M/s. Thakorlal Hiralal Exports Pvt. Ltd., Kolkata V. ITO, Ward - 12(3), Kolkata, Kolkata

ITA 903/KOL/2010

• Counselvise Citation: 90323514 RSA 2010
• Duration Of Justice: 4 year(s) 7 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 20-07-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 06-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S JHAJHARIA F
• Keywords: Speculation loss
• Section: 14A

Judgement Text

I.T.A. NO . 90 3 /KOL./201 0 ASSESSMENT YEAR: 200 4 - 20 0 5 PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA C BENCH, KOLKATA BEFORE SHRI SHAMIM YAHYA (ACCOUNTANT MEMBER) , AND SHRI GEORGE MATHAN (JUDICIAL MEMBER) I.T.A. NO. 90 3 /KOL . / 20 1 0 ASSESSMENT YEAR : 200 4 - 20 0 5 M/S. THAKORLAL HIRALAL EXPORTS PVT. LIMITED, ........ ...... .. .APP ELL ANT C/O. M/S. SALARPURIA JAJODIA & CO., 7, C.R. AVENUE, KOLKATA - 700 072 [PAN : A A BCT 1521 H ] - VS. - I NCOME TAX OFFICER,............. ... ............................ . RESPONDENT WAARE - 12(3), KOLKATA , P - 7, CHOWRINGHEE SQUARE, AAYAKAR BHAWAN, KOLKATA - 700 069 APPEARANCES BY: SHRI S . JHAJHARIA , F. C.A. , FOR THE ASSESSEE SHRI UDAY KUMAR SARDAR , J CIT , SR. D.R , FOR THE DEPARTMENT DATE OF CONCLUDING THE HEARING : DEC EM BER 1 7 , 2 01 4 DATE OF PRONOUNCING THE ORDER : DEC EM BER 19 , 201 4 O R D E R PER GEORGE MATHAN : THIS IS AN APPEAL FILED BY THE ASSESSE E AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - XII , KOLKATA IN APPEAL NO. 161/XII/12(3)/06 - 07 DATED 04.01.2010 FOR THE ASSESSMENT YEAR 200 4 - 0 5 . 2 . SHRI S . JHAJHARIA , F. C.A. , REPRESENTED ON BEHALF OF THE ASSESSEE AND SHRI UDAY KUMAR SARDAR , J CIT , SR. D.R. , REPRESENTED ON BEHALF OF THE REVENUE. 3. IN THE ASSESSEE S APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: - (1) FOR THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS WHOLLY WRONG AND UNJUSTIFIED IN CONFIRMING THE AO S ACTION IN ARBITRARILY ASSESSING THE LOSS I.T.A. NO . 90 3 /KOL./201 0 ASSESSMENT YEAR: 200 4 - 20 0 5 PAGE 2 OF 7 IN SHARE TRADING AT RS.9,06,707/ - ON A MERE ASSUMPTION WITHOUT ANY BASIS, INSTEAD OF THE PROFIT OF RS.1,48,854/ - ON THIS ACCOUNT DECLARED IN THE RETURN, AND SECONDLY TREATING THE SAID LOSS AS DEEMED SPECULATION LOSS IN VIEW OF THE PROVISION CONTAINED IN EXPLANATION TO SECTION 73 OF THE ACT WITHOUT PROPERLY ANALYSING THE RETURN AND AUDITED ACCOUNTS AND WITHOUT CONSIDERIN G THE FACTS ON RECORD THAT THE TOTAL INCOME OF THE ASSESSEE CONSISTED MAINLY OF INCOME UNDER THE HEADS CAPITAL GAIN AN OTHER SOURCES WHICH CLEARLY MAKES THE AID PROVISION INAPPLICABLE. THE DECISIONS OF BOTH THE AO AND LD. CIT(A) WERE WHOLLY ARBITRARY, UNREASONABLE UNCALLED FOR AND BAD IN LAW. (2) FOR THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS WHOLLY WRONG AND UNJUSTIFIED IN CONFIRMING THE AO S ACTION IN ARBITRARILY ASSESSING THE LOSS IN SHARE TRADING AT RS.9,06,707/ - AN D TREATING IT AS DEEMED SPECULATION LOSS ACCORDING TO THE EXPLANATION TO SECTION 73 OF THE ACT BY HOLDING A TOTALLY BASELESS AND MISCONCEIVED NOTION THAT THE BUSINESSES INCLUDING SHARE TRADING BUSINESS CARRIED ON BY THE ASSESSEE IN ITS KOLKATA BRANCH OFFIC E IS AN INDEPENDENT BUSINESS TOTALLY SEPARATE FROM THE EXPORT BUSINESS CARRIED ON AT ITS MUMBAI HEAD OFFICE. THE FINDINGS GIVEN BY BOTH THE AO AND LD. CIT(A) ON THE BASIS OF A BRANCH ACCOUNT ONLY WITHOUT CONSIDERING THE ENTIRE AFFAIRS/ ACTIVITIES OF THE A SSESSEE COMPANY DULY REFLECTED IN THE CONSOLIDATED AUDITED ACCOUNTS AND B/S WERE WHOLLY ARBITRARY, UNREASONABLE, UNCALLED FOR AND BAD IN LAW. (3) FOR THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS WHOLLY WRONG AND UNJUSTIFIED IN NOT DELETING THE ARBITRARY AND AD HOC DISALLOWANCE OF EXPENSE OF RS.63,563/ - MADE IN ASSESSMENT BY THE AO U/S. 14A OF THE ACT PURELY ON ESTIMATE BASED ON MERE ASSUMPTION AND PRESUMPTION WITHOUT PINPOINTING ANY SPECIFIC ITEM OF EXPENDITURE ACTUALLY INCUR RED FOR EARNING THE EXEMPT DIVIDEND INCOME OF RS.67,55,515/ - AND ALSO WITHOUT ESTABLISHING ANY DIRECT NEXUS BETWEEN SUCH EXPENDITURE AND THE DIVIDEND EARNED. ACTION OF THE LD. CIT(A) WAS WHOLLY UNREASONABLE UNCALLED FOR AND BAD IN LAW. EVEN OTHERWISE THE D ISALLOWANCE MADE WAS HIGHLY EXCESSIVE AND WHOLLY UNREASONABLE. (4) FOR THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS WHOLLY WRONG AND UNJUSTIFIED IN NOT DELETING THE SAID ESTIMATED DISALLOWANCE OF EXPENSE OF RS.63,563/ - AND I NSTEAD DIRECTING THE AO TO DETERMINE THE DISALLOWANCE OF EXPENSE U/S. 14A BY APPLYING RULE 8D OF THE I.T.A. NO . 90 3 /KOL./201 0 ASSESSMENT YEAR: 200 4 - 20 0 5 PAGE 3 OF 7 I.T. RULES ON THE GROUND THAT THE SAID RULE IS APPLICABLE IN ALL PENDING CASES. ACTION OF THE LD. CIT(A) IN ISSUING SUCH DIRECTION, WITHOUT CONSIDERING THE FACT THAT THE SAID RULE 8D INTRODUCED PROSPECTIVELY W.E.F. 24.03.2008 WAS NON - EXISTENT AT THE TIME OF ASSESSMENT AND HENCE NOT APPLICABLE FOR THE AY 2004 - 05, WAS WHOLLY UNREASONABLE, UNCALLED FOR AND BAD IN LAW. (5) FOR THAT IN VIEW OF THE FACTS AND CIRC UMSTANCES OF THE CASE, THE LD. CIT(A) WAS WHOLLY WRONG AND UNJUSTIFIED IN DELETING RS.61,174/ - ONLY OUT OF THE TOTAL ARBITRARY DISALLOWANCE OF LOSS OF RS.3,81,611/ - ON ACCOUNT OF SALE OF UNITS OF MUTUAL FUNDS MADE IN ASSESSMENT UNDER SECTION 94(7) OF THE A CT ON A MERE PRESUMPTION AND THEREBY CONFIRMING THE DISALLOWANCE OF THE BALANCE LOSS OF RS.3,20,437/ - (WRONGLY TAKEN BY THE LD. CIT(A) AT RS.2,46,2272/ - ) WITHOUT CONSIDERING THE FACTS AND THE RELEVANT TRA N SACTIONS ENT E RED INTO. ACTION OF THE LD. CIT(A) IN NOT DELETING THE ENTIRE DISALLOWANCE WAS WHOLLY UNREASONABLE UNCALLED FOR AND BAD IN LAW. 4. IT WAS SUBMITTED BY THE LD. A.R. THAT THE ISSUE IN GROUNDS NO. 1 & 2 OF THE ASSESSEE S APPEAL WAS AGAINST THE ACTION OF THE LD. CIT(APPEALS) IN CONFIRMING THE AC TION OF THE ASSESSING OFFICER IN ASSESSING THE LOSS IN SHARE TRADING AS DEEMED SPECULATION LOSS BY APPLYING THE EXPLANATION TO SECTION 73 OF THE ACT. IT WAS THE SUBMISSION THAT THE ASSESSEE HAD TWO BRANCHES, ONE IN KOLKATA AND HEAD OFFICE IN MUMBAI. IT WAS THE SUBMISSION THAT THE ASSESSEE WAS DOING SHARE TRADING BUSINESS IN ITS KOLKATA BRANCH AND WAS DOING SHARE TRADING AND EXPORT BUSINESS FROM ITS MUMBAI BRANCH. IT WAS THE SUBMISSION THAT IN RESPECT OF THE SHARE TRADING BUSINESS AT KOLKATA THE ASSESSEE HAD INCURRED A LOSS OF RS.9,06,707/ - . IT WAS THE SUBMISSION THAT THE ASSESSING OFFICER HAD CONSIDERED THE BUSINESS ACTIVITY OF THE ASSESSEE AT THE MUMBAI HEAD OFFICE AND KOLKATA BRANCH AS TWO DISTIN CT BUSINESS ACTIVITIES AND BY TREAT ING SHARE BUSINESS ACTIVIT Y AT KOLKATA BRANCH AS AN INDEPENDENT ACTIVITY APPLYING THE EXPLANATION TO SECTION 73 AND HELD THAT THE LOSS IN DEALING IN SHARES WAS A SPECULATION LOSS. IT WAS THE SUBMISSION THAT FOR THE PURPOSE OF COMPUTING THE TOTAL INCOME, THE ASSESSEE - COMPANY AS A WH OLE WAS TO BE CONSIDERED AND BRANCH COULD NOT BE TREATED AS INDEPENDENT. IT WAS THE SUBMISSION I.T.A. NO . 90 3 /KOL./201 0 ASSESSMENT YEAR: 200 4 - 20 0 5 PAGE 4 OF 7 THAT IF THE TOTAL BUSINESS OF THE ASSESESE - COMPANY IS CONSIDERED, THEN THE INCOME FROM DIVIDEND AND CAPITAL GAINS FAR EXCEEDED THE SHARE TRADING LOSS AND THE EXP LANATION TO SECTION 73 WAS NOT APPLICABLE. FOR THIS PROPOSITION, LD. A.R. PLACED BEFORE US A COPY OF THE COMPUTATION OF INCOME EARNED UNDER DIFFERENT HEADS. IT WAS THE SUBMISSION THAT THE ASSESSEE HAD DIVIDEND INCOME OF RS.67,00,000/ - AND THE BUSINESS INCO ME AT RS.26,00,000/ - . IT WAS THE FURTHER SUBMISSION THAT THE ISSUE AS TO WHETHER THE GROSS TOTAL INCOME OF THE ASSESSEE WAS REQUIRED TO BE COMPUTED OR THE BRANCH INCOME WAS TO BE CONSIDERED AS COVERED BY THE DECISION OF THE HON BLE JURISDICTIONAL HIGH COUR T OF CALCUTTA IN THE CASE OF MIDDLETON INVESTMENT & TRADING CO. LIMITED IN ITA NO. 196 OF 1999 DATED 15.01.2014. IT WAS THE SUBMISSION THAT ONCE THE TOTAL INCOME OF THE ASSESSEE IS CONSIDERED IN RESPECT OF BOTH THE MUMBAI HEAD OFFICE AND THE KOLKATA BRANCH OFFICE, THEN THE ASSESSEE F ELL WITHIN THE PURVIEW OF THE EXCEPTION CARVED OUT IN THE EXPLANATION TO SECTION 73 AND THE LOSS INCURRED BY THE ASSESSEE COULD NOT BE TREATED AS SPECULATION LOSS. 5 . IN REPLY, LD. SR. D.R. VEHEMENTLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND LD. CIT(APPEALS). IT WAS THE SUBMISSION THAT THE SHARE BUSINESS ACTIVITY IN RESPECT OF THE KOLKATA BRANCH WAS LIABLE TO BE CONSIDERED SEPARATELY. 6 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PERUSAL OF THE DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF MIDDLETON INVESTMENT & TRADING CO. LIMITED CLEARLY SHOWS THAT THE HON BLE JURISDICTIONAL HIGH COURT FOLLOWING THE DECISION OF THE HON BLE MUMBAI HIGH COURT IN THE CASE OF CIT VS. - DARSHAN SECURITIES PVT. LIMITED RE PORTED IN 341 ITR 556 HAS HELD THAT IN ORDER TO DETERMINE WHETHER THE EXCEPTION THAT IS C A RVED OUT BY THE EXPLANATION APPLIES THE L EGISLATURE H AS FIRST MANDATED A COMPUTATION OF THE GROSS TOTAL INCOME OF THE COMPANY. CONSEQUENTLY IN THE ASSESSEE S CASE THE GROSS TOTAL INCOME IS REQUIRED TO BE COMPUTED IN RESPECT OF THE TOTAL BUSINESS ACTIVITIES OF THE ASSESSEE AND THAT WOULD INCLUDE BOTH THE MUMBAI HEAD OFFICE AS ALSO THE I.T.A. NO . 90 3 /KOL./201 0 ASSESSMENT YEAR: 200 4 - 20 0 5 PAGE 5 OF 7 KOLKATA BRANCH OFFICE. FURTHER IT IS NOTICED THAT THIS ISSUE IS SQUARELY COVERED BY TH E DECISION OF THE HON BLE COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEE S OWN CASE IN ITA NOS. 1511 & 1512/KOL/2011 DATED 18.06.2013 FOR THE ASSESSMENT YEARS 2005 - 06 AND 2006 - 07, WHEREIN THE COORDINATE BENCH OF THIS TRIBUNAL HAS HELD AS FOLLOWS: - 5.2. BEI NG AGGRIEVED THE REVENUE HAS FILED THIS APPEAL. THE LD. DR HAS RELIED ON THE ORDER OF THE AO AND THE LD. AR OF THE ASSESSEE HAS SUPPORTED THE ORDER OF THE LD. CIT(A). WE FIND THAT NO SPECIFIC ERROR IN THE ORDER OF THE LD. CIT(A) COULD BE POINTED OUT BY THE LD. DR. WE FURTHER FIND THAT SECTION 73 DOES NOT PERMIT THE REVENUE TO COMPARE THE ASSESSEE S INCOME BRANCH WISE OR OFFICE WISE. THE ENTIRE INCOME OF THE ASSESSEE COMPUTED HEAD WISE AS PER THE PROVISIONS OF THE ACT IS TO BE COMPARED TO CONSIDER THE APPLI CABILITY TO SECTION 73 OF THE ACT OR OTHERWISE. IN THE INSTANT CASE, IT IS NOT IN DISPUTE THAT ON SO COMPARING BY TAKING INTO CONSIDERATION THE ENTIRE INCOME OF THE ASSESSEE PROVISIONS OF SECTION 73 OF THE ACT IS NOT ATTRACTED IN THE CASE OF THE ASSESSEE. WE, THEREFORE, DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A) WHICH IS CONFIRMED AND THE GROUNDS OF APPEAL OF THE REVENUE FOR BOTH THE YEARS UNDER CONSIDERATION ARE DISMISSED . IN THESE CIRCUMSTANCES, RESPECTFULLY FOLLOWING T HE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL REFERRED TO SUPRA, THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE ASSESSEE S CLAIM OF LOSS FROM THE SHARE TRADING BUSINESS AS A BUSINESS LOSS AND THE PROVISIONS OF EXPLANATION TO SECTION 73 WOULD NOT APP LY TO THE ASSESSEE S CASE. 7 . I N THE RESULT, GROUNDS NO. 1 & 2 OF THE ASSESSEE S APPEAL STAND ALLOWED. 8 . IN RESPECT OF GROUNDS NO. 3 & 4, IT WAS SUBMITTED BY THE LD. A.R. THAT THE SAME WERE NOT PRESSED. CONSEQUENTLY, GROUNDS NO. 3 & 4 OF THE ASSESSEE S APPEAL STAND DISMISSED AS NOT PRESSED. 9 . IN RESPECT OF GROUND NO. 5, IT WAS SUBMITTED BY THE LD. A.R. THAT THE ISSUE WAS AGAINST THE ACTION OF THE LD. CIT(APPEALS) IN CONFIRMING THE I.T.A. NO . 90 3 /KOL./201 0 ASSESSMENT YEAR: 200 4 - 20 0 5 PAGE 6 OF 7 DISALLOWANCE OF THE LOSS ON ACCOUNT OF THE SALE OF U NITS OF MUTUAL FUND. IT WAS THE SUBMISSION THAT THE ASSESSING OFFICER HAD INVOKED THE PROVISIONS OF SECTION 94(7) FOR THE PURPOSE OF DISALLOWING THE ASSESSEE S CLAIM OF THE LOSS ON THE SALE OF THE UNITS OF MUTUAL FUND. IT WAS THE SUBMISSION THAT THE ASSESSEE HAD INCURRED A LO SS OF RS.3,81,611/ - ON ACCOUNT OF PURCHASE AND SALE OF MUTUAL FUND. IT WAS THE SUBMISSION THAT AS THE ASSESSEE HAD RECEIVED DIVIDENDS IN RESPECT OF THE MUTUAL FUNDS, THE ASSESSING OFFICER HAD INVOKED THE PROVISIONS OF SECTION 94(7) AND HAD MADE THE ADDITIO N OF THE AMOUNT OF RS.3,81,611/ - . IT WAS THE SUBMISSION THAT THOUGH SUBSTANTIALLY THE PROVISIONS OF SECTION 94(7) DID APPLY IN RESPECT OF THE LOSS CLAIMED. HOWEVER, IN RESPECT OF TWO OF THE MUTUAL FUNDS, THE PROVISIONS OF SECTION 94(7) DID NOT APPLY. IT WA S THE SUBMISSION THAT IN RESPECT OF THE MUTUAL FUND OF ICICI INCOME PLAN, THE ASSESSEE HAD PURCHASED THE MUTUAL FUND ON 16.04.2003, THE DIVIDEND WAS DECLARED ON 17.04.2003 AND THE ASSESSEE HAD SOLD THE SAID MUTUAL FUND ON 08.08.2003, WHICH WAS BEYOND THE T HREE MONTHS PERIOD. IT WAS THE SUBMISSION THAT THE LD. CIT(APPEALS) HAD ACCEPTED THIS CONTENTION AND HAD DIRECTED THE ASSESSING OFFICER TO EX CLUDE THE LOSS IN RESPECT OF THE SAID MUTUAL FUND. IT WAS THE SUBMISSION THAT SIMILARLY IN RESPECT OF THE MUTUAL FU ND ICICI POWER, THE DATE OF PURCHASE OF THE MUTUAL FUND WAS 01.10.2003 AND THE RECORD DATE FOR DIVIDEND WAS 24.10.2003 AND THE SAID MUTUAL FUND WAS SOLD ON 19.02.2004, WHICH WAS ALSO BEYOND THE THREE MONTHS PERIOD. IT WAS THE SUBMISSION THAT IN RESPECT OF THE SAME MUTUAL FUND, THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M APLE EXPORT PVT. LIMITED IN ITA NO. 1444/KOL/2010 DATED 20.07.2012 FOR THE ASSESSMENT YEAR 2004 - 05 HAD HELD THAT THE RECORD DATE WAS TO BE TAKEN AS 24.10.2003 THOUGH THE MUTUAL FUN D HAD DECLARED THE DIVIDEND ON 26.12.2003. CONSEQUENTLY AS THE ASSESSEE HAS SOLD THE MUTUAL FUND ON 19.02.2004, THE SAME IS BEYOND THE THREE MONTHS PERIOD AND THE PROVISIONS OF SECTION 94(7) WOULD NOT APPLY. IT WAS THE SUBMISSION THAT THE ASSESSING OFFICER MAY BE DIRECTED TO EXCLUDE THE LOSS IN RESPECT OF THE SAID MUTUAL FUND ICICI POWER TO THE EXTENT OF RS.1,45,253/ - . I.T.A. NO . 90 3 /KOL./201 0 ASSESSMENT YEAR: 200 4 - 20 0 5 PAGE 7 OF 7 11 . IN REPLY, LD. SR. D.R. VEHEMENTLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND LD. CIT(APPEALS). 12 . WE HAVE CONSIDERED THE RIVAL S UBMISSIONS. AS IT IS NOTICED THAT THE RECORD DATE IN RESPECT OF ICICI POWER MUTUAL FUND IS 24.10.2003 AND THE SAID MUTUAL FUND WAS PURCHASED ON 01.10.2003 AND SOLD ON 19.02.2004 , WHICH IS BEYOND THE THREE MONTHS PERIOD. THE ASSESSEE FALLS OUT OF THE RESTRI CTION PLACE D IN SECTION 94(7). IN THE RESULT, THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE ASSESSEE S CLAIM OF LOSS OF RS.1,45,253.16 IN RESPECT OF THE MUTUAL FUND ICICI P OWER. 13 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH DEC EM BER, 2014. SD/ - SD/ - SHAMIM YAHYA GEORGE MATHAN ( ACCOUNTANT MEMBER) ( JUDICIAL MEMBER) KOLKATA, THE 19 TH D AY OF DEC EM B ER , 201 4 COPIES TO : (1) M/S. THAKOR LAL HIRALAL EXPORTS PVT. LTD. , C/O. SALARPURIA JAJODIA & CO., 7, C.R. AVENUE, KOLKATA - 700 072 (2) INCOME TAX OFFICER, WARD - 12(3),KOLKATA, P - 7, CHOWRINGHEE SQUARE, AAYAKAR BHAWAN, KOLKATA - 700 069 (3) COMMISSIONER OF INCOME - T AX (APPEALS) (4) COM MISSIONER OF INCOME TAX ( 5 ) THE DEPARTMENTAL REPRESENTATIVE ( 6 ) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.