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TMI Blog2010 (10) TMI 503X X X X Extracts X X X X X X X X Extracts X X X X ..... NO. 472/MUM/07 - - - Dated:- 20-10-2010 - SHRI P.M. JAGTAP, A.M. SHRI VIJAY PAL RAO, JM Appellant by Shri Kanchun Kaushal Shri Dhanesh Bafna Respondent by Ms. Mahua Sarkar ORDER This appeal by the assessee is directed against the order of ld. CIT(A) XXIII, Mumbai dated 26.10.2006. 2. In ground No. 1, the assessee has challenged the action of the ld. CIT(A) in confirming the order of the A.O. in treating the loss in trading of shares included under the head "profits and gains of business or profession" as speculation loss by virtue of Explanation to section 73. 3. The assessee in the present case is a company which is engaged in the business of trading and investment in shares. The return of income for the year under consideration was filed by it on 30.10.2001 declaring a loss of Rs. 14,22,97,586 under the head profits and gains of business or profession . During the course of assessment proceedings, it was noticed by the A.O. that similar loss claimed by the assessee company of having incurred in the business of trading in shares was treated as speculation loss by invoking the provisions of Explanation to section 73 in the earlier years. He, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf before the ld. CIT(A). The ld. CIT(A), however, did not find any merit in the said submissions and rejecting the same, he upheld the action of the A.O. in treating the loss claimed by the assessee from the business of trading in shares as speculation loss for the following reasons given in paras 9 to 11 of his impugned order :- I have carefully considered the above arguments. Firstly, the contention that delivery of shares has been taken has no relevance in the consideration of the applicability of explanation to sec. 73. Secondly, the argument of interpreting the expression any part as distinguished from the entire business is frivolous. It has been already judicially settled that entire business activity of share dealing does not make a company one that does not have any part not engaged in the said activity and in any case the entire or the whole includes a part. The appellant has not case its logic that the phrase any part maintained in the Explanation is not meant for a company entirely engaged in the share dealing activity is laughably indecorous. Finally, as regards the gross total income-test, the Assessing Officer has already shown that the share dealing l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the Explanation to section 73 contains deeming provisions which cannot override the provisions of section 43(5) which define speculative transaction. According to him, there has to be loss from speculative transaction within the meaning of section 43(5) first and then only Explanation to section 73 can be invoked. 7. The ld. D.R., on the other hand, submitted that the provisions of Explanation to section 73 are very clear whereby the activity of purchase and sale of shares is treated as speculation business subject to fulfilment of certain condition. He contended that the said conditions are fully satisfied in the case of the assessee and this being the undisputed position, nothing can be read in to the provisions of Explanation to section 73 as sought by the learned counsel for the assessee as the said provision are very clear and unambiguous. . . . 8. We have considered the submissions both the sides and also perused the relevant material on record. The only contention which has been raised by the ld. Counsel for the assessee while challenging the action of the authorities below in treating the loss from purchase and sale of shares as speculation loss by invoking Explanat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee in respect of business of purchase and sale of shares as speculation loss by invoking the said Explanation. 9. In the case of CIT v. Arvind Investments Ltd., 192 ITR 365, the question referred to the Hon ble Calcutta High Court was whether on the facts and circumstances of the case the Tribunal was correct in holding that the Explanation to section 73 of the Income Tax Act, 1961 has no application in the case in view of the fact that the entire business of the assessee was in share dealing and while answering the same in the negative i.e. in favour of the Revenue, it was held by the Hon ble Calcutta High Court that the Explanation to section 73 introduces a legal fiction and if the business of a company which does not fall within the excluded categories consists of purchase and sale of shares of other companies then such a company shall be deemed to be carrying on speculation business for the purpose of section 73 to the extent to which the business consisting of purchase and sale of such shares. It was also held that the provisions of Explanation to section 73 have to be contrasted with the provisions of section 43(5) which defines speculative transaction to mean ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Counsel for the assessee that Explanation to section 73 can be invoked only in a case where there is any loss computed in respect of speculative transaction within the meaning of section 43(5) carried on by the assessee. We, therefore, reject the said contention being devoid of merits and uphold the impugned order of the ld. CIT(A) confirming the action of the A.O. in treating the loss claimed by the assessee in respect of business of trading in share treating as speculation loss in terms of Explanation to section 73. Ground No. 1 of the assessee s appeal is accordingly dismissed. 12. Ground No. 2 relates to the disallowance of Rs. 1,60,26,141 made by the A.O. and confirmed by the ld. CIT(A) on account of interest expenditure. 13. During the course of assessment proceedings, it was noticed by the A.O. from the balance sheet of the assessee company that its net worth as on 31.3.01 was negative and there were thus no own funds which were available with the assessee company. According to the A.O., the loans and advances given by the assessee company for non-business purpose thus were given out of the borrowed funds and proportionate interest paid on such borrowed funds to the exte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed out by him at Rs. 1,60,26,141 was disallowed. On appeal, the ld. CIT(A) confirmed the said disallowance made by the A.O. out of interest expenditure. 14. We have heard the arguments of both the sides and also perused the relevant material on record. It is observed that an advance of Rs. 85 lacs given by the assessee to M/s Punit Infosis Pvt. Ltd. in the earlier year and remained outstanding throughout the year under consideration was treated by the A.O. as advance given for non-business purpose and interest attributable thereto was disallowed by him relying, inter alia, on the assessments made in the earlier years wherein a similar disallowance was made. As pointed out by the ld. Counsel for the assessee, this issue has already been examined by the co-ordinate Bench of this Tribunal in assessee s own case for earlier years and as held by the Tribunal on such examination vide its order dated 21.6.07 passed for A.Ys. 1996-97 to 1999-2000, the advance of Rs. 85 lacs was given by the assessee company to M/s Puneet Infosis Pvt. Ltd. for purchase of shares in its name. It was held by the Tribunal that the said advance therefore could not be said to be not for the purpose of assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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