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INCOME TAX APPELLATE TRIBUNAL, BOMBAY
A.K. Garodia, K.C. Singhal, JJ.
I.I.T. Investrust Ltd. -Appellant
Versus
Income-tax Officer, 4(1)(2) -Respondent
IT Appeal No. 3368 (Mum.) of 2005
Decided On : 18-10-2006

Advocates Appeared:
Nitesh S. Joshi,B.R. Kamat

ORDER

Per K.C. Singhal, Judicial Member. - The following grounds have been raised by the assessee in this appeal, which reads as under:

"1. The CIT(A) erred in treating the loss of Rs. 53,22,770 as a speculation loss as per Explanation to section 73.

2. The CIT(A) erred in upholding the attribution of the amount of Rs. 33,34,903 as proportionate disallowance of expenditure in respect of Share trading activities and therefore, increasing speculation loss."

2. Briefly stated the facts are these : The business of the assessee is that of a stock broker as well as dealing in shares. The Profit & Loss A/c. showed loss of Rs. 53,22,770 under the head "Trading in Securities". In the course of assessment proceedings, the assessee was asked to show cause as to how such loss should not be considered as speculative loss in terms of the provisions of Explanation to section 73 of the Income-tax Act, 1961 (‘Act’). In response to the same, the first contention of the assessee was that the nature of transactions in shares was not speculative in terms of section 43(5) of the Act which defines speculative transaction inasmuch as all the transactions were supported by the delivery. Secondly, it was contended that major loss was on account of diminution in the value of stock which could not be considered as speculative loss. The Assessing Officer rejected the first contention by holding that the case of assessee falls within the ambit of Explanation to section 73 which, by deeming fiction, considers the dealing in shares as speculative business unless the case of assessee falls within the exceptions provided therein. It was further held that none of the exceptions applied to the case of assessee. The second contention of the assessee was rejected in view of the decision of the Tribunal in the case of Prudential Construction Co. Ltd. v. Asstt. CIT [2000] 75 ITD 338 (Hyd.). Consequently, the entire loss of Rs. 53,22,770 was assessed as speculative loss which could not be set-off against the other business income of the assessee. The Assessing Officer was also of the view that the expenditure incurred by the assessee should be proportionately allocated to the speculative business also in view of the decision of the Hon’ble Calcutta High Court in the case of Eastern Aviation and Industries Ltd. v. CIT [1994] 208 ITR 10231 as well as the decision of the Hon’ble Bombay High Court in the case of Sinh National Sugar Mills (P.) Ltd. v. CIT [1980] 121 ITR 7422. Consequently, he worked out the sum of Rs. 33,34,903 being the expenditure attributable to speculative business by applying the pro rata basis. This amount was also treated as part of speculative loss. Consequently, the total speculative loss was determined at Rs. 86,57,673 which was not allowed to be set-off against other income of the assessee. On appeal, the Learned CIT(A) confirmed the findings of the Assessing Officer for the reasons given by the Assessing Officer. Aggrieved by the same, the assessee is in appeal before the Tribunal.

3. The Learned Counsel for the assessee has vehemently assailed the order of the Learned CIT(A) by raising various contentions. The first contention raised by him that the case of assessee falls within the ambit of first exception provided in the Explanation to section 73 of the Act inasmuch as the gross total income of the assessee mainly consist of income chargeable under the head "Income from other sources". He drew our attention to the computation of income filed by the assessee along with return to point out that the assessee had declared interest income of Rs. 3,25,920 under the head "Income from other sources" while the business loss was declared at Rs. 74,67,685. It was clarified by him that the Assessing Officer, by mistake, has not assessed interest income under the head "Income from other sources". He drew our attention to the language employed by the Legislature in the Explanation to section 73 of the Act to point out that in order to attract the first exc

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