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2016 (9) TMI 945 - ITAT KOLKATA

2016 (9) TMI 945 - ITAT KOLKATA - TMI - CIT invoking revisionary jurisdiction u/s 263 - funds deployed in share business is more than that deployed in loans and advances - why the loss incurred on purchase and sale of shares amounting should not be treated as speculation loss by invoking the Explanation to section 73 - Held that:- CIT had taken the total inventories of ₹ 43.95 crores as stock of shares, whereas it admittedly includes closing stock of sarees to the extent of ₹ 38.66 c .....

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s and advances gets defeated. - On both the counts of income criterion and funds deployment criterion, it could be safely concluded that the assessee’s case squarely falls under the two exceptions provided in Explanation to Section 73 of the Act and hence the order passed by the ld AO in these circumstances cannot be termed as erroneous much less prejudicial to the interests of the revenue warranting revisionary jurisdiction u/s 263 of the Act. - Apart from this, we also find that the ld .....

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so mentioned in the said order sheet entry recorded on 24.3.2010 by the ld AO. The queries raised by the ld AO and the replies filed thereon in this regard are part of the records. Hence in these circumstances, it could be safely concluded that the ld AO on due appreciation of the replies filed in the given set of facts and circumstances after making requisite enquiries thereon, had come to a conscious conclusion that provisions of Explanation to Section 73 of the Act could not be made applicabl .....

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he Respondent: Shri Niraj Kumar, CIT, DR ORDER Per Shri M. Balaganesh, AM: This appeal by assessee is arising out of revision order of CIT-I, Kolkata vide No. CIT/Kol-1/263/Ushita Trading/2011-12/7199-7201 dated 27.03.2012. Assessment was framed by ITO, Ward-2(4), Kolkata u/s. 143(3) of the Income tax Act, 1961 (hereinafter referred to as the Act ) for AY 2008-09 vide his order dated 26.03.2010. 2. The only issue to be decided in this appeal is as to whether the ld CIT is justified in invoking r .....

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ssee. The ld CIT sought to revise the assessment framed u/s 143(3) of the Act by invoking revisionary jurisdiction u/s 263 of the Act for which a show cause notice was issued to the assessee as to why the loss incurred by it on purchase and sale of shares amounting to ₹ 1,07,87,500/- should not be treated as speculation loss by invoking the Explanation to section 73 of the Act. In response to this, the assessee replied that Explanation to Section 73 of the Act has got two exceptions. The E .....

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will not be invoked. 4. The ld CIT observed that the principal business of the assessee was not granting of loans and advances and the case does not fall under the exception to Explanation to Section 73 of the Act and further observed that although the assessee is having NBFC registration, the principal business is only share trading. Hence the loss arising out of share trading is to be construed only as speculation loss which has not been done by the ld. AO thereby making his order erroneous i .....

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ed and acted against the provision of law to observe that explanation to Section 73 of the Income Tax Act, 1961 is applicable on the Assessee Company. Ld. Assessing Officer examined complete details and having satisfied passed the orders. All the details were furnished. The details of the examination were also intimated to Ld. C.I.T. However, for difference of opinion and change of opinion, Ld. C.I.T. held that explanation to Section 73 of the Income Tax Act,1961 is applicable Provisions of Sect .....

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that the ld CIT had admittedly proceeded to issue the show cause notice by referring to Note No. 8 in Schedule H of the audited financial statements for the preparation of profit and loss account in respect of share trading transactions. For the sake of convenience, the Note No. 8 of the audited financial statements is reproduced hereunder:- 5.2. We find that the ld CIT having referred to Note No. 8 supra had not disputed the fact of purchase of sarees made by the assessee and disclosed thereon .....

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hat the fact of purchase of sarees to the extent of ₹ 38.66 crores was never disclosed by the assessee either before the ld AO or before the ld. CIT and the same is brought to the notice of this tribunal for the first time. Hence he argued that no view should be taken on the same. He argued that the aspect of principal business of the assessee was never enquired by the ld. AO while raising a query in March 2010 as could be seen from the order sheet entries. He stated that the ld. CIT had g .....

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counts thereon cannot be ignored. 5.4. We find from the paper book that the assessee is a non banking finance company having certificate of registration obtained from Reserve Bank of India with effect from 22.12.2004. We find from the composition of income of the assessee, that the interest income from lending activities was ₹ 1,23,94,810/- which is much more than the income from share trading. Then the assessee s case would fall under the first limb of the Exception provided in Explanatio .....

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ises of income from other sources which is much more than the speculation loss of ₹ 1,02,12,277/- . Reliance in this regard is placed on the decision of the Hon ble Jurisdictional High Court in the case of CIT vs Middleton Investment & Trading Co Ltd in ITA No. 196 of 1999 dated 15.1.2014 wherein it was held that:- The learned Tribunal held as follows: " ... the net loss under the head "profits and gains of business or profession" would be ₹ 8,72,972/- whereas, the .....

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At the time of hearing, Mr. Saraf, learned advocate very fairly drew our attention to the judgment in the case of CIT vs. Darshan Securities (P) Ltd. reported in 341 ITR 556 wherein the following view was taken: "The ambit of sub-section (1) of section 73 is only to prohibit the setting off of a loss which has resulted from a speculation business, save and except against the profits and gains of another speculation business. In order to determine whether the exception that is carved out by .....

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ther the gross total income so computed consists mainly of income which is chargeable under the heads referred to in the Explanation. Consequently, in the present case, the gross total income of the assessee was required to be computed, inter alia, by computing the income under the head of profits and gains of business or profession as well. Both the income from service charges in the amount of ₹ 2.25 crores and the loss in share trading of ₹ 2.23 crores, would have to be taken into .....

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is directly on the point sought to be agitated by the revenue. There is nothing to show that the view taken by the Bombay High Court is erroneous. We are, as such, of the opinion that the appeal must fail and is hereby dismissed. 5.5. Moreover, on funds deployment criteria, we find from the audited accounts that the assessee had deployed ₹ 5,12,00,000/- towards shares and ₹ 26,21,97,762/- towards loans and advances as on 31.3.2008. Hence the principal business of assessee could be c .....

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et are reproduced as under: Particulars As on 31.03.2008 As on 31.03.2007 Inventories Rs.43,95,30,704/- Rs.9,16,01,355/- Loans & advances given Rs.26,16,97,703/- Rs.11,29,505/- But we find that the ld CIT had taken the total inventories of ₹ 43.95 crores as stock of shares, whereas it admittedly includes closing stock of sarees to the extent of ₹ 38.66 crores, thereby leaving a balance of ₹ 5 crores approx towards the closing stock of shares. From the Note No. 8 of the audi .....

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cluded that the assessee s case squarely falls under the two exceptions provided in Explanation to Section 73 of the Act and hence the order passed by the ld AO in these circumstances cannot be termed as erroneous much less prejudicial to the interests of the revenue warranting revisionary jurisdiction u/s 263 of the Act. 5.7. Apart from this, we also find that the ld AO had made a specific enquiry with regard to the applicability of Explanation to Section 73 of the Act during the course of orig .....

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ed thereon in this regard are part of the records. Hence in these circumstances, it could be safely concluded that the ld AO on due appreciation of the replies filed in the given set of facts and circumstances after making requisite enquiries thereon, had come to a conscious conclusion that provisions of Explanation to Section 73 of the Act could not be made applicable to the assessee and had taken a possible view in the matter by allowing the claim of share trading loss in the sum of ₹ 1, .....

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the facts and circumstances is the only possible view and hence there is no scope for any other view. This fact is further strengthened by the subsequent action of the ld AO in accepting to the stand of the assessee on the same issue in the scrutiny assessment proceedings completed u/s 143(3) of the Act dated 29.10.2012 for the Asst Year 2010-11 , wherein the ld AO had recorded in his order as under:- During the course of scrutiny proceeding, it was found that the assesssee had received an inte .....

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