I.T.O Wd - 5(4),kolkata, Kolkata V. M/s Visan Brothers Pvt Ltd, Kolkata

ITA 842/KOL/2013

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3164 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2016
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2003-2004
• Appeal Filed On: 17-04-2013
• Court: TRIBUNAL
• Department Lawyers: ARINDAM BHATTACHARY A JCIT LD
• Assessee Lawyers: D S DAML E FCA LD
• Keywords: Speculation loss
• Section: 143(3)

Judgement Text

ITA NO. 842/KOL/2013-B-AM M/S. VINSAN BROTHERS PVT. LTD 1 IN THE INCOME TAX APPELLATE TRIBUNAL, B BENCH, K OLKATA BEFORE : SHRI N.V. VASUDEVAN, JUDICIAL MEMBER, AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER I.T.A NO. 842/KOL/2013 A.Y : 2003-04 I.T.O WARD 5(4), KOLKATA VS. M/S. VINSAN B ROTHERS PVT. LTD PAN: AACV 9277F (APPELLANT) (RE SPONDENT) FOR THE APPELLANT: SHRI ARINDAM BHATTACHARY A, JCIT/ LD.SR.DR FOR THE RESPONDENT: SHRI D.S. D AMLE,FCA, LD.AR DATE OF HEARING: 29-01-2016 DATE OF PRONOUNCEMENT: 03-02-20 16 ORDER SHRI M.BALAGANESH, AM THIS APPEAL OF THE REVENUE ARISES OUT OF THE ORDER OF THE LEARNED CIT(A)-VI, KOLKATA IN APPEAL NO. 320/CIT(A)-VI/WD-5(4)/11-12/K OL. DATED 15.1.2013 AGAINST THE ORDER OF ASSESSMENT FRAMED U/S 143(3) READ WITH SECTION 254 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL I S AS TO WHETHER THE LEARNED AO IS JUSTIFIED IN TREATING THE SHARE TRADING LOSS OF RS. 51,56,183/- AS SPECULATION LOSS BY APPLYING THE PROVISIONS OF EXPLANATION TO SECTION 7 3 OF THE ACT IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE BRIEF FACTS OF THIS ISSUE IS THAT THE OR IGINAL ASSESSMENT WAS COMPLETED IN THIS CASE U/S 143(3) OF THE ACT ON 24.3.2006 ASSESSING T HE TOTAL INCOME AT RS. 91,54,270/- WHEREIN THE LEARNED AO DISALLOWED THE SHARE TRADING LOSS OF RS. 51,56,183/- , AMONG OTHER ADDITIONS, AS SPECULATION LOSS AS THE SAME WA S GREATER THAN THE INCOME DISCLOSED ITA NO. 842/KOL/2013-B-AM M/S. VINSAN BROTHERS PVT. LTD 2 BY THE ASSESSEE UNDER THE HEAD OTHER SOURCES BY A PPLYING THE PROVISIONS OF EXPLANATION TO SECTION 73 OF THE ACT. THIS ACTION WAS CONFIRMED BY THE LEARNED CIT(A) ON FIRST APPEAL, WHILE GRANTING RELIEFS TO T HE ASSESSEE ON OTHER GROUNDS. AGGRIEVED THE REVENUE PREFERRED AN APPEAL BEFORE TH IS TRIBUNAL AND ASSESSEE PREFERRED CROSS OBJECTIONS BEFORE TRIBUNAL. THE TRIBUNAL DIS MISSED THE REVENUES APPEAL AND IN RESPECT OF CROSS OBJECTIONS RAISED BY THE ASSESSEE, IT DIRECTED THE LEARNED AO TO LOOK INTO THE FUNDS DEPLOYMENT MADE BY THE ASSESSEE TO U NDERSTAND WHETHER THE PRINCIPAL BUSINESS OF THE ASSESSEE IS GRANTING OF LOANS AND A DVANCES SO AS TO GET OUT OF THE RIGOURS OF EXPLANATION TO SECTION 73 OF THE ACT. 3.1. THE LEARNED AO PASSED AN ORDER U/S 143(3) RE AD WITH SECTION 254 OF THE ACT ON 30.12.2011 BY TREATING THE SHARE TRADING LOSS AS S PECULATION LOSS GOING BY THE INCOME COMPOSITION OF THE ASSESSEE AND CONCLUDING THAT THE OBJECTS CLAUSE OF THE ASSESSEE DO NOT CONTAIN THE ACTIVITY OF LENDING AND HENCE THE I NTEREST INCOME DERIVED BY THE ASSESSEE ON LENDING AND FUNDS DEPLOYMENT IN MONEY L ENDING CANNOT BE THE DETERMINING FACTOR FOR UNDERSTANDING THE PRINCIPAL BUSINESS OF THE ASSESSEE. ACCORDINGLY THE LEARNED AO REJECTED THE FUNDS DEPLOYMENT THEORY OF THE ASSESSEE WHICH WAS DIRECTED TO BE VERIFIED BY THE TRIBUNAL IN THE FIRST ROUND O F APPEAL. THE LEARNED AO ALSO OBSERVED THAT THE INCOME FROM SHARE TRADING BUSINES S IN ABSOLUTE TERMS IS MORE THAN THE INCOME FROM LOANS AND ADVANCES AND OTHER SOURCE S AND ACCORDINGLY HELD THAT THE PRINCIPAL BUSINESS OF THE ASSESSEE IS ONLY SHARE TR ADING. ON FIRST APPEAL, THE LEARNED CITA OBSERVED THAT THE FUNDS DEPLOYED IN LENDING AC TIVITY OF THE ASSESSEE IS RS. 635.67 LACS AS AGAINST FUNDS DEPLOYED IN SHARE TRAD ING ACTIVITY OF RS. 187.24 LACS DURING THE ASST YEAR UNDER APPEAL. HE ALSO OBSERV ED FROM THE COMPARABLE CHART OF FUNDS DEPLOYED IN SHARE TRADING AND IN LENDING ACTI VITY THAT FUNDS DEPLOYED IN LENDING ACTIVITY IS MORE THAN THAT DEPLOYED IN SHARE TRADIN G ACTIVITY. ACCORDINGLY HE CONCLUDED THAT THE PRINCIPAL BUSINESS OF ASESSEE IS GRANTING OF LOANS AND ADVANCES AND HENCE THE ASSESSEE FALLS UNDER THE EXCEPTION CLAUSE OF EXPLAN ATION TO SECTION 73 OF THE ACT. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON TH E FOLLOWING GROUNDS:- ITA NO. 842/KOL/2013-B-AM M/S. VINSAN BROTHERS PVT. LTD 3 1. THAT THE LD. CITCA) HAS, ON THE FACTS AND CIRCU MSTANCES OF THE CASE, ERRED IN HOLDING THAT THE LOSS FROM SHARE TRADING B USINESS AMOUNTING TO RS.51 ,56, 183/- IS NOT DEEMED SPECULATION LOSS. 2. THAT THE LD. CIT(A) HAS FAILED TO APPRECIATE THE FACT THAT THE SHARE TRADING BUSINESS IS THE MAIN BUSINESS OF THE ASSESS EE AS PER OBJECTS OF THE COMPANY STATED IN THE MEMORANDUM OF ASSOCIATION OF THE COMPANY AND THEREFORE THE LOSS FROM SHARE TRADING BUSINESS IS C OVERED BY THE EXPLANATION TO SECTION 73. 3. THAT THE LD. CIT(A) HAS ERRED IN CITING THE DECI SIONS OF THE ITA T KOLKATA IN THE CASE OF ITO VS. BAIBHAV CREDIT & POR TFOLIO (P) LTD. AND IN THE CASE OF VALOUR CONSTRUCTIONS PVT. LTD. WITH THE OBSERVATION THAT THE ASSESSEE COMPANY'S PRINCIPAL BUSINESS IS GRANTING L OANS AND ADVANCES WHEREAS AS PER MEMORANDUM OF ASSOCIATION OF THE COM PANY, THIS IS NOT INCLUDED IN THE MAIN OBJECTS AND IS ONLY ANCILLARY OBJECT. 4. THAT THE LD. CIT(A) HAS FAILED TO APPRECIATE THE FACT THAT THE MAIN BUSINESS OF THE ASSESSEECOMPANY WAS SHARE TRADING; NOT GRANTING OF LOAN AS PER THE FUND DEPLOYMENT DATA WHICH BARELY INDICA TES THAT THE ASSESSEE COMPANY DEPLOYED MUCH MORE FUND TOWARDS SHARE TRADI NG THAN THE FUND UTILIZED IN GRANTING LOANS. 5. THAT THE APPELLANT CRAVES FOR LEAVE TO ADD. DELE TE OR MODIFY ANY OF THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. 4. THE LEARNED DR VEHEMENTLY SUPPORTED THE ORDER O F THE LEARNED AO AND ARGUED THAT THE LEARNED CIT(A) ERRED IN GRANTING RELIEF TO THE ASSESSEE BASED ON FUNDS DEPLOYMENT MADE BY THE ASSESSEE IN LENDING ACTIVITY AND ACCORDINGLY ERRED IN CONCLUDING THAT EXPLANATION TO SECTION 73 OF THE AC T IS NOT APPLICABLE TO THE ASSESSEE. IN RESPONSE TO THIS, THE LEARNED AR VEHEMENTLY SUPP ORTED THE ORDER OF THE LEARNED CIT(A) AND ALSO TOOK US INTO THE RELEVANT OPERATIVE PORTIONS OF VARIOUS JUDGEMENTS ON THE IMPUGNED ISSUE WHICH WERE RELIED UPON BY THE LE ARNED CIT(A) IN HIS ORDER. ITA NO. 842/KOL/2013-B-AM M/S. VINSAN BROTHERS PVT. LTD 4 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE MAIN OBJECTS OF THE ASSES SEE COMPANY AS PER ITS MEMORANDUM OF ASSOCIATION ARE AS UNDER:- 2. TO CARRY ON INVESTMENT BUSINESS AND TO PURCHAS E, ACQUIRE, HOLD AND DISPOSE OF OR OTHERWISE DEAL AND INVEST IN SHAR ES, STOCKS, DEBENTURES, DEBENTURE STOCKS, BONDS, OBLIGATIONS AN D SECURITIES ISSUED OR GUARANTEED BY ANY COMPANY CONSTITUTED O R CARRYING ON BUSINESS IN INDIA OR ELSEWHERE AND DEBENTURE STOCKS . BONDS, OBLIGATIONS AND SECURITIES ISSUED OR GUARANTEED BY ANY GOVERNMENT STATE, DOMINION, SOVEREIGN RULER, COMMISSIONER, PUB LIC BODY OR AUTHORITY SUPREME, MUNICIPAL LOCAL OR OTHERWISE WHE THER IN INDIA OR ELSEWHERE AND TO DEAL IN REAL ESTATES OR PROPERTIES EITHER OUT OF ITS OWN FUNDS OR OUT OF FUNDS THAT THE COMPANY MIGHT BO RROW AND TO VARY OR OTHERWISE DISPOSE OF. EXCHANGE, TRANSFER OR ALIENATE ANY OF THE INVESTMENTS, REAL ESTATES AND PROPERTIES OF THE COMPANY. 3. TO ACT, AS INVESTORS, GUARANTORS, UNDERWRITERS , FINANCIERS AND TO LEND OR DEAL WITH THE MONEY EITHER-WITH OR WITHOUT INTEREST OR SECURITY, INCLUDING IN CURRENT OR DEPOSIT ACCOUNT W ITH ANY BANK OR BANKS, OTHER PERSON OR PERSONS UPON SUCH TERMS, CON DITIONS AND MANNER AS MAY FROM TIME TO TIME BE DETERMINED AND TO RECEIVE MONEY ON DEPOSIT OR LOAN UPON SUCH TERMS AND CONDIT IONS AS THE COMPANY MAY APPROVE. PROVIDED THAT THE COMPANY SHAL L NOT DO ANY BANKING BUSINESS AS DEFINED UNDER THE BANKING REGUL ATION ACT, 1949. WE ALSO FIND FROM THE PAPER BOOK FILED BY THE LEAR NED AR THAT ASSESSEE IS A NON- BANKING FINANCE COMPANY (NBFC IN SHORT) REGISTERED WITH RESERVE BANK OF INDIA VIDE REGISTRATION NUMBER B-05.05873 DATED 28.11.200 3. WE FIND THAT THIS CERTIFICATE WOULD BE ISSUED BY RBI ONLY WHEN THE ASSESSEE IS EN GAGED IN THE LENDING ACTIVITIES. IT IS ALSO SEEN FROM CLAUSE 3 OF MEMORANDUM OF ASSOCIA TION (MOA) THAT ONE OF THE MAIN OBJECTS OF ASSESSEE COMPANY IS TO ENGAGE ITSEL F IN LENDING ACTIVITIES APART FROM DEALING IN SHARES. WE FIND THAT IN THE FIRST ROUN D OF APPELLATE PROCEEDINGS, THE TRIBUNAL HAD SET ASIDE TO THE FILE OF THE LEARNED AO TO ASCE RTAIN WHETHER THE PRINCIPAL BUSINESS OF ASSESSEE IS LENDING ACTIVITY. THE DIRECTIONS OF THE TRIBUNAL IN ITA NO. 1370/KOL/2006 ITA NO. 842/KOL/2013-B-AM M/S. VINSAN BROTHERS PVT. LTD 5 AND CO NO. 84/KOL/2006 DATED 18.3.2010 FOR ASST YEA R 2003-04 IN THE FIRST ROUND IS REPRODUCED HEREIN BELOW FOR THE SAKE OF CONVENIENCE :- 16. AFTER HEARING BOTH THE PARTIES AND PERUSING TH E MATERIAL AVAILABLE ON RECORD, WE FIND THAT THE PLEA NOW TAKEN BEFORE US A ND THE STATEMENT SHOWING FUND DEPLOYMENT BY THE ASSESSEE COMPANY HAS BEEN PLACED BEFORE US FOR THE FIRST TIME AND THE SAME WAS NOT BEFORE T HE LOWER AUTHORITIES. SINCE THE DETAILS NOW RELIED ONBY THE ASSESSEE NEED S VERIFICATION AT THE END OF THE AO, WE DEEM IT PROPER TO RESTORE THE MATTER TO THE FILE OF THE AO FOR ADJUDICATING AFRESH AFTER AFFORDING A REASONABLE OP PORTUNITY OF BEING HEARD TO THE ASSESSEE. THEREFORE, THESE GROUNDS OF CROSS OBJECTION OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES . HENCE IT COULD BE SAFELY CONCLUDED THAT THE LEARNED AO HAS BEEN DIRECTED BY THIS TRIBUNAL TO MAKE VERIFICATION OF THE VERACITY OF TH E FIGURES OF FUND DEPLOYMENT GIVEN BY THE ASSESSEE AND DECIDE THE IMPUGNED ISSUE. WE FIN D THAT THE LEARNED AO HAD COMPLETELY IGNORED THIS FUND DEPLOYMENT POSITION OF THE ASSESSEE WHICH WOULD PROVE BEYOND DOUBT THAT THE PRINCIPAL BUSINESS OF THE ASS ESSEE IS GRANTING OF LOANS AND ADVANCES AND ACCORDINGLY THE PROVISIONS OF EXPLANAT ION TO SECTION 73 OF THE ACT CANNOT BE APPLIED TO THE FACTS OF THE CASE. FOR T HE SAKE OF CONVENIENCE, THE DETAILS OF FUNDS DEPLOYED BY THE ASSESSEE IN EACH OF THE YEARS IS GIVEN BELOW:- FUNDS DEPLOYED IN (RS IN LACS) YEAR ENDED STOCK IN TRADE OF SHARES LOANS 31.03.2003 187.24 635.67 31.03.2004 234.45 790.04 31.03.2005 200.57 1009.08 31.03.2006 102.16 1378.31 WE FIND THAT THE LEARNED AO HAD DECIDED THE IMPUGNE D ISSUE BASED ON THE INCOME COMPOSITION OF THE ASSESSEE AND ACCORDINGLY CONCLUD ED THAT THE NET RESULTS FROM SHARE TRADING IN ABSOLUTE TERMS IS MORE THAN THE INTEREST INCOME ON LENDING ACTIVITIES AND ITA NO. 842/KOL/2013-B-AM M/S. VINSAN BROTHERS PVT. LTD 6 OTHER SOURCES AND THEREBY APPLIED THE PROVISIONS OF EXPLANATION TO SECTION 73 OF THE ACT. IT WOULD BE PERTINENT TO REPRODUCE THE EXPLA NATION TO SECTION 73 OF THE ACT AT THIS JUNCTURE :- SECTION 73 LOSSES IN SPECULATION BUSINESS EXPLANATION WHERE ANY PART OF THE BUSINESS OF A C OMPANY ([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 S OURCES], OR A COMPANY [THE PRINCIPAL BUSINESS OF WHICH IS THE BUS INESS OF BANKING] OR THE GRANTING OF LOANS AND ADVANCES) CONSISTS IN THE PUR CHASE AND SALE OF SHARES OF OTHER COMPANIES, SUCH COMPANY SHALL, FOR THE PURPOS ES OF THIS SECTION, 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. HENCE IT IS VERY CLEAR FROM THE AFORESAID SECTION T HAT WHEN THE PRINCIPAL BUSINESS IS THAT OF GRANTING LOANS AND ADVANCES AND IF SUCH COM PANY ALSO ENGAGES ITSELF IN PURCHASE AND SALE OF SHARES, THEN THE PURCHASE AND SALE OF SHARES ACTIVITY WOULD FALL UNDER THE EXCEPTION TO EXPLANATION TO SECTION 73 OF THE ACT. WE HAVE ALREADY HELD THAT ONE OF THE MAIN OBJECTS OF THE ASSESSEE COMPAN Y IS LENDING ACTIVITY AND MORE SO THE ASSESSEE IS A NBFC REGISTERED WITH RBI HAVING V ALID CERTIFICATE OF REGISTRATION AND THE FUND DEPLOYED IN LENDING ACTIVITY IS MUCH MORE THAN THE FUND DEPLOYED IN SHARE TRADING ACTIVITY ON A CONSISTENT BASIS OVER A PERIO D OF TIME. HENCE THE PRINCIPAL BUSINESS OF ASSESSEE COMPANY IS THAT OF GRANTING LO ANS AND ADVANCES AND THEREBY OUTSIDE THE AMBIT OF EXPLANATION TO SECTION 73 OF T HE ACT. ACCORDINGLY, THE SHARE TRADING LOSS OF RS. 51,56,183/- CLAIMED BY THE ASSE SSEE CANNOT BE CONSTRUED AS SPECULATION LOSS AND ACCORDINGLY WE FIND NO INFIRMI TY IN THE ORDER OF THE LEARNED CIT(A) IN THIS REGARD. ACCORDINGLY, THE GROUNDS RA ISED BY THE REVENUE ARE DISMISSED. ITA NO. 842/KOL/2013-B-AM M/S. VINSAN BROTHERS PVT. LTD 7 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON 03-02-2 016 1.. THE APPELLANT: THE I.T.O WARD 5(4), KOLKATA. 2 THE RESPONDENT- M/S. VINSAN BROTHERS PVT. LTD 16 N.S ROAD, 4 TH FLOOR, KOL-1. 3 /THE CIT, 4.THE CIT(A ) 5. DR, KOLKATA BENCH 6. GUARD FILE. TRUE COPY, BY ORDER, ASSTT REGISTRAR **PRADIP SPS SD/- ( N.V. VASUDEVAN, JUDICIAL MEMBER ) SD/- (M. BALAGANESH, ACCOUNTANT MEMBER) DATE: DATE 03-02-2016 COPY OF THE ORDER FORWARDED TO:-