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TMI Blog2016 (4) TMI 1011X X X X Extracts X X X X X X X X Extracts X X X X ..... vatives, the assessee shall be deemed to be carrying on speculative business and therefore, entire transactions carried out by the said assessee were within the umbrella of speculation transactions, and there was no bar in setting off the losses arising out of derivatives from the income arising out of buying and selling of shares. Similar view has been taken by another Coordinate Bench of the Tribunal in the case of Majestic Exports (2015 (7) TMI 936 - ITAT CHENNAI ). It is further noted by us that the assessee’s stand of treating the whole business as composite business has always been accepted by the revenue in earlier as well as subsequent years. Thus, keeping in view clear position of law as discussed above and history of the case, we find that for the purpose of setting off of losses, the whole business should be treated as one business. Both the parties agreed before us that the provisions of explanation to section 73 are applicable and therefore, it is directed that AO shall treat the entire business as speculative and shall assess the income as income from speculative business and shall grant the benefit of set off and carry forward of losses accordingly. Disallowance m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent and Future Option segment sprang out of composite single business called Arbitrage Business and thus, if at all Explanation to Section 73 has to be applied, the same ought to have been applied on results of entire Composite single Business called Arbitrage Business instead of results of only Capital Market Segment as carried out by Learned Assessing Officer and confirmed by Learned CIT(appeals). 3. Learned Commissioner of Income Tax (Appeals) erred in confirming the order of the Learned Assessing officer in apportioning a sum of ₹ 12 Lakhs as direct expenses and a sum of ₹ 2 lakhs as indirect expenses for the purpose of computing loss in Capital Segment. Appellant submits that in view of facts and circumstances of the case as well as in law the said apportionment of 12 lakhs as direct expenses and as sum of ₹ 2 Lakhs as indirect Expenses to Capital Market Segment thereby enhancing loss from Capital Market segment is bad in law and deserves to be quashed. Appellant accordingly submits that in view of the facts and circumstances of the case as well as in law no part of direct expenses or indirect expenses ought to have been apportioned to Capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had carried out Arbitrage/Jobbing activities and the income of the assessee was not covered under explanation to section 73 but it was covered u/s 43(5)(c) of the Act and therefore, it was non-speculative. The AO did not accept the reply of the assessee and held that the transactions done by the assessee which were not covered u/s 43(5) shall be hit by explanation to section 73 and shall be treated as speculative in nature and accordingly he disallowed a sum of ₹ 56,94,166/- as deemed speculative loss, applying explanation to section 73. 3.2. Being aggrieved, the assessee filed an appeal before the Ld. CIT(A) wherein detailed submission were filed. It was interalia submitted that transactions of the assessee cannot be broken into two parts. It was submitted that Future Option segment and share trading in capital segment (i.e. position in cash) are one leg of his share transactions and therefore these cannot be broken into different parts so as to give different treatment u/s 43(5) and section 73. It was further submitted that derivative transactions cannot be covered under the explanation to section 73 as there were specific provisions u/s 43(5) and on the other hand, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come. 3.5. On the other hand, Ld. DR vehemently supported the orders of the lower authorities and submitted that the assessee cannot have benefits of the both set of the provisions. If the assessee is accepting that part of the transactions are speculative because of explanation to section 73, then whole income should be treated as income from speculative business. 3.6. We have gone through the orders of the lower authorities as well as judgments submitted before us. We find that issue before us is no more res-integra. In the case of ITO v. Snowtex Investment Ltd. (supra), Hon ble Kolkata Bench has discussed the law in detail and held that in such kind of cases, aggregation of share trading transactions and derivative transactions should be done before applying explanation to section 73. Where the assessee is a dealer in shares, the entire business consists in sale purchase of shares, then, it should be treated as composite business. Similar view has been taken by Hon ble Delhi High Court in the case of CIT vs. DLF Commercial Developers Ltd. (supra). In the case of CIT vs. Baljit Securities P. Ltd. (supra), it was held that in the case of an assessee who was a share broker de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . There is no allegation or indication in the assessment order as well as in the order of the CIT(A) that the assessee has specifically incurred any expenditure for earning the dividend income. 4.1 Section 14A contemplates an implicitly notion of apportionment in the cases where the expenditure is incurred for a composite activity for which taxable and non-taxable income is received. But, when it is possible to determine the actual expenditure in relation to the exempt income or when no expenditure has been incurred in relation to the exempt income, then the principle of apportionment as embedded in section 14A has no application. The object of section 14A is not to allow to reduce the taxable income by debiting the expenditure incurred to earn the exempt income. The logic and scheme of the provisions of section 14A is not to allow the expenditure incurred to earn the exempt income and the expenses shall be allowed only to the extent they are related to earn the taxable income. There should be proximity between the expenditure and the income which is not form part of the total income for applying the provisions of section 14A. Once such proximity of relation is accepted, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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