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Income Tax Appellate Tribunal, DELHI BENCH ‘G’, NEW DELHI
Before: SHRI KULDIP SINGH & SHRI PRASHANT MAHARISHI
ORDER Kuldip Singh, Judicial Member : Appellant, M/s. Sucon India Ltd. (hereinafter referred to as the assessed), by filing present appeal sought to set aside the impugned order dated 06.10.2015 passed by the Ld. Commissioner of Income Tax (Appeals)-Faridabad qua the assessment year 2012-13 on the grounds inter alia that :-
“1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in upholding the action of the Ld. A.O. in making an addition of Rs. 29,84,052/- by (Sucon India Ltd.) denying the claim of set off of loss of share business allegedly in view of Explanation to section – 73 of the Income Tax Act, 1961. 2) That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the addition of Rs. 29,84,052/- is bad in law and against the facts and circumstances of the case. 3) That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. A.O. in passing the impugned order without giving adequate opportunity of being heard. 4) That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. A.O. in making the impugned addition is bad in law and against the facts and circumstances of the case.”
Briefly stated the facts necessary for adjudication of issues at hand are ; the assessee is engaged in the business of trading in shares & securities and building material. Assessee filed return of income for the year under assessment declaring loss of Rs. 4,52,39,210/-. Declining the contention raised by the assessee , AO made addition of Rs. 29,84,052/- by denying the claim of set off of loss of share business and thereby assessed the total income at Rs. 4,09,25,082/-.
Assessee carried the matter before the Ld. CIT(A) by way of filing the appeal who is partly allowed the same. Feeling aggrieved
(Sucon India Ltd.) the assessee has come up before the Tribunal by way of filing the present appeal.
We have heard the Ld. Authorized Representative of the Assessee gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
Undisputedly, Assessing Officer has made the addition of Rs. 29,84,052/- by denying the claim of setoff of share business by applying the explanation to section 73 of the Income Tax Act. It is also not in dispute that the assessee has declared loss of Rs. 4,52,39,210/- .
The Ld. AR for the assessee by relying upon decision rendered by co-ordinate bench of Tribunal in assessee’s own case A.Y.2009-10, M/s. Sucon India Ltd. vs. ACIT, contended that the issue in controversy is covered in favour of the assessee company. The Ld. CIT(A) has denied the claim of set off of loss of share business to the assessee by relying upon decision rendered by Hon’ble Delhi High Court in case of (Sucon India Ltd.) COMMISSIONER OF INCOME TAX DELHI VS. DLF COMMERCIAL DEVELOPERS LIMITED (218 taxman 0045).
However the Co-ordinate bench of Tribunal in assessee’s own case for 2009-10 has distinguished the judgment of DLF Commercial (supra) followed by Ld. CIT(A) and allowed the claim of set off of to the assessee on account of loss of share business by relying upon decision rendered by High Court of Calcutta cited as Asian Financial Services Ltd. vs. Commissioner of Income Tax Act, Calcutta by returning the following findings :-
3.7.2 On the other hand, the learned counsel of the assessee relied on the decision of the Hon'ble High Court of Calcutta in the case of Asian Financial Services Ltd. Vs. Commissioner of Income Tax-3, Kolkata (supra). In the said case one of the questions raised was that, whether on the true and proper interpretation of the Explanation to section 73 of the Income- tax Act, 1961, the Tribunal was justified in law in holding that loss of Rs.3,24,76,185/- incurred in eligible transaction within the meaning of proviso (d) to section 43(5) not involving any purchase/sale of shares as such was speculation loss ? 3.7.3 The Hon'ble High Court of Calcutta disagreed with the decision of the Hon'ble Delhi High Court and held as under: "It would appear that the activities appearing in Clauses (a) to (e) are not to be deemed to be speculative transactions. Therefore, this comes within the category of deemed business which is however distinct and separate from any other business. Now, the question is, whether loss arising out of such deemed business can be set off against the profit arising out of other business or businesses which may for clarity be called proper
(Sucon India Ltd.) business. Under Section 70 of the Act, the assessee is entitled to have the loss set off against his income from any other source under the same head unless otherwise provided. Therefore answer to the question is that the assessee is entitled to have the loss arising out of deemed business set off against the income arising out of business proper unless otherwise provided. The question however remains whether the explanation to Sub- Section (4) of Section 73 relied upon by Mr. Lodh provides otherwise. A plain reading of the explanation quoted above cannot be said to have provided otherwise. In that case the irresistible conclusion is that the assessee is entitled to set off such loss arising out of deemed business against the income arising out of business proper. The learned Tribunal has supported the contention of the revenue relying upon the judgment of the Delhi High Court quoted above. The views expressed by the Hon'ble Delhi High Court are contained in a part of the sentence, which is as follows: AY: 2009-10 "by all accounts the derivatives are based on stocks and shares, which fall squarely within the Explanation to Section 73(4)" We are inclined to think that the clause of the sentence which fall squarely....', qualifies the word 'shares" and not the word 'derivatives'. We have no difficulty in accepting the views of the Delhi High Court when they say that shares fall squarely within the Explanation to Section 73(4) but we are unable to agree when derivatives are treated at par with the shares because the legislature has treated them differently." 3.7.4 In the case of Asian Financial Services Ltd. (supra), the Hon'ble Calcutta High Court accordingly answered the question in negative. 3.7.5 The learned counsel submitted before us that both the decision are of the High Court other then Jurisdictional High Court, which is the Punjab and Haryana High Court in the case of the assessee. The learned counsel relying on the decision of the Hon'ble Supreme Court in the case of Vegetable Product Ltd., reported in 88 ITR 192 submitted that where contrary decision of the Hon'ble high courts other than the jurisdictional High Court are available, then in such a situation, decision favourable to the assessee (Sucon India Ltd.) should be followed. The Hon'ble Supreme Court in the case of vegetable product Ltd (supra) held as under: "4. There is no doubt that the acceptance of one or the other interpretation sought to be placed on s. 271(1)(a)(i) by the parties would lead to some inconvenient result, but the duty of the Court is to read the section, understand its language and give effect to the same. If the language is plain, the fact that the consequence of giving effect to it may lead to some absurd result is not a factor to be taken into account in interpreting a provision. It is for the legislature to step in and remove the absurdity. On the other hand, if two reasonable constructions of a taxing provision are possible, that construction which favours the assessee must be adopted. This is a well-accepted rule of construction recognised by this Court in several of its decisions. Hence, all that we have to see is, what is the true effect of the language employed in s. 271(1)(a)(i). If we find that AY: 2009-10 language to be ambiguous or capable of more meanings than one, then we have to adopt that interpretation which favours the assessee, more particularly so because the provision relates to imposition of penalty." 3.7.6 Respectfully following the above decision of the Hon'ble Supreme Court in the case of Vegetable Product Ltd. (supra), we are inclined to follow the decision of the Hon'ble Calcutta High Court on the issue in dispute. Accordingly, we hold that the loss incurred on derivative transaction was not a speculative loss and is allowed to be adjusted against business income.
In view of what has been discussed above and following decision of the co-ordinate bench in assessee’s own case for AY 2008-09 which is squarely applicable to the issue in controversy, loss suffered by assessee on derivative transaction is not speculative loss and as such eligible to be adjusted against business income and Explanation 73 of the Income Tax Act is not attracted. So the (Sucon India Ltd.) addition made by AO and affirmed by Ld. CIT(A) is ordered to be deleted. Consequently present appeal is allowed .
Order pronounced in the open court on 5th October, 2018.