TMI Blog2021 (2) TMI 1204X X X X Extracts X X X X X X X X Extracts X X X X ..... ome - AO denying the assessee s claim of set off of the said loss from income of business of dealing in shares - HELD THAT:- In this case on hand, there is no doubt that the assessee is a company and is in the business of purchase and sale of shares of other companies. And the deeming provision u/s. 73 of the Act is attracted since in this case there is net loss of assessee s business of purchase and sale of shares of other companies - since the assessee transacted in sale purchase of shares of other companies, by delivery as well as non-delivery (transactions of derivatives) are not hit by Sec.43(5) of the Act and hence the aggregation of the brokerage, share trading profit and loss from derivative transactions should be done before application of the Explanation to Sec.73. The assessee had treated the entire activity of brokerage, purchase and sale of shares which comprised of both delivery based and non-delivery based trading as one composite business before the application of deeming provision contained in Explanation to Sec.73 of the Act and accordingly, claimed set off of the loss incurred in non-delivery based trading (derivative) with profit derived from delivery base ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued by the CBDT and observed that the legislative intent is to allow only that expenditure which is relatable to earning of income and therefore expenses which are relatable to earning of exempt income have to be considered for disallowance, irrespective of the fact whether any such income has been earned during the financial-year or not. The AO further noted that since the assessee did not maintain any separate books of accounts for accounting for expenses incurred in relation to income not includible in its total income, he was of the opinion that amount of expenses actually incurred could not be ascertained from the assessee's books of accounts. Accordingly, the AO applied the provisions of section 14A of the Act r.w. Rule 8D in order to compute the disallowance as under: As per rule 8D(2)(i)-direct expenses: Nil, as there is no direct expenses in connection to incurred exempt income As per rule 8D(2)(ii) - proportionate interest expenditure: Total amount of interest paid ₹ 29,80,759/-which would stand for A as referred to in rule 8D(2)(ii). The average value of investment is ₹ 4,80,03,018/- which would stand for B as referred to in rule 8D(2)(ii). I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being held as stock in trade only - The A.O. has calculated the disallowance from the stock in trade/inventories held by the assessee - Rule 8D (2) (ii) (iii) can only be applied where shares are held as an investment this rule will not have any application when these shares are held as stock in trade. This view finds supports from Kolkata Tribunal's decision in the case of Dy. CIT vs. Gulshan Investment Co Ltd Hon'ble Karnataka High Court judgement in the case of CCI Ltd vs J.T. C.I.T (2012) 206 Taxmann 563. . The AO had referred the Board Circular No. 05/2014 dated 11th February, 2014 in the impugned assessment order to disallow u/s.14A read with Rule 8D of the Act at Page - 2 of the assessment order. A copy of the said Circular is attached at Page - 15D of Paper Book. At Paragraph - 6 of the said Circular the hoard had clarified that Rule 8D read with Section 14A of the Act provides for disallowance of the expenditure even where tax payer in a particular year has loot earned any exempt income. Thus this Circular has been issued to clarify for disallowance of expenditure u/s.'14A in cases where exempt income has not been earned by the assessee. In the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee company in the e-filed return of income in this relevant AY 2012-13 reflected total loss of ₹ 2,57,18,558/-. The assessee is engaged in the business of brokerage of securities and functions as registered stock broker in recognized stock exchange (NSE, BSE Forward Exchange etc.). It also transacts in the purchase and sale of shares and securities of other companies on self account where the actual delivery is taken and given. According to the assessee, the assessee gets income from brokerage and share trading business by delivery and of derivative transactions where the actual delivery is not intended to be taken or given. Gross income from share trading was shown at ₹ 3,15,992/-. And it incurred gross loss from derivative transaction of ₹ 37,48,335/-. The assessee has earned gross income of brokerage of ₹ 1,52,68,296/-. As per the assessee since it is a registered share broker of stock exchanges, the assessee had to record purchase and sale of shares and securities on line by giving clients code and where transaction is made on the brokerage account, details of the code are mentioned while booking purchase and sale transaction. It was pointed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness income as per provisions of Sec. 73 of the Act. 8. Aggrieved by the aforesaid action of AO, the assessee preferred an appeal before the Ld. CIT(A), who gave relief to the assessee by holding as under: Grounds No. 2 and 3 are the addition of ₹ 3,72,28,053/- on account of derivatives loss treated as speculation business invoking Explanation to section 73 of the Act:- The A.R has stated that Facts are mentioned in brief in the Statement of facts at paragraphs 4.1 to 4.3. Written submission on this issue before the A.O. appears at pages 25-28 of attachments to Statement of Facts. Turnover in client account wherefrom brokerage income was earned appears at Page 30 statement of apportionment of expenditure with reference to turnover of shares securities appears at Page 29 of attachments to Statement of facts. The principle held by Hon'ble ITAT Kolkata (following the judgement of Calcutta High Court in assessee's own case) held in asst, year 2009-10 that aggregation of the business profit/loss is to be worked out irrespective of the fact, whether it is from share delivery transaction or derivative transaction, before application of the explan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der appeal as well because of the aforesaid Mumbai Tribunal order. In any case Hon'ble Tribunal High Court had held; in favour of the assessee's in its own cases (In earlier year) without considering the aforesaid amendment. Therefore, Explanation to section 73 should not be invoked the addition made on this account should be deleted In view of the judgment of Hon'ble Kolkata I FAT in the case of the assessee and Hon'ble Kolkata High Court in assessee's own case, the addition on account of derivative loss is deleted, and the appeal of the assessee is allowed. Aggrieved revenue is in appeal before us. 9. We have heard rival submissions and gone through the facts and circumstances of the case. At the outset, it has been brought to our notice that similar issue arose in assessee s own case for AY 2009-10 came up before the Tribunal wherein the Tribunal was pleased to allow the claim of the assessee; and in assessee s own case for AY 2005-06, such a claim of the assessee was allowed by the Tribunal which was later confirmed by the Hon ble Calcutta High Court vide order dated 12.03.2014. It is noted that assessee is engaged in the business of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that speculative transactions carried on by an assessee may be of such a nature as to constitute a business, then such business shall be deemed to be distinct and separate from any other business. Subsection (5) of section 43 of the Act gives the definition of speculative transaction as under: Sec. 43 In section 28 to 41 and in this section, unless the context otherwise requires: - 1 2 .. 3 .. 4 . (5) speculative transaction means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips: Provided that for the purposes of this clause- (a) a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or (b) a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d businesses are distinct and separate from any other business. Thereafter, the Hon ble High Court (supra) in similar circumstances observed that now the question is whether the loss arising out of such being the business can be set off against the profit arising out of other business or businesses which may for clarity be called proper business. Under section 70 of the Act, the assessee is entitled to have the loss set off against his income from any other source under the same head unless otherwise provided. The question, however remains whether the explanation to sub-section (4) of section 73 relied upon by Mr. Lodh provides otherwise. A plain reading of the explanation quoted above cannot be said to have provided otherwise. In that case the irresistible conclusion is that the assessee is entitled to set off such loss arising out of deemed business against the income arising out of business proper. In this case the total turnover on account of shares and securities trading, derivative transactions and broker transactions are given as under: Sl. No. Particulars Total Turnover (Rs.)(Col.A) Apportioned Exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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.' 13. We find from a reading of the above explanation that in the case of a company whose business consists mainly or partly of purchase and sale of shares of other companies, it will amount to speculation business, unless such company s gross total income consists mainly of income under the heads of Interest on securities and Income from house property , Capital Gains and Income from other sources , or where the principal business of the company is the business of banking or of granting loans and advances. Hence from this, the following points emerge:- It applies to companies whose business consists of purchase and sale of shares of other companies. It applies to all purchase and sale of shares. It does not differentiate between Delivery based transactions and F O operations. It applies to the entire business of purchase and sale of shares, whether such trading is deliver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s stated that Please refer Annexure - C of the Tax Audit Report appearing at Page 63 of attachments to Statement of facts, which was available before the A.O. in assessment proceeding, giving details of employee's contribution to PF, date of deduction, due date of payment date of actual payment. Details of addition made by the A.O. in respect of deposit' of contribution amount beyond the due date prescribed in the Act but before filing of return of income are appearing in the modified statement attached herewith. Hon ble High Court had held in the case of CIT Circle-1, Kol vs. M/s Vijay Shree Ltd copy of order appearing at page 73 to 74 of this paper book had held that the deposit of employees' contribution to PF before the due date of filing of return cannot be disallowed u/s 36(1 )(va) 2(24)(x) in view of the provisions of section 43B of the act. This judgment is finding Support from orders of other courts as well, copies attached with paper book. Relying upon the judgment of jurisdictional High Court the appeal on this ground no 4 is allowed. 18. We have heard rival submissions and gone through the facts and circumstances of the case. We note t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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