TMI Blog2010 (2) TMI 804X X X X Extracts X X X X X X X X Extracts X X X X ..... Gupta, Adv., Basant Kumar, Adv., for the Appellant Kavita Bhatnagar, CIT-DR for the Respondent ORDER C.L. Sethi: These are cross appeals, filed by the assessee as well by the revenue, against the order dated 01.10.2009 passed by the ld. CIT(A) in the matter of an assessment made u/s. 143(3) of the Income Tax Act, 1961 ("the Act") for the A.Y. 2005-06. ITA No. 4719/Del/2009 2. We shall first take the appeal filed by the revenue. 3. The grounds raised by the revenue are as under:- "1. The order of learned CIT(Appeals) is erroneous and contrary to facts and law. 2. On the facts and in the circumstances of the case and in law, the ld. CIT(Appeals) has erred in deleting the addition of Rs.1,03,00,000/- made by the u/s. 2(22)(e) of the Income Tax Act. 2.1. The Ld. CIT(A) has ignored the fact that the lender companies and the assessee have common share holder having more than 20% of share holding in both doner and done companies." 4. In the course of assessment proceedings it was noticed by the AO that the assessee had taken a loan from the following companies as under:- Details of Loans Received 1 Ashim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence cannot be considered to be deemed dividend in view of above specific provision for exclusion contained in Section 2(22)(e) of the Act. It is also significant to mention that as per the details mentioned hereinabove even the required criteria of shareholding in the case of four companies i.e. except J.K. Agents Limited is alos not there and, therefore, provisions of Section 2(22)(e) are not applicable. In view of discussions made above, the addition made by the AO of Rs.1,03,00,000/- under section 2(22)(e) of the Act cannot be sustained. Hence, first ground of the appeal is allowed and AO is directed to delete the said addition." 7. We have heard both the parties and gone through the orders of the authorities below. 8. On perusal of the CIT(A)'s order, we find that the CIT(A) has taken a view that the addition on deemed dividend can only be made in the hands of shareholder and not in the hands of another person as so held in the decision of Rajasthan High Court in the case of CIT vs. Hotel Hiltop (2008) 217 CTR 527 (Raj.) and in the decision of Special Bench of Income Tax Appellate Tribunal in the case of Bhaumik Colour Pv. Ltd. (2009) 27 SOT 270 (SB)(Mumbai). In the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he meaning of Explanation to section 73 of the Act, be set off, which has been rejected by the AO. 12. On an appeal, the CIT(A) has taken a view that the transaction from which the assessee had earned profit during the year under consideration is altogether different to that of the transaction of earlier years, where the loss from the transaction of sale and purchase of shares was treated to be speculation loss within the meaning of Explanation to section 73 of the Act, and as such the set off of speculation loss brought forward from earlier years against the business profit of the current year cannot be allowed. The decision of ITAT, Kolkata Bench in the case of ACIT vs. Sungrace Mercahndiser Pvt. Ltd. dated 28.09.2006 in ITA nos. 1453 to 1455/Kol/2006 relied upon by the assessee was held by the ld. CIT(A) to be not applicable to the present case as the same was distinguishable. The CIT(A)'s order on this issue runs as under:- "5.2 I have considered the written submissions made on behalf of the appellant, the findings of the Assessing Officer made in the assessment order and the facts on record. It is an admitted fact and thus not disputed that the income in the year under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rokerage and the assessee was not entitled to have that commission receipt assessed under the head 'Speculation business'. In view of the said decision of the Supreme Court, the question must be answered in the negative and in the favour of the revenue." 5.3 In the present case, the income has been earned by the assessee for holding the shares during the year under consideration and thus the income was received by the assessee in respect of the shares which might have also been sold and the loss wherefrom is deemed as speculative loss cannot be set off against the income was earned by the assessee for holding these shares in view of the two direct decisions of Calcutta High Court and Supreme Court referred to above. Explanation to section 73 deems an assessee to be carrying on speculation business to the extent to which the business consists of purchase and sale of such shares. It is only this party of the activity, i.e., purchase and sale of shares, which is held to be speculative in nature. The earning of the assessee from those shares or other shares held by an assessee as stock-in-trade have not been so deemed to be income from speculation. In the instant case, the income h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determined in the earlier years is of different nature than the income of the current year, is not based on correct facts of the present case. He, therefore, submitted that the decision of co-ordinate Bench of the Tribunal in the case of ACIT vs. Sungrace Merchandise Pvt. Ltd. (supra) is squarely applicable to the assessee's case. 15. The ld. DR, on the other hand, supported the orders of the authorities below. 16. In the course of hearing of this appeal, a great emphasis has been placed upon the decision of ITAT Calcutta, in the case of ACIT vs. Sungrace Merchandise Pvt. Ltd. (supra), where the Co-ordinate Bench of the Tribunal has held as under:- "12.3 Now so far as the facts of the assessee's case are concerned, they squarely fall within the ambit of Explanation to Sec. 73, because (i) te assessee is a company, (ii) it carries on the business of purchase and sale of shares; (iii) its principal business is not the business of banking or granting of loans and advances; and (iv) the gross total income of the assessee is not consisting mainly income which is chargeable under the heads 'interest on securities', 'income from property', 'capital gain' and 'income from other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he revenue could not treat the nature of income for one assessment year differently from the previous one till it was in a position to bring on record the material to the contrary. In that case, the Tribunal noted that there being no material on record to suggest that the activity of the assessee, that is, earning income from sale and purchase of shares, was any way different from the activity carried on by the assessee in A.Y. 1994-95, the revenue could not take a different view in respect of the similar activity carried out in the year under consideration, till such time it had solid and positive material. This finding of the Tribunal has been upheld by the Hon'ble High Court. 18. In the present case, the assessee is engaged in the business of financing, investment and dealing of shares. It has been pointed out by the ld. counsel for the assessee that losses in the business of dealing of shares in earlier years has been worked out on account of valuation of closing stock of shares at lower value on account of fall in market rate of shares. The loss in earlier years incurred in business of dealing of shares has been treated to be in the nature of speculation loss in terms of E ..... X X X X Extracts X X X X X X X X Extracts X X X X
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