PRASAD AGENTS PRIVATE LTD Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) The Appellant a non-banking financial company has approached this Court against the order dated 13th August, 2008 passed by the I.T.A.T. for the assessment year 2001-2002. The A.O. by his order had directed that loss of Rs. 6,00,877/- in share trading, was a speculation loss by virtue of Explanation to Section 73 of the Income Tax Act, 1961. In respect of the said disallowance and on some other aspects, the assessee preferred an Appeal before C.I.T. (A). C.I.T. (A) by its order was pleased to observe that the business of the appellant consists of trading and investment in shares, debentures, bonds, mutual funds and other securities pursuant to its Memorandum of Association. The Tribunal considering the arguments was pleased to place reliance on the order of the Delhi Bench in Aman Portofolio Pvt. Ltd., 92 ITD 324 (Delhi) as also the clarification issued by C.B.T.D.'s Circular No. 204 dated 24th July, 1976 and held that the A.O. was not justified to treat the loss in shares as speculative loss and accordingly the disallowance on that count was deleted. Revenue aggrieved by the said order preferred an Appeal before the I.T.A.T. The Tribunal noted that the Tribunal had taken the decision in the case of High Power Motors Pvt. Ltd. in ITA No. 2094/Mum/2004 vide order dated 8th May, 2008. It also placed reliance on the judgment of the Supreme Court in Chainrup Sampathram where the Supreme Court had taken a view that loss or profit on account of valuation of closing stock has to be treated as speculative loss and allowable as revenue loss or revenue receipt as the nature of these profits are similar to the nature of business in trading of shares and for that reason allowed the appeal filed by the Revenue and set aside the order of C.I.T. (A).

(2.) The assessee is in appeal on four questions. In our opinion the following two questions would arise for consideration:

(3.) At the hearing of this Appeal on behalf of the Appellant-Assessee, learned Counsel submits that in so far as Question (i) is concerned, the Explanation has to be read with Circular No. 204 and if so read it would be clear that the object of the provisions is to curb the device sometimes resorted to, by business houses controlling groups of companies to manipulate and reduce the taxable income of companies under their control. It is submitted that it is not the contention of the Revenue that the Assessee controls the group companies and the transactions were done to manipulate and reduce the taxable income of the companies under their control.