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2016 (4) TMI 1011 - ITAT MUMBAI

2016 (4) TMI 1011 - ITAT MUMBAI - TMI - Nature of business - Treatment to part of the transactions of the business of the assessee as speculative in view of Explanation to section 73 and the other part as non-speculative, in view of u/s 43(5)(c) - Held that:- We find that issue before us is no more res-integra. In the case of ITO v. Snowtex Investment Ltd. (2015 (12) TMI 38 - ITAT KOLKATA ), Hon’ble Kolkata Bench has discussed the law in detail and held that in such kind of cases, aggregation of .....

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T), it was held that in the case of an assessee who was a share broker dealing and buying shares for himself and also dealing in derivatives, the assessee shall be deemed to be carrying on speculative business and therefore, entire transactions carried out by the said assessee were within the umbrella of speculation transactions, and there was no bar in setting off the losses arising out of derivatives from the income arising out of buying and selling of shares. Similar view has been taken by an .....

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rties agreed before us that the provisions of explanation to section 73 are applicable and therefore, it is directed that AO shall treat the entire business as speculative and shall assess the income as income from speculative business and shall grant the benefit of set off and carry forward of losses accordingly.

Disallowance made u/s 14A - Held that:- Similar issue came up in appeal before the Tribunal in assessee’s own case for A.Y. 2007-08 wherein Hon’ble Tribunal decided the issu .....

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umbai-8 {(in short CIT(A) }, order dated 18.03.2013 passed against assessment order u/s. 143(3) of the Act, dated 23.12.2011 for the Assessment Year 2009-10 on the following grounds: 1. Learned Commissioner of Income Tax(Appeals) erred in confirming the order of Learned Assessing officer of applying the provisions of Explanation to Section 73 to alleged share trading activity ,thereby treating loss on alleged share trading activity to the tune of ₹ 5694166/- as Speculation loss which is no .....

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confirming the order of the Learned Assessing officer in respect of segregating results of composite Arbitradge Business of the Appellant into 2 segments ,namely, Capital Market Segment and Futures and Options Segment , so as to derive loss in Capital Segment to the tune of ₹ 5694166/-separately thereby applying provisions of Explanation to Section 73 of Income Tax Act,1961 only on loss on Capital Market Segment ignoring profit from Future and Option Segment for the purpose of applying Exp .....

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results of only Capital Market Segment as carried out by Learned Assessing Officer and confirmed by Learned CIT(appeals). 3. Learned Commissioner of Income Tax (Appeals) erred in confirming the order of the Learned Assessing officer in apportioning a sum of ₹ 12 Lakhs as direct expenses and a sum of ₹ 2 lakhs as indirect expenses for the purpose of computing loss in Capital Segment. Appellant submits that in view of facts and circumstances of the case as well as in law the said appo .....

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sioner of Income Tax (Appeals) erred in confirming the order of learned Assessing officer holding that disallowance u/s 14A has to be made in the assessment of the Appellant. Appellant submits that in view of the facts and circumstances of the case as well as in law no disallowance u/s 14A of the Act ought to have been made and accordingly entire disallowance u/s 14A may please be deleted. 5. Learned Commissioner of Income Tax(Appeals) erred in confirming the order of the Learned Assessing offic .....

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tative (AR) on behalf of the Assessee and by Shri Ajay, Departmental Representative (DR) on behalf of the Revenue. 3. Ground Nos. 1 & 2: In these grounds the issue raised by the assessee is with regard to action of Ld. CIT(A) in treating part of the transactions of the business of the assessee as speculative in view of Explanation to section 73 of the Act, and the other part as non-speculative, in view of u/s 43(5)(c). 3.1. The brief facts as borne out from the orders of the lower authoritie .....

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he AO that a future contract does not result in actual delivery. The AO invoked explanation to section 73 of the Act and gave show cause to the assessee why loss in share trading should not be treated as speculative loss. In reply, the assessee responded that the assessee had carried out Arbitrage/Jobbing activities and the income of the assessee was not covered under explanation to section 73 but it was covered u/s 43(5)(c) of the Act and therefore, it was non-speculative. The AO did not accept .....

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not be broken into two parts. It was submitted that Future & Option segment and share trading in capital segment (i.e. position in cash) are one leg of his share transactions and therefore these cannot be broken into different parts so as to give different treatment u/s 43(5) and section 73. It was further submitted that derivative transactions cannot be covered under the explanation to section 73 as there were specific provisions u/s 43(5) and on the other hand, arbitrage transactions done .....

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tive roles. Accordingly derivative transactions were covered by 43(5)(d) and therefore, could not be held as speculative transactions. On the other hand, share trading done in the cash market is hit by explanation to section 73, and therefore, any loss/profit arising there from shall be deemed to be speculative, and could only be set off against income of subsequent years. Thus, he dismissed the appeal of the assessee upholding the action of the AO. 3.3. Being aggrieved, the assessee filed an ap .....

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ents. He submitted that case of the assessee was covered with the judgment of the coordinate Bench in the case of ITO v. Snowtex Investment Ltd. 129 DTR 203 (ITAT Kolkata). He further relied upon following judgment in support of his proposition that all the transactions have to be clubbed together before applying explanation to section 73: 1. CIT v. DLF Commercial Developers Ltd. 261 CTR 127(Cal) 2. CIT v. Baljit Securities P. Ltd. 275 CTR 335 (Cal) 3. ACIT v. Concord Commercials (P) Ltd. 95 ITD .....

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its of the both set of the provisions. If the assessee is accepting that part of the transactions are speculative because of explanation to section 73, then whole income should be treated as income from speculative business. 3.6. We have gone through the orders of the lower authorities as well as judgments submitted before us. We find that issue before us is no more res-integra. In the case of ITO v. Snowtex Investment Ltd. (supra), Hon ble Kolkata Bench has discussed the law in detail and held .....

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n the case of an assessee who was a share broker dealing and buying shares for himself and also dealing in derivatives, the assessee shall be deemed to be carrying on speculative business and therefore, entire transactions carried out by the said assessee were within the umbrella of speculation transactions, and there was no bar in setting off the losses arising out of derivatives from the income arising out of buying and selling of shares. Similar view has been taken by another Coordinate Bench .....

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lanation to section 73 are applicable and therefore, it is directed that AO shall treat the entire business as speculative and shall assess the income as income from speculative business and shall grant the benefit of set off and carry forward of losses accordingly. 4. Ground no.3: This ground is not pressed by the Ld. Counsel and therefore, dismissed. 5. Ground Nos. 4 & 5: In these grounds the assessee has raised grievance with respect to disallowance made u/s 14A. 5.1. During the course of .....

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lower authorities. 5.3. We have gone through the orders of the lower authorities and judgment of the Tribunal of earlier years. The relevant portion of the Tribunal is reproduced herein: 4. We have considered the rival submissions and perused the relevant material on record. There is no dispute that the dividend income derived by the assessee on the shares which were held by the assessee in its share arbitrage business activity. There is no allegation or indication in the assessment order as we .....

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nciple of apportionment as embedded in section 14A has no application. The object of section 14A is not to allow to reduce the taxable income by debiting the expenditure incurred to earn the exempt income. The logic and scheme of the provisions of section 14A is not to allow the expenditure incurred to earn the exempt income and the expenses shall be allowed only to the extent they are related to earn the taxable income. There should be proximity between the expenditure and the income which is n .....

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in the arbitrage trading, then in the absence of any actual expenditure incurred by the assessee in relation to earning of dividend income, no expenditure can be apportioned for the purpose of earning exempt income. The shares are held by the assessee in the course of its business activity and not as investment; therefore, the decision of the Hon ble Karnataka High Court in the case of CCI Ltd (supra) is applicable wherein the Hon ble High Court has held in para 5 as under: 5. When no expenditu .....

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