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TMI Blog2017 (3) TMI 1327X X X X Extracts X X X X X X X X Extracts X X X X ..... s as held by AO and confirmed by FAA.In our opinion facts of Lokmat case [2010 (2) TMI 94 - BOMBAY HIGH COURT ] are applicable to the facts of present case. - Decided in favour of assessee Penalty u/s 271(1)(c) - Held that:- While deciding the appeal filed by the assessee we have held that transaction entered into by the assessee were not of speculative nature that the loss was allowable as business loss. Therefore, penalty order would not survive.- Decided in favour of assessee - I.T.A. /1259/Mum/2012 - - - Dated:- 24-3-2017 - Sh.Rajendra, Accountant Member and Amarjit Singh, Judicial Member For The Revenue : Shri Anand Mohan-CIT-DR For The Assessee : Shri Jay Bhansali PER RAJENDRA, AM Challenging the order dated 13/09/2011 and 10/01/2014 of the CIT (A) 7, Mumbai the assessee and the Assessing Officer (AO) have filed the above-mentioned appeals for the year under consideration. The assessee has filed the appeal against the addition made by the AO in quantum proceedings, whereas, the AO has challenged the deletion of penalty levied u/s.271 of the Act.For the sake of convenience, we are disposing of both the appeals by a single common order.Assessee-comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es were valued at lower of cost or market price at the balance sheet date as per the consistent accounting policy followed by it, that there was a book loss, that the loss on account of valuation of stock had been reversed in the subsequent years in valuation or sales when market improved. After considering the submission of the assessee, the AO held that as per Explanation 1 to section 73 loss on sale of shares had to be treated as speculation loss, that explanation was deeming fiction. Referring to the case of Eastern Aviation Industries Ltd. (208/1023), the AO held that the loss suffered by the assessee during the previous year of ₹ 34.26 crores was to be treated as loss of speculative business. 3. Aggrieved by the order of AO the assessee preferred an appeal before the First Appellate Authority(FAA).Before him the assessee made elaborate submissions. After considering the same, the FAA held that the issue involved stood covered against the assessee by judgment of Hon'ble Jurisdictional High Court in the case of Lokmat Newspapers Pvt.Ltd.(332ITR 43).Taking note of the aforesaid judgment he dismissed the appeal filed by the assessee. 4. During the course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e question raised before the Hon ble Court and it reads as under: Whether on the facts and in the circumstances of the case and in law the Hon'ble I.T.A.T. was justified in holding the trading loss of ₹ 84,51,000/- as Ordinary Business Loss as against Speculation Loss as held by the Assessing Officer by relying on the decision of the ITAT Delhi bench in the case of Aman Portfolio Pvt. Ltd. 93 ITD 324ignoring the decision of the Divisional Bench of ITAT Delhi in the case of Frontline Capital Services Ltd. 96 TTJ 201 and also the decision of the ITAT Delhi Bench in the case of Rohini Capital Services Ltd. 92 ITD 317while deciding that the Explanation to Sec. 73 of the Income-Tax Act, 1961 cannot be invoked in the case of the assessee ? Facts of the case the relevant portion of the judgment are as follow: 4. On 1.12.1997, the respondent filed its return for the assessment year 1997-1998 declaring a total loss of ₹ 1,95,12,651/-. On 12.3.1998, the respondent filed a revised return declaring a total loss of ₹ 1,24,92,940/-. In the revised return, the assessee showed loss of ₹ 1,65,29,711/- arising out of the purchase and loss of shares. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ming fiction. The deeming fiction stipulates that where any part of the business of a company consists in the purchase and sale of shares of other companies, such company shall, for the purposes of the section be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sales of such shares. The deeming fiction applies only to a company and the provision makes it clear that the deeming fixation (sic) extends only for the purposes of the section. The bracketed portion of the explanation, however carves out an exception. The exception is that the provision of the explanation shall not apply to a company whose gross total income consists mainly of income which is chargeable under the heads Interest on securities , Income from house property , Capital gains and Income from other sources or a company whose principal business is of banking or the granting of loans and advances. 7. The submission which has been urged on behalf of the Revenue is that in computing the gross total income for the purpose of the explanation to Section 73, income under the heads of profits and gains of business or profession must be ignored. Alt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation. That would be impermissible, nor, is it contemplated by Parliament. For, 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 accept against the profits and gains of another speculation business. In order to determine whether the exception that is carved out by the explanation applies, the legislature has first mandated a computation of the gross total income of the Company. The words consists mainly are indicative of the fact that the legislature had in its contemplation that the gross total income consists predominantly of income from the four heads that are referred to therein. Obviously, in computing the gross total income the normal provisions of the Act must be applied and it is only thereafter, that it has to be determined as to whether the gross total income so computed consists mainly of income which is chargeable under the heads referred to in the explanation. 9. Consequently, in the present case the gross total income of the assessee was required to be computed inter alia by computing the income under the head of profits and gains of business or profession as well ..... X X X X Extracts X X X X X X X X Extracts X X X X
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