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TMI Blog2017 (11) TMI 219X X X X Extracts X X X X X X X X Extracts X X X X ..... d CIT (A) in confirming the action of AO are wrong, insufficient and contrary to facts and evidence on record and in law. 4. The appellant craves, leave to add, modify, alter or delete all or any of the aforesaid grounds.". 2. Briefly stated, the facts of the case are that the assessee company which is a corporate member of BSE and engaged in the business of Share and Stock Broker, Investment and Financial Consultant had filed its return of income for A.Y. 2012-13 on 21.09.2012, declaring total loss of Rs. 67,32,666/-. The return of income of the assessee was processed as such u/s 143(1) of the 'Act'. The case of the assessee was thereafter selected for scrutiny assessment u/s 143(2). 3. That during the course of the assessment proceedings it was observed by the A.O that the assessee had in its return of income shown the following losses :- S. No. Particulars Amount 1. Short Term Capital Loss on sale of Shares (-) Rs. 36,45,751/- 2. Trading loss on sale of shares (-) Rs. 33,60,550/- The A.O deliberating on the aforesaid claim of the assessee, therein observed as under:- (i) Short Term Capital Loss on sale of shares :- The A.O holding a conviction that as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that the proportionate expenditure towards speculation transactions which were claimed by the assessee as against its non- speculation business were liable to be disallowed. The A.O in support of his aforesaid conviction relied on the judgment of the Hon'ble High Court of Bombay in the case Sind National Super Mills (P.) Ltd. v. CIT [1980] 121 ITR 742 (Bom). The A.O thus referring to the following expenses which were 'debited' by the assessee in its 'profit and loss account' :- S. No. Particulars Amount 1. Employee Benefit Expense Rs. 13,51,477/- 2. Financial cost Rs. 23,87,002/- 3. Depreciation and amortization expenses Rs. 1,31,521/- 4. Other Expenses Rs. 10,40,644/- Total Rs. 49,10,643/- therein observed that as there was no basis for allocation of the aforesaid expenses to the non-speculative transactions and the speculative transactions, therefore, 50% of the said expenses could safely be related to the speculative transactions of the assessee. The A.O thus on the basis of his aforesaid observations disallowed expenses of Rs. 24,55,321/- (i.e. 50 % of Rs. 49,10,643/-) in the hands of the assessee company. 4. The assessee be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t after the amendment by the Finance Act, 2005, losses in F&O segment were to be treated as a business loss w.e.f F.Y. 2006-07, i.e. A.Y. 2007-08, but the same was subject to satisfaction of certain conditions prescribed in the Explanation (1) by the assessee in respect of the said transactions. The CIT (A) thus referring to Sec.43(5)(d), observed that the same was applicable in respect of an 'eligible transaction' which was defined in the Explanation 1 of the aforesaid statutory provision. The CIT (A) thus concluded that the mere statement of the assessee could not be taken as sacrosanct and the assessee had failed to demonstrate that the losses shown by it under the F&O segment were from transactions done through recognized Stock Exchange and were screen based transactions having stamped date, time and details of F&O transactions. The CIT (A) thus being of the view that the genuineness of F&O transactions was not established, therefore, the loss claimed by the assessee could not be allowed. The CIT (A) thus in the backdrop of the aforesaid observations upheld the assessing of the loss of (-) Rs. 33,86,990/- as a 'Speculation loss' by the A.O. 6. The CIT (A) furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . further submitted that the CIT (A) had wrongly assessed the 'trading loss' of Rs. 33,60,540/-, which comprised of Profit on trading of shares of Rs. 26,441/- and loss on F&O for the year of Rs. 33,86,990/-, as a 'Speculation loss'. The ld A.R in support of his contention relied on the order of a coordinate bench of the Tribunal passed in the case of Dy. CIT v. Sski Investors Services (P.) Ltd. [2008] 113 TTJ 511 (Mum.). It was submitted by the ld A.R that the Tribunal in the aforesaid order had concluded that as derivative trading does not involve any purchase and sale of shares, therefore, the loss on account of derivatives cannot be treated as a 'Speculation loss'. Per contra, the ld D.R placed reliance on the order of the CIT (A) and submitted that the latter had rightly observed that as the assessee had failed to satisfy the conditions contemplated in Explanation 1 of Sec. 43(5)(d), therefore, its claim could not be accepted. The ld D.R drew our attention to the observations of the CIT (A) recorded at Page 28 of his order. 9. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive losses. Sub-section (4) further provides that no loss shall be carried forward under that section for more than four assessment years. Thus the entire section has application when the assessee has incurred loss or intends to carry forward non-absorbed loss. Explanation to section 73 reads as under :- 'Explanation - Where any part of the business of a company (other than a company whose gross total income consists mainly of income which is chargeable under the heads "interest on securities", Income from house property", "Capital gains" and "Income from other sources" or a company the principal business of which is the business of banking or the granting of loans and advances) consists in the purchase and sale of shares of other companies, such company shall, for the purposes of this section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of shares'. The explanation only provides for a deeming fiction in certain circumstances where the assessee would be deemed to be carrying on a speculation business. Such deeming fiction would not be apply in situations not covered under section 73 since such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be carrying on a speculation business, therefore, the same would not apply in situations not covered under section 73, since such explanation is applicable to section 73 only. We are of the considered view that the ld. A.R by divorcing few lines of the aforesaid judgment of the Hon'ble High Court from the context in which they were used, had thus misdirected himself. We are afraid that the ld. A.R had absolutely lost sight of the fact that the adjudication by the Hon'ble High Court was in context of the issue, as to whether income earned by an assessee on the sale of shares would fall within the realm of the Explanation of Sec. 73, or not. We are thus in the backdrop of our aforesaid observations of the considered view that the reliance placed by the ld. A.R on the judgment of the Hon'ble High Court of Gujarat in the case of Apollo Vikas (P.) Ltd. (supra), being distinguishable on facts, and not in context of the issue before us, would thus not be of any assistance to the assessee. 11. We have given a thoughtful consideration to the facts of the case and are unable to find ourselves as being in agreement with the contentions raised by the ld. A.R before us. We are u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee. We find that the Hon'ble High Court of Calcutta in the said case of Arvind Investments Ltd. (supra) had observed that Sub-s. (2) of s. 73 of the IT Act, 1961, restricts the scope of s. 72 which provides for carrying forward and setting off of business losses. If any loss computed in respect of a speculation business has not been wholly set off, such loss may be carried forward and set off against profits and gains of any speculation business in the following assessment years. The Explanation to Sec. 73 introduces a legal fiction. The Explanation also does not apply to an investment company or a company whose principal business is banking or money-lending. If the business of a company which does not fall within the excluded categories consists of purchase and sale of shares of other companies, then such a company shall be deemed to be carrying on speculation business for the purpose of Sec. 73, to the extent to which the business consists of the purchases and sale of such shares. The provisions of the Explanation to Sec. 73 have to be contrasted with the provisions of Sec. 43(5), which defines 'speculative transaction' to mean a transaction in which a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidered view that an Explanation is intended to either explain the meaning of certain phrases and expressions contained in a statutory provision, or depending upon its language it might supply or take away something from the context of a provision and at times, by way of abundant caution, to clear any mental cobwebs surrounding the meaning of a statutory provision spun by interpretative process to make the positive beyond controversy or doubt. In the light of the language used by the legislature in the Explanation to Sec. 73 of the 'Act', it is clear that the same was inserted with a view to supply the meaning of speculation business carried on by a company, whose any part of business consists of purchase and sale of shares of other companies for the purpose of Sec.73 of the 'Act', i.e., for the purpose of set off of losses in speculation business carried on by the assessee. 13. We have deliberated on the issue under consideration, and in the backdrop of our aforesaid observations are of the considered view that loss suffered by the assessee on sale of shares held by it as investments is to be treated as speculation loss, and the assessee was to be deemed to have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'Speculation loss'. We further find that a similar view had been taken by the coordinate bench of ITAT, Mumbai in the case of Pradeep Kumar Harlalka v. Asstt. CIT 47 SOT 204. 15. We find ourselves to be in agreement with the contentions raised before us by the ld A.R. that F&O transactions cannot be categorized as speculative transactions in light of post amended Sec. 45(5)(d). However, we find substantial force in the view arrived at by the CIT (A) that as Clause (d) of Sec. 43(5) r.w. Explanation 1 (i) contemplates an 'eligible transaction' in respect of trading in derivatives referred in Clause (ac) of Sec. 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognized stock exchange, therefore, in the absence of any material/evidence having been placed on record by the assessee, from where it could be gathered that the F&O transactions were done on a recognized stock exchange and were screen based transactions having stamped date, time and details of the said transactions, the claim of the assessee could not be summarily accepted. We thus are of the considered view that the matter in all fairness needs to be restored to the file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for verifying the fulfillment by the assessee of the requisite conditions contemplated u/s 43(5)(d) r.w. Explanation 1, therefore, the issue as regards the disallowance of any part of expenses relatable to such transactions would be dependent on the adjudication by the CIT (A) of the aforesaid issue. We thus restore the issue as regards the disallowance of expenses relatable to transactions pertaining to sale of shares held by the assessee in 'stock in trade' to the file of the CIT (A). The assessee shall be at liberty to raise fresh submissions in context of the expenses relatable to the transactions pertaining to sale of shares held by it as 'stock in trade' before the CIT (A), in case the need so arise. The CIT (A) is directed to pass a fresh order as regards the disallowance of the expenses to the extent relatable to the transactions pertaining to the sale of shares held by the assessee as stock in trade, in case if the assessee is found to have failed to satisfy the requisite conditions contemplated u/s 43(5)(d) pertaining to the sale transactions of the shares held by it as 'stock in trade'. The Ground of appeal No. 2 is thus partly allowed in terms ..... X X X X Extracts X X X X X X X X Extracts X X X X
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