2016 (4) TMI 1011

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....Rs. 5694166/- as loss from Speculation Business ,by invoking Explanation to Section 73, is bad in law and the said loss ought to be treated as normal business loss other than loss from Speculation Business of the Appellant. 2. Without Prejudice to the above, Learned Commissioner of Income Tax(Appeals) erred in confirming the order of the Learned Assessing officer in respect of segregating results of composite Arbitradge Business of the Appellant into 2 segments ,namely, Capital Market Segment and Futures and Options Segment , so as to derive loss in Capital Segment to the tune of Rs. 5694166/-separately thereby applying provisions of Explanation to Section 73 of Income Tax Act,1961 only on loss on Capital Market Segment ignoring profit from Future and Option Segment for the purpose of applying Explanation to Section 73 of Income Tax Act,1961 in an arbitrary manner. Appellant submits in view of the facts and circumstances of the case as well as in law net result of Capita! Market segment and Future & Option segment sprang out of composite single business called "Arbitrage Business" and thus, if at all Explanation to Section 73 has to be applied, the same ought to have been app....

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....eculative in view of Explanation to section 73 of the Act, and the other part as non-speculative, in view of u/s 43(5)(c). 3.1. The brief facts as borne out from the orders of the lower authorities are that during the year under consideration. The assessee company was engaged in the business of Stock Broking, borrowing moneys, depository participants and investment in shares and securities. The assessee was a member of two recognized Stock Exchange -BSE & NSE. Both Exchanges had two separate segments i.e. Capital Market Segment and Derivative Segment. In Capital market segment, assessee made trading of equity shares whereas in derivative segment, future and options. It was noted by the AO that a future contract does not result in actual delivery. The AO invoked explanation to section 73 of the Act and gave show cause to the assessee why loss in share trading should not be treated as speculative loss. In reply, the assessee responded that the assessee had carried out Arbitrage/Jobbing activities and the income of the assessee was not covered under explanation to section 73 but it was covered u/s 43(5)(c) of the Act and therefore, it was non-speculative. The AO did not accept the re....

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....speculative transactions. In support of his proposition, he relied upon various judgments. He submitted that case of the assessee was covered with the judgment of the coordinate Bench in the case of ITO v. Snowtex Investment Ltd. 129 DTR 203 (ITAT Kolkata). He further relied upon following judgment in support of his proposition that all the transactions have to be clubbed together before applying explanation to section 73: 1. CIT v. DLF Commercial Developers Ltd. 261 CTR 127(Cal) 2. CIT v. Baljit Securities P. Ltd. 275 CTR 335 (Cal) 3. ACIT v. Concord Commercials (P) Ltd. 95 ITD 117 4. Majestic Exports v. JCIT, ITAT Chennai 172 TTJ 504 3.4. He also drew our attention on page no. 72 of the paper book containing brief history of the assessee, showing that neither in the preceding years nor in subsequent years, business transactions of the assessee were broken into two parts and income has always been assessed as normal business income. 3.5. On the other hand, Ld. DR vehemently supported the orders of the lower authorities and submitted that the assessee cannot have benefits of the both set of the provisions. If the assessee is accepting that part of the transactions are spe....

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....ing it was submitted by the Ld. Counsel that similar issue came up in appeal before the Tribunal in assessee's own case for A.Y. 2007-08 wherein Hon'ble Tribunal vide its order dated 26th September, 2012 in ITA No.7874/M/2010, decided the issue in its favour. 5.2. He further submitted that facts are same in this year also therefore, in view of judgment of the Tribunal in assessee's own case, the disallowance made by the AO is to be deleted. On the other hand Ld. DR relied upon the orders of lower authorities. 5.3. We have gone through the orders of the lower authorities and judgment of the Tribunal of earlier years. The relevant portion of the Tribunal is reproduced herein: 4. We have considered the rival submissions and perused the relevant material on record. There is no dispute that the dividend income derived by the assessee on the shares which were held by the assessee in its share arbitrage business activity. There is no allegation or indication in the assessment order as well as in the order of the CIT(A) that the assessee has specifically incurred any expenditure for earning the dividend income. 4.1 Section 14A contemplates an implicitly notion of apportionment in th....