ACIT, Ernakulam V. M/s Vertex Securities Ltd., Cochin

ITA 888/COCH/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 4415 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2010
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 17-03-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 30-09-2008
• Court: TRIBUNAL
• Department Lawyers: DR BABU JOSEPH
• Assessee Lawyers: R VENUGOPAL
• Keywords: Speculation loss; Speculative transactions
• Section: 43(5)

Judgement Text

VV IN THE INCOME TAX APP ELLATE TRIBUNAL COCHIN BENCH, COC HIN BEFORE S/SHRI N.VIJAYAKUMARAN, JM AND SANJAY ARORA , AM I.T.A. NO.888 /COCH./2008 ASSESSMENT YEAR :2005-06 THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1, ERNAKULAM. VS. M/S. VERTEX SECURITIES LTD., THOTTATHIL TOWERS, MARKET ROAD, COCHIN-682 014. [PAN: AAACV 7979E] (REVENUE-APPELLANT) (ASSESSEE-RESPONDENT) REVENUE BY DR. BABU JOSEPH, SR. DR ASSESSEE BY SHRI R.VENUGOPAL, CA O R D E R PER SANJAY ARORA, AM : THIS APPEAL BY THE REVENUE ARISES OUT OF THE ORDER BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, KOCHI (CIT(A) FOR SHORT) DATED 4.7.2008, AND THE ASSESSMENT YEAR (A.Y.) UNDER REFERENCE IS 2005-06. 2. THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASSE SSEE-COMPANY IS IN THE BUSINESS OF STOCK BROKING. DURING THE COURSE OF ITS BUSINESS, I T UNDERTAKES TRADING IN STOCKS AND SECURITIES, BOTH FOR SELF AS WELL AS FOR AND ON BEH ALF OF ITS CUSTOMERS, YIELDING BROKERAGE INCOME. TRANSACTIONS IN PURCHASE AND SALE OF SHARES , ENTAILS TRANSACTIONS WHICH WOULD QUALIFY TO BE SPECULATIVE TRANSACTIONS WITHIN THE MEANING OF THE TERM AS DEFINED U/S. 43(5) OF THE INCOME-TAX ACT, 1961 ('THE ACT' HEREIN AFTER), SO THAT THE SAME WOULD RESULT IN SPECULATION PROFIT OR LOSS, AS THE CASE MAY BE. FOR THE YEAR UNDER REFERENCE, THE RETURN OF INCOME STOOD FILED ON 31.10.2005 AT AN INCOME OF RS . 37.36 LAKHS, I.E., BESIDES A SPECULATION LOSS OF RS. 4,77,323/-. THE SPECULATION INCOME, MANDATED FOR BEING COMPUTED SEPARATELY WHILE AGGREGATING THE TOTAL INCOME UNDER CHAPTER VI OF THE ACT, VIDE SECTION 73 OF THE ACT, STOOD RETURNED SEPARATELY AND, FURTHER, ARRIVED AT BY INCLUDING THEREIN THE SPECULATION LOSS BROUGHT FORWARD FROM EARLIER YEARS AT RS. 4,84,530/-. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS U/S. 143(3), THE QUESTIO N AS TO THE ALLOCATION OF THE OVERHEAD ITA. NO.888/COCH./2008 2 EXPENSES, INCURRED FOR THE YEAR IN THE SUM OF RS. 3 4.73 LAKHS, AROSE. THIS, AS THE ASSESSEE WAS ADMITTEDLY UNDERTAKING BOTH SPECULATIVE AND NON -SPECULATIVE BUSINESSES, AND INCOME FROM WHICH, AS STATED EARLIER, HAD TO BE COMPUTED S EPARATELY IN TERMS OF THE PROVISIONS OF THE ACT, PARTICULARLY CONSIDERING THAT THE FORMER B ORE A LOSS. THE ASSESSING OFFICER (A.O.), WHILE COMPUTING THE TURNOVER OF THE BUSINES S AT RS. 223.56 LAKHS, EXCLUDED THAT RELATING TO THE CLIENTS BUSINESS, DETERMINING THE SHARE OF THE SPECULATIVE BUSINESS AT 42%. THE OVERHEAD EXPENSES, AS WELL AS THE INFRASTRUCTUR E UTILISATION, WERE FOR THE ENTIRE BUSINESS ACTIVITY, IRRESPECTIVE OF WHETHER THE TRAD ING WAS DONE ON OWN ACCOUNT OR ON CLIENTS ACCOUNT AND, THUS, THERE WAS NO REASON FOR NOT ALLOCATING THE SAME BY INCLUDING THAT QUA THE CLIENT BUSINESS. FURTHER, THE ALLOCATION WAS T O BE DONE ADOPTING A UNIFORM BASIS, I.E., BY TAKING THE TURNOVER OF THE CLIENT B USINESS, AND NOT THE BROKERAGE INCOME ONLY, TREATING IT AS THE SURROGATE MEASURE OF THE T URNOVER QUA THE SAME. TAKING THE ACTUAL TURNOVER, SPECULATIVE AND NON-SPECULATIVE, AS THE B ASIS OF ALLOCATION, WOULD RESULT IN THE SHARE OF THE OVERHEAD EXPENSE TOWARD SPECULATIVE BU SINESS AT 0.08% THEREOF, SO THAT THE PROPORTIONATE DISALLOWANCE WOULD WORK TO RS. 27,338 /-. THE SAID ARGUMENT FOUND FAVOUR WITH THE LD. CIT(A), HOLDING LIKE-WISE. AGGRIEVED, THE REVENUE IS IN APPEAL. 3. BEFORE US, BOTH THE PARTIES RELIED ON THE ORDERS BY THE AUTHORITIES BELOW, I.E., AS FAVOURABLE TO THEM. FURTHER, THE LD. DR RELIED ON THE GUIDANCE NOTES FOR TAX AUDIT U/S. 44AB OF THE ACT IN RESPECT OF SHARE BROKERS ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. THE LD. AR WOULD SUBMIT THAT THE MATTER STANDS, IN FACT, ALREADY COVERED IN THE ASSESSEES FAVOUR BY THE TRIBUNAL IN ITS OWN CASE FOR THE PRECEDING YEARS, BEING AYS 2001-02 TO 2004-05, WHERE A SIMILAR ISSUE AROSE, PLACING A COPY OF THE SAID ORDER ON RECORD (IN I.T.A. NOS. 1198 & 1199/COCH/20 05 AND 278 AND 560/COCH/2007 DATED 10.9.2008). VIDE PARA 8 OF ITS ORDER, THE T RIBUNAL HAS ENDORSED THE VIEW OF THE FIRST APPELLATE AUTHORITY, WHO HAD HELD LIKEWISE, I.E., A S IN THE PRESENT CASE. FURTHER, THE PRINCIPLE OF ALLOCATION WOULD DICTATE THAT BOTH THE NUMERATOR (TURNOVER OF THE SPECULATIVE BUSINESS) AND THE DENOMINATOR (TOTAL TURNOVER OF TH E BUSINESS) ARE TAKEN ON THE SAME BASIS, WHICH IS NOT SO IN THE PRESENT CASE. ITA. NO.888/COCH./2008 3 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE M ATERIAL ON RECORD. THERE IS NO DENYING THE FACT THAT THE EXPENSES UNDER REFERENCE, ALLOCAT ION OF WHICH IS IN DISPUTE, PERTAIN TO THE ENTIRE BUSINESS, WHETHER SPECULATIVE OR NON-SPECULA TIVE, AND FURTHER, WHETHER UNDERTAKEN ON OWN ACCOUNT OR ON THAT OF THE CLIENTS. THERE IS ALSO NO DISPUTE WITH REGARD TO THE BASIS OF ALLOCATION, I.E., ON TURNOVER BASIS. THIRDLY, AS IT APPEARS, THERE IS NO DISPUTE QUA THE TURNOVER FIGURES, WHICH ARE MATERIAL TO THE COMPUTA TION, EVEN AS THE WORKING BY THE ASSESSEE FINDS MENTION ONLY IN THE IMPUGNED ORDER. AS SUCH, WE FIND NO MERIT IN THE ARTIFICIAL RESTRICTION OF THE TURNOVER OF THE NON-S PECULATION BUSINESS, IN COMPUTING THE TOTAL TURNOVER, TO THAT UNDERTAKEN BY THE ASSESSEE-COMPAN Y ON OWN ACCOUNT ONLY. THIS IS WHAT HAD APPEALED TO AND FOUND FAVOUR WITH THE APPELLATE AUTHORITIES IN THE ASSESEES CASE FOR THE EARLIER YEARS, SO THAT THE PRESENT CASE COULD W ELL BE SAID TO BE COVERED IN THE ASSESSEES FAVOUR BY THE TRIBUNALS ORDER CITED SUPRA . THE RELIANCE BY THE LD. DR ON THE GUIDANCE NOTE ISSUED BY ICAI, FOR COMPUTING THE TURNOVER OF THE SHARE BROKERS, IS MISPLACED. THIS IS FOR THE SIMPLE REASON THAT THE TWO BUSINESSES, I .E., TRADING ON OWN ACCOUNT OR FOR AND ON BEHALF OF THE CUSTOMERS, ARE ON THE SAME FOOTING; T HE ONLY DIFFERENCE BEING THAT WHILE IN ONE THE RISK AND REWARD IS BORNE BY THE CLIENTS, YI ELDING BROKERAGE INCOME TO THE ASSESSEE, IN THE OTHER IT IS TO THE ASSESSEES OWN ACCOUNT, A ND WHICH IS NOT A RELEVANT FACTOR QUA THE ISSUE AT HAND, I.E., THE BASIS OF ALLOCATION OF COM MON EXPENSES, GIVEN THE FACT THAT THE TURNOVER PROVIDES A REASONABLE BASIS FOR THE SAME. IN FACT, IT IS THIS DIFFERENCE, BEING RELIED ON, WHICH FORMS THE BASIS OF THE CITED GUIDANCE NOT E, I.E., THAT PROPERTY IN THE SHARES (GOODS) (DEALT WITH FOR & ON BEHALF OF THE CLIENTS) NOT BELONGING TO THE ASSESSES, ITS VALUE SHOULD NOT BE CONSIDERED FOR THE PURPOSE OF COMPUTI NG TURNOVER FOR TAX-AUDIT PURPOSES. THE SAME, AS WOULD BE APPARENT, HAS NO APPLICATION IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. WE DECIDE ACCORDINGLY. 5. IN THE RESULT, REVENUES APPEAL IS DISMISSED. SD/- SD/- (N.VIJAYAKUMARAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 6 TH MAY 2010 GJ COPY TO: 1. M/S. VERTEX SECURITIES LTD., THOTTATHIL TOWERS, MARKET ROAD, COCHIN-682 014. ITA. NO.888/COCH./2008 4 2. THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRA L CIRCLE-1, ERNAKULAM. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, KOCH I. 4. THE COMMISSIONER OF INCOME-TAX, CENTRAL, KOCHI. 5. D.R./I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR)