TaxTMI 
TaxTMI 
2015 (12) TMI 562
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....volved in hedging and arbitrage business. In case of clientele business, sometimes clients refused to accept the transaction and those transactions are kept in the name of company in its own account. Losses in such type of transactions are not because of dealing by the company in its own account but incidental to broking activities of the company. 2.1.1. In case of arbitrage / hedging activities, the company takes a position in one segment of the exchange and simultaneously reverse position is taken in another segment. For example if company buys JP Hydro in capital market segment , then the company also simultaneously sells the same quantity and script in derivatives segment. In case if the transaction get reversed in the same day, profit or loss arising on the said transaction in the capital market segement booked as intra day profit / loss or if the trade is reversed on next day or subsequent day, the profit / loss arising on the said transaction in the capital market segment is booked as delivery based profit / loss. 2.1.2. The assessee incurred loss in dealing in shares amounting to Rs. 5,36,90,032/- which was claimed as regular business loss by the assessee. In respect of n....
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....sactions with F & O Operations. The assessee also has not treated these transactions as part of jobbing or arbitrage. Accordingly, he held that the transactions do not fall under proviso (c) to section 43(5) of the Act. He held that the loss of Rs. 2,46,33,241/- is treated as speculation loss. 2.4. The treatment of share transactions of the assessee could be summarized as below:- I. Loss on delivery based transactions - Rs. 5,36,90,032/- Treated as regular business loss by the assessee. Treated as speculation loss by the Learned AO II. Profit from Future & Option on non-delivery based transactions (derivative transactions) - Rs. 36,86,29,893/- Treated as regular business profit by the assessee. Treated as regular business profit by the Learned AO. III. Loss from non - delivery based transactions (derivative transactions) - Rs. 2,46,33,241/- Treated as regular business loss by the assessee. Treated as speculation loss by the Learned AO. 2.4.1. From the above , it could be seen that the assessee had chosen to treat the entire loss incurred on both delivery and non-delivery based share transactions as regular business loss and sought to set off the same against the regul....
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.... and hence in any case, there is no loss available with the assessee for invoking the provisions of section 70 to 74A, much less section 73 read with its Explanation. He further argued that from the details of share transactions clearly revealed that the assessee has incurred loss in dealing in shares due to arbitrage. For example, in case of Jindal Steel , the assessee bought 1875 shares in capital market on 8.2.2008 and sold the same quantity in F & O segment in order to hedge. The assessee has reversed the position on 12.2.2008. In this transaction, the assessee has incurred delivery loss of Rs. 5,83,031/- in capital market and earned Rs. 5,51,000/- in F & O Segment. He argued that even if the loss in delivery transactions as mentioned above is treated as speculation loss as per Explanation to section 73 of the Act, the said explanation should be treated as normal business loss as per the clause (b) and (c ) of section 43(5) of the Act. 2.6. The Learned DR argued that assessee is a company dealing in shares and also earning brokerage income and does not fall in exceptions to explanation to section 73 of the Act. He argued that section 73 of the Act is a special provision wherea....
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....pted by the Learned AO in both the assessment years. This fact is also stated at page 14 of the Learned CITA order. The relevant operative portion of the assessment order u/s 143(3) of the Act dated 2.12.2011 for the Asst Year 2009-10 is reproduced hereunder:- 3.9. From the P&L it is found that the assessee has incurred a loss of Rs. 69,71,852.82. The assessee was asked to explain why not the above be treated as speculation loss. In response the A/R of the assessee submitted that the amount of loss is basically the loss incurred for jobbing and arbitrage. In support of the same he has given a detailed submission with evidence, which are placed on record. In view of section 43(5)(c ) of the Income Tax Act, the jobbing and arbitrage is not a speculative transaction. Hence, the view of the assessee is considered. 2.7.2. Here we are aware that though the principle of res judicata does not apply to income tax proceedings, the principle of consistency cannot be given a complete go bye as has been held by the Hon'ble Supreme Court in the case of Radhasoami Satsang vs CIT reported in 193 ITR 321 (SC), wherein it was held that : "As we are aware of the fact that, strictly speaking res....
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.... of deeming provision contained in Explanation to Section 73. 2.7.6. We find from the facts available on record, the assessee is operating in one segment i.e dealing in shares and securities and all the activities under this segment are interrelated. In this regard, we place reliance on the following decision of the coordinate bench of this tribunal in the case of ITO s Sand Dune Credit Pvt Ltd in ITA Nos. 2075 & 2076 /Kol / 2008 for the Asst Years 2004-05 & 2005-06 dated 24.4.2009, wherein the tribunal upheld the decision of the CITA with regard to deletion of the addition under Explanation to section 73 by making the following observations:- Pages 12 & 13 of ld.CIT(A)'s order: "I have carefully considered the submission of the ld.A.R. The assessing Office has added Rs. 10,06,974/- being loss suffered in trading in shares which was set off against brokerage income of shares of Rs. 12,90,172/-. The appellant is a share broker, registered with SEBI and its entire activity in shares is to be treated as the activity of share business whether it was by way of trading of shares and/or by way of brokerage in shares. The activity which was conducted by the appellant on a/c of other ....
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.... account all form an integrated business of the appellant company, the profit or loss from the same is required to be computed as a whole. In the instant case of the company, it is very difficult to segregate business activities and allocate respective amount of expenditure incurred for the purpose of earning the same. Since the activities are being carried out at common work place with a work force, the work staff, the expenses incurred are also common in nature. Hence, this expenses cannot be bifurcated to arrive at profit under separate heads. As such the Explanation appended to Section 73 will not be applicable in the present case." In case of ITO, C.W 2(2) Vs. GDB Share & Stock Broking Service Ltd ITA No.235(Cal) of 2001 it was held that "The assessee has shown brokerage income of Rs. 49.17 lacs, interest income of Rs. 1.66 lacs & dividend income of Rs. 0.74 lacs. On the other hand the assessee has suffered loss of share dealing amounting to Rs. 3.97 lacs in respect of which assessing officer has attracted the explanation to Section 73. The brokerage income earned by the assessee is out of its business of purchase & sale of shares and not in respect of any other activity be....
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....rded that during the course of hearing departmental representative has not disputed the fact stated by CIT(A) (Supra). The Learned Tribunal also observed that income of the assessee in the assessment order under consideration from brokerage income of share of Rs. 12,90, 172/- is more than the loss of Rs. 10,,06,974/- claimed by the assessee in respect of sale and purchase of the share by way of brokerage of share. It is recorded by the learned Tribunal further that there is no dispute to the fact that explanation to Section 73 does not apply to an investment company or a company whose principal business is banking or money lending. The learned Tribunal has, therefore, affirmed the order of the Commissioner of Income Tax (Appeal) in view of the judgment of this Court [CIT vs. Nirmal Kumar & Co.] (supra) reported in 161 ITR 413. In view of the aforesaid findings and application of law in this matter we do not think it is a fit case for admission. It is not submitted that the decision rendered in the case of [CIT vs.Nirmal Kumar & Co.] reported in 161 ITR 413 (Supra) is not applicable in the facts and circumstances of this case nor it is argued that the said decision of this Court ....
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....ion contained in Explanation to Section 73 of the Act and accordingly, claimed set off of the loss incurred in delivery based trading with profit derived from derivative trading. 2.7.8. We hold that the transactions done by delivery as well as the transactions of derivatives are not hit by section 43(5) of the Act and hence the aggregation of the share trading loss and profit from derivative transactions should be done before application of the Explanation to section 73 of the Act. Reliance is placed on the following decisions:- a) Kolkata Tribunal in the case of DCIT vs M/s Baljit Securities Private Limited in ITA No. 1183/Kol/2012 dated 21.10.2014 for the Asst Year 2009-10, wherein it was held as below:- It is concluded that both trading of shares and derivative transactions are not coming under the purview of section 43(5) of the Act which provides definition of 'speculative transaction' exclusively for purposes of section 28 to 41 of the Act. Again, the fact that both delivery based transaction in shares and derivative transactions are non-speculative as far as section 43(5) of the Act is concerned goes to confirm that both will have same treatment as regards application o....
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....nd 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 consist of the purchase and sale of such shares" In order to resolve the issue before us, the section has to be read in the manner as follows: " Explanation : where any part of the business of a company........................................................................ ......................................................) consist 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 consist of the purchase and sale of shares. " It would, thus, appear that where an assessee, being the company, besides dealing in other things also deals in purchase and sale of shares of toher companies, the assessee shall be deemed to be carrying on a speculation business. The assessee, in the present case, principally is a share broker, as already indicated. The assessee is also in the business of buying and selling of shares where a....