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Income Tax Appellate Tribunal, KOLKATA BENCH ‘D’, KOLKATA
Before: Shri P.M. Jagtap, AM & Shri S.S. Viswanethra Ravi, JM]
IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH ‘D’, KOLKATA [Before Shri P.M. Jagtap, AM and Shri S.S. Viswanethra Ravi, JM] I.T.A. No. 1339/Kol/2015 Assessment Year: 2011-12 Income Tax Officer Kolkata..............................………………………………….............Appellant Ward No. 6(1), P-7, Chowringhee Square, 6th Floor, Kolkata – 700 069 M/s. Consortium Capital Pvt. Ltd....……………………………………………………...Respondent 34A, Metcafe Street, 6th Floor, Room No. 62, Kolkata – 700 013 [PAN: AACCC 3631 N] Appearances by: Shri Arindam Bhattacharjee, Addl. CIT appearing on behalf of the Revenue. Shri A.K. Tibrewal, FCA appearing on behalf of the Assessee. Date of concluding the hearing : February 12, 2018 Date of pronouncing the order : March 14, 2018 ORDER Per P.M. Jagtap, AM This appeal is preferred by the revenue against the order of Ld. CIT(Appeals) – 4, Kolkata dated 31.08.2015.
The relevant facts of the case giving rise to this appeal are that the assessee is a company which is engaged in the business of dealing in shares and securities on its own as well as in the capacity as a broker. The return of income for the year under consideration was filed by it on 28.09.2011 declaring a loss of Rs. 50,98,090/-. During the course of assessment proceedings, it was noticed by the A.O. that the assessee company after deducting STT of Rs. 1,37,32,628/- had suffered a loss of Rs. 97,17,719/- in its business of purchase and sale of shares. According to him, the assessee company was not entitled to
2 I.T.A. No. 1339/Kol/2015 Assessment Year: 2011-12 M/s. Consortium Capital Pvt. Ltd. set off the said loss against its brokerage and other income as per the specific provision contained in Explanation to Section 73. He, therefore, required the assessee company to offer its explanation in the matter. In reply, it was submitted on behalf of the assessee company that the loss from the business of purchase and sale of shares could not be considered in isolation for the purpose of application of Explanation to Section 73 as the activity of share broking was also the part and parcel of business of purchase and sale of shares. Relying on the decision of ITAT in the case of GDB Share & Stock 88 TTJ 352 (Kol), it was contended on behalf of the assessee company that Explanation to Section 73 was not attracted for treating the loss in share transactions as speculation loss. It was also contended on behalf of the assessee company that the substantial interest income of Rs. 238.68 lakhs declared as business income actually represented ‘income from other sources’ and if the head of income was accordingly changed, the income under the head ‘income from other sources’ would be more than the income under the head business taking its case outside the mischief of the Explanation to Section 73.
The Assessing Officer did not find merit in the contentions raised on behalf of the assessee company. He held that the business of share trading on its own was the separate business activity of the assessee company and the loss suffered in the said business was liable to be treated as speculation loss as per Explanation to Section 73. He also did not accept the contention of the assessee based on the change of head of income for interest on FD on the ground that such change in the head of income was not acceptable in the absence of any
3 I.T.A. No. 1339/Kol/2015 Assessment Year: 2011-12 M/s. Consortium Capital Pvt. Ltd. revised return filed by the assessee. He accordingly treated the loss of Rs. 97,17,719/- suffered by the assessee in share trading as speculation loss by invoking Explanation to Section 73 and disallowed the claim of the assessee for set off of the same against other business income from brokerage etc.
The Assessing Officer also found that the assessee company during the year under consideration had earned income from dividend and long term capital gain which was claimed to be exempt from tax. Since no disallowance on account of expenditure incurred in relation to the earning of the said exempt income was offered by the assessee, the A.O. applied Rule 8D to work out such expenditure at Rs. 2,77,821/- and made a disallowance to that extent under section 14A.
The order of the A.O. passed u/s 143(3) invoking Explanation to Section 73 to treat the loss from share trading as speculation loss and making disallowance under section 14A was challenged by the assessee in the appeal filed before the Ld. CIT(A) and after considering the submissions made by the assessee as well as the material available on record, the Ld. CIT(A) accepted the claim of the assessee that Explanation to Section 73 had no application in its case and accordingly directed the A.O. to treat the loss suffered by the assessee company in share trading as normal business loss for the following reasons given in paragraph no 4.4 and 4.5 of his impugned order: “4.4 The assessment order and the submission of the appellant along with supporting documents have been examined. The rival contentions on the issue are considered as presented in the foregoing paras. Now, for the sake of convenience, at first I adjudicate the alternative plea of the
4 I.T.A. No. 1339/Kol/2015 Assessment Year: 2011-12 M/s. Consortium Capital Pvt. Ltd. appellant that the loss on share transactions cannot be considered in isolation for the purpose of application of Explanation to Section 73 and such loss is required to be set off against the brokerage income since the same is also part and parcel of the ‘business of purchase and sale of shares. On this issue reference can be made to the order of purchase and sale of shares. On this issue reference can be made to the order of the ITAT, Kolkata Bench in the case of GDB Share & Stock 88 TTJ 352 (Cal) wherein the Hon’ble ITAT, Kolkata held that to arrive at the total profits on account of the share dealing business, one has to take into account not only the profit or loss on sale and purchase of shares but also brokerage earned on the purchase and sale of shares since the brokerage income is inextricably related with the said share transaction business. Further, reference is placed in another judgment of ITAT Kolkata Bench in the case of DCIT vs Baljit Securities Pvt. Ltd. ITA No. 1183/K/12, ‘C’ Bench, order dated 21.10.2014 wherein the assessee was engaged in the business of share trading which involves stock and share broking activities, purchase and sale of delivery based shares and purchase & sale of non-delivery based shares i.e. derivative trading. The ITAT, Kolkata held that before application of the Explanation to Section 73, aggregation of the business profit/loss has to be worked out irrespective of the fact, whether it is from share delivery transaction or derivative transaction. The aforesaid view of the ITAT has been confirmed by the Hon’ble Jurisdictional High Court in the case of CIT vs Baljit Securities Pvt. Ltd. GA No. 3481 of 2013 and ITAT No. 215 of 2013 dated 12th March, 2014. Following the same ratio in the present appellant’s case, I find that the share trading loss was rightly set off against the brokerage income before application of Explanation to Section 73 since the brokerage income is related with the business activity of purchase and sale of shares. Therefore, in my opinion, even if the Explanation to Section 73 is applicable in the instant case, the appellant is entitled to set off the brokerage income against the share trading loss before application of the said Explanation.
4.5 Now as far as the main contention of the appellant is concerned. I find much force in the submission of the appellant that income under all other head was more than the income under the head business. I have observed that the A.O. rejected the said contention of the appellant by not accepting the revised computation of income and treating the interest income FD as business income. Now, following two questions arise here- a. Whether the A.O. was justified in not accepting the revised computation income? b. Whether the A.O. was justified in treating the interest income as business income?
5 I.T.A. No. 1339/Kol/2015 Assessment Year: 2011-12 M/s. Consortium Capital Pvt. Ltd.
In respect of question no. (a), I have observed that the A.O. did not accept the revised computation relying on the judgment of Goetz (India) Ltd. (supra) where it was held that no new claim can be made without filing any valid revised return. On this issue reference may be made in the case of CIT s Natraj Stationery Products (P) Ltd. 312 ITR 22 where the Hon’ble Delhi High Court held that the assessee was not required to file revised ROI since it has not made any ‘new’ claim and Goetze India’s case was not applicable in such a situation. I find that in the instant case, the appellant did not make any new claim by filing the revised computation by enhancing any claim of expenditure (as was done in Goetz’s case) but merely changed the head of income. Therefore, Goetze (India)’s case is not applicable here and in my opinion the A.O. should have accepted the revised computation at the time of assessment proceeding. Now as far as question no. (b) is concerned, I find that the income of an assessee is required to be assessed under the correct head of income. I have examined various case laws referred to by the appellant and find that the judicial authorities are consistent in holding that the interest income on FD is to be assessee under the head income from other sources. Therefore, in my opinion, the interest income was rightly shown under the head income from other sources by the appellant in the revised computation. Therefore, I find that as per the income criterion, the appellant’s case fails outside the ambit of the Explanation to Section 73 since the income computed under the head ‘income from other sources’ is more than the income or loss under the head business. Hence, in the instant case, the provision of Explanation to section 73 does not apply and I direct the A.O. to treat the losses suffered in the share transactions as normal business loss.”
The Ld. CIT(A) also restricted the disallowance of Rs. 2,77,121/- made by the A.O. under section 14A read with Rule 8D to Rs. 8,332/- for the following reasons given in paragraph no 5.2 of his impugned order: “I have considered the action of the A.O. and the submission placed before me by the appellant for deciding on the issue of disallowance u/s 14A. I find force in the alternative submission of the appellant wherein it was contended that the disallowance u/s 14A is restricted to the investment out of which exempt income was generated. In this regard, reference is made to the judgment of the ITAT, Kolkata Bench in the case of REI Agro
6 I.T.A. No. 1339/Kol/2015 Assessment Year: 2011-12 M/s. Consortium Capital Pvt. Ltd. Ltd. order dated 19.06.2013 wherein it was held that disallowance u/s 14A is to be considered in relation to the income which does not form part of the total income. I find that in the computation of disallowance u/s 14A as filed during the course of appellate proceedings and considering the investment out of which exempt income is earned works out to Rs. 8,3332/-. The said computation is in consonance with the order of ITAT, Kolkata Bench in the case of REI Agro and therefore, the disallowance of Rs. 2,77,821/- made by the A.O. u/s 14A r.w. Rule 8D s restricted to RS. 8,332/-.”
Aggrieved by the order of the Ld. CIT(A), revenue has preferred this appeal before the Tribunal on the following ground: “On the facts and circumstances of the case, whether CIT(A) – 4 was right in deleting the addition made u/s 73 & 14A of the IT Act, 1961 without considering the facts and circumstances stated in the assessment order”
We have heard the arguments of both the sides and also perused the relevant material available on record. Although the learned DR has contended that the contentions raised by the assessee company in support of its case on the issue of applicability of Explanation to Section 73 were rejected by the A.O. by giving cogent reasons which the Ld. CIT(A) has failed to appreciate, it is observed that the decision given by the Ld. CIT(A) vide his impugned order giving relief to the assessee on this issue is duly supported by various judicial pronouncements including the decision of the Co-ordinate Bench of this Tribunal. In one of such decisions rendered in the case of DCIT vs MPC Securities Ltd. (ITA No. 2723/Kol/2013 dated July 8, 2016) cited by the learned counsel for the assessee, the Co-ordinate Bench of this Tribunal has held that the entire business of the assessee stock-broker constituted as one single composite indivisible business and therefore, income or loss from such business could not be artificially bifurcated for applying the provisions of Explanation to
7 I.T.A. No. 1339/Kol/2015 Assessment Year: 2011-12 M/s. Consortium Capital Pvt. Ltd. Section 73. In another decision rendered in the case of ITO vs Preferred Securities Pvt. Ltd. vide its order dated 06.09.2017 in ITA No. 1113/Kol/2015, the Co-ordinate Bench of this Tribunal has held that the activity of the assessee of share trading which was carried on its own account and on behalf of the client formed single composite indivisible business and the profit or loss of the same could not be artificially bifurcated for the purpose of Explanation to Section 73. In our opinion, the issue relating to applicability of Explanation to Section 73 as raised by the revenue in present case thus is squarely covered inter alia by the said two decisions of the Tribunal and respectfully following the same, we uphold the impugned order of the Ld. CIT(A) allowing relief to the assessee on this issue. We also find merit in the alternative contention raised by the learned counsel for the assessee in support of the assessee’s case on this issue that the primary business of the assessee company being dealing in shares, Explanation to Section 73 is not attracted as per the amendment made by the Finance Act, 2014. As rightly pointed out by him, even though the said amendment is made with effect from 01.04.2015, the Co-ordinate Bench of this Tribunal in the case of DCIT vs M/s. Raima Equity Pvt. Ltd. (ITA 1994/Kol/2013 dated 11.08.2016) has held that the same should be given retrospective effect going by the legislative intention behind the amendment.
As regards the issue relating to the relief allowed by the Ld. CIT(A) to the assessee by restricting the disallowance of Rs. 2,77,821/- made under section 14A read with Rule 8D to Rs. 8, 332/-, the learned representatives of both the sides have agreed that this issue is squarely covered in favour of the assessee by the decision of
8 I.T.A. No. 1339/Kol/2015 Assessment Year: 2011-12 M/s. Consortium Capital Pvt. Ltd. this Tribunal in the case of REI Agro Ltd. (supra) relied upon by the Ld. CIT(A) in his impugned order which has been subsequently upheld by the Hon’ble Kolkata High Court. Respectfully following the said, judicial pronouncements, we uphold the impugned order of the Ld. CIT(A) giving relief to the assessee on this issue.
In the result, the appeal of the revenue is dismissed. Order Pronounced in the Open Court on 14th March, 2018.
Sd/- Sd/- (S.S.Viswanethra Ravi) (P.M. Jagtap) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 14/03/2018 Biswajit, Sr. PS Copy of order forwarded to: 1. M/s. Consortium Capital Pvt. Ltd., 34A, Metcafe Street, 6th Floor, Room No. 62, Kolkata – 700 013. 2. ITO Ward No. 6(1), P-7, Chowringhee Square, 6th Floor, Kolkata – 700 069. 3. The CIT(A) 4. The CIT 5. DR True Copy, By order, Sr. P.S. / H.O.O. ITAT, Kolkata