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Assessee by Shri Mukund Bakshi – CA Revenue by Mrs. Anupama Singal – Sr.DR 13/12/2021 Date of hearing 24/02/2022 Date of pronouncement Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. These two appeals by the Assessee are directed against the separate orders of ld. Commissioner of Income Tax (appeals)-3, Bharuch dated 19.01.2018 & 16.04.2019 for the Assessment Years (A.Y.) 2015-16 and 2016-17 respectively. In both the appeal the assessee has raised common grounds of appeal except variation of figure of disallowance of set off in both the years. The fact in both the years are similar, therefore, both the appeal were clubbed, heard together and are decided by common order. For appreciation of facts appeal in for the A.Y. 2015-16 is treated as lead case. The assessee raised following grounds of appeal:
ITA No’s.335 & 336/SRT/2019 (A.Y.2015-16 & 16-17) Billion Properties Pvt. Ltd., “1. (a) The Ld. CIT(A)-3, Vadodara has erred in law and in facts in confirming the action of the Ld. A.O. in holding that for the purpose of interpretation of Explanation to Sec. 73, the main object of the Company is determinative in deciding the main activity and business of the Company as against the actual conduct of business and activity. (b) The Ld. CIT(A)-3, Vadodara has further erred in law and in facts in confirming the action of the Ld. A.O. in not allowing the set off of the loss of Rs.2,41,13,983/- arising from the trading in shares holding the same to be a speculative loss u/s. 73 of the I.T. Act. The loss claimed by the appellant deserves to be allowed.
Your appellant craves liberty to add, delete or substitute any of the grounds of appeal
herein above contained.”
2. The Assessee in A.Y. 2016-17 raised following grounds of appeal: “1. (a) The Ld. CIT(A)-3, Vadodara has erred in law and in facts in confirming the action of the Ld. A.O. in holding that for the purpose of interpretation of Explanation to Sec. 73, the main object of the Company is determinative in deciding the main activity and business of the Company as against the actual conduct of business and activity. (b) The Ld. CIT(A)-3, Vadodara has further erred in law and in facts in confirming the action of the Ld. A.O. in not allowing the set off of the loss of Rs.5,22,967/- arising from the trading in shares holding the same to be a speculative loss u/s. 73 of the I.T. Act. The loss claimed by the appellant deserves to be allowed.
2. Your appellant craves liberty to add, delete or substitute any of the grounds of appeal herein above contained.”
3. Brief facts of the case are that the assessee are that the assessee is a Private Limited Company filed its return of income for the A.Y. 2015-16 on 18.09.2015 declaring loss of Rs.2.34 crore. The case of assessee was selected for scrutiny and assessment was completed under section 143(3) of the Act on 26.12.2017. During the assessment, the Assessing Officer ITA No’s.335 & 336/SRT/2019 (A.Y.2015-16 & 16-17) Billion Properties Pvt. Ltd., (AO) recorded that for the year under consideration, the assessee is engaged in the business of Trading and Investing in shares, securities, derivatives and real estate. However, as per the Memorandum of Association (MoA), the main object of the assessee is to carry on business of construction, build, alter, acquire etc., whereas during the year, the assessee involved in trading of equities and derivatives. The assessee has claimed set-off of losses incurred from trading in shares and securities with the capital gain income from other sources. The share activities undertaken by assessee is speculative in nature and losses sustained thereto cannot be set-off against the capital gain income or other sources. The assessee wrongly set-off his income with the business losses of speculative nature and are hit by the Explanation of section 73 of Income Tax Act. Accordingly, the AO disallowed the set off of losses by treating as speculative loss. Aggrieved by the disallowances of losses, the assessee filed appeal before the ld.CIT(A).
4. Before the ld. CIT(A), the assessee filed detailed written submission as recorded in para 5 of his order. In submission, the assessee stated that only reason for not allowing the set-off of losses to assessee’s Memorandum of Association, the main object clause provides that the assessee company ITA No’s.335 & 336/SRT/2019 (A.Y.2015-16 & 16-17) Billion Properties Pvt. Ltd., shall engage in the business to construction, building, alter, acquire, etc., The assessee further submits that Clause 54 permits the assessee to carry out business of trading in shares and securities. The assessee reproduced Clause 54 of MoA in his submission. The assessee further stated that so far as taxation of Income Tax under Income Tax Act is concerned, it is relevant to ascertain the business actually carried out as against what is provided in the object clause. The business of trading in share and securities is not prohibited to the assessee company and that it is not an illegal business. The Explanation to section 73 excludes the losses from being treated as speculative in case of assessee whose principle business is that of trading in share. Considering the Profit and Loss Account and operation of assessee, it is not doubt that principle business of assessee is undoubtedly that of trading in share and consequently, the Explanation cannot be invoked against the assessee and that loss in trading of share of Rs.2.49 crore is to be considered as business loss and set-off against the short term capital gain and income from other sources.
The ld.CIT(A) after considering the submission of the assessee held that that Explanation to section 73 excludes the losses from being treated as speculative in case of the company whose principle business is that of ITA No’s.335 & 336/SRT/2019 (A.Y.2015-16 & 16-17) Billion Properties Pvt. Ltd., trading in share. The ld. CIT(A) recorded that it is true that during the current year, the assessee has shown only loss in profit and loss account where turnover consists of receipt from sale of shares. Entire balance sheet of assessee is required to be examined and to see the principle business of the assessee as per MoA. The ld.CIT(A) further observed that in MoA, the assessee has one main object, 46 incidental objects and 54 other objects. The main object of the assessee company is construction development, alter, acquire, building related works. The trade in share comes at the end of other object at Sl.No.54 after incidental object. After examination of balance sheet and various schedules attached thereto, the ld.CIT(A) recorded that the following facts are as under: Note 7 Assets shows – appellant being owner of office land acquired earlier Rs.36,60,175/- Note 8 non-current investments shows investment in various properties and plots of land at Rs.1.87 crores. Note 9 Inventories shows closing stock of property-Shilaj plot 1.51 cr and block number 73, Jaspur, Ahmedabad at Rs.7.8 lacs.
On the basis of aforesaid observation, the ld.CIT(A) noted that assessee has carried out the activities in furtherance of main object of its construction as mentioned in MoA. Even though, there is no turnover from the main object is still the activities are still continuing and the stock is being acquired and ITA No’s.335 & 336/SRT/2019 (A.Y.2015-16 & 16-17) Billion Properties Pvt. Ltd., maintained. The surplus funds are available with the assessee have been used for trading in shares, thus, the trading in share is not the main object of the assessee and not the principle business. Thus, the exclusion contained in Explanation to section 73 still not apply to assessee and upheld the order of the AO. Aggrieved by the order of ld.CIT(A), the assessee filed the present appeal before this Tribunal.
We have heard the ld.Authorised Representative (ld.AR) of the assessee and ld. Senior Departmental Representative (ld. Sr. DR) for the Revenue. The ld.AR for the assessee submits that the AO disallowed the set-off of loss against the capital gain and other business by taking view that assessee’s main object is not of trading in share and securities. The Ld. AR for the assessee submits that on perusal of Profit and Loss Account and operation of assessee, it is not doubt that principle business of assessee is of trading in share and consequently, the Explanation cannot be invoked against the assessee and that loss in trading of share of Rs.2.49. The AR for the assessee further submits that clause 54 of its MOA, permits the assessee to carry out business of trading in shares and securities. It was submitted that in so far as taxation of Income Tax under Income Tax Act is concerned, it is relevant to ascertain the business actually carried out as ITA No’s.335 & 336/SRT/2019 (A.Y.2015-16 & 16-17) Billion Properties Pvt. Ltd., against what is provided in the object clause. The business of trading in share and securities is not prohibited to the assessee company and that it is not an illegal business. The Explanation to section 73 excludes the losses from being treated as speculative in case of assessee whose principle business is that of trading in share. Therefore, considering the Profit and Loss Account and operation of assessee , it is not doubt that principle business of assessee is undoubtedly that of trading in share and consequently, thus, the Explanation cannot be invoked against the assessee and that loss in trading of share of Rs.2.49 crore is to be considered as business loss and set-off against the short term capital gain and income from other sources 8. On the other hand, the ld.Sr.DR for the Revenue submits that assessee has shown losses in share. Entire business of the assessee has to be examined. On examination of all business activities undertaken by the assessee has reflected in Profit and Loss Account. The assessee is engaged in furtherance of real-estate business of assessee is not in the business of share and securities trading. The ld.CIT(A) examined the entire balance sheet and concluded that assessee is carrying out its financial activities as per MoA and mainly dealing in the business of development and construction ITA No’s.335 & 336/SRT/2019 (A.Y.2015-16 & 16-17) Billion Properties Pvt. Ltd., activities and accordingly, the losses on account of speculative transaction is not allowable against the other income. The ld.Sr.DR for the Revenue submits that she relied on the order of ld.CIT(A).
We have considered the rival submissions of both the parties perused the order of Lower Authorities carefully. We find that the A.O. disallowed the set off of losses of Rs. 2.49 Crore by taking view that the main object of the assessee is to carry on business of construction, build, alter, acquire etc., whereas during the year, the assessee involved in trading of equities and derivatives and claimed set-off of losses incurred from trading in shares and securities with the capital gain income from other sources. The share activities undertaken by assessee is speculative in nature and losses sustained thereto cannot be set-off against the capital gain income or other sources being hit by the Explanation of section 73 of Income Tax Act. The Ld. CIT(A) affirmed the action of A.O. with almost similar observation. Before us, the Ld. AR of the assessee vehemently submitted that the principle business of the assessee is of trading in share and consequently, the Explanation of section 73 cannot be invoked against the assessee and that loss in trading of share of Rs.2.49. On perusal of profit and loss account, we find that the main business of the assessee during the year is of ITA No’s.335 & 336/SRT/2019 (A.Y.2015-16 & 16-17) Billion Properties Pvt. Ltd., trading in shares and securities. In the balance sheet as on 31.03.2015, the assessee has shown stock in trade of Rs.54,96,53,851/-, however, the closing stock of property is of Rs. 1,51,24,580/- and Rs. 781,500/- at Shilaj Plot No. 1507A and Block No. 73 Jaspur Ahmedabad respectively. Similarly on 31.03.2014, the assessee has shown stack in trade of Rs.8,90,92,331/-, and the closing stock of property is of Rs. 1,51,24,580/- and Rs. 7,81,500/- of at Shilaj Plot No. 1507A and Block No. 73 Jaspur Ahmedabad respectively. We have also noted that the Ld. CIT(A) in his finding has accepted that during the assessee has shown only profit and loss account where turnover consist of sale of shares. Thus, in view of the aforesaid factual discussion, we are of the view that the assessee is entitled for set off of losses as the principal business of assessee is in trading of shares. In the result, the ground of appeal
raised by the assessee is allowed.
10. In the result, the appeal of the assessee is allowed. A.Y. 2016-17
11. Considering the facts that the assessee has raised similar grounds of appeal in the appeal for this year as raised in appeal for earlier year, which we have allowed, therefore, following the principal of consistency the appeal for this year is also allowed with similar directions.
ITA No’s.335 & 336/SRT/2019 (A.Y.2015-16 & 16-17) Billion Properties Pvt. Ltd.,