TMI Blog2011 (12) TMI 556X X X X Extracts X X X X X X X X Extracts X X X X ..... yce Mfg. Pvt. Ltd. (2010 (8) TMI 77 - BOMBAY HIGH COURT) we consider it to set aside this issue to the file of AO and direct the AO to determine the disallowance u/s 14A of the IT Act after giving a reasonable opportunity of being heard to assessee. The assessee is also at liberty to establish whether there is any nexus of the expenditure issue and the exempted dividend income. - ITA No.1010/Kol/2011 - - - Dated:- 29-12-2011 - SHRI N.VIJAYAKUMARAN, JUDICIAL MEMBER. AND SHRI C.D.RAO, ACCOUNTANT MEMBER For the Petitioner : Shri D.R.Sindhal For the Respondent : Shri A.K.Tulsiyan ORDER PER SHRI C.D.RAO, AM This appeal is filed by Revenue against the order dated 25.03.2011 of the ld. CIT(A)-IV, Kolkata pertaining to A.Yr. 2008-09. 2. The grounds of appeal raised by the Revenue read as under :- 1. Whether on the facts and circumstances of the case and settled legal position, the Ld. CIT(A) is justified in holding that transactions in derivatives are not hit by section 43(5) of the I.T. Act. 2. Whether on the facts and circumstances of the case and settled legal position, the Ld. CIT(A) was justified on facts and in law in deleting the disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 96,759 Profit before tax as P L Account 20,48,250 3.1. From the above summary in can be seen that the assessee company has incurred a loss on the non-derivative section of its business which has been set off against the profits arising out of the derivative segment of its operations. 3.2. Thereafter, the A.O made a discussion regarding Explanation to Sec.73 vis- vis the provision in Sec.43(5)(d) of the I. Tax Act, 1961 and he arrived at the following conclusion: Thus, from the above it is clear that even though section 73 of the Income Tax Act, 1961 deems purchase and sale of shares of other companies as a speculation business, section 43(5)(d) of the Income Tax Act, 1961, which has been introduced subsequent to section 73 of the Act caries out an exception to the deeming provision of Section 73 of the Act and lays down trading in derivatives i.e. futures and options would not be deemed to be speculative transaction. Hence, it is seen that the Income Tax act, 1961 has vide explanation to section 73 has deemed purchase and sale of shares under certain condition of deemed speculative business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Section 73 dearly applies in the case of the assessee company and invoking the same I hold loss from. Dealing (as computed hereunder) as Loss from Business this loss cannot be set off against profit earned from Derivatives. 3.7. It is seen that asssee has correctly taken STT ₹ 31,77,151/- as disallowable expenses u/s 40(a). Besides. Depreciation allowable u/s 32 has been taken at ₹ 633,810/- as against ₹ 11,83,313/- charged to Profit Loss Account. Therefore, the assessee has claimed the following expenses only as deductible expenses. Rs. Interest 1,50,222 Administrative Expenses 8,76,548 Depreciation 6,33,810 Preliminary Expenses 9,526 16,70,106 3.8. Considering the above expenses, profit/(loss) from various activities are computed as under allocating the expenses in proportion of profit/loss from various activities. Nature of income Profit/(Loss) Proportion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, the following is the result profit / (Loss):- Profit/ (Loss) from Share Dealing (2,80,26,170) Proflt/ (Loss) from Derivatives (i.e. F 0) 2,90,55,153 Share Difference Income 37,463 Profit 10,66,446 2.6. As per the A.O, the profit from the derivative transactions of the shares is not a speculative loss in view of the special provisions of Sec.43(5)(d) of the I. Tax Act and trading loss in shares is hit by the Explanation to Sec.73 of the I. Tax Act and hence the share dealing loss, which is a deemed speculation loss can not be adjusted with profit from derivatives transaction. 2.7. The Ld.A/R of the assessee has mainly relied that the aggregation of the share trading loss and profit from derivative transactions should be done before it is seen whether Explanation to Sec.73 is applicable. In my opinion, trading of shares which is done by delivery transactions are not hit by Sec.43(5) as speculation. Similarly, derivative transaction in shares profit/loss is also not hit by Sec.43(5) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee s case is fully covered by the above decision. Firstly, assessee is having profit from the share derivative transaction and loss from share trading (delivery). Both are to be treated as speculatwe before applying deeming fiction as per Explanation to Sec.73 of the I. T. Act. Section 73 of the I. T. Act deals with carry forward of the speculation loss. Before considering whether it is hit by the deeming provision of Explanation to Sec.73 of the I. Tax Act, the aggregate of the business profit / loss has to be worked out based on the non-speculative profits; either it is from share delivery or from share derivative. The net of the same is profit as such question of applying the deeming fraction of Explanation to Sec.73 of the I. T. Act does not arise. The assessee s case is fully covered by the decision of ITAT, Kolkata, in the case of ITO, Wd-3(1)/Kol Vs Lotus Homes Ltd. (supra) as well as the decision of the Hon ble Bombay High Court in the case of Lokmat News Papers (P) Ltd. (supra) 4. At the time of hearing the ld. DR appearing on behalf of the Revenue submitted that in paragraph no.2.7 of his order the ld. CIT(A) has held that transactions of delivery based share t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and sale of shares of other companies, such company shall for the purposes of this section be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares. There cannot be any dispute after a plain reading of the above provisions that if a part of the business of an assessee consists of purchases and sale of shares of other companies, the said assessee will be deemed to be carrying on speculation business to the extent of purchase and sale of such shares. The AO in this case, has taken exactly the same view and treated the share trading loss as deemed speculative in nature. Thus, the above conclusion of the AO is clearly in tune with the above quoted provisions. 4.3. He further submitted that the reliance put by the ld. CIT(A) on the decision of ITAT, Special Bench, Mumbai appears to be erroneous and misplaced one in view of the fact that once a particular profit/income is held as non-speculative in nature, it cannot be set off against any loss which is speculative in nature. This view is well supported by the decision of the Hon ble Calcutta High Court in the case of CIT vs Parkview Properties (P) LT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the ld. CIT(A) has properly concluded that the decision of the Hon ble Kolkata Special Bench in the case of Shree Capital Services Ltd. (Supra) is not applicable to the present facts of the case. 6.3. In view of the above findings we are in agreement with the observations made by ld. CIT(A) at paras 2.7 to 2.10 and therefore we upheld the action of the ld. CIT(A) on this issue. 7. In the result ground no.1 to 3 of the revenue s appeal are dismissed. 8. The issue raised by the Revenue in ground no.4 is relating to deletion of addition of ₹ 83,662/- made u/s 14A of the IT Act with Rule 8D of IT Rules. 9 The brief facts of this issue is that while doing the scrutiny assessment the AO has disallowed an amount of ₹ 83,662/- by observing as under :- In course of the assessment proceedings, the assessee was asked to give details of expenses related to exempt income. In response to the same the assessee relying on the decision of Hon ble Kerala High Court in the case of CIT vs Leena Ramchandran (2010) 235 CTR 512 (Ker) held that Rule 8D r/w Section 14A applies only on shares held as investments and not in case where shares are held as stock in trade. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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