ITO, Jaipur V. M/S INDERGIRI FINANCE LTD., Jaipur

ITA 858/JPR/2012

• Counselvise Citation: 85823114 RSA 2012
• Duration Of Justice: 2 year(s) 9 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 08-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P C PARWAL CA DHK
• Keywords: Business income; Transactions in derivatives; Speculation loss
• Section: 143(3)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH VKJ-IH-RKSYKUH] U;KF;D LNL; ,OA JH VH-VKJ-EHUK] YS[KK LNL; DS LE{K BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM VK;DJ VIHY LA-@ ITA NO. 858/JP/2012 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2005-06 THE ITO WARD- 6 (3) JAIPUR CUKE VS. M/S. INDERGIRI FINANCE LTD. B-123B, MANGAL MARG, BAPU NAGAR, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO .: AAAFI 5351 A VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS@ REVENUE BY : SMT. NEENA JEPH, JCIT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI P.C. PARWAL, CA LQUOKBZ DH RKJH[K@ DATE OF HEARING : 16/06/2015 ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 7/09/2015 VKNS'K@ ORDER PER BENCH THIS IS AN APPEAL FILED BY THE REVENUE AGAINST T HE ORDER OF THE LD. CIT(A)-II, JAIPUR DATED 01-08-2012 FOR THE ASSESSME NT YEAR 2005-06 WHEREIN THE REVENUE HAS RAISED SOLITARY GROUND AS U NDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DIRECTING T O ALLOW SET OFF OF LOSS IN PURCHASE AND SALE OF SHARES AGAINST BUSINESS INCOME WITHOUT APPRECIATING THE FACTS THAT THE LOSS SUFFERED BY THE ASSESSEE IN SHARE BUSINESS WAS IN THE NATURE OF SPECULATION BUSINESS BY THE DEEMING FICTION CONTAIN ED IN EXPLANATION TO SECTION 73 AND THEREFORE, SET OFF OF SPECULATION LOSS WAS NOT ADMISSIBLE AGAINST BUSINES S INCOME. ITA NO. 858/JP/2012 ITO, WARD- 6 (3), JAIPUR VS. M/S. INDERGIRI FINANC E LTD. . . 2 2.1 BRIEF FACTS OF THIS CASE ARE THAT THAT THE ASSE SSEE FILED ITS RETURN OF INCOME ON 29-10-2005 DECLARING NIL INCOME. THE ASSE SSEE HAD REVISED ITS RETURN OF INCOME ON 27-01-2006. THEREAFTER THE CASE OF THE ASSESSEE WAS SCRUTINIZED U/S 143(3) OF THE ACT. THE AO OBSERVED THAT THE ASSESSEE IN THIS CASE IS ENGAGED IN THE BUSINESS OF FINANCIAL S ERVICES LIKE INVESTMENT AND DEALING IN SHARES. THE ASSESSEE IN THE PROFIT A ND LOSS ACCOUNT FOR THE YEAR ENDED ON 31-03-205 HAD SHOWN PURCHASE AND SALE OF SCRIPS. NO SEPARATE TRADING ACCOUNT FOR PURCHASE AND SALE OF S ECURITIES BUSINESS HAD BEEN PREPARED BY THE ASSESSEE COMPANY. THE AO VIDE LETTER DATED 6-07-2007 ASKED FOR ASSESSEE TO FURNISH THE DETAILS OF SEPARATE TRADING ACCOUNT FOR TRADING IN SCRIPS FOR PHYSICAL TRADING, F&O TRANSACTIONS AND DAY-TRADING. THE AO OBSERVED THAT THE ASSESSEE HAS VIDE LETTER DATED 16-08-2007 FURNISHED SCRIPWISE TRADING STATEMENT FO R DELIVERY BASED TRANSACTIONS. AS PER THE DETAILS SUBMITTED BY THE A SSESSEE, IT IS OBSERVED BY THE AO THAT THE ASSESSEE DURING THE YEAR UNDER C ONSIDERATION HAS SOLD 50,000 SHARES OF M/S. POLYMETCH ENGINEERING (P) LTD . WORTH RS. 50,00,000/- AT A SALE PRICE OF RS. 5,00,000/- AND D ECLARED LOSS OF RS. 45,00,000/- FROM THIS TRANSACTION. FURTHER THE ASSE SSEE HAD PURCHASED 40,000 SHARES OF M/S. SHARPMIND DEVELOPERS (P) LTD. AT THE COST OF RS. 10,00,000/- AND SOLD ALL THE SHARES DURING THE YEAR AT A SALE PRICE OF RS. 80,000/- AND CLAIMED LOSS OF RS. 9,20,000/-. TH US THE ASSESSEE HAS DECLARED TOTAL SHARE TRADING LOSS OF RS. 54,20,000 /- FROM THE TRANSACTIONS ITA NO. 858/JP/2012 ITO, WARD- 6 (3), JAIPUR VS. M/S. INDERGIRI FINANC E LTD. . . 3 OF THESE TWO SCRIPS. THE AO REQUIRED THE ASSESSEE T O FURNISH THE TRADING ACCOUNT FOR VARIOUS SEGMENTS BUT THE ASSESSEE SUBM ITTED CONSOLIDATED TRADING ACCOUNT AS WELL AS SCRIP-WISE TRADING ACCOU NT AND THUS INDICATED THE LOSS OF RS. 54,20,000/-IN THE PURCHASE AND SALE OF SHARES. THE AO INVOKED THE PROVISIONS OF EXPLANATION TO SECTION 73 OF THE ACT CONSIDERING THE REPLY AS TO THE TRANSACTIONS MADE I N THE SCRIPS SALES AND PURCHASES AS THE REPLY FILED BY THE ASSESSEE WAS NO T FOUND ACCEPTABLE BY THE AO. THE AO RELIED ON FOLLOWING CASE LAWS IN SUP PORT OF APPLICATION OF PROVISIONS OF SECTION 73 OF THE ACT IN THE ASS ESSMENT ORDER. (I) ARYASTHAN CORPORATION LTD. VS. CIT, 253 ITR 401 (CAL.) (II) CIT VS. AMRITLAL & CO. 212 ITR 540(BOM.) (III) EASTERN AVIATION & INDUSTRIES LTD. VS. CIT, 208 ITR 1023 (CAL.) (IV) CIT VS. PARK VIEW PROPERTIES (P) LTD. , 261 I TR 473 (V) CIT VS. INTERMETAL TRADE LTD., 285 ITR 536 (M. P.) IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, THE AO DISALLOWED THE SET OFF OF SPECULATIVE LOSS OF RS. 54,20,000/- U/S 73(1) OF THE ACT. 2.2 THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) WHO ALLOWED THE SET OFF OF SPECULATIVE LOSS OF RS. 54,20,000/- DISALLOWED BY THE AO U/S 73 (1) OF THE ACT BY OBSERVING AS UNDER:- 3.1 I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE APPELLANT.. 3.2 THE AO HAD PLACE RELIANCE ON THE DECISION OF CIT VS. INTERMETAL TRADE LTD. (258 ITR 536) BUT THE ITA NO. 858/JP/2012 ITO, WARD- 6 (3), JAIPUR VS. M/S. INDERGIRI FINANC E LTD. . . 4 FACTS WERE DISTINGUISHABLE. IN THE CITED CASE, THE MAIN BUSINESS WAS THAT OF TRADING I METALS AND SHARES. T HUS THE UNDERLYING ISSUE FOR CONTEMPLATION IN BOTH THE CASES WAS ENTIRELY DIFFERENT. THE REASONS ON THE BA SIS OF WHICH THE HON'BLE M.P. HIGH COURT RULED THAT TH E PRINCIPAL BUSINESS OF THE ASSESSEE COMPANY WAS NOT OF GRANTING LOANS AND ADVANCES DID NOT INCIDENTALLY HE LP IN THE INSTANCE CASE TO PROVE THAT THE MAIN BUSINES S OF THE APPELLANT WAS OF GRANTING OF LOANS AND ADVANCES DID NOT INCIDENTALLY HELP IN THE INSTANCE CASE TO P ROVE THAT THE MAIN BUSINESS OF THE APPELLANT WAS OF GRAN TING LOANS AND ADVANCES. FURTHER EXPLANATION TO SECTION 73 BEING THE DEEMING PROVISION, SHOULD BE CONSTRUED STRICTLY. IN THE CASE OF ARYASTHAN CORPORATION LTD. VS. CIT (253 ITR 401- CALCUTTA), RELIED UPON BY THE AO, THE ISSUE INVOLVED WAS TO DECIDE WHETHER THE ASSESS EE COMPANY WAS AN INVESTMENT COMPANY U/S 109(II) OF TH E ACT OR NOT. THE FACTS OF THE CASE WERE DIFFERENT HE NCE IT WAS NOT APPLICABLE. IN THE CASE OF CIT VS. AMRITLAL & CO. (212 ITR 540 BOMBAY) RELIED UPON BY THE AO, THE ISSUE WAS WHETHER THE ASSESSEE COMPANY WAS AN INVESTMENT COMPANY U/S 109(II) OF THE ACT OR NOT, WHICH WAS NOT RELEVANT HERE. IN THE CASE OF EASTERN AVIATION & INDUSTRIES LTD. VS. CIT, 20 ITR 1023 CALCUTTA) RELIED UPON BY THE AO, THE UNDERLYING QUESTION TO BE TESTED IN EASTERN AVIATION & INDUSTR IES LTD.S CASE WAS THAT WHETHER THE ASSESSEE COMPANY WAS AN INVESTMENT COMPANY IN TERMS OF SECTION 109(I I) OF THE ACT OR NOT. IN THE CASE OF CIT VS. PARK VIEW PRODUCTS (P) LTD. (261 ITR 473) RELIED UPON BY THE AO, THE ISSUE WAS WHETHER THE MAIN SOURCE OF INCOME WAS FROM OTHER THAN BUSINESS INCOME OR NOT. THIS CA SE WAS THUS NOT AT ALL RELEVANT IN THE PRESENT CASE. T HE AO HAS NOT TAKEN INTO CONSIDERATION THAT THE ASSESS EE COMPANY WAS A NON-BANKING FINANCIAL COMPANY AS PER THE CERTIFICATE OF REGISTRATION GRANTED BY THE RESE RVE BANK OF INDIA. IT WAS HELD BY HON'BLE GUJARAT HIGH COURT IN THE CASE OF BARKHA INVESTMENT & TRADING COMPANY VS. CIT (281 ITR 316) THAT ONCE THE COMPANY WAS REGISTERED WITH THE RESERVE BANK OF INDIA AND KEPT THE REGISTRATION ALIVE AS NBFC, THE ASSESSEE COMPANY WAS TO BE CONSIDERED AS A COMPANY, THE PRINCIPAL BUSINESS OF WHICH WAS GRANTING OF LOA NS ITA NO. 858/JP/2012 ITO, WARD- 6 (3), JAIPUR VS. M/S. INDERGIRI FINANC E LTD. . . 5 AND ADVANCES AND CHAPTER III-B OF RBI ACT WILL HAVE AN OVERRIDE EFFECT. IF THE PRINCIPAL BUSINESS WAS O F GRANTING LOAN AND ADVANCES, THEN EXPLANATION TO SECTION 73 WAS NOT APPLICABLE AS HELD IN THE CASE O F NARAIN PROPERTIES LTD. VS. ACIT (11 SOT 1, LUCKNOW ITAT ) AND ACIT VS. TANNA ELECTRO MECHANICS (P) LTD. (7 SOT 121). I THEREFORE, HOLD THAT THE WAS N OT JUSTIFIED IN TREATING THE LOSS OF RS. 54,20,000/- I N THE PURCHASE AND SALE OF SHARES AS SPECULATION LOSS. S INCE THE EXPLANATION TO SECTION 73 IS NO T APPLICABLE IN THE PRESENT CASE, THE AO IS DIRECTED TO ALLOW SET OFF T HE LOSS IN PURCHASE AND SALE OF SHARES AGAINST THE BUSINESS INCOME. THESE GROUNDS OF APPEAL ARE ALLOWED. 2.3 THE LD. DR RELIED ON THE ORDER OF THE AO. 2.4 THE LD. AR OF THE ASSESSEE RELIED ON THE ORDER OF THE LD. CIT(A). 2.5 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND FROM THE RECORDS THAT THE AO HAS NOT TAKEN INTO CONSIDERATION THAT THE ASSESSEE COMPANY WAS A NON-BANKING FINANCIAL COMPANY AS PER THE CERTIFICATE OF REGISTRATION GRAN TED BY THE RESERVE BANK OF INDIA. IT IS ALSO HELD BY HON'BLE GUJARAT HIGH C OURT IN THE CASE OF BARKHA INVESTMENT & TRADING COMPANY VS. CIT (218 IT R 316) THAT ONCE THE ASSESSEE COMPANY WAS REGISTERED WITH THE RESERV E BANK OF INDIA AND KEPT THE REGISTRATION ALIVE AS NON-BANKING FINANCIA L COMPANY, THE ASSESSEE COMPANY WAS TO BE CONSIDERED AS A COMPANY, THE PRINCIPAL BUSINESS OF WHICH WAS GRANTING OF LOANS AND ADVANCE S AND CHAPTER III-B OF RBI ACT WILL HAVE AN OVER RIDING EFFECT. IT IS OBSERVED THAT IF THE ASSESSEE COMPANY HAS PRINCIPAL BUSINESS OF GRANTING LOANS AND ADVANCES ITA NO. 858/JP/2012 ITO, WARD- 6 (3), JAIPUR VS. M/S. INDERGIRI FINANC E LTD. . . 6 THEN EXPLANATION TO SECTION 73 IS NOT APPLICABLE AS HELD IN THE CASE OF NARAIN PROPERTIES LTD. VS. ACIT (11 SOT 1, ITAT LUC KNOW) AND ACIT VS. TANNA ELECTRO MECHANICS (P) LTD. (7 SOT 121. T HUS THE AO WAS NOT JUSTIFIED IN TREATING THE LOSS OF RS. 54,20,000/- I N THE PURCHASE AND SALE OF SHARES AS SPECULATION LOSS. HENCE, CONSIDERING THE ORDER OF THE LD. CIT(A) AND OUR DELIBERATIONS ON THE ISSUE, WE FIND NO REAS ON TO INTERFERE IN THE ORDER OF THE LD. CIT(A) WHICH IS SUSTAINED. THUS TH E SOLITARY GROUND OF THE REVENUE IS DISMISSED. 3.0 IN THE RESULT, THE APPEAL OF THE REVENUE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 7 /09/ 2015. SD/- SD/- VKJ-IH-RKSYKUH VH-VKJ-EHUK (R.P.TOLANI) (T.R. MEENA) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 7 /09/2015 *MISHRA VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- THE ITO, WARD- 6 (3), JAIPUR 2. IZR;FKHZ@ THE RESPONDENT- M/S. INDERGIRI FINANCE LTD., JAIP UR 3. VK;DJ VK;QDRVIHY@ CIT(A). 4. VK;DJ VK;QDR@ CIT 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO.858/JP/2011) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR