TaxTMI 
TaxTMI 
2015 (12) TMI 513
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.... notice issued under Section 153A and the assessment framed under Section 153A/143(3) are in violation of the statutory conditions of the Act and the procedure prescribed under the law and as such the same is bad in the eye of law and liable to be quashed. 4. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the addition despite the fact that the proceedings initiated under Section 153A and the assessment framed in consequence thereof are bad in law in the absence of any incriminating material belonging to the assessee being found during the course of the search. 5. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in passing the order without giving assessee a proper and adequate opportunity of being heard. 6. On the facts and circumstances of the case, the learned Cit(A) has erred both on facts and in law in making the various additions without there being any incriminating material being found during the course of the search. 7(i) On the facts and circumstances of the case, the learned Cit(A) has erred both on facts and in law in confi....
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....) of the Act and it was business loss as per the Act which was clearly allowable. The AO however did not find merit in the submission of the assessee and observed as under: "The argument was examined but is not satisfactory. The case of the assessee is squarely covered under provisions of Section 43(5) and 73 of Income Tax Act, 1961. It is seen from Balance Sheet that stock of shares as on 31.03.2005 was Rs. 9,21,500/-. Further stock as on 31.03.2006 was also Rs. 9,21,500/-. It means that the assessee was playing in Future and options/derivatives without having stock and booked a loss of Rs. 3,93,08,929/-. It was purely speculative transactions as the assessee has nothing to deliver as it had virtually no stock. The assessee's case is not covered by Clause (d) to section 43(5) of Income Tax Act, 1961. If the assessee had sufficient stock so as to enable him to play in derivatives, there is fair possibility that he may not book loss as small loss in derivative will yield him substantial gain in share/commodity market if he had stock. Therefore, it is quite clear that the assessee was dealing in derivatives without having sufficient stock. This is clearly a speculative trans....
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....me chargeable under the heads interest of Securities and business of trading in shares etc. The income details appearing in P & L A/c show that it has income from interest income, dividend income and income from share trading and brokerage income. The appellant's case is covered by Explanation to Section 73 of the Act. Hence, the loss booked by the assessee from trading in Futures and Options/derivatives to the extent of Rs. 3,93,08,929/-, has been rightly treated as loss from speculative business. The ratio of Hon'ble Jurisdictional High Court in the case of CIT, Delhi- IV Vs DLF Commercial Developers ltd. (2013) 35 Taxmann.com 280 (Del.) is directly applicable to the appellant's case. The relevant ground is therefore dismissed." 8. Now the assessee is in appeal. The ld. Counsel for the assessee reiterated the submission made before the authorities below and further submitted that the loss incurred by the assessee was mainly from derivatives and not from the shares. Therefore, the explanation to Section 73 of the act was not applicable. It was further submitted that the ld. CIT(A) had not examined the basic condition for applying explanation to Section 73 of the Act which is ap....
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....f loans and advances) consists in the purchase and sale of shares of other companies, such company shall, for the purposes of this section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares.]" 11. A bare reading of the above provisions clarifies that where any part of the business of a company other than the investment company or banking company or finance company relates to the purchase and sale of shares, such company shall for the purpose of these sections be deemed to be carrying on a speculative business to the extent to which the business consists of purchase and sale of shares. The Explanation also talks about the income which is chargeable under different heads i.e. interest on securities, income from house property, capital gains and income from other sources. If the income of the company is under the aforesaid heads or any of those heads, only then these provision are not applicable. In other words if only income which is included in gross total income falls under any of the aforesaid head or under all the aforesaid specified heads then the assessee will fall within the purview of the....
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....iness or profession"; (iii) where an assessee lets on hire machinery, plant or furniture belonging to him and also buildings, and the letting of the buildings is inseparable from the letting of the said machinery, plant or furniture, the income from such letting, if it is not chargeable to income-tax under the head "Profits and gains of business or profession"; (iv) income referred to in sub-clause (xi) of clause (24) of section 2, if such income is not chargeable to income-tax under the head "Profits and gains of business or profession" or under the head "Salaries"; ................................... ................................... ................................... 12. From the above, it is clear that the dividend income and interest income comes under the definition of "income from other sources" as per the provisions of Section 56 of the Act. In the present case, the assessee is having the income only under the head "income from other sources". As regards to the loss on account of share trading is concerned the same is not to be considered while computing the gross total income, if the said loss is to be considered as income....
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.... 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. Alternatively, it has been urged that where the income from business includes a loss in the trading of shares, such a loss should not be allowed to be set off against the income from any other source under the head of profits and gains of business or profession. 8. In our view, the submission which has been urged on behalf of the Revenue cannot be accepted. Leaving aside for a moment, the exception, which is carved out by the explanation to Section 73, the explanation creates a deeming fiction by which a company is deemed to be carrying on a speculation business where any part of its business consists in the purchase and sale of shares ....
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....he 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." 13. In the present case also the assessee although had incurred loss of Rs. 3,93,08,929/- in trading of derivatives, but it had dividend income of Rs. 14,64,859/- and interest income under the head "income from other sources" amounting to Rs. 39,236/-. Therefore, the only positive income of the assessee was under the head "income from other sources". We, therefore, by considering the totality of the facts as discussed hereinabove are of the view that the assessee's case falls within the purview of exception carved out in the explanation to Section 73 of the Act and consequently the assessee shall not be deemed to be doing the speculative business for the purpose of Section 73(1) of the Act. 14. For the aforesaid view I am also fortified by the decision of the ITAT Bombay Bench in the case of Sea Glimpse Investments Pvt. Ltd. Vs ITO (supra) wh....
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.... held company, as in the instant case. If the loss is, or stands to be, adjusted, the same, or the negative figure, does not survive, defeating in effect the purpose of the provision. The whole purpose of the provision is to determine as to whether the loss arising from the business of purchase and sale of shares (of the specified company) is to be regarded as normal business loss or of a speculative business, so that it would be available for set off only against profit, if any, of another speculative business and, further, to the extent unabsorbed thus, carry forward for such set off for a restricted period of four years as against the normative time period of seven years. The only implication thereof, or the manner whereby this purpose could be fulfilled, is, in our view, by ignoring the said loss. Gross total income, for the purpose of ascertaining its' constituents, can only be comprised of positive income/s. How could the extent of income assessable under any head of income be taken into account if the same stands, or stands to be, set off, wholly or partly, against income falling under another head of income? The same could well be set off against any head of income....
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....charges and brokerage at Rs. 121.81 lacs and Rs. 14.93 lacs respectively. Its other incomes are rent; dividend; and capital gains (long-term), at Rs. 6.39 lacs, Rs. 3.41 lacs and Rs. 19.68 lacs respectively. Quite plainly, the assessee's GTI, whichever way one may reckon it, cannot be considered as consisting mainly of the incomes under the heads specified under Explanation to section 73, viz. 'income from house property', 'capital gains' and 'income from other sources'. Even though we do not subscribe thereto, and is also not consistent with the forgoing discussion, the difference is so huge and apparent, that even the set off of loss on trading in shares, again a business income, incurred at Rs. 44.16 lacs, would not alter this position and the assessee's principal source of income would be business income. Accordingly, the said loss is a loss from a speculation business in terms of Explanation to section 73, and is to be treated as such. We, thus, find no infirmity in the treatment of the same as a speculative loss by the Revenue. In so deciding, we also endorse the reliance by the Revenue on the decisions by the hon'ble high courts and tribunal, as cited in their orders, vi....