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2018 (1) TMI 657 - AT - Income TaxDisallowance made on account of mark to market loss on future contracts - deemed speculation loss - Held that:- Set-off of speculation loss against business income was declined by the AO on the plea that Explanation to Section 73 is applicable. The CIT(A) has dealt with the issue threadbare and reached to the conclusion that Explanation to Section 73 is not applicable to the facts and circumstances of the present case in so far as in the present case the assessee comes within the exclusion provided in the said Explanation, the income of the assessee under the head 'income from capital gains' and 'income from other sources' is more than income under the head 'income from business and profession' and, therefore, the Explanation to section 73 is not applicable. The business carried on by the assessee is jobbing/arbitrage. Jobbing/arbitrage is a composite activity of buying in one segment (cash) and selling in another segment (F&O) and assessee will earn income in once segment and incur loss in another segment, such that the income would always be more than the loss. Therefore, the business is itself arbitrage and the same cannot be treated as two separate business of trading in shares and dealing in F&O. Arbitrage /Jobbing as a composite activity is covered under section 43(5)(c) of the Act. Hence, explanation to section 73 of the Act is not applicable as the Assessee is not carrying on the business of purchase and sale of share but business of arbitrage. Disallowance u/s.14A - Held that:- As found from record that most of the shares held by assessee were stock in trade. In view of the settled judicial pronouncements, we direct the AO to exclude investment in shares held as stock in trade out of average investment while computing disallowance under Rule 8D(2)(iii) of the IT Act. We direct accordingly.
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