DCIT 7(2), MUMBAI vs. SHREE RADHEY SOFTWARE SOLUTION P. LTD, MUMBAI

order dated 25/02/2013 of the CIT (A)-9 Mumbai,the Assessing Officer (AO) has filed the present appeal. Assessee-company is engaged in the business of investments and had filed its return of income on 31/03/2010,declaring total income at Rs. Nil under the normal provisions and book profit of Rs.30.07 lakhs under section 115JB of the Act. The AO completed the assessment u/s.143(3),on 16/12/2010,determining its income at Rs. 20.52 lakhs under the normal provisions. 2.Effective ground of appeal is about application of provisions of explanation 1 to section 73 of the Act. During the assessment proceedings,the AO found that the assessee had suffered a loss in the delivery-based share trading of Rs. 1.85 crores. He directed it to explain as to why the loss suffered in share trading activity should not be considered as speculation loss as per the provisions of explanation to section 73 of the Act. As per the AO,the assessee did not file any satisfactory reply in that regard.Finally,he held that loss suffered by it had to be considered a speculation loss and was not to be allowed to set off against any other had of income as per provision of section 73.He further held that loss could not be allowed to be carried forward as the return for the year under appeal was not filed within the strip related time allowed under section 139 (3) of the Act. Accordingly short-term capital gain, declared by the assessee, amounting to Rs. 20.52 lakhs was brought to tax. 3.Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority(FAA)and made elaborate submissions. It relied upon several case laws and argued that provisions of explanation 1 to section 73 were not applicable. After considering the submission 3648/M/13(08-09) M/s. Shree Radhe Software Solution Pvt.Ltd. of the assessee and the assessment order, the FAA held that the assessee had adjusted income from short-term capital gain against loss from share trading business, that the AO had held that loss was incurred in the delivery-based share trading transactions. He referred to the explanation to section 73 and held that case of the assessee company fell out of the limbs of explanation to section 73, that the gross total income of the assessee consisted mainly of income which was chargeable under the head capital gains,that the explanation was not applicable, that the business of the assessee cannot be deemed to be carrying on a speculation business to the extent to which the business consisted of the purchase and sale of shares, that the losses on share trading could not be treated as speculation loss,that the provisions of the explanation were not applicable to a company the principal business of which was the business of banking/granting loans and advances,that the main business of the assessee was granting of loans and advances, that the assessee was not covered by the provisions of explanation to section 73 of the Act. He referred to cases of A N Corporation Ltd. (6SOT 458),Jindal Exports Ltd.(2006 ITD129) and Concord Commercial Private Ltd.(94TTJ913) and allowed the appeal filed by the assessee. 4.During the course of hearing before us, the Departmental Representative (DR) relied upon the order of the AO. None appeared on behalf of the assessee,as stated earlier.So,we are deciding the material on the basis of the available material. We find that the assessee had disclosed loss of Rs. 1.85crores from share trading business, long- term capital loss of Rs.1.68 crores and short-term capital gain of Rs. 20.52 lakhs, that the AO treated the share trading business under the head speculative business and denied the benefit of setting off of losses to the assessee,that the FAA reversed his order.The assessee, being an investment company,was dealing in shares and had suffered a loss during its regular course of business.Therefore, in our opinion,the AO was not justified in holding it to be speculative business .Before proceeding furhte,we would like to refer to the matter of Darshan Securities P. Ltd.(341 ITR 556),delivered by the Hon’ble Bombay High Court.Facts of the case were that the assessee had returned an income of Rs. 2,25,04,588/- from service charge and it had suffered a loss of Rs.2,23,32,127/- in share trading .It had earned dividend income of Rs.4,79,325/-.It claimed that in computing the gross total income for the purpose of the Explanation to section 73 of the Act the income from service charges had to be adjusted against the loss in share trading. The AO disallowed the share trading loss,holding it to be speculation loss. The assessee’s appeal was allowed by the FAA and the Tribunal confirmed his order.Dismissing the appeal filed by the Department,the Hon’ble Court held as under: