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Judgment
Revenue seeks to prefer this appeal against order dated 13th August, 2015 passed by the Income Tax Appellate Tribunal "C" Bench, Kolkata, in ITA no.1877/KOL/2010 pertaining to assessment year 2008-09. The following questions have been suggested:- "a) Whether the Learned Income Tax Appellate Tribunal, Kolkata has erred in holding that Explanation to section 73 of the Income Tax Act, 1961 was not applicable by considering the income declared under section 132(4) of the Income Tax Act, 1961 as "Income from other sources" that too without considering the true nature of the activity carried on by the assessee and also without deciding the principle business of the assessee?
b) Whether the Learned Income Tax Appellate Tribunal, Kolkata has erred in holding that the seized cash should be treated as paid under section 140A on the stipulated day of 120 days under section 132B (1)(i), thus directing to calculate the interest chargeable under section 234B without appreciating the fact that no seizure of cash was made in the case of the assessee?"
The relevant facts are that search and seizure operation under section 132 of the Income Tax Act, 1961 was conducted between 28th March, 2008 and 8th April, 2008 at the common address of 9 persons including the assessee. During the search and seizure the group of persons voluntarily disclosed a sum of Rs.15 crores as additional income in the hands of the assessee and Rs.30 crores in the hands of Umang Vincom Pvt. Ltd., one of the 9 persons, for the financial year 2007-08 relevant to assessment year 2008-09. Cash of an amount of Rs.17,50,99,994/- was seized from the bank account of Shoparna Brothers Pvt. Ltd., another one of the 9 persons, which however stood explained. The assessee had recorded a statement under section 132(4) of the Act on 8th April, 2008 saying that tax liability arising out of the disclosure be adjusted out of the balance of Rs.17 crores and odd lying in the bank account of Shoparna Brothers Pvt. Ltd. On 28th May, 2008 Shoparna Brothers Pvt. Ltd. made an application to the Assessing Officer for release of its cash seized, in favour of the assessee, for payment of its tax liability of Rs.4,43,00,000/-. The assessee also made an application on the same day showing its tax liability for the assessment year in question to be Rs.4,43,00,000/- under section 140A of the Act with a request for adjustment of this liability against release of the cash. The Assessing Officer did act upon such request, after some delay of a few months, on 30th March, 2009.
The first question suggested by the Revenue is in regard to its contention that the assessee having had disclosed Rs.15 crores as additional income, the same was income from other sources making it a company within the exception provided in the explanation to section 73 of the Act. Hence, it could not claim to set off its speculation loss against such income. The other question suggested is with regard to the Assessing Officer having charged interest for a period prior to which the assessee had applied to have its tax liability adjusted against the seized cash.
Mr. Chowdhary, learned advocate appeared on behalf of the Revenue and submitted that the Assessing Officer was right on both counts. The assessee''s contention that the additional income disclosed was speculative income and therefore the speculative loss be adjusted against the same was correctly rejected by the Assessing Officer. Additional income disclosed had to be treated under the head income from other sources. That would make such income the main income of the assessee bringing it within the exception in the explanation under section 73. Therefore, the assessee could not be said to have had speculative income to any extent for adjustment of speculative loss incurred by it. That loss could only be carried forward for the period permissible in law.
Mr. Chowdhary relied upon several decisions, the first being in the case of CIT Vs. J. P. Kanodia & Co. reported in 1970 AIR SC 1588, to the portion extracted below:- "This Court held disagreeing with Jagannath Mahadeo Prasad''s case that in the computation of the income, profits and gains of the year of assessment under s.10(1) of the Indian Income-tax Act, the assessee is not entitled to set off speculative losses against profits from other business activities of the same year." He then relied on the decisions in three cases decided by Coordinate Benches of this court being-
(i)CIT Vs. Sumati Kumar Sunil Kumar reported in (1992) 193 ITR 537 (Cal);
(ii) Eastern Aviation and Industries Vs. CIT reported in (1994) 208 ITR 1023 (Cal); and
(iii) R.P.G. Industries Limited Vs. CIT reported in (2011) 338 ITR 313.
Sumati Kumar (supra) was relied upon since in that case speculation loss was not allowed to be set off against income disclosed under the Voluntary Disclosure of Income and Wealth Ordinance, 1975. Mr. Chowdhary submitted, in this case too there was voluntary disclosure of additional income against which speculation loss could not be allowed to be set off. He then relied upon Eastern Aviation and Industries (supra) to submit, the assessee in that case even though had a positive dividend income and losses in share dealing and speculative businesses, but the explanation to section 73 was made applicable to the assessee. R.P.G. Industries Limited (supra) was relied upon as in that case the share trading loss of the assessee therein was held to have had fallen within the category of speculation business.
On the second suggested question Mr. Chowdhary submitted that the assessee had filed its return post search on 29th September, 2008 and hence it is only then that its liability under section 140A had crystallized. Prior to that there could not be any adjustment from the seized cash.
Mr. Khaitan, learned senior Advocate appeared on behalf of the assessee and submitted that the distinction made by the Assessing Officer regarding application of the exception in the explanation under section 73, relating to the assessee, could not be made. Once the assessee was excepted out of the explanation to the extent to which its business could be deemed to be speculative business, loss incurred could not be said to be speculative loss but was business loss. He referred to section 43(5) to submit that the Assessing Officer had resorted to the deeming provision in section 73 since the share trading business of the assessee could not be said to be consisting of speculative transactions within the meaning of section 43(5). The deeming provision in section 73 also could not be applied to the assessee as regards its income or loss.
Mr. Khaitan pointed out that in J. P. Kanodia (supra) the Supreme Court had said that in the computation of income, profits and gains of the year of assessment under section 10 (1) of the old Act, corresponding to section 28(i) of the 1961 Act, the assessee is not entitled to set off speculative losses against profits from other business activities of the same year. He submitted, the provision for set off of losses in speculation business was under section 24(1) of the old Act. The deeming provision in the explanation to section 73 however came into effect from 18th April, 1977. As such the said decision was not applicable to the case of the assessee.
Sumati Kumar (supra), he submitted, too was not applicable since in the voluntary disclosure of income by the assessee in that case, it tried to set off an admitted loss in speculation business. In this case the Assessing Officer though on the one hand said the explanation in section 73 was not applicable to the assessee but thereafter, by deeming the loss suffered by the assessee in its share trading business to be loss from speculative business, had not allowed it to be set off against its income. In doing so the Assessing Officer had in effect applied the explanation to the assessee deeming its business to be speculation business.
Regarding Eastern Aviation (supra) he submitted that an assessee could be excepted out of the application of the explanation either arithmetically, on the basis of its main income, or on the basis of its principal business. In that case the speculative loss was taken to be negative income and arithmetically the same being larger than the positive income from dividend, this court had held that the explanation applied to that assessee. In the case of his client, the income from other sources was arithmetically much larger than the loss suffered by it in share trading. Lastly on R.P.G. Industries Ltd. (supra) he submitted, that case too was not applicable since what fell for consideration therein was where there was a transaction of shares with actual delivery, whether the assessee being a company could still have applied to it the explanation in section 73.
On the second suggested question he referred us to the order of CIT(A) from which the following portions are extracted. ".......As per the second proviso to clause (i) of subsection (1) of section 132B, Assessing Officer should have acted on this application within 120 days of the seizure of such cash on 08.04.2008. Assessing Officer should have recovered the tax liabilities of M/s Shoparna Brothers Pvt. Ltd. from the cash seizure of Rs.17,51,79,994/- and released the amount of Rs.4,43,00,000/- in favour of appellant, as requested for, on or before 06.08.2008, ie, within 120 days from the date of seizure. An application was filed by the appellant also before the Assessing Officer on 28.05.2008 showing categorically his tax liability of Assessing Year 2008-09 at Rs.4,43,00,000/- u/s 140A of the I.T. Act with a request for adjustment of this liability against the release of cash seized from M/s Shoparna Brothers Pvt. Ltd. Assessing Officer has stated in the assessment order that the cash seized cannot be applied as requested by appellant and M/s Shoparna Brothers Pvt. Ltd. because CBDT has prohibited the adjustment of seized cash against advance tax payment vide Instruction no.286/105/2005-IT(Inv-II) dated 13.07.2006. However no reason has been given by the Assessing Officer that the source of cash seized, ie, regular books of account, was not explained by Mr. M/s Shoparna Brothers Pvt. Ltd in their application dated 28.05.2008 and there was any tax liability remaining to be adjusted in their case. In view of these facts, as requested by both appellant and M/s Shoparna Brothers Pvt. Ltd., Assessing Officer should have released the cash seized from the custody of M/s shoparna brothers Pvt. Ltd. and, should have applied it towards payment of tax liabilities of Rs.4,43,00,000/- of appellant, on or before 06.08.2008. However, it appears that the Assessing Officer did act upon such requests, but after a delay of a few months on 30.03.2009............Therefore, in calculation of interest u/s 234B, Assessing Officer should give credit for tax of Rs.4,43,00,000/- from 06.08.2008 because subsequent delay in such credit was a delay on part of the Assessing Officer beyond the time allowed by the Income Tax Act. I therefore direct the Assessing Officer to calculate the interest u/s 234B accordingly."
The explanation under section 73 provides for exceptions, one of which was found, by the Assessing Officer, to cover the assessee. The deeming provision is that any part of the business of a company consisting in the purchase and sale of shares of other companies, for the purposes of that section, the company would 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, exceptions provided. The Assessing Officer has applied one of the exceptions, as covering the assessee. The CIT(A) and Tribunal have concurrently found the assessee to be accordingly excepted out of the application of the explanation. The assessee thus not deemed to be carrying on speculation business,loss incurred by it would be a business loss and the assessee entitled to set off the same against its income from other sources under section 71. That being our view, we accept the submissions of Mr. Khaitan in distinguishing the cases cited on behalf of the Revenue as not applicable to this case.
Mr. Chowdhary could not dispute the findings given by the CIT(A) regarding the direction made upon the Assessing Officer, in calculation of interest under section 234B, to give credit for tax from 6th August, 2008 being the 120th day from the date of last authorization for search as provided in the second proviso in subsection (1) of section 132B. The Tribunal upheld such findings and direction and we have no reason to interfere.
In view of the aforesaid we do not find the questions, as suggested or otherwise, to be substantial questions of law involved in this case. Hence, we dismiss the appeal. There will be no order as to costs.