KAVIRAJ SECURITIES P. LTD, MUMBAI v. ITO 9(2)(2), MUMBAI

ITA 6538/MUM/2009 | 2006-2007
Pronouncement Date: 29-10-2010 | Result: Partly Allowed

Appeal Details

RSA Number 653819914 RSA 2009
Assessee PAN AABCK5033F
Bench Mumbai
Appeal Number ITA 6538/MUM/2009
Duration Of Justice 10 month(s) 7 day(s)
Appellant KAVIRAJ SECURITIES P. LTD, MUMBAI
Respondent ITO 9(2)(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 29-10-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 29-10-2010
Assessment Year 2006-2007
Appeal Filed On 22-12-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A MUMBAI BEFORE SHRI J.SUDHAKAR REDDY (A.M.) AND SHRI V.D. R AO (J.M.) ITA NO.6538/MUM/2009 ASSESSMENT YEAR : 2006-2007 KAVIRAJ SECURITIES P. LTD. 4B 64 MANALI EVERSHINE NAGAR MALAD (E) MUMBAI 400 064. PAN : AABCK5033F VS. A.C.I.T.9(2)(2) AAYAKAR BHAVAN M.K. RD. MUMBAI 400 020. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAKESH JOSHI RESPONDENT BY : SHRI D.N. DEVDASAN (DR) O R D E R PER J. SUDHAKAR REDDY A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AG AINST THE ORDER OF THE LEARNED CIT (A)-XX MUMBAI DATED 24.11.2009 FOR THE ASSESSMENT YEAR 2006-2007. 2. FACTS IN BRIEF: THE ASSESSEE IS A PRIVATE LIMIT ED COMPANY AND IS ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND SE CURITIES AND ALSO UNDERTAKING SHARES TRANSACTIONS OF THIRD PARTY ON B ROKERAGE BASIS. IT HAS FILED ITS RETURN OF INCOME ON 26.10.2006 DECLARING TOTAL INCOME OF ` 10 77 103/-. THE ASSESSING OFFICER PASSED AN ORD ER U/S.143(3) ON 26.12.2008 DETERMINING THE TAXABLE INCOME AT ` 38 57 258/- AND SPECULATION LOSS OF ` 29 84 814/-. THE ASSESSEE CARRIED THE MATTER IN A PPEAL WITHOUT SUCCESS. FURTHER AGGRIEVED THE ASSESSEE IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS: 1. ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE CIT(A) HAS ERRED IN CONFIRMING THE TREATMENT OF LOSS FROM SHARE TRADING ACTIVITIES OF ` .8 65 179/- AS SPECULATION LOSS INSTEAD OF BUSINESS LOSS AND THUS NOT ALLOWING THE SET OFF OF ITA NO.6538/MUM/2009 ASSESSMENT YEAR : 2006-2007 2 LOSS FROM BUSINESS INCOME WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. WITHOUT PREJUDICE TO ABOVE SHARE TRADING ACTIV ITY MAY BE CONSIDERED AS A BUSINESS ACTIVITY AND THE IN COME UNDER THE SAME MAY BE TREATED AS A BUSINESS INCOME. 3. ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE CIT(A) HAS ERRED IN CONFIRMING THE ALLOCATION O F ` .21 19 635/- OF BUSINESS EXPENSES AS EXPENSES INCUR RED FOR SPECULATION BUSINESS PURPOSE ON SURMISE AND CONJECT URE AND WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CASE AND WITHOUT CONSIDERING THE JUDGEMENT FILED DURING THE HEARING. 4. ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE CIT(A) HAS ERRED IN NOT ACCEPTING THE CONTENTIO N OF THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED IN P URCHASE AND SALE OF SHARES. 5. ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE CIT(A) HAS ERRED IN CONFIRMING THE ALLOCATION O F EXPENSES ON THE BASIS OF TURNOVER OF THE SALE AND PURCHASE OF S HARES INSTEAD OF CONSIDERING THE LOSS ON SALE OF SHARES. 3. WE HAVE HEARD MR. RAKESH JOSHI THE LEARNED COUN SEL OF THE ASSESSEE AND MR. D.N. DEVADASAN THE LEARNED DR. 4. ON THE CAREFUL CONSIDERATION OF THE FACTS AND CI RCUMSTANCES OF THE CASE AND ON A PERUSAL OF THE PAPER ON RECORD AND TH E ORDERS OF THE AUTHORITY BELOW WE HOLD AS FOLLOWS. 5. GROUND NO.1 AND 2 WHICH IS ON THE ISSUE WHERE TH E LOSS INCURRED BY THE ASSESSEE COMPANY ON PURCHASE AND SALE OF SHARES WHEN THE SHARES ARE UPHELD AS STOCK IN TRADE AND NOT AS INVESTMENT IS COVERED AGAINST THE ASSESSEE AND IN FOVOUR OF THE REVENUE BY DECISION O F THE JURISDICTIONAL HIGH COURT IN THE CASE OF PRASAD AGENTS (P) LTD VS. ITO (2009) 180 TAXMAN 178. (BOM). RESPECTFULLY FOLLOWING THE SAME WE UPHOLD THE ORDER OF THE FIRST APPELLATE AUTHORITY AND DISMISS GROUND NO.1 AND 2 O F THE ASSESSEE. 6. COMING TO THE GROUND NO.4 THE SAME IS DISMISSED AS NOT PRESSED. ITA NO.6538/MUM/2009 ASSESSMENT YEAR : 2006-2007 3 7. THIS LEAVES US WITH GROUND NO.3 AND 5 WHICH ARE ON THE ISSUE OF QUANTIFICATION OF SPECULATION LOSS WITH REGARD TO ALLOCATION OF COMMON EXPENDITURE BETWEEN THE TWO ACTIVITIES OF TRADING I N SHARES AND BROKERAGE ACTIVITIES. THE ASSESSEES CASE IS THAT THE ASSE SSING OFFICER HAS ERRED IN TAKING THE GROSS TURNOVER IN THE CASE OF PURCHASE A ND SALE OF SHARES ON OWN ACCOUNT AND BROKERAGE INCOME IN THE CASE OF PURCHAS E AND SALE OF SHARES ON BEHALF OF THIRD PARTIES AND COMPARING BOTH FOR THE PURPOSE OF ALLOCATION OF COMMON EXPENDITURE. HE ARGUES THAT THE BROKERAGE INCOME SHOULD BE COMPARED WITH THE NET PROFIT IN PURCHASE AND SALE O F SHARES AND COMMON EXPENDITURE SHOULD BE ALLOCATED IN THE RATIO OF IN COME FROM PURCHASE AND SALE OF SHARES AND INCOME FROM BROKERAGE. IT IS F URTHER SUBMITTED THAT IN THE SUBSEQUENT ACCOUNTING YEAR THE SIMILAR DISALLO WANCE HAS BEEN DELETED BY THE CIT(A). WORKING OF INDIRECT EXPENSES ALLOC ATION HAS BEEN SUBMITTED. THE LEARNED DR SUPPORTED THE ORDER OF THE ASSESSING OFFICER AS CONFIRMED BY THE CIT(A). HE LATTER SUBMITS THAT THE FRESH WORKI NG GIVEN BY THE ASSESSEE MAY BE EXAMINED BY THE ASSESSING OFFICER AND THAT T HE ISSUE MAY BE SET ASIDE. 8. ON A CAREFUL CONSIDERATION OF THE ARGUMENTS WE ARE OF THE CONSIDERED OPINION THAT ALLOCATION OF INDIRECT EXPENDITURE SHO ULD BE MADE EITHER ON INCOME BASIS OR ON TURNOVER BASIS. THE ASSESSEE HAS TWO ACTIVITIES I.E. TRADING FOR ITSELF AND TRADING FOR THIRD PARTIES. WHEN INDIRECT EXPENSES IS ALLOCATED IT SHOULD BE DONE EITHER ON RATIO OF TUR NOVER OF BOTH ACTIVITIES I.E. TRADING FOR SELF AND TRADING FOR THIRD PARTIES OR O N THE BASIS OF MARGIN EARNED BY THE ASSESSEE ON THE TRANSACTION WHERE TRADING HA S BEEN DONE FOR SELF AND MARGIN OR BROKERAGE EARNED ON TRANSACTION WHERE TRA DING HAS BEEN DONE FOR THIRD PARTIES. IN OUR HUMBLE OPINION IT WOULD BE PROPER IF INDIRECT EXPENSES ARE ALLOCATED ON RATIO OF TURNOVER OF TRAD ING DONE ON BEHALF OF THIRD PARTIES AS COMPARED WITH TURNOVER OF TRADING DONE FOR SELF. ALLOCATION ON BASIS OF PROFIT MARGINS OF BOTH ACTIVITIES WOULD NOT ALWAYS COME TO DESIRED RESULTS AS IF THERE IS A LOSS IN TRADING DONE FOR SELF IT CANNOT BE SAID THAT NO PORTION OF THE INDIRECT EXPENDITURE CAN BE ALLOCAT ED TO SELF TRADING ACTIVITY. WE SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO ITA NO.6538/MUM/2009 ASSESSMENT YEAR : 2006-2007 4 ALLOCATE INDIRECT EXPENDITURE BASED ON RATIO BETWEE N TURNOVER OF PURCHASE AND SALE DONE BY THE ASSESSEE FOR SELF AND TURNOVER DONE ON BEHALF OF THIRD PARTIES. WITH THIS DIRECTION WE SET ASIDE THE ISSUE FILED BY THE ASSESSING OFFICER FOR FRESH ADJUDICATION OF THIS ISSUE. 9. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED IN PART. ORDER PRONOUNCED ON THIS 29 TH DAY OF OCTOBER 2010. SD/- (V.D. RAO) (JUDICIAL MEMBER) SD/- (J.SUDHAKAR REDDY) (ACCOUNTANT MEMBER) MUMBAI DATED 29 TH OCTOBER 2010. JANHAVI COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- MUMB AI 4. COMMISSIONER OF INCOME TAX CITY- MUMBAI 5. DEPARTMENTAL REPRESENTATIVE BENCH MUM BAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR ITAT MUMBAI