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TMI Blog2003 (8) TMI 169X X X X Extracts X X X X X X X X Extracts X X X X ..... h the said share transaction business, the net profit of which works out to (Rs. 49.19 lakhs minus Rs. 3.97 lakhs) Rs. 45.20 lakhs. Thus, there is no merit in the action of the AO in treating the loss of Rs. 3.97 lakhs in isolation by disregarding income earned by the assessee by way of brokerage in the said share trading business itself. Thus, we are of the considered view that the AO was not justified in attracting Explanation to s. 73 and holding that loss of Rs. 3.97 lakhs was deemed to be speculation loss. In the result, ground No. 1 of the Revenue appeal is dismissed. Miscellaneous expenses being penalty charges are concerned, we have noticed from the details that the same have been paid to National Stock Exchange for delay in payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... representative for the assessee appeared from time to time and discussed the matter. The controversy arises in this case when the AO invoked provisions of Explanation to s. 73 of the IT Act, 1961, and thereby treating a business loss of Rs. 3,97,126 as speculative loss. 4. The learned Departmental Representative strongly contended that the scrutiny of the return revealed that there was share trading account sales which were made to the extent of Rs. 1,29,54,176 and the resultant loss was arrived at Rs. 3,97,126. The assessee claimed this amount to be a trading loss in the return of income. The learned Departmental Representative further contended that it appeared from the account that loss on sale of shares of Rs. 3,97,126 is more than the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omer to customer and share script to share script. In effect, the income declared under the head 'brokerage' is nothing but the difference between the purchase price for the constituents and sale price to the constituents. It was also contended that apart from that in the course of business sometimes certain constituents after placing the orders did not honour their orders and such shares have to be shown by the assessee as it is its own purchase and sale and thereafter when the occasion arises these shares are sold/purchased in the market to square up the deal. The learned counsel mentioned that in the case of such business there may be some loss or some profit and, therefore, the profit and loss in shares is part of the share brokering bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in accordance with the rules, bye-laws and regulations of the exchange whether such bargain be for account of the member effecting it or for account of a principal. The learned counsel contended that the learned CIT(A) is quite justified in directing the AO to delete the disallowance of Rs. 13,967 from miscellaneous expenses being penalty charges. 6. We have heard the rival submissions and gone through the records. We have noticed that the resultant loss in share trading was arrived at Rs. 3,97,126 which is as follows: Rs. Opening stock 33,48,175 Add : Purchase 1,60,16,554 1,93,64,729 Less : Closing stock 41,02,832 1,52,61,897 Less : Sales 1,29,54,176 23,07,721 Less : Profit in share difference 19,10,595 3,97,126 The assessee has claimed R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e bills, sale and purchase statement, rules and regulations of Calcutta Stock Exchange and final receipt statement of National Stock Exchange India Ltd. that the difference between the payment made/received from National Stock Exchange and its constituents from the trades executed is credited in the accounts as brokerage of the constituents. We have observed that the balance sheet shows that the investment in fixed deposits was to the extent of Rs. 14,77,895 and loans and advances deposit to the extent of Rs. 74,47,055, whereas the total asset as per the balance sheet is Rs. 1,35,25,102. The learned CIT has, therefore, rightly concluded that on this account Explanation to s. 73 does not apply and the loss in shares on this point also could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other hand, the assessee had suffered loss of share dealing amounting to Rs. 3.97 lakhs in respect of which AO has attracted the Explanation to s. 73. The brokerage income earned by the assessee is out of its business of purchase and sale of shares and not in respect of any other activity being carried on by the assessee-company. As per our considered view while arriving at the total profit on account of the said share dealing business, one has to take into account not only the profit or loss on sale and purchase of shares but also brokerage earned on the purchase and sale of shares. As the brokerage income is inextricably related with the said share transaction business, the net profit of which works out to (Rs. 49.19 lakhs minus Rs. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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