TaxTMI 
TaxTMI 
2010 (2) TMI 804
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....ave common share holder having more than 20% of share holding in both doner and done companies." 4. In the course of assessment proceedings it was noticed by the AO that the assessee had taken a loan from the following companies as under:- Details of Loans Received 1 Ashim Inv. Co. Ltd. 20,80,000/- 2 Nav Bharat Vanijiya Ltd. 57,00,000/- 3 Sthenic Inv Ltd. 35,00,000/- 4 JK Agents Ltd. 11,00,000/- 5 Juggilal Kamplapat Agency Ltd. 13,00,000/- 6 Akhand Inv P Ltd. 22,00,000/- 7 Cross Bow Inv P. Ltd. 22,00.000/- Total 1,80,80,000/- 5. The AO also had taken a note of share holding pattern of the assessee company vis-à-vis the company from whom loan has been taken by the assessee company. The AO then issued a show-cause notice as to why the loan taken from the aforesaid companies should not be treated to be the deemed dividend within the meaning of section 2(22)(e) of the Act. In reply there to, the assessee stated that the assessee company itself is not the shareholder in the companies from whom the loans were taken and, therefore, the requisite condition of being shareho....
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.... in the decision of Rajasthan High Court in the case of CIT vs. Hotel Hiltop (2008) 217 CTR 527 (Raj.) and in the decision of Special Bench of Income Tax Appellate Tribunal in the case of Bhaumik Colour Pv. Ltd. (2009) 27 SOT 270 (SB)(Mumbai). In the course of hearing of this appeal, it was not disputed by the ld. DR that the present assessee company is itself is not a shareholder in the companies from whom the loan has been taken. Since the present assessee company is not a registered shareholder in the companies, who had advanced the loan to the assessee company, the provisions of section 2(22)(e) cannot be applied as so held by the Special Bench of the Tribunal in the case of the Bhaumik Colour Pvt. Ltd. (supra). We, therefore, upheld the order of the CIT(A) in deleting the addition of Rs.1,03,00,000/- made by the AO on account of deemed dividend u/s. 2(22)(e) of the Act, and the grounds raised by the revenue are rejected. ITA No. 4639/Del/20099. 9. Now, we shall come to the appeal filed by the assessee. 10. The grounds taken by the assessee are as under:- "1. That the CIT(A) erred in not allowing the set off of brought forward losses of e....
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....le. The CIT(A)'s order on this issue runs as under:- "5.2 I have considered the written submissions made on behalf of the appellant, the findings of the Assessing Officer made in the assessment order and the facts on record. It is an admitted fact and thus not disputed that the income in the year under consideration has arisen only on account of valuation of shares. In other words, it means that the income has been earned by the assessee for holding the shares, whereas the speculation loss is incurred on purchase and sale and by transferring the shares. The two transactions are altogether different and therefore the case of the appellant would be directly covered by the decision of the Calcutta High Court in the case of K.L. Jhunjhunwalla (1983) 139 ITR 371 (Cal.). In this case the set off of commission received by the assessee against the speculative loss was rejected on the ground that there was not element of speculation whatsoever in the commission income received by the assessee though it has arisen from the transaction in the business of jute and hessian goods, which were settled otherwise than by actual delivery and were speculative in nature. The brokerage was als....
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....ale of such shares. It is only this party of the activity, i.e., purchase and sale of shares, which is held to be speculative in nature. The earning of the assessee from those shares or other shares held by an assessee as stock-in-trade have not been so deemed to be income from speculation. In the instant case, the income has not been earned by transfer of shares; rather it has been earned by holding the shares on a particular day on account of valuation. It is also observed that the facts and circumstances of the case of ACIT vs. Sungrace Merchandise Pvt. Ltd. (supra) are distinguishable because in that case the assessee was engaged in the shares trading business. Needless to mention that in the instant case, the income has arisen from valuation of shares and not from transfer of shares during the year under consideration. Therefore, in my considered opinion, the action of the Assessing Officer was justified in not allowing the set off of the current year's income against the brought forward speculation losses of Assessment Years 1998-99 and 2000-01, the dispute regarding which is subjudice before the High Court. This contention of the assessee raised by way of ground no. 2 is, th....
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....ies on the business of purchase and sale of shares; (iii) its principal business is not the business of banking or granting of loans and advances; and (iv) the gross total income of the assessee is not consisting mainly income which is chargeable under the heads 'interest on securities', 'income from property', 'capital gain' and 'income from other sources'. The AO himself for assessment years 1997-98 and 1998-99 held the share trading business of the assessee to be speculation business within the meaning of Explanation to Sec. 73 of the I.T. Act. It is stated by the learned counsel that the ITAT also in assessmet year 1997-98 upheld the finding of the lower authorities that the assessee's business of share trading is speculation business. It is also not in dispute that the nature of the assessee's business is same in the year under consideration. Now the contention of the Revenue is that Explanation to Sec. 73 would be applicable only if there is a loss in share trading business and this Explanation will not be applicable when there is profit from share trading business. We are unable to accept this contention of the Revenue. Explanation nowhere provides that the deeming provision....
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..... counsel for the assessee that losses in the business of dealing of shares in earlier years has been worked out on account of valuation of closing stock of shares at lower value on account of fall in market rate of shares. The loss in earlier years incurred in business of dealing of shares has been treated to be in the nature of speculation loss in terms of Explanation to section 73 of the Act. It is well settled from the decision of CIT vs. Sun Distributor and Mining Co. Ltd. (1993) 68 Taxman 223 (Calcutta) that Explanation to section 73 is applicable even to the situation where shares were valued at lower rate and the loss was disclosed because of valuation. It was further held therein that it is not the requirement of Explanation to section 73 that both the purchase and sale of shares should take place in the same year, and the very fact that the shares were valued as stock in trade and loss was disclosed as a result of the valuation of the shares, would go to show that the business of purchase and sale of shares was carried on by the assessee, and to that extent the business of the assessee company must be treated as speculation business. In this view of the matter, the loss r....