TaxTMI 
TaxTMI 
TaxTMI 
2019 (10) TMI 834
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....78,134/- as against the total expenses claimed in the sum of Rs. 1,71,39,837/-. 2.1. The brief facts of this issue are that the assessee is engaged in the business of stock broking and a member of National Stock Exchange in Equity Segment, Derivative Segment , Currency Derivative Segment etc. The ld AO from perusal of the profit and loss account of the assessee observed that major activities of the assessee is from sale of equity shares of Rs. 355,54,22,722/- and assessee has shown share trading loss of Rs. 6,98,422/-. The ld AO showcaused the assessee as to why the said loss should not be treated as speculation loss by invoking Explanation to Section 73 of the Act. The ld AO also directed the assessee to give the details of expenses towards speculative and non-speculative activities and also showcaused as to why the said expenses should not be disallowed in turnover ratio. The assessee replied that the provisions of Explanation to Section 73 of the Act are not applicable to it. The assessee submitted that Explanation to Secton 73 of the Act excludes companies where Gross Total Income mainly consists of income which is chargeable under the head 'Interest on Securities', 'Income f....
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....d forward to be set off against the speculation profit of the future years. The ld AO observed that the share dealing activity carried out on behalf of the clients (broking activity) stands on a different footing as compared to share trading activity carried on by the assessee on its behalf. The ld AO observed that the assessee's case is not covered by the exceptions provided in Explanation to Section 73 of the Act and accordingly he proceeded to treat the share trading loss of Rs. 6,98,422/- as speculation loss. 2.5. Apart from this, the ld AO observed that the determination of derivative trading loss cannot be possible without allocation of expenses which are invariably incurred for derivative trading. He observed that the proportionate expenditure incurred towards speculation transactions are also liable to be separated and disallowed. The total expenses as per profit and loss account was Rs. 1,71,39,837/- and the same was allocated in proportion of turnover as under:- Total Turnover (Amount in Rs) Non-Speculative Turnover Speculation Turnover (Sum of Profit and loss On F&O Trade) % 3567998592 12575870 3555422722 99.64% Accordingly the ld AO concluded that 99.64....
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....eported in 370 ITR 72 (Kar). 3.2. It was pleaded that the ld AO without granting the assessee an opportunity of being heard had treated 99.64% of the total expenses as attributable to speculation activity without appreciating the fact that assessee company is engaged in a composite business of share broker, share trading and derivatives trading during the year under consideration. The assessee also pleaded that there is common management, interliaison of resources, common work force and as such bifurcation of such business was not possible. Reliance in this regard was placed on the decision of Hon'ble Supreme Court in the case of Prithvi Insurance Ltd reported in 53 ITR 632 (SC) ; Exchange Corporation Limited reported in 77 ITR 739 (SC). Accordingly, the assessee pleaded that since the assessee is doing composite business, the income therefrom had to be assessed as a whole. Since the share broking activity, share dealing on own account all form an integrated business of the assessee company, the profit or loss from the same is required to be computed as a whole. Hence these expenses cannot be bifurcated to arrive at profit under separate heads. 3.3. The assessee without prejudic....
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....xpenses attributable to the speculation activity which has been explained by the AO in para 8.12 of the assessment order. The details of calculation has been worked out by the AO in the assessment order. The only grievance of the appellant is that the disallowance made by the AO is on the higher side and even if ground 1 is Dismissed, the disallowance resulting out of proportionate expenses made by the AO needs to be reasonably disallowed. I have- considered the submissions of the appellant. However, since ground no.l is upheld by me, I do not find any reason to make any changes in the calculation made by the AO because the appellant had not been able to pin point any defect in the calculation of the AO." 3.5. Aggrieved, the assessee is in appeal before us. 3.6. We have heard the rival submissions and perused the materials available on record including the judicial pronouncements that were relied upon by the parties before us at the time of hearing. At the outset, we find that the ld AO had drawn an erroneous conclusion in para 5.3 of his order that the assessee had arrived at the net loss on composite basis and the said net loss has been claimed once again to be allowed to be s....
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....are in bold letters, it is very clear that the derivative transactions shall not be treated as speculative transaction only for the purpose of section 43(5) of the Act and not otherwise. The same cannot be extended to provisions of Section 73 of the Act. Reliance in this regard has been rightly placed by the ld AR on the decision of Hon'ble Delhi High Court in the case of CIT vs DLF Commercial Developers Limited reported in 218 Taxman 45 (Del) wherein it was held as under:- 11. The stated objective of Section 73- apparent from the tenor of its language is to deny speculative businesses the benefit of carry forward of losses. Explanation to Section 73 (4) has been enacted to clarify beyond any shadow of doubt that share business of certain types or classes of companies are deemed to be speculative. That in another part of the statute, which deals with computation of business income, derivatives are excluded from the definition of speculative transactions, only underlines that such exclusion is limited for the purpose of those provisions or sections. To borrow the Madras High Court's expression, "derivatives are assets, whose values are derived from values of underlying assets....