DCIT, New Delhi v. M/s. J.K. Credit & Finance Ltd., New Delhi

ITA 4719/DEL/2009 | 2005-2006
Pronouncement Date: 19-02-2010 | Result: Allowed

Appeal Details

RSA Number 471920114 RSA 2009
Assessee PAN AAACJ6366P
Bench Delhi
Appeal Number ITA 4719/DEL/2009
Duration Of Justice 2 month(s) 5 day(s)
Appellant DCIT, New Delhi
Respondent M/s. J.K. Credit & Finance Ltd., New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 19-02-2010
Appeal Filed By Department
Order Result Allowed
Bench Allotted D
Tribunal Order Date 19-02-2010
Date Of Final Hearing 15-02-2010
Next Hearing Date 15-02-2010
Assessment Year 2005-2006
Appeal Filed On 14-12-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D: NEW DELHI BEFORE SHRI C.L. SETHI JUDICIAL MEMBER & SHRI SHAMIM YAHYA ACCOUNTANT MEMBER ITA NO. 4639/DEL/2009 ASSESSMENT YEAR : 2005-06 M/S. J.K. CREDIT & FINANCE LTD. LINK HOUSE 4 TH FLOOR 3 BAHADUR SHAH ZAFAR MARG NEW DELHI VS. DY. COMMISSIONER OF INCOME TAX CIRCLE 4(1) C.R. BUILDING NEW DELHI PAN : AAACJ 6366 P ITA NO. 4719/DEL/2009 ASSESSMENT YEAR : 2005-06 DY. COMMISSIONER OF INCOME TAX CIRCLE 4(1) C.R. BUILDING NEW DELHI VS. M/S. J.K. CREDIT & FINANCE LTD. LINK HOUSE 4 TH FLOOR 3 BAHADUR SHAH ZAFAR MARG NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI V.P. GUPTA ADVOCATE SHRI. BASANT KUMAR ADVOCATE RESPONDENT BY : SMT. KAVITA BHATNAGAR CIT (DR) O R D E R PER: C.L. SETHI J.M. THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AS WELL BY THE REVENUE AGAINST THE ORDER DATED 01.10.2009 PASSED BY THE LD. CIT(A) IN THE MATTER OF AN ASSESSMENT MADE U/S. 143(3) OF THE INCOME TAX ACT 1961 (THE ACT) FOR THE A.Y. 2005-06. ITA NO. 4639/DEL/2009 ITA NO. 4719/DEL/2009 PAGE 2 OF 15 ITA NO. 4719/DEL/2009 2. WE SHALL FIRST TAKE THE APPEAL FILED BY THE REVE NUE. 3. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER:- 1. THE ORDER OF LEARNED CIT(APPEALS) IS ERRONEOUS & CONTRARY TO FACTS & LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT(APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS. 1 03 00 000/- MADE BY THE U/S. 2(22)(E) OF THE INCOME TAX ACT. 2.1. THE LD. CIT(A) HAS IGNORED THE FACT THAT THE L ENDER COMPANIES AND THE ASSESSEE HAVE COMMON SHARE HOLDER HAVING MORE THAN 20% OF SHARE HOLDING IN BOTH DONER & DONE COMPANIES. 4. IN THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS N OTICED BY THE AO THAT THE ASSESSEE HAD TAKEN A LOAN FROM THE FOLLOWI NG COMPANIES AS UNDER:- DETAILS OF LOANS RECEIVED 1 ASHIM INV. CO. LTD. 20 80 000/- 2 NAV BHARAT VANIJIYA LTD. 57 00 000/- 3 STHENIC INV LTD. 35 00 000/- 4 JK AGENTS LTD. 11 00 000/- 5 JUGGILAL KAMPLAPAT AGENCY LTD. 13 00 000/- 6 AKHAND INV P LTD. 22 00 000/- 7 CROSS BOW INV P. LTD. 22 00.000/- TOTAL 1 80 80 000/- ITA NO. 4639/DEL/2009 ITA NO. 4719/DEL/2009 PAGE 3 OF 15 5. THE AO ALSO HAD TAKEN A NOTE OF SHARE HOLDING PA TTERN OF THE ASSESSEE COMPANY VIS--VIS THE COMPANY FROM WHOM LO AN HAS BEEN TAKEN BY THE ASSESSEE COMPANY. THE AO THEN ISSUED A SHOW -CAUSE NOTICE AS TO WHY THE LOAN TAKEN FROM THE AFORESAID COMPANIES SHO ULD NOT BE TREATED TO BE THE DEEMED DIVIDEND WITHIN THE MEANING OF SECTIO N 2(22)(E) OF THE ACT. IN REPLY THERE TO THE ASSESSEE STATED THAT T HE ASSESSEE COMPANY ITSELF IS NOT THE SHAREHOLDER IN THE COMPANIES FROM WHOM T HE LOANS WERE TAKEN AND THEREFORE THE REQUISITE CONDITION OF BEING SH AREHOLDER DID NOT EXIST IN THE PRESENT CASE. AFTER CONSIDERING THE ASSESSE ES EXPLANATION THE AO TREATED THE SUM OF RS. 1 03 00 000/- AS DEEMED DIVI DED IN THE HANDS OF THE ASSESSEE COMPANY U/S. 2(22)(E) OF THE ACT. 6. ON AN APPEAL THE CIT(A) DELETED THE ADDITION BY OBSERVING AND HOLDING AS UNDER: 4.3 I HAVE CONSIDERED THE WRITTEN SUBMISSIONS MADE ON BEHALF OF THE APPELLANT THE FINDINGS OF TH E ASSESSING OFFICER MADE IN THE ASSESSMENT ORDER AS W ELL AS IN THE REMAND REPORT I AM OF THE CONSIDERED VIE W THAT THE PRELIMINARY CONTENTION OF THE APPELLANT COMPANY TO THE EFFECT THAT ADDITION CAN BE MADE ONLY IN THE HA NDS OF SHAREHOLDER ON ACCOUNT OF DEEMED INCOME AND NOT IN THE HANDS OF ANY OTHER PERSON DESERVES TO BE ACCEPTED I NV VIEW OF DIRECT DECISIONS OF RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. HOTEL HILTOP (SUPRA) AND DECISION O F SPECIAL BENCH OF ITAT MUMBAI IN THE CASE OF BHAUM IK COLOUR PVT. LTD. (SUPRA). SECONDLY ICDS. HAVE BEE N TAKEN BY THE APPELLANT COMPANY FROM OTHER COMPANIES UNDER REFERENCE DURING THE COURSE OF CARRYING ON TH E ITA NO. 4639/DEL/2009 ITA NO. 4719/DEL/2009 PAGE 4 OF 15 BUSINESS OF FINANCING. ALL THE COMPANIES INCLUDIN G THE APPELLANT COMPANY ARE REGISTERED NBFCS COMPANIES AND ARE ENGAGED IN THE BUSINESS OF FINANCING. CLAU SE (II) OF SECTION 2(22)(E) OF THE ACT SPECIFICALLY EXCLUDE S ADVANCES AND LOANS GIVEN OR TAKEN IN THE ORDINARY C OURSE OF THE BUSINESS FROM THE PURVIEW OF SECTION 2(22)(E ) OF THE ACT. THEREFORE THE AMOUNT UNDER REFERENCE CANNOT BE CONSIDERED TO BE DEEMED DIVIDEND IN VIEW OF ABOVE SPECIFIC PROVISION FOR EXCLUSION CONTAINED IN SECTI ON 2(22)(E) OF THE ACT. IT IS ALSO SIGNIFICANT TO MEN TION THAT AS PER THE DETAILS MENTIONED HEREINABOVE EVEN THE REQUIRED CRITERIA OF SHAREHOLDING IN THE CASE OF FO UR COMPANIES I.E. EXCEPT J.K. AGENTS LIMITED IS ALOS N OT THERE AND THEREFORE PROVISIONS OF SECTION 2(22)(E ) ARE NOT APPLICABLE. IN VIEW OF DISCUSSIONS MADE ABOVE THE ADDITION MADE BY THE AO OF RS. 1 03 00 000/- UNDER SECTION 2(22)(E) OF THE ACT CANNOT BE SUSTAINED. H ENCE FIRST GROUND OF THE APPEAL IS ALLOWED AND AO IS DIR ECTED TO DELETE THE SAID ADDITION. 7. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. 8. ON PERUSAL OF THE CIT(A)S ORDER WE FIND THAT T HE CIT(A) HAS TAKEN A VIEW THAT THE ADDITION ON DEEMED DIVIDEND C AN ONLY BE MADE IN THE HANDS OF SHAREHOLDER AND NOT IN THE HANDS OF AN OTHER PERSON AS SO HELD IN THE DECISION OF RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. HOTEL HILTOP (2008) 217 CTR 527 (RAJ.) AND IN THE DECISIO N OF SPECIAL BENCH OF INCOME TAX APPELLATE TRIBUNAL IN THE CASE OF BHAUMI K COLOUR PV. LTD. (2009) 27 SOT 270 (SB)(MUMBAI). IN THE COURSE OF H EARING OF THIS APPEAL IT WAS NOT DISPUTED BY THE LD. DR THAT THE PRESENT ASSESSEE ITA NO. 4639/DEL/2009 ITA NO. 4719/DEL/2009 PAGE 5 OF 15 COMPANY IS ITSELF IS NOT A SHAREHOLDER IN THE COMPA NIES FROM WHOM THE LOAN HAS BEEN TAKEN. SINCE THE PRESENT ASSESSEE CO MPANY IS NOT A REGISTERED SHAREHOLDER IN THE COMPANIES WHO HAD AD VANCED THE LOAN TO THE ASSESSEE COMPANY THE PROVISIONS OF SECTION 2(2 2)(E) CANNOT BE APPLIED AS SO HELD BY THE SPECIAL BENCH OF THE TRIB UNAL IN THE CASE OF THE BHAUMIK COLOUR PVT. LTD. (SUPRA). WE THEREFORE U PHELD THE ORDER OF THE CIT(A) IN DELETING THE ADDITION OF RS. 1 03 00 000/ - MADE BY THE AO ON ACCOUNT OF DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT AND THE GROUNDS RAISED BY THE REVENUE ARE REJECTED. ITA NO. 4639/DEL/2009 9. NOW WE SHALL COME TO THE APPEAL FILED BY THE AS SESSEE. 10. THE GROUNDS TAKEN BY THE ASSESSEE ARE AS UNDER: - 1. THAT THE CIT(A) ERRED IN NOT ALLOWING THE SET O FF OF BROUGHT FORWARD LOSSES OF EARLIER YEAR IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT. 2. THAT THE CIT(A) ERRED IN HOLDING THAT LOSS INCUR RED IN EARLIER YEAR AND HELD BY THE AO AS WAS SPECULATI VE LOSS WAS OF DIFFERENT NATURE THAN GAIN ARISING DURI NG THE YEAR WITHOUT APPRECIATING THAT IN THE FACTS OF THE APPELLANT NATURE OF LOSS AS WELL AS INCOME WAS SAME AND BOTH HAD ARISEN ON ACCOUNT OF VALUATION OF SHARES H ELD AS STOCK IN TRADE. 3. THAT THE LD. CIT(A) FAILED TO APPRECIATE THAT ON CE THE DEPARTMENT HAD TAKEN A STAND IN EARLIER YEARS T O THE EFFECT THAT LOSS ARISING ON VALUE OF SHARES HELD AS STOCK IN TRADE WAS ALSO OF SPECULATIVE NATURE IN TERMS OF EXPLANATION TO SECTION 73 OF THE ACT THOUGH NOT AR ISING ITA NO. 4639/DEL/2009 ITA NO. 4719/DEL/2009 PAGE 6 OF 15 ON PURCHASE AND SALE OF SHARES IT COULD NOT TAKE A DIFFERENT STAND IN THE YEAR UNDER APPEAL WHEN THER E WAS INCOME ON ACCOUNT OF INCREASE IN VALUATION OF SAME SHARES AND THE APPELLANT WAS ENTITLED FOR SET OFF O F LOSS OF EARLIER YEARS AGAINST INCOME IN THIS YEAR OF SAME N ATURE. 4. THAT THE LD. CIT(A) ERRED IN HOLDING THAT CHARGI NG INTEREST UNDER SECTION 234B OF THE ACT IS AUTOMATIC WITHOUT APPRECIATING THAT PROVISIONS OF SECTION 234 B OF THE ACT WERE NOT APPLICABLE IN THE CASE OF APPELLAN T. 11. IN THE RETURN OF INCOME THE ASSESSEE CLAIMED T HAT AGAINST THE PROFIT FROM PURCHASE AND SALE OF SHARES DETERMINED IN THE YEAR UNDER CONSIDERATION THE BROUGHT FORWARD LOSSES FROM THE BUSINESS OF PURCHASE AND SALE OF SHARES TREATED TO BE SPECULATION LOSS W ITHIN THE MEANING OF EXPLANATION TO SECTION 73 OF THE ACT BE SET OFF W HICH HAS BEEN REJECTED BY THE AO. 12. ON AN APPEAL THE CIT(A) HAS TAKEN A VIEW THAT THE TRANSACTION FROM WHICH THE ASSESSEE HAD EARNED PROFIT DURING TH E YEAR UNDER CONSIDERATION IS ALTOGETHER DIFFERENT TO THAT OF TH E TRANSACTION OF EARLIER YEARS WHERE THE LOSS FROM THE TRANSACTION OF SALE AND PURCHASE OF SHARES WAS TREATED TO BE SPECULATION LOSS WITHIN THE MEANI NG OF EXPLANATION TO SECTION 73 OF THE ACT AND AS SUCH THE SET OFF OF S PECULATION LOSS BROUGHT FORWARD FROM EARLIER YEARS AGAINST THE BUSINESS PRO FIT OF THE CURRENT YEAR CANNOT BE ALLOWED. THE DECISION OF ITAT KOLKATA B ENCH IN THE CASE OF ACIT VS. SUNGRACE MERCAHNDISER PVT. LTD. DATED 28.0 9.2006 IN ITA NOS. ITA NO. 4639/DEL/2009 ITA NO. 4719/DEL/2009 PAGE 7 OF 15 1453 TO 1455/KOL/2006 RELIED UPON BY THE ASSESSEE W AS HELD BY THE LD. CIT(A) TO BE NOT APPLICABLE TO THE PRESENT CASE AS THE SAME WAS DISTINGUISHABLE. THE CIT(A)S ORDER ON THIS ISSUE RUNS AS UNDER:- 5.2 I HAVE CONSIDERED THE WRITTEN SUBMISSIONS MADE ON BEHALF OF THE APPELLANT THE FINDINGS OF THE ASSESS ING OFFICER MADE IN THE ASSESSMENT ORDER AND THE FACTS ON RECORD. IT IS AN ADMITTED FACT AND THUS NOT DISPUT ED THAT THE INCOME IN THE YEAR UNDER CONSIDERATION HAS ARIS EN ONLY ON ACCOUNT OF VALUATION OF SHARES. IN OTHER W ORDS IT MEANS THAT THE INCOME HAS BEEN EARNED BY THE ASSESS EE FOR HOLDING THE SHARES WHEREAS THE SPECULATION LOS S IS INCURRED ON PURCHASE AND SALE AND BY TRANSFERRING T HE SHARES. THE TWO TRANSACTIONS ARE ALTOGETHER DIFFER ENT AND THEREFORE THE CASE OF THE APPELLANT WOULD BE DIRECT LY COVERED BY THE DECISION OF THE CALCUTTA HIGH COURT IN THE CASE OF K.L. JHUNJHUNWALLA (1983) 139 ITR 371 (CAL. ). IN THIS CASE THE SET OFF OF COMMISSION RECEIVED BY THE ASSESSEE AGAINST THE SPECULATIVE LOSS WAS REJECTED ON THE GROUND THAT THERE WAS NOT ELEMENT OF SPECULATION WHATSOEVER IN THE COMMISSION INCOME RECEIVED BY THE ASSESSEE THOUGH IT HAS ARISEN FROM THE TRANSACTION IN THE BUSINESS OF JUTE AND HESSIAN GOODS WHICH WERE SETT LED OTHERWISE THAN BY ACTUAL DELIVERY AND WERE SPECULAT IVE IN NATURE. THE BROKERAGE WAS ALSO EARNED BY THE ASSES SEE ON PURCHASE OR SALE OF JUTE AND HESSIAN GOODS WHIC H WERE SETTLED OTHERWISE THAN ACTUAL DELIVERY. THE C OURT REJECTED THE CLAIM OF THE ASSESSEE BY FOLLOWING TH E DECISION OF THE SUPREME COURT IN THE CASE OF CIT V. PANGAL VITTAL NAYAK & CO. (P.) LTD. [1969] 74 ITR 7 54 BY OBSERVING AS UNDER:- 1. WE ARE INCLINED TO AGREE WITH THE VIEW OF THE TRIBUNAL. BUT THE SUPREME COURT IN THE CASE OF CIT V. PANGAL VITTAL NAYAK & CO. (P.) LTD. [1969] 74 ITR 754 (SC) WHERE THE ASSESSEE WHO WAS A MEMBER OF AN ASSOCIATION FOR SPECULATION IN COCONUT IL HAD ALSO SPECULATED ON ITS OWN AND THE ASSESSEE ALSO RECEIVED ORDERS FROM ITS ITA NO. 4639/DEL/2009 ITA NO. 4719/DEL/2009 PAGE 8 OF 15 CONSTITUENTS WHO WERE NOT MEMBERS OF THE ASSOCIATION TO SPECULATE ON THEIR BEHALF THE PROCEDURE FOR THOSE TRANSACTIONS BEING AS MENTIONED IN THE SAID JUDGMENT THE SUPREME COURT NOTICED THAT IN EACH OF THE TRANSACTIONS THE ASSESSEE HAD RECEIVED COMMISSION FROM THE PARTIES ON WHOSE BEHALF THE TRANSACTIONS WERE DONE. THE ASSESSEE HAD CLAIMED TO SET OFF SUCH COMMISSION AGAINST THE SPECULATION LOSSES. IT WAS HELD BY THE SUPREME COURT THAT THE COMMISSION RECEIVED BY THE ASSESSEE COULD NOT BE SET OFF AGAINST THE SPECULATION LOSSES BECAUSE THERE WAS NO ELEMENT OF SPECULATION WHATEVER IN THE COMMISSION INCOME RECEIVED BY THE ASSESSEE; THE COMMISSION WAS INDEPENDENT OF ANY FLUCTUATION IN THE MARKET AND NO RISK WAS INVOLVED IN EARNING IT. THE COMMISSION HAD TO BE TREATED NOT AS A PROFIT FROM THE SPECULATION BUSINESS BUT AS PROFIT FROM THE BUSINESS AS BROKERAGE AND THE ASSESSEE WAS NOT ENTITLED TO HAVE THAT COMMISSION RECEIPT ASSESSED UNDER THE HEAD SPECULATION BUSINESS. IN VIEW OF THE SAID DECISION OF THE SUPREME COURT THE QUESTION MUST BE ANSWERED IN THE NEGATIVE AND IN THE FAVOUR OF THE REVENUE. 5.3 IN THE PRESENT CASE THE INCOME HAS BEEN EARNED BY THE ASSESSEE FOR HOLDING THE SHARES DURING THE YEA R UNDER CONSIDERATION AND THUS THE INCOME WAS RECEIVE D BY THE ASSESSEE IN RESPECT OF THE SHARES WHICH MIGHT HAVE ALSO BEEN SOLD AND THE LOSS WHEREFROM IS DEEMED AS SPECULATIVE LOSS CANNOT BE SET OFF AGAINST THE INCO ME WAS EARNED BY THE ASSESSEE FOR HOLDING THESE SHARES IN VIEW OF THE TWO DIRECT DECISIONS OF CALCUTTA HIGH COURT AND SUPREME COURT REFERRED TO ABOVE. EXPLANATION TO SE CTION 73 DEEMS AN ASSESSEE TO BE CARRYING ON SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSIS TS OF PURCHASE AND SALE OF SUCH SHARES. IT IS ONLY THIS PARTY OF THE ACTIVITY I.E. PURCHASE AND SALE OF SHARES WH ICH IS HELD TO BE SPECULATIVE IN NATURE. THE EARNING OF T HE ASSESSEE FROM THOSE SHARES OR OTHER SHARES HELD BY AN ASSESSEE AS STOCK-IN-TRADE HAVE NOT BEEN SO DEEMED TO BE INCOME FROM SPECULATION. IN THE INSTANT CASE THE INCOME ITA NO. 4639/DEL/2009 ITA NO. 4719/DEL/2009 PAGE 9 OF 15 HAS NOT BEEN EARNED BY TRANSFER OF SHARES; RATHER I T HAS BEEN EARNED BY HOLDING THE SHARES ON A PARTICULAR D AY ON ACCOUNT OF VALUATION. IT IS ALSO OBSERVED THAT THE FACTS AND CIRCUMSTANCES OF THE CASE OF ACIT VS. SUNGRACE MERCHANDISE PVT. LTD. (SUPRA) ARE DISTINGUISHABLE BECAUSE IN THAT CASE THE ASSESSEE WAS ENGAGED IN TH E SHARES TRADING BUSINESS. NEEDLESS TO MENTION THAT IN THE INSTANT CASE THE INCOME HAS ARISEN FROM VALUATION OF SHARES AND NOT FROM TRANSFER OF SHARES DURING THE Y EAR UNDER CONSIDERATION. THEREFORE IN MY CONSIDERED OPINION THE ACTION OF THE ASSESSING OFFICER WAS JU STIFIED IN NOT ALLOWING THE SET OFF OF THE CURRENT YEARS I NCOME AGAINST THE BROUGHT FORWARD SPECULATION LOSSES OF ASSESSMENT YEARS 1998-99 AND 2000-01 THE DISPUTE REGARDING WHICH IS SUBJUDICE BEFORE THE HIGH COURT. THIS CONTENTION OF THE ASSESSEE RAISED BY WAY OF GR OUND NO. 2 IS THEREFORE REJECTED. AS A RESULT GROUND NO. 2 IS DISMISSED. 13. HENCE THE ASSESSEE IS IN APPEAL BEFORE US. 14. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED BEFORE US THAT THE LOSSES DETERMINED IN EARLIER YEARS WERE WORKED OUT ON ACCOUNT OF VALUATION OF CLOSING STOCK OF SHARES AT LOWER VALUE BY ADOPTING THE MARKET RATE OF SHARES WHICH WERE LESS THEN THE COST PRICE. HE FURTHER SUBMITTED THAT IN THE CURRENT YEAR MARKET RATE OF SHARES HAD GONE UP AND THEREFORE THE CLOSING STOCK OF SHARES AT MARKET RATE HAS RESU LTED INTO INCOME. IN OTHER WORDS HE SUBMITTED THAT LOSS IN EARLIER YEAR S AS WELL AS PROFIT IN THE CURRENT YEAR HAD ARISEN ON ACCOUNT OF VALUATION OF SAME BUSINESS OF SALE AND PURCHASE OF SHARES AND HENCE LOSS ARISING ON ACCOUNT OF VALUATION OF SHARES IN EARLIER YEAR AND THE PROFIT ARISING ON AC COUNT OF VALUATION OF ITA NO. 4639/DEL/2009 ITA NO. 4719/DEL/2009 PAGE 10 OF 15 SHARES IN CURRENT YEAR ARE OF THE SAME NATURE. HE THEREFORE SUBMITTED THAT THE LOSS OF EARLIER YEARS AS WELL AS INCOME OF THE CURRENT YEAR ARISING FROM THE VALUATION OF SHARES IS TO BE CONSIDERED OF THE SAME NATURE AND THEREFORE THE LOSS DETERMINED IN EARLIER YEARS IS TO BE SET-OFF AGAINST THE INCOME OF THE CURRENT YEAR. HE HOWEVER SUBMITTED THAT THE CIT(A) WHILE REJECTING THE ASSESSEES CASE AND NOT RELYIN G UPON THE DECISION OF ITAT CALCUTTA IN THE CASE OF ACIT VS. SUNGRACE MER CHANDISE PVT. LTD. (SUPRA) HAS NOT APPRECIATED THE FACTS OF THE CASE CORRECTLY AND IN THEIR RIGHT AND CORRECT PERSPECTIVE. HE FURTHER SUBMITTED THAT THE FINDING OF THE CIT(A) THAT LOSSES DETERMINED IN THE EARLIER YEARS IS OF DIFFERENT NATURE THAN THE INCOME OF THE CURRENT YEAR IS NOT BASED O N CORRECT FACTS OF THE PRESENT CASE. HE THEREFORE SUBMITTED THAT THE DE CISION OF CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. SUNGR ACE MERCHANDISE PVT. LTD. (SUPRA) IS SQUARELY APPLICABLE TO THE ASSESSEE S CASE. 15. THE LD. DR ON THE OTHER HAND SUPPORTED THE OR DERS OF THE AUTHORITIES BELOW. 16. IN THE COURSE OF HEARING OF THIS APPEAL A GREA T EMPHASIS HAS BEEN PLACED UPON THE DECISION OF ITAT CALCUTTA IN THE C ASE OF ACIT VS. SUNGRACE MERCHANDISE PVT. LTD. (SUPRA) WHERE THE C O-ORDINATE BENCH OF THE TRIBUNAL HAS HELD AS UNDER:- ITA NO. 4639/DEL/2009 ITA NO. 4719/DEL/2009 PAGE 11 OF 15 12.3 NOW SO FAR AS THE FACTS OF THE ASSESSEES CASE ARE CONCERNED THEY SQUARELY FALL WITHIN THE A MBIT OF EXPLANATION TO SEC. 73 BECAUSE (I) TE ASSESSEE IS A COMPANY (II) IT CARRIES ON THE BUSINESS OF PURCHAS E AND SALE OF SHARES; (III) ITS PRINCIPAL BUSINESS IS NOT THE BUSINESS OF BANKING OR GRANTING OF LOANS AND ADVANC ES; AND (IV) THE GROSS TOTAL INCOME OF THE ASSESSEE IS NOT CONSISTING MAINLY INCOME WHICH IS CHARGEABLE UNDER THE HEADS INTEREST ON SECURITIES INCOME FROM PROPER TY CAPITAL GAIN AND INCOME FROM OTHER SOURCES. TH E AO HIMSELF FOR ASSESSMENT YEARS 1997-98 AND 1998-99 HE LD THE SHARE TRADING BUSINESS OF THE ASSESSEE TO BE SPECULATION BUSINESS WITHIN THE MEANING OF EXPLANAT ION TO SEC. 73 OF THE I.T. ACT. IT IS STATED BY THE LE ARNED COUNSEL THAT THE ITAT ALSO IN ASSESSMET YEAR 1997-9 8 UPHELD THE FINDING OF THE LOWER AUTHORITIES THAT TH E ASSESSEES BUSINESS OF SHARE TRADING IS SPECULATION BUSINESS. IT IS ALSO NOT IN DISPUTE THAT THE NATUR E OF THE ASSESSEES BUSINESS IS SAME IN THE YEAR UNDER CONSIDERATION. NOW THE CONTENTION OF THE REVENUE I S THAT EXPLANATION TO SEC. 73 WOULD BE APPLICABLE ONLY IF THERE IS A LOSS IN SHARE TRADING BUSINESS AND THIS EXPLAN ATION WILL NOT BE APPLICABLE WHEN THERE IS PROFIT FROM SH ARE TRADING BUSINESS. WE ARE UNABLE TO ACCEPT THIS CONTENTION OF THE REVENUE. EXPLANATION NOWHERE PROVIDES THAT THE DEEMING PROVISION OF TREATING THE SHARE TRADING BUSINESS TO BE SPECULATION BUSINESS WOULD B E APPLICABLE ONLY WHEN THERE IS A LOSS. IN OUR OPINI ON HEN THE CONDITIONS GIVEN IN THE EXPLANATION ARE FULFILL ED THE BUSINESS OF THE ASSESSEE COULD BE DEEMED TO BE SPECULATIVE BUSINESS IRRESPECTIVE OF THE RESULT OF THE BUSINESS. MOREOVER AS PER SUB-SEC. (2) OF SEC. 73 THE SPECULATION LOSS IS TO BE CARRIED FORWARD AND SET O FF IN THE SUBSEQUENT YEAR FROM THE SPECULATION PROFIT. IF TH E CONTENTION OF THE REVENUE THAT WHEN THERE IS A LOSS FROM SHARE TRADING IT WILL BE SPECULATION LOSS AND WHEN THERE IS A PROFIT FROM SHARE TRADING IT WILL BE NORMAL B USINESS PROFIT IS ACCEPTED THERE WOULD BE NO QUESTION OF S ETTING OFF OF THE SPECULATION LOSS AGAINST SPECULATION PRO FIT BECAUSE AS PER THE CONTENTION OF THE REVENUE THERE WILL NOT ARISE ANY SPECULATION PROFIT FROM SHARE TRADING ITA NO. 4639/DEL/2009 ITA NO. 4719/DEL/2009 PAGE 12 OF 15 BUSINESS. IN OUR OPINION WHEN THE NATURE OF THE ASSESSEES BUSINESS REMAINS THE SAME THE REVENUE I S NOT JUSTIFIED IN TREATING THE SAME BUSINESS TO BE SPECU LATIVE WHEN THERE IS A LOSS AND NON SPECULATIVE WHEN THERE IS A PROFIT. WE THEREFORE UPHOLD THE ORDER OF THE CIT (A) DIRECTING THE AO TO SET OFF THE CARRIED FORWARD SPECULATION LOSS AGAINST THE DEEMED SPECULATION PRO FIT FROM SHARE TRADING BUSINESS AS PER PROVISIONS OF SE C. 73 SUB. SEC. (2) READ WITH EXPLANATION TO SEC. 73 OF T HE ACT. 17. THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO PLACE RELIANCE UPON THE DECISION OF HONBLE HIGH COURT OF DELHI IN THE CASE OF CIT VS. BHARTESH JAIN (2008) TIOL-604-HC-DEL-IT WHERE THE HONBLE HI GH COURT HAS HELD THAT THE REVENUE COULD NOT TREAT THE NATURE OF INCOME FOR ONE ASSESSMENT YEAR DIFFERENTLY FROM THE PREVIOUS ONE T ILL IT WAS IN A POSITION TO BRING ON RECORD THE MATERIAL TO THE CONTRARY. I N THAT CASE THE TRIBUNAL NOTED THAT THERE BEING NO MATERIAL ON RECORD TO SUG GEST THAT THE ACTIVITY OF THE ASSESSEE THAT IS EARNING INCOME FROM SALE AND PURCHASE OF SHARES WAS ANY WAY DIFFERENT FROM THE ACTIVITY CARRIED ON BY THE ASSESSEE IN A.Y. 1994-95 THE REVENUE COULD NOT TAKE A DIFFERENT VIE W IN RESPECT OF THE SIMILAR ACTIVITY CARRIED OUT IN THE YEAR UNDER CONS IDERATION TILL SUCH TIME IT HAD SOLID AND POSITIVE MATERIAL. THIS FINDING O F THE TRIBUNAL HAS BEEN UPHELD BY THE HONBLE HIGH COURT. 18. IN THE PRESENT CASE THE ASSESSEE IS ENGAGED IN THE BUSINESS OF FINANCING INVESTMENT AND DEALING OF SHARES. IT HA S BEEN POINTED OUT BY ITA NO. 4639/DEL/2009 ITA NO. 4719/DEL/2009 PAGE 13 OF 15 THE LD. COUNSEL FOR THE ASSESSEE THAT LOSSES IN THE BUSINESS OF DEALING OF SHARES IN EARLIER YEARS HAS BEEN WORKED OUT ON ACCO UNT OF VALUATION OF CLOSING STOCK OF SHARES AT LOWER VALUE ON ACCOUNT O F FALL IN MARKET RATE OF SHARES. THE LOSS IN EARLIER YEARS INCURRED IN BUSI NESS OF DEALING OF SHARES HAS BEEN TREATED TO BE IN THE NATURE OF SPECULATION LOSS IN TERMS OF EXPLANATION TO SECTION 73 OF THE ACT. IT IS WELL S ETTLED FROM THE DECISION OF CIT VS. SUN DISTRIBUTOR & MINING CO. LTD. (1993) 68 TAXMAN 223 (CALCUTTA) THAT EXPLANATION TO SECTION 73 IS APPLIC ABLE EVEN TO THE SITUATION WHERE SHARES WERE VALUED AT LOWER RATE AN D THE LOSS WAS DISCLOSED BECAUSE OF VALUATION. IT WAS FURTHER HEL D THEREIN THAT IT IS NOT THE REQUIREMENT OF EXPLANATION TO SECTION 73 THAT B OTH THE PURCHASE AND SALE OF SHARES SHOULD TAKE PLACE IN THE SAME YEAR AND THE VERY FACT THAT THE SHARES WERE VALUED AS STOCK IN TRADE AND LOSS W AS DISCLOSED AS A RESULT OF THE VALUATION OF THE SHARES WOULD GO TO SHOW TH AT THE BUSINESS OF PURCHASE AND SALE OF SHARES WAS CARRIED ON BY THE A SSESSEE AND TO THAT EXTENT THE BUSINESS OF THE ASSESSEE COMPANY MUST BE TREATED AS SPECULATION BUSINESS. IN THIS VIEW OF THE MATTER THE LOSS RESULTED OUT OF THE VALUATION OF SHARES AT LOWER AMOUNT WAS TREATED TO BE SPECULATION LOSS WITHIN THE MEANING OF EXPLANATION TO SECTION 73 OF THE ACT IN EARLIER YEARS. HOWEVER IN THE CURRENT YEAR THE MARKET RA TE OF SHARES HAD GONE UP AND THE SHARES WERE ACCORDINGLY VALUED AS CLOSIN G STOCK AND IT HAD ITA NO. 4639/DEL/2009 ITA NO. 4719/DEL/2009 PAGE 14 OF 15 RESULTED INTO INCOME. THEREFORE IN THE LIGHT OF T HE VIEW TAKEN BY THE CO- ORDINATE BENCH OF THE ITAT CALCUTTA BENCH IN THE CASE OF ACIT VS. SUNGRACE MERCHANDISE PVT. LTD. (SUPRA) THE GAIN OR PROFIT ARISING TO THE ASSESSEE DURING THE CURRENT YEAR AS A RESULT OF VAL UATION OF SHARES IN RESPECT OF WHICH THE LOSS WAS DETERMINED IN EARLIER YEARS IS ALSO TO BE TREATED AS A SPECULATION AND IN THAT SITUATION TH E CARRY FORWARD SPECULATION LOSS OF EARLIER YEARS IS TO BE SET OFF AGAINST THE SPECULATION PROFIT FROM SHARE TRADING BUSINESS OF CURRENT YEARS AS PER PROVISIONS OF 73(2) READ WITH EXPLANATION TO SECTION 73. HAVING SAID SO WE RESTORE THE MATTER BACK TO THE FILE OF THE AO TO VERIFY AND ASC ERTAIN AS TO WHETHER THE PROFIT SHOWN DURING THIS CURRENT YEAR FROM SHARES A S A RESULT OF VALUATION OF SHARES AT MARKET RATE IS OF THE SAME NATURE AS W AS IN EARLIER YEARS WHERE A LOSS WAS DETERMINED ON ACCOUNT OF VALUATION OF CLOSING STOCK OF SHARES AT LOWER VALUE AND IF THAT IS SO THE AO IS HEREBY DIRECTED TO SET OFF THE BROUGHT FORWARD SPECULATION LOSS AGAINST THE SP ECULATION PROFIT FROM SHARE TRADING BUSINESS OF THE CURRENT YEAR AS SO HE LD BY THE CO-ORDINATE BENCH OF THE ITAT CALCUTTA BENCH IN THE CASE OF A CIT VS. SUNGRACE MERCHANDISE PVT. LTD. (SUPRA). WE ORDER ACCORDINGL Y. NEEDLESS TO MENTION THAT THE AO SHALL PROVIDE REASONABLE OPPORT UNITIES OF BEING HEARD TO THE ASSESSEE. ITA NO. 4639/DEL/2009 ITA NO. 4719/DEL/2009 PAGE 15 OF 15 19. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THE APPEAL FILED BY THE ASSESSEE IS TREATED TO BE ALLOW ED FOR STATISTICAL PURPOSE IN THE MANNER AS INDICATED ABOVE. 20 THIS DECISION IS PRONOUNCED IN THE OPEN COURT ON 19 TH FEBRUARY 2010. SD/- (SHAMIM YAHYA ) ACCOUNTANT MEMBER SD/- (C.L. SETHI) JUDICIAL MEMBER DATED: 19 TH FEBRUARY 2010 *NITASHA COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT NEW DELHI. BY ORDER DEPUTY REGISTRAR