TMI Blog2009 (10) TMI 634X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness in assessment year 2002-03. No business was carried out in the year relevant to assessment year 2003-04, but the assessee started business of trading of shares in assessment year 2004-05. Since the assessee was new in the business, it made mostly intra-day transactions. The assessee suffered losses in some cases and profit in other cases, but posted an overall net profit of Rs. 2.56 lakhs during the relevant assessment year 2004-05. The assessee in order to achieve better results appointed skilled staff, subscribed to various softwares and purchased computers to analyse the stock as well as the stock-market. As regards the salary expenses it was submitted that none of the employees was related to the assessee and there was no limitation put by law on the amount of expenditure incurred/to be incurred especially when the Assessing Officer thought that the assessee could have managed the affairs by paying the lesser amount as prudent business. All the expenses were fully vouched. The Assessing Officer, however, compared the expenditure incurred with respect to sales made. The Assessing Officer noted that the turnover during the current year was 9.5 per cent of turnover of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT 26 ITR 775 (SC), in which the Hon ble Apex Court held that the Assessing Officer is not entitled to make additions purely on guesswork and make an assessment without referring to evidences and materials at all. There must be something more than suspicion to support the assessment. Same viewpoint has been held by Hon ble Apex Court in the case of Dhirajlal Girdharilal v. CIT 26 ITR 736 (SC). In view of above, the Assessing Officer is directed to delete the addition." 4. Before us the ld. Sr. DR supported the order of the Assessing Officer. On the other hand, the ld. AR supported the order of the ld. CIT (Appeals). 5. We have heard both the parties and gone through the material available on record. From the order of the ld. CIT (Appeals) it is clear that the Assessing Officer had neither made any enquiries to prove that the expenditure incurred by way of salary and subscription charges were not genuine nor had he brought any material on record to prove that the expenditure incurred was not related to the business activities of the assessee. The Assessing Officer has disallowed the expenditure merely on the basis of book results for earlier years. Therefore, the dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Taxation Laws (Amendment) Act, 1975. The purpose of insertion of Explanation was to curb the device sometimes resorted by business houses controlling group of companies to manipulate and reduce the taxable income of the company under their control. Since there was no group company, which was controlled by the company and, therefore, Explanation to section 73 was not applicable. The ld. CIT (Appeals) examined the contention of the assessee and the decision of the ITAT relied upon by the assessee. The ld. CIT (Appeals) relying on the decision of the ITAT in the case of Aman Portfolio (P.) Ltd. v. Dy. CIT [2005] 92 ITD 324 (Delhi); decision of the Calcutta Bench in the case of Paharpur Cooling Towers Ltd. v. Dy. CIT [2003] 85 ITD 745 , 766 observed that in the case of assessee nothing was brought on record to suggest that the assessee was controlled by some industrial house or was part of group companies where the business houses manipulated and reduced the taxable income of the companies under their control. Relying on the decision of the Tribunal as well as the Board s Circular No. 204 dated 24-7-1976 he directed the Assessing Officer to treat the loss arising from sale/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 89 ITR 236; and CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC). 8.2 In rejoinder the ld. Sr. DR submitted that the decisions relied upon by the ld. counsel for the assessee relate to Circular issued under section 119(2)( b ) of the Act. The Board s Circular No. 204 is Explanatory Notes explaining the insertion of Explanation to section 73, which is not an order or direction issued by the Board under section 119(2)( b ). Therefore, the Explanatory Notes are not binding. He further submitted that the Board s Circular is not binding if it is contrary to the decision of Hon ble Supreme Court or against the law. He placed reliance on the decision of Hon ble Andhra Pradesh High Court in the case of Venugopal Constructions v. ITO [1997] 227 ITR 164 wherein it has been held that section 119 of Income-tax Act, 1961 authorises the Board only to issue orders, instructions and directions to the Income-tax authorities for proper administration of this Act. The CBDT may in issuing a circular clarify a point of ambiguity in any provisions of law. Such clarification is not binding upon the courts. It cannot also run counter to the legislative position and create rights or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company whose principal business is banking or money lending. If the business of a company which does not fall within the excluded categories consists of purchase and sales of shares of other company, than such a company shall be deemed to carrying in speculation business for the purpose of section 73 to the extent to which the business consists of purchase and sale of shares. 9.2 Hon ble Calcutta High Court in the case of Arvind Investments Ltd. ( supra ) has also held the similar view. In this case it has been held that the Explanation to section 73 applies to the case of the assessee whose entire business consisted of dealing in shares. A loss incurred by the assessee was a speculation loss. 9.3 In the case of Mysore Rolling Mills (P.) Ltd. ( supra ), Hon ble Karnataka High Court held that where shares have been purchased as an investor, the provisions of Explanation to section 73 could not be applied. 10. From the decisions of Hon ble Courts referred to above, it is clear that where assessee is engaged in trading in share of other companies, the business carried on by the assessee will be in nature of speculative business and profit or loss arising therefrom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... speech made by the Members of Legislature during the course of debate on a Bill are inadmissible for interpreting the statutory provisions but the speech made by the mover of the Bill can be referred to for the purpose of ascertaining the mischief to be remedied by the legislation and the object and the purpose for which the legislation is enacted. As to the marginal note to the section, Their Lordships of Hon ble Supreme Court have held that they cannot be referred to for the purpose of construing the section but can be relied upon as indicating the drift of section or to show what the section is dealing with. As to the circulars issued by the CBDT, Their Lordships have held that they are valuable evidence of contemporaneous exposition, but must give way where the language of statute is unambiguous. 11.3 Hon ble Madras High Court in the case of Puthuthotam Estates Ltd. ( supra ) has held that it is well-settled that the explanation given to the Members of Parliament either in the shape of Notes on Clauses or Memorandum explaining the provisions are not aids to the construction. The statute has to be construed on its own words and not on what the supposed intention behind it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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