TMI Blog2019 (10) TMI 834X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee and our decision rendered hereinabove. In view of the aforesaid observations with regard to the restrictive applicability of provisions of section 43(5)(d) of the Act as detailed supra and respectfully following the judicial precedent relied supra, we hold that the assessee is entitled for setting off the derivative profit with the share trading loss. Hence there is no need for making separate disallowance of share trading loss of ₹ 6,98,422/-. Accordingly, we reverse the treatment of the ld AO in allowing the carry forward of share trading loss to subsequent years. Similarly we find from the aforesaid table that the assessee had incurred loss on account of jobbing and arbitrage transactions in the sum of ₹ 10,77,588/-. This falls under section 43(5)(c) of the Act wherein the said transaction was not considered as speculative transaction. However, the same would apply only for section 43(5) and cannot be extended to section 73 of the Act as held hereinabove. Accordingly, we hold that the said loss on account of jobbing also would have to be set off against derivative profit. Expenses incurred by the assessee which were apportioned towards speculation acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee as to why the said loss should not be treated as speculation loss by invoking Explanation to Section 73 of the Act. The ld AO also directed the assessee to give the details of expenses towards speculative and non-speculative activities and also showcaused as to why the said expenses should not be disallowed in turnover ratio. The assessee replied that the provisions of Explanation to Section 73 of the Act are not applicable to it. The assessee submitted that Explanation to Secton 73 of the Act excludes companies where Gross Total Income mainly consists of income which is chargeable under the head Interest on Securities , Income from House Property , Capital Gains and Income from Other Sources . The Break up of Gross Total Income of the assessee was given as under:- Business Loss - (₹ 71,08,800/-) Long Term Capital Gain - ₹ 13,590/- Income from Other Sources- ₹ 17,95,048/- ----------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty) stands on a different footing as compared to share trading activity carried on by the assessee on its behalf. The ld AO observed that the assessee s case is not covered by the exceptions provided in Explanation to Section 73 of the Act and accordingly he proceeded to treat the share trading loss of ₹ 6,98,422/- as speculation loss. 2.5. Apart from this, the ld AO observed that the determination of derivative trading loss cannot be possible without allocation of expenses which are invariably incurred for derivative trading. He observed that the proportionate expenditure incurred towards speculation transactions are also liable to be separated and disallowed. The total expenses as per profit and loss account was ₹ 1,71,39,837/- and the same was allocated in proportion of turnover as under:- Total Turnover (Amount in Rs) Non-Speculative Turnover Speculation Turnover (Sum of Profit and loss On F O Trade) % 3567998592 12575870 3555422722 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance in this regard was placed on the decision of Hon ble Karnataka High Court in the case of CIT vs First Securities P Ltd reported in 370 ITR 72 (Kar). 3.2. It was pleaded that the ld AO without granting the assessee an opportunity of being heard had treated 99.64% of the total expenses as attributable to speculation activity without appreciating the fact that assessee company is engaged in a composite business of share broker, share trading and derivatives trading during the year under consideration. The assessee also pleaded that there is common management, interliaison of resources, common work force and as such bifurcation of such business was not possible. Reliance in this regard was placed on the decision of Hon ble Supreme Court in the case of Prithvi Insurance Ltd reported in 53 ITR 632 (SC) ; Exchange Corporation Limited reported in 77 ITR 739 (SC). Accordingly, the assessee pleaded that since the assessee is doing composite business, the income therefrom had to be assessed as a whole. Since the share broking activity, share dealing on own account all form an integrated business of the assessee company, the profit or loss from the same is required to be co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade by me. In the result, this ground of appeal is Dismissed . Ground Nos.2, 3 4 are common and therefore disposed off together. The AO made certain disallowance by re-allocating expenses attributable to the speculation activity which has been explained by the AO in para 8.12 of the assessment order. The details of calculation has been worked out by the AO in the assessment order. The only grievance of the appellant is that the disallowance made by the AO is on the higher side and even if ground 1 is Dismissed, the disallowance resulting out of proportionate expenses made by the AO needs to be reasonably disallowed. I have- considered the submissions of the appellant. However, since ground no.l is upheld by me, I do not find any reason to make any changes in the calculation made by the AO because the appellant had not been able to pin point any defect in the calculation of the AO. 3.5. Aggrieved, the assessee is in appeal before us. 3.6. We have heard the rival submissions and perused the materials available on record including the judicial pronouncements that were relied upon by the parties before us at the ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arried out in a recognised stock exchange; [or] (e) an eligible transaction in respect of trading in commodity derivatives carried out in a recognised association, which is chargeable to commodities transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013), shall not be deemed to be a speculative transaction: 3.6.1. Hence from the aforesaid provisions that are in bold letters, it is very clear that the derivative transactions shall not be treated as speculative transaction only for the purpose of section 43(5) of the Act and not otherwise. The same cannot be extended to provisions of Section 73 of the Act. Reliance in this regard has been rightly placed by the ld AR on the decision of Hon ble Delhi High Court in the case of CIT vs DLF Commercial Developers Limited reported in 218 Taxman 45 (Del) wherein it was held as under:- 11. The stated 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 com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sum of ₹ 10,77,588/-. This falls under section 43(5)(c) of the Act wherein the said transaction was not considered as speculative transaction. However, the same would apply only for section 43(5) and cannot be extended to section 73 of the Act as held hereinabove. Accordingly, we hold that the said loss on account of jobbing of ₹ 10,77,588/- also would have to be set off against derivative profit of ₹ 37,64,097/-. 3.6.4. With regard to expenses incurred by the assessee which were apportioned towards speculation activity on turnover ratio by the ld AO, we find that the assessee had carried on composite business of derivative trading and share trading. We hold that the ld AO had not considered the turnover figures for derivative business and had considered only the turnover of share trading business, which had resulted in absurdity by apportioning 99.64% of total expenses only towards speculation activities. We direct the ld AO to recompute the apportionment of expenditure by considering the income of derivative transactions, jobbing transactions and share trading transactions alone by considering them in absolute figures i.e ignoring the negativ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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