1 1 1 1) )) ) DATED : 19 TH JUNE, 2013 ORDER PRONOUNCED BY SD/- N.S.SAINI SD/- GEORGE MATHAN A.M. J. M. !23 (&4# (5! JD.(SR.P.S.) 6 ITA NO.788/K/2012 M/S. BALJIT SECURITIES (P) LTD. AY 2005-06 0 6 .((7 87*9- COPY OF THE ORDER FORWARDED TO: 1 . %- / APPELLANT M/S. BALJIT SECURITIES (P) LTD., 6A, PR ETORIA STREET, KOLKATA-700 017 2 ./%- / RESPONDENT ITO, WARD-8(1), KOLKATA. 3 . (0& ( )/ THE CIT(A), KOLKATA 4. 5. (0& / CIT KOLKATA 7!>( .(& / DR, KOLKATA BENCHES, KOLKATA /7 .(/ TRUE COPY, 0&?/ BY ORDER, @ '# /ASSTT. REGISTRAR .