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TMI Blog2012 (5) TMI 230X X X X Extracts X X X X X X X X Extracts X X X X ..... ess loss. In Ground No.2 the revenue is contesting reduction of expenditure attributable to speculation loss from Rs.10.00 lakhs to Rs.6.00 lakhs. Since these issues are inter connected, they are decided as under. 2. The issue of reopening under section 147: Briefly stated, the assessee filed return of income declaring total loss of Rs.75,239/- and the assessment under section 143(3) was completed on 31.03.2003 determining the total income at Rs.39,49,962/- which was subject matter of appeal on the issues of depreciation on BSE Membership card, SEBI turnover fees and computer software charges. It was noticed by the Assessing Officer that the assessee has not considered the loss as speculation loss and initiated proceedings under section 147, taking necessary approval from the Additional Commissions of Income Tax, Range-4 and notice under section 148 was issued on 23.03.2006 i.e. within 4 years from the end of the Assessment Year. The assessee objected to the reassessment which was rejected by a letter No.ITO4(2)(2)/1242(1) 2006-07 dated 30.06.2006 by the AO. In the reassessment proceedings, the share trading loss was considered as speculative loss and an amount of Rs.10/- l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 147 of the Act as he had sufficient reason to believe that certain income had escaped assessment. Accordingly the action of the Assessing Officer is upheld". 3. It was contended before us that reopening was bad in law as the original assessment was already completed and the Assessing Officer deemed to have considered the speculation loss. The assessee relied on the decisions of the Hon'ble Bombay High Court in the case of Cartini India Ltd vs. Add. CIT 314 ITR 275 and the decision of Idea Cellular vs. DCIT 301 ITR 407 and Rose Services Apartment (P) Ltd vs. DCIT 56 DTR (Del) 353 of the Hon'ble Delhi High Court. However, the learned Departmental Representative relied on the orders of the CIT and further on the principles established by the Hon'ble Supreme Court in the case of Honda Seil Power Products Ltd vs. DCIT in special leave appeal No.19085/2011 dated 29.7.2011. 4. After considering the rival submissions and examining the record, we are of the opinion that the Assessing Officer has neither inquired nor examined the issue of speculation loss at the time of completing the original assessment. Moreover, assessee has not placed on record any evidence that this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee company deemed to be carrying on speculation business to the extent to which business consisted of purchase and sale of such shares. Before the CIT (A), it was submitted that most of the purchase and sale of shares arose due to mistake in entering the share trading transactions on behalf of the clients which the clients did not accept due to the mistake in entries and therefore, those transactions generally considered in the market as "Vandha" transactions are taken up by the assessee in order to continue its brokerage business and therefore the loss arising therein is 'Vandha loss' which is not speculative loss. Accepting the assessee's submissions, the CIT (A) gave relief on the loss claim on sale of shares to the extent of Rs.17,83,971/- which the revenue is contesting in its appeal, whereas the CIT (A) confirmed the loss arising out of valuation of stock as speculation loss which assessee is contesting. In addition to the above, the Assessing Officer allocated the expenditure of Rs.10.00 lakhs as attributable to such activities. Consequent to the relief given by the CIT to the extent of "Vandha loss" he reduced the allocation of expenditure to Rs.6.00 lakhs. 7. Aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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". As per sub-section 1 of Section 73 any loss computed in respect of speculation business carried on by the assessee shall not be set off except against the profit and gain of the speculation business. Explanation to section 73 is a deeming provision, which would be applicable if the following conditions are satisfied; i) The assessee is a company ii) Part of the business of the assessee is consisting of purchase and sale of shares of other company; If the above two conditions are satisfied, then the assessee shall be deemed to be carrying on the speculation business to the extent such business is consisted of purchase and sale of shares. There are some exceptions also, under which, this Explanation would not be applicable. However, it is not the claim of the assessee that its case falls under any of such excep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase and sales of the shares. There cannot be any artificial division of such loss between the loss from trading in shares and los from valuation of closing stock. While taking this view, we derive support from the decision of the Hon'ble Apex Court in the case of Chairrup Sampatram vs. CIT 24 ITR 481 (SC) wherein Their Lordships held: "It is a misconception to think that any profit "arises out of the valuation of the closing stock" and the situs of its arising or accrual is where the valuation is made. Valuation of unsold stock at the close of an accounting period is a necessary part of the process of determining the trading results of that period and can in no sense be regarded as the "source" of such profits. Nor can the place where such valuation is made be regarded as the situs of their accrual. The source of the profits and gains of a business is indubitably the business and the place of their accrual is where the business is carried on. As such profits can be correctly ascertained according to the method adopted by an as only after bringing into the trading account his closing stock wherever it may exist, the whole of the profits must be taken to accrue or arise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the ken of the Explanation to section 73 of the Act? The Hon'ble Bombay High Court held vide Para 9 as under: "9. In our opinion there can be no difference between the losses suffered in the course of trading by delivery and losses in terms of the book value. As long as the assessee is carrying on business of trading by way of purchase and sale of shares even if in respect of any financial year, there are no transaction and yet the company has stock in trade of shares, the book value will have to be considered for the purpose of considering the profit and loss in case of speculative business. There can be no doubt that the explanation to section 73 cannot be read to mean only when there is a purchase and sale of shares in the course of the financial year. The explanation will cover both shares which are stock in trade and shares which are traded in the course of the financial year for the purpose of considering the loss and profit for that year. The Tribunal, in our opinion, has correctly answered the issue by holding that the loss of profit on account of valuation amounts to revenue losses or revenue receipt. The second question, therefore, also will have to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctly and determine the issue accordingly. To that extent the order of the CIT (A) is set aside and the matter restored to the file of the Assessing Officer to examine the facts. 11. With reference to the Revenue's ground No.2 about the deletion of Rs.4.00 lakhs by the CIT (A), since the issue of Vandha/speculation loss contested in Ground No.1 of the Revenue is restored to the file of the Assessing Officer for fresh examination on facts, the issue of expenditure attributable to such activity is also restored to the file to decide accordingly. With these directions, the ground numbers 2 and 3 of the assessee are rejected and revenue's ground No.1 and 2 are allowed for statistical purposes. 12. Ground No.4 in assessee's appeal is with reference to disallowance of Rs.4,65,000/- under section 40A in lieu of interest paid to Shri Amanlal Melwani, one of the Directors, following the order of the CIT (A) for Assessment Year 2002-03. At the outset it was submitted that this issue is covered in favour of the assessee by the orders of the ITAT in other years and accordingly the addition should be deleted. As seen from the order placed for Assessment Year 2040-05 in ITA No.428 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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