Income Tax Appellate Tribunal - Ahmedabad
Meeti Investment & Consultancy ... vs Department Of Income Tax on 24 July, 1977
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IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "D" AHMEDABAD
Before S/Shri Mukul Kumar Shrawat, JM and D.C.Agrawal, AM
ITA No.1576/AHD/2007.
Asst. Year :2001-02
The Income Tax Officer, Vs. M/s.Meeti Investment &
Ward 4(1), Consultanc y Services Pvt.
th
4 Floor, Aayakar Bhavan, Ltd., 301, Panchsheel,
Race Course Circle, Baroda. 72, Sampatrao Colony,
Alkapuri, Baroda.
(Appellant) (Respondent)
..
Appellant by :- Shri S. S. Shukla, Sr.D.R.
Respondent by:- Shri S.N.Divatia.
ORDER
PAN No.AABCM 3425 B
Per D.C. Agrawal, Accountant Member.
This is an appeal filed by the Revenue raising the following grounds:-
"The Ld. CIT (A) has erred in law and on facts in directing the Assessing Officer to recomputed the income from share trading by applying provisions of section 43(5) of the I. T. Act, 1961 and thereby allowing set off of loss therefrom against the income from Civil Contracts despite clear cut deeming provisions of considering purchase and sale of shares as speculation business under Explanation of section 73 of the Income Tax Act,1961."
2. The only issue involved in the appeal is whether the provisions of section 73 of the Income Tax Act would be applicable on the facts of the case or not. The facts of the case are that during the course of assessment ITA No.1576/Ahd/2007. Asst. Year 2001-02 proceeding, the Assessing Officer found that assessee company has entered into the contract with M/s. Etco Telecom Ltd., Mumbai for labour and civil work. It has shown gross receipt of Rs.5.23 crores approximately. From this construction activity assessee has shown an income of Rs.1,64,82,617/-.This was sought to be set off against loss of Rs.1,53,15,913/- arrived at in trading of shares. The shares were purchased at a cost of Rs. 2,72,42,981/- and they were sold at a sum of Rs.1,19,27,068/- resulting into the loss as above. The Assessing Officer mentions that in the immediately preceding year there was no contract work and assessee had shown income from business in shares at Rs.2,63,103/-.Since the loss in trading in shares was substantial, A.O. sought to invoke Explanation to section 73 of the Act. In response to the show cause notice it was submitted that sale and purchase of shares is genuine and hence it is not speculative loss, secondly at the time of insertion of explanation to section 73 it was explained in Circular No.204 dated 24-7-1977 that this provision has been inserted to curb the device of manipulating and reducing the taxable income by controlling the group companies. Since there is no group company involved in the case of assessee Explanation to section 73 cannot be invoked. Thirdly, all the purchases are genuine and investments are made through stock exchange. Fourthly, trading was done in earlier year also and Explanation to section 73 was not invoked. The assessee referred to decisions in following cases:
(i) Venkateswar Investment & Finance Pvt. Ltd., (92 TTJ-1129)
(ii) Jayshree Roychowdhary vs. ACIT (92 ITD 400 (Kol).
(iii) Concord Commercial Pvt. Ltd.
3. The Assessing Officer however, did not agree. He held that assessee's total income consists mainly of business income and hence Explanation to section 73 would be applicable.
2 ITA No.1576/Ahd/2007.Asst. Year 2001-02
4. The Ld. C.I.T. (A) however, deleted the addition by holding that provisions of section 43(5) are applicable and once these provisions are invoked then Explanation to section 73 need not be invoked as in the scheme of the Act section 43(5) comes first. In this regard we refer to paragraph5 and 5.4 from the order of the Ld. C.I.T.(A) .
"5. I have considered the submissions of the Ld. A.R. and the facts of the case. Under the Act, speculation losses are dealt with at two places. In the normal course, a "speculation transaction" would be a transaction falling within the definition provided in the Explanation to Section 73. However, in special circumstances, certain companies have been deemed to be carrying on speculation business by virtue of the legal fiction created in the Explanation to section 73.Thus, where a transaction is sought to be treated as a speculative transaction, first the provisions of section 43(5) are to be invoked. If a transaction is covered by the provisions contained therein, there would be no necessity for invoking the deeming provisions of section 73, Explanation. However, where a company falls within the deeming provisions of section 73, Explanation, the loss so deemed to have been incurred would be allowed to be set- off only against speculation profit.
5.4. The facts of the present case are on all fours with the facts obtaining in the case of Aman Portfolio. The losses incurred on share trading are the net losses after taking into consideration the profits and losses in individual transactions. The assessee- company is not a part of group of companies but is a distinct entity. The transactions in shares resulting in the net loss were not part of a concerted effort, spread over a number of companies in which the assessee had any interest. The assessee did not have any interest or holding in the companies whose shares were traded. If the provisions of section 43(5) were applied, there would be no speculative loss but speculative profit. This has been duly disclosed by the assessee. In view of the foregoing, I am of the opinion that the A.O. was not justified in treating the loss of Rs. 1,53,15,913/- as loss from speculation business. The A.O. is directed to re- compute the income accordingly."
5. Before us the ld. D.R. submitted that the decision of Ld. C.I.T.(A) is cryptic and does not deal with the issue that main business of the 3 ITA No.1576/Ahd/2007. Asst. Year 2001-02 assessee is not the capital gains, interest or banking. Once case of the assessee is not covered in the exceptions, the trading in shares and loss resulting therefrom should be treated as speculative within the meaning of explanation to section 73. It is for the assessee to satisfy that its case falls in any of the exceptions and therefore, loss in trading in shares should be treated as non speculative. Secondly, Ld. D.R. submitted that section 43(5) deals with only business income whereas Section 73 deals with specific type of situation where an assessee's income consist of both income from trading in shares as well as capital gains, interest or banking. If assessee is exclusively dealing in trading in shares then section 43(5) can be invoked but where the business of the assessee is composite then section 73 has to be invoked. The Ld. C.I.T. (A) was not correct in holding that if section 43(5) is applicable then section 73 cannot be invoked. Such interpretation would make the provisions of section 73 otiose.
6. On the other hand the Ld. A.R. submitted that a finding is required to be given as to what is the main business of the assessee and whether the case of the assessee falls in any of the exceptions provided in the Explanation 73.
7. We have heard the rival submissions and perused the material available on the record. In our considered view the authorities below have not correctly appreciated the provisions of section 43(5) and section 73. The Ld. D.R. was right when he submitted that section 43(5) can be invoked only when one is computing the business income and assessee's only source of income is trading in shares. But where the assessee is doing composite business i.e. its source of income are capital gain, interest from securities or interest from bank or house property or assessee is a company whose principal business is of banking or granting of loans and advances then Explanation to 73 has to be invoked.
4 ITA No.1576/Ahd/2007.Asst. Year 2001-02 Otherwise, this Explanation will become otiose which is not permissible in the eyes of law. The assessee has also not attempted to make out a case that it falls within any of the exceptions provided in Explanation. Accordingly we restore the matter to the file of the A.O. so as to find out the composition of income of the assessee and give a finding as to what is the main source of income of the assessee. Whether gross total income of the assessee consists mainly of income under the heads (1) Interest on securities (2) Income from house property (3) Income from capital gain (4) Income from other sources and whether the principal business of the assessee is banking or granting of loans and advances as provided in the Explanation to section 73 to whom these provisions will not be applicable. In other words there are three categories of exceptions, one is the above heads under which assessee is mainly deriving its income and second is whether the principal business is banking and third is whether principal business is of granting of loans and advances. If it is so, explanation to section 73 would not be applicable.
8. In addition to above if these companies are doing business in trading in shares and incur loss then A.O. has to decide what is the composition of gross total income of the assessee. Here, if the gross total income consists of income under these four heads then assessee company would fall in the exceptions, but if the main source is not the one mentioned in the exceptions, then loss arising from trading in shares would be treated as speculative. In addition to finding about the composition of income the A.O. has to further give a finding whether any exception is applicable to the assessee or not. So far as the applicability of Circular of the Board is concerned we are of the considered view that subsequent decisions of the Court are rendered on the basis of language in the Explanation to section 73 and in our considered view such interpretation would override any restricted meaning given by the 5 ITA No.1576/Ahd/2007. Asst. Year 2001-02 Circular of the Board issued at the time of insertion of Explanation to section 73 w.e.f. 1-4-1977. We therefore restore the matter to the file of the A.O. for fresh decision on the subject about the applicability of section 73.
9. In the result, the appeal of the Revenue is partly allowed for statistical purposes.
Order was pronounced in open Court on 30-12-2010.
Sd/- Sd/-
(Mukul Kumar Shrawat) (D.C. Agrawal)
Judicial Member Accountant Member
Ahmedabad,
Dated: 30-12-2010.
Patki.
Copy of the Order forwarded to:-
1. The Assessee.
2. The Revenue.
3. The CIT(Appeals)-
4. The CIT concerns.
5. The DR, ITAT, Ahmedabad
6. Guard File.
BY ORDER,
Deputy/Asstt.Registrar
ITAT, Ahmedabad
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ITA No.1576/Ahd/2007.
Asst. Year 2001-02
1.Date of dictation 28 / 12 /2010
2.Date on which the typed draft is placed before the Dictating 29 / 12 / 2010 Member................Other Member................
3.Date on which the approved draft comes to the Sr.P.S./P.S.............
4.Date on which the fair order is placed before the Dictating Member for pronouncement..............
5.Date on which the fair order comes back to the Sr.P.S./P.S...............
6.Date on which the file goes to the Bench Clerk...........
7.Date on which the file goes to the Head Clerk.............
8.The date on which the file goes to the Asstt. Registrar for signature on the order........................
9.Date of Despatch of the Order.................
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