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TMI Blog2010 (11) TMI 612X X X X Extracts X X X X X X X X Extracts X X X X ..... ness is earning brokerage income. Hence he observed that assessee was not covered under the exceptions mentioned in the explanation to section 73. Hence Assessing Officer opined that the loss on share trading of Rs. 8004884/- debited in the PandL account is a loss incurred in respect of speculation business. 3.1 Assessee stated that the loss on share trading of Rs. 8004884/- comprises of three kinds of losses. Firstly, losses of Rs. 6891828/- on account of trading in units of Kotak Mahindra Mutual Funds and Alliance Mutual Funds. In trading In Kotak Mahindra Mutual Fund, there was a loss of Rs. 7031691/- and on trading in Alliance Mutual Fund, there was a profit of Rs. 1,47,863/- and thus, there was net loss of Rs. 6891828/- on account of trading in units of mutual funds. Second type of losses are losses on account of errors in executing the transactions on behalf of the clients and the losses thereon are taken as the losses of the assessee. Such losses are of Rs. 1075874/-. The third type of loss in on valuation of closing stock of shares, which works out to Rs. 37206/-. Assessee claimed that these losses are allowable under the specific provisions of the IT Act and second ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch specific deeming provisions in respect of the units as shares, it would be erroneous to extend the provisions of Section 32(3) of the UTI Act to the unit of the UTI for the purpose of holding that the unit is a share. Ld. Commissioner of Income Tax (Appeals) found that the Hon'ble Apex Court has clearly held that the scope of deeming provision cannot be expanded. He found that the judgement of the case, is squarely applicable to the facts of the present case and as held by the Hon'ble Apex court in the case of C.I.T. vs. Apollo Tyres Ltd. the units are not shares and accordingly Explanation to Section 73 shall not be applicable in respect of such units. Accordingly, he held that Assessing Officer was not justified in treating the loss incurred in sale/purchase of units of Rs. 6891828/- as speculative loss. 5. As regards the loss of Rs. 1075847/- on account of trading errors committed in the share broking business on behalf of the clients, the assessee has argued that these transactions have been carried out on behalf of the clients and as such do not represent the loss arising from the sale/purchase of shares on its own account. The assessee further argued that this is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the purpose of allowing set off losses. We find that in the facts of the present case, this decision is squarely applicable and assessee has incurred loss here in the units of Kotak Mahindra Mutual Fund. These units by no stretch of imagination cannot be said to be shares and hence, Explanation to Section 73 which applies to purchase and sale of shares of other companies cannot be thrust upon the assessee. Hence, respectfully following the Apex court above, we hold that loss of Rs. 6891828/- in units cannot be considered as a speculative loss. 9.1 We find that ITAT in the case of Parkar Securities Ltd. vs. DCIT 102 TTJ 235 (Ahd.) has held that Explanation to Section 73 is attracted only when part of the business of the assessee company consists of purchase/sale of shares of other companies. Transactions in shares undertaken by the share brokers as its own under compulsion after client disowned part of such transactions did not constitute business of the assessee in share dealing and therefore loss incurred by the assessee in such transactions did not fall within the ambit of the section 73. We find that ld. counsel of the assessee company submission that this decision squ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of active utilization of borrowed funds was held to be interest expenditure relating to the trading of shares/ units. He opined that no separate bifurcation is to be made. In view of the above finding Ld. Commissioner of Income Tax (Appeals) proceeded to delete the disallowance of 2097364/- made by the Assessing Officer. 13. Against this order the revenue is in appeal before us. 14. We have heard both the counsel and perused the records. We find that this is consequential to our finding in the preceding paragraphs wherein we upheld the deletion of Rs. 79,67,675/- made on account of speculative business. Hence on that account the speculative loss related to Rs. 2097364/- will get reduced to Rs. 8863/-. However, Ld. Commissioner of Income Tax (Appeals) has further given a finding that this disallowance is also not necessary, as assessee has rightly allocated the administrative expenses and interest expenses and we do not find any infirmity in the same. Accordingly, we uphold the order of the Ld. Commissioner of Income Tax (Appeals) also on this issue. 15. The next issue raised is that Ld. Commissioner of Income Tax (Appeals) erred in deleting the disallowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of bad debts after having written of the said debts from the books of account as irrecoverable. The issue is also covered by the order of the Hon'ble Delhi High Court in the case of Bonanza Portfolio Ltd. = 320 ITR 178 (Del) and the recent case of the C.I.T. vs DB (India) Securities Ltd. 318 ITR 26 whereby it has been held that a share brokers is eligible to claim 'bad debts' u/s 3691)(vii)/36(2). Also covered in favour of the assessee by judgement in the case of Matchless Securities (P) Ltd. vs. ITO in ITA No. 4069/Del/04 dated 28th September, 2007, Delhi Bench 'F', whereby it has been held that Bad debts arising in brokerage business is an allowable expenditure." 20. Considering the above, we find that the issue is now covered in favour of the assessee by the case law cited above. Accordingly, we uphold the order of the Ld. Commissioner of Income Tax (Appeals) on this account. 21. The last issue raised is that Ld. Commissioner of Income Tax (Appeals) erred in deleting the amount of Rs. 1048682/- towards expenses relating to earning of dividend income. 22. On this issue Assessing Officer noted that assessee has earned dividend income of Rs. 5651977/ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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