ACIT, CIRCLE-4, NAGPUR vs. M/S. B.K.C. HOMES PVT. LTD., MUMBAI

18 NIUEINCOME IAXALPELLATEIRLEUNAL BLNCHNAGLLR BEFORE SHRI P K. BANSAL, AM AND SHRI AMARIIT SINGH, JM #Fa77 dd #/ LTA No.07/NAG/ZO1S (Fetzuf Assessment Year: 20L0-1l) Circle-4 TAi MIs BKC Ilomes Pvt: Lld. ACIT 301_ Saraf 153-4, Millal Towcr, Room Noj Vs. Nariman Point; Munibai; Chambers; Nagpur-OL Nagpur-0l 7Y4 TRaT #_Ria1a1r *JPANJGIR No. AADCB1601Q (3daeff /Appellant) (47qaff Respondent) Ap EL Revenue by: Assessce by: AR. Ninawe Hitesh P Shah_ epa} TIR #ara Date of Hearing: 29.016,.2017 Hqu #iTia /Date ot Pronouncement: 15.09.2017 Jr / 0 RDE R PHR AMARJIT SINGH, JM: lhe present appeal against the order dated Thc revenue has filed the Commissioner of Incomc Tax (Appeals)-L 01.10.2014, passed by [bercinafter Teferred t0 as the "CIT(A)"] relevant to the AY.2010- Nagpur 11 3 L& ITA Nq. 07/NaB/2O:5 4 Y 2010-11 2 The rcventa: has rised the folluiing grounds: - #1_ Whelher DH tle facls and circumstances %f the case and in Xawv, fkg Ld Crt(A}-IL Nagpi has erred in delering the odditions made on accoumt of loss claimed by assessee being speculation business of Rs.3,13,82,S00- and direeting A.O. to treai the Sone 05 Business LoEs' 2 Whether on Lhe facts andd circumstances 0f the case and in luw, the Ld. CII(A)-Il, Nagpur has erred in not appreciating the facr thut dsyessee is 'or Gn imrestinent company and hence the lo3fef claim G3 'speculation losses cannof be set Off against "'business income 3. Any pfher ground thal may be raised at the time of hearing: Eit 3 The brief' facts ol" the case &ro that the asscs3ce filed its rcturn of income on 1S.10.2010 declaring taxable incore t0 the tune of Rs. Nil. The retur waS processed u/s [43(2) of the Act on/7.04.2014, Thc case was selected for scrutiny with the approval of CCIT Notice Ws 143(2) of the Act dated 27.019.2011 W85 issued ad served upon the assessee: It was served upon the a5ses8e0 on 28.09.2011. Thcrcafter on change of jurisdiction an another noticc U/s 143(2) of the Act dated 22.02.2013 #a5 issued and served upon the assessee on 27,02.2013. On verilication; it WaS noliced that the a5ses3ee earned the business income to the tune of Rs.3,60,75,513/- from thc sale ol' Dashisar property: The asscssee adjusted lhe ioss to the tune of Rs 3,13,82,500. claimed upon the share transaction of Purti Power Sugar Limited The noticc was given to the assessee and after the receipt of the reply filed by the assessee, the Assessing Officer declined the claim of the assesscc and the lass in the Iolal income of the assesscc. The ase8300 received share application money of Sc ITA No 07/Nag/z015 A.Y. 2010-11 Rs.4,31.66,00Q/ I'hc: detail 125 #sked #U7L7 the notice I0 Ihe party' $ Ws 133(6) of the Act wcrc given. On account ul non-servicc ofnotice and non- verilication to idenlily of the company, the share application moncy to tte Iune of Rs.4,31,66,000/- was added back to the income of the assessee, The income of the #SSESSBE #zS assessed to thc lune of Rs.7,45,48,S0(-. Feeling aggrieved, by this order the asscssee filed an appeal before (be CIT(A} who allowed lhe claim of the assessec; thcrcfore; the revenuc has filcd the present appcal before Us, #Xn ISSLENQ 1 & Zk Under this issue tle revcnue has challenged the deletion of the addition madc on account of loss claimed by the assessee being spcculation business loss of Rs.3,13,82,S00/- Tle Ld. Representative of the revenue has argued that the speculation loss is not liable to be adjusted against thc business loss; therefore; fhe finding of the CIT(A) is WTOng against laws and facts and is liable to be set aside. Ilowever; on Ihe other hand, the Ld Represenlative of the Assessee hag rcfuted lhe said contcnlions. In view of the argunent advanced by thc Ld Representativc of" Uhe parties and perusing the record carcfully, we observed that the matter of controversy is in connection with sct-off the loss of Rs.3,13,82,500/- against the business income Before going furthef; it is necessary to adverl the finding of the CIT(A) on record S, have corefully considered the fucls &f the case and the written submissions %f the appellani I find suhstantial force in the submissions made by the appellant The Explanation f sec 73 states that where any paYt %f the business of a company consists of the purchase and sale %f shares of cher companies, 5 ITA No. CZ}Nap/2Ol5 A.Y 20i0-11 (he pIrpu,es uj mf. 5 &&'ti0" Xxcm tJc appellant, fur b0 carrying Un speculatio business shell he deeme d to ta the extenf I0 Which Ile business consist 0j purchase and sale if if the confention of the of" such shares- Ihe provisions of Explanarion {0 SEC thaf #Rral aur when any pari of the business Qf the are allracied unly conSists for ihe purchase Qd sale of shares %f other company MOI wben there {$ 0 {ronsaction of 'comipuiex' anct purchuse and sale of shares of one solitory 'company' laid by the appellant on the fact Sfress #as bee# said explanarion Is & deeming provision and t#at Ihe striclly canstrued and cam be should be {herefore tkere is repetitive acrivity of invoked only wlen of shares and thaf tO %f different purchase and sale companies and not simply of the shares of one crmpany that the Explanation fo Section 5.1 Tt i$ 0 fact 73 brings info existenee d deeming fiction whereby of (ransactions of purche A5c and sale of 0 certain set 4re deemed to be shares of other companies business, Various cese Iaws have held Ihat Seemtag or byisionss have [Q be strictly construed 0S deemireek an artificial income_ A they (0 ereate und fax 4 legal fietion is omg whose deem ing provision Or mandate does Rol exist hut for such provision; Because the given imaginory of such deeming provision alone: siafe of affairs i8 taken 4s reality norwithstanding the at variance with the reality and !he fuct Ihaf If i5 of' fhe enactment. I1 has ather relevami provision setfled thet #Jie scope cf 4 deeming been fairly be restricted 10 whul is expressty provision should stated in such 4 provision There can be no inference Jr 4 provision The Hon'ble intendment 43 regards such CIT Vs. Arnarchand N. Shroff Court in Suggene 48 59 (SC) CIT Vs_ Mother Indid ITR P Lid, (1985) I55 ITR 71] Industries Rscjigaraio India Pvl. Ltd, cansidered tke T Kearney ambit Qf deeming provisions and held that tke fiction cannof be extended beyond the objec fer which thexe enacted, The Hon'ble Bombay High Cowrt in CIT were Ace Builders P, Ltd, (2006} 281 ITR 210 (Born ) Vs taken similur view O" un appraisal of the Kus also ) ITA No, 07/N23/20l5 A,Y,2010-11 above judgments; the poxition ~v'hich emerges is fhat m'heneve" 4t Iegul fiefion i4 ereued by way of 4 deeming provision. Ir i5 vifal {0 g0 strictly by rhe express prescriplion of thits provision. Suc} 0 deeming provision camof be extended beyond what ic expressty stated therein. If certuin consequences have been made 10 follow om Ihc fulfillment of certain sef pMl condition:s im 4 dee ne ing pruvision; Ihen umless such conditions Gre strictly fulfilled, tke conseguences cumnoi bc deduced In ofker words. 0 deeming provision is t0 be striclly construed In fhe light of the above judgments it is evident thut the deem ing fiction sought 10 be creured by section 73 has Iu be strictly conslrued and if certain consequences have been made Io follow UM 'he fulfillment of certain sef owt condifions then f mhose conditions are not met the deeming provisions cannol be applied 5 It is & tact that the said Explanation refers t0 purchase and Sale of' skurej qf Dther 'companies It is thws mandatary tltat for Ihe Explanation Lo be 1 Appeal No. CIT(A}-H/l4813-14 Dafe 0f Order 0}-10-2054 "pplicable, there have F be & repetitive acrivity in purchase and sule of shares and thai fuu 0f different company tnd not simply 0f the shares &f the one compuny In other words, the purchase and sale of shares should be in respect 0f shores of plurality of companies. Being d deeming provision. Explanatiom {0 Sec- 73 womld mol be attracted when Ihere is 0 tranfactinn 0f purchase and sale 0f shures %f only one company: 5,3 There is meril in the contention of the appellant thal the Incomc Tax Act; [961 has used the word purchase and gale of share; of "other companies" and not "other company in thc s#id Explanation to Sec, 73. [c is al50 9 fac1 thal the Statutc has wherever nccessary, cleerly used singular word 'company' and plural word "companies to show ils intentions. Various examples have been given by the appellant [Q establish that both the words "company" & "companies" have been used together at several places in thc Tncomne Tax Act. Tlie appellant has validlly highlighted various other 53 ITA No, Q7/Nag/2ol5 4X. Zo10-11 sectionz O1' Incone tax Act where[1 the word 'compuny' and 'companics' have bcen separately rcferred to in the 54m2 section 50 15 to convcy the specific intent of the Slatutc; For exampie in section 2 (B) aS well a5 in seetion 2(/9A4} the word 'companyl and 'companies' have been separated by 'QT c[early implying thal the provisions would be applicabie in bolh ca5e5_ Evidently thereforc, had the intenlion of thc slautc being t0 apply the decming fiction of Explanalion t0 sec 73 tc} the purchase and sale in one the section would have beel worded company, a5 'purchase and sale of shares 0f othcr company Of companies Thus pluralily of companies is 0 pre-condition for attracting the provisions of explanation t sec, 73. 5,4 In the case of the appellant it is Scci) that the appellant entered into transactiun for purchase of 6750000 shares of PPSL. The appell liant purchased all the said shares on & single day although the purchase had to be effecled from various parties 4s nofle of lhem were in a posscssion of the number o[ shares 15 required by the appeHlant On a later daEe; the appellant sold its entire 6750000 sharcs on 0 single day although Ihe shares had to be sold to dilfcrent parlics in Yiew of the fact that there was nd buyer which was willing to buy the entire quantity available with the appellant. Thus the appellant has entered into 0 transaction of purchase and sale of 6750000 shares of PPSL and has purchased and sold the entirc share holding in ome company and both the purchasc and the sale have been executed Qn respective single days: Thus clearly since the Explanation 1o Bec; 73 uges the word 'companies' and the appellant has sold all the shares of one 'company' being PPSL, Lhe Explanation to sec, 73 would not be applicable in thc case Of the appellant: 5,5 Judicial support to the above vicw i5 also available from the findings given in the case of Laxmi Feeds & Exports Ltd. Vs. Asst: Comm; Of Incomc Tax (supra) given on similar facts [n the said case it has been held 89 under:- GLLAte 1 4 Qwo55 54 IFA No 0/Nag/20l5 A.Y 2010-11 12 Appeal No CIT(A)-[/148/[3-14 Date of Order 0[-10- 2014 "Further; wc are Of the view: Ihat a single transaczion pf purclasc and sale of shares cannot aElracl the provisions of the Explanalion to section 73, bccause il is attracted only whcn part ol the business of an assessee consists of purchase and sale of shares of companies and not of & company. The word used is 'companies' and not simply company. So, plurality of transactions and plurality of companies is 4 precondition for atlracting tle provisions of the Explanation to scction 73. This precondition is not satisfied in the presenl case aS there is only a solitary transaction of acquisition and sale ot shares. There is Jo material to hold lbat this was not by #ay 0f investnient: Sometimes, there can be &01 adverture: in the nature Qf trade and S0 evem} without rcpctitive transactions, there can be 4 business, but we are 0l' Ihe view that this concepl cannot be imported into Explanation to sectinn 73. The Explanation can be invoked only when the conditions specified therein are satisfied and one of thc conditions in terms of the plain Janguage of the Explanation is that there should be purchase and sale of shares of companies and Ahe use of the word 'companies' in plutal stipulates plurality of' transactions and not a solitary transaction a8 in the present case: In this view ol the mattel; we find merit in the appeal of the assessee and 50, we Set aside thc orders of' the Revenue authorities and allow the appeal,' 5.6 Similarly the Hon'ble Delhi High Court in the case of CIT vS_ Orient Instrument Pvt. Ltd . (supra} bearing ITA- 112/2000 dated 20.11,2013 has held a8 under:- [. The following substantial question of Iaw was framed a the time of admission of this appeal Whether the Tribunal was justified in its interpretation of thc explanation to section 73 of the Income Tax Act 1961?"The assesscc in the present case at the relevant time was engaged in the business of trading of cralis paper, IA No 9J/NJB/z-ly 4.Y.2010-11 installation, job work. cnsultancy and conunissic etc: | repurted Rs,5,53,S00V- as loss for the relevant perind A Y. 1991-92 011 account of # transaclion whereby ils purchased and sold shares_ The Asscssing Officer was of thc opinion that this amounted to 1 speculative transaction and consequenlly the loss could not be set off against the assesee's profil earned (rom other business Mr: Sanjcev Sabharwal, Sr: Counsel for Ihe Revenue urges that Uhe iransaction in question #a5 # speculative one failing within the Explanation (0 scction 73(4) Hc placcd reliace upon lhc decision of Madhya Pradesh High Court 45 Commissioner of Incomc Tax Bhikam reportcd Chand Jankilal, 131 (1981) ITR 554 to say that even single transaction of Jr purchase of shares might amount to business. Counsel Ior the assessee Dr: Rakesh Gupta, on the Olhcr hand relied upon the decigion ol the Calcutfa High Court rcported al 13 Appeal No_ CIT(A)- 1/148/13-14 Date of Order 01-10-2014 Stand pack Pvt Ltd. V_ Conmissioner of Income Tax (2013) 350 ITR 25] ( Cal:) in support of his submission In thc present case; the facts are (hat the asses8ee was engaged in the business qf trading of crafis paper, installati on, job work consultancy and commission; By all mneans_ the ransaclio: whcreby it purchased Uhe shares and incurred foss OL uccounl of the fall in the value of the share was 4 solilary one. The findings of tlie Tribunal that the Iransaction did not constitute the business carried On by (he company cannot be termed as perverse OI unreasonable. In the circumstances the Court in satisfied that no substantial question of law arises (emphasis supplied) The appeal is accordingly dismissed: Thus the Hon'ble Delhi High Court in the above case bas given 4 specil lic finding that in the event of a solitary loss making share transaction, the loss on shares does not constitute speculation business carried o by the company and the said loss could be set off against the business income ol the appellant. aLLA 55 Jno3al ITA No 0J/Nap/ZOI5 A,Y,2010-11 5.7 Similary the Hon'ble Andhra Pradesh High Courl in thic case of Addl; Commissioner Of Incomc-Tax vS Maggaji Shcrmal And Anr . 114 ITR 862 AP on similar facls gave a finding a5 under:

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