2021 (1) TMI 165 - AT - Income Tax

Rectification u/s 254 - profitability of speculation activity and non-speculation activity - HELD THAT - It is required to determine the profitability of speculation activity separately and non-speculation activity separately. Admittedly this was not done by the assessee at all while filing the return of income. This was sought to be done by the AO in a different fashion which admittedly resulted in absurdity and the same was rectified by this Tribunal by making a rational apportionment of expenditure between speculation and non-speculation activity. Merely because the assessee has maintained a consolidated profit and loss account for all the activities put together thereby making the AO not to deduce the profitability of speculation activity and non-speculation activity independently the same would not become sacrosanct. Hence the decision relied upon by the ld. AR at the time of hearing before us on Rajasthan State Warehousing Corporation 2000 (2) TMI 5 - SUPREME COURT cannot be made applicable at all in the facts and circumstances of the instant case. Hence the ground No.1 raised in Miscellaneous Application deserves to be dismissed. Business carried out by the assessee comprise of purchase and sale of shares of other companies was considered as a speculative transaction and the same falls within the Exception provided in Explanation to Section 73 only with effect from 01/04/2015 which has been held to be prospective in operation by the Hon ble Supreme Court in the case of Snowtex Investment Ltd. vs. PCIT 2019 (5) TMI 1165 - SUPREME COURT . - Hence upto A.Y.2015-16 the activity carried out by the assessee on purchase and sale of shares comprising of both speculative and non-speculative nature would have to be determined independently and hence the profitability of each claim needs to be separately worked out which has been done by this Tribunal in fair and rational manner. Accordingly the ground No.2 raised by the assessee in the Miscellaneous Application deserves to be dismissed. AR had made an alternative plea on without prejudice basis that even if apportionment of expenditure need to be carried out depreciation shall not form part of said apportionment as same is not an expenditure but only an allowance. In this regard we find that depreciation is granted to the assessee for usage of the assets by the assessee for its business purposes. There is no evidence furnished by the assessee as to what part of the assets on which depreciation was claimed were used for speculation activity and non-speculation activity. Ultimately this Tribunal had only taken the total expenditure debited in the P L Account including the depreciation for the purpose of apportionment of expenses attributable to speculation and non-speculation activity. It is not the case of the assessee that the depreciation claimed on assets were never used for speculation activity carried out by the assessee. Accordingly the argument that depreciation is only an allowance and not an expenditure holds no water and deserves to be dismissed in the facts of the instant case. Hence alternative ground No.3 raised by the assessee in the Miscellaneous Application deserves to be dismissed. Mistakes pointed out by the assessee in the Miscellaneous Application does not fall under the ambit of mistake apparent from record within the meaning of Section 254(2) of the Act. All the issues pointed out therein are debatable issues and would only amount to review of the decision already taken by this Tribunal which is not permissible under proceedings u/s.254(2) of the Act.

Issues:
1. Recalling the order based on alleged mistakes in the judgment.
2. Apportionment of expenses between speculation and non-speculation activities.
3. Treatment of depreciation in the apportionment of expenses.

Analysis:

Issue 1: Recalling the order based on alleged mistakes in the judgment
The assessee sought to recall the order passed by the Tribunal citing mistakes in the judgment. The contentions included the absence of statutory provision for allocation of composite expenses towards speculation activities, and the assertion that the scope of Explanation to section 73 is limited to the purchase and sale of shares only. The Tribunal acknowledged the composite business of the assessee involving both derivative trading and share trading. It emphasized the necessity to determine the profitability of speculation and non-speculation activities separately. The Tribunal rationalized the apportionment of expenses between the two activities, dismissing the contentions raised by the assessee regarding the applicability of certain decisions. The Tribunal held that maintaining a consolidated profit and loss account did not absolve the assessee from separately determining the profitability of each activity.

Issue 2: Apportionment of expenses between speculation and non-speculation activities
The Tribunal considered the business activities of the assessee involving the purchase and sale of shares as speculative transactions. It clarified that the Exception provided in Explanation to Section 73 applied only from 01/04/2015 onwards. Until A.Y. 2015-16, the profitability of speculative and non-speculative activities had to be determined independently. The Tribunal conducted a fair and rational apportionment of expenses between the two types of activities, emphasizing the need for separate calculations for each claim.

Issue 3: Treatment of depreciation in the apportionment of expenses
The assessee contended that depreciation should not be included in the apportionment of expenses as it is an allowance, not an expenditure. However, the Tribunal rejected this argument, stating that depreciation is granted for the usage of assets in business operations. The Tribunal noted the absence of evidence regarding the specific assets used for speculation activities. As a result, the Tribunal included depreciation in the total expenditure for apportionment between speculation and non-speculation activities. The Tribunal dismissed the argument that depreciation is merely an allowance and not an expenditure, emphasizing the factual context of the case.

In conclusion, the Tribunal dismissed the Miscellaneous Application of the assessee, stating that the alleged mistakes did not fall under the ambit of a mistake apparent from the record. The issues raised were considered debatable and did not warrant a review of the Tribunal's decision under the relevant provisions of the Act.

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