M/S. ITO 9(1)(4), MUMBAI v. THE GREAT FINTRADE P.LTD, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G MUMBAI BEFORE SHRI PRAMOD KUMAR A.M. AND SHRI V. DURGA RA O J.M. ITA NO. 5582/MUM/2008 ASSESSMENT YEARS: 2004-05 INCOME TAX OFFICER APPELLANT 9(1)(4) ROOM NO. 224 AAYAKAR BHAVAN MUMBAI 400 020 VS. M/S GREAT FINTRADE PVT. LTD. RESPONDENT C-2/1C TERRACE VIEW LIC COLONY BORIVALI (W) MUMBAI. (PAN AABCG3183A) APPELLANT BY : MR. A.K. NAIK RESPONDENT BY : MR. SANJAY JAIN ORDER PER V. DURGA RAO J.M.: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF CIT(A)-IX MUMBAI FOR THE ASSESSMENT YEAR 2004-05. 2. THE GROUND RAISED BY THE REVENUE IS AGAINST THE ACTION OF THE CIT(A) IN ALLOWING THE ASSESSEES CLAIM OF CARRY FO RWARD AND SET OFF OF SPECULATIVE LOSS OF RS. 19 22 661/-. 3. FACTS ARE IN BRIEF THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF TRADING IN SHARES. THE ASSESSEE HAS FIL ED RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION DECLARING INCOME A T NIL. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO HAD OBSERVE D THAT ON PERUSAL OF THE STATEMENT OF INCOME IT IS SEEN THAT THE ASSESSEE HAD ITA NO. 5582/MUM/2008 GREAT FINTRADE PVT. LTD. 2 CLAIMED SET OFF OF BROUGHT FORWARD LOSSES OF RS. 19 89 099/- OF AY 2001-02. THE AO FURTHER OBSERVED THAT THE SHARE TRA DING TRANSACTIONS CARRIED OUT BY THE ASSESSEE DURING THE PREVIOUS YEA R UNDER CONSIDERATION ON DELIVERY BASED THUS THEY ARE BEY OND PURVIEW OF THE SECTION 43(5) OF THE ACT. ACCORDING TO THE AO THE TRANSACTIONS ARE NOT SPECULATIVE IN NATURE AND THE PROFIT EARNED ALSO WA S NOT SPECULATIVE BUSINESS AND THEREFORE EXPLANATION TO SECTION 73 IS NOT APPLICABLE. HENCE INCOME EARNED DURING THE YEAR UNDER CONSIDER ATION IS NON- SPECULATIVE BUSINESS INCOME. SINCE THE INCOME EARNE D IN THIS YEAR IS OF NON-SPECULATIVE NATURE BROUGHT FORWARD SPECULAT IVE LOSS OF AY 2001-02 CANNOT BE ALLOWED TO SET OFF AGAINST THE IN COME OF THIS YEAR AND DENIED THE CLAIM OF THE ASSESSEE. 4. AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE C ARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). 5. THE LEARNED CIT(A) HELD THAT THE AO IN THE IMMED IATE EARLIER YEAR HAD HELD THAT THE SALE AND PURCHASE OF SHARES/ SECURITIES AS SPECULATIVE TRANSACTION WHEREAS IN THE YEAR UNDER C ONSIDERATION THE SAME TRANSACTIONS HAVE BEEN TREATED AS NON-SPECULAT IVE TRANSACTIONS. SINCE THERE IS NO CHANGE IN BUSINESS ACTIVITIES OF THE ASSESSEE AND THE NATURE OF TRANSACTIONS REMAIN THE SAME THEREFORE EXPLANATION TO SECTION 73 OF THE ACT IS APPLICABLE TO THE YEAR UND ER CONSIDERATION AND DIRECTED THE AO TO ALLOW THE CLAIM OF SETTING OFF O F SPECULATIVE LOSS OF THE EARLIER YEAR AGAINST THE INCOME OF THE YEAR UND ER CONSIDERATION. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVENUE C ARRIED THE MATTER IN APPEAL BEFORE THE ITAT. 6. THE LEARNED DR HAS SUBMITTED THAT IN THE YEAR UN DER CONSIDERATION THERE IS NO SPECULATIVE PROFIT AND T HEREFORE SPECULATIVE LOSS CANNOT BE ALLOWED TO SET OFF AGAINST THE TRADI NG PROFIT AND EXPLANATION TO SECTION 73 IS NOT APPLICABLE AND HE STRONGLY SUPPORTED THE ORDER PASSED BY THE AO. ITA NO. 5582/MUM/2008 GREAT FINTRADE PVT. LTD. 3 7. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE A SSESSEE HAS SUBMITTED THAT THE BUSINESS TRANSACTIONS OF THE ASS ESSE IN THE EARLIER 2001-02 AND IN THE YEAR UNDER CONSIDERATION IS ALSO SAME THEREFORE APPLICATION OF EXPLANATION TO SECTION 73 IS APPLICA BLE TO THE CASE OF THE ASESSSEE. THE LEARNED COUNSEL HAS STRONGLY SUPP ORTED THE ORDER OF THE CIT(A) IN SUPPORT OF ASSESSEES CASE. HE RELIED ON THE DECISION OF BOMBAY HIGH COURT IN CASE OF CIT VS. LOKMAT NEWSPAP ERS PVT. LTD. [2010] 189 TAXMAN 370 (BOM.) 8. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE ORDE RS OF THE AUTHORITIES BELOW. THE ISSUE INVOLVED IN THIS APPEA L PERTAINS TO WHETHER BROUGHT FORWARD LOSSES OF EARLIER YEAR CAN BE SET OFF AGAINST THE INCOME OF THE YEAR UNDER CONSIDERATION. IN THE ASSESSMENT ORDER THE AO GAVE A FINDING THAT THE INCOME EARNED IN THI S YEAR IS NON- SPECULATIVE NATURE THEREFORE BROUGHT FORWARD SPEC ULATIVE LOSS OF EARLIER CANNOT BE ALLOWED IN THE YEAR UNDER CONSIDE RATION. THE LEARNED CIT(A) HAS OBSERVED THAT THE AO IN THE IMMEDIATE PR ECEDING YEAR HAS BEEN HELD THAT THE SALE AND PURCHASE OF SHARES/SECU RITIES AS SPECULATIVE TRANSACTION WHEREAS IN THE YEAR UNDER C ONSIDERATION THE SAME TRANSACTIONS HAVE BEEN TREATED AS NON-SPECULAT IVE TRANSACTIONS. THEREFORE THE CIT(A) HELD THAT SINCE THERE IS NO C HANGE IN THE BUSINESS ACTIVITY AND THE NATURE OF TRANSACTIONS A RE REMAIN THE SAME IN THE YEAR UNDER CONSIDERATION AS THAT OF EARLIER YEAR EXPLANATION TO SECTION 73 OF THE ACT IS APPLICABLE IN THE YEAR UND ER CONSIDERATION AND DIRECTED THE AO TO ALLOW THE CLAIM OF THE ASESSEE. WE FIND FROM THE ORDER OF AO THAT THE AO HAS NOT ALLOWED THE SET OF F OF BROUGHT FORWARD LOSSES AGAINST THE INCOME IN THE YEAR UNDER CONSIDERATION ON THE GROUND THAT THE ASSESSEE MADE A PROFIT IN THE Y EAR UNDER CONSIDERATION. IT IS NOT THE CASE OF THE AO THAT TH E BUSINESS/TRANSACTIONS OF THE ASSESSEE ARE DIFFERENT IN THE YEAR UNDER CONSIDERATION. THE HONBLE JURISDICTIONAL HIGH COUR T IN THE CASE OF CIT VS. LOKMAT NEWSPAPERS LTD. (SUPRA) HAS CONSIDER ED THE ITA NO. 5582/MUM/2008 GREAT FINTRADE PVT. LTD. 4 EXPLANATION TO SECTION 73 AND HELD THAT ONCE THE AS SESSEE IS CARRYING ON A SPECULATIVE BUSINESS AND THE PROFITS AND GAINS HAVE ARISEN FROM THAT BUSINESS DURING THE COURSE OF ASSESSMENT YEAR THE ASESSSEE IS ENTITLED TO SET OFF THE LOSSES CARRY FORWARD FROM A SPECULATIVE BUSINESS ARISING OUT OF A PREVIOUS ASSESSMENT YEAR. RESPECTF ULLY FOLLOWING THE AFORESAID JUDGMENT OF THE JURISDICTIONAL HIGH COURT WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE CIT(A) THEREF ORE THE APPEAL FILED BY THE REVENUE IS DISMISSED. 9. IN THE RESULT THE APPEAL OF THE REVENUE IS DISM ISSED. PRONOUNCED IN THE OPEN COURT ON THIS 25 TH DAY OF FEBRUARY 2011. SD/- SD/- (PRAMOD KUMAR) (V. DURG A RAO) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI DATED: 25 TH FEBRUARY 2011 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE G BENCH I.T .A.T. MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR I.T.A.T. MUMBAI. KV