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Income Tax Appellate Tribunal, MUMBAI BENCHES “A” MUMBAI
Before: SHRI MAHAVIR SINGH & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
This is an appeal filed by the assessee. The relevant assessment year is 2009-10. The appeal is directed against the order Commissioner (Appeals) – 8, Mumbai and arises out of order u/s 143(3) of the Income Tax Act, 1961 (the ‘Act’).
The grounds of appeal filed by the assessee read as under:-
i. The Commissioner of Income Tax (Appeal) -8 erred in confirming the treatment of losses of Rs. 62,60,473/- on account of share trading business and stock valuation as deemed speculation covered under explanation to section 73 and thereby treating the same as speculation losses instead of business loss.
Briefly stated, the facts are that the assessee has claimed the following losses:
Loss on stock valuation Rs. 47,36,865/- Loss on market operation Rs. 35,42,917/- The further break up of loss from market operation is as under: Trading loss on delivery basis Rs. 2,69,386/- Loss in futures and options Rs. 20,19,309/- Loss on speculation Rs. 12,54,222/- Total Rs. 35,42,917/- 3.1 In response to a query raised by the AO to explain why section 73 shall not be invoked, the assessee filed a reply which has been extracted at page 2-8 of the assessment order. The AO was not convinced with the said reply. He treated the stock valuation loss of Rs. 47,36,865/- as deemed speculation loss. Considering that the major portion of the assessee’s income is from brokerage, advisory fees and interest income, the AO apportioned an approximate amount of Rs. 5,00,000/- out of the balance expenses and treated the same as expenditure incurred on share trading. Thereafter he treated the total loss in share dealing of Rs. 68,20,061/- as deemed speculation loss as per Explanation to 73 of the Act. The AO allowed the above amount to be carried forward and set off against speculation income.
The assessee preferred an appeal against the order of the AO before the learned CIT(A). We find that the learned CIT(A) relying on the decision in the case of Prasad Agents (P) Ltd. vs. ITO (2009) 180 Taxman 178 (Bom) confirmed the disallowance of loss of Rs. 62,60,473/- made by the AO.
Before us the learned counsel of the assessee files a copy of the annual report for the financial year 2008-09 and then relies on the order of the ITAT in assessee’s own case for the A.Y. 2002-03 (ITA No. 6415/Mum/2009).
On the other hand, the learned DR relies on the order of the learned CIT(A) confirming the disallowance of loss of Rs. 62,60,473/- made by the AO.
We have heard the rival submissions and perused the relevant material on record. We find from the annual report for the F.Y. 2008- 09 that the overall operation of the assessee–company include ‘Investment Banking, Corporate Advisory Services, Institutional Broking, Private Client Broking and Investment Advisory services’. The brokerage services include equity and debt broking. The corporate advisory services include ‘equity capital markets transaction execution, mergers and acquisitions advisory and capital raising advisory and transaction execution relating to structured finance, real estate and infrastructure’. One may refer to page 9 – 12 of the said annual report. The income of the assessee – company as per the P&L account for the year ended 31.03.2009 is as under: Brokerage Rs. 39,547,677/- Corporate Advisory Services Rs. 74,369,513/- Income from Capital Market Rs. 33,090/- Operations Profit on sale of long term Rs. 457,750/- investments Other Income Rs. 8,698,874/- Total Rs. 123,106,904/- The investment in shares as at March 31, 2008 was Rs. 20,447,073/-. As at March 31, 2009, it is Rs. 28,423,250/- 7.1 Let us now refer to section 73 of the Act:
“Losses in speculation business. 73. (1) Any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off except against profits and gains, if any, of another speculation business.
(2) Where for any assessment year any loss computed in respect of a speculation business has not been wholly set off under sub-section (1), so much of the loss as is not so set off or the whole loss where the assessee had no income from any other speculation business, shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and— (i) it shall be set off against the profits and gains, if any, of any speculation business carried on by him assessable for that assessment year; and (ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on. (3) In respect of allowance on account of depreciation or capital expenditure on scientific research, the provisions of sub-section (2) of section 72 shall apply in relation to speculation business as they apply in relation to any other business. (4) No loss shall be carried forward under this section for more than [four] assessment years immediately succeeding the assessment year for which the loss was first computed. [Explanation.—Where any part of the business of a company ( [other than a 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"], or a company [the principal business of which is the business of banking] or the granting of loans and advances) consists in the purchase and sale of shares of other companies, such company shall, for the purposes of this 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.]”
7.2 Transactions of purchase and sale of shares would be held as speculative business only if a company is hit by Explanation to section 73 of the Act. The same has not been dealt by the AO or the learned CIT(A). Before examining the decisions relied on by the learned CIT(A) and counsel of the assessee, we have to verify the factual score.
7.3 In view of the above, the order of learned CIT(A) on the above ground of appeal is set aside and the AO is directed to verify the claim of the assessee keeping in mind the facts delineated at para 7 here-in-above in the light of Explanation to section 73 of the Act and then pass an order after giving reasonable opportunity of being heard to the assessee. The assessee is also directed to file before the AO the required details.
In the result, the appeal is allowed for statistical purposes. Order pronounced in the open court on 17/03/2017