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Income Tax Appellate Tribunal, “ C ” BENCH, AHMEDABAD
Before: SHRI PRADIP KUMAR KEDIA & SHRI MAHAVIR PRASAD
आदेश / O R D E R
PER PRADIP KUMAR KEDIA - AM: The captioned appeal has been filed at the instance of the Assessee against the order of the Commissioner of Income Tax(Appeals)-2, Ahmedabad [CIT(A) in short] dated 31/07/2015 in the matter of assessment order under s.143(3) r.w.s. 153A of the Income Tax Act,
ITA No.2811/Ahd/2015 Girish Fashion Pvt.Ltd. vs. ITO Asst.Year – 2012-13 - 2 - 1961 (hereinafter referred to as "the Act") dated 15/01/2015 relevant to Assessment Year (AY) 2012-13.
The grounds of appeal raised by the Assessee read as under:- 1. Learned Commissioner of Appeals-(2) has erred in not considering the submission made by the appellant in respect of applicability of section 73. 1.1. Without pointing out any specific defect, such trading in shares transaction can not be treated as speculation business by the Learned Commissioner of Appeals-(2) on the basis of applying the section 73 of the Income-tax act which itself is based on surmises and presumptions, is not sustainable and deserves to be quashed. 1.2. The Learned Commissioner of Appeals-(2) has failed to appreciate the fact that the appellant principal business is Hotel Business along with business in derivatives trading business in Shares and securities, income from house property, income from other sources and capital gains. 1.3. That the Learned Commissioner of Appeals-(2) has erred in disallowing Rs.11,67,097/- on proportionate basis, towards share trading expenses on assumption that the appellant has incurred expenditure towards speculation business and allocated on proportion basis the total expenditure without analyzing the nature of expenditure which are directly related to hotel business. That the appellant also submits that the dealing in shares by the Company is outside the purview of explanation to section 73 of the Income tax Act. 1.4. That there are however two exceptions to this deeming fiction to section 73 - one is for a company whose gross total income consists mainly of income which is chargeable under the heads ‘Interest in Securities’, ‘Income from House Property’, ‘Capital Gains’ and ‘Income from Other Sources’ and the second is for a company the principal business of which is the business of banking or the granting of loans and advance.
ITA No.2811/Ahd/2015 Girish Fashion Pvt.Ltd. vs. ITO Asst.Year – 2012-13 - 3 - 1.5. The rejection of the appellant’s bonafide explanation without giving any valid reason for the same, is against the principle of natural justice and is bad in law. The addition made thus, is not only bad in law but also on facts and can not be sustained being based more on presumptions and inferences than the actual state of affairs, and therefore, it deserves to be quashed. 2. Under the circumstances appropriate relief be granted to the appellant.
Briefly stated, assessee-company derives income from hotel business, trading in share and rental income from letting out the properties and under the head capital gains. The composition of gross total income of the assessee is stated to be as under.
“i) Income from House Property Rs. 949452 ii) Income from other sources Rs. 1481126 (interest 635757 + div.845369) iii) Capital gains Rs.-1316827 iv) Business income Loss of hotel 380401 Profit in share trading 1630 Loss in derivatives 198651 -------- Rs.-577422”
3.1. The return filed by the assessee was subjected to scrutiny assessment. The Assessing Officer inter alia noticed that assessee has incurred loss in derivatives amounting to Rs.1,98,651/-. The Assessing Officer thus sought explanation from the assessee for applicability of Explanation to section 73 of the Act in the facts and circumstances of the case. The Assessing Officer also observed that expenses to the tune of
ITA No.2811/Ahd/2015 Girish Fashion Pvt.Ltd. vs. ITO Asst.Year – 2012-13 - 4 - Rs.22,34,798/- is attributable to the aforesaid trading in derivatives. The Assessing Officer accordingly determined an aggregate amount of Rs.24,36,149/- (Rs.22,34,798 + Rs.1,98,651) to be speculative loss and consequently held that the assessee is not entitled for set off of such speculative loss from other source of income. The set off of Rs.24,36,149/- was accordingly disallowed and assessed income was accordingly enhanced to this extent. The Assessing Officer however, allowed the aforesaid loss to be carried forward for set off against the income from speculative business in the subsequent assessment year under s.73 of the Act.
Aggrieved, the assessee preferred appeal before the CIT(A). The CIT(A) accepted the loss in derivatives amounting to Rs.1,98,651/- to be non-speculative and thus not susceptible to Explanation to section 73 of the Act. Thus, relief to the extent of Rs.1,98,651/- was granted by the CIT(A). However, as against allocation of expenses of Rs.22,34,798/- made by the Assessing Officer is relatable to trading in shares, the CIT(A) reworked the allocable expenses to Rs.11,67,097/- and granted relief for the remaining amount.
Aggrieved by the denial of set off to the extent of Rs.11,67,097/- in terms of Explanation to section 73, the assessee has preferred the appeal before the Tribunal.
ITA No.2811/Ahd/2015 Girish Fashion Pvt.Ltd. vs. ITO Asst.Year – 2012-13 - 5 -
We have heard rival submissions on the issue. The applicability of Explanation to section 73 of the Act has been challenged by the assessee in the facts of the case narrated above. In terms of Explanation to section 73, if a company incurs a speculative loss in a manner deemed in the Explanation, such loss shall not be set off except against the profits and gains if any, of other speculation business. The Explanation has provided two exceptions. The first exception is available in the case of 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 Sources’. The second exception is in the case of a company whose principal business is the business of banking or the granting of loans and advances.
6.1. We are not concerned with this second expression in the instant case. In terms of first limb of exception to the Explanation to section 73, Explanation is attracted to the gross of total income of the company which does not consist mainly of income under non-business head. Thus, the test to be applied on first category of company is the character of its gross total income. As noticed above, the aggregate income under non- business head (house property, income from other sources and capital gains) clearly exceeds the business income. Explanation to section 73 of the Act thus cannot be applied while considering the set off of loss under
ITA No.2811/Ahd/2015 Girish Fashion Pvt.Ltd. vs. ITO Asst.Year – 2012-13 - 6 - sections 70 & 71 and carried forward of such loss under s.72 of the Act. The assessee’s case clearly falls within the purview of first exception carved out in the Explanation to section 73 and the assessee thus could not be deemed to be carrying on a speculative business. Support is drawn from the decision of Special Bench in ACIT vs. Concord Commercials (P.) Ltd. [2005] 95 ITD 117 (MUM.)[SB] and CIT vs. Darshan Securities Pvt.Ltd. (2012) 249 CTR 199 (Bom).
6.2. Thus, we find merit in the plea raised on behalf of the assessee. The order of the CIT(A) accordingly is set aside and the Assessing Officer is directed to restore the action of the assessee in this regard.
In the result, appeal of the assessee is allowed. This Order pronounced in Open Court on 06/ 05/2019
Sd/- Sd/- (महावीर �साद) (�द�प कुमार के�डया) �या�यक सद�य लेखा सद�य ( MAHAVIR PRASAD ) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 06/ 05 /2019
ट�.सी.नायर, व.�न.स./T.C. NAIR, Sr. PS
ITA No.2811/Ahd/2015 Girish Fashion Pvt.Ltd. vs. ITO Asst.Year – 2012-13 - 7 -
आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-2, Ahmedabad �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy//
उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation .. 6.5.19 (dictation-pad 14-pages attached at the end of this appeal-file) 2. Date on which the typed draft is placed before the Dictating Member …6.5.19 3. Other Member… 4. Date on which the approved draft comes to the Sr.P.S./P.S…………….. 5. Date on which the fair order is placed before the Dictating Member for pronouncement…… 6. Date on which the fair order comes back to the Sr.P.S./P.S…….6.5.19 7. Date on which the file goes to the Bench Clerk…………………6.5.19 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order………………