TMI Blog2007 (4) TMI 710X X X X Extracts X X X X X X X X Extracts X X X X ..... income of ₹ 3,62,761 and that has been accepted by the Assessing Officer. However the learned Assessing Officer noted that the assessee had in earlier years purchased 11 lakh shares of M/s. Shonkh Technologies Ltd. These shares were held by the assessee as stock in trade and brought forward from the earlier years. During the financial year 2001-02 relevant to assessment year 2002-03 the assessee carried forward the entire stock of 11 lakh shares as closing stock. As the assessee had acquired bank finances against security of the shares and to a large extent the assessee had purchased the shares from bank finances, the assessee paid during the year interest to bank amounting to ₹ 1,49,01,871. The assessee debited this amount to profit loss account under the head administrative expenses . The learned Assessing Officer addressed a letter to the assessee on 18-1-2005 to show cause as to why the shares of M/s. Shonkh Technologies Ltd. held by the assessee be not treated as held as investment instead of stock in trade. The assessee by his letter dated 25-1-2005 replied that the shares had been purchased by the assessee for the purpose of trading and treated as trading sto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a High Court in the case of CIT v. Sun Distributors Mining Co. Ltd. [1993] 68 Taxman 223 . According to that judgment section 73 did not require that both sale and purchase should take place in the same year. It could be that in a particular year shares were only sold or in a particular year the shares were only purchased. What was to be seen was whether the business of the assessee consisted in any purchase and sale of shares. In case there was a business of sale and purchase of shares, a company carried on that business in the relevant year. According to the learned Assessing Officer the Hon ble Calcutta High Court in the case of Sun Distributors Mining Co. Ltd. (supra ) clearly held that for the application of Explanation to section 73 the only condition ought to be seen was whether there was a business of sale and purchase of shares or not. It was necessary that there should actually be the transactions relating to the sale or purchase. Hence Explanation to section 73 was clearly applicable in the case of the assessee. The learned Assessing Officer held that the assessee had debited administrative expenditure of ₹ 1,61,44,996 to the profit loss account that included ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ologies Ltd. forming the opening stock that was carried forward as closing stock would bring the assessee within the ambit of Explanation to section 73 of the Act. On acquisition of those shares the business of trading came into existence and the fact that the shares were not sold during the year did not change the nature of the business carried on by the assessee. The shares were bought for trading activity and therefore the assessee remained within the ambit of Explanation to section 73. 6. The learned CIT(A) held that the assessee was not justified in disputing the apportionment of the interest of ₹ 1,49,01,871. The nexus of borrowings with acquisition of shares of M/s. Shonkh Technologies Ltd. was established. Relying upon the decision Dy. CIT v. Frontline Capital Services Ltd. [2005] 96 TTJ (Delhi) 201 and SRJ Securities Ltd. v. Asstt. CIT [2003] 86 ITD 583 (Delhi) the learned CIT(A) held that share trading and share brokerage business were different lines of business and therefore expenditure was required to be allocated between the two lines of business. The learned CIT(A) further held that the Assessing Officer was justified in relying upon the decision reported in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra) strongly relied upon by both the Assessing Officer and the learned CIT(A) did not even suggest that purchase of shares alone was sufficient to trigger Explanation to section 73. All that the judgment stated was that both purchase and sale need not be in the same year. Hence the was no assistance to the case of revenue from that judgment. In the cases of the assessee there was neither any purchase nor any sale during the relevant year and even on cumulative basis there was purchase only. The learned counsel stated that on identical facts ITAT, Mumbai SMC IV by its order in the case of Nirvan Holding (P.) Ltd. ITA No. 529/Mum./2001 dated 9-1-2002 had decided the issue in favour of the assessee. The assessee s case was fully covered by that Tribunal decision. As a matter of fact the facts of the case of the assessee were on stronger footing. In the case of Nirvan Holdings (P.) Ltd. (supra) the assessee had valued the entire closing stock and as a result certain Scrips projected a picture of loss. As far as the assessee was concerned there was no notional loss either. The shares had been carried forward at the book value only. The learned counsel argued that on identical facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent and that there was purchase only. The assessee was in share broking business and therefore the assessee purchased and sold shares every day. For the purpose of Explanation to section 73 the assessee could not distinguish those transactions. The Explanation referred to any part and not the entire business. The learned departmental representative referred to the decision of ITAT, Mumbai Special Bench reported in Asst. CIT V. Concord Commercial (P.) Ltd. [2005] 95 ITD 117 and argued that what the assessee constituted was a share trading business. The assessee had disclosed the entire income under a single head of income viz. Profits and gains of business or profession . 11. The learned departmental representative argued that there was no dispute that the entire interest claimed as deduction by the assessee was attributable to acquisition of the shares of M/s. Shonkh Technologies Ltd. by the assessee. The assessee claimed deduction of such interest income under the provisions of section 36(1)(iii) and at the same time the assessee for the purpose of Explanation to section 73 argued that it was not engaged in share trading business There was thus inherent contradiction in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. 15. The main plank of the argument of the Revenue before us is that the assessee had admittedly purchased the shares in question for trading and treated them as stock in trade. That being so Explanation to section 73 clearly applied. The main plank of the argument of the assessee is that the provisions of Explanation to section 73 require that the business of the assessee consisted in the purchase and sale of shares of other companies whereas in the case of the assessee there was neither purchase nor any sale during the assessment year and even historically the assessee had only purchased shares of other company and never sold shares of other companies. Secondly, in the case of the assessee there was no business loss. The argument of the revenue is that the interest that was paid clearly on the borrowing utilised for purchase of shares in question constituted busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies. Therefore it is to be seen whether the assessee company has such a business. It may be that in a particular year shares were only sold or in a particular year the shares were only purchased. The section does not require that both sale and purchase should take place in the same year. What is to be seen is whether the business of the company consists in purchase and sale of shares . The Hon ble Calcutta High Court have clearly recognised that the business should consist in both purchase and sale of shares of other companies. Hon ble High Court have held that both purchase and sale of shares need not take place in one and the same year and it would suffice if there is purchase in one year and sale in another year. The contention of the assessee before us is that so far as the assessment year 2002-03 before us is concerned there is neither purchase nor sale and even historically there is only purchase and no sale. 17. During the course of assessment proceedings the learned Assessing Officer addressed a letter to the assessee and obtained a confirmation from the assessee that the shares were held with the intention to trade in those shares. In our considered opinion from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ple thus laid down by Hon ble Supreme Court has been enshrined. There is thus no loss arising to the assessee on account of valuation of shares. The learned counsel for the assessee has pointed out that in various decisions relied upon by the learned departmental representative there was some sale of shares and not merely valuation of shares. We find that in the case of Paharpur Cooling Towers Ltd. (supra) the loss had arisen to the assessee on actual sale of shares. In the case of Prudential Construction Co. Ltd. (supra) also there was both purchase and sale of shares. In the case of Associated Capital Market Management (P.) Ltd. (supra) the loss had arisen both on account of delivery based transactions in shares as well as valuation of closing stock at cost or market value whichever is lower. In the case of Yucca Finvest (P.) Ltd. (supra) also there had been frequent sale and purchase of shares though of a single company. We therefore find that the learned counsel for the assessee has rightly distinguished those cases as not arising on merely notional working of loss on valuation of shares. As against that the learned counsel for the assessee has relied upon the decisions of Sing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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