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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI MAHAVIR SINGH & SHRI RAMIT KOCHAR
सुनवाई क� तार�ख /Date of Hearing : 04-10-2016 घोषणा क� तार�ख /Date of Pronouncement : 09-11-2016 आदेश / O R D E R PER RAMIT KOCHAR, Accountant Member
This appeal, filed by the Revenue, being 17th August, 2015 passed by learned Commissioner of Income Tax (Appeals)- 9, Mumbai (hereinafter called “the CIT(A)”), for the assessment year 2009-10, the appellate proceedings before the learned CIT(A) arising from the penalty order dated 20th March, 2014 passed by the learned Assessing Officer (hereinafter called “the AO”) u/s 271(1)(c) of the Income-tax Act,1961 (Hereinafter called “the Act”).
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The grounds of appeal raised by the Revenue in the memo of appeal filed with the Income-tax Appellate Tribunal, Mumbai (hereinafter called “the Tribunal”) read as under:-
“On the facts and circumstances of the case and in law, the Learned CIT(A) erred in deleting the penalty of Rs. 11,31,865/- levied u/s 271(1)(c) of the Act for the set off of speculation loss against the business income as claimed by the assessee.”
The Brief facts of the case are that during the course of assessment proceedings , the assessee company showed business income at Rs. 11,26,763/- vide revised computation of income filed during assessment proceedings, which was shown after segregating the speculation loss of Rs. 37,31,368/- from the computation of total income. In the computation of income filed with the original return of income filed with the Revenue, the assessee had not shown the speculation loss of Rs. 37,31,368/-. Thus, the A.O. treated the loss of Rs. 37,31,368/- as speculation loss under Explanation to section 73 of the Act and the same was allowed to be carried forward as speculation loss. It was observed during the assessment proceedings that the assessee had wrongly set off the speculation loss against the business income. Accordingly penalty proceedings were initiated u/s 271(1)(c) of the Act by issuing notice u/s 274 of the Act as in the original return of income filed on 26th September, 2009 whereby the income declared was nil and current year loss was worked out at Rs. 26,04,604/-. The ld. CIT(A) in the quantum addition, confirmed the assessment order of the A.O. . During the course of penalty proceedings, the assessee submitted that section 271(1)(c) of the Act is applicable if the assessee has concealed particulars of his income or furnished inaccurate particulars of such income. The A.O. levied the penalty as there are no speculation profits for setting off against ITA 5229/Mum/2015 3
speculation loss and provisions of section 73(1) of the Act are very clear in this case wherein the speculation loss computed in respect of a speculation business carried on by the assessee shall not be set off except against profits and gains of another speculation business. The A.O. held that the assessee has knowingly and deliberately concealed his income to the tune of Rs. 37,72,883/- as the assessee is guided by qualified professional CA and the assessee accounts are audited and the assessee has failed to prove that he had not deliberately and not knowingly concealed his income. It was held by the AO that it is established beyond doubt that the assessee has deliberately acted in conscious disregard of law in order to evade the taxes. The A.O. accordingly levied @ 100% penalty on the tax sought to be evaded whereby penalty of Rs. 11,31,865/- was levied by the AO vide penalty order dated 20- 03-2014 passed by the AO u/s 271(1)(c) of the Act , which was later deleted by the ld. CIT(A) wherein appeal of the assessee was allowed by learned CIT(A) vide appellate orders dated 19.05.2014 passed by the learned CIT(A).
Aggrieved by the appellate orders dated 19.05.2014 passed by the learned CIT(A), the Revenue is in appeal before the Tribunal whereby the Revenue challenged the deletion of the penalty by the learned CIT(A) against the assessee of Rs.11,31,865/- , which was originally levied by the AO u/s 271(1)(c) of the Act.
At the very outset, the learned DR and ld. Counsel for the assessee both agreed that the quantum additions on this issue has been deleted by the tribunal vide its order in for the assessment year 2009-10 vide orders dated 3rd August, 2016 in assessee’s own case. Thus, it was the contention of the ld. Counsel for the assessee that in view of the deletion of the addition in quantum proceedings in assessee’s own case, penalty levied u/s 271(1)(c) of the Act on the same issue will not survive. The order of the tribunal in ITA no 7068/Mum/2012 is placed in the file ITA 5229/Mum/2015 4
We have considered the rival contentions and also perused the material available on record including the tribunal order in vide orders dated 03-08-2016 in assessee’s own case for the assessment year 2009-10. We have observed that the tribunal in its order in ITA No. 7068/Mum/2012 for the assessment year 2009-10 vide its orders dated 3rd August, 2016, in which one of us was also party, has deleted the quantum addition and hence consequentially the penalty levied u/s 271(1)(c) of the Act on the same issue will not survive. The observation of the Tribunal in the afore-stated orders are as under:-
“9. We have considered the rival contentions and perused the material on record including the case laws relied upon by the rival parties. We have observed that the assessee company is engaged in the business of dealing in shares whereby the assessee company is buying shares on its own account, and also on account of clients whereby the assessee company is getting income from brokerage and commission. The assessee company’s main business is dealing in shares. With respect to delivery based transaction of sale and purchase of shares on its own account, the assessee company has incurred loss of Rs.37,31,368/- which was claimed as speculative loss in the revised computation of income filed with the AO during assessment proceedings u/s 143(2) read with Section 143(3) of the Act as the same was hit by explanation to Section 73 of the Act. The AO treated the said loss as speculation loss and allowed it to be carried forward . The assessee company did not contested the same before the learned CIT(A) . The assessee company relied upon decision of CIT v. HSBC Securities and Capital Markets Private Limited(supra) . We have observed that the assessee company case is squarely covered by this decision of Hon’ble Bombay High Court. The asssessee company has income from business of Rs.11,26,763/- from non-speculation business , while income from trading from shares on its own account is loss of Rs. 37,31,368/- and hence on net basis there is a loss under the head ‘Income from business or profession’ , while there is dividend income of Rs.2,81,545/- earned by the assessee ITA 5229/Mum/2015 5 company under the head ‘income from other sources’ which is claimed exempt and hence the assessee company will fall within the purview of exception carved out in the explanation to Section 73 of the Act and consequently the assessee company would not be deemed to be carrying on speculation business for the purpose of Section 73(1) of the Act . The relevant extracts of the decision of Hon’ble Bombay High Court in the case of CIT v. HSBC Securities and Capital Market India Private Limited, (2012) 208 Taxman 439(Bom. HC.) is reproduced hereunder: “8. In the present case, section 73 would not apply in view of the fact that the explanation thereto, does not operate in respect of a company whose gross total income consists mainly of income which is chargeable under the heads of "interest on securities", "income from housing property", "capital gains" and "income from other sources". We have set out the relevant part of the assessment order which indicates that in the relevant year, the income from other sources was the only chargeable income, as the respondent had suffered a business loss otherwise. In that view of the matter, the judgment of the Division Bench of this Court in the case of Darshan Securities (P.) Ltd. (supra) supports the respondent's case. In that case, during the relevant assessment year, the assessee had a loss of about Rs. 2.33 crores in the share trading and had dividend income of about Rs. 4.80 lacs. The Division Bench held in paragraphs 6, 7, 8 and 9 as under :- "6. The explanation to Section 73 introduces a deeming fiction. The deeming fiction stipulates that where any part of the business of a company consists in the purchase and sale of shares of other companies, such company shall, for the purposes of the section be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sales of such shares. The deeming fiction applies only to a company and the provision makes it clear that the deeming fixation (sic) extends only for the purposes of the section. The bracketed portion of the explanation, however carves out an exception. The exception is that the provision of the explanation shall not apply to 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 whose principal business is of banking or the granting of loans and advances.
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7. The submission which has been urged on behalf of the Revenue is that in computing the gross total income for the purpose of the explanation to Section 73, income under the heads of profits and gains of business or profession must be ignored. Alternatively, it has been urged that where the income from business includes a loss in the trading of shares, such a loss should not be allowed to be set off against the income from any other source under the head of profits and gains of business or profession.
In our view, the submission which has been urged on behalf of the Revenue cannot be accepted. Leaving aside for a moment, the exception, which is carved out by the explanation to Section 73, the explanation creates a deeming fiction by which a company is deemed to be carrying on a speculation business where any part of its business consists in the purchase and sale of shares of other companies. Now, the exception which is carved out applies to a situation where the gross total income of a company consists mainly of income which is chargeable under the heads "Interest on securities", "Income from house property", "Capital gains" and "Income from other sources". Now, ordinarily income which arises from one source which falls under the head of profits and gains of business or profession can be set off against the loss which arises from another source under the same head. Sub-Section (1) of Section 73 however sets up a bar to the setting off of a loss which arises in respect of speculation business against the profits and gains of any other business. Consequently, a loss which has arisen on account of speculation business can be set off only against the profits and gains of another speculation business. However, for Sub-Section (1) of Section 73 to apply the loss must arise in relation to a speculation business. The explanation provides a deeming definition of when a company is deemed to be carrying on a speculation business. If, the submission of the Revenue is accepted, it would lead to an incongruous situation, where in determining as to whether a company is carrying on a speculation business within the meaning of the explanation, sub- section (1) of Section 73 is applied in the first instance. This would in our view not be permissible as a matter of statutory interpretation, because the explanation is designed to define a situation where a company is deemed to carry on speculation business. It is only thereafter that sub-section (1) of section 73 can apply. Applying the provisions of Section 73(1) to determine whether a company is carrying on speculation business would reverse the order of application. That would be impermissible, nor, is it contemplated by Parliament. For, the ambit of Sub-Section (1) of Section 73 is only to prohibit the setting off of a loss which has ITA 5229/Mum/2015 7 resulted from a speculation business, save and accept against the profits and gains of another speculation business. In order to determine whether the exception that is carved out by the explanation applies, the legislature has first mandated a computation of the gross total income of the Company. The words "consists mainly" are indicative of the fact that the legislature had in its contemplation that the gross total income consists predominantly of income from the four heads that are referred to therein. Obviously, in computing the gross total income the normal provisions of the Act must be applied and it is only thereafter, that it has to be determined as to whether the gross total income so computed consists mainly of income which is chargeable under the heads referred to in the explanation.
9. Consequently, in the present case the gross total income of the assessee was required to be computed inter alia by computing the income under the head of profits and gains of business or profession as well. Both the income from service charges in the amount of Rs. 2.25 crores and the loss in share trading of Rs. 2.23 crores, would have to be taken into account in computing the income under that head, both being sources under the same head. The assessee had a dividend income of Rs. 4.7 lacs (income from other sources). The Tribunal was justified, in coming to the conclusion that the assessee fell within the purview of the exception carved out in the explanation to Section 73 and that consequently the assessee would not be deemed to be carrying on a speculation business for the purpose of Sec. 73(1)."
In the circumstances, the appeal is dismissed but with no order as to costs.” Respectfully following the above decision of the Hon’ble jurisdictional High Court, we hold that the loss of Rs.37,31,368/- incurred by the assessee company on share trading carried on by it on its own behalf shall not be hit by the deeming fiction of explanation to Section 73 of the Act and shall be treated as normal business loss to be set aside against the other non-speculative business income and other income as per provisions of the Act. This disposes of the ground no 1 raised by the assesee company as well additional ground raised by the assessee company. We would like to clarify that in view of our above decision, we have refrained from answering the question of law raised by the assessee with respect to retrospectivity of amendment brought in by Section 73 of the Act which was amended by Finance Act,2014 w.e.f 01- 04-2015 and has left the said question open. We order accordingly.”
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Respectfully following the decision of the tribunal in assessee’s own case in vide orders dated 03-08-2016 wherein quantum additions were deleted by the tribunal on this issue in assessee’s own case, we are of the considered view that penalty levied by the Revenue u/s 271(1)(c) of the Act on this issue will not survive in view of the afore-stated tribunal decision deleting the quantum addition. We, therefore, confirm deletion of the penalty of Rs.11,31,865/- u/s 271(1)(c) of the Act as was decided by the ld. CIT(A).We order accordingly.
In the result, the appeal filed by the Revenue in 2009-10 is dismissed.
Order pronounced in the open court on 9th November, 2016. आदेश क� घोषणा खुले �यायालय म� �दनांकः 09-11-2016 को क� गई ।