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Issues involved: Appeal against order u/s. 143(3) of the Income-tax Act, 1961 for Assessment Year 2005-06 involving addition of losses on derivative transactions, disallowance under section 14A, and treatment of business income as speculative.
Grounds raised by the assessee: 1. Addition of losses on derivative transactions as speculative. 2. Disallowance of set-off of losses against normal business income. 3. Disallowance u/s. 14A. 4. Addition u/s. 94(7). 5. Request for modification of orders. Additional ground raised: Treatment of entire business as speculative under Explanation below Section 73. Summary of Judgment: The assessee, a company engaged in share brokerage, appealed against the disallowance of losses on derivative transactions as speculative under section 43(5) and the disallowance u/s. 14A. The Appellate Tribunal held that the losses from speculative transactions could be set off against profits from deemed speculative business of purchase and sale of shares. The Tribunal directed the AO to restrict disallowance u/s. 14A to 1% of exempt income based on a High Court decision. The Tribunal dismissed a ground not pressed by the assessee and admitted an additional ground related to the treatment of share transactions under Explanation to Section 73. The Tribunal noted that the Explanation to Sec. 73 deems the purchase and sale of shares by a company as speculative business for income tax purposes. As per Sec. 73(1), losses from speculation business can only be set off against profits from another speculation business. Therefore, the Tribunal allowed the set off of speculative losses against profits from deemed speculative business of share purchase and sale. In conclusion, the Tribunal allowed the assessee's appeal, directing the AO to grant the benefit of set off as per the provisions discussed. This summary provides a detailed overview of the judgment, highlighting the key issues, grounds raised by the assessee, and the Tribunal's decision on each issue.
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