VARIETY INVESTMENTS P.LTD, MUMBAI V. ACIT 4(3), MUMBAI

ITA 8021/MUM/2011

• Counselvise Citation: 802119914 RSA 2011
• Duration Of Justice: 2 year(s) 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-06-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 11-02-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 29-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SAMBIT MISRA
• Assessee Lawyers: PRADIP N KAPASI
• Keywords: Business income; Transactions in derivatives; Speculation loss
• Section: 234B; 14A

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - F BENCH. . , !'# !$%&' , %! () BEFORE S/SH.D.MANMOHAN, VICE-PRESID ENT & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO.8021/MUM/2011, ! ! ! ! * * * * / ASSESSMENT YEAR-2004-05 M/S.VARIETY INV ES T MENTS P VT. LIMITED C/O.M/S.LAW CHARTER,14-K, HAMAM STREET,FORT,MUMBAI-400001 VS. A C I T 4(3) AAYAKAR BHAVAN, M. K ROAD,MUMBAI-20 PAN:AAACV3458Q ( !+, / APPELLANT) ( -.+, / RESPONDENT) !/0 !/0 !/0 !/0 1 1 1 1 % %% % / ASSESSEE BY : SHRI PRADIP N KAPASI !$) 2 1 % / REVENUE BY : SHRI SAMBIT MISRA ! ! ! ! 2 22 2 0! 0! 0! 0! / DATE OF HEARING : 26-06-2014 3* ! 2 0! / DATE OF PRONOUNCEMENT : 26-06-2014 , 1961 2 22 2 !! !! !! !! 254 )1( % %% % &040 &040 &040 &040 (%5 (%5 (%5 (%5 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM %! %! %! %! () () () () !$%&' !$%&' !$%&' !$%&' % %% % ! ! ! ! : CHALLENGING THE ORDER DT.30.09.2011 OF THE CIT(A)-9 , MUMBAI,ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL : 1.(A)THE LD. CIT (A) ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF THE LD. A.O. IN ASSESSING THE TOTAL INCOME AT RS.26,60,375/-AGAINST THE RETURNED INCOME OF RS.17, 46,467/- COMPUTED AFTER SETTING OFF BUSINESS LOSS OF RS.8,77 ,275/- AND THE LD. CIT (A) ALSO ERRED IN LAW AND ON FACTS IN CONFIRMING THAT DISALLOWANCE OF RS.36,9 20/- AS EXPENDITURE TOWARDS EARNING DIVIDED INCOME OF RS.7,38,404/- BY MAKING PROVISIONS OF S. 14A OF THE ACT APPLICABLE AND IN THE PROCESS ERRED IN MAKING AN ADDITION OF RS.9,13,908/- TO THE RETURNED INCOME. (B)YOUR APPELLANT SUBMITS THAT IT HAD COMPUTED THE TOTAL INCOME IN ACCORDANCE WITH THE PROVISIONS OF INCOME TAX ACT. (C)YOUR APPELLANT PLEADS FOR THE DELETION OF THE AD DITION OF RS.9,13,908/-MADE BY THE A.O.AFTER ALLOWANCE OF BUSINESS LOSS OF RS.8,77,275/- AND DEL ETION OF CONFIRMATION OF DISALLOWANCE OF RS.36,920/- AS EXPENDITURE AND FURTHER PLEADS THAT THE RETURNED INCOME OF RS.17,46,467/-. 2.A)THE LD. CIT (A) ERRED IN LAW AND ON FACTS IN CO NFIRMING THAT THE BUSINESS LOSS OF RS.8,77,275/- REPRESENTED THE SPECULATIVE LOSS UNDER EXPLANATION TO S. 73 OF THE ACT AND FURTHER ERRED IN DISALLOWING SET-OFF OF SUCH LOSS AGAINST OTHER BUSI NESS INCOME AND OTHER INCOME. B)YOUR APPELLANT SUBMITS THAT THE LOSS OF RS.8,77,2 75/- WAS IN REGULAR COURSE OF BUSINESS AND WAS ELIGIBLE FOR SET-OFF UNDER THE PROVISIONS OF INCOME TAX ACT C)YOUR APPELLANT SUBMITS THAT THE LOSS IN QUESTION REPRESENTED THE LOSS INCURRED IN REGULAR COURSE OF BUSINESS AND THAT THE PROVISIONS OF EXPLANATION TO SEC.73 DID NOT APPLY TO THE CASE OF THE APPELLANT AT ALL AND FURTHER SUBMIT THAT THE LOSS S HOULD BE ALLOWED FOR SET-OFF AGAINST BUSINESS INCOME AND OTHER INCOME. 3.(A)THE LD.CIT (A) ONCE AGAIN ERRED IN LAW AND ON FACTS IN CONFIRMING THAT DISALLOWANCE OF RS.36,920/ AS EXPENDITURE TOWARDS EARNING DIVIDED I NCOME OF RS.7,38,404/-BY MAKING PROVISIONS OF S. 14A OF THE ACT APPLICABLE. (B)YOUR APPELLANTS SUBMIT THAT: I)NO PARTICULAR EXPENDITURE IS INCURRED SOLELY FOR EARNING DIVIDEND INCOME. 2 ITA NO. 8021/MUM/2011 M/S.VARIETY INVESTMENTS PVT. LTD. II)THE ENTIRE BUSINESS OPERATION RESULTS IN ONE BUS INESS ACTIVITY AND HENCE IT IS NOT POSSIBLE TO APPORTION THE EXPENSES BETWEEN TAXABLE AND NON TAXA BLE ACTIVITY. III)NO PROVISION OF APPOINTMENT OF EXPENSES HAS BEE N MADE ON NOTIONAL BASIS IN S. 14A. IV)NO BORROWED FUNDS WERE UTILIZED FOR THE PURPOSE OF EARNING DIVIDEND INCOME. (C)YOUR APPELLANT PLEADS THAT THE SAID ADDITION OF RS.36,920/- BE DELETED. 4.(A)THE LD. CIT (A) IN CONFIRMING THE ACTIONS OF T HE LD. A.O. HAS ONE AGAIN ERRED IN LEVYING INTEREST U/S 234B OF WITHOUT GIVING ANY OPPORTUNITY OF HEARING AND IN NOT PASSING ANY SPEAKING ORDER FOR THE LEVY OF INTEREST. (B)YOUR APPELLANT DENIES ANY LIABILITY OF PAYMENT O F INTEREST AND FURTHER SUBMITS THAT THE INTEREST WAS CHARGED IN VIOLATION OF THE PROVISION OF NATURA L JUSTICE IN AS NIUCH AS NO OPPORTUNITY FOR HEARING WAS GIVEN. 5.YOUR APPELLANT PRAYS FOR TILE LEAVE TO DELETE OR MODIFY ANY OF THE ABOY~QM. BEFORE US,AUTHORISED REPRESENTATIVE(AR) OF THE ASSE SSEE DID NOT PRESS GROUNDS OF APPEAL NO. THEREFORE SAME STAND DISMISSED AS NOT PRESSED. 2 .ASSESSEE-COMPANY FILED ITS RETURN OF INCOME ON 01. 11.2004,DECLARING TOTAL INCOME AT RS. 17, 46,467/-.AN ASSESSMENT ORDER U/S.143(3),DATED 3 1.1 2.2006,WAS PASSED BY THE ASSESSING OFFICER(AO)DETERMINING THE TOTAL INCOME OF THE ASSE SSEE AT RS.26,71,513/-DURING THE COURSE OF ASSESSMENT PROCEEDINGS,AO NOTICED THAT THE ASSESSEE HAD CLAIMED CERTAIN LOSSES ON FUTURE/ OPTIONS.THE AO WAS OF THE OPINION THAT SAME WERE SP ECULATIVE IN NATURE.HE,THEREFORE, ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE SAME SHOULD NO T BE DISALLOWED.AFTER CONSIDERING THE REPLY OF THE ASSESSEE,AT PARAGRAPH THREE OF HIS ORDER,HE HEL D THAT THE ASSESSEE S RELIANCE ON SUB-SECTION (5) OF SECTION 43 WAS MISPLACED BECAUSE THE CLAUSE (D), INSERTED BY THE FINANCE ACT-2005, WAS APPLICABLE FROM 01.04.2006,THAT IT HAD NO RELEVANCE FOR THE YEAR UNDER APPEAL,THAT SAID CLAUSE (D) WAS NOT RETROSPECTIVE IN NATURE.FINALLY,HE HELD THA T THE LOSSES CLAIMED OF FUTURE/ OPTIONS WERE IN THE NATURE OF SPECULATION.AS A RESULT,LOSS AMOUNTIN G TO RS.8.77 LAKHS,WAS DISALLOWED.HE FURTHER HELD THAT THE LOSS WAS NOT ELIGIBLE FOR SET-OFF AGA INST BUSINESS INCOME/OTHER HEADS OF INCOME. 3. AGAINST THE ORDER OF THE AO ASSESSEE PREFERRED AN A PPEAL BEFORE THE FIRST APPEAL AUTHORITY (FAA).AFTER CONSIDERING THE SUBMISSIONS OF THE ASSE SSEE AND THE ASSESSMENT ORDER HE DECIDED THE ISSUE AS UNDER: REGARDING GROUNDS OF APPEAL NO.2, I FIND CONSIDERA BLE FORCE IN THE ARGUMENTS OF THE AO THAT THE AMENDMENT INSERTED BY THE FINANCE ACT,2005 VIDE CLA USE (D) OF SUB SECTION(5)OF SECTION 43 OF THE ACT ARE W.E.F.1.04.2006.THEREFORE,THE BENEFIT OF TH E SAID AMENDMENT CANNOT BE GIVEN RETROSPECTI VELY TO THE PRESENT APPELLANT IN EARLIER ASSESSMENT YEAR 2004-05.THEREFORE,THE DISALLOWANCE MADE BY THE AO IS MAINTAINABLE AND THE SAME IS CONFIRMED .GROUNDS OF APPEAL NO.2 IS THEREFORE DISMISSED. 4. BEFORE US,AR STATED THAT THE ASSESSEE HAD TAKEN DE LIVERY OF THE SHARES TRADED BY,THAT IN SPECULA -TIVE TRANSACTIONS PHYSICAL DELIVERY IS NOT TAKEN,T HAT THE SAID VITAL ISSUE WAS NEVER LOOKED IN TO BY THE FAA,THAT THE ASSESSEE HAD RIGHTLY CLAIMED SET OFF OF LOSS AGAINST THE OTHER INCOMES. DEPART - MENTAL REPRESENTATIVE (DR)SUPPORTED THE ORDERS OF T HE FAA. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT DURING THE APPELLATE PROCEEDIGNS THE FAA HAD NOT DEALT WITH TH E OBJECTIONS RAISED BY THE ASSESSEE .HE HAD DECIDED THE ISSUE ONLY ON THE APPLICABILITY OF CLAU SE (D) OF SUB SECTION(5)OF SECTION 43 OF THE ACT AND JUST ENDORSED THE STAND TAKEN BY THE AO.WHETHER THE TRANSACTION ENTERED IN TO BY THE ASSESSEE WERE SPECULATIVE HAD NOT BEEN DECIDED BY THE FAA.PR OVISIONS OF ACT HAVE DEFINED THE SPECULATIVE TRANSACTIONS.BUT,WHETHER ANY TRANSACTION FALLS UNDE R THAT CATEGORY OR NOT DEPENDS ONLY ON THE FACTS OF THAT PARTICULAR CASE.TRANSACTION IN F&O SEGMENT CANNOT BE HELD SPECULATIVE TRANSACTION MERELY BECAUSE THEY ARE OF A PECULIAR SEGMENT.WHETHER PHYS ICAL DELIVERY OF THE TRANSACTIONS HAD TAKEN PLACE OR NOT AND IF YES WHAT WOULD BE ITS EFFECTS W ERE THE BASIC ISSUE TO DECIDE THE MATTER AGAINST THE ASSESSEE .AS VITAL QUESTIONS HAVE REMAINED UNAN SWERED,SO,IN THE INTEREST OF JUSTICE,WE ARE REMITTING BACK THE MATTER TO THE FILE OF THE FAA FO R FRESH ADJUDICATION.HE WILL AFFORD A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE ,BEFORE THE DECIDING THE ISSUE.GROUND NO.2 IS DECIDED IN 3 ITA NO. 8021/MUM/2011 M/S.VARIETY INVESTMENTS PVT. LTD. FAVOUR OF THE ASSESSEE ,IN PART. AS A RESULT, APPEAL FILED BY TH E ASSESSEE STANDS PARTLY ALLOWED. 06 !/0 8!! (!9 2 4 506 ):0 2 $!0 ; . ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH ,JUNE, 2014 . (%5 2 3* ! % &!! < =(! 26 $@ , 201 4 2 4 A SD/- SD/- ( . / D.MANMOHAN) ( !$%&' !$%&' !$%&' !$%&' / RAJENDRA) !'# / VICE PRESIDENT %! %! %! %! () () () () /ACCOUNTANT MEMBER / MUMBAI, =(! /DATE: 26.06.2014. SK (%5 (%5 (%5 (%5 2 22 2 -0B -0B -0B -0B C%B*0 C%B*0 C%B*0 C%B*0 / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / !+, 2. RESPONDENT / -.+, 3. THE CONCERNED CIT(A)/ D E , 4. THE CONCERNED CIT / D E 5. DR F BENCH, ITAT, MUMBAI / BF!4 -0 , . . &!! . 6. GUARD FILE/ 4! ! .!B0 .!B0 .!B0 .!B0 -0 -0-0 -0 //TRUE COPY// (%5!! / BY ORDER, / ! $! DY./ASST. REGISTRAR , /ITAT, MUMBAI