9911796707
TMI Blog2023 (6) TMI 401X X X X Extracts X X X X X X X X Extracts X X X X ..... e differentials on the same instrument or on the similar assets by trading on different exchanges. Under these transactions, when there is loss in one market, there will be profit in another market or segment or vice versa. Hence the loss in cash market is arbitrage loss the profit in F O segment is also the very same arbitrage profit and vice-versa, which has arisen on the arbitrage / jobbing transactions carried on by the assessee. These two types of transactions, in our opinion, are the two sides of the same coin and could not be treated separately. The loss of one segment has to be allowed to be set-off against the other segment. In the case of the assessee, the entire transaction of purchase and sale of securities constitutes arbitrage jobbing transactions as a whole and hence, these transactions are outside the purview of the speculative transaction. The explanation to Sec.73 would not apply to the case of the assessee in view of specific exclusions of the arbitrage/jobbing transactions from the purview of speculative transaction u/s 43(5) - AO is directed to re-compute the income of the assessee. This ground of appeal stand allowed. - ITA No. 1738/Chny/2019 - - - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee have been treated as speculative losses. Having heard rival submissions and upon perusal of case records, the appeal is disposed-off as under. The assessee being resident corporate assessee is stated to be engaged in trading of securities and providing share brokerage services. 2. Disallowance u/s 14A 2.1 The assessee earned exempt dividend income of Rs. 30.20 Lacs and offered suo-motu disallowance u/s 14A for Rs. 1.83 Lacs in the return of income. However, Ld. AO, applying Rule 8D(2)(iii), computed additional disallowance of Rs. 3.86 Lacs. The Ld. CIT(A) confirmed the same against which the assessee is in further appeal before us. 2.2 It could be seen that the assessee has offered suo-motu disallowance in the return of income. However, Ld. AO, without recording any objective satisfaction as to why said disallowance was not acceptable, straightway applied Rule 8D(2) which run contrary to statutory provisions of Sec.14A r.w.r.8D(2). In our considered opinion, before applying the said rule, it was incumbent upon Ld. AO to record an objective satisfaction rejecting the computations made by the assessee. In the absence of such an exercise, the additional disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 such shares. Therefore, the losses thus arising could be set-off only from speculative income only whereas the assessee has set-off share trading losses against non-speculative income from derivative trading which is impermissible. 3.3 The assessee defended the same on the ground that the assessee earned positive net income from Arbitrage / jobbing transactions. The provisions of Section 73 apply to loss in speculative transactions and not to profits. The trading business of the assessee constitutes only profit / loss in arbitrage / jobbing and these transactions were to be considered as normal business transactions only. The term Arbitrage would be an activity whereby arbitrageur's enter into transaction to make profit from price differentials existing in two markets by simultaneously operating in two different markets. Arbitrageur makes riskless profit by exploiting the price differenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to constitute a business, the business i.e., speculation business shall be deemed to be distinct and separate from any other business. However, the term speculation has not been defined u/s. 28. The term speculative transactions have been defined in Section 43(5) which provides a special exception to certain transactions, amongst which is the arbitrage / jobbing income. The Sec. 73(1) provides that any loss of speculative business shall not be set off except against profits and gains of another speculation business. The explanation to Section 73 of the Act further clarifies the 'speculation business' which provides that where any part of the business of the 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 such shares. However, there is an exception given in the said explanation, which stipulates that a company whose gross total income consists mainly of 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 will not be covere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eculative income only. The action of the Assessing Officer in not setting off the F O arbitrage income against delivery based share trading loss is upheld. The grounds of appeal on this issue are rejected. Aggrieved, the assessee is in further appeal before us. Our findings and Adjudication 4. From the given factual matrix, it emerges that the assessee has incurred delivery based share trading loss of Rs. 385.05 Lacs. The assessee claimed the set-off of the same against F O Arbitrage Income of Rs. 581.37 Lacs. The Ld. AO has denied the same by invoking the provisions of Sec.73. It could be seen that the assessee s whole business is dealing in shares and securities. The entire income of Rs. 1799.10 Lacs has resulted from the jobbing transactions carried out by the assessee. Overall, there is no loss and therefore, the provisions of Section 73, in our consider opinion, could not be applied to the assessee since these provisions would apply only if there was an overall loss in this business segment, the set-off of which was sought to be claimed by the assessee against other incomes. Proceeding further, as per the exceptions carved out by clause (d) of Sec. 43(5), an el ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
