Ankush Finstock Limited, Ahmedabad vs Assessee

ी एन0एस0 सैनी, लेखा सद य एवं ी कुल भारत, या%यक सद य के सम& BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER आयकर अपील सं./ ITA No. 1 and 797/Ahd/2011 %नधा)रण वष)/Assessment Year: 1997-1998 and 2005-2006

Ankush Finstock Ltd. ITO, Ward-1 (2) B-12, Sulabh Flats Vs Ahmedabad. Naranpura, Ahmedabad.

PAN : AADCA 0047 R

अपीलाथ,/ (Appellant) -.यथ,/ (Respondent)

Assessee(s) by : Shri Tushar Hemani Revenue by : Shri M.K. Singh, SR.DR

सन ु वाई क तार ख/ Dateof Hearing : 08/04/2015 घोषणा क तार ख / Date of Pronouncement: 17/04/2015

आदे श/O R D E R

PER N.S. SAINI, ACCOUNTANT MEMBER: These are appeals filed

by the assessee against the order of the Commissioner of Income-Tax- VI, Ahmedabad dated 06/10/2010 for the Asstt.Year 1997-98 and dated 24/10/2011 for the Asstt.Year 2005-06.

2. In the Asstt.Year 1997-98, the grounds of the appeal are as under:

"1. The ld.CIT(A) has erred in confirming the action of the AO in treating business loss of Rs.5,75,43,112/- as speculative loss.

2. The ld.CIT(A) has erred in confirming the action of the AO in invoking the Explanation to Section 73 in the set aside proceedings.

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2. Brief facts of the case are that the AO observed that in the Asst.Year 1997-98, the assessee had done trading of shares and securities wherein it has incurred loss of Rs.5,38,05,710/-. In addition, the assessee had the following receipts during the year:

1. Hire purchase charges Rs.51,932/-

2. Spot Finance charges (net) Rs.1,12,498/-

3. Interest received Rs.4,31,853/-

4. Dividend Income Rs.19,728/-

3. The AO observed that since the main business consisted of trading in shares and securities of other companies, provisions of Explanation to section 73 were applicable in this case, and accordingly, held that the loss of Rs.5,38,05,710/- was speculation loss.

4. On appeal, the CIT(A) confirmed the action of the AO by observing as under:

"3.3 I have considered the facts of the case, assessment order and appellant's submission. Appellant disclosed business income during the year which was accepted by the assessing officer as business income to the extent of Rs.1,85,24,325. The assessing officer only treated business income to the extent of Rs.11,92,969 as speculative income. Since there was no delivery in respect of this, the same was treated as speculative under section 43 (5) of IT act. Therefore it can be seen that assessing officer did not disturb appellant's claim of business income to the extent of RS 18524325 and accordingly no appeal lies against AO's acceptance of appellant's claim business income as business income. As regards appellant's objection of treating business income as speculative, the same is not sustainable since appellant itself treated RS 1192969 as speculative income. Accordingly I do not find any merit in appellants claim since assessing officer only disturbed RS 1192 969 from business to speculation which is as per the provisions of IT act. Since assessing officer has not disturbed the remaining business income, appellant cannot agitate the same in appeal.

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Having accepted the business income as business income disclosed by the appellant, assessing officer did not allow set off of speculative loss brought forward against business income. Such set off is not permissible in law and therefore there is no infirmity in assessing officer's order. Appellant claimed that since undersigned had confirmed the AO's action in treating business income from shares as speculative within the meaning of explanation to section 73, the nature of transaction being same during the year, the set-off with speculative loss brought forward should be allowed. I do not find merit in appellant's argument since decision in appeal in assessment year 97-98 has no bearing in assessment year 2005-06 particularly when the issue of business income or speculative income is not there in appeal. Since assessing officer did not disturb the appellants claim of business income, there cannot be an appeal against it and accordingly the nature of income is final i.e. business income. Now simple issue is whether speculative loss can be adjusted against business income. The answer is clear NO. If appellant is aggrieved against the appeal order in assessment year 97-98, it can approach ITAT for relief however speculative loss brought forward cannot be allowed to be set off against business income Assessed in this year. The nature of income whether business or speculative is not in question here therefore no findings can be given in this regard and nature of income cannot be changed. In view of this the appellant's claim is rejected."

5. The AR of the assessee submitted that the assessee is engaged in the business of finance and trading in shares and investments. The original assessment order dated 10.3.1999 was passed under section 144 wherein the assessee's claim of business loss of Rs.5,75,62,840/- was disallowed for want of necessary details and evidences. He submitted that on appeal, the CIT(A) after considering the submissions of the assessee allowed the said claim vide order dated 22.5.2001.

6. On Revenue's appeal to the Tribunal, the Tribunal restored the issue to the file of AO vide order dated 3.3.2006 with directions to frame the assessment after giving fair opportunity to the assessee. Consequently, the AO again framed the assessment in a similar manner vide order dated 24.12.2007 passed under section 143(3) r.w.s. 254 and such order came to be confirmed by the CIT(A) vide order dated 6.10.2010. He submitted that both the lower authorities should have ITA No.1 and 797/Ahd/2011 4

appreciated that the business loss of Rs.5,75,62,840/- is a genuine loss and necessary evidences and explanation were placed before the AO.

7. The issue of applicability of Explanation to section 73 was never a subject matter of controversy in the first round of litigation. Hence, in the second round of litigation, invocation of Explanation to section 73 was not permissible. He submitted that in the first round, the AO made disallowance for want of details which were then placed before the CIT(A) based on which the CIT(A) allowed such claim. The Tribunal in order to enable the AO to process and consider such details, restored the matter to the AO. He argued that the Tribunal's directions were very limited and restricted only to the limited aspect of considering the necessary details and evidences in respect of the said loss.

8. At this stage, it was not open to the AO or the CIT(A) to take into consideration provisions of Explanation to section 73 or expand the scope of the controversy. The controversy is limited and restricted to considering necessary evidences and submissions of the assessee. Hence, now it was not open for the AO or the CIT(A) to invoke Explanation to section 73, since it was never the case of the Revenue hitherto. He placed reliance on the following decisions:

i) Gemini Oils Pvt. Ltd. Vs. ITO (ITA NO.2563/Mum/2005)

ii) Kellog India (P) Ltd. Vs. ACIT, (2013) 33 taxmann.com 397 (Mumbai-Trib.)

iii) S.P. Kochharv Vs. ITO, 145 ITR 255 (All.).

9. He further argued that the Tribunal does not have power to enhance income of the assessee. The proposed action of the invoking Explanation to section 73 amounts to enhancement since the assessee was worst off by approaching the Tribunal. He submitted that law is equally well settled that what Tribunal cannot do directly, cannot be done indirectly as well. Accordingly, the Tribunal neither has the power to enhance or expand the scope of controversy nor can it direct any of ITA No.1 and 797/Ahd/2011 5

its subordinate authorities to do the same. Thus, the proposition to invoke Explanation to section 73 is itself illegal and beyond jurisdiction.

10. It was further argued that in any case, the Explanation to section 73 creates a deeming fiction whereby if any part of business of a company, consists in purchase and sale of shares, then such company shall be deemed to be carrying in a speculation business. However, the said Explanation also carves out certain exceptions according to one which, if such company's gross total income consists mainly of income which is chargeable under the heads, "interest on securities", "Income from house property", "capital gain" and "Income from other sources", then such explanation as to deeming fiction will not be applicable.

11. He submitted that in the assessee's case, though the assessee has shown "Interest Income" as part of "Business Income", still the interest income is always to be taxed as "Income from other sources"

and not as business income. He placed reliance on the decision of the Madras High Court in the case of South India Shipping Corporation Ltd. Vs. CIT, 240 ITR 24 (Mad). He argued that once the interest income was taxed as "Income from other sources", the gross income of the assessee under the head income from other sources exceeds income from operations, as is evident from the following chart.

Particulars Amount (Rs.) % Income from Loans & Advances: 1. Hire Purchase : Rs.51,932/- charges 2. Interest received : Rs.4,31,853/- 3. Dividend Income : Rs.19,728/- Rs.5,03,513/- 81.74% Income from activities Rs.1,12,498/- 18.26% other than loans and advances Total Rs.6,16,011/- 100.00%

He, therefore, submitted that the assessee's income under the heads prescribed under Explanation to Section 73 aggregates to Rs.5,03,513/-

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which is substantially higher than the income of Rs.1,12,498/- earned from activities other than loans and advances.

12. It was, therefore, his submission that the assessee was covered by the exception carved out under Explanation to section 73, and hence, the same is not applicable to the assessee, and accordingly, the assessee's business loss cannot be treated as speculation loss by invoking Explanation to section 73. It was his further submission that transactions of purchase and sale of shares would be held as speculation business only if a company is hit by Explanation to section

73. He placed further reliance on the decision of Special Bench of the Tribunal in the case of ACIT Vs. Concord Commercials P. Ltd., 95 ITD 117 (Mum) (SB). He submitted that as submitted, Explanation to section 73 is not hit in assessee's case, and hence, as per the above decision of the Special Bench, transactions in shares cannot be held as speculation business, and the consequential loss also cannot be deemed to be speculative loss. He, therefore, pleaded that impugned disallowance should be deleted.

13. On the other hand, the DR supported the orders of the lower authorities.

14. We have heard rival submissions and perused the orders of the lower authorities and materials available on record. In the instant case, the assessee suffered loss of Rs.5,38,05,710/- on the transactions of purchase and sale of shares. The AO in the original assessment made under section 144 on 10.3.1999 disallowed the said loss on the ground of non-furnishing of details by the assessee.

15. On appeal there against, the CIT(A) vide its order dated 22.5.2001 allowed the claim of the assessee of loss of Rs.5,38,05,710/- .

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16. On further appeal to this Tribunal vide its order dated 3.3.2006 in ITA Nos.1849 and 1899/Ahd/2001 restored the matter back to the file of AO for de novo assessment, as it was found by the Tribunal that the details of the transactions in shares were filed by the assessee before the AO after completion of the assessment by the AO.

17. In pursuance to the above order of the Tribunal, the AO passed fresh order on 24.12.2007, which is under present appeal.

18. In this order, the AO again disallowed the deduction of loss of Rs.5,38,05,710/- on the ground that such loss, was arising out of transactions of purchase and sale in shares, and the assessee being a company in view of Explanation to section 73, such loss was deemed as speculation loss which can be set off against speculation profit only. There being no speculation profit in the assessment for the year, the AO allowed the deemed speculative loss of Rs.5,38,05,710/- to be carried forward to the subsequent assessment year for being set off against the speculation profit of subsequent years.

19. Being aggrieved, the assessee preferred an appeal before the CIT(A) who confirmed the above action of the AO.

20. Being still aggrieved, the instant appeal was preferred by the assessee.

21. The AR of the assessee at the outset submitted that invoking of provisions of Explanation to section 73 by the AO in the remand proceedings was without jurisdiction, as the Tribunal has restored the issue to the file of the AO only for verifying the details of the share transactions. The other contentions of the AR of the assessee before us was that the assessee being a company which falls within the category of Exception provided in Explanation to Section 73, the loss on purchase ITA No.1 and 797/Ahd/2011 8

and sales of shares cannot be deemed as speculation loss in the hands of the assessee-company.

22. We find that this Tribunal vide its order dated 3.3.2006 has remanded the issue of loss of shares by observing as under:

"However, keeping in view the interest of justice, we find that it would be just and fair to restore the entire assessment to the file of the AO to frame it de novo just to give fair opportunity to both the parties. We direct accordingly."

23. Thus, we find that the directions of the Tribunal were not limited to simply verifying the details of loss on share transactions in order to ascertain the genuineness thereof as contended by the AR of the assessee, rather, the Tribunal has directed the AO to reframe the assessment on this issue de novo as per law.

24. Thus, in our considered view, the AO has not exceeded its jurisdiction which was conferred upon him by the Tribunal while restoring the issue in invoking the provisions of Explanation to Section 73 of the Act. Therefore, this contention of the assessee is rejected.

25. Further, coming to the other contention of the assessee, we find that Explanation to Section 73 reads as under:

"[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 ITA No.1 and 797/Ahd/2011 9

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.]"

26. We find that the loss from share transactions is Rs.5,38,05,710/- whereas all other income of the assessee is Rs.6,16,011/- only. Thus, neither it can be held that the assessee's gross total income consists of mainly of the income which is chargeable under the head "Interest on Securities", "Income from House Property", "Capital Gains" and "Income from Other Sources" nor it can be held that principal business of the assessee was granting of loans and advances. No material could be brought before us to show that principal business of the assessee was of granting of loans and advances. In the circumstances, in our considered view, the lower authorities were justified in treating the loss arising from dealing in shares by the assessee-company as loss from speculative business. Therefore, these grounds of appeal of the assessee are dismissed.

27. In the Asstt.Year 2005-06, the ground no.1 reads as under:

"1. The ld.CIT(A) has erred in confirming the action of the AO in reopening the assessment u/s.147 of the Act which is without jurisdiction and not permissible either in law or on that. Therefore, the assessment so made requires to be quashed."

28. At the time of hearing, the AR of the assessee submitted that he was not pressing this ground of the appeal, hence, the same is dismissed for the want of prosecution.

29. The ground no.2 and 3 of appeal are under:

"2. The ld.CIT(A) has erred in confirming the action of the AO in treating current assessment year's business loss of the appellant company as speculation loss and treating brought forward business loss pertaining to A.Yrs.1997-98 as speculation loss and treating brought forward business loss pertaining to A.Yrs.1997- ITA No.1 and 797/Ahd/2011 10

98 as speculation loss. He accordingly erred in allowing set off of brought forward losses of Rs.11,92,969/- only.

3. The ld.CIT(A) has erred in confirming the action of the AO in invoking the Explanation to Sec.73(4) of th I.T.Act, 1961 and not allowing to carry forward business loss of Rs.5,26,12,741/- pertaining to A.Ys. 1997-98, treating the same as speculation loss not allowed to be carried forwarded more than four years."

30. We have heard rival submissions and perused the orders of the lower authorities and material available on record. In the instant case, the AO assessed non-speculative business income of the year of Rs.1,85,24,325/- and speculative business income of Rs.11,92,969/-. The AO allowed set off of brought forward non-speculative business loss, and depreciation of Rs.1,02,37,196/- against the above income of the year. Further, the AO allowed set off of brought forward speculative business loss to the extent of Rs.11,92,969/- out of the total loss of Rs.5,38,05,710/- relating to the Asstt.Year 1997-98 on the ground that speculative business income of the assessee was Rs.11,92,969/- only.

31. On appeal before the CIT(A), the assessee contended that speculative business income of Rs.11,92,969/- of the year was income arising from non-delivery based transactions in shares, and therefore, was speculative business income in view of section 43(5) of the Act.

32. Assessee further contended that the business income of Rs.1,85,24,325/- also related to dealing in shares, which were delivery based, and in view of Explanation to section 73, the same ought to have been treated as income derived from speculative business. However, the CIT(A) rejected the above contentions of the assessee on the ground that the assessee itself disclosed Rs.1,85,24,325/- as normal business income in its return of income, and therefore, the AO was correct in accepting it as normal business income.

33. We find that it is not in dispute that the assessee being a company, and as it does not fall within the exceptions as provided in ITA No.1 and 797/Ahd/2011 11

Explanation to Section 73, the income or loss arising from dealing in shares, even when such dealing is delivery based, is to be treated as income or loss from speculative business, in view of provisions of Explanation to section 73 of the Act.

34. We have treated the loss arising from dealing in purchase and sale of shares by the assessee-company during the Asstt.Year 1997-98, as the loss from speculative business vide our order of even date on the similar analogy that the profit derived by the assessee from dealing in shares during the year is to be treated as profit derived from speculation business.

35. We do not approve the view of the CIT(A) that simply because the assessee has made a mistake in disclosing the correct nature of the income, the AO even when full facts are available before him should not assess the income as per actual nature of income as per law. As we have held, profit derived by the assessee from dealings in purchase and sale of shares is to be treated as income derived from speculative business, in view of Explanation to section 73 of the Act, as a corollary of the same, the brought forward loss from speculative business, is to be allowed as set off against such profit from speculative business. We, therefore, set aside the orders of the lower authorities and direct the AO to treat profit derived from delivery based share transactions of the year also, as profit derived from speculation business and allow set off of brought forward speculative business loss as per law. Thus, these grounds of appeal of the assessee are partly allowed.

36. The ground no.4 of the appeal reads as under:

"4. The ld.CIT(A) has erred in confirming the disallowance of Rs.9,28,020/- made by the AO on account of service tax expenditure u/s.43B of the Act."

ITA No.1 and 797/Ahd/2011 12

37. At the time of hearing, no submission was made on this ground by the AR of the assessee, and hence the same is dismissed for want of prosecution.

38. In the result, the appeal of the assessee for the Asstt.Year 1997- 98 is dismissed, and that of the Asstt.Year 2005-06, is partly allowed.

Order pronounced in the Court on Friday the 17th April, 2015 at Ahmedabad.

Sd/- Sd/- (KUL BHARAT) ( N.S. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 17/04/2015

आदे श क0 -%त1ल2प अ3े2षत/Copy of the Order forwarded to :

1. अपीलाथ / The Appellant

2. यथ / The Respondent.

3. संबं धत आयकर आयु!त / Concerned CIT

4. आयकर आयु!त(अपील) / The CIT(A)-III

5. $वभागीय 'त'न ध, आयकर अपील य अ धकरण / DR, ITAT,

6. गाड* फाईल / Guard file.

ु ार/ BY ORDER, आदे शानस

उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad

1. Date of dictation- : 10/13/16.4.2015

2. Date on which the typed draft is placed before the Dictating Member 13/13/16.04.2015

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 file goes to the Bench Clerk......17.4.2015

6. Date on which the file goes to the Head Clerk..................................

7. The date on which the file goes to the Assistant Registrar for signature on the order..........................

8. Date of Despatch of the Order..................