TaxTMI 
TaxTMI 
2011 (12) TMI 545
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....e transactions does not fall in the ambit of Explanation to section 73 of the I.T. Act. 4. Whether on the facts and circumstances of the case and settled legal position, the Ld. CIT(A) is justified in holding that no expenses were required to be incurred in relation to earning dividend income and thereby deleting the addition of Rs. 4,50,325/- made under section 14A read with Rule 8D. 5. That the appellant craves for leave to add, delete or modify any of the grounds of appeal before or at the time of hearing." 3. The brief facts relating to ground nos. 1 to 3 raised by the revenue are that while doing the scrutiny assessment Assessing Officer observed that during the year the assessee company was engaged in the business of dealing in shares, unit, derivatives and financing. From the details filed by the assessee in course of hearing, it is seen that the income of the assessee consisted of the following : Rs. Profit/(Loss) from Share Dealing (27,78,95,129) Profit/(Loss) from Dealing in Units of Mutual funds 23,761 Profit/(Loss) from Derivatives (i.e. F&O) 31,22,63,790 Share Difference Income 97,54,403 Interest Income ....
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.....4. The decision of Hon'ble Supreme Court that units are different from shares is the basis to arrive at the conclusion by the A.O as under: "By the same analogy, derivatives are different from shares since they have been so expressedly defined by the Securities Contracts (Regulation) Act, 1956." 3.5. Further, Mumbai ITA T in the case of DCIT Vs SSKI Investors services (P) Ltd. 113 7T7 (Mumbai,) 511 and of Bangalore Tribunal in the case of C. Bharath Kumar Vs DCIT (2005) 4 SOT 593 (Bang,),held that dealing in derivative is a separate kind of transaction, which does not involve any purchase and sale o( shares and therefore, loss thereof cannot be treated as speculation loss. 3.6. Further by making long discussions as recorded in pages 7 to 12 the A.O came to the following conclusion: "As Share Dealing and Dealing in F&O are covered under Special Provision, I am unable to accept the contention of the assessee that the said businesses are inseparable and loss from one business can be set off with profit from other. As per Section 43(5)(d) r/w Notification No. 2/2006 dated 25.01.2006, loss from dealing in derivative on BSE and NSE, are assessable as normal business loss and in v....
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....f shares, in which it has trading of shares, having derivative in shares and speculation in shares. As per assessment order, the following is the result profit / (Loss):- Profit/ (Loss) from Share Dealing (27,78,95,129) Proflt/ (Loss) from Derivatives (i.e. F & 0) 31,22,63,790 Share Difference Income 97,54,403 Profit 4,41,23,064 2.6. As per the A.O, the profit from the derivative transactions of the shares is not a speculative loss in view of the special provisions of Sec.43(5)(d) of the I. Tax Act and trading loss in shares is hit by the Explanation to Sec.73 of the I. Tax Act and hence the share dealing loss, which is a deemed speculation loss can not be adjusted with profit from derivatives transaction. 2.7. The Ld.A/R of the assessee has mainly relied that the aggregation of the share trading loss and profit from derivative transactions should be done before it is seen whether Explanation to Sec.73 is applicable. In my opinion, trading of shares which is done by delivery transactions are not hit by Sec.43(5) as speculation. Similarly, derivative transaction in shares profit/loss is also not hit by Sec.43(5) of the I. T. Act, which deals about speculatio....
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..... Firstly, assessee is having profit from the share derivative transaction and loss from share trading (delivery). Both are to be treated as speculatwe before applying deeming fiction as per Explanation to Sec.73 of the I. T. Act. Section 73 of the I. T. Act deals with carry forward of the speculation loss. Before considering whether it is hit by the deeming provision of Explanation to Sec.73 of the I. Tax Act, the aggregate of the business profit / loss has to be worked out based on the non-speculative profits; either it is from share delivery or from share derivative. The net of the same is profit as such question of applying the deeming fraction of Explanation to Sec.73 of the I. T. Act does not arise. The assessee's case is fully covered by the decision of ITAT, Kolkata, in the case of ITO, Wd-3(1)/Kol Vs Lotus Homes Ltd. (supra) as well as the decision of the Hon'ble Bombay High Court in the case of Lokmat News Papers (P) Ltd. (supra)." 4. At the time of hearing the ld. DR appearing on behalf of the Revenue submitted that in paragraph no.2.7 of his order the ld. CIT(A) has held that transactions of delivery based share trading is not hit by section 43(5) of the Act and simil....
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....he 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." There cannot be any dispute after a plain reading of the above provisions that if a part of the business of an assessee consists of purchases and sale of shares of other companies, the said assessee will be deemed to be carrying on speculation business to the extent of purchase and sale of such shares. The AO in this case, has taken exactly the same view and treated the share trading loss as deemed speculative in nature. Thus, the above conclusion of the AO is clearly in tune with the above quoted provisions. 4.3. He further submitted that the reliance put by the ld. CIT(A) on the decision of ITAT, Special Bench, Mumbai appears to be erroneous and misplaced one in view of the fact that once a particular profit/income is held as non-speculative in nature, it cannot be set off against any loss which is speculative in nature. This view is well supported by the decision of the Hon'ble Calcutta High Court in the case of CIT vs Parkview Properties (P) LTd reported in 261 ITR 473 (2003). In the instant case, once the AO he....
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....ata Special Bench in the case of Shree Capital Services Ltd. (Supra) is not applicable to the present facts of the case. 6.3. In view of the above findings we are in agreement with the observations made by ld. CIT(A) at paras 2.7 to 2.10 and therefore we upheld the action of the ld. CIT(A) on this issue. 7. In the result ground no.1 to 3 of the revenue's appeal are dismissed. 8. The issue raised by the Revenue in ground no.4 is relating to deletion of addition of Rs. 4,50,325/- made u/s 14A of the IT Act with Rule 8D of IT Rules. 9 The brief facts of this issue is that while doing the scrutiny assessment the AO has disallowed an amount of Rs. 4,50,325/- by observing as under :- "In course of the assessment proceedings, the assessee was asked to give details of expenses related to exempt income. In response to the same the assessee relying on the decision of Hon'ble Kerala High Court in the case of CIT vs Leena Ramchandran (2010) 235 CTR 512 (Ker) held that Rule 8D r/w Section 14A applies only on shares held as investments and not in case where shares are held as stock in trade. However, I am unable to accept the contention of the assessee company that no expenses have been....