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TMI Blog2016 (10) TMI 990X X X X Extracts X X X X X X X X Extracts X X X X ..... ounds have been raised and out of which Ground No.5 was not pressed therefore, same is dismissed as not pressed. Ground No.7 is general nature and does not require separate adjudication. Remaining grounds raised by assessee per its appeal are as under:- 1) For that on the facts and in the circumstances of the case. the CIT, Kolkata-I erred in law in passing the order u/s 263 of the I T Act setting aside the assessment order and directing AO to pass a denovo assessment even though the show cause notice was issued only for 2 specific reasons, 2) For that on the facts and in the circumstances of the case. the CIT. Kolkata-l was grossly unjustified in law and on facts in holding the assessment order u/s. 143(3) dated 10.12.2010 was erroneous and prejudicial to the interest of the revenue even though the AO did not commit any error while passing the order u/s. 143(3). 3) For that on the facts and in the circumstances of the case, the CIT, Kolkata-I was grossly unjustified in law in holding that Explanation to Sec 73 of the IT Act was applicable to the appellant and therefore the loss incurred by the assessee in purchase sale of shares was assessable as loss derived from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use of the Explanation to Sec. 73 of the Act. However, the ld. CIT disregarded the claim of assessee on the ground that the income chargeable to tax is only from the source of STCG and income from the source of Long Term Capital Gain / dividend shall not be considered while applying the provisions of Explanation to Sec. 73 of the Act. In the instant case, the assessee has granted loans of ₹ 1,20,57,818/- and the closing stock of share is of ₹ 20,31,84,422/- as evidenced from the balance sheet of the assessee. In view of above, the impugned order of ld.CIT u/s. 263 set aside the order of the AO with the direction to examine the books of account, documents, evidences and then to pass de-novo assessment order. 4. Aggrieved by the order of the ld.CIT, assessee is in appeal before us by raising the above mentioned grounds of appeal. 5. Before us the ld.AR for the assessee filed a paper book containing pages 1-16 and submitted that for applying the deeming provisions of Explanation to Sec.73, overall conduct of assessee needs to be examined. He submitted that the assessee in the preceding and succeeding assessment years has not made any purchase/sale of shares. The comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irection. This would automatically render the order u/s 143(3) of the Act erroneous . This proposition derives its strength from the explanation 2 to Section 263 of the Act, which itself was introduced on 01.06.2015, but being clarificatory of procedure in nature, is fully applicable retrospectively. The relevant portion of this explanation - 2 is reproduced below: - For the purposes of this section, it is hereby declared that an order passed by an Assessing officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of revenue, if in the opinion of the Principal Commissioner or Commissioner - A. the order is passed without making inquiries or verification which should have been made. B. The order is passed allowing any relief without inquiring into the claim. 7. In the light of above, it was plain that at the time of the passing of the order u/s. 143(3) of the Act, that is on 10.12.2010, the said order was erroneous as well as prejudicial to the interests of revenue. As regards, the contention of the appellant that he could claim exemption from applicability of Section 73 by suggesting that he was a company that was not dealing in sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art of the income of the appellant would be patently inaccurate. 8. It was in this backdrop, that the Ld. CIT, upon examination of the records, formed an opinion, that the said order of the AO was erroneous and prejudicial to the interests of revenue on the above two counts. While in the first part, the revenue involved was large, in the second, it was smaller. But undoubtedly, the prejudice to revenue seemed to exist. He therefore, issued a notice to the assessee. The assessee has submitted his explanations to the Ld. CIT along with a chart showing comparative incomes from various sources over several years. It may be noted from a comparison of the chart produced before the Hon'ble Tribunal and that submitted before the Ld CIT that the assessee had deliberately omitted the mention of income earned through the trading in shares before the Ld CIT. The assessee had argued before the Ld CIT that the income from shares in the relevant year was minuscule in comparison with the rest of the income. This, we have seen, is not true at all. Even if the quantum involved in the sum of all incomes from various heads - taxable or not - is compared to the profit/loss from trading act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised this issue upon the assessee in his show cause letter and the appellant has duly replied to it. 12. It is pertinent to note that the assessee has, while arguing his appeal before the Hon'ble Tribunal, on 10.8.2016 clearly stated that assessee is not pressing the ground number 5 of assessee s grounds of appeal before the Tribunal. Therefore, this ground, which challenges the second part of the Ld CIT's objections based on which the order u/s 143(3) has been called erroneous, has been accepted by the appellant as being meritorious. 13. It may be mentioned that Section 263, while talking about orders that are erroneous and prejudicial to the interests of revenue does not differentiate between substantial mattes of revenue or smaller matters of revenue. In this case, it is submitted that if there are more than issues on which the Ld. CIT finds in his impugned order u/s 143(3) of the Act in error and in prejudice to the interest of revenue, and sets the order u/s 143(3) aside; and if hypothetically, the opinion so formed by the Ld. CIT fails on anyone of the counts, even then the order setting aside the order of the AO will continue to stand - especially, since t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o which the business consists of the purchase and sale of such shares.] From the above provisions we find that there are 3 exceptions given in the explanation to Section 73 of the Act. Firstly the provisions to explanation to Section 73 of the Act is not applicable to the assessee having income mainly form income Interest on securities, House property, capital gains and income from other sources. In the instant case the income of the assessee is mainly from long term capital gain, therefore it is out of the purview of the Explanation to Section 73 of the Act. Income here means the net income. In this connection we rely in the order of Hon ble High Court of Calcutta in the case of CIT Vs. Middleton Investment Trading Co. Ltd. in ITA 196 of 1999 where the issue was decided in favour of assessee after having the reliance in the case of CIT Vs. Darshan Securities (P) Ltd. reported in 341 ITR 556. The relevant extract is reproduced below:- The ambit of sub-section (1) of section 73 is only to prohibit the setting off of a loss which has resulted from a speculation business, save and except against the profits and gains of another speculation business. In order to determine wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 73 it has been provided that speculation loss shall be set off only from out of income arising out of speculation. The aforesaid stipulation has, however, been qualified by the Explanation wherein two exceptions have been made. The two exceptions are really two distinguishing factors. One is a factor based on income and the other is a factor based on activity as would appear from the explanation underlined by us. The submission Advanced by Mr. Poddar, prima facie, appears to be correct. Mr. Nizamuddin was unable to make any suitable reply to the aforesaid submission of Mr. Poddar. Speaking for ourselves we are inclined to accept the submission advanced by Mr. Poddar. Because both income and business activity, according to the legislative mandate, are distinguishing factors. Therefore income alone cannot be taken into account in deciding whether the assessee is entitled to make a departure from the mandate appearing in sub-section (1). In the case before us the activity of granting loans and advances is on a larger scale than the business of buying and selling shares. Both profit and loss are matters of chance in both the activities. Therefore profit alone was not made the dist ..... X X X X Extracts X X X X X X X X Extracts X X X X
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