Income Tax Appellate Tribunal - Mumbai
Sheela Securities (P) Ltd. vs Income Tax Officer on 30 November, 2007
Equivalent citations: (2008)114TTJ(MUM)112
ORDER
A.K. Garodia, A.M.
1. Both these appeals are assessee's appeals directed against the order of learned CIT(A)-XXIX, Mumbai dt. 23rd Dec., 2004 for asst. yr. 2001-02 and against the order of CIT dt. 28th March, 2006 under Section 263 for the same assessment year. For the sake of convenience, both these appeals are being disposed of by this common order.
2. First, we take the appeal No. 1883/Mum/2005.
3. Grounds raised by the assessee read as under:
(1) On the facts and circumstances of the case and in law, learned CIT(A) erred in disallowing loss of Rs. 10,86,472 by treating the same as speculation loss. (2) The learned CIT(A) erred in applying Explanation to Section 73 for disallowing the loss incurred by the appellant.
4. Briefly stated, the facts are that the assessee is a sub-broker of M/s Kantilal Mangaldas See (P) Ltd., one of the main brokers of the Bombay Stock Exchange. During this year, the assessee has earned net brokerage of Rs. 17,68,213. The assessee had also some share trading in its own account in which, it has incurred loss of Rs. 10,86,472 on delivery based share trading and Rs. 32,42,898 on non-delivery based share trading. Loss of Rs. 32,42,898 incurred by the assessee on non-delivery based share trading has been treated as speculation loss by the assessee company itself but loss of Rs. 10,86,472 on purchase and sale of delivery based share trading has been treated as normal business loss and was set off against brokerage income by the assessee. The AO came to the conclusion that Explanation to Section 73 is applicable and hence, this loss of Rs. 10,86,432 has to be treated as speculation loss which can be set off against speculation income only.
The assessee carried the matter in appeal before learned CIT(A) but without success and now, the assessee is in further appeal before us.
5. It is submitted by learned Authorised Representative of the assessee that this issue is covered in favour of the assessee by the judgment of SMC Bench of the Tribunal in Delhi rendered in the case of Aman Portfolio (P) Ltd. v. Dy. CIT (2005) 92 TTJ (Del) 351 and also by the judgment of Division Bench of Mumbai rendered in the case of HSBC Securities Ltd. as per ITA No. 3386/Mum/2001.
It was pointed by the Bench that in the case of HSBC (supra), the Tribunal has followed the decision of the SMC Bench rendered in the case of Aman Portfolio (P) Ltd. (supra) and SMC Bench decision in the case of Aman Portfolio (P) Ltd. (supra) has been overruled by the Delhi Division Bench of the Tribunal in the case of Dy. CIT v. frontline Capital Services Ltd. (2005) 96 TTJ (Del) 201. In reply, learned Authorised Representative of the assessee had nothing to say.
6. As against this, learned Departmental Representative of the Revenue supported the order of learned CIT(A) and it was submitted that this issue is covered against the assessee by the judgment of Ahmedabad Special Bench of the Tribunal rendered in the case of AMP Spg. & Wvg. Mills (P) Ltd. v. ITO (2006) 101 TTJ (Ahd)(SB) 1113 : (2006) 100 ITD 142 (Ahd)(SB) wherein it was held that provisions of Explanation to Section 73 apply to all the transactions of purchases and sales of shares of the companies whose business consists of such purchases and sales of shares and the same cannot be restricted to only those transactions which are found to be a device for tax avoidance.
7. We have considered the rival submissions, perused the materials on record and have gone through the orders of authorities below and judgments cited by both sides. We find that this issue is squarely covered against the assessee by the Judgment of Special Bench of the Tribunal rendered in the case of AMP Spg. & Wvg. Mills (P) Ltd. (supra) relied upon by learned Departmental Representative of the Revenue. Respectfully following this Judgement of the Special Bench of the Tribunal, this issue is decided in favour of the Revenue and against the assessee.
8. In the result, this appeal of the assessee stands dismissed.
9. Now, we take up the appeal as per ITA No. 3325/Mum/2006.
10. Grounds raised by the assessee read as under:
On the facts and circumstances of the case and in law:
(i) The learned CIT erred in making revision under Section 263 and directing the AO to disallow proportionate expenses of Rs. 4,76,775 towards activity of share trading.
(ii) The learned CIT erred in substituting his own opinion of the AO for making/ad hoc disallowance of expenses.
(iii) The learned CIT erred in not accepting the theory of merger as the order of the AO had merged with the order of learned CIT as the AO and the learned CIT had considered the issue of disallowance of expenditure.
11. It is submitted by learned Authorised Representative of the assessee that the assessment order passed by the AO is neither erroneous nor prejudicial to the interest of Revenue and hence, order of learned CIT under Section 263 should be quashed because it is mere substitution of his opinion by CIT in place of the opinion of the AO. Reliance was placed on the judgment of Hon'ble apex Court rendered in the case of Rajasthan State Warehousing Corporation v. CIT (2000) 159 CTR (SC) 132 : (2000) 242 1TR 450 (SC) and on the Tribunal judgment rendered in the case of Dhanlakshmi Bank Ltd. v. Asstt. CIT (2007) 12 SOT 625 (Coch).
12. As against this, learned Departmental Representative of the Revenue supported the order of CIT passed by him under Section 263.
13. We have considered the rival submissions, perused the materials on record and have gone through the orders of authorities below and Judgments cited by learned Authorised Representative of the assessee. We find that it is noted by learned CIT in his order under Section 263 that the AO has treated loss of Rs. 10,86,472 from share trading business as speculation loss but the proportionate expenditure claimed by the assessee has not been disallowed. CIT has worked out the same by saying that (expenditure) of Rs. 12,52,747 is claimed by the assessee as administrative expenditure and hence, proportionate expenditure pertaining to speculation business works out to Rs. 4,76,775 on the basis that brokerage income is Rs. 17,68,213 and share trading loss is of Rs. 10,86,432.
14. Reliance was also placed on the Tribunal Judgment rendered in the case of Dhanlakshmi Bank Ltd. (supra). In this case, the Tribunal has considered this case of Hon'ble apex Court rendered in the case of Rajasthan State Warehousing Corporation (supra). In this case, the issue before the Tribunal was regarding disallowance of part expenditure by invoking Section 14A and in this context, it was held by the Tribunal in this case that before insertion of sub-Section (2) of Section 14A, principles laid down by Hon'ble apex Court rendered in the case of Rajasthan State Warehousing Corporation (supra) still hold good law in respect of introduction of Section 14A governing the disallowance of expenditure which is incurred for earning tax free income or in other words, income will not form part of total income. It is also held by the Tribunal in this case that the ratio decidendi of Judgement of Hon'ble apex Court rendered in the case of Rqjasthan State Warehousing Corporation (supra) could not be nullified even after introduction of Section 14A that if the business of the assessee is indivisible one, then no disallowance can be made on proportionate basis and entire expenditure is allowable. But, in the present case before us, the issue is not regarding invoking of Section 14A. Learned CIT has directed the AO to disallow proportionate expenses towards activity of share trading. It is the contention of the assessee that in the present case, learned CIT is substituting his opinion in place of the opinion of the AO, which is also a possible view and hence, order of learned CIT under Section 263 cannot be upheld.
15. Considering the facts of the present case in its entirety, we are of the considered opinion that the view taken by learned CIT is not correct because making apportionment of the administrative expenses incurred by the assessee in the ratio of total brokerage income of Rs. 17.68 lakhs and share trading loss of Rs. 17.68 (sic- 10.86) lakhs is not proper. We feel that the activities to be undertaken for earning brokerage income of Rs. 17.68 lakhs are many times more in comparison to incurring income or loss of similar size in share trading because for earning brokerage income, the assessee gets a small percentage of turnover as brokerage whereas, in share trading, loss or profit in share trading can be of any amount. We are of the view that the assessee is primarily a share broker for earning brokerage income and the activity of dealing in shares is incidental to the activity of share broking and hence, administrative expenditure incurred by the assessee is to be allowed against brokerage income in full. For this reason, we feel that the order of learned CIT passed by him under Section 263 cannot be sustained because view taken by the AO is a possible view and therefore, we quash the order of learned CIT under Section 263.
In the result, this appeal of the assessee stands allowed.