Krishnalaxmi Multi Trade Pvt. Ltd.,, Ahmedabad v. The ACIT., Cent.Circle-2(1),, Ahmedabad

ITA 3877/AHD/2004 | 2001-2002
Pronouncement Date: 28-01-2011 | Result: Partly Allowed

Appeal Details

RSA Number 387720514 RSA 2004
Bench Ahmedabad
Appeal Number ITA 3877/AHD/2004
Duration Of Justice 6 year(s) 30 day(s)
Appellant Krishnalaxmi Multi Trade Pvt. Ltd.,, Ahmedabad
Respondent The ACIT., Cent.Circle-2(1),, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 28-01-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 28-01-2011
Date Of Final Hearing 22-12-2010
Next Hearing Date 22-12-2010
Assessment Year 2001-2002
Appeal Filed On 29-12-2004
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD C BENCH (BEFORE S/SHRI G.D. AGARWAL VICE-PRESIDENT AND MUKUL KUMAR SHRAWAT JUDICIAL MEMBER) ITA.NO.3877/AHD/2004 [ASSTT. YEAR : 2001-2002] KRISHNALAXMI MULTI TRADE P. LTD. PARAG NR.MITHAKHALI SIX ROAD ELLISBRIDGE AHMEDABAD. VS. ACIT CENT.CIR.2(1) AHMEDABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S.N.SOPARKAR REVENUE BY : MRS.SHALINI VERMA O R D E R G.D. AGARWAL VICE-PRESIDENT : THIS IS ASSESSEES APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-I II SURAT DATED 8.9.2004 ARISING OUT OF THE ORDER OF THE ASSESSING OFFICER P ASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961. 2. THE GROUND NO.1 OF THE ASSESSEE WHICH READS AS UNDER: 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF THE AO IN FRAMING THE ASSESSMENT ORDER WI THOUT ISSUING ANY SHOW CAUSE NOTICE AND WITHOUT AFFORDING ANY OPP ORTUNITY OF HEARING TO THE APPELLANT AND THEREFORE LD. CIT(A) O UGHT TO HAVE HELD THAT THE IMPUGNED ASSESSMENT ORDER WAS FRAMED IN CL EAR BREACH OF PRINCIPALS OF NATURAL JUSTICE AND THUS THE SAME OUG HT TO HAVE BEEN QUASHED. THIS GROUND WAS NOT PRESSED BY THE LEARNED COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING. ACCORDINGLY THE SAME IS REJECTED. 3. THE GROUND NO.2 OF THE ASSESSEES APPEAL READS A S UNDER: 2. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF THE AO IN TREATING BUSINESS LOSS ON SHARE S AMOUNTING TO ITA.NO.3877/AHD/2004 -2- RS.37 96 726/- AS SPECULATION LOSS WITHOUT ASSIGNIN G ANY REASONS AND GROUNDS. 4. AT THE TIME OF HEARING BEFORE US IT IS STATED B Y THE LEARNED COUNSEL THAT THE EXPLANATION TO SECTION 73 IS APPLICABLE ONLY IN RESPECT OF LOS S FROM PURCHASE AND SALE OF SHARES. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE SUFFERED LOSS FROM THE PURCHASE AND SALES OF SHARES AMOUNTING TO RS.9 68 183/- WHICH WAS DISALLOWED BY THE ASSESSEE AS A SPECULATI ON LOSS. HOWEVER FURTHER LOSS OF RS.37 96 7826/- WAS INCURRED BY THE ASSESSE E DUE TO VALUATION OF CLOSING STOCK. THAT THE LOSS FROM THE VALUATION OF CLOSING STOCK CANNOT BE CONSIDERED AND EQUATED WITH THE LOSS FROM THE PURCHASE AND SAL ES OF SHARES AND THEREFORE THE SAME WOULD BE OUT OF THE PURVIEW OF THE EXPLANATION TO SECTION 73. THAT THE EXPLANATION TO SECTION 73 IS DEEMING PROVISION AND IT IS TO BE STRICTLY INTERPRETED. HE THEREFORE SUBMITTED THAT THE LOSS ARISING FROM THE VALUATION OF THE CLOSING STOCK SHOULD NOT BE DISALLOWED AS PER T HE EXPLANATION TO SECTION 73. IN SUPPORT OF THIS CONTENTION HE RELIED UPON THE F OLLOWING DECISIONS: I) PIONEER EQUITY TRADE P. LTD. VS. ITO 108 TTJ 838 ( BOM); II) DCIT VS. MODELLA WOOLENS LTD. 101 TTJ 1109 (BOM) 5. THE LEARNED DR ON THE OTHER HAND STATED THAT T HE EXPLANATION TO SECTION 73 WOULD BE APPLICABLE TO THE LOSS FROM THE BUSINESS OF PURCHASE AND SALE OF SHARES. ONCE THERE IS A LOSS IN THAT BUSIN ESS THE ENTIRE LOSS WOULD BE DISALLOWED AND THERE IS NO QUESTION OF BIFURCATING THE LOSS UNDER TWO DIFFERENT CATEGORIES AS DONE BY THE ASSESSEE. THERE IS ONE B USINESS OF PURCHASE AND SALE OF SHARES AND ANY LOSS ARISING FROM SUCH BUSINESS I S TO BE DISALLOWED AS PER THE EXPLANATION TO SECTION 73. IN SUPPORT OF THIS CONTENTION SHE RELIED UPON THE DECISION OF ITAT DELHI BENCH IN THE CASE OF ITO VS . BIG APPLE CLOTHING P. LTD. (2010) 5 ITR (TRIB) 44 (DELHI) AND THE HONBL E CALCUTTA HIGH COURT IN THE CASE OF EASTERN AVIATION AND INDUSTRIES LTD. VS COMMISSIONER OF INCOME- TAX (CAL) 208 ITR 1023. ITA.NO.3877/AHD/2004 -3- 6. WE HAVE CAREFULLY CONSIDERED ARGUMENTS OF BOTH T HE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. SECTION 73 OF THE I NCOME TAX ACT DEALS WITH THE LOSS IN SPECULATION BUSINESS. THE SECTION READS AS UNDER: 73. LOSSES IN SPECULATION BUSINESS.--(1) ANY LOSS COMPUTED IN RESPECT OF A SPECULATION BUSINESS CARRIED ON BY THE ASSESSE E SHALL NOT BE SET OFF EXCEPT AGAINST PROFITS AND GAINS IF ANY OF ANOTHE R SPECULATION BUSINESS. (2) WHERE FOR ANY ASSESSMENT YEAR ANY LOSS COMPUTED IN RESPECT OF A SPECULATION BUSINESS HAS NOT BEEN WHOLLY SET OFF UN DER SUB-SECTION (1) SO MUCH OF THE LOSS AS IS NOT SO SET OFF OR THE WHO LE LOSS WHERE THE ASSESSEE HAD NO INCOME FROM ANY OTHER SPECULATION B USINESS SHALL SUBJECT TO THE OTHER PROVISIONS OF THIS CHAPTER BE CARRIED FORWARD TO THE FOLLOWING ASSESSMENT YEAR AND-- (I) IT SHALL BE SET OFF AGAINST THE PROFITS AND GA INS IF ANY OF ANY SPECULATION BUSINESS CARRIED ON BY HIM ASSESSABLE F OR THAT ASSESSMENT YEAR; AND (II) IF THE LOSS CANNOT BE WHOLLY SO SET OFF THE AMOUNT OF LOSS NOT SO SET OFF SHALL BE CARRIED FORWARD TO THE FOLLOWIN G ASSESSMENT YEAR AND SO ON. (3) IN RESPECT OF ALLOWANCE ON ACCOUNT OF DEPRECIAT ION OR CAPITAL EXPENDITURE ON SCIENTIFIC RESEARCH THE PROVISIONS OF SUB-SECTION (2) OF SECTION 72 SHALL APPLY IN RELATION TO SPECULATION B USINESS AS THEY APPLY IN RELATION TO ANY OTHER BUSINESS. (4) NO LOSS SHALL BE CARRIED FORWARD UNDER THIS SEC TION FOR MORE THAN *FOUR ASSESSMENT YEARS IMMEDIATELY SUCCEEDING THE A SSESSMENT YEAR FOR WHICH THE LOSS WAS FIRST COMPUTED. EXPLANATION .--WHERE ANY PART OF THE BUSINESS OF A COMPANY OTHE R THAN A COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHAREGEABLE UNDER THE HEADS 'INTEREST ON SECURITIES ' 'INCOME FROM HOUSE PROPERTY' 'CAPITAL GAINS' AND 'INCOME FROM O THER SOURCES' OR A COMPANY THE PRINCIPAL BUSINESS OF WHICH IS THE BUSI NESS OF BANKING OR THE GRANTING OF LOANS AND ADVANCES CONSISTS IN THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES SUCH COMPANY SHALL FOR THE PURPOSES OF THIS SECTION BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF THE PURCHASE AND SALE OF SUCH SHARES. ITA.NO.3877/AHD/2004 -4- AS PER SUB-SECTION 1 OF SECTION 73 ANY LOSS COMPUTE D IN RESPECT OF SPECULATION BUSINESS CARRIED ON BY THE ASSESSEE SHALL NOT BE SE T OFF EXCEPT AGAINST THE PROFIT AND GAIN OF THE SPECULATION BUSINESS. EXPLANATION TO SECTION 73 IS A DEEMING PROVISION WHICH WOULD BE APPLICABLE IF THE FOLLOWI NG CONDITIONS ARE SATISFIED; I) THE ASSESSEE IS A COMPANY II) PART OF THE BUSINESS OF THE ASSESSEE IS CONSISTING OF PURCHASE AND SALE OF SHARES OF OTHER COMPANY; IF THE ABOVE TWO CONDITIONS ARE SATISFIED THEN THE ASSESSEE SHALL BE DEEMED TO BE CARRYING ON THE SPECULATION BUSINESS TO THE EXTE NT SUCH BUSINESS IS CONSISTED OF PURCHASE AND SALE OF SHARES. THERE ARE SOME EXC EPTIONS ALSO UNDER WHICH THIS EXPLANATION WOULD NOT BE APPLICABLE. HOWEVER IT IS NOT THE CL AIM OF THE ASSESSEE THAT ITS CASE FALLS UNDER ANY OF SUCH EXCE PTIONS THEREFORE THOSE EXCEPTIONS DO NOT REQUIRE TO BE DEALT WITH IN THIS APPEAL. NOW ADMITTEDLY THE ASSESSEE IS A COMPANY AND PART OF ITS BUSINESS IS C ONSISTING OF PURCHASE AND SALE OF SHARES OF OTHER COMPANY. THE ASSESSEE SUFFERED LOSS IN SUCH BUSINESS THEREFORE THE EXPLANATION TO SECTION 73 WOULD BE APPLICABLE. THE ONLY DISPUT E IS HOW TO COMPUTE THE PROFIT OF SUCH SPECULATION BU SINESS. IT IS CONTENDED BY THE LEARNED COUNSEL THAT THE LOSS FROM THE PURCHASE AND SALE OF THE SHARES IS TO BE SEPARATELY CONSIDERED AND LOSS ON ACCOUNT OF VAL UATION OF CLOSING STOCK OF THE SHARES IS TO BE SEPARATELY CONSIDERED. WE ARE UNABLE TO ACCEPT THE ABOVE CONTENTIONS OF THE LEARNED COUNSEL. IF THE CONTENT ION OF THE LEARNED COUNSEL IS ACCEPTED IT WOULD AMOUNT TO HOLDING THAT THERE ARE TWO SOURCES OF INCOME ONE IS THE TRADING BUSINESS OF PURCHASE AND SALES O F SHARES AND OTHER VALUATION OF THE CLOSING STOCK. IT IS SETTLED POSITION OF LA W THAT THE VALUATION OF THE CLOSING STOCK IS NOT A SEPARATE SOURCE OF INCOME. THE TRUE PURPOSE OF VALUING AND CREDITING THE CLOSING STOCK IN THE TRADING ACCO UNT IS TO BALANCE THE COST OF THE GOODS ENTERED IN OTHER SIDE OF THE ACCOUNT AT T HE TIME OF PURCHASE SO AS TO CANCEL OUT THE ENTRIES RELATING TO SAME STOCK FROM BOTH THE SIDES OF THE ACCOUNT. THERE ARE VARIOUS METHODS FOR VALUATION OF CLOSING STOCK. APART FROM COST THE ITA.NO.3877/AHD/2004 -5- ASSESSEE CAN VALUE THE CLOSING STOCK AT MARKET VALU E OR COST OR MARKET VALUE WHICHEVER IS LOWER. BUT MERELY BECAUSE THE ASSESS EE HAD VALUED THE STOCK AT MARKET VALUE WHICH IS LOWER THAN THE COST IT CANN OT BE SAID THAT THE LOSS HAS ARISEN FROM THE VALUATION OF THE CLOSING STOCK. TH E LOSS IS FROM THE TRADING BUSINESS OF PURCHASE AND SALE OF SHARES AND THE VAL UATION OF THE CLOSING STOCK AT LESS THAN THE COST IS THE ACCOUNTING FOR THE ANTICI PATED LOSS FROM THE BUSINESS OF PURCHASE AND SALE OF SHARES. THEREFORE THE CONTE NTION OF THE LEARNED COUNSEL THAT THE LOSS FROM THE PURCHASE AND SALE OF SHARES AND LOSS FROM THE VALUATION OF THE CLOSING STOCK IS TO BE TREATED SEPARATELY CANNO T BE ACCEPTED. THERE IS ONLY ONE TRADING ACCOUNT IN RESPECT OF THE BUSINESS OF P URCHASE AND SALE OF SHARES. IN SUCH TRADING ACCOUNT PROFIT/ LOSS IS TO BE WORKE D OUT OF COURSE AFTER TAKING THE VALUE OF THE STOCK AS PER THE METHOD OF ACCOUNT ING FOR VALUATION OF THE CLOSING STOCK BEING REGULARLY FOLLOWED BY THE ASSES SEE. AFTER SUCH VALUATION OF CLOSING STOCK WHATEVER PROFIT OR LOSS ARISES IT W OULD BE PROFIT/LOSS FROM THE BUSINESS OF PURCHASE AND SALES OF THE SHARES. THER E CANNOT BE ANY ARTIFICIAL DIVISION OF SUCH LOSS BETWEEN THE LOSS FROM TRADING IN SHARES AND LOSS FROM VALUATION OF CLOSING STOCK. WHILE TAKING THIS VIEW WE DERIVE SUPPORT FROM THE DECISION OF HONBLE APEX COURT IN THE CASE OF CHAIN RUP SAMPATRAM VS. CIT 24 ITR 481 (SC) WHEREIN THEIR LORDSHIPS HELD: IT IS A MISCONCEPTION TO THINK THAT ANY PROFIT 'AR ISES OUT OF THE VALUATION OF THE CLOSING STOCK' AND THE SITUS OF IT S ARISING OR ACCRUAL IS WHERE THE VALUATION IS MADE. VALUATION O F UNSOLD STOCK AT THE CLOSE OF AN ACCOUNTING PERIOD IS A NECESSARY PART OF THE PROCESS OF DETERMINING THE TRADING RESULTS OF THAT PERIOD AND CAN IN NO SENSE BE REGARDED AS THE 'SOURCE' OF SUCH PRO FITS. NOR CAN THE PLACE WHERE SUCH VALUATION IS MADE BE REGARDED AS THE SITUS OF THEIR ACCRUAL. THE SOURCE OF THE PROFITS AND GAI NS OF A BUSINESS IS INDUBITABLY THE BUSINESS AND THE PLACE OF THEIR ACCRUAL IS WHERE THE BUSINESS IS CARRIED ON. AS SUCH PROFITS C AN BE CORRECTLY ASCERTAINED ACCORDING TO THE METHOD ADOPTED BY AN A SSESSEE ONLY AFTER BRINGING INTO THE TRADING ACCOUNT HIS CLOSING STOCK WHEREVER IT MAY EXIST THE WHOLE OF THE PROFITS MUST BE TAKE N TO ACCRUE OR ARISE AT THE PLACE OF CARRYING ON THE BUSINESS. ITA.NO.3877/AHD/2004 -6- 7. THE LEARNED COUNSEL FOR THE ASSESSEE HAD RELIED UPON TWO DECISIONS OF THE ITAT MUMBAI BENCHES IN THE CASE OF POINEER EQU ITY TRADE PVT. LTD. (SUPRA) AND MODELLA WOOLENS LTD. (SUPRA). HOWEVER WE FIND THAT FACTS IN BOTH THE ABOVE CASES WERE DIFFERENT INASMUCH AS THERE WA S NO PURCHASE AND SALE OF SHARES DURING THE RELEVANT YEAR. SINCE THERE WAS N O PURCHASE AND SALE OF SHARES DURING THE YEAR UNDER APPEAL BEFORE THE ITAT THE I TAT HAS TAKEN THE VIEW THAT EXPLANATION TO SECTION 73 WAS NOT APPLICABLE. THE ITAT DELHI BENCHES IN THE CASE OF ITO VS. BIG APPLE CLOTHING PVT. LTD. (2010 ) 5 ITR (TRIB) 44 (DELHI) HAS TAKEN THE VIEW THAT THE EXPLANATION TO SECTION 73 WOULD BE APPLICABLE EVEN WHEN THE LOSS IS ARISING BECAUSE OF THE VALUATION O F SHARES. IN THE CASE UNDER APPEAL BEFORE US ADMITTEDLY THERE ARE LARGE NUMBE R OF TRANSACTIONS OF PURCHASE AND SALE OF SHARES DURING THE YEAR UNDER CONSIDERAT ION. THEREFORE THERE IS NO DISPUTE THAT EXPLANATION TO SECTION 73 IS APPLICABL E. ONLY QUESTION IN THIS APPEAL BEFORE US IS WITH REGARD TO DETERMINATION OF LOSS F ROM THE BUSINESS OF PURCHASE AND SALE OF SHARES. THUS THE FACTS IN THE CASE UN DER APPEAL BEFORE US ARE ALTOGETHER DIFFERENT THAN THE FACTS IN THE CASES RE LIED UPON BY THE LEARNED COUNSEL OF THE LEARNED DR. ONLY DISPUTE IN THIS AP PEAL BEFORE US IS WITH REGARD TO DETERMINATION OF LOSS FROM SHARE TRADING BUSINES S. FOR THE DETAILED DISCUSSION IN PARA NO.6 ABOVE WE HOLD THAT WHILE D ETERMINING LOSS FROM SHARE TRADING BUSINESS LOSS FROM VALUATION OF CLOSING ST OCK CANNOT BE EXCLUDED. VALUATION OF CLOSING STOCK IS INTEGRAL PART OF PREP ARATION OF TREADING ACCOUNT. IN VIEW OF THE ABOVE WE REJECT THE GROUND NO.2 OF THE ASSESSEES APPEAL. 8. THE GROUND NO.3 OF THE ASSESSEES APPEAL READS A S UNDER: 3. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF THE AO IN DISALLOWING INTEREST EXPENDITUR E AMOUNTING O RS.14 28 208/- ON THE GROUND OF SAME BEING NOT ATTR IBUTABLE TO THE BUSINESS INCOME. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE ENTIRE INTEREST EXPENDITURE OUGHT TO HAVE BEEN ALLO WED. 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US. WE FIND THAT THE ASSESSEE ITSELF WHILE COMPUTI NG THE INCOME HAS DISALLOWED ITA.NO.3877/AHD/2004 -7- THE SUM OF RS.14 LAKHS OUT OF THE INTEREST. THE AO HAS WORKED OUT DISALLOWANCE OF RS.14 28 000/-. IT IS STATED BY TH E LEARNED COUNSEL THAT THOUGH THE DIFFERENCE IN DISALLOWANCE IS NEGLIGIBLE HOWEV ER THE ASSESSEE IS PRESSING THE GROUND BECAUSE THE ASSESSEE IS WORKING OUT THE DISALLOWANCE IN THE SAME MANNER EVERY YEAR AND IT IS ALSO BEING ACCEPTED BY THE REVENUE. HE REFERRED TO THE CHART AT PAGE NO.106 AND POINTED OUT THAT THE A SSESSEE ITSELF HAS CONSIDERED THE ENTIRE INTEREST BEARING LOAN AND THEREFROM REDU CED ONLY THE LOAN WHICH IS UTILISED FOR EARNING INTEREST INCOME. THE BALANCE LOAN IS TREATED AS THE AMOUNT UTILISED FOR EARNING TAX FREE INCOME AND INTEREST I S DISALLOWED. THE WORKING GIVEN BY THE ASSESSEE READS AS UNDER: THE LOAN FUND (BEARING INTEREST) (RS.IN LACS) INTEREST PAID ON UNSECURED LOAN @ 15% RS.15 57 453/- 103.83 THE LOANS & ADVANCES (EARNING INTEREST) GTD 15% 71 919 4.79 BANK FDR 10% 57 574 5.76 1 29 493 10.55 THE LOAN FUND (BEARING INTEREST) 103.83 LESS: THE LOAN FUND (EARNING INTEREST) AMOUNT OF FUND UTILISED IN EARNING TAX FREE INCOME 10.55 93.28 THEREFORE INTEREST IS PROPOSED TO BE DISALLOWED ON RS.93.28 LACS AT THE RATE OF 15%. 10.55 93.28 NOTE: AS THERE IS NO POSSIBILITY OF ESTABLISHED NEXUS IN EMPLOYMENT OF FUND WHETHER INVESTMENT MADE IN TAX FREE INCOME OR TAXAB LE INCOME. THE WORKING OF DISALLOWABLE INTEREST MADE ON ABOVE FORM ULA WHICH IS ACCEPTED BY THE DEPARTMENT IN PAST YEARS IN THE ASS ESSMENT U/S.143(3). 10. AT THE TIME OF HEARING BEFORE US THE LEARNED D R COULD NOT POINT OUT ANY DISCREPANCY IN THE ABOVE WORKING. IT WAS ALSO POIN TED OUT BY THE LEARNED COUNSEL THAT ON RS.93.28 LAKHS THE INTEREST IS CALC ULATED AT THE RATE OF 15% THE ITA.NO.3877/AHD/2004 -8- DISALLOWANCE WORKED OUT TO RS.13 99 200/- AND THE A SSESSEE ITSELF ROUNDED OFF THE SAME TO RS.14 LAKHS AND DISALLOWED THE SUM OF R S.14 LAKHS OUT OF INTEREST. THE REVENUE HAS NOT POINTED OUT ANY DISCREPANCY IN THE ABOVE WORKING OF THE ASSESSEE. IN VIEW OF THE ABOVE WE DIRECT THE AO T O DISALLOW THE SUM OF RS.14 LAKHS OUT OF THE INTEREST AS AGAINST RS.14.28 LAKHS DISALLOWED BY HIM. THUS THE ASSESSEE GETS RELIEF OF RS.28 000/-. 11. THE GROUND NO.4 OF THE ASSESSEES APPEAL READS AS UNDER: 4. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF THE AO IN TREATING LONG TERM CAPITAL GAIN ON ALE OF SHARES AMOUNTING TO RS.6 89 218/- AS SPECULATION GAIN WITH OUT ASSIGNING ANY REASONS AND GROUNDS. THE LD.CIT(A) FURTHER ERRED I N LAW AND ON FACTS IN NOT ALLOWING THE BENEFIT OF INDEXATION WHILE CALCUL ATING THE GAIN AND TAXED THE SAME AT RS.8 51 824/- UNDER THE SPECULATI ON BUSINESS. 12. DURING THE YEAR UNDER CONSIDERATION THE AO TRE ATED LONG TERM CAPITAL GAIN OF RS.6 89 218/- AS SPECULATION GAIN. IT IS CONTENDED BY THE LEARNED COUNSEL THAT THE AO HAS APPLIED EXPLANATION TO SECTION 73 TO THE CAPITAL GAIN WHICH IS NOT JUSTIFIED BECAUSE THE EXPLANATION TO SECTION 73 WOULD BE APPLICABLE ONLY FOR LOSS AND NOT FOR GAIN AND MOREO VER WHEN THE ASSESSEE IS CARRYING ON BUSINESS OF PURCHASE AND SALE OF SHARES THEN ONLY THE EXPLANATION TO SECTION 73 WOULD BE APPLICABLE. THE LEARNED COU NSEL FOR THE ASSESSEE ALSO RELIED UPON THE DECISION OF THE ITAT AHMEDABAD BEN CHES IN THE CASE OF DCIT VS. PARAMOUNT LTD. ITA NO.1760/AHD/2007 DATED 23-4 -2010. THE LEARNED DR ON THE OTHER RELIED UPON THE ORDERS OF THE AUTH ORITIES. 13. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF B OTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. WHILE CONSI DERING THE GROUND NO.2 OF THE ASSESSEES APPEAL WE HAVE REFERRED TO SECTION 73 AS WELL AS EXPLANATION THERETO. SECTION 73 IS APPLICABLE IN RESPECT OF LO SS IN SPECULATION BUSINESS. AS PER EXPLANATION TO SECTION 73 WHERE ANY PART OF THE BUSINESS OF TH E ASSESSEE COMPANY IS CONSISTING OF PURCHASE AND SALE OF SHARE S OF OTHER COMPANY THEN THE EXPLANATION TO SECTION 73 WOULD BE APPLICABLE. IN THIS CASE A DMITTEDLY ITA.NO.3877/AHD/2004 -9- THESE SHARES WERE NOT PART OF THE BUSINESS OF PURCH ASE AND SALE OF SHARES BUT THESE SHARES WERE KEPT AS INVESTMENT AND BY SALE OF SUCH SHARES THE ASSESSEE REALISED THOSE INVESTMENT. THERE WAS SURPLUS FROM SALE OF SUCH SHARES WHICH WERE OFFERED FOR CAPITAL GAIN TAX. THE AO HAS ALSO NOT DISPUTED THAT THE SHARES WERE HELD AS INVESTMENT. BUT HE WAS OF THE OPINION THAT EVEN ON REALISATION OF THE INVESTMENT IN THE CASE OF A COMPANY IT WOULD BE A SPECULATION PROFIT. WE ARE UNABLE TO ACCEPT THIS VIEW OF THE AO. FOR APPL ICABILITY OF SECTION 73 TWO CONDITIONS MUST BE SATISFIED SIMULTANEOUSLY; (I) TH E ASSESSEE SHOULD BE A COMPANY AND (II) THERE SHOULD BE BUSINESS OF PURCHA SE AND SALE OF SHARES. IN THIS CASE THE ASSESSEE IS A COMPANY BUT IN RESPEC T OF SALE OF SHARES WHICH WERE HELD AS INVESTMENT IT CANNOT BE SAID THAT IT WAS PART OF THE BUSINESS OF PURCHASE AND SALE OF SHARES. IF THE SHARES WERE NO T HELD AS STOCK-IN-TRADE BUT HELD AS INVESTMENT THE SECOND CONDITION THAT IT SH OULD BE PART OF THE BUSINESS OF PURCHASE AND SALE OF SHARES IS NOT SATISFIED. THEREFORE IN OUR OPINION THE CAPITAL GAIN ARISING FROM THE SALE OF SHARES HELD A S INVESTMENT CANNOT BE HIT BY THE EXPLANATION TO SECTION 73. WE FIND THAT IDENTICAL VIEW IS TAKE N BY THE ITAT AHMEDABAD BENCH IN THE CASE OF M/S.PARAMOUNT LTD. (SUPRA). IN VIEW OF THE ABOVE WE ALLOW GROUND NO.4 OF THE ASSESSEE S APPEAL. 14. THE GROUND NO.5 OF THE ASSESSEES APPEAL READS AS UNDER: 5. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF THE AO IN TREATING BUSINESS EXPENDITURE O N ACCOUNT OF SHARE TRANSFER FEES AMOUNTING TO RS.31 088/- AS SPECULATI ON BUSINESS EXPENDITURE WITHOUT ASSIGNING ANY REASONS AND GROUN DS 15. AT THE TIME OF HEARING BEFORE US THE LEARNED C OUNSEL FOR THE ASSESSEE FAIRLY ADMITTEDLY THAT THESE EXPENDITURE WERE RELAT ING TO SHARE TRADING BUSINESS THEREFORE THE ABOVE EXPENDITURE WILL ONLY INCREASE THE SPECULATION LOSS. WE THEREFORE DIRECT THE AO TO INCREASE THE SPECULATION LOSS BY THE SUM OF RS.31 088/-. WITH THIS DIRECTION GROUND NO.5 OF T HE ASSESSEES APPEAL IS REJECTED. ITA.NO.3877/AHD/2004 -10- 16. THE GROUND NO.6 AND 7 WERE NOT PRESSED AT THE T IME OF HEARING HENCE DISMISSED. 17. GROUND NO.8 IS REGARDING CHARGING OF INTEREST U NDER SECTION 234A 234B AND 234C. THIS GROUND BEING CONSEQUENTIAL IN NATURE WE DIRECT THE AO TO RE-COMPUTE THE INTEREST AFTER DETERMINING THE IN COME AS PER THIS ORDER. 18. THE GROUND NO.9 IS AGAINST THE WITHDRAWAL OF IN TEREST UNDER SECTION 244A OF THE ACT. NO ARGUMENTS WERE ADVANCED WITH R EGARD TO THIS GROUND AT THE TIME OF HEARING. ACCORDINGLY THE SAME IS TREA TED AS NOT PRESSED. 19. IN THE RESULT THE ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 28 TH JANUARY 2011. SD/- SD/- (MUKUL KR. SHRAWAT) JUDICIAL MEMBER (G.D. AGARWAL) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 28-01-2011 COPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR ITAT. BY ORDER DR/AR ITAT AHMEDABAD