TMI Blog2011 (12) TMI 557X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 disallowance and addition of ₹ 17,98,773/ (Rs.99,33,866 ₹ 81,35,093/-) treated as deemed speculation loss by the A.O. 3. Whether on the facts and circumstances of the case and settled legal position, the Ld. CIT(A) is justified in holding that delivery-based share transactions does not fall in the ambit of Explanation to section 73 of the I.T. Act. 4. That the appellant craves for leave to add, delete or modify any of the grounds of appeal before or at the time of hearing. 3. The brief facts relating to ground nos. 1 to 3 raised by the revenue are that while doing the scrutiny as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s ambit trading in derivatives under section 43(5)(d). Then he concluded that In view of this, losses incurred in respect of nonderivative share transaction which are deemed to be speculative in nature cannot be set off against profits and gains earned from derivative transaction, which are not deemed to be speculative transaction u/s 43(5)(d) 3.3.After making the above conclusions the Ld.A.O referred to decision in the case of Appollo Tyres Ltd. CIT (2002) 255 ITR 273 (SC), wherein it has been held that units of UTI are not shares as contemplated in the Explanation to Sec.73. According to the Apex Court the legislature had contemplated making the units also a deemed share then it would have stated so. In the absence of any such specific deeming provisions in regard to the units as shares it would be erroneous to extend the provision of section 32(3) of the UTI Act to the units of the U71 for the purpose of holding that the unit is a share. 3.4. The decision of Hon ble Supreme Court that units are different from shares is the basis to arrive at the conclusion by the A.O as under: By the same analogy, derivatives are different from shares since they have been so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dividend 89,626 1,201 88,425 Income from Long Term Capital Gains 1,15,63,837 1,54,955 1,14,08,882 Loss from share trading (98,10,848) 1,31,465 (99,42,313) Total 43,93,030 3,21,716 43,34,163 It is necessary to state that while allocating expenses, Profit / (Loss) i.e. (+) / (-) signs are ignored. According to which the totals of Profit/(Loss) comes to ₹ 2,40,14,726/- and corresponding expenses are 3,21,716/- which are approximately 1.34%. Based on above calculation, income of the assessee from Speculation Business in computed as under: Profit/ (Loss) from Share Dealing (99,42.313) Proflt/ (Loss) from Share Speculation 8,447 (99,33,866) 3.9. Aggrieved by this assessee went in appeal before the ld. CIT(A). 3.10. At the time of hearing before the ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... speculation transaction. As such, both profit/loss from all the share delivery transactions and derivative transactions are having the same meaning, so far as, Sec.43(5) of the I. T. Act is concerned. I fully agree that net result of the assessee is a profit hence question of application of Sec.73 does not arise. Assessee s case is supported by the Hon ble ITAT, Special Bench decision in the case of CIT Vs Concord Commercial Pvt. Ltd. (2005) 95 lTD 117 (Mum) (SB), in which it is held that before making application of Explanation to Sec.73 of the I. T Act, set off of all business income should be allowed. The same principle laid down has been followed by the Hon ble ITAT, Kolkata, in the case of ITO, Wd-3(1)/Kol Vs Lotus Homes Ltd. in ITA No.1192/Kol/2004. 3.6 The Hon ble Bombay High Court has held in the case of Lokmat News Papers (P) Ltd. (2010) 322 ITR 43 that Transactions in purchase and sale of shares by company. Deeming fiction of Explanation to Sec.73 attracted and business in shares deemed to be speculation business. Brought forward speculation loss can be set off against profit from sale of shares. Business involving actual delivery of shares is not excluded from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act and similarly trading in derivatives is also not hit by section 43(5). The ld. CIT(A) has failed to appreciate the fact that the AO has not applied the provisions of section 43(5) to the transactions of delivery based share trading, in which the assessee incurred losses. In fact, the loss of ₹ 2,87,26,836/- suffered in share trading has been treated by the AO as deemed speculation loss in terms of Explanation to section 73 of the Act. Further, if the contention of the ld. CIT(A) is that derivative transactions are not hit by section 43(5) is accepted, then clause (d) of section 43(5) becomes redundant. 4.1. He further submitted that the assessee carried out two different sets of businesses dealing in two different articles/commodities, namely, (i) trading in shares and (ii) trading in derivatives. There cannot be any dispute on the fact that shares are not derivatives. In fact, the Hon ble ITAT, Spl. Bench, Kolkata has clearly held in the case of Shree Capital Services Ltd. (121 ITD 498) that derivatives will fall within the meaning of commodity used in section 43(5) of the Act. The Bench also held that eligible transactions in derivatives will be exempted from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the instant case, once the AO held that profits earned by the assessee in the derivative transactions to be normal and non-speculative in terms of section 43(5)(d) and the profits earned from deliver based share transactions to be deemed speculative in nature there was no scope/feasibility under the law to allow adjustment of such loss against the aforesaid income from derivatives. 4.4. He further stated that the case laws relied by the assessee and ld. CIT(A) were related to assessment years prior to the date of notification dated 25/01/2006 and income have got the little relevance and applicability for the year under consideration. At the stage of assessment proceedings, the A/R of the assessee argued that the F O income resulted out of hedging transactions and therefore such income is adjustable with the share trading loss. Surprisingly the assessee did not take such ground below the appellate authority. On the contrary, a different line of argument was taken before the ld. CIT(A) as it is clearly stated in the Assessment Order that loses are mainly on unquoted shares which cannot be hedged through transactions in F O. 5. On the other hand, the ld. Counsel for assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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