Contact us   Feedback   Annual Subscription   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2016 (10) TMI 990 - ITAT KOLKATA

2016 (10) TMI 990 - ITAT KOLKATA - TMI - Determination of principal business of the assessee - Held that:- In the instant case, the principal business of the assessee is trading in shares as held that there was loss of ₹ 1.80 crores from the trading of the shares and income from the other activities are lower than the loss claimed by the assessee. Therefore we conclude that principal business of the assessee is the business of trading in shares. - ITA No. 1112/Kol/2013 - Dated:- 24-8-2016 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ent was framed DCIT, Circle-2, Kolkata u/s 143(3) of the Act vide his order dated 10-12-2010. In this appeal various grounds have been raised and out of which Ground No.5 was not pressed therefore, same is dismissed as not pressed. Ground No.7 is general nature and does not require separate adjudication. Remaining grounds raised by assessee per its appeal are as under:- 1) For that on the facts and in the circumstances of the case. the CIT, Kolkata-I erred in law in passing the order u/s 263 of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

r that on the facts and in the circumstances of the case, the CIT, Kolkata-I was grossly unjustified in law in holding that Explanation to Sec 73 of the IT Act was applicable to the appellant and therefore the loss incurred by the assessee in purchase & sale of shares was assessable as loss derived from "speculation business". 4) For that on the facts and in the circumstances of the case, the CI'T, Kolkata-I failed to appreciate that on the facts of the appellant's case Exp .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ared on behalf of Revenue. 2. Though the assessee has raised as many as seven ground, but the solitary issue in this appeal is that the impugned order passed by ld. CIT erred u/s 263 of the Act by holding the order of the Assessing Officer as erroneous and prejudicial to the interest of revenue. 3. Facts in brief, in the present case are that the assessee is a Limited Company and engaged in the business of dealing in shares and finance. For the year under consideration, assessment was completed .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he ld.CIT was of the view that the loss arising from sale/purchase of shares is a speculation loss by virtue of provisions of Explanation to Sec. 73 of the Act. Therefore, the loss cannot be set off against STCG. Thus, the ld.CIT issued notice on 23-01-2013 u/s. 263 to the assessee. In response to such notice, it was submitted that the assessee is a registered company with the Reserve Bank of India as Non Banking Financial Institution vide Certificate No. 05.02805 dated 04-09-1998. The main obje .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Explanation to Sec. 73 of the Act. In the instant case, the assessee has granted loans of ₹ 1,20,57,818/- and the closing stock of share is of ₹ 20,31,84,422/- as evidenced from the balance sheet of the assessee. In view of above, the impugned order of ld.CIT u/s. 263 set aside the order of the AO with the direction to examine the books of account, documents, evidences and then to pass de-novo assessment order. 4. Aggrieved by the order of the ld.CIT, assessee is in appeal before us .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ly for the current year there was share transaction and loss was suffered by the assessee that will not change the character of business. Therefore, the loss claimed by the assessee from dealing of shares cannot be termed as speculation loss by invoking the deeming provisions of Sec. 73 of the Act. Finally, he prayed before us that the impugned order passed by ld.CIT u/s. 263 be set aside and that of the order of AO passed u/s. 143(3) datd. 10-12-2010 be restored. 6. On the other hand, the ld. D .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

gs of the fact of examination of two issues, viz., Applicability of Section 73 of the Act to the computation of taxable income and while computing book profit u/s 115JB, the b/f unabsorbed depreciation of ₹ 71,732/- was reduced although the b/f profit/loss as per books is positive. As per Explanation -1 of Section 115JB, b/f loss or unabsorbed depreciation whichever is less is to be reduced. It is an admitted fact that these issues were not examined by the AO in the said assessment order. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of the Act. Thus, the AO, being fully aware of the fact the assessee- company was dealing in shares - substantively or not, is not a relevant issue here - and that in such a condition the Explanation to Section 73, as it stood before him at that point of time was admittedly applicable, omitted to make inquiries in this direction. This would automatically render the order u/s 143(3) of the Act "erroneous". This proposition derives its strength from the explanation 2 to Section 263 of t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

inquiries or verification which should have been made. B. The order is passed allowing any relief without inquiring into the claim. 7. In the light of above, it was plain that at the time of the passing of the order u/s. 143(3) of the Act, that is on 10.12.2010, the said order was erroneous as well as prejudicial to the interests of revenue. As regards, the contention of the appellant that he could claim exemption from applicability of Section 73 by suggesting that he was a company that was not .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

composition of income mainly consisted of interest, Capital Gain and Dividend. A perusal of a chart submitted by him brings forth the following interesting points: • That starting from the impugned assessment year, for three successive years the appellant has consistently been showing a small amount of Speculation Income. • That in the earlier years as well as the subsequent years the appellant shows no STGC. In the year in question, the appellant has shown a sudden surge in STGC showi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

is, Interest Income, Short Term Capital Gain and Profit from Trading in Shares. If we remove Interest Income from consideration since that emanates mainly from loans we are left with Short Term Capital Gains. In this year, we have seen a surge in STCG and the loss from trading in shares has been used to offset this STCG. • In the impugned year, the total income chargeable to tax was Interest, STCG and Profit/Loss from trading in Shares. The total income accruing from the first two counts o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

in this backdrop, that the Ld. CIT, upon examination of the records, formed an opinion, that the said order of the AO was erroneous and prejudicial to the interests of revenue on the above two counts. While in the first part, the revenue involved was large, in the second, it was smaller. But undoubtedly, the prejudice to revenue seemed to exist. He therefore, issued a notice to the assessee. The assessee has submitted his explanations to the Ld. CIT along with a chart showing comparative income .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

olved in the sum of all incomes from various heads - taxable or not - is compared to the profit/loss from trading activity in shares, we find that the ratio is not very small - it comes to almost 17% as per the letter submitted by the assessee before the Ld CIT. This can hardly be considered a small percentage either in absolute or comparative terms. Further, the Ld CIT has passed impugned order u/s 263 on 16.3.2013. 9. This was a good two years before the amendment to explanation to Section 73 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d relevance. As such, the Ld. CIT has done only one thing; he has sent it back to the AO for examination of the issue afresh. In these circumstances, it is clear that at the point of time - that of passing the order u/s 263 - the Ld CIT could have come only to one bona fide belief, that the appellant did not fall within the explanation to Section 73. At his point of time, whether the said amendment is retrospectively applicable or not is not a question to be addressed at all. This question may o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

om a plain reading of Section 263 as applied to the records of the appellant is undoubtedly a yes. 10. In addition to the above, the second point raised by the Ld CIT has to do with the observation of the Ld CIT that while computing book profit u/s 115JB, the b/f unabsorbed depreciation of ₹ 71,7321- was reduced although the b/f profit/loss as per books is positive. As per Explanation -1 of section 115JB, b/f loss or unabsorbed depreciation whichever is less is to be reduced. 11. The Ld CI .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

has been accepted by the appellant as being meritorious. 13. It may be mentioned that Section 263, while talking about orders that are "erroneous and prejudicial to the interests of revenue" does not differentiate between substantial mattes of revenue or smaller matters of revenue. In this case, it is submitted that if there are more than issues on which the Ld. CIT finds in his impugned order u/s 143(3) of the Act in error and in prejudice to the interest of revenue, and sets the orde .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ccepted the opinion voiced by the Ld CIT in his impugned order u/s 263 of the Act. In these circumstances, even if the said order would have failed on the first count, the order setting aside the order u/s 143(3) would have stood. In view of the above, it is humbly submitted that the impugned order of the Ld CIT u/s 263 stands as per law and the appeal of the assessee may kindly be dismissed. 15. We have heard the rival contentions of both the parties and perused the material including the detai .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

gain on the ground that the income shown by the assessee from the source of LTCG and dividend is not chargeable to tax. Accordingly, he directed the AO to invoke the provisions of Explanation to Sec.73 of the Act by holding that the impugned order of the AO is erroneous and prejudicial to the interest of revenue. At this juncture, we find important to reproduce the provisions of Section explanation to Section 73 of the Act which reads as under:- 73. Losses in speculation business [Explanation. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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.] From the above provisions we find that there are 3 exceptions given in the explanation to Section 73 of the Act. Firstly the provisions to explanation to Section 73 of the Act is not applicable to the assessee having income mainly form income Interest on securities, House property, capital gains and income from other sources. In the instant case the i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

extract is reproduced below:- 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 the explanation applies, the Legislature has first mandated a computation of the gross total income of the company. The words consists mainly are indicative of the fact that the Legislatur .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

sessee was required to be computed, inter alia, buy 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 account in computing the income under that head, both being sources under the same head. The assessee had a dividend income of ₹ 4.7 lakhs (income from other sources). The Tribunal was justified, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ther on the basis of income or fund deployment over a certain number of years. We have seen form the chart of the business activities of the assessee placed on page 7 of the paper book and conclude that the principal business of the assessee is of granting loans & advances. The chart is enclosed as Annexure-1 in the order. In this connection we rely in the order of the Hon ble High Court of Calcutta in the case of CIT Vs. M/s Savi Commercial Pvt. Ltd. in ITA No. 132 of 2007 where the issue w .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

based on activity as would appear from the explanation underlined by us. The submission Advanced by Mr. Poddar, prima facie, appears to be correct. Mr. Nizamuddin was unable to make any suitable reply to the aforesaid submission of Mr. Poddar. Speaking for ourselves we are inclined to accept the submission advanced by Mr. Poddar. Because both income and business activity, according to the legislative mandate, are distinguishing factors. Therefore income alone cannot be taken into account in dec .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s granting loans and advances as would appear from the volume indicated in the chart above for a number of years. Thirdly the provisions to explanation to section 73 of the Act are not applicable to the assessee the principal business of which is the business of trading in shares. This amendment was incorporated in the Finance Act 2014, w.e.f. 1.4.2015 but its effect came retrospectively w.e.f. 1.4.1988 held in ITA 321/Mum/2013 dated 13.05.2016 of F Bench of ITAT Mumbai. The relevant extract is .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version