By Jagdish D. Shah
Jagdish T. Punjabi
Chartered Accountants
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New Page 1
Part B :
Unreported
Decisions
(Full texts of the following Tribunal decisions are available at
the Society’s office on written request. For members desiring that the Society
mails a copy to them, Rs.30 per decision will be charged for photocopying and
postage.)
6 Paramount Information Systems Pvt. Ltd. v. ITO
ITAT ‘K’ Bench, Mumbai
Before P. Madhavi Devi (JM) and B. Ramakotaiah (AM)
ITA No. 921/Mum./2008
A.Y. : 1993-94. Decided on : 24-2-2010
Counsel for assessee/revenue : Jayesh Dadia/Anil K. Mishra
Explanation to S. 73 — For the purpose of deciding whether
the case of the assessee is covered by exceptions provided in Explanation to S.
73, speculation loss is to be excluded while computing business income and
arriving at the gross total income.
Per P. Madhavi Devi :
Facts :
The assessee incurred speculation loss of Rs.22,728. This
speculation loss was in addition to the loss on trading in shares amounting to
Rs.6,66,971 separately shown in P & L Account. While assessing the total income
u/s.143(3) of the Act, in order to ascertain whether the Explanation to S. 73
applies, and therefore the loss of Rs.6,66,971 on trading in shares is to be
regarded as speculation loss, the Assessing Officer (AO) treated speculation
loss of Rs.22,728 as such and excluded it from computation under the head
‘Profits and Gains of Business’. In the computation filed by the assessee, there
was a carried forward speculation business loss of Rs.22,728 and unabsorbed
depreciation of Rs.36,992 which was to be carried forward. The assessee
contended that depreciation on business premises of Rs.38,881 on new office
which was not put to use needs to be excluded since the same was claimed wrongly
and is not allowable since the new office has not been put to use. The ITAT
remanded this matter (of depreciation being not allowable) along with the issue
of application of S. 73 to the AO.
In reassessment proceedings, AO reiterated the contentions in
original assessment but the CIT(A) after admitting additional evidences and
remanding the matter back to the AO gave a finding that the assessee had not put
to use the office premises and the AO was directed to withdraw the depreciation
on the new building and recompute business loss. However, the CIT(A) worked out
gross total income by treating speculation loss of Rs.22,728 as part of business
income. He rejected the assessee’s contention that for computing gross total
income, speculation loss of Rs.22,728 should not form part of business income
and therefore also for arriving at gross total income.
Aggrieved, the assessee preferred an appeal to the Tribunal.
The question for consideration being whether the speculation loss of Rs.22,728
is to be included as part of gross total income or to be excluded while
computing business income and arriving at the gross total income.
Held :
The Tribunal after referring to the judgment in the case of
IIT Invest Trust Ltd. 107 ITD 257, held that under the scheme of the Act
whenever there is a separate loss which cannot be set off in the computation
under each head, the same cannot be included in the gross total income and it
does not enter in the computation of gross total income being a loss, unless set
off against income under any other head. The Tribunal held that the speculation
loss was to be treated separately under the provisions of the Act. Explanation 2
to S. 28 makes it mandatory that where speculative transactions carried on by
the assessee are of such a nature as to constitute the business, the business
shall be deemed to be distinct and separate from any other business. The
Tribunal held that the speculation loss of Rs.22,728 constituted a separate
business and it cannot be set off from other business loss or profit including
income from other sources. Accordingly, it was held that the same be excluded
while working out gross total income. Upon excluding the speculation loss of
Rs.22,728 the gross total income became a positive figure of Rs.2,957 and
accordingly income from other sources was more than business profits and
assessee’s loss on trading in shares was not attracted by provisions of S. 73.
The assessee’s case was held to be covered by first exception in Explanation to
S. 73. The Tribunal observed that this principle is also laid down in IIT Invest
Trust Ltd. 107 ITD 257 and also in Concord Commercial Pvt. Ltd. 95 ITD 117 (SB).
The Tribunal allowed the appeal filed by the assessee.
It observed that the judgment of the Madras High Court is a
case of liability arising on account of a retrospective amendment, as in the
present case. It held that levy of interest in respect of the amount of deferred
tax deducted while arriving at the book profit in the return is invalid.
As regards the argument raised at the time of hearing that since powers of reduction/waiver are vested in the CBDT whether the Tribunal can examine the validity of the levy of interest, the Tribunal having noted that the Supreme Court has in the case of Central Provinces Manganese Ore (160 ITR 961) held that if the assessee denies his liability to pay interest the appeal on that point was maintainable. Based on the ratio of the decision of the Apex Court and also having noted that there is no express or implied restriction on the powers of the Tribunal while disposing of the appeal, it held that the appeal of the assessee is maintainable. It further held that the fact that the administrative relief can be obtained by the assessee cannot erode the powers of the Tribunal while dealing with a valid appeal before it.
The appeal filed by the assessee was partly allowed.
