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2016 (1) TMI 991 - ITAT AHMEDABAD

2016 (1) TMI 991 - ITAT AHMEDABAD - TMI - Disallowance of loss from purchase and sale of shares - CIT(A) treating it as speculation loss as assessed by Assessing Officer and not covering the case of the applicant within the Explanation to the provisions of section 73 - Held that:- From going through the main objects of the company we find that assessee’s main business is of dealing in shares, stocks, bonds etc. whereas under head of objects incidental or ancillary to the main object there are 41 .....

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r in the computation of income assessee is showing the interest income under the head income from other sources and not under the head income from business or profession because assessee is not running a non-banking financial company (NBFC) nor its main object was of finance and earning of income from giving loans else interest income from such loans and advances should have figured under the head profits and gains of business. Therefore, assessee’s business does not fulfill the condition no.2 o .....

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ts of the Memorandum of association and the audited financial statements. We are, therefore, of the view that assessee’s business is not covered under the explanation to section 73 of the Act and we find no reason to interfere with the order of ld. CIT(A) and we uphold the same. - Decided against assessee - ITA No. 1713/Ahd/2015 - Dated:- 27-1-2016 - Shri Rajpal Yadav, JM And Manish Borad, AM For the Appellant : S. N. Divatia, AR For the Respondent : Vilas V. Shinde, DR ORDER Per Manish Borad, A .....

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f loss from purchase & sale of shares as speculation loss made by AO is wholly illegal, unlawful and against the principles of natural justice. 1.2 The ld. CIT(A) has grievously erred in law and or on facts in not considering fully and properly the submissions made and evidence produced by the appellant with regard to the impugned additions. 2.1 The ld. CIT(A) has grievously erred in law and on facts in confirming that the case of the appellant is not covered by the Explanation to provision .....

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of ₹ 14,93,823/- upheld by the CIT(A) may kindly be deleted. 2. The assessee has raised various grounds but the solitary grievance revolves against the decision of ld. CIT(A) in upholding the disallowance of ₹ 14,93,823/- on loss from purchase and sale of shares by treating it as speculation loss as assessed by Assessing Officer and not covering the case of the applicant within the Explanation to the provisions of section 73 of the I.T. Act, 1961. 3. Briefly stated facts are that th .....

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kerage at ₹ 1,77,164/- and interest on loans and advances at ₹ 9,53,119/-. Assessing Officer framed assessment order by treating the loss on trading of shares as speculation loss which could be set off only against speculation income for the very reason that as per his observation assessee was not falling under the provisions of explanation to section 73 of the Act. 4. Aggrieved, assessee went in appeal before the CIT(A) who has confirmed the addition by observing as under :- 4. I ha .....

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. The AO held that the case of the appellant was not covered by exceptions provided in explanation to section 73 of the Act. Hence the loss of ₹ 14,93,,823/- was to be treated as speculation loss to be set off against profits and gains of speculation business. Since the appellant did not have profits & gains from speculation business during the year under consideration the loss of ₹ 14,93,823/- was disallowed with the permission to carry it forward to next year. During appeal pro .....

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s provided by Explanation to section 73 i.e. business of the appellant was granting loans and advances. Hence the loss of ₹ 14,93,823/- was not to be treated as speculation loss : Explanation to Sc.73 of the Act reads as follows : [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 sour .....

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he exceptions provided by Explanation to sec.73 of the Act due to the following reasons :- i) First and foremost as per Memorandum of Association and Articles of Association copy of which was furnished during appeal proceedings, the Main objects of the company are to deal in shares, stocks, bonds, etc., to provide package of investment services and to render profolio management services To grant loans and advances is not included in the main objects of the company. To lend and advance money or g .....

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he purchase turnover of shares was approximately ₹ 1.27 crores. The total outstanding as on 31.3.09 under loans & advances was approximately ₹ 103 crores. The outstanding under this head as on 31.03.2008 was approximately ₹ 1.14 crores. This shows that no new loans were advanced during the year consideration Infact, the loans have been received back. In absolute terms, the loans turnover at ₹ 1.03 crores is much less than the combined sales & purchases turnover of .....

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ial company. The appellant in the present case deals in sale and purchase of shares and securities. 2) Judgment of Hon ble ITAT, Kolkata in DCIT vs. Venkateshwar Investment & Finance Pvt. Ltd. 92 TTJ 1129 (SB) Again the facts of this case are different since in this case the assessee had started the business of shares for the first time during the year under consideration. In earlier years, the assessee was purely into business of money lending and leasing. In view of this, the ratio of judg .....

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fied in holding that the case of the appellant is not covered by exceptions provided in Explanation to sec.73. Therefore, I hold that the AO was justified in treating loss of ₹ 14,93,823/- as speculation loss and disallowing the same. Accordingly, the addition of ₹ 14,93,823/- is upheld and the same is confirmed. This ground of appeal is dismissed. 5. Aggrieved, the assessee is now in appeal before the tribunal. 6. The ld. AR submitted that principal activity of the assessee company .....

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f shares should not be treated as speculation loss. 7. On the other hand, ld. DR supported the orders of lower authorities. 8. We have heard the rival contentions and perused the material on record. To examine the aspect that whether assessee is covered in the explanation to section 73 of the Act let us go through the provisions of section 73 of the Act for dealing the issue. Sec. 73. (1) Any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off exc .....

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nd gains, if any, of any speculation business carried on by him assessable for that assessment year; and (ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on. (3) In respect of allowance on account of depreciation or capital expenditure on scientific research, the provisions of sub-section (2) of section 72 shall apply in relation to speculation business as they apply in relation to any other business. .....

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usiness 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.] 9. From the perusal of the explanation to section 73 the conditions in which the company will get benefit under the provisions should either be one of the following :- (a) Gross total i .....

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se of assessee in the light of above conditions. (a) In the computation of income assessee is having income under two heads, first under profits and gains of business showing a loss of ₹ 18,34,088/- and interest income of ₹ 9,53,119/- which certainly shows that gross total income of the assessee mainly consists of income from profits and gains from business as a figure of loss is of ₹ 18,34,088/-. Therefore, assessee company does not fulfill the condition no.1 as mentioned abov .....

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rchant banking services by acting as managers, brokers and/or advisors to public/right issue or private placement or sales of securities and to act as issue house/registrar underwriters and sub-underwriters and transfer agents and to render services for mobilization of resources by way of shares, debentures, bonds, deposit schemes and loan syndication. 3. To render portfolio management service by investment in shares, debentures, stocks, debenture-stocks, bonds, company deposits, government secu .....

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can be carried on by the assessee. 11. Ld. AR referred to item no.15 of part-B of Memorandum of Association as well as activities mentioned at point no.35 under the head other objects of the Memorandum of Association wherein the company can do the activities of loans and advances. 12. In our view the second condition of the explanation to section 73 refers to the principal business which is carried on by the assessee and in the case under appeal the principal business of the assessee is of purc .....

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