Income Tax Appellate Tribunal - Ahmedabad
Bhavpujya Securities Pvt. Ltd.,, ... vs Assessee on 27 January, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD ''B" BENCH - AHMEDABAD
Before S/Shri Rajpal Yadav, JM, & Manish Borad, AM.
ITA No.1713/Ahd/2015
Asst. Year: 2009-10
Bhavpujya Securities Pvt. Ltd., 59, Vs. ACIT, Circle-3, Ahmedabad.
Kamdhenu Complex, Panjrapole,
Ahmedabad.
Appellant Respondent
PAN AAACB 6215D
Appellant by S. N. Divatia, AR
Respondent by Vilas V. Shinde, DR
Date of hearing: 30/11/2015
Date of pronouncement: 27/01/2016
ORDER
PER Manish Borad, Accountant Member.
This appeal of assessee is directed against the order of CIT(A)- 10, Ahmedabad, dated 27.03.2015 in appeal No.CIT(A)- 10/ACIT/Circle-1(3)/85/14-15 for Asst. Year 2009-10. Assessment was framed u/s 143(3) of the Income-tax Act. 1961, (hereinafter the Act) on 11.11.2011 by ACIT, Circle-1(3), Ahmedabad. Grounds of appeal raised by assessee are as under :-
1.1 The order passed u/s 250 on 27/03/2015 for AY 2009-10 by CIT(A)-10, Abad upholding the disallowance of Rs.14,93,823/-
of loss from purchase & sale of shares as speculation loss made by AO is wholly illegal, unlawful and against the principles of natural justice.
ITA No. 1713/Ahd/2015 2Asst. Year 2009-10 1.2 The ld. CIT(A) has grievously erred in law and or on facts in not considering fully and properly the submissions made and evidence produced by the appellant with regard to the impugned additions.
2.1 The ld. CIT(A) has grievously erred in law and on facts in confirming that the case of the appellant is not covered by the Explanation to provision of section 73.
2.2 That in the facts and circumstances of the case as well as in law, the ld. CIT(A) ought not to have upheld the set off of loss on purchase & sale of shares as speculative loss applying the provisions of section 73 of the Act.
2.3 That in the facts and circumstances of the case, the ld. CIT(A) ought to have allowed the loss on sale of purchase & sale of shares applying the explanation to the provisions of sec.73 of the Act.
It is, therefore, prayed that the disallowance of Rs.14,93,823/- upheld by the CIT(A) may kindly be deleted.
2. The assessee has raised various grounds but the solitary grievance revolves against the decision of ld. CIT(A) in upholding the disallowance of Rs.14,93,823/- on loss from purchase and sale of shares by treating it as speculation loss as assessed by Assessing Officer and not covering the case of the applicant within the Explanation to the provisions of section 73 of the I.T. Act, 1961.
3. Briefly stated facts are that the assessee is a private limited company which filed its return of income for Asst. Year 2009-10 on 19/08/2009 declaring loss of Rs.8,80,969/-. The case was selected for scrutiny assessment and notice u/s 143(2) of the Act was issued on 27.08.2010 and served upon the assessee. Assessing Officer ITA No. 1713/Ahd/2015 3 Asst. Year 2009-10 while going through the computation of income and financial statement during assessment proceedings noticed that assessee has shown loss on trading of shares of Rs.14,93,823/- and income from brokerage at Rs.1,77,164/- and interest on loans and advances at Rs.9,53,119/-. Assessing Officer framed assessment order by treating the loss on trading of shares as speculation loss which could be set off only against speculation income for the very reason that as per his observation assessee was not falling under the provisions of explanation to section 73 of the Act.
4. Aggrieved, assessee went in appeal before the CIT(A) who has confirmed the addition by observing as under :-
"4. I have perused the assessment order and submission of the appellant. I have perused the case laws relied upon by the appellant. After considering facts of the case, and contentions of the appellant and the AO, the only point of determination regarding disallowance of loss of Rs.14,93,823/- incurred on sale and purchase of shares and treating the same as speculation loss is adjudicated as follows.
In this case, the AO disallowed loss of Rs.14,93,823/- incurred on sale and purchase of shares. The AO held that the case of the appellant was not covered by exceptions provided in explanation to section 73 of the Act. Hence the loss of Rs.14,93,,823/- was to be treated as speculation loss to be set off against profits and gains of speculation business. Since the appellant did not have profits & gains from speculation business during the year under consideration the loss of Rs.14,93,823/- was disallowed with the permission to carry it forward to next year.
During appeal proceedings, the main contention of the appellant was that its principal business was that of granting loans and advances. As per the appellant, this was evidenced by the fact that income from interest on loans and advances was more than ITA No. 1713/Ahd/2015 4 Asst. Year 2009-10 income from other activities. Further, the capital employed in the business of loans and advances was 54.88% which was more than the capital employed in any other business. Based on this, the appellant contended that its case was covered by one of the two exceptions provided by Explanation to section 73 i.e. business of the appellant was granting loans and advances. Hence the loss of Rs.14,93,823/- was not to be treated as speculation loss :
Explanation to Sc.73 of the Act reads as follows :
[Explanation.--Where any part of the business of a company ( [other than a company whose gross total income consists mainly of income which is chargeable under the heads "Interest on securities", "Income from house property", "Capital gains" and "Income from other sources" ], or a company [the principal business of which is the business of banking] or the granting of loans and advances) consists in the purchase and sale of shares of other companies, such company shall, for the purposes of this section, be deemed to be carrying on a speculation business44 to the extent to which the business consists of the purchase and sale of such shares.] After considering rival submissions, I am inclined to agree with the AO that the case of the appellant is not covered by the exceptions provided by Explanation to sec.73 of the Act due to the following reasons :-
i) First and foremost as per Memorandum of Association and Articles of Association copy of which was furnished during appeal proceedings, the Main objects of the company are to deal in shares, stocks, bonds, etc., to provide package of investment services and to render profolio management services To grant loans and advances is not included in the main objects of the company. To lend and advance money or give credit is mentioned only at sl.no.15 in objects incidental or ancillary.
Further under other objects sl.no.35 mentions the object as to carry on and undertake the business of finance and trading. Thus granting of loans and advancing is at best an ancillary or incidental object and not the main object of the company.
ITA No. 1713/Ahd/2015 5Asst. Year 2009-10 Hence, granting loans and advances is not the principal business of the appellant.
ii) The sales turnover of shares during the years was approximately Rs.1.07 crores while the purchase turnover of shares was approximately Rs.1.27 crores. The total outstanding as on 31.3.09 under loans & advances was approximately Rs.103 crores. The outstanding under this head as on 31.03.2008 was approximately Rs.1.14 crores. This shows that no new loans were advanced during the year consideration Infact, the loans have been received back. In absolute terms, the loans turnover at Rs.1.03 crores is much less than the combined sales & purchases turnover of shares at Rs.2.34 crores. This amply proves that the granting loans and advances is not the main or principal activity of the appellant.
The appellant relied on several judgments in support of its contention. The same are discussed below -
1) Judgment of Hon'ble ITAT, Ahmedabad in Punjab Lease Financing Ltd. vs. ITO 119 TTJ 395 (Ahd) The ratio of the above judgment is not applicable to the present case since as the facts are different. The assessee in the above case is a non-banking financial company. The appellant in the present case deals in sale and purchase of shares and securities.
2) Judgment of Hon'ble ITAT, Kolkata in DCIT vs. Venkateshwar Investment & Finance Pvt. Ltd. 92 TTJ 1129 (SB) Again the facts of this case are different since in this case the assessee had started the business of shares for the first time during the year under consideration. In earlier years, the assessee was purely into business of money lending and leasing. In view of this, the ratio of judgment of this case is not applicable to the present case.
3) Judgment of Hon'ble ITAT, Delhi in ITO vs. Bijal Paper Traders & Investments Ltd. (2010) 38 SOT 378 (Del).
ITA No. 1713/Ahd/2015 6Asst. Year 2009-10 In this case the appellant was into business of trading in paper, shares, financing and real estate. The appellant in the present case deals in shares and securities. Facts being different the ratio of the judgment in the above case is not applicable to the present case.
In view of discussion above, I hold that the AO was justified in holding that the case of the appellant is not covered by exceptions provided in Explanation to sec.73. Therefore, I hold that the AO was justified in treating loss of Rs.14,93,823/- as speculation loss and disallowing the same. Accordingly, the addition of Rs.14,93,823/- is upheld and the same is confirmed. This ground of appeal is dismissed."
5. Aggrieved, the assessee is now in appeal before the tribunal.
6. The ld. AR submitted that principal activity of the assessee company is granting loans and advances and also referred to the details showing percentage of loans and advances granted during the last four years and also submitted that during the year under appeal the assessee company had granted loans and advances to the tune of Rs.1,02,72,219/- which is 54.83% of the total capital employed and, therefore, as the assessee's principal business is money lending the case of the assessee will fall in the explanation to section 73 of the Act and loss from trading of shares should not be treated as speculation loss.
7. On the other hand, ld. DR supported the orders of lower authorities.
ITA No. 1713/Ahd/2015 7Asst. Year 2009-10
8. We have heard the rival contentions and perused the material on record. To examine the aspect that whether assessee is covered in the explanation to section 73 of the Act let us go through the provisions of section 73 of the Act for dealing the issue.
Sec. 73. (1) Any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off except against profits and gains, if any, of another speculation business.
(2) Where for any assessment year any loss computed in respect of a speculation business has not been wholly set off under sub-section (1), so much of the loss as is not so set off or the whole loss where the assessee had no income from any other speculation business, shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and--
(i) it shall be set off against the profits and gains, if any, of any speculation business carried on by him assessable for that assessment year; and
(ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on. (3) In respect of allowance on account of depreciation or capital expenditure on scientific research, the provisions of sub-section (2) of section 72 shall apply in relation to speculation business as they apply in relation to any other business. (4) No loss shall be carried forward under this section for more than [four] assessment years immediately succeeding the assessment year for which the loss was first computed. [Explanation.--Where any part of the business of a company ([other than a company whose gross total income consists mainly of income which is chargeable under the heads "Interest on securities", "Income from house property", "Capital gains" and "Income from other sources" ], or a company [the principal business of which is the business of banking] or the granting of loans and advances) consists in the purchase and sale of shares of other companies, such company shall, for the purposes of this section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares.]
9. From the perusal of the explanation to section 73 the conditions in which the company will get benefit under the provisions should either be one of the following :-
(a) Gross total income of the company consists mainly on income which is chargeable under the head interest on securities, ITA No. 1713/Ahd/2015 8 Asst. Year 2009-10 income from house property, capital gains and income from other sources.
(b) Principal business of the company is the business of banking or the granting of loans and advances.
10. If the business of the company fulfills any one of the conditions mentioned above then the business of purchase and sale of shares shall not be treated as a speculation business. Let us examine the facts of the case of assessee in the light of above conditions.
(a) In the computation of income assessee is having income under two heads, first under profits and gains of business showing a loss of Rs.18,34,088/- and interest income of Rs. 9,53,119/- which certainly shows that gross total income of the assessee mainly consists of income from profits and gains from business as a figure of loss is of Rs.18,34,088/-. Therefore, assessee company does not fulfill the condition no.1 as mentioned above.
(b) The second condition refers to the principal business run by assessee. On examination of Memorandum of association the main object of the company to be persued on its incorporation -
(A) The main objects of the company to be pursued on its incorporation are -
1. To deal as principal and/or agents in shares, stocks, bonds, securities, units, debentures, fixed deposits and financial instruments and to carry on the business as share and stock brokers.
2. To provide a package of investment/merchant banking services by acting as managers, brokers and/or advisors to public/right issue or private placement or sales of securities and to act as issue house/registrar underwriters and sub-underwriters and transfer agents and to render services for mobilization of resources by way of shares, debentures, bonds, deposit schemes and loan syndication.
ITA No. 1713/Ahd/2015 9Asst. Year 2009-10
3. To render portfolio management service by investment in shares, debentures, stocks, debenture-stocks, bonds, company deposits, government securities, government loans, National Savings and Post Office Savings Schemes. Units and to pass on the benefit of portfolio investment to investors and dividend, interest, bonus.
From going through the main objects of the company we find that assessee's main business is of dealing in shares, stocks, bonds etc. whereas under head of objects incidental or ancillary to the main object there are 41 types of activities and similarly under the head of other objects there are 43 types of activities which can be carried on by the assessee.
11. Ld. AR referred to item no.15 of part-B of Memorandum of Association as well as activities mentioned at point no.35 under the head other objects of the Memorandum of Association wherein the company can do the activities of loans and advances.
12. In our view the second condition of the explanation to section 73 refers to the principal business which is carried on by the assessee and in the case under appeal the principal business of the assessee is of purchase and sale of shares and the business of earning interest on loans and advances is covered under the ancillary and other objects and more so ever in the computation of income assessee is showing the interest income under the head income from other sources and not under the head income from business or profession because assessee is not running a non-banking financial company (NBFC) nor its main object was of finance and earning of income from giving loans else interest income from such loans and ITA No. 1713/Ahd/2015 10 Asst. Year 2009-10 advances should have figured under the head profits and gains of business. Therefore, assessee's business does not fulfill the condition no.2 of explanation to sec.73 of the Act.
13. Further there has been an amendment made by Finance Act, 2015 w.e.f. 1.4.2015 where at the place of "principal business" fo which is banking has been substituted by "principal business of which the business is of trading in shares or banking". This amendment itself conveys that business of trading in shares was not included in the explanation to sec.73 of the Act and assessee's business is mainly of trading in shares as reflected from the main objects of the Memorandum of association and the audited financial statements. We are, therefore, of the view that assessee's business is not covered under the explanation to section 73 of the Act and we find no reason to interfere with the order of ld. CIT(A) and we uphold the same. The appeal of assessee is dismissed.
14. In the result, the appeal of assessee is dismissed.
Order pronounced in the open Court on 27th January, 2016 Sd/- Sd/-
(Rajpal Yadav) (Manish Borad)
Judicial Member Accountant Member
Dated 27/01/2016
Mahata/-
ITA No. 1713/Ahd/2015 11
Asst. Year 2009-10
Copy of the order forwarded to:
1. The Appellant
2. The Respondent
3. The CIT concerned
4. The CIT(A) concerned
5. The DR, ITAT, Ahmedabad
6. Guard File
BY ORDER
Asst. Registrar, ITAT, Ahmedabad
1. Date of dictation: 22/01/2016
2. Date on which the typed draft is placed before the Dictating Member: 27/01/2016 other Member:
3. Date on which 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: 27/1/2016
7. Date on which the file goes to the Head Clerk:
8. The date on which the file goes to the Assistant Registrar for signature on the order:
9. Date of Despatch of the Order: