TaxTMI 
TaxTMI 
2018 (1) TMI 657
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....8/- made by the AO under explanation to section 73 of I.T. Act as the assessee has wrongly set off speculative loss against non speculative income." 3. "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in directing the AO to delete the addition made on account of deemed dividend by the Assessing officer in spite of the fact that in appeal the addition made in the case of Angel Broking, Angel Commodities Broking Pvt. Ltd. and Angel Securities Ltd. has been deleted by the appellant authority." 4. "The appellant craves leave to amend or alter any ground or add a new ground which may be necessary." 3. Grounds taken by assessee reads as under:- "1.1 Under the facts and the circumstances of the case, the Hon. CIT(A) has not justified in confirming the further disallowance amounting to Rs. 26,48,184/u/s 14A of the Income Tax act, made by the Ld. Assessing officer by applying Rule 8D, without correlating expenses to that extent, being incurred to earn the tax free dividend income by the appellant, inspite of the fact that the appellant itself has disallowed Rs. 13,64,963/- u/s. 14A of the Income Tax Act. 1.2 Under the ....
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....lance sheet date is determinable with reasonable certainty. vi) The forward derivative contracts have all the trappings of stock in-trade. viii) In the ultimate analysis, there is no revenue effect and it is only the timing of taxation of loss/profit. Based on the facts of the case & in view of the fact that the appellant is regularly trading in derivative contracts, the appellant prays that the unexpired derivative contracts are rightly held as stock in business and the loss on valuation of derivative contracts be allowed to the appellant., which even though is a notional loss, is allowable under the generally accepted accounting principles, unlike stocks & shares. Further, very similar loss disallowed by the assessing officer in the case of the appellant's own case for A. Y. 2008-09 has been allowed by the Hon. CIT(A). Copy of Appeal Order enclosed. (page 302 to 311) . Hence the appellant submits that, based on the same ratio as of A. Y. 2008-09, the mark to market loss should be allowed to the appellant. Thus, from the facts of the case and as per the above judicial decisions, the appellant prays your honour to kindly delete the additions/....
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....ered to be normal business activity, especially when the appellant company are not indulging in trading activity but are engaged in the business of arbitrage operations. Further, my findings are supported by the following judicial decisions; f. In case of Arion Commercial Pvt Ltd, ITA No. 101 0/Ko1l2011, it is held that "trading of shares which is done by delivery transactions are not hit by Section 43(5) as speculation. Similarly, derivative transaction in shares profit/loss is also not hit by Section 43(5) of the Income Tax Act, which deals about speculation transaction. As such, both profit / loss from all the share delivery transactions & derivative transactions are having the same meaning, so far as, section 43(5) of the Income Tax Act is concerned. It is further held that, once the transactions done by delivery as well as the transactions of derivatives are not hit by Sec. 43(5) of the Act, the aggregation of the share trading loss and profit from derivative transactions should be done before the application of explanation to Sec. 73 of the I. T. Act is applicable. g. In case of Shree Capital Services Ltd Vs ACIT, ITA No. 1294(Kol) of 2008, the Hon. ITAT, Ko....
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....1." My view get strength from the following judicial decisions:- c. In case of Associated Capital Market Management Pvt Ltd Vs JCIT, ITA' No. 1103/Mum/2001, the Hon. Mumbai ITAT, has held that, 'if the gross total income of the assessee comprises of loss from Business and positive income from other sources, even though the figure of loss from business is more than the figure of positive income, the explanation to Sec. 73 shall not apply'. d. In case of Cosy Merchantile Ltd Vs DCIT, ITA No. 3511/Mum/2001, the Hon. Mumbai ITAT is of the same opinion as above. e. CIT Vs Darshan Securities Pvt Ltd, ITA No. 2886 of 2009. f. ACIT Vs Concord Commercials Pvt Ltd, ITA No. 5220/Bom/1994. g. CIT Vs Hero textiles and Trading Ltd, ITA No. 296 of 2001. h. CIT Vs Maansi Trading Pvt Ltd, ITA No. 47 of 2001. i. CIT Vs HSBC Securities & Capital Markets India Pvt Ltd , ITA No. 657 of 2007. j. Starline Ispat and Alloys Ltd Vs DCIT, 108 TT J 321. ' 5.3.10. I find that out of the loss of Rs. 7,75,30,998/-, loss of Rs. 3,95,73,414/- is due to loss on valuation of closing stock. The Ld. Assessing officer did n....
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....controlling interest in other companies or purchasing shares to control other companies. Expln. To Sec. 73 cannot be read to mean only when there is purchase and sale of shares in course of a financial year, but it will cover both, shares which are stock-in-trade and shares which are traded in course of financial year, for purpose of considering loss and profit for that year. Therefore, loss or profit on account of valuation of stock-in-trade of shares would amount to revenue loss or revenue receipt. However, in the instant case, since I have held that Expln.to Sec. 73 is not applicable to the facts of the appellant, the decision as relied upon by the AO has no application. 5.3.11 Without prejudice to my above stated findings that arbitrage / jobbing transactions are non-speculative transactions and Sec. 73 is not applicable to the case of the appellant as well as provisions of Explanation to section 73 are not applicable to the appellant case in view of finings of the Hon'ble jurisdictional High Court in the case of Darshan Securities( Supra), even if it is held that the transaction are speculative than also profit of the F&O transaction are to be adjusted against the....
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....as under :-. After hearing the rival submissions and on careful perusal of materials available on record, we are of the view that trading of shares which is done by delivery transactions are not.hit by Section 43(5) as speculation. Similarly, derivative transaction in 9 shares ptofit / 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. * When once we held that the transactions done by delivery as well as the transactions of derivatives are not hit by Sec. 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 Sec. 73 of the I. T Act is applicable." Thus, Hon'ble ITAT in this case has held that aggregation of share trading loss and profit from derivative transaction should be done before the application of Explanation to Section 73 of the I. T. Act is applicable. This position is further ....
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....he odium of speculative transactions, and further that since that has not been excluded from Section 73, yet, the Court would be doing violence to Parliamentary intendment. This is because a definition enacted for only a restricted purpose or objective should not be applied to achieve other ends or purposes. Doing so would be contrary to the statute. Thus contextual application of a definition or term is stressed; wherever the context and setting of a provision indicates an intention that an expression defined in some other place in the enactment, cannot be applied, that intent prevails, regardless of whether standard exclusionary terms (such as "unless the context otherwise requires'') are used. In The Vanguard Fire & General Insurance Co. Ltd., Madras v. MIS. Fraser And Ross & Anr AIR 1960 SC 971 it was held that: "lt is well settled that all statutory definitions or abbreviations must be read subject to the qualification variously expressed in the definition clauses which created them and it may be that even where the definition is exhaustive inasmuch as the word defined is said to mean a certain thing, it is possible for the word to have a somewhat different me....
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....itself does not qualify for the benefit, as they (derivatives - once removed from it and entirely dependent on stocks and shares, for determination of their value). 12. In the light of the above discussion, it is held that the Tribunal erred in law in holding that the assessee was entitled to carry forward its losses; the question framed is answered in favour of the revenue and against the assessee. The appeal is, therefore, allowed; there shall be no order as to .. " Therefore, the Hon'ble Delhi High Court has categorically observed that the provisions of Section 73 of the Act would be applicable even in the case of derivatives to the extent they are backed by stock and shares. Therefore, if the AO invoked the provision of the explanation of Sec. 73, the entire transaction of the appellant become speculative for this purpose as per Delhi High Court and the appellant is entitled for the set off which will make the addition nullified as made by the AO. 5.3.12. In view of the foregoing discussion wherein in both circumstances of treating the transactions as speculative or non speculative, the set off has to be allowed, the addition made by the Ld. AO ca....
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.... & written submissions of the appellant. In the instant case, the appellant had shown a dividend income of Rs. 54,33,723/- on which the appellant had suo motto disallowed an amount of Rs. 13,64,963/- in its return of income as per Rule 80. The Assessing Officer computed the disallowance after taking into consideration 0.5% of the average value of investment and no other direct or indirect expenses such as interest was taken into account for disallowances. 3.3.1. The appellant during the course of appellate proceedings submitted that disallowance were wrong as no expenses have been incurred to earn the dividend income and that the appellant had not utilised any borrowed funds for acquisition of investment. Further, since the stock was held as stock in trade, all expenses have otherwise were required to be incurred by the appellant, irrespective of the fact that whether any dividend income is earned or not. It was also stated by the appellant that the burden is on the Assessing Officer to prove the nexus of expenses with regard to the earning of the exempt income. I find that the entire arguments of the authorised representative of the appellant are devoid of any merit. The ....