2017 (8) TMI 1450 - AT - Income Tax

Speculation loss - loss from the share transactions - explanation to section 73 - whether the income of the assessee under the head income from other sources is higher than the income under the head business income or not. The assessee claims that the income under the head other sources is higher than the income under the head business income and accordingly they do not fall within the purview of the explanation to section 73. Held that - assessee has been showing its income from share trading in all the years beginning from financial years 2005-06 to 2009-10. However, the income from consultancy for ₹7.20 lakh was shown only in the year under consideration. Similarly, the interest income has not been shown every year by the assessee. In view of the above, it can be concluded that principal business of the assessee is of share trading and granting of loan and therefore it is outside the purview of provision of Explanation to Section 73 of the Act. Now, it is well settled that the amendment under the Explanation to Section 73 of the Act for treating the principal business of share trading under exception category with retrospective effect in nature. The principal business of the assessee is of share trading. Therefore, the impugned loss cannot be treated as speculative by virtue of the provision of Explanation to Section 73 of the Act. - Decided in favor of assessee.

Summary

Issues Involved:
1. Violation of principles of natural justice.
2. Classification of share loss under Explanation to Section 73 of the Income Tax Act, 1961.
3. Admissibility of additional evidence under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963.
4. Right to press new or additional grounds of appeal.

Detailed Analysis:

1. Violation of Principles of Natural Justice:
The appellant contended that the appellate order was in violation of the principles of natural justice, rendering it bad in law and subject to quashing. However, the judgment primarily focused on the classification of share loss and did not provide a detailed discussion on this issue. Therefore, it remains a peripheral argument without substantial elaboration in the judgment.

2. Classification of Share Loss under Explanation to Section 73:
The core issue was whether the loss of ?11,87,934 from share trading should be treated as speculative under Explanation to Section 73 of the Income Tax Act, 1961. The Assessing Officer (AO) treated the share trading loss as speculative, citing that the income from interest and consultancy was classified under business income, not other sources, thus invoking Explanation to Section 73.

The appellant argued that their income from other sources (interest and consultancy) exceeded the business income, thereby falling outside the purview of Explanation to Section 73. However, the CIT(A) upheld the AO's decision, noting that the appellant had classified interest and consultancy income as business income in their return, and no revised return was filed to reflect otherwise.

Upon appeal, the Tribunal examined whether the principal business of the appellant was share trading or granting loans and advances. The appellant presented historical data showing consistent income from share trading over several years, supporting their claim that share trading was their principal business. The Tribunal referenced the Finance Act 2014 amendment to Explanation to Section 73, which exempted companies primarily engaged in share trading from being classified under speculative business. Although the amendment was effective from 01.04.2015, the Tribunal cited judicial precedents to argue it should be applied retrospectively to avoid undue hardship.

The Tribunal concluded that the principal business of the appellant was share trading and granting loans, thus falling under the exception provided by Explanation to Section 73. Consequently, the share trading loss could not be treated as speculative.

3. Admissibility of Additional Evidence:
The appellant sought to produce additional evidence under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963. However, the judgment did not elaborate on this issue, implying that the primary focus remained on the classification of share loss.

4. Right to Press New or Additional Grounds of Appeal:
The appellant reserved the right to introduce new or additional grounds of appeal or modify existing ones during the hearing. This procedural right was acknowledged, but the judgment did not provide further details on any new grounds pressed during the hearing.

Conclusion:
The Tribunal allowed the appeal, reversing the lower authorities' decision and directing the AO to delete the speculative classification of the share trading loss. The judgment emphasized the retrospective application of the Finance Act 2014 amendment to Explanation to Section 73, recognizing the appellant's principal business as share trading and granting loans, thereby falling outside the speculative category.