GROWMORE RESEARCH & ASSETS MGT LTD,MUMBAI vs. DCIT CEI CIR 31 NOW DCIT CC 4(3), MUMBAI

Order

: आदेश / O R D E R

Per Ashwani Taneja, AM:

2 Growmore Research & Assets Mgt. income belongs to Late Shri Harshad S. Mehta and hence the Income confirmed by the learned Commissioner of Income-Tax (Appeals) ought to have been taxed in the hands of Late Shri Harshad S Mehta and not in the hands of the appellant. 2.The Ld. Commissioner of Income-tax (Appeals) has erred in Law and in facts in confirming the disallowance of Rs.1,95,57,742/- on account of toss from stock market activity claimed as set off against the profit from money market activity. 3.The Ld. Commissioner of Income-tax (Appeals) has erred in law and in facts in confirming the disallowance of Rs.2,50,000/- paid towards maintenance of the account. 4.The Ld. Commissioner of Income-tax (Appeals) has erred in law and in facts in confirming the disallowance on account of depreciation amounting to Rs.2,25,000/-. 5.The Ld. Commissioner of Income-tax (Appeals) ought to have appreciated that the appellant was entitled to deduction on account of interest payable to the brokerage firms. 6.The Ld. Commissioner of Income Tax (Appeals) has erred in law and in facts in not appreciating the interest charged u/s 234A, 234B and 234C of the Act are incorrect. 7. the Ld. Commissioner of Income Tax(Appeals) has erred in law and in facts in not appreciating that the income assessed in the hands of the appellant were subjected to the provisions of TDS and hence on the said amount of tax, no interest can be computed u/s. 234B and 234C of the Act. ”

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3.1. The brief background of this issue is that the assessee was engaged in carrying out various activities in the finance market. The Assessee incurred loss of Rs.1,95,57,742/- from share market activities and set off of the same against profit earned from money market transactions. The AO denied the benefit of set off on two grounds. It was held that carrying out the money market activities was illegal and the same was non- speculative in nature, whereas loss incurred in share market activities was speculative in nature. Therefore, speculative loss cannot be set off against non-speculative profit. Ld. CIT(A) confirmed the action of the AO on both the grounds. 3.2. Being aggrieved, the assessee filed an appeal before the Tribunal. 3.3. During the course of hearing before us, it was stated at the outset by the Ld. Counsel appearing on behalf of the assessee that this issue is now covered in favour of the assessee on the basis of decision of the tribunal rendered in the case of group company of the assessee namely M/s. Growmore Leasing & Investments Ltd. v. ACIT for A.Y. 1990- 91 to 2000-01 dated 12th December 2007 in wherein it was held that the transactions in money market securities done by the assessee without taking or giving delivery were also speculative transactions and special court has already held that these transactions were legal transactions. Therefore, profit earned on these transactions was speculative profit against which speculative loss of share market was allowable to be set off. Our attention was drawn on various pages of the paper book wherein

4 Growmore Research & Assets Mgt. complete details were given about money market transactions showing that these transactions were done by the assessee company without giving or taking delivery. 3.4. Per contra, Ld. Counsel appearing on behalf of the Revenue submitted that money market units are transacted on non- speculative basis. Further he placed reliance on the judgment of Hon’ble Supreme Court in the case of Apollo Tyres Ltd. v. CIT 255 ITR 274 wherein it was held that buying and selling of units by the assessee company could not be treated as speculative business. He requested for upholding the orders of the lower authorities. 3.5. In rejoinder, Ld. Counsel of the assessee submitted that judgment of Hon’ble Supreme Court in the case of Apollo Tyres Limited (supra) was not applicable on the facts of this case. In the said judgment, Hon’ble Supreme Court had examined the scope of section 73 which talks about ‘shares’ only whereas the assessee is seeking to claim the benefit u/s 43(5) of the Act, which talks about ‘shares’ as well as ‘units’. He placed reliance upone judgment of Delhi Bench of the Tribunal in the case of ANZ Grindlays Bank v. Dy. CIT (Delhi) 88 ITD 53 wherein it was held that transactions of the purchase and sale of units and the Government Securities by the assessee without actually delivery would fall within the scope of speculative transactions as defined in section 43(5) of the Act. It was submitted that Hon’ble Delhi Bench has delivered its judgments after taking into account the judgment of Hon’ble Supreme Court in the case of Appollo Tyres Ltd. (supra).

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3.6. We have gone through the orders passed by the lower authorities and submissions made by both the sides as well as judgment relied upon by both the sides before us. The only issue to be decided by us is whether the transactions carried out by the assessee of trading of money market securities was speculative or non-speculative in nature. During the course of hearing, Ld. Counsel demonstrated with the help of various evidences in the paper book in the form of contract notes and other documents to show that no deliveries were exchanged and only ‘difference’ amount was settled. Our attention was drawn on the ledger account containing details of trading of money market transactions showing that in all the cases only ‘difference’ amount of sale or purchase of money market securities has been credited or debited in the assessee’s a/c by the broker. These evidences have not been controverted by the Ld. Special Counsel of the Revenue. Thus, the admitted facts brought on record are that no deliveries were exchanged for carrying out money market transactions by the assessee. It is noted that in the identical circumstances ITAT in the case of Group companies of the assessee namely M/s. Growmore Leasing Investment held that such transactions would be speculated transactions by observing as under: “5.4 We have heard both sides in detail on this point. Shri Vijay Mehta, the learned Chartered Accountant appearing for the assessee, has placed before us a copy of the judgment in Suit No.1 of 2005 (O.S. Transferred Suit No.4018 of 1995) delivered on 17.4.2007, by the Special Court in the case of Canbank Financial Services Limited Vs. M/s.V.B.Desai The suit raised issues relating to the nature of legality of forward contract transactions in Government securities. Issues No.4 and 6 Growmore Research & Assets Mgt.

5 framed by the Special Court are as follows:- "4. Whether the Suit transactions are prohibited by the Securities Contract (Regulation) Act, 1956 as alleged in para V of the Written Statement? 5. Whether the Suit is based on an illegality and is liable to be dismissed on that ground as alleged in para IV and VI of the Written Statement? 5.5 The finding of the Special Court on the above two issues are extracted as follows:- "In my opinion, therefore, the fact that units of Mutual Funds were included in the definition of the term "securities" by amending Act clearly, shows that the units of the mutual funds were not included in that definition before the amendment. As observed by the Supreme court in its judgment in the case of R13! Vs. Peerless General Finance and Investment Co. Ltd AIR 1987 SC 1023 that the Legislatures resort to inclusive definitions also to bring under one nomenclature all transactions possessing certain similar features but going under different names. Depending on the context, in the process of enlarging, the definition may even become exhaustive. In my opinion, therefore; the word "include" is used in Section 2(h), in truth and substance, to give exhaustive definition of the term "securities" for the purpose of Securities Contract Act. Therefore, as on the relevant date the units of the Mutual Funds which was the subject matter of the ready forward transaction between the parties was not securities within the meaning of the Securities Contract Regulation Act, the transaction was not hit by the notification issued by the Central Government under Section 16 and therefore, the transaction cannot be said to be an illegal transaction as it was not prohibited by the Securities Contract Regulation Act. Issues Nos. 4 & 5 are, therefore, answered accordingly." 5.6 Thus, the Special Court has held that forward transactions in Government securities are not illegal. 5.7 The case of the assessee has to be considered in the light of the above judgment of the Special Court. The claim of loss made by the assessee was .rejected by the 7 Growmore Research & Assets Mgt.

Assessing Authority on the ground that the transactions entered into by the assessee were illegal, and therefore, expenses 'or losses relating to illegal business cannot be allowed as deductions. The assessee was in fact dealing in forward transactions of Government securities. The transactions were entered through brokers. The assessee enters into agreement for forward delivery of Government securities with one set of parties through the broker. Immediately, the assessee also enters into forward purchase of Government securities from other set parties through the broker. Delivery of the instruments is never taken place. The transactions are finally settled off by paying the differential amount. The transactions are speculative transactions. The assessee has also shown income out of same-set of transactions, which is more than the loss declared by the assessee. The Assessing officer has assessed the profit as income. But he declined to allow the loss as deduction on the ground of illegality. 5.8. In the light of the judgment of the Special Court, as mentioned above, it is to be held that the forward transactions entered into by the assessee were not illegal. Therefore, the loss cannot be disallowed on that ground.” 3.8. Thus, from the above order it is clear that special court has held that the forward transactions in Government securities were not illegal. It was further held that these transactions were speculative transactions. As far as reliance placed by Ld. special counsel upon the judgment of Hon’ble Supreme Court in the case of M/s. Appollo Tyres Ltd. (supra) is concerned, it is noted that the said judgment merely analysed the scope of section 73 wherein expression used by the legislature was ‘shares’. On the other hand, the expression used in section 43(5) is not only ‘shares’ but ‘securities’ as well’. This distinction has been very well analysed by the Delhi Bench of the Tribunal in the case of ANZ Grindlays Bank v.

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DCIT (supra) wherein it has been held after considering aforesaid judgment of Hon’ble Supreme Court in the case of Appollo Tyres Ltd. (supra) that transactions of sale and purchase of units and government securities by the assessee through a broker without exchange of actual delivery would fall within the scope of speculative transactions as defined in section 43(5). Therefore, loss/profit from shares market transactions can very well be set off/adjusted against loss/profit of money market transactions. This issue has already been decided in favour of the assessee by the Tribunal in the case of group company of the assessee namely M/s. Growmore Leasing Investment (supra) as discussed above also. No distinction has been pointed out on facts or legal position by the Ld. Special Counsel of the Revenue, therefore respectfully following the order of the Tribunal in the case of M/s. Growmore Leasing Investment (supra) as well as ANZ Grindlays Bank v. DCIT (supra), we find that the claim of the assessee is allowable. Therefore disallowance made by the AO is directed to be deleted. Thus, ground no.2 is allowed.

aforesaid ABCD group and requested for deleting the disallowance made by the lower authorities. 4.2. Per contra, Ld. Special counsel submitted that the assessee was neither able to confirm the transactions nor able to prove rendering of services. 4.3. We have gone through the orders passed by the lower authorities and submissions made by both the sides before us. It is noted that the assessee has claimed that payment was made to the said ABCD group for clearing of backlog of accounting work. But, neither the assessee was able to show that payment was made nor the assessee was able to show anything to prove rendering of services by the payee. Thus, it could be substantiated by the assessee that this amount was incurred for the business purpose of the assessee; if at all this amount was genuinely paid. Therefore, in absence of proper substantiation, this claim is found to be not allowable. Therefore, we decline to interfere in the order passed by the lower authorities on this issue. This ground is rejected.

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5.2. During the course of hearing, it was stated by the Ld. counsel that complete evidences have been given for acquisition and installation of the computer but these have been rejected and disallowance has been made, whereas in the first round, Ld. CIT(A) had allowed relief to the assessee on this ground. Our attention was drawn on the various evidences enclosed in the paper book in this regard. 5.2. Per contra, Ld. Special counsel relied upon order of the lower authorities. 5.3. We have gone through the orders passed by the lower authorities. It is noted that in the first round when Ld. CIT(A) had passed the order dated 7th April 1994, then relief was allowed on this score by observing as under: “Regarding depreciation on computer system, the appellant has filed copy of receipt dated 31.3.90 issues by ADM Ltd. for payment of Rs.2,02,500/- on 31.3.90 by the appellant, as advance payment for purchase of IDM SUMMIT Multi user UNIX System & Informix Software and Delivery Challan dated 31.3.90, evidencing the delivery of the system before the end of the previous year. It would appear from the above that the appellant had placed order for computer system on 31.3.90 for which advance payment was made and the delivery of the System was affected on 31.3.90. In view of the above, there is no reason to reject the claim for depreciation on the computer. The appellant is, therefore, entitled to allowance of depreciation of the computer.” 5.4. It is noted that genuineness of the transaction has not been doubted and installation of the computer has also not been doubted. The relief has been granted by the Ld. CIT(A) in the first round which has not been endorsed by the Ld. CIT(A) in the second round.

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5.5. We agree with the Ld. CIT(A) in the order given in the first round that there was no reason to deny claim of depreciation on the computer. After taking into account overall facts and circumstances of the case, we agree with the observation and views given by the Ld. CIT(A) in the first round and therefore, delete the disallowance made by the AO in this regard. Thus, ground no.4 is allowed.

6. Ground No.5: In this ground the assessee has prayed that assessee is entitled to deduction on account of interest payable to the brokerage firms. 6.1. During the course of hearing it was submitted that this issue is covered in favour of the assessee by the decision of the Tribunal in assessee’s own case for A.Ys. 2006-07 and 2007- 08 dated 05.03.2015 in & 5138/Mum/2012. 6.1. Per contra, Ld. Special counsel did not make out any distinction on facts or legal position. It is noted that in the aforesaid judgment, the Tribunal decided this issue as under: “5. We have carefully perused the orders of the authorities below. While disposing the ground relating to the disallowance of interest, we find that the Ld. CIT(A) has followed the findings given in the case of Eminent Holdings Pvt. Ltd. We find that the Tribunal in the case of Eminent Holdings in ITA Nos. 2139, 2140 and 2141/Mum/2013 have followed the decision of the Tribunal given in common group case of Hitesh S. Mehta at para 2.3 of the order and restored the matter to the file of the Ld. CIT(A) for fresh adjudication. Respectfully following the findings of the Co- ordinate Bench, we restore this issue to the files of the Ld. CIT(A) for fresh adjudication after giving reasonable opportunity of being heard to the assessee.

assessee pointed out that the Ld. CIT(A) has held that the issue of interest expenditure is pending before the Hon’ble Special Court. It is the say of the Ld. Counsel that the proceedings in which the said issue of interest was issued by the custodian have been already concluded which fact has already been recorded by the Ld. CIT(A) in the impugned order. We, therefore, direct the Ld. CIT(A) to consider this fact while deciding the issue afresh. The Ld. CIT(A) may also direct for the taxing of income in the hands of the recipient (family members) in accordance with the method of accounting followed by them and as per the provisions of the law. Ground No. 4 is treated as allowed for statistical purpose.” 6.2. During the course of hearing before us, no distinction has been made on law and facts. Therefore, respectfully following the aforesaid order, we send this issue back to the file of Ld. CIT(A) for fresh adjudication after giving adequate opportunity of being heard to the assessee. Ld. CIT(A) shall follow the directions as have been given in the aforesaid order. This ground may be treated as allowed for statistical purposes.

13 Growmore Research & Assets Mgt. giving credit of amount of TDS and AO shall follow the directions as have been given by the Tribunal in the case of group company namely M/s. Harsh Estates Pvt. Ltd. v. ACIT (ITA No.1035/Mum/2013 dated 08.10.2014 which reads as under: “6. So far as, charging of interest u/s 234A, 234B and 234C is concerned the ld. Counsel for the assessee contended that it may be sent to the file of the ld. Assessing officer. However, the ld. Special counsel contended that the levy of interest is mandatory therefore it should be decided against the assessee. However the ld. Counsel for the assessee contended that it may be sent to the Assessing Officer for actual calculation purposes only. Agreed, levy of interest is mandatory and sometimes consequential depending upon the facts of each case. We note that identical issue arose before the Tribunal in the aforesaid cases therefore following the reasoning contained therein, we direct the Assessing Officer to recomputed the interest liability after reducing the amount of tax deductable at source and decide as per the provisions of law. We direct accordingly, thus, this ground is allowed for statistical purposes.” 7.2. Thus, these grounds are sent back to the file of the AO with the same directions as given above and may be treated as allowed for statistical purposes.

Order was pronounced in the open court at the conclusion of hearing.