2017 (3) TMI 1327

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....dditional ground. It was argued that facts are already on record that it does not warrant any fresh investigation into facts. Before us, the Authorised Representative (AR) made the same submissions and the Departmental Representative (DR) left the issue to the discretion of the Bench. We find that the additional ground raised by the assessee is purely a legal ground and states that the CIT(A) had erred in not holding that the assessee was covered by exceptions provided in the Explanation to section 73 of the Act.Therefore, we admit the additional Ground raised by the assessee. ITA/1259/Mum/12(By Assessee) : 2. Effective ground of appeal is about upholding valuation loss of Rs. 34.26 crores on stock of shares as speculation loss u/s.73 of the Act. During the assessment proceedings,the AO directed the assessee to explain as to why the loss initiated should not be treated speculation loss. In its response, the assessee referred to Explanation 1 to section 73 of the Act and stated that its business consisted of only share trading, that the object behind the section was to prevent profits of non-share trading business to be set off against the share trading losses. It referred to the ....

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....reduce the taxable income of companies under their control, that the facts of Lokmat Newspaper (P.) Ltd.were not applicable to the facts of the case under appeal, that the case of the assessee is covered by the exception to explanation. He referred to Pg-8 of the PB and stated that assessee had earned profit of Rs. 2.20 crores under the head 'income from capital gains'. He also referred to the order passed by AO for the AY 2013-14 where similar kind of disallowance was not made.He relied on the case of HSBC Securities and Captal Markets India (P.)Ltd.(208taxmann 439) of the Hon'ble Bombay High Court.The DR supported the order of the FAA. 5. We have heard the rival submissions and perused the material before us.We find that the assessee had claimed loss on account of valuation of closing stock on the last date of AY, that the AO invoked the provisions of section 73 and held that the transactions entered into by the assessee were of speculative nature, that the FAA confirmed his order, that both the authorities did not consider the argument about the exception to the explanation to section 73, that the assessee had earned profit of Rs. 2,20,67,126/-, that it had STCG on sale of ....

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....assessment order. XXXXX The CIT by an order dated 10.1.2001 partly allowed the appeal. 6. The respondent therefore, filed ITA No.3386/Mum/2001. By the impugned order dated 14.7.2005, the ITAT partly allowed the appeal. The respondent's contention based on section 73 was upheld. Following the judgment of the ITAT Delhi Bench in Aman Portfolio (P.) Ltd. v. Dy. CIT [2005] 92 ITD 324, it was held that section 73 could not be invoked against the respondent. This however, was on the basis that the explanations to section 73 applies only to the losses arising out of the transaction resorted to by the business houses controlling a group of companies. Whereas the transactions referred to by the respondent were not carried out with any interest of controlling group companies. XXXXX 8. In the present case, section 73 would not apply in view of the fact that the explanation thereto, does not operate in respect of a company whose gross total income consists mainly of income which is chargeable under the heads of "interest on securities", "income from housing property", "capital gains" and "income from other sources". We have set out the relevant part of the assessment order which in....

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.... consists in the purchase and sale of shares of other companies. Now, the exception which is carved out applies to a situation where the gross total income of a company consists mainly of income which is chargeable under the heads "Interest on securities", "Income from house property", "Capital gains" and "Income from other sources". Now, ordinarily income which arises from one source which falls under the head of profits and gains of business or profession can be set off against the loss which arises from another source under the same head. Sub-Section (1) of Section 73 however sets up a bar to the setting off of a loss which arises in respect of speculation business against the profits and gains of any other business. Consequently, a loss which has arisen on account of speculation business can be set off only against the profits and gains of another speculation business. However, for Sub-Section (1) of Section 73 to apply the loss must arise in relation to a speculation business. The explanation provides a deeming definition of when a company is deemed to be carrying on a speculation business. If, the submission of the Revenue is accepted, it would lead to an incongruous situatio....