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TaxTMI 
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2011 (12) TMI 556
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....(A) is justified in holding that delivery-based share 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. 83,662/- 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 : Profit/(Loss) from Share Dealing (2,80,26,170) Profit/(Loss) from Dealing in Units of Mutual funds 17,54,854 Profit/(Loss) from Derivatives (i.e. F&O) 2,90,55,153 ....
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....the absence of any such specific deeming provisions in regard to the units as shares it would be erroneous to extend the provision of section 32(3) of the UTI Act to the units of the U71 for the purpose of holding that the unit is a share." 3.4. 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 after making long discussion as recorded in page nos. 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....
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....fore the ld. CIT(A). 3.10. At the time of hearing before the ld. CIT(A) the ld. Counsel appearing on behalf of assessee submitted the written submissions which were forwarded by the ld. CIT(A) for Remand Report and after taking into consideration of the Remand Report and the comments of the ld. Counsel on the Remand Report the ld. CIT(A) has directed AO to aggregate the share delivery loss with share derivatives profit and the net should be considered as the income of assessee for the year by observing as under : 2.5. I have carefully considered the assessment order, submission made by the assessee and the details filed. During the year, the assessee is in the business of 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 (2,80,26,170) Proflt/ (Loss) from Derivatives (i.e. F & 0) 2,90,55,153 Share Difference Income 37,463 Profit 10,66,446 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 ....
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....ch, in the case of Shree Capital Services Ltd. Vs ACIT (2009) 121 lTD 498 (Kol), relied by the A.O has no impact on the present case. As the same is relating to Asst. Year 2004-05 & deals whether the amendment made by Finance Act by inserting Cl.(d) to Sec.43(5) will be applicable to Asst. Year 2008-09. As such, Cl.(d) to Sec.43(5) applies to assessee. Assessee claimed both loss on share delivery and profit on derivative transactions are not hit by Sec.43(5) of the I. Tax Act. Both the transactions are non-speculative so far as Sec.43(5) is concerned. Further, when both are considered in the light of Explanation to Sec.73 will have the same treatment. 2.10. Assessee's case is fully covered by the above decision. 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 wo....
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....ven by the ITAT, Special Bench (supra) the transactions to derivatives would indisputably fall under the proviso (d) to section 43(5) and hence would be treated as non-speculative. 4.2. He further referred to the provisions of Explanation to section 73 which reads as under :- "Where any part of the business of a company (other than a company whose gross total income consists mainly of income which is chargeable under the heads "Interest on securities"."Income from house property", "capital gains" and "Income from other sources", or a company, the principal of which is the 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." 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 su....
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....rofit/loss is also not hit by Sec.43(5) of the I. T. Act, which deals about speculation transaction. As such, both profit/loss from all the share delivery transactions and derivative transactions are having the same meaning, so far as, Sec.43(5) of the I. T. Act is concerned. 6.1. When once we held that the transactions done by delivery as well as the transactions of derivatives are not hit by section 43(5) of the Act it is in our considered view that the aggregation of the share trading loss and profit from derivative transactions should be done before the application of the Explanation to section 73 of the IT Act is applicable. 6.2. It is further observed that the ld. CIT(A) has properly concluded that the decision of the Hon'ble Kolkata 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 relatin....