SYNERGY ENTERPRENEUR SOLUTIONS P. LTD ( MERGED WITH RELIANCE COMMUNICATIONS INFRASTRUCTURE LTD), NAVI MUMBAI v. DCIT 7(2), MUMBAI

ITA 3076/MUM/2010 | 2005-2006
Pronouncement Date: 31-03-2011 | Result: Allowed

Appeal Details

RSA Number 307619914 RSA 2010
Assessee PAN AACCR0193C
Bench Mumbai
Appeal Number ITA 3076/MUM/2010
Duration Of Justice 11 month(s) 10 day(s)
Appellant SYNERGY ENTERPRENEUR SOLUTIONS P. LTD ( MERGED WITH RELIANCE COMMUNICATIONS INFRASTRUCTURE LTD), NAVI MUMBAI
Respondent DCIT 7(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 31-03-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted J
Tribunal Order Date 31-03-2011
Assessment Year 2005-2006
Appeal Filed On 20-04-2010
Judgment Text
I.T.A NO.3076/ MUM/2010 SYNERGY ENTERPRENEUR SOLUTIONS P.LTD 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI J BENCH MUMBAI BEFORE SHRI D K AGARWAL JUDICIAL MEMBER AND SHRI PRAMOD KUMAR ACCOUNTANT MEMBER ITA NO. 3076/MUM/10 ASSESSMENT YEAR: 2005-06 SYNERGY ENTREPRENEUR SOLUTIONS PVT LTD .. APPELLANT H BLOCK DAKC THANE BELAPUR ROAD KOPARKHAIRNE NAVI MUMBAI 400 710 PAN : AACCR0193C VS. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 7(2) MUMBAI RESPONDENT APPEARANCES: ARVIND DALAL FOR THE APPELLANT SUMEET KUMAR FOR THE RESPONDENT O R D E R PER PRAMOD KUMAR : 1. THE SHORT ISSUE THAT WE ARE REQUIRED TO ADJUDICA TE IN THIS APPEAL IS WHETHER OR NOT THE LEARNED COMMISSIONER WAS JUSTIFI ED IN EXERCISING REVISION POWERS UNDER SECTION 263 OF THE INCOME TAX ACT 1961 ON THE FACTS AND IN THE CIRCUMSTANCES OF THIS CASE. THE AS SESSMENT YEAR INVOLVED IS 2005-06 AND THE ORDER SO SUBJECTED TO REVISION P ROCEEDINGS BY THE LEARNED COMMISSIONER WAS PASSED UNDER SECTION 143(3 ) OF THE ACT. I.T.A NO.3076/ MUM/2010 SYNERGY ENTERPRENEUR SOLUTIONS P.LTD 2 2. THE ISSUE IN APPEAL LIES IN A RATHER NARROW COMP ASS OF MATERIAL FACTS. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SHARE TRADING ACTIVITY. SUBSEQUENT TO FINALIZATION OF ASSESSMENT UNDER SECT ION 143(3) THE COMMISSIONER SOUGHT TO SUBJECT THE ASSESSMENT REVIS ION. IN THE IMPUGNED REVISIONS ORDER LEARNED COMMISSIONER STATES THAT H E PROCEEDED TO INITIATE THE REVISION PROCEEDINGS ON THE GROUND THAT THE DET AILS OF PURCHASE AND SALE OF SHARE TRANSACTIONS IN FUTURES WERE NOT VERI FIED AS TO WHETHER THE PROFIT OR LOSS FROM THE FUTURE TRADING AMOUNTS TO S PECULATION GAINS OR LOSS. IN THE SHOW CAUSE NOTICE HOWEVER LEARNED COMMISSI ONER STATED THAT AS PER THE PROVISIONS OF SECTION 73 OF THE INCOME TAX ACT ANY LOSS COMPUTED IN RESPECT OF A SPECULATION BUSINESS CARR IED ON BY THE ASSESSEE SHALL NOT BE SET BE SET OFF AGAINST PROFI TS AND GAINS IF ANY OF SPECULATION BUSINESS AND THEREFORE THE ASSESSEE IS NOT ALLOWED TO ADJUST SPECULATION LOSS ON FUTURES TRADING AGAINS T OTHER BUSINESS PROFITS. IN THE SAID SHOW CAUSE IT WAS ALSO OBSERVED THAT TOTAL INCOME OF THE ASSESSEE COMPANY IS REQUIRED TO BE COMPUTED BY IGNO RING THE SPECULATION LOSS . IN THE WRITTEN SUBMISSIONS FILED BY THE ASSESSEE IN RESPONSE TO THE AFORESAID SHOW CAUSE NOTICE IT WAS INTER ALIA STATED THAT IN THE SHARE TRADING BUSINESS OF THE ASSESSEE THER E IS A NET PROFIT EVEN AFTER SETTING OFF LOSS ON IN TRANSACTIONS WHICH WER E ON ACCOUNT OF HEDGING TRANSACTIONS AND THUS NOT HIT BY THE PROVISIONS OF EXPLANATIONS TO SECTION 73. WHILE COMMISSIONER DID NOT REALLY REJECT THE S UBMISSIONS SO MADE BY THE ASSESSEE ON MERITS HE EXERCISED HIS REVISION P OWERS ON THE GROUND THAT ALL THESE ISSUES WERE NOT EXAMINED BY THE ASSE SSING OFFICER IN THE COURSE OF THE ASSESSMENT. HE THUS SET ASIDE THE ASSESSMENT ORDER WITH A DIRECTION TO (THE ASSESSING OFFICER) TO OBTAIN COMPLETE DETAILS AND CONDUCT NECESSARY ENQUIRIES AND EXAMINE THE SAME FO R THE ASSESSMENT YEAR UNDER CONSIDERATION AND BY OBSERVING THAT THE ASSESSING OFFICER SHALL PROVIDE ADEQUATE OPPORTUNIT Y TO THE ASSESSEE BEFORE PASSING THE ASSESSMENT ORDER . THE ASSESSEE IS AGGRIEVED BY THE ACTION OF THE COMMISSIONER AND HAS CHALLENGED THE S AME IN APPEAL BEFORE US. I.T.A NO.3076/ MUM/2010 SYNERGY ENTERPRENEUR SOLUTIONS P.LTD 3 3. WE HAVE HEARD THE RIVAL CONTENTIONS PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CA SE AS ALSO THE APPLICABLE LEGAL POSITION. 4. WE FIND THAT THE IMPUGNED REVISION ORDER IS INDE ED NOT SUSTAINABLE IN LAW FOR MORE REASONS THAN ONE. A PLAIN READING O F THE IMPUGNED REVISION ORDER CLEARLY SHOWS THAT THE CONCLUSION DR AWN IN THE REVISION PROCEEDINGS ARE DIFFERENT FROM THE REASONS FOR REVI SION PROCEEDINGS SET OUT IN THE SHOW CAUSE NOTICE- EXTRACTS FROM WHICH A RE SET OUT IN THE REVISION ORDER ITSELF. IT IS IMPORTANT TO NOTE THE SHIFTING STAND OF THE COMMISSIONER SO FAR AS REASONS FOR SUBJECTING THE A SSESSMENT ORDER TO REVISION PROCEEDINGS. AT PAGE 1 IN FIFTH SENTENCE OF THE IMPUGNED REVISION ORDER LEARNED COMMISSIONER NOTES THAT THA T [O]N PERUSAL OF ASSESSMENT RECORD IT WAS NOTICED THAT ASSESSMENT O RDER WAS ERRONEOUS INASMUCH AS IT WAS PREJUDICIAL TO THE INT EREST OF THE REVENUE AS THE DETAILS OF PURCHASE AND SALE OF SHAR E TRANSACTIONS IN FUTURE WERE NOT VERIFIED AS TO WHETHER THE PROFIT O R LOSS FROM THE FUTURES TRADING AMOUNTS TO SPECULATION GAIN OR LOSS . THE EXTRACTS FROM SHOW CAUSE NOTICE WHICH HAVE BEEN REPRODUCED IN TH E IMPUGNED REVISION ORDER AT PAGE 1 AND 2 DONOT HOWEVER EVEN REMOTEL Y SUPPORT THAT STAND. THE STAND TAKEN IN THE SHOW CAUSE NOTICE IS THAT O N MERITS SET OFF IS NOT PERMISSIBLE INASMUCH AS SHOW CAUSE NOTICE STATES TH AT [A]S PER THE PROVISIONS OF SECTION 73 OF THE INCOME TAX ACT ANY LOSS COMPUTED IN RESPECT OF SPECULATION BUSINESS CARRIED ON BY THE A SSESSEE SHALL NOT BE SET OFF EXCEPT AGAINST PROFITS AND GAINS OF ANOT HER SPECULATION BUSINESS AND [T]HEREFORE YOU (THE ASSESSEE) ARE NOT ALLOWED TO ADJUST THE SPECULATION LOSS . THE SHOW CAUSE NOTICE THEREFORE CLEARLY REFERS TO DECLINING WHAT THE COMMISSIONER PERCEIV ES AS A SET OFF OF SPECULATION LOSS AGAINST BUSINESS PROFITS. THAT IS A CATEGORICAL I.T.A NO.3076/ MUM/2010 SYNERGY ENTERPRENEUR SOLUTIONS P.LTD 4 DISENTITLEMENT OF SET OFF. IN THE FINAL CONCLUSIONS IN THE IMPUGNED REVISION ORDER HOWEVER THE COMMISSIONER ONCE AGAIN DEVIATE S FROM THE STAND SO TAKEN AND CONCLUDES AS FOLLOWS: IN VIEW OF THE FOREGOING THE ASSESSMENT ORDER DATE D 27.12.2007 PASSED BY THE ASSESSING OFFICER IS CONSI DERED TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE R EVENUE. SINCE THE ASSESSING OFFICER HAS NOT TAKEN THE NECESSARY D ETAILS TO VERIFY WHETHER THE PROFITS AND LOSS FROM FUTURE TRA DING AMOUNTS TO SPECULATION PROFIT OR LOSS THE ASSESSMENT ORDER IS SET ASIDE WITH A DIRECTION TO OBTAIN COMPLETE DETAILS AND CON DUCT NECESSARY ENQUIRIES AND EXAMINE THE SAME FOR THE AS SESSMENT YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER SHA LL PROVIDE ADEQUATE OPPORTUNITY TO THE ASSESSEE BEFORE PASSING THE ASSESSMENT ORDER 5. IT IS THUS CLEAR THAT THERE HAS BEEN SHIFTS IN T HE STAND OF THE COMMISSIONER ON WHETHER IT WAS A FIT CASE FOR REVIS ION ON THE GROUND THAT THE ASSESSEE WAS NOT ELIGIBLE FOR SET OFF OF LOSSES ON SPECULATIVE TRANSACTIONS OR WHETHER IT WAS A CASE FOR REVISION ON THE GROUND THAT THE ASSESSING OFFICER DID NOT MAKE NECESSARY VERIFICATI ONS ABOUT THE TRANSACTIONS. THE REASON GIVEN IN THE SHOW CAUSE NO TICE IS FORMER WHILE THE REASON FOR WHICH REVISION POWERS ARE FINALLY EX ERCISED IN THE IMPUGNED ORDER ARE LATTER. AS TO WHETHER SUCH AN EX ERCISE OF REVISIONAL POWERS ON THE GROUNDS OTHER THAN THE GROUNDS OF RE VISION AS SET OUT IN THE SHOW CAUSE NOTICE COULD BE HELD TO BE SUSTAINA BLE IN LAW WE FIND GUIDANCE FROM THE DECISIONS OF A COORDINATE BENCH I N THE CASE OF MAXPACK INVESTMENTS LTD VS ACIT (13 SOT 67) WHICH INTER ALIA OBSERVES AS FOLLOWS: .IN CIT V. G.K. KABRA [1995] 211 ITR 336 THE ANDHRA PRADESH HIGH COURT WAS DEALING WITH AN APPLICATION SEEKING REFERENCE UNDER SECTION 256(2) INTER ALIA OF THE FOLLOWING QUESTI ON : I.T.A NO.3076/ MUM/2010 SYNERGY ENTERPRENEUR SOLUTIONS P.LTD 5 WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE INCOME-TAX APPELLATE TRIBUNAL WAS CORRECT IN HOLDIN G THAT THE COMMISSIONER OF INCOME-TAX LACKS INITIAL JURISDICTI ON PARTICULARLY WHEN THE CONCLUSION MADE BY THE COMMISSIONER OF INC OME-TAX IN THE ORDER UNDER SECTION 263 WAS ON THE BASIS OF THE INF ORMATION FURNISHED IN RESPONSE TO THE INITIAL NOTICE ? WHILE DECLINING TO REFER THE ABOVE QUESTION THE HI GH COURT HELD AS UNDER (PAGES 339-340) : THE NECESSARY IMPLICATION IN THE EXPRESSION AFTER GIVING OPPORTUNITY OF BEING HEARD RELATES TO THE POINT ON WHICH THE COMMISSIONER CONSIDERS THE ORDER TO BE ERRONEOUS AN D PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IN OTHER WORDS IT IS NECESSARY FOR THE COMMISSION TO POINT OUT THE EXACT ERROR IN THE ORDE R WHICH HE PROPOSES TO REVISE SO THAT THE ASSESSEE WOULD HAVE AN ADEQUATE OPPORTUNITY OF MEETING THE ERROR BEFORE THE FINAL O RDER IS MADE. [EMPHASIS SUPPLIED] IN THE CASE BEFORE THE HIGH COURT THE SHOW-CAUSE N OTICE REFERRED TO TWO ISSUES TO WHICH THE ASSESSEE HAD GIVEN SATISFACTORY REPLIES. NO ACTION WAS TAKEN UNDER SECTION 263 IN RESPECT OF THESE TWO ISSUES. HOWEVER IN THE SAID ORDER THE CIT MENTIONED THE HIRE CHARGES A S THE GROUND FOR REVISING THE ASSESSMENT. THIS POINT HAD NOT BEEN ME NTIONED AS A GROUND IN THE SHOW-CAUSE NOTICE. THE HIGH COURT HELD THAT INASMUCH AS THE COMMISSIONER HAD NOT CHOSEN TO SHOW THESE TWO POINT S AS THE ERRORS IN MAKING THE FINAL ORDER AND THE FINAL ORDER UNDER SE CTION 263 REFERS ONLY TO THE INFERENCE OF HIRE CHARGES BEING EXIGIBLE TO TAX WHICH WAS NOT MENTIONED AT ALL IN THE SHOW CAUSE OBVIOUSLY THE A SSESSEE HAD NO OPPORTUNITY TO MEET THAT POINT. [EMPHASIS SUPPLIED ] 10. THE RATIO OF THE DECISION CLEAR FROM THE ABOVE OB SERVATIONS IS THAT IF A GROUND OF REVISION IS NOT MENTIONED IN THE SHO W-CAUSE NOTICE ISSUED UNDER SECTION 263 THAT GROUND CANNOT BE MADE THE B ASIS OF THE ORDER PASSED UNDER THE SECTION FOR THE SIMPLE REASON THA T THE ASSESSEE WOULD HAVE HAD NO OPPORTUNITY TO MEET THE POINT. . 11. THE OTHER JUDGMENT WHICH SUPPORTS THE CASE OF THE ASSESSEE IS THAT OF THE PUNJAB AND HARYANA HIGH COURT IN CIT V. JAGA DHRI ELECTRIC SUPPLY I.T.A NO.3076/ MUM/2010 SYNERGY ENTERPRENEUR SOLUTIONS P.LTD 6 AND INDUSTRIAL CO. LTD. [1983] 140 ITR 490 THE NATURE OF THE JURISDICTION OF THE CIT UNDER SECTION 263 AND THE POWERS OF THE TRIBUNAL WHILE DEALING WITH AN APPEAL AGAINST THE ORDER PASSED UND ER THAT SECTION WERE EXPLAINED IN THAT DECISION. THE CIT HAD FOUND THE O RDER OF THE ASSESSING OFFICER ALLOWING CONTINUATION OF REGISTRATION TO TH E ASSESSEE-FIRM TO BE ERRONEOUS ON THE GROUND THAT THE ACTUAL DISTRIBUTIO N OF THE PROFITS WAS DIFFERENT FROM THE RATIO MENTIONED IN THE DEED OF P ARTNERSHIP. THE TRIBUNAL SET ASIDE THE ORDER OF THE CIT BUT WHILE D OING SO OBSERVED THAT THERE WAS A CHANGE IN THE NUMBER OF PARTNERS FROM 1 0 TO 11 WHICH FACT HAD NOT BEEN TAKEN INTO ACCOUNT BY THE ASSESSING OF FICER WHEN HE GRANTED REGISTRATION FOR THE FIRM FOR THE ASSESSMEN T YEAR 1966-67 AND THUS THE GRANT OF REGISTRATION WAS ERRONEOUS. ON TH E BASIS OF THIS OBSERVATION IT WAS ARGUED BEFORE THE HIGH COURT ON BEHALF OF THE REVENUE THAT THE TRIBUNAL OUGHT TO HAVE SUSTAINED T HE ORDER OF THE CIT ON THAT GROUND. REPELLING THE CONTENTION IT WAS HE LD BY THE HIGH COURT AS UNDER (PAGES 502-3) : THE JURISDICTION VESTED IN THE COMMISSIONER UNDER SECTION 263(1) OF THE ACT IS OF A SPECIAL NATURE OR IN OTH ER WORDS THE COMMISSIONER HAS THE EXCLUSIVE JURISDICTION UNDER T HE ACT TO REVISE THE ORDER OF THE ITO IF HE CONSIDERS THAT AN Y ORDER PASSED BY HIM WAS ERRONEOUS INSOFAR AS IT WAS PREJU DICIAL TO THE INTERESTS OF THE REVENUE. BEFORE GOING SO HE I S ALSO REQUIRED TO GIVE AN OPPORTUNITY OF BEING HEARD TO T HE ASSESSEE. IF AFTER HEARING THE ASSESSEE IN PURSUANCE OF THE N OTICE ISSUED BY HIM UNDER SECTION 263(1) OF THE ACT HE IS NOT S ATISFIED HE MAY PASS THE NECESSARY ORDERS. OF COURSE THE ORDER THUS PASSED WILL CONTAIN THE GROUNDS FOR HOLDING THE ORD ER OF THE ITO TO BE ERRONEOUS AS CONTEMPLATED UNDER SECTION 263(1) OF THE ACT. . . . THE TRIBUNAL CANNOT UPHOLD THE ORDER OF THE COMMISSIONER ON ANY OTHER GROUND WHICH IN ITS OPIN ION WAS AVAILABLE TO THE COMMISSIONER AS WELL. IF THE TRIBU NAL IS ALLOWED TO FIND OUT THE GROUND AVAILABLE TO THE COM MISSIONER TO PASS AN ORDER UNDER SECTION 263(1) OF THE ACT T HEN IT WILL AMOUNT TO A SHARING OF THE EXCLUSIVE JURISDICTION V ESTED IN THE COMMISSIONER WHICH IS NOT WARRANTED UNDER THE ACT. IT IS ALL THE MORE SO BECAUSE THE REVENUE HAS NOT BEEN GIVEN ANY RIGHT OF APPEAL UNDER THE ACT AGAINST AN ORDER OF THE COM MISSIONER UNDER SECTION 263(1) OF THE ACT. . . . UNDER SECTIO N 263 OF THE ACT IT IS ONLY THE COMMISSIONER WHO HAS BEEN AUTHOR IZED TO PROCEED IN THE MATTER AND THEREFORE IT IS HIS SAT ISFACTION I.T.A NO.3076/ MUM/2010 SYNERGY ENTERPRENEUR SOLUTIONS P.LTD 7 ACCORDING TO WHICH HE MAY PASS NECESSARY ORDERS THE REUNDER IN ACCORDANCE WITH LAW. IF THE GROUNDS WHICH WERE A VAILABLE TO HIM AT THE TIME OF THE PASSING OF THE ORDER DO NOT FIND A MENTION IN HIS ORDER APPEALED AGAINST THEN IT WILL BE DEEMED THAT HE REJECTED THOSE GROUNDS FOR THE PURPOSE OF A NY ACTION UNDER SECTION 263(1) OF THE ACT. IN THIS SITUATION THE TRIBUNAL WHILE HEARING AN APPEAL FILED BY THE ASSESSEE CANN OT SUBSTITUTE THE GROUNDS WHICH THE COMMISSIONER HIMSE LF DID NOT THINK PROPER TO FORM THE BASIS OF HIS ORDER. WE RESPECTFULLY UNDERSTAND THIS JUDGMENT AS HOLDING BY NECESSARY IMPLICATION THAT IF THE CIT HAS NOT MENTIONED THE GROUND ON WHICH ACTION IS PROPOSED TO BE TAKEN UNDER SECTION 263 IN THE SHOW-CAUSE NOTICE IT IS DEEMED THAT HE WAS NOT SATISFIED THAT IT WAS A FIT GROUND FOR TAKING ACTION UNDER THE SECTION WITH THE RESUL T THAT THE FINAL ORDER IF BASED ON THE GROUND WHICH HE HAD EARLIER CONSIDERED NOT FIT FOR TAKING ACTION UNDER THE SECTION WILL HAVE TO B E SET ASIDE AS NOT BASED ON ANY GROUND WHICH MAY JUSTIFY HIS BELIEF TH AT THE ORDER PASSED BY THE ASSESSING OFFICER WAS ERRONEOUS INSOF AR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. . 6. IN ANY CASE EVEN ON MERITS THE STAND OF THE AS SESSEE CANNOT BE FAULTED AND IS AS LEARNED REPRESENTATIVES FAIRLY AGREE COVERED IN FAVOUR OF THE ASSESSEE BY HONBLE JURISDICTIONAL HIGH COUR TS JUDGMENT IN THE CASE OF CIT VS LOKMAT NEWSPAPERS PVT LTD (322 ITR 43) W HEREIN IT IS HELD THAT IRRESPECTIVE OF WHETHER OR NOT THE PROFITS ON SALE OF SHARES AROSE FROM DELIVERY BASED TRADING OR NON DELIVERY BASED TRADIN G AS LONG AS ASSESSEE IS HIT BY EXPLANATION TO SECTION 73 THE ENTIRE PROFIT S WILL BE DEEMED TO BE SPECULATION PROFITS AND ACCORDINGLY LOSSES FROM N ON DELIVERY BASED ACTIVITY WILL ALSO BE ELIGIBLE FOR SET OFF AGAINST PROFITS FROM DELIVERY BASED TRANSACTIONS AS WELL. THEIR LORDSHIPS HAVE NOTED THE SUBMISSION OF THE REVENUE IS THAT A LOSS WHICH ARISES ON ACCOUNT OF A TRANSACTION OF THE SALE AND PURCHASE OF SHARES WOULD CONSTITUTE A LOSS FROM A SPECULATION BUSINESS FOR THE PURPOSES OF THE EXPLAN ATION. BUT THAT THE PROFIT WHICH ARISES FROM A TRANSACTION INVOLVIN G THE ACTUAL DELIVERY OF SHARES WOULD NOT CONSTITUTE A PROFIT FO R THE PURPOSES OF I.T.A NO.3076/ MUM/2010 SYNERGY ENTERPRENEUR SOLUTIONS P.LTD 8 SUB-SECTIONS (1) AND (2) OF SECTION 73 IN RESPECT O F WHICH A SET OFF CAN BE GRANTED WHICH PRECISELY WAS THE STAND OF THE COMMISSIONE R AT THE TIME OF INITIATION OF REVISION PROCEEDINGS IN C HALLENGE BEFORE US AS WELL. HOWEVER THIS STAND OF THE REVENUE HAS BEEN R EJECTED UNEQUIVOCALLY BY THEIR LORDSHIPS BY OBSERVING AS FOLLOWS : TO ACCEPT THE SUBMISSION OF THE REVENUE WOULD BE TO INTRODUCE A RESTRICTION INTO THE SCOPE AND AMBIT OF THE DEEMI NG FICTION WHICH IS CREATED BY THE EXPLANATION TO SECTION 73 WHICH IS NOT CONTEMPLATED BY PARLIAMENT. ONCE A DEEMING FICTION IS CREATED BY LAW IT MUST BE GIVEN FULL AND FREE EFFECT OF C OURSE IN RELATION TO THE AMBIT WITHIN WHICH IT IS INTENDED T O OPERATE. THE DEEMING FICTION CREATED BY THE EXPLANATION TO SECTION 73 DEFINES WHEN AN ASSESSEE IS TO BE DEEMED TO BE CARR YING ON A SPECULATION BUSINESS FOR THE PURPOSES OF THE SECTIO N. THE DEEMING FICTION IS THEREFORE ONE WHICH ARISES SPE CIFICALLY IN THE CONTEXT OF THE PROVISIONS OF SECTION 73 AND IS CONFINED TO THAT PURPOSE ALONE. THE EXPLANATION STIPULATES THAT WHERE AN ASSESSEE IS A COMPANY WHOSE BUSINESS CONSISTS IN AN Y PART OF THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES IT SHALL BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF PURCHASE AND SALE OF SUCH SHARES. WHETHER OR NOT IT IS A PROFIT OR LOSS THAT HAS RESULTED FROM CARRYING ON SUCH BUSINESS IS A CONSIDERATION WHICH IS ALIEN TO THE MEANING OF WHAT CONSTITUTES A SPECULAT ION BUSINESS BY THE EXPLANATION TO SECTION 73. ONCE AN ASSESSEE IS DEEMED TO BE CARRYING ON A SPECULATION BUSINESS FOR THE PURPO SE OF SECTION 73 ANY LOSS COMPUTED IN RESPECT OF THAT SP ECULATION BUSINESS CAN BE SET OFF ONLY AGAINST THE PROFITS A ND GAINS OF AN OTHER SPECULATION BUSINESS. SIMILARLY FOR THE PURP OSES OF SUB- SECTION (2) THE LOSS IN RESPECT OF A SPECULATION B USINESS WHICH HAS NOT BEEN SET OFF EITHER IN WHOLE OR IN PART CA N BE CARRIED FORWARD AND CAN BE SET OFF AGAINST PROFITS AND GAIN S OF ANY SPECULATION BUSINESS. THE EXPRESSION ANY SPECULAT ION BUSINESS MEANS A SPECULATION BUSINESS OF THE ASSES SEE IN RESPECT OF WHICH PROFITS AND GAINS FOR THE ASSESSME NT YEAR IN QUESTION HAVE ARISEN AND THERE IS NO JUSTIFICATION TO RESTRICT THE CONTENT OF THAT SPECULATION BUSINESS WHERE PROF ITS HAVE ARISEN BY EXCLUDING A BUSINESS INVOLVING ACTUAL DEL IVERY OF I.T.A NO.3076/ MUM/2010 SYNERGY ENTERPRENEUR SOLUTIONS P.LTD 9 SHARES. NO SUCH RESTRICTION IS FOUND IN THE EXPLANATION . TO IMPOSE ONE IS A LEGISLATIVE FUNCTION. IN OTHER WORD S ONCE THE ASSESSEE IS CARRYING ON A SPECULATION BUSINESS AND THE PROFITS AND GAINS HAVE ARISEN FROM THAT BUSINESS DURING THE COURSE OF THE ASSESSMENT YEAR THE ASSESSEE IS ENTITLED TO SE T OFF THE LOSSES CARRIED FORWARD FROM A SPECULATION BUSINESS ARISING OUT OF A PREVIOUS ASSESSMENT YEAR. 7. IN THIS VIEW OF THE MATTER IT IS WHOLLY IMMATER IAL WHETHER OR NOT THE LOSSES FROM NON DELIVERY BASED TRANSACTIONS I. E. IN TRADING IN FUTURES ARE SPECULATION LOSSES OR NOT. THE PROFITS OF THE A SSESSEE BEING FROM SHARE TRADING TRANSACTIONS WHICH AS LEARNED DEPARTMENTAL REPRESENTATIVE FAIRLY AGREES AND IS THE UNDISPUTED POSITION ARE HIT BY T HE PROVISIONS OF EXPLANATION TO SECTION 73 AND THESE PROFITS CAN THU S ONLY BE TREATED AS SPECULATION PROFITS AND AS SPECULATION LOSSES OF T RADING IN FUTURES CAN THUS BE OFFSET AGAINST SPECULATION PROFITS THERE IS NO ERROR IN THE SPECULATION LOSSES EVEN IF THAT BE SO BEING SET OFF AGAINST P ROFITS OF SPECULATION BUSINESS. AS HONBLE JURISDICTIONAL HIGH COURT HAS CATEGORICALLY OBSERVED REVENUE AUTHORITIES CAN NOT BE ALLOWED TO TAKE A ST AND THAT WHILE LOSSES OF THE SPECULATION BUSINESS UNDER EXPLANATION TO SECT ION 73 ARE REQUIRED TO BE TREATED AS SPECULATION LOSSES INELIGIBLE FOR BEI NG SET OFF AGAINST NORMAL PROFITS THE PROFITS OF SPECULATION BUSINESS CANNOT BE ADJUSTED AGAINST ANY OTHER SPECULATION LOSSES. 8. THE LINE OF DEMARCATION THUS IMPLIED CANVASSED B Y THE REVENUE AGAINST NON DELIVERY BASED SPECULATION LOSSES AND L OSSES IN THE SPECULATION BUSINESS UNDER DEEMING FICTION OF EXPLANATION TO SE CTION 73 IS DEVOID OF LEGALLY SUSTAINABLE MERITS. THERE IS NO INFIRMITY I N THE LOSSES IN NON DELIVERY BASED TRANSACTIONS BEING SET OFF AGAINST P ROFITS OF SPECULATION BUSINESS UNDER THE DEEMING FICTION OF EXPLANATION T O SECTION 73 OF THE ACT. IN THIS VIEW OF THE MATTER THE COURSE OF SUGGESTIO N SUGGESTED BY THE LEARNED COMMISSIONER IS UNSUSTAINABLE IN LAW. I.T.A NO.3076/ MUM/2010 SYNERGY ENTERPRENEUR SOLUTIONS P.LTD 10 9. WE MAY ALSO MENTION THAT THE ASSESSEE HAS ALSO TAKEN A STAND BEFORE THE COMMISSIONER THAT THE FUTURES TRANSACTIO NS ARE IN THE NATURE OF HEDGING TRANSACTIONS AND THUS OUTSIDE THE AMBIT OF SPECULATIVE TRANSACTIONS UNDER SECTION 43(5) OF THE ACT. HOWE VER GIVEN THE ABOVE FINDINGS THAT THE PROFITS FROM TRADING IN SHARES WE RE IN THE NATURE OF SPECULATION PROFITS IN OUR CONSIDERED VIEW IT IS NOT REALLY NECESSARY TO DEAL WITH THIS ASPECT OF THE MATTER. 10. FOR THE REASONS SET OUT ABOVE WE QUASH THE IMP UGNED REVISION ORDER AS DEVOID OF JURISDICTION AND AS UNSUSTAINABL E ON MERITS. 11. IN THE RESULT THE APPEAL IS ALLOWED. PRONOUNCE D IN THE OPEN COURT TODAY ON 31 ST DAY OF MARCH 2011. SD/- SD/- (D K AGARWAL ) (PRAMOD KUMAR) JUDICIAL MEMBER ACCO UNTANT MEMBER MUMBAI; 31 ST DAY OF MARCH 2011 . BKP COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER-7 MUMBAI 4. DEPARTMENTAL REPRESENTATIVE J BENCH MUMBAI 6. GUARD FILE TRUE COPY BY ORDER ETC. ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES MUMBAI