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TMI Blog2016 (11) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... : Shri Vilas V. Shinde, Sr.D.R. ORDER Per S. S. Godara, Judicial Member This is a batch of four appeals. First assessment year 2001-02 involves three cases comprising of two quantum cross appeals ITA Nos.943 1256/Ahd/2005 filed by assessee and the Revenue against CIT(A)-XIV, Ahmedabad s order dated 02.02.2005 passed in case no. CIT(A)/XIV/ACIT C.8/56/2004-05. The latter party has further instituted ITA No.2735/Ahd/2006 assailing correctness of the CIT(A)-XIV, Ahmedabad s order dated 18.09.2006 in case no. CIT(A)/XIV/AC. C 8/34/2006-07. Next assessment year 2002-03 contains assessee s appeal ITA No.927/Ahd/2006 arising from CIT(A)-XIV, Ahmedabad s order dated 07.02.2006 in case appeal no. CIT(A)/XIV/ACIT C.8/69/2005-06. Relevant proceedings in all cases except ITA No.2735/Ahd/2006 are u/s.143(3) of the Income Tax Act, 1961; in short the Act whereas the above stated appeal involves proceedings u/s.271(1)(c) of the Act. We proceed assessment year-wise for the sake of convenience and brevity. Assessment Year 2001-02 2. This assessment year comprises of three appeals as clarified hereinabove in opening paragraph. Assessee s appeal ITA No.943/Ahd/2005 raises thr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceived on such shares. Only reason for making disallowance of interest is that the appellant has invested funds in share trading activity and investment and income from shares by way of dividend is exempt. The case of Laxmi Agents reported at 125 ITR 227 it seen that it was with reference to deduction u/s. 80M. The CIT(A) Mumbai in his order, supra has held that in respect of interest not connected with dividend income, sec. 14A would not be applicable and has accordingly confirmed the disallowance u/s. 14 A with reference to shares on which dividend is received. As the facts mentioned in A.Y. 1999-2000 are similar, the appellant was requested to furnish necessary details for the same, which were duly furnished. On a perusal of the same, I find the following facts:- Cost A List of shares which are purchased sold during the year. Bajaj Auto Ltd. 18,58 Morgaon Stanley Units 423,430 Reliance Industries Ltd. 13940750 Total 143827 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exigible since the assessee had made investments yielding the impugned exempt income in group companies for acquiring controlling interest. Ld. coordinate bench places reliance on case law CIT vs. Srishti Securities Pvt. Ltd. (2010) 321 ITR 498 (Bombay) as well as this tribunal s decision in M/s. Questar Investments Ltd. vs. ACIT in ITA No.6332/Mum/2004 and M/s. Interglobe Enterprises Pvt. Ltd. vs. DCIT ITA Nos. 1362 1032/Delhi/2013. The Revenue fails to dispute this factual and legal position. It has already come on record that there is no exception in the relevant factual backdrop of these two assessment years. We accordingly delete the remaining Section 14A disallowance component of ₹ 1,27,74,382/-. The assessee s first substantive ground raised in its appeal is accepted whereas Revenue s corresponding sole substantive ground in its appeal ITA No.2735/Ahd/2006 as well as the main case itself fails. 6. We now come to assessee s second substantive ground assailing correctness of both the lower authorities order treating a sum of ₹ 1,20,741/- as speculative loss. The CIT(A) s findings under challenge discuss relevant facts as well as Assessing Officer s observation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s direct loss or profit arising from purchase and sale of shares. Interest paid on borrowed hinds cannot be pail of purchase and sale of shares. Hence, interest attributable to such borrowings cannot be part of purchase and sale of shares. (c) The appellant referred circular no. 204 dated 24.07.1976 with reference to (lie said explanation and stated that the Board has also explained that the said explanation covers the loss from shares trading only. The appellant also referred to the words extent to which the business and stated that it restricted to purchase and sale only. The appellant also referred to the- speculation transaction defined in section 43(5)and staled that it includes only transactions of purchase and sale of shares and thus, it is submitted that interest attributable to purchase and sale of share cannot be part of speculation loss. (6.2) I have considered the assessment order and the submissions as advanced by the counsel of the appellant. On perusal of facts, it is seen that the appellant is having business activity and at the same tune has earned on purchase and sale of shares. Considering these facts. 1 hold that the A.O was justified in invoking E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplanation hereinabove in these peculiar facts and circumstances. We accordingly delete the impugned disallowance/addition of speculation loss of ₹ 1,20,741/-. The assessee succeeds in its second substantive ground. Its appeal ITA No.943/Ahd/2005 is partly accepted. 10. This leaves us with Revenue s remaining appeal ITA No.2735/Ahd/2006 seeking to revive Section 271(1)(c) penalty of ₹ 27lacs pertaining to above three quantum issues raised in the impugned assessment year. The assessee has already succeeded on the first two issues of Section 14A disallowance and that of speculation loss. We notice that third issue is of head of income wherein the assessee declares an amount of ₹ 86.50lacs received from M/s. Vimpson Agencies as its business income. Both the lower authorities treat the same to be income from other sources after holding that the correspondence transaction are between group entities with an intent to reduce tax liability. The very factum of the impugned payments being received is not an issue. We hold in these peculiar facts that this is neither a case of concealment nor furnishing of inaccurate particulars of income inviting Section 271(1)(c) penal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest free funds for carrying out share trading activity and therefore, the impugned loss must also include its interest expenses incurred for purchase of the shares in question. It thus took into account assessee s interest paid qua unsecured loans of ₹ 1,20,18,610/- to compute proportional interest outgo to arrive at a figure of ₹ 7,66,152/- as pertaining to the above sum of ₹ 95,76,900/-. The Assessing Officer would add this amount to above stated figure of ₹ 16,71,900/- thereby arriving at a gross sum of ₹ 24,38,052/-. 14. This case file indicates that the Assessing Officer then proceeded to invoke Section 73 explanation. His view was that assessee s statement of income revealed the same to be having the entire income under the head business income bringing it out of the ambit of exception provided in the above explanation. He drew support from CIT(A) s order dated 02.02.2005 pertaining to the immediate preceding assessment year. The Assessing Officer further held in assessment order that the assessee satisfied second condition of applicability of the above explanation since its income from sale purchase of shares found part of the total in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest received of ₹ 1,22,100/- Thus, explanation to sec. 73 is very much applicable to the appellant's case, as the exemption clause provided in explanation to Sec. 73 is not applicable to the appellant. Therefore, when it is held that sec. 73 is applicable, the loss from the share transaction is to be held as speculation loss. Hence, the action of A.O was justified. The A.O. was justified in calculating the interest cost, as this also becomes loss to the appellant from the share transaction. Hence this ground is also rejected. It is also relevant that in earlier asst. year , the CIT(A) has also held that explanation to sec. 73 is applicable to the appellant's case and similar grounds were rejected in earlier years, vide his order dt. 21-10-2004 for AY. 2001-02. 5. The ground No. 7 is regarding treating the sum of ₹ 94,42,003/- as speculation loss attributable to the reduction in market value of shares held by the assessee as stock in trade. The assessee claimed loss of ₹ 94,42,003/- due to reduction in market value of stock. The AO has held that explanation to sec. 73 is applicable to the assessee. Hence the loss is a speculation loss. The appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d bench applies legal maxim generalia specialibus non derogant in view of hon ble apex court s decision in Union of India vs. India Fisheries (P.) Ltd. (1965) 57 ITR 331 (SC). We deem it appropriate at this stage to reproduce the said findings on this issue reading as under: 12. We now come to assessee s plea that as to what will constitute speculation loss for the purpose of section 72 of the Act, will be governed by the provisions of section 43(5) of the Act. We may mention that as per provisions of section 43(5) of the Act, In sections 28 to 41 and in this section, unless the context otherwise requires speculative transaction means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips . In substance, the proposition thus canvassed is that the expression speculation business , for purposes other than section 73 of the Act, is to be governed by the definition contained in section 43(5), as read with section 28 (Explanation 2), of the Act. However, this proposition also proceeds on a fallacy i.e., that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ff against profits from a speculation business, the excess will be carried forward to the following assessment year and set-off against profits, if any, from any speculation business. 13. In any event, as observed by a co-ordinate bench in the case of Executor of the Estate of Bhagwan Devi Sarogi (supra) a special provision must be read as a proviso to the general provision and the general provision, insofar as it is inconsistent with the special provisions, must be deemed not to apply . Therefore, provisions of section 73 are required to be read as proviso to section 72 and, to the extent carry forward of speculation losses is concerned, section 72 will not have application in the matter. In this view of the matter, we reject the contention that, for the purpose of section 72 of the Act, the question as to what will constitute speculation loss will be governed only by the provisions of section 43(5) of the Act. We also see no substance in learned counsel s reliance on the words for the purpose of this section appearing in Explanation to section 73 because once specific provisions under section 73 are to be applied first, i.e., before the application of general provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion cannot be put into service for any other purpose at all. This construction will, therefore, tantamount to obliterating the provision from the statute and will, accordingly, be clearly contrary to the principle of ut res magis valeat quam pereat approved by the Honble Supreme Court in Teja Singh case (supra) and by the Honble jurisdictional High Court in Jayshree Charity Trust case (supra). It as, however, an altogether different matter that since we have rejected the interpretation, canvassed by the assessee, on merits and for the detailed reasons set out above, this aspect of the matter, strictly speaking, ends up being of somewhat academic interest. 16. We now move on to the assessee s alternate contention that the that loss in share dealings was only on account of fall in value of shares held as closing stock and, therefore, the loss so suffered cannot be said to be loss on account of purchase and sale of shares within meanings of section 73. However, we find that there is nothing on record to substantiate the factual elements embedded in this proposition and this plea, being taken for the first time at this stage, seems to be a new twist to the assessee s case. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sampatram (supra) loss on account of fall in value of stock is to be treated as loss of that business on the ground of prudence, fully sanctioned by the custom. Their Lordships of Hon'ble Supreme Court inter alia observed that, ...valuation of unsold stock at the end of an accounting period is a necessary part of the process of determining the trading results of that period, and can in no sense be regarded as source of such profits (or losses) . In this view of the matter, the loss on valuation of closing stock of shares, in the present case, cannot be treated any different than a normal trading loss; such a loss is, as is the settled legal position, an integral part of the loss on trading, ie., purchase and sale, of shares. 18. Accordingly, in our considered view, the proposition advanced by the learned counsel is neither supported by admitted factual position or the settled legal principles. For these reasons, we reject the alternate contention also. 19. Before parting with this issue, we may also briefly touch upon the assessee s plea, against literal interpretation of the provisions, taken up before the authorities below. Suffice to say that we are in consider ..... X X X X Extracts X X X X X X X X Extracts X X X X
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