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TMI Blog2011 (1) TMI 913X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance in the same manner every year and it is also being accepted by the revenue - Thus, the assessee gets relief of ₹ 28,000. Speculation gain - Long term capital gain on sale of shares -the assessee is a company, but in respect of sale of shares, which were held as investment, it cannot be said that it was part of the business of purchase and sale of shares -Hence, allow the assessee's appeal. Speculation business expenditure - Share transfer - the assessee fairly admittedly that these expenditure were relating to share trading business, therefore, the above expenditure will only increase the speculation loss - Therefore direct the Assessing Officer to increase the speculation loss - The assessee's appeal is rejected. - IT APPEAL NO. 3877 (AHD.) OF 2004 - - - Dated:- 28-1-2011 - G.D. AGARWAL, MUKUL KUMAR SHRAWAT, JJ. S.N. Soparkar for the Appellant. Mrs. Shalini Verma for the Respondent. ORDER Per G.D. Agarwal, Vice-President. This is assessee's appeal against the order of the Commissioner of Income-tax (Appeals)-III, Surat dated 8-9-2004 arising out of the order of the Assessing Officer passed under section 143(3) of the Income-tax Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under two different categories as done by the assessee. There is one business of purchase and sale of shares and any loss arising from such business is to be disallowed as per the Explanation to section 73. In support of this contention, she relied upon the decision of ITAT, Delhi Bench in the case of ITO v. Big Apple Clothing (P.) Ltd. [2010] 5 ITR 44 (Delhi) (Trib.) and the Hon'ble Calcutta High Court in the case of Eastern Aviation Industries Ltd. v. CIT [1994] 208 ITR 1023/74 Taxman 641. 6. We have carefully considered arguments of both the sides and perused the material placed before us. Section 73 of the Income-tax Act deals with the loss in speculation business. The section reads as under : "73. Losses in speculation business. (1) Any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off except against profits and gains, if any, of another speculation business. (2) Where for any assessment year any loss computed in respect of a speculation business has not been wholly set off under sub-section (1), so much of the loss as is not so set off or the whole loss where the assessee had no income from any other speculation bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is appeal. Now, admittedly, the assessee is a company and part of its business is consisting of purchase and sale of shares of other company. The assessee suffered loss in such business, therefore, the Explanation to section 73 would be applicable. The only dispute is how to compute the profit of such speculation business. It is contended by the learned counsel that the loss from the purchase and sale of the shares is to be separately considered and loss on account of valuation of closing stock of the shares is to be separately considered. We are unable to accept the above contentions of the learned counsel. If the contention of the learned counsel is accepted, it would amount to holding that there are two sources of income - one is the trading business of purchase and sales of shares and other valuation of the closing stock. It is settled position of law that the valuation of the closing stock is not a separate source of income. The true purpose of valuing and crediting the closing stock in the trading account is to balance the cost of the goods entered in other side of the account at the time of purchase so as to cancel out the entries relating to same stock from both the sides o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to accrue or arise at the place of carrying on the business." 7. The learned counsel for the assessee had relied upon two decisions of the ITAT, Mumbai Benches in the case of Poineer Equity Trade (India) (P.) Ltd. (supra) and Modella Woollens Ltd.'s case (supra). However, we find that facts in both the above cases were different inasmuch as there was no purchase and sale of shares during the relevant year. Since there was no purchase and sale of shares during the year under appeal before the ITAT, the ITAT has taken the view that Explanation to section 73 was not applicable. The ITAT. Delhi Benches in the case of Big Apple Clothing (P.) Ltd. (supra) has taken the view that the Explanation to section 73 would be applicable even when the loss is arising because of the valuation of shares. In the case under appeal before us, admittedly, there are large number of transactions of purchase and sale of shares during the year under consideration. Therefore, there is no dispute that explanation to section 73 is applicable. Only question in this appeal before us is with regard to determination of loss from the business of purchase and sale of shares. Thus, the facts in the case under appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Free Income 10.55 93.28 Therefore interest is proposed to be disallowed on Rs. 93.28 lacs at the rate of 15% 10.55 93.28 Note : As there is no possibility of established nexus in employment of fund whether investment made in tax free income or taxable income. The working of disallowable interest made on above formula which is accepted by the department in past years in the assessment under section 143(3). 10. At the time of hearing before us, the learned DR could not point out any discrepancy in the above working. It was also pointed out by the learned counsel that on Rs. 93.28 lakhs the interest is calculated at the rate of 15 per cent. the disallowance worked out to Rs. 13,99,200 and the assessee itself rounded off the same to Rs. 14 lakhs and disallowed the sum of Rs. 14 lakhs out of interest. The revenue has not pointed out any discrepancy in the above working of the assessee. In view of the above, we direct the Assessing Officer to disallow the sum of Rs. 14 lakhs out of the interest as against Rs. 14.28 lakhs disallowed by him. Thus, the assessee g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of section 73, two conditions must be satisfied simultaneously; (i) the assessee should be a company and (ii) there should be business of purchase and sale of shares. In this case, the assessee is a company, but in respect of sale of shares, which were held as investment, it cannot be said that it was part of the business of purchase and sale of shares. If the shares were not held as stock-in-trade, but held as investment, the second condition that it should be part of the business of purchase and sale of shares, is not satisfied. Therefore, in our opinion, the capital gain arising from the sale of shares held as investment cannot be hit by the Explanation to section 73. We find that identical view is taken by the ITAT, Ahmedabad Bench in the case of Paramount Ltd. (supra). In view of the above, we allow Ground No. 4 of the assessee's appeal. 14. The Ground No. 5 of the assessee's appeal reads as under : "5. The ld. CIT(A) has erred in law and on facts in confirming the action of the Assessing Officer in treating business expenditure on account of share transfer fees amounting to Rs. 31,088 as speculation business expenditure without assigning any reasons and grounds." 15. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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