TMI Blog2014 (5) TMI 74X X X X Extracts X X X X X X X X Extracts X X X X ..... ied only to shares. Treatment of different classes of income falling within the same head, as speculative or non-speculative has wide ramification - It has got a spillover effect to other years as well - Once income from speculative trading was available for a set off then nothing whatsoever of the share trading loss would be left - Even if whole of the business is considered to be falling within the purview of section 73, still total income was positive, and there could be no tax loss - treatment of speculative business income as normal business income and/or normal income as speculative income, goes to root of administration of tax laws - Non-adherence to the provisions of the statute do render the order prejudicial to the interests of the revenue. The treatment of income as claimed by the assessee, if accepted would definitely be prejudicial to the interest of the revenue - Prejudicial to the interest of the revenue cannot be interpreted in a restricted manner but has to be given in a wide meaning - the AO had not applied his mind at all during the course of original assessment proceedings - Assessee itself had failed to bifurcate its classes of income appropriately, thoug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. 5. For that on the facts and in the circumstances of the case, the CIT erred in treating the order of assessment to be erroneous even though the course followed by the AO in allowing set off of for loss in one business segment against profit derived from another business segment involving underlying transactions of purchase sale of shares; was one of the permissible course in law and therefore the CIT erred in invoking revisionary powers u/s. 263 of the Act. 6. For that on the facts and 'in the circumstances of the case, the CIT erred in holding that the appellant was not entitled to set off share brokering income against loss in business of purchase sale of shares even though in both the activities the underlying transactions involved purchase sale of shares. 7. For that on the facts and in the circumstances of the case, the CIT erred in holding the assessment order to be erroneous even though as per the judgment of .Jurisdictional High Court; loss in share trading was permissible to be set off against share broking income and the AO having followed one of the permissible course in law the CIT was unjustified in holding the assessment to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ware that the net loss suffered in purchase and sale of shares and units came to Rs.6,37,37,827/- and not Rs.11.91 crore mentioned by him. 4. Continuing his arguments, ld. AR submitted that this was not a case where Explanation to section 73 could be invoked. Further according to him assessee had replied to ld. CIT as to why Explanation to section 73 could not be invoked. The loss in share trading even if considered as arising out of speculation business had to be set off against profit in derivative trading which also came within the purview of speculative transactions. Ld. AR, stressed that share trading as well as derivative trading were done by assessee using the same platform and infrastructure. According to him all the transactions were done using the same terminal, from the same place of business. Therefore, if at all the business of assessee was to be considered as speculative in nature, it had to be so reckoned considering the totality and not segment-wise. Despite all these, as per ld. AR, ld. CIT persisted with his view that the original order suffered from some error which was prejudicial to the interest of the revenue. Ld. A.R. pointed out that ld. CIT while accepti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been placed at pages 28-35 of paper book, Ld. AR submitted that section 43(5) did not in any way impede the application of Explanation to section 73. According to him, trading in derivative may not be a speculative transaction under section 43(5) of the Act, but still loss arising therefrom could be speculative loss, calling for application of Explanation to Section 73 of the Act. As per ld. AR, loss in share trading and profit in derivative trading were both part of the same business of the assessee. Even brokerage income, interest income, when these were integral to the share trading business of an assessee, came within the purview of Explanation to section 73 of the Act in view of coordinate Bench decision in Sand Dune Trade (P.) Ltd. (supra). As per the ld. A.R. Coordinate Bench in the case of Guiness Securities Ltd. (supra) had relied on the decision of Hon'ble jurisdictional High Court in the case of CIT v. Vimal Kumar Co. 161 ITR 413 and hence such decision has to be given primacy. Thus as per the ld. AR, decisions of coordinate Benches of this Tribunal in the case of Guiness Securities Ltd. (supra) as well as Sand Dune Trade (P.) Ltd. (supra) both supported asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when an impossible view was taken by the Assessing Officer. 8. Per contra, ld. DR submitted that ld. CIT had carefully gone through the decision of coordinate Bench of Mumbai Tribunal in the case of Priyasha Meven Finance Ltd. (supra) and based on the findings therein held that the business of assessee in totality could not be considered as speculation. As per ld. DR, only if the whole of the business consisted of purchase and sale of shares, it could be treated as a speculative business in entirety. Here assessee was having business apart from purchase and sale of shares. Such other activity could not be treated as speculation business. In any case, according to him, Assessing Officer had not made any effort to verify the nature of business done by the assessee. He simply accepted what was claimed by the assessee. Such non-application of mind rendered the assessment order erroneous and prejudicial to the interest of revenue. 9. In reply, ld. AR submitted that the Assessing Officer had considered the nature of business of the assessee and taken a view that none of income was speculative in nature. According to him, this view could not be substituted by a different view by ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dividend : Rs.4,33,58,423 Less : Exempted u/s. 10(34); Rs.4,33,58,423 Gross Total Income : Rs.1,40,27,686 Less : Deduction under Chapter VIA Under Section 80G Rs. 6,97,525 Total Income : Rs.1,33,30,161 Rounded Off u/s.288A : Rs.1,33,30,160/- It is mentioned by the Assessing Officer that assessee's representative had from time to time produced documents in detail. Nature of business of the assessee is also mentioned by the Assessing Officer, as stock broking. During the course of original assessment proceedings, Assessing Officer had issued a notice to the assessee on 02.06.2009 under section 142 of the Act regarding particulars of accounts and/or documents/evidence/details, which were to be produced. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (B41 of Schedule-BP)................................. NIL (iii) Total (2i + 2ii) .......13,950,502 12. Thus it is clear that assessee itself had shown the whole of its business income as non-speculative in nature. No part of the income was considered by the assessee as arising out of any speculative business. Assessing Officer had at no point of time gone through the nature of business of the assessee so as to ascertain whether Explanation to section 73 stood attracted. At this juncture it is necessary to have a look at the break-up of income credited by the assessee in its Profit Loss A/c. This is reproduced hereunder:- 1. Income in Proprietary Share Trading (-)Rs.2,09,02,062 2. Income in Proprietary Trading of Units (-)Rs.4,28,35,765 3. Income in Proprietary Derivative Trading Rs.4,58,12,554 4. Stock broking income Rs.5,50,13,773 5. Deposito ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Tribunal relying on the case of Bhartia Stock Holding (P.) Ltd. v. ITO [IT Appeal No. 2058 (Kol) 2006, dated 25-5-2007] held that section 43(5) would not in any way be an impediment while considering application of Explanation to section 73 of the Act, with regard to loss arising out of speculative business. However, as already pointed out by us, nothing was placed by the assessee before the Assessing Officer to show that loss arising in share trading and profit arising in derivative trading were both part of an integrated business of purchase and sale of shares. Hon'ble Delhi High Court in the case of CIT v. DLF Commercial Developers Ltd. (ITA No. 94/Del./2013 Order dated 1 1.07.2013, copy of which has been placed at pages 219 to 231 of the paper book has clearly held that loss arising out of derivative trading, despite definition of a derivative under section 43(5) of the Act, came within the purview of Explanation to section 73. It was also held by Their Lordships that derivatives when excluded from the definition of speculative transactions in computation of business income, such exclusion was limited to the purpose of such computation and not for application of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be having a loss in the impugned assessment year, but if the net result was a loss, the treatment of that loss, once it arose out of speculative transactions would be entirely different from that of a normal business loss Assessment done for the impugned assessment year if confirmed, by accepting the contentions of the assessee would have an overflowing effect on the succeeding assessment years, where the trading results from the same business and different classes of activities could be different. Assessing Officer will then be tied up by his own order for the impugned assessment year. If we look from this angle, it is clear that the treatment of income as claimed by the assessee, if accepted would definitely be prejudicial to the interest of the revenue. Prejudicial to the interest of the revenue cannot be interpreted in a restricted manner but has to be given in a wide meaning. In all the decisions relied on by the ld. A.R. including the decisions of Hon'ble Apex Court in the case of Malabar Industries Co. (supra), and Greenworld Corpn. (supra) and that of Hon'ble jurisdictional High Court in the case of Subhas Projects Marketing Ltd. (supra) the validity for revisiona ..... X X X X Extracts X X X X X X X X Extracts X X X X
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