2013 (2) TMI 179 - AT - Income Tax

Disallowance of speculation loss - CIT(A) treating the share trading loss as normal business loss and allowed expenses relating thereto which had been disallowed by the AO - Assessee is a company whose gross total income consists of house property, capital gain, other sources and loss from trading of shares & entire business consists of purchase and sale of shares - whether the provisions of Explanation to section 73 would apply ? - Held that - As decided in Arvind Investments Ltd. (1990 (3) TMI 5 - CALCUTTA HIGH COURT) Explanation to Section 73 would apply even when entire business consists of purchase and sale of shares. Treatment of loss from different heads included in the gross total income - Held that - This issue is covered by the judgment of Park View Properties (P.) Ltd. (2003 (1) TMI 69 - CALCUTTA HIGH COURT) following the judgment of CIT v. Harprasad & Co. (P.) Ltd. 1975 (2) TMI 2 - SUPREME COURT and CIT v. J.H. Gotla 1985 (8) TMI 5 - SUPREME COURT wherein held that loss is negative income, held that while considering the different constituents of gross total income, the figures in absolute terms should be considered whether positive or negative. The Hon ble Court followed the earlier judgment in case of Eastern Aviation & Industries Ltd. (1993 (7) TMI 41 - CALCUTTA HIGH COURT) in which it was held that when the income from house property, capital gain and other sources even if positive is lower than figure of loss from business activities, it will not be a case of gross total income consisting mainly of income from house property, capital gain and other sources. Since the figure of loss in absolute terms in share trading was higher then income from other sources taken together, it was held that the provisions of Explanation to Section 73 would be applicable. Situation in the present case is identical. Therefore, following the above judgments it has to be held that case of the assessee will be covered by the provisions of Explanation to section 73. No contrary judgment of any other High Court or Apex Court has been brought to our notice or has been referred to by CIT(A) who has only relied on the decisions of the Tribunal. Thus trading loss in this case has been rightly treated as speculation loss by AO and accordingly the disallowance of expenses attributable by AO towards trading activities confirmed - against assessee.

Summary

Issues:
1. Whether the loss from trading of shares should be treated as speculation loss or normal business loss.
2. Allocation of expenses related to share trading activities.

Issue 1:
The appeal by the revenue challenged the decision of CIT(A) regarding the treatment of a share trading loss of Rs. 3.25 crores. The Assessing Officer (AO) treated the loss as speculation loss under the provisions of Explanation to section 73. The AO contended that since the main business of the assessee was the purchase and sale of shares, the loss should be treated as speculation loss. The AO disallowed expenses relating to share trading activities. The assessee argued that the provisions of Explanation to section 73 were not applicable as the main source of income was from house property. The CIT(A) accepted the claim of the assessee, treating the trading loss as a normal business loss. The Tribunal, however, held that the case fell under the provisions of Explanation to section 73, as the entire business of the assessee consisted of share trading. Citing judgments from the High Court, the Tribunal upheld the AO's treatment of the loss as speculation loss and confirmed the disallowance of expenses related to share trading activities.

Issue 2:
The second issue revolved around the allocation of expenses concerning share trading activities. The AO disallowed expenses of Rs. 31,12,030 attributable to trading activities, based on a composite expense claim by the assessee. The assessee argued that since the gross total income consisted mainly of a loss from share trading, the provisions of Explanation to section 73 were not applicable. The CIT(A) accepted the assessee's argument, treating the trading loss as a normal business loss and allowing the expenses. However, the Tribunal disagreed, citing judgments from the High Court that supported the AO's treatment of the loss as speculation loss. The Tribunal upheld the disallowance of expenses related to share trading activities, confirming the AO's decision.

In conclusion, the Tribunal allowed the appeal of the revenue, upholding the AO's treatment of the share trading loss as speculation loss and confirming the disallowance of expenses related to share trading activities. The Tribunal's decision was based on the application of the provisions of Explanation to section 73 and supported by relevant judgments from the High Court.