M/s. YATISH TRADING CO. P. LTD., MUMBAI v. ITO 1(3)(2), MUMBAI

ITA 7374/MUM/2005 | 2002-2003
Pronouncement Date: 28-09-2011 | Result: Partly Allowed

Appeal Details

RSA Number 737419914 RSA 2005
Assessee PAN AAACY0189P
Bench Mumbai
Appeal Number ITA 7374/MUM/2005
Duration Of Justice 5 year(s) 9 month(s) 12 day(s)
Appellant M/s. YATISH TRADING CO. P. LTD., MUMBAI
Respondent ITO 1(3)(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 28-09-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted H
Tribunal Order Date 28-09-2011
Date Of Final Hearing 22-09-2011
Next Hearing Date 22-09-2011
Assessment Year 2002-2003
Appeal Filed On 16-12-2005
Judgment Text
IN THE INCOME TAX APPELLATE TRIB UNAL MUMBAI BENCHES H MUMBAI BEFORE SHRI R.S.SYAL AM AND SHRI V.DURGA RAO JM ITA NO.7374/MUM/2005 : ASST.YEAR 2002-2003 M/S.YATISH TRADING CO. P.LTD. KASTURI BUILDING 171/172 J.TATA ROAD MUMBAI 400 020. PAN : AAACY0189P. VS. THE INCOME TAX OFFICER WARD 1(3)(2) MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.E.DASTUR RESPONDENT BY : SHRI GOLI SRINIWAS RAO (CIT-DR) DATE OF HEARING : 22.09.2011 DATE OF PRONOUNCEMENT :28.09.2011 O R D E R PER R.S.SYAL AM : THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON 20.09.2005 IN RELATION TO THE ASSESSMENT YEAR 2002-2003. 2. GROUND NOS. 1 TO 4 ARE AGAINST THE CONFIRMATION OF DISALLOWANCE U/S 14A OF THE ACT. BRIEFLY STATED THE FACTS OF THE ISSUE IN T HESE GROUNDS ARE THAT THE ASSESSEE EARNED CERTAIN DIVIDEND INCOME WHICH WAS EXEMPT. TH E ASSESSING OFFICER DISALLOWED PROPORTIONATE EXPENSES AMOUNTING TO RS.1 14 69 194 U/S 14A OF THE ACT. THE LEARNED CIT(A) ALLOWED PART RELIEF. THE AS SESSEE IS IN APPEAL AGAINST THE ADDITION SUSTAINED. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS NOTED THAT THE QUESTION OF MAKING DIS ALLOWANCE U/S 14A IS NO MORE RES INTEGRA IN VIEW OF THE JUDGMENT OF THE HONBLE BOMBAY HI GH COURT IN GODREJ & BOYCE LTD. MFG. CO. VS. DCIT [(2010) 328 ITR 81 (BO M)] HOLDING THAT THE PROVISIONS OF SECTION 14A ARE APPLICABLE IN CIRCUMS TANCES AS ARE PREVAILING PRESENTLY AND THE DISALLOWANCE HAS TO BE WORKED OUT BY THE AO ON SOME ITA NO.7374/MUM/2005 M/S.YATISH TRADING CO. P.LTD. 2 `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`CAPITAL GAINS AT RS.1.55 CRORE. THUS IT IS E VIDENT THAT THE MAIN INCOME OF THE ASSESSEE IS FROM THE BUSINESS OF PURCHASE AND SALE OF SHARES INCLUDING FROM CARRY FORWARD / BADLA TRANSACTION. THE A.O. RIGHTLY CATE GORIZED LOSS FROM CARRY FORWARD / BADLA TRANSACTIONS AT RS.5.30 CRORE AS SPECULATION LOSS WHICH ASPECT HAS NOT BEEN ASSAILED BY THE ASSESSEE. THE CONTROVERSY CENTERS A ROUND THE DETERMINATION OF THE INCOME FROM THE REGULAR SHARE BUSINESS. THE ASSESSE E IS CLAIMING IT ALSO TO BE SPECULATION PROFIT WHEREAS THE LD.CIT(A) HAS UPHEL D IT AS NON-SPECULATION OR ITA NO.7374/MUM/2005 M/S.YATISH TRADING CO. P.LTD. 4 REGULAR BUSINESS PROFIT. IT IS OBVIOUS THAT IF INC OME FROM REGULAR BUSINESS OF SHARES IS HELD AS SPECULATION INCOME IT SHALL QUALIFY FOR SET OFF AGAINST THE CURRENT YEARS AND BROUGHT FORWARD SPECULATION LOSS AND VICE VERSA. SO THE MOOT QUESTION IS TO DECIDE WHETHER THE INCOME FROM THE BUSINESS OF SHAR ES IS SPECULATION OR NON- SPECULATION. IT IS FOR THIS PURPOSE AND THE EXPLANATION COMES HANDY IN TAKING A DECISION IN THIS REGARD. THIS EXPLANATION CLEARLY PROVIDES THAT THE BUSINESS OF A COMPANY (NOT COVERED IN EXCEPTIONS) IN THE PURCHAS E AND SALE OF SHARES SHALL BE DEEMED TO BE A SPECULATION BUSINESS TO THAT EXTENT. THUS IF PART OF THE BUSINESS OF THE COMPANY COMPRISES OF DEALINGS IN PURCHASE AND SALE OF SHARES THAT PART SHALL BE SO CONSIDERED. IF HOWEVER THE ENTIRE BUSINESS OF THE COMPANY IS IN THE PURCHASE AND SALE OF SHARES THEN THE WHOLE OF THE BUSINESS SHALL BE DEEMED TO BE SPECULATION BUSINESS. NO EXCEPTION IS PROVIDED IN THE DEEMING PROVISION THAT IF THE BUSINESS OF THE ASSESSEE IS THAT OF DEALING IN SHARES IT WOULD FALL OUTSIDE THE AMBIT OF THIS EXPLANATION. THAT BE THE POSITION THERE REMAINS NO DIFFICULTY IN HOLDING THAT THE BUSINESS OF THE ASSESSEE COMPANY FROM THE PURCHASE AND SALE OF SHARES CONSTITUTED THE SPECULATION BUSINESS AND THE RESULTANT INCOME S HALL ALSO BE SPECULATION INCOME. ONCE IT IS HELD THAT THE INCOME FROM REGULAR PURCHA SE AND SALE OF SHARES BUSINESS IS ALSO SPECULATION INCOME THE LOSS INCURRED BY THE A SSESSEE IN RESPECT OF CARRY FORWARD / BADLA TRANSACTIONS HELD BY THE A.O. HIMSE LF TO BE FROM SPECULATION HAS TO BE GIVEN SET OFF. 8. THE HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. LOKMAT NEWSPAPERS P. LTD. [(2010) 322 ITR 43 (BOM.)] HAS HELD THAT ONCE AN ASSESSEE IS DEEMED TO BE CARRYING ON A SPECULATION BUSINESS FOR THE PURPOSE OF SECTION 73 THE ASSESSEE IS ENTITLED TO SET OFF OF BROUGHT FORWARD SPECULATION BUSINESS LOSS AGAINST THE PROFIT ON DELIVERY BASED TRANSACTION OF SALE OF SHARES WHICH IS ALSO DEEMED TO BE PROFIT FROM SPECULATION BUSINESS. IN OUR CONSIDERED OPINION TH E RATIO DECIDENDI OF THIS JUDGMENT SQUARELY APPLIES TO THE FACTS OF THE INSTA NT CASE. OVERTURNING THE ITA NO.7374/MUM/2005 M/S.YATISH TRADING CO. P.LTD. 5 IMPUGNED ORDER ON THIS ISSUE WE UPHOLD THE VIEW PO INT OF THE ASSESSEE IN THIS REGARD. 9. IN THE RESULT THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF SEPTEMBER 2011. SD/- SD/- (V.DURGA RAO) (R.S.SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI : 28 TH SEPTEMBER 2011. DEVDAS* COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A) - XXI MUMBAI. 5. THE DR/ITAT MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI.