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2016 (5) TMI 430 - ITAT KOLKATA

2016 (5) TMI 430 - ITAT KOLKATA - TMI - Losses in speculation business - adjustment with profit from non speculative business - Held that:- We are in agreement with the argument of Ld. counsel for the assessee that the income from derivatives is defined in section 43(5) of the Act and since it excludes such transactions from the nature of speculative transaction and AO treats that the transaction has not been excluded from section 73 of the Act, therefore, the assessee was entitled to claim the .....

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e order dated 20.02.2013 of CIT(A)- VI, Kolkata, relating to AY 2009-10. 2. There is a delay of about 69 days in filing appeal by the revenue. The same has been explained in an affidavit filed before us as owing to inability to trace the assessment records. After considering the reasons given in the affidavit, we are satisfied that the delay in filing the appeal was due to reasonable and sufficient cause. Accordingly the delay in filing the appeal is condoned. 3. The grounds of appeal of the rev .....

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stating that the business of dealing in shares is one and inseparable and it could not separated into speculative and non speculative business. 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. 4. The Assessee is a company. It is engaged in the business of trading in shares on own account, derivative transactions and share broking activity The Assessee incurred a loss of ₹ 34,61,912/- in share trading on his own a .....

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The AO was of the view that in view of Explanation to Sec.73 of the Income Tax Act, 1961 (Act), loss from purchase and sale of shares in the case of an Assessee which is a company had to be regarded as speculation loss and therefore cannot be set off against normal business income from trading in derivatives. Sec.73: Losses in speculation business. (1) Any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off except against profits and gains, if an .....

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business carried on by him assessable for that assessment year; and (ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on. (3) In respect of allowance on account of depreciation or capital expenditure on scientific research, the provisions of sub-section (2) of section 72 shall apply in relation to speculation business as they apply in relation to any other business. (4) No loss shall be carried forward .....

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business of banking or the granting of loans and advances, consists in the purchase 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. 5. It can be seen from Explanation to Sec.73 of the Act that if an Assessee is a company and it carries on business in purchase and sale of shares of other companies than such company s .....

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siness of which is the business of banking (c) a company whose principal business of which is granting of loans and advances. It can also be seen from Sec.73(1) of the Act that any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off except against profits and gains, if any, of another speculation business. 6. The profits from dealing in derivatives are not in the nature of profits and gains of speculation business in view of proviso (d) to Sec.43( .....

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t for the purposes of this clause- (a) to (c )……. (d) an eligible transaction in respect of trading in derivatives referred to in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognised stock exchange; or shall not be deemed to be a speculative transaction; Explanation 1 : For the purposes of clause (d), the expressions- (i) "eligible transaction" means any transaction,- (A) carried out electronically on screen- .....

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ck exchange; and (B) which is supported by a time stamped contract note issued by such stock broker or sub-broker or such other intermediary to every client indicating in the contract note the unique client identity number allotted under any Act referred to in sub-clause (A) and permanent account number allotted under this Act; (ii) "recognised stock exchange" means a recognised stock exchange as referred to in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956 .....

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re was of the nature of normal business loss. 8. According to the Assessee the business of trading in shares and business of dealing in derivatives were to be regarded as one business and loss in share trading ought to be allowed to be set off against the income from trading in derivatives. Such set off has to be done even before the stage of application of Chapter VI of the Act which contains the provisions of Sec.73 of the Act. 9. According to the AO, the two business of dealing in shares and .....

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ta High Court in the case of R.P.G. Industries Ltd. vs. CIT & Anr. (2011) 241 CTR (Cal) 19 wherein it was held that by Explanation to s. 73, a legal fiction has been created whereby loss suffered by a company in share transactions is to be treated as a speculative loss within the meaning of s. 73, notwithstanding the fact that there was actual delivery of scrips of shares and the transaction is not within the purview of the definition of speculative transaction in s. 43(5). 10. The AO furthe .....

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s not allowed by the AO. 11. Before CIT(A), the Assessee claimed that in it s own case in AY 2001-02 & 2002- 03 the ITAT vide its order dated 29.6.2007 has accepted identical contention of the Assessee by following decision rendered by co-ordinate bench of ITAT in a case reported in (2004) 3 SOT 569 (Kol). It was further contended that the deeming provision of Explanation to Sec.73 of the Act does not provide any bifurcation of business of purchase and sale of shares into two categories of b .....

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from has to be regarded as Speculative income/loss. 12. The CIT(A) agreed with the contentions put forth by the Assessee. On facts the CIT(A) found 30. I have considered the observations of the Assessing Officer in the assessment order and submissions of the appellant. The appellant is a share broker deriving income from trading in shares, stock brokering and dealing in Future & Options. The appellant has submitted that it is primary and only business is to deal in shares and securities incl .....

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77; 9,58,95,368/- and loss from share trading of ₹ 34,61,912/-. The appellant has shown an income of ₹ 30,88,216/- in the return filed on 27.09.2009. There is a net income of the appellant from F & O and share trading as combined activities/part of business. 13. The CIT(A) thereafter found that the ITAT Calcutta bench in the case of ITO Vs. Arena Textiles & Industries Ltd. In ITA No.1019/Kol/2011 dated 29.12.2011 and in the case of ITO Vs. Rajanigandha Properties Ltd. In ITA .....

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of the assessee consists of two distinct and separate parts. The first part of his business relates to trading in shares. The second part of his business relates to F&O operations. The assessee has maintained separate trading accounts for this purpose. The A.O. invoked Explanation to Section 73 of the Income tax Act to the first part, namely, dealing in shares. Thereby, the loss arising from such operations was treated by him loss from speculation. He also applied clause (d) of proviso to cl .....

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s net income and the provisions of section 73 are not applicable, if there is net income from share trading business. 33. On the analysis of the above decisions it can be concluded that for an assessee who is in the business of shares, the net profit is determined by considering the derivative and non derivative transactions as different modes of carrying out the said business which is one and inseparable. Further, before the Explanation below Section 73 can be applied to an assessee, the share .....

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ent year 2008-09 and as CIT(A)-VI, Kolkata, I have upheld the set off of loss from share trading with income from F & 0 in Appeal No. 04/CIT(A)-VI/Cir-6/11-12!Kol dated 18.02.2013 and decided accordingly 34. Therefore, it is held that since 'there is net income from share trading and F&O, therefore, the provision of section 73 are not applicable in the case of the appellant. Hence, the amount of ₹ 34,61,912/- is allowed to be set off with income from derivative trading. This gr .....

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the case such as the Assessee. In the case of ITO Vs. Bijco Holdings Ltd., ITA No.1036/Kol/2012 dated 9.1.2015 rendered by a co-ordinate Bench of ITAT, Kolkata, the facts were identical to the facts of the Assessee in the present appeal. The Assessee in that case for the relevant assessment year 2007-08 reflected income from share trading, investment in shares and securities and also financing. The AO noticed from the Profit & Loss a/c. that it had earned interest income of ₹ 3,53,956 .....

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on 73 of the Act and disallowed to be set off against other business income i.e. interest income earned from loans and derivative profits. On further appeal, the Hon ble ITAT held as follows: 5. We have heard rival contentions and gone through facts and circumstances of the case. Before us, the ld. Sr.DR, Smt. M.M.Ghosh relied on the assessment order and the findings given by the AO whereas the ld. Counsel for the assessee raised a new issue that he has no grievance against the assessment order .....

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tated objective of Section 73 - apparent from the tenor of its language is to deny speculative businesses the benefit of carry forward of losses. Explanation to Section 73(4) has been enacted to clarify beyond any shadow of doubt that share business of certain types or classes of companies are deemed to be speculative. That in another part of the statute, which deals with computation of business income, derivatives are excluded from the definition of speculative transactions, only underlines tha .....

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it, as they (derivatives - once removed from it and entirely dependent on stocks and shares, for determination of their value). In view of the alternative plea of the assessee, we are in agreement with the argument of Ld. counsel for the assessee that the income from derivatives is defined in section 43(5) of the Act and since it excludes such transactions from the nature of speculative transaction and AO treats that the transaction has not been excluded from section 73 of the Act, therefore, th .....

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