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TMI Blog2014 (5) TMI 74X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment u/s. 143(3) to be erroneous because the AO did not assess loss incurred in the business of share trading as deemed speculation loss within the meaning of the Explanation to Sec 73 of the I.T. Act. 3. For that on the facts and in the circumstances of the case, the CIT erred in holding the assessment order to be erroneous for non-application of the Explanation to Sec 73 ignoring the fact that the. appellant had also earned income from other business activities in consisting of purchase & sale of shares and therefore the CIT erred in directing the AO to treat only the transactions involving the' purchase &. sale of shares and resulting in loss to be regarded as loss in speculation business. 4. For that on the facts and in the circumstances of the case, the CIT failed to appreciate that the appellant carried on a single indivisible and composite business; carried through different segments of the capital market wherein the underlying transactions involved purchase & sale of shares and thereby the CIT erred in considering only one segment of such business transactions for applying the Explanation to Sec 73 of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act after verifying the documents produced by the assessee in detail. As per ld. A.R., assessee was a stock broker having transactions in different segments. Some of the trading in shares were on its own account, whereas some others were in clients account. As per ld. A.R., Assessing Officer had properly considered all the issues relating to the computation and assessed the income of the assessee after making disallowance under section 14A of the Act. Despite this, the ld. CIT on 10.08.2011 issued a notice under section 263 of the Act, which, inter alia, mentioned that assessee had claimed a loss of Rs.11.91 crore in share trading business which was set off against other business income, in contravention of Explanation to section 73 of the Act. Ld. A.R. pointed out that assessee had given a detailed reply to the above notice on 06.09.2011 (copy of which is placed at paper book pages 5 to 21). According to him, it was specifically pointed out that assessee had not suffered any loss in purchase and sale of shares and had earned a profit of Rs.3,25,96,929/- in "cash and futures segment". Ld. AR stated that the assessee had various classes of income, under the head "Income fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. In the first place, Assessing Officer had done the original assessment under section 143(3) after calling for details. As per ld. AR not only should there be an error in the order of assessment, but such error should be prejudicial to the interest of revenue for invoking revisionary jurisdiction under section 263 of the Act. He pointed out that assessee had suffered loss from share trading as also derivative trading, and earned income from brokerage and interest. As per ld. AR, derivative trading also fell within the scope of speculation business. Ld. CIT had considered only share trading to be speculative in nature. Insofar as trading of Units was concerned, Ld. AR pointed out that Hon'ble Apex Court in the case of Apollo Tyres Ltd. v. CIT 255 ITR 273 clearly held that Units could not be construed as equivalent to shares and Explanation to section 73 applied only to shares. As per ld. AR, alleged speculative loss was therefore confined to the share trading loss of Rs.2,09,02,062/-. Further, he pointed out that derivative trading was done only for hedging the cash trading in shares. Relying on the decision of coordinate Bench of this Tribunal in the case of Guiness Securiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase and sale of shares made on own behalf and/or on behalf of others. According to him, once it was so viewed, the intra head 'set off of loss' in the profits done by the assessee was justified. Even the name and account used for share trading and stock broking was the same. Once entire activity was one, set off, as allowed by the Assessing Officer could not be considered as erroneous. Though assessee has filed three documents, namely certificate issued by National Stock Exchange; DEMAT A/c. and sample copies of contract as additional evidence, ld. AR submitted that these need not be considered and he was not placing reliance on any of them. 7. In any case, as per the ld. AR, even if there was any error in the order of the Assessing Officer, the second condition that such error should have been prejudicial to the interest of revenue was not satisfied. As per ld. A.R. the Assessing Officer had not committed any mistake for invoking Section 263 of the Act. Relying on a decision dated 19.10.2007 of Hon'ble jurisdictional High Court in the case of CIT v. Subhas Projects & Marketing Ltd. [IT Appeal No. 448 of 2000 dated 19-10-2001] copy of which has been placed at pag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sisted Scrutiny Section (CASS). Notice u/s. 143(2) was issued on 08.09.2008 and duly served upon the assessee on 24.09.2008. Thereafter, notice u/s. 142(1) along with questionnaire dated 02.06.2009 was also issued and duly served on the assessee. In response to the said notices, Mr. Jayesh Vora, Director, Authorized Representative of the assessee company appeared from time to time and produced documents in detail. The case was discussed and heard. The assessee has claimed dividend income which is exempt from taxation. However, no corresponding disallowances have been made u/s. 14A. Hence, as per explanation of the assessee an amount of Rs.77,184/- is being added back to the total income of the assessee. In view of the above discussion, total income of the assessee-company is computed as under :- I Income from business : As shown in the computation of income: Rs.1,39,50,502 Add. : Disallowance u/s. 14A : Rs. 77,184 II. Income from other sources : Dividend : Rs.4,33,58,423 Less : Exempted u/s. 10(34); Rs.4,33,58,423 &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a trading and clearing member of National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). It is also a Depository Participant with Central Depository Services India Limited (CDSL). It also carried on trading in shares, units and derivates. During the financial year 2006-07 the company has earned revenue under the heads Income from business and Income from other sources". Pursuant to the direction of Bench, assessee has furnished a hard copy of the income-tax return filed by it. Part B-T1 of the return which gives the computation of total income, insofar as head "Profits and gains from business or profession" is concerned, reads under:- "2. Profits and gains from business or profession (i) Profit and gains from business other than speculative business (A37 of Schedule-BP).......................... 13,950,502 (ii) Profit and gains from speculative business (B41 of Schedule-BP)................................. NIL (iii) Total (2i + 2ii) .......13,950,502" 12. Thus it is clear that assessee itself had shown the whole of its business income as non-speculative in nature. No part of the income was consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be considered as a speculative loss for applying Explanation to section 73 of the Act. There can be no doubt whatsoever that trading in Units did not result in any speculation loss, by virtue of decision of the Hon'ble Apex Court in the case of Apollo Tyres Ltd. (supra). In the case of Guiness Securities Ltd. (supra) coordinate Bench of this Tribunal relying on the case of Bhartia Stock Holding (P.) Ltd. v. ITO [IT Appeal No. 2058 (Kol) 2006, dated 25-5-2007] held that section 43(5) would not in any way be an impediment while considering application of Explanation to section 73 of the Act, with regard to loss arising out of speculative business. However, as already pointed out by us, nothing was placed by the assessee before the Assessing Officer to show that loss arising in share trading and profit arising in derivative trading were both part of an integrated business of purchase and sale of shares. Hon'ble Delhi High Court in the case of CIT v. DLF Commercial Developers Ltd. (ITA No. 94/Del./2013 Order dated 1 1.07.2013, copy of which has been placed at pages 219 to 231 of the paper book has clearly held that loss arising out of derivative trading, despite definition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 73 of the Act cannot be brushed aside even when speculative transactions come within the meaning of section 43(5) of the Act and speculative business is deemed to be distinct and separate from other business. Section 73 has been specifically enacted for controlling the claims of loss carried forward from such business. Assessee might not be having a loss in the impugned assessment year, but if the net result was a loss, the treatment of that loss, once it arose out of speculative transactions would be entirely different from that of a normal business loss Assessment done for the impugned assessment year if confirmed, by accepting the contentions of the assessee would have an overflowing effect on the succeeding assessment years, where the trading results from the same business and different classes of activities could be different. Assessing Officer will then be tied up by his own order for the impugned assessment year. If we look from this angle, it is clear that the treatment of income as claimed by the assessee, if accepted would definitely be prejudicial to the interest of the revenue. Prejudicial to the interest of the revenue cannot be interpreted in a restricted manner but ..... X X X X Extracts X X X X X X X X Extracts X X X X
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