ITO, Ward - 4(3), Kolkata, Kolkata V. M/s. Arena Textiles & Industries Ltd., Kolkata

ITA 1019/KOL/2011

• Counselvise Citation: 101923514 RSA 2011
• Duration Of Justice: 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2011
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 18-07-2011
• Court: TRIBUNAL
• Department Lawyers: D R SINDHAL
• Assessee Lawyers: A K TULSIYAN
• Keywords: Business income; Business expenditure; Transactions in derivatives; Earning of tax free income; Speculation loss; Futures and options; Speculative transactions; Rule 8D; Set aside; Capital Gains
• Section: 14A; 43(5)

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL, BEN CH A, KOLKATA () BEFORE . .. . , ,, , , SHRI N.VIJAYAKUMARAN, JUDICIAL MEMBER. ! ! ! ! /AND . .. .'# '#'# '#. .. . , $% SHRI C.D.RAO, ACCOUNTANT MEMBER !& !& !& !& / ITA NO . 1019/KOL/2011 '( )*/ ASSESSMENT YEAR : 2008-09 (,- / APPELLANT ) I.T.O., WARD-4(3), KOLKATA - - - VERSUS - . (/0,-/ RESPONDENT ) M/S. ARENA TEXTILES & INDUSTRIES LTD., KOLKATA (PAN : AAECA 4281 G ) ,- 1 2 $/ FOR THE APPELLANT: SHRI D.R.SINDHAL /0,- 1 2 $/ FOR THE RESPONDENT: SHRI A.K.TULSIYAN 3 1 #% /DATE OF HEARING : 28.11.2011. 4) 1 #% /DATE OF PRONOUNCEMENT : 29.12.2011. $5 / ORDER ( (( ( . .. .'# '#'# '#. .. . ) )) ), , , , $% PER SHRI C.D.RAO, AM THIS APPEAL IS FILED BY REVENUE AGAINST THE ORDER DATED 25.03.2011 OF THE LD. CIT(A)-IV, KOLKATA PERTAINING TO A.YR. 2008-09. 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE RE AD AS UNDER :- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND SETTLED LEGAL POSITION, THE LD. CIT(A) IS JUSTIFIED IN HOLDING THAT TRANSACTION S IN DERIVATIVES ARE NOT HIT BY SECTION 43(5) OF THE I.T. ACT. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND SETTLED LEGAL POSITION, THE LD. CIT(A) WAS JUSTIFIED ON FACTS AND IN LAW IN DEL ETING THE DISALLOWANCE AND ADDITION OF RS.28,95,42,845/- TREATED AS DEEMED SPECULATION LOSS BY THE A.O. 2 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND SETTLED LEGAL POSITION, THE LD. CIT(A) IS JUSTIFIED IN HOLDING THAT DELIVERY-BA SED SHARE TRANSACTIONS DOES NOT FALL IN THE AMBIT OF EXPLANATION TO SECTION 73 OF THE I. T. ACT. 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND SETTLED LEGAL POSITION, THE LD. CIT(A) IS JUSTIFIED IN HOLDING THAT NO EXPENSES WERE REQUIRED TO BE INCURRED IN RELATION TO EARNING DIVIDEND INCOME AND THEREBY DEL ETING THE ADDITION OF RS.4,50,325/- MADE UNDER SECTION 14A READ WITH RULE 8D. 5. THAT THE APPELLANT CRAVES FOR LEAVE TO ADD, DELE TE OR MODIFY ANY OF THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. 3. THE BRIEF FACTS RELATING TO GROUND NOS. 1 TO 3 RAISED BY THE REVENUE ARE THAT WHILE DOING THE SCRUTINY ASSESSMENT ASSESSING OFFIC ER OBSERVED THAT DURING THE YEAR THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF DEALING IN SHARES, UNIT, DERIVATIVES AND FINANCING. FROM THE DETAILS FILED B Y THE ASSESSEE IN COURSE OF HEARING, IT IS SEEN THAT THE INCOME OF THE ASSESSEE CONSISTE D OF THE FOLLOWING : RS. PROFIT/(LOSS) FROM SHARE DEALING (27,78,95,129) PROFIT/(LOSS) FROM DEALING IN UNITS OF MUTUAL FUNDS 23,761 PROFIT/(LOSS) FROM DERIVATIVES (I.E. F&O) 31,22 ,63,790 SHARE DIFFERENCE INCOME 97,54,403 INTEREST INCOME 18,493 DIVIDEND 60,52,475 5,02,17,793 LESS : INTEREST 4,29,76,612 OPERATIVE EXPENSES 20,77,481 PRELIMINARY EXPENSES 35,000 4,50,89,093 PROFIT BEFORE TAX AS P&L ACCOUNT 51,28,70 0 3.1. FROM THE ABOVE SUMMARY IN CAN BE SEEN THAT THE ASSESSEE COMPANY HAS INCURRED A LOSS ON THE NON-DERIVATIVE SECTION OF IT S BUSINESS WHICH HAS BEEN SET OFF AGAINST THE PROFITS ARISING OUT OF THE DERIVATIVE S EGMENT OF ITS OPERATIONS. 3.2. THEREAFTER, THE A.O MADE A DISCUSSION REGARDIN G EXPLANATION TO SEC.73 VIS-- VIS THE PROVISION IN SEC.43(5)(D) OF THE I. TAX ACT , 1961 AND HE ARRIVED AT THE FOLLOWING CONCLUSION: THUS, FROM THE ABOVE IT IS CLEAR THAT EVEN THOUGH SECTION 73 OF THE INCOME TAX ACT, 1961 DEEMS PURCHASE AND SALE OF SHARES OF OTHE R COMPANIES AS A SPECULATION BUSINESS, SECTION 43(5)(D) OF THE INCOM E TAX ACT, 1961, WHICH HAS BEEN INTRODUCED SUBSEQUENT TO SECTION 73 OF THE ACT CARIES OUT AN EXCEPTION TO 3 THE DEEMING PROVISION OF SECTION 73 OF THE ACT AND LAYS DOWN TRADING IN DERIVATIVES I.E. FUTURES AND OPTIONS WOULD NOT BE D EEMED TO BE SPECULATIVE TRANSACTION. HENCE, IT IS SEEN THAT THE INCOME TAX ACT, 1961 HAS VIDE EXPLANATION TO SECTION 73 HAS DEEMED PURCHASE AND SALE OF SHARES UNDER CER TAIN CONDITION OF DEEMED SPECULATIVE BUSINESS BUT AT THE SAME TIME HAS BY A SUBSEQUENT AMENDMENT HAS EXCLUDED FROM ITS AMBIT TRADING IN DERIVATIVES UNDE R SECTION 43(5)(D). THEN HE CONCLUDED THAT IN VIEW OF THIS, LOSSES INC URRED IN RESPECT OF NON- DERIVATIVE SHARE TRANSACTION WHICH ARE DEEMED TO BE SPECULATIVE IN NATURE CANNOT BE SET OFF AGAINST PROFITS AND GAINS EARNED FROM DERIVATIVE TRANSACTION, WHICH ARE NOT DEEMED TO BE SPECULATIVE TRANSACTION U/S 43(5)(D) 3.3. AFTER COMING TO THE ABOVE CONCLUSIONS THE LD.A .O REFERRED TO DECISION IN THE CASE OF APPOLLO TYRES LTD. CIT (2002) 255 ITR 273 ( SC), WHEREIN IT HAS BEEN HELD THAT UNITS OF UTI ARE NOT SHARES AS CONTEMPLATED IN THE EXPLANATION TO SEC.73. ACCORDING TO THE APEX COURT THE LEGISLATURE HAD CO NTEMPLATED MAKING THE UNITS ALSO A DEEMED SHARE THEN IT WOULD HAVE STATED SO. IN THE ABSENCE OF ANY SUCH SPECIFIC DEEMING PROVISIONS IN REGARD TO THE UNITS AS SHARES IT WOULD BE ERRONEOUS TO EXTEND THE PROVISION OF SECTION 32(3) OF THE UTI ACT TO THE UN ITS OF THE U71 FOR THE PURPOSE OF HOLDING THAT THE UNIT IS A SHARE. 3.4. THE DECISION OF HONBLE SUPREME COURT THAT UNI TS ARE DIFFERENT FROM SHARES IS THE BASIS TO ARRIVE AT THE CONCLUSION BY THE A.O AS UNDER: BY THE SAME ANALOGY, DERIVATIVES ARE DIFFERENT FRO M SHARES SINCE THEY HAVE BEEN SO EXPRESSEDLY DEFINED BY THE SECURITIES CONTR ACTS (REGULATION) ACT, 1956. 3.5. FURTHER, MUMBAI ITA T IN THE CASE OF DCIT VS S SKI INVESTORS SERVICES (P) LTD. 113 7T7 (MUMBAI,) 511 AND OF BANGALORE TRIBUNA L IN THE CASE OF C. BHARATH KUMAR VS DCIT (2005) 4 SOT 593 (BANG,),HELD THAT DE ALING IN DERIVATIVE IS A SEPARATE KIND OF TRANSACTION, WHICH DOES NOT INVOLV E ANY PURCHASE AND SALE O( SHARES AND THEREFORE, LOSS THEREOF CANNOT BE TREATED AS SP ECULATION LOSS. 3.6. FURTHER BY MAKING LONG DISCUSSIONS AS RECORDED IN PAGES 7 TO 12 THE A.O CAME TO THE FOLLOWING CONCLUSION: AS SHARE DEALING AND DEALING IN F&O ARE COVERED UN DER SPECIAL PROVISION, I AM UNABLE TO ACCEPT THE CONTENTION OF THE ASSESSE E THAT THE SAID BUSINESSES ARE INSEPARABLE AND LOSS FROM ONE BUSINESS CAN BE S ET OFF WITH PROFIT FROM OTHER. AS PER SECTION 43(5)(D) R/W NOTIFICATION NO. 2/2006 DATED 25.01.2006, 4 LOSS FROM DEALING IN DERIVATIVE ON BSE AND NSE, ARE ASSESSABLE AS NORMAL BUSINESS LOSS AND IN VIEW OF EXPLANATION TO SECTION 73 W. E. F 01.04.1997 LOSS FROM SHARE DEALING IS ASSESSABLE AS SPECULATION BUS INESS LOSS THEREFORE, EXPLANATION TO SECTION 73 DEARLY APPLI ES IN THE CASE OF THE ASSESSEE COMPANY AND INVOKING THE SAME I HOLD LOSS FROM. DEA LING (AS COMPUTED HEREUNDER) AS LOSS FROM BUSINESS & THIS LOSS CANNOT BE SET OFF AG AINST PROFIT EARNED FROM DERIVATIVES. 3.7. THEREFORE, THE ASSESSEE HAS CLAIMED THE FOLLOW ING EXPENSES ONLY AS DEDUCTIBLE EXPENSES. RS. INTEREST 4,29,76,612 ADMINISTRATIVE EXPENSES 35,000 ADVANCE 20,77,481 4,50,89,093 3.8. CONSIDERING THE ABOVE EXPENSES, PROFIT/(LOSS) FROM VARIOUS ACTIVITIES ARE COMPUTED AS UNDER ALLOCATING THE EXPENSES IN PROPOR TION OF PROFIT/LOSS FROM VARIOUS ACTIVITIES. NATURE OF INCOME PROFIT/(LOSS) PROPORTIONATE EXPENSES PROFIT/(LOSS) NET SHARE DEALING (27,78,95,129) 2,06,76,358 (29,85,71, 487) DEALING IN UNITS 23,761 1,768 21,993 SHARE DIFFERENCE 97,54,403 7,25,761 90,28,642 F & O DIFFERENCE 31,22,63,789 2,32,33,505 28,90, 30,284 INTEREST 18,493 1,376 17,117 DIVIDEND 60,52,474 4,50,325 56,02 ,150 TOTAL 5,02,17,792 4,50,89,093 51,28,699 IT IS NECESSARY TO STATE THAT WHILE ALLOCATING EXPE NSES, PROFIT / (LOSS) I.E. (+) / (-) SIGNS ARE IGNORED. ACCORDING TO WHICH THE TOTALS OF PROFI T/(LOSS) COMES TO RS. 60,60,08,050/- AND CORRESPONDING EXPENSES ARE 4,50, 89,093/- WHICH ARE APPROXIMATELY 7.44%. BASED ON ABOVE CALCULATION, INCOME OF THE ASSESSEE FROM SPECULATION BUSINESS IS COMPUTED AS UNDER: PROFIT/ (LOSS) FROM SHARE DEALING (29,85,71,487) 5 PROFLT/ (LOSS) FROM SHARE SPECULATION 90, 28,642 (28,95,42,845) 3.9. AGGRIEVED BY THIS ASSESSEE WENT IN APPEAL BEFO RE THE LD. CIT(A). 3.10. AT THE TIME OF HEARING BEFORE THE LD. CIT(A) THE LD. COUNSEL APPEARING ON BEHALF OF ASSESSEE SUBMITTED THE WRITTEN SUBMISSION S WHICH WERE FORWARDED BY THE LD. CIT(A) FOR REMAND REPORT AND AFTER TAKING INTO CONS IDERATION OF THE REMAND REPORT AND THE COMMENTS OF THE LD. COUNSEL ON THE REMAND R EPORT THE LD. CIT(A) HAS DIRECTED AO TO AGGREGATE THE SHARE DELIVERY LOSS WI TH SHARE DERIVATIVES PROFIT AND THE NET SHOULD BE CONSIDERED AS THE INCOME OF ASSESSEE FOR THE YEAR BY OBSERVING AS UNDER : 2.5. I HAVE CAREFULLY CONSIDERED THE ASSESSMENT OR DER, SUBMISSION MADE BY THE ASSESSEE AND THE DETAILS FILED. DURING THE YEAR, TH E ASSESSEE IS IN THE BUSINESS OF SHARES, IN WHICH IT HAS TRADING OF SHARES, HAVING D ERIVATIVE IN SHARES AND SPECULATION IN SHARES. AS PER ASSESSMENT ORDER, THE FOLLOWING IS T HE RESULT PROFIT / (LOSS):- PROFIT/ (LOSS) FROM SHARE DEALING (27,78,95,129 ) PROFLT/ (LOSS) FROM DERIVATIVES (I.E. F & 0) 31,22,63,790 SHARE DIFFERENCE INCOME 97,54,403 PROFIT 4,41,23,064 2.6. AS PER THE A.O, THE PROFIT FROM THE DERIVATIV E TRANSACTIONS OF THE SHARES IS NOT A SPECULATIVE LOSS IN VIEW OF THE SPECIAL PROVISION S OF SEC.43(5)(D) OF THE I. TAX ACT AND TRADING LOSS IN SHARES IS HIT BY THE EXPLANATIO N TO SEC.73 OF THE I. TAX ACT AND HENCE THE SHARE DEALING LOSS, WHICH IS A DEEMED SPE CULATION LOSS CAN NOT BE ADJUSTED WITH PROFIT FROM DERIVATIVES TRANSACTION. 2.7. THE LD.A/R OF THE ASSESSEE HAS MAINLY RELIED THAT THE AGGREGATION OF THE SHARE TRADING LOSS AND PROFIT FROM DERIVATIVE TRANSACTION S SHOULD BE DONE BEFORE IT IS SEEN WHETHER EXPLANATION TO SEC.73 IS APPLICABLE. IN MY OPINION, TRADING OF SHARES WHICH IS DONE BY DELIVERY TRANSACTIONS ARE NOT HIT BY SEC.43 (5) AS SPECULATION. SIMILARLY, DERIVATIVE TRANSACTION IN SHARES PROFIT/LOSS IS ALS O NOT HIT BY SEC.43(5) OF THE I. T. ACT, WHICH DEALS ABOUT SPECULATION TRANSACTION. AS SUCH, BOTH PROFIT/LOSS FROM ALL THE SHARE DELIVERY TRANSACTIONS AND DERIVATIVE TRANSACTIONS A RE HAVING THE SAME MEANING, SO FAR AS, SEC.43(5) OF THE I. T. ACT IS CONCERNED. I FULL Y AGREE THAT NET RESULT OF THE ASSESSEE IS A PROFIT HENCE QUESTION OF APPLICATION OF SEC.73 DOES NOT ARISE. ASSESSEES CASE IS SUPPORTED BY THE HONBLE ITAT, SPECIAL BENCH DECISI ON IN THE CASE OF CIT VS CONCORD COMMERCIAL PVT. LTD. (2005) 95 LTD 117 (MUM ) (SB), IN WHICH IT IS HELD THAT BEFORE MAKING APPLICATION OF EXPLANATION TO S EC.73 OF THE I. T ACT, SET OFF OF ALL BUSINESS INCOME SHOULD BE ALLOWED. THE SAME PRINCIP LE LAID DOWN HAS BEEN FOLLOWED BY THE HONBLE ITAT, KOLKATA, IN THE CASE OF ITO, W D-3(1)/KOL VS LOTUS HOMES LTD. IN ITA NO.1192/KOL/2004. 2.8. THE HONBLE BOMBAY HIGH COURT HAS HELD IN THE CASE OF LOKMAT NEWS PAPERS (P) LTD. (2010) 322 ITR 43 THAT TRANSACTIONS IN PUR CHASE AND SALE OF SHARES BY 6 COMPANY. DEEMING FICTION OF EXPLANATION TO SEC.73 A TTRACTED AND BUSINESS IN SHARES DEEMED TO BE SPECULATION BUSINESS. BROUGHT FORWARD SPECULATION LOSS CAN BE SET OFF AGAINST PROFIT FROM SALE OF SHARES. BUSINESS INVOLV ING ACTUAL DELIVERY OF SHARES IS NOT EXCLUDED FROM THE CONTENT OF SPECULATION BUSINESS. ONCE AN ASSESSEE IS DEEMED TO BE CARRYING ON A SPECULATION BUSINESS FOR THE PURPOSE OF S.73, ANY LOSS COMPUTED IN RESPECT OF THAT SPECULATION BUSINESS CAN BE SET OFF ONLY AGAINST THE PROFIT AND GALS OF ANOTHER SPECULATION BUSINESS, ASSESSEE ENTITLED TO SET OFF THE LOSSES CARRIED FORWARD FROM A SPECULATION BUSINESS AGAINST PROFIT FROM SAL E OF DELIVERY BASED SHARES. 2.9. I FULLY AGREE WITH THE A/R THAT THE DECISION OF HONBLE KOLKATA 1TAT, SPECIAL BENCH, IN THE CASE OF SHREE CAPITAL SERVICES LTD. V S ACIT (2009) 121 LTD 498 (KOL), RELIED BY THE A.O HAS NO IMPACT ON THE PRESENT CASE . AS THE SAME IS RELATING TO ASST. YEAR 2004-05 & DEALS WHETHER THE AMENDMENT MADE BY FINANCE ACT BY INSERTING CL.(D) TO SEC.43(5) WILL BE APPLICABLE TO ASST. YEA R 2008-09. AS SUCH, CL.(D) TO SEC.43(5) APPLIES TO ASSESSEE. ASSESSEE CLAIMED BOT H LOSS ON SHARE DELIVERY AND PROFIT ON DERIVATIVE TRANSACTIONS ARE NOT HIT BY SEC.43(5) OF THE I. TAX ACT. BOTH THE TRANSACTIONS ARE NON-SPECULATIVE SO FAR AS SEC.43(5 ) IS CONCERNED. FURTHER, WHEN BOTH ARE CONSIDERED IN THE LIGHT OF EXPLANATION TO SEC.7 3 WILL HAVE THE SAME TREATMENT. 2.10. ASSESSEES CASE IS FULLY COVERED BY THE ABO VE DECISION. FIRSTLY, ASSESSEE IS HAVING PROFIT FROM THE SHARE DERIVATIVE TRANSACTION AND LOSS FROM SHARE TRADING (DELIVERY). BOTH ARE TO BE TREATED AS SPECU LATWE BEFORE APPLYING DEEMING FICTION AS PER EXPLANATION TO SEC.73 OF THE I. T. A CT. SECTION 73 OF THE I. T. ACT DEALS WITH CARRY FORWARD OF THE SPECULATION LOSS. BEFORE CONSIDERING WHETHER IT IS HIT BY THE DEEMING PROVISION OF EXPLANATION TO SEC.73 OF THE I . TAX ACT, THE AGGREGATE OF THE BUSINESS PROFIT / LOSS HAS TO BE WORKED OUT BASED O N THE NON-SPECULATIVE PROFITS; EITHER IT IS FROM SHARE DELIVERY OR FROM SHARE DERIVATIVE. THE NET OF THE SAME IS PROFIT AS SUCH QUESTION OF APPLYING THE DEEMING FRACTION OF EXPLAN ATION TO SEC.73 OF THE I. T. ACT DOES NOT ARISE. THE ASSESSEES CASE IS FULLY COVERE D BY THE DECISION OF ITAT, KOLKATA, IN THE CASE OF ITO, WD-3(1)/KOL VS LOTUS HOMES LTD. (SUPRA) AS WELL AS THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF LOK MAT NEWS PAPERS (P) LTD. (SUPRA). 4. AT THE TIME OF HEARING THE LD. DR APPEARING ON B EHALF OF THE REVENUE SUBMITTED THAT IN PARAGRAPH NO.2.7 OF HIS ORDER THE LD. CIT(A) HAS HELD THAT TRANSACTIONS OF DELIVERY BASED SHARE TRADING IS NOT HIT BY SECTION 43(5) OF THE ACT AND SIMILARLY TRADING IN DERIVATIVES IS ALSO NOT HIT BY SECTION 43(5). THE LD. CIT(A) HAS FAILED TO APPRECIATE THE FACT THAT THE AO HAS NOT A PPLIED THE PROVISIONS OF SECTION 43(5) TO THE TRANSACTIONS OF DELIVERY BASED SHARE TRADING , IN WHICH THE ASSESSEE INCURRED LOSSES. IN FACT, THE LOSS OF RS.28,95,42,845/- SUFF ERED IN SHARE TRADING HAS BEEN TREATED BY THE AO AS DEEMED SPECULATION LOSS IN TERMS OF EX PLANATION TO SECTION 73 OF THE ACT. FURTHER, IF THE CONTENTION OF THE LD. CIT(A) I S THAT DERIVATIVE TRANSACTIONS ARE NOT HIT BY SECTION 43(5) IS ACCEPTED, THEN CLAUSE (D) O F SECTION 43(5) BECOMES REDUNDANT. 7 4.1. HE FURTHER SUBMITTED THAT THE ASSESSEE CARRIED OUT TWO DIFFERENT SETS OF BUSINESSES DEALING IN TWO DIFFERENT ARTICLES/COMMOD ITIES, NAMELY, (I) TRADING IN SHARES AND (II) TRADING IN DERIVATIVES. THERE CANNOT BE AN Y DISPUTE ON THE FACT THAT SHARES ARE NOT DERIVATIVES. IN FACT, THE HONBLE ITAT, SPL. BE NCH, KOLKATA HAS CLEARLY HELD IN THE CASE OF SHREE CAPITAL SERVICES LTD. (121 ITD 498) T HAT DERIVATIVES WILL FALL WITHIN THE MEANING OF COMMODITY USED IN SECTION 43(5) OF THE ACT. THE BENCH ALSO HELD THAT ELIGIBLE TRANSACTIONS IN DERIVATIVES WILL BE EXEMPT ED FROM THE PURVIEW OF SECTION 43(5) AND WILL FALL UNDER THE PROVISO (D) OF THAT SECTION AND HENCE CANNOT BE HELD AS SPECULATIVE TRANSACTIONS. THE LD. CIT(A) FAILED TO APPRECIATE THIS FACT AND THE SETTLED LEGAL POSITION WHILE HOLDING AT PARA 2.9 OF HIS ORD ER IS THAT THE DECISION OF ITAT, SPL.BENC, KOLKATA IN THE CASE (SUPRA) HAS NO IMPACT ON THE PRESENT CASE. THE LD. CIT(A) FAILED TO APPRECIATE THE FACT THAT IF THE FA CTS AND CIRCUMSTANCES OF THIS CASE ARE CONSIDERED IN THE LIGHT OF THE DECISION GIVEN BY TH E ITAT, SPECIAL BENCH (SUPRA) THE TRANSACTIONS TO DERIVATIVES WOULD INDISPUTABLY FALL UNDER THE PROVISO (D) TO SECTION 43(5) AND HENCE WOULD BE TREATED AS NON-SPECULATIVE . 4.2. HE FURTHER REFERRED TO THE PROVISIONS OF EXPL ANATION TO SECTION 73 WHICH READS AS UNDER :- 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 P ROPERTY, CAPITAL GAINS AND INCOME FROM OTHER SOURCES, OR A COMPANY, THE PRINCIPAL OF WHICH IS THE BUSINESS OF BANKING OR THE GRANTING OF LOANS AND AD VANCES) CONSISTS IN THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, SUC H 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 PU RCHASE AND SALE OF SUCH SHARES. THERE CANNOT BE ANY DISPUTE AFTER A PLAIN READING O F THE ABOVE PROVISIONS THAT IF A PART OF THE BUSINESS OF AN ASSESSEE CONSISTS OF PURCHASE S AND SALE OF SHARES OF OTHER COMPANIES, THE SAID ASSESSEE WILL BE DEEMED TO BE C ARRYING ON SPECULATION BUSINESS TO THE EXTENT OF PURCHASE AND SALE OF SUCH SHARES. THE AO IN THIS CASE, HAS TAKEN EXACTLY THE SAME VIEW AND TREATED THE SHARE TRADING LOSS AS DEEMED SPECULATIVE IN NATURE. 8 THUS, THE ABOVE CONCLUSION OF THE AO IS CLEARLY IN TUNE WITH THE ABOVE QUOTED PROVISIONS. 4.3. HE FURTHER SUBMITTED THAT THE RELIANCE PUT BY THE LD. CIT(A) ON THE DECISION OF ITAT, SPECIAL BENCH, MUMBAI APPEARS TO BE ERRONEOUS AND MISPLACED ONE IN VIEW OF THE FACT THAT ONCE A PARTICULAR PROFIT/INCOME IS HE LD AS NON-SPECULATIVE IN NATURE, IT CANNOT BE SET OFF AGAINST ANY LOSS WHICH IS SPECULA TIVE IN NATURE. THIS VIEW IS WELL SUPPORTED BY THE DECISION OF THE HONBLE CALCUTTA H IGH COURT IN THE CASE OF CIT VS PARKVIEW PROPERTIES (P) LTD REPORTED IN 261 ITR 473 (2003). IN THE INSTANT CASE, ONCE THE AO HELD THAT PROFITS EARNED BY THE ASSESSEE IN THE DERIVATIVE TRANSACTIONS TO BE NORMAL AND NON-SPECULATIVE IN TERMS OF SECTION 43(5 )(D) AND THE PROFITS EARNED FROM DELIVER BASED SHARE TRANSACTIONS TO BE DEEMED SPECU LATIVE IN NATURE THERE WAS NO SCOPE/FEASIBILITY UNDER THE LAW TO ALLOW ADJUSTMENT OF SUCH LOSS AGAINST THE AFORESAID INCOME FROM DERIVATIVES. 4.4. HE FURTHER STATED THAT THE CASE LAWS RELIED BY THE ASSESSEE AND LD. CIT(A) WERE RELATED TO ASSESSMENT YEARS PRIOR TO THE DATE OF NO TIFICATION DATED 25/01/2006 AND INCOME HAVE GOT THE LITTLE RELEVANCE AND APPLICABIL ITY FOR THE YEAR UNDER CONSIDERATION. AT THE STAGE OF ASSESSMENT PROCEEDINGS, THE A/R OF THE ASSESSEE ARGUED THAT THE F&O INCOME RESULTED OUT OF HEDGING TRANSACTIONS AND THE REFORE SUCH INCOME IS ADJUSTABLE WITH THE SHARE TRADING LOSS. SURPRISINGLY THE ASSES SEE DID NOT TAKE SUCH GROUND BELOW THE APPELLATE AUTHORITY. ON THE CONTRARY, A DIFFERE NT LINE OF ARGUMENT WAS TAKEN BEFORE THE LD. CIT(A) AS IT IS CLEARLY STATED IN THE ASSES SMENT ORDER THAT LOSES ARE MAINLY ON UNQUOTED SHARES WHICH CANNOT BE HEDGED THROUGH TRAN SACTIONS IN F&O. 5. ON THE OTHER HAND, THE LD. COUNSEL FOR ASSESSEE HAS RELIED ON THE OBSERVATIONS MADE BY THE LD. CIT(A) AND THE WRITTEN SUBMISSIONS WHICH WERE FORWARDED BY THE LD. CIT(A) TO ASSESSING OFFICER FOR THE REMAND REPORT. THEREFORE HE REQUESTED TO UPHELD THE ACTION OF THE LD. CIT(A). 6. AFTER HEARING THE RIVAL SUBMISSIONS AND ON CARE FUL PERUSAL OF MATERIALS AVAILABLE ON RECORD WE ARE OF THE VIEW THAT TRADING OF SHARES WHICH IS DONE BY DELIVERY TRANSACTIONS ARE NOT HIT BY SEC.43(5) AS SPECULATIO N. SIMILARLY, DERIVATIVE TRANSACTION IN 9 SHARES PROFIT/LOSS IS ALSO NOT HIT BY SEC.43(5) OF THE I. T. ACT, WHICH DEALS ABOUT SPECULATION TRANSACTION. AS SUCH, BOTH PROFIT/LOSS FROM ALL THE SHARE DELIVERY TRANSACTIONS AND DERIVATIVE TRANSACTIONS ARE HAVING THE SAME MEANING, SO FAR AS, SEC.43(5) OF THE I. T. ACT IS CONCERNED. 6.1. WHEN ONCE WE HELD THAT THE TRANSACTIONS DONE BY DELIVERY AS WELL AS THE TRANSACTIONS OF DERIVATIVES ARE NOT HIT BY SECTION 43(5) OF THE ACT IT IS IN OUR CONSIDERED VIEW THAT THE AGGREGATION OF THE SHARE TRADING LOSS AND PROFIT FROM DERIVATIVE TRANSACTIONS SHOULD BE DONE BEFORE THE APPLICATION OF THE EXPLANATION TO SECTION 73 OF THE IT ACT IS APPLICABLE. 6.2. IT IS FURTHER OBSERVED THAT THE LD. CIT(A) HA S PROPERLY CONCLUDED THAT THE DECISION OF THE HONBLE KOLKATA SPECIAL BENCH IN TH E CASE OF SHREE CAPITAL SERVICES LTD. (SUPRA) IS NOT APPLICABLE TO THE PRESENT FACTS OF THE CASE. 6.3. IN VIEW OF THE ABOVE FINDINGS WE ARE IN AGREE MENT WITH THE OBSERVATIONS MADE BY LD. CIT(A) AT PARAS 2.7 TO 2.10 AND THEREFORE WE UPHELD THE ACTION OF THE LD. CIT(A) ON THIS ISSUE. 7. IN THE RESULT GROUND NO.1 TO 3 OF THE REVENUES APPEAL ARE DISMISSED. 8. THE ISSUE RAISED BY THE REVENUE IN GROUND NO.4 IS RELATING TO DELETION OF ADDITION OF RS.4,50,325/- MADE U/S 14A OF THE IT A CT WITH RULE 8D OF IT RULES. 9 THE BRIEF FACTS OF THIS ISSUE IS THAT WHILE DOIN G THE SCRUTINY ASSESSMENT THE AO HAS DISALLOWED AN AMOUNT OF RS.4,50,325/- BY OBSERV ING AS UNDER :- IN COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSES SEE WAS ASKED TO GIVE DETAILS OF EXPENSES RELATED TO EXEMPT INCOME. IN RE SPONSE TO THE SAME THE ASSESSEE RELYING ON THE DECISION OF HONBLE KERALA HIGH COUR T IN THE CASE OF CIT VS LEENA RAMCHANDRAN (2010) 235 CTR 512 (KER) HELD THAT RULE 8D R/W SECTION 14A APPLIES ONLY ON SHARES HELD AS INVESTMENTS AND NOT IN CASE WHERE SHARES ARE HELD AS STOCK IN TRADE. HOWEVER, I AM UNABLE TO ACCEPT THE CONTENTION OF TH E ASSESSEE COMPANY THAT NO EXPENSES HAVE BEEN INCURRED TO EARN DIVIDEND WHI CH IS EXEMPT INCOME. I, 10 THEREFORE, DISALLOW RS.4,50,325/- AS COMPUTED HEREI NBEFORE AS EXPENSES RELATABLE TO EXEMPT INCOME. WHICH WAS RECORDED BY US AT PARA 3.8 AGAINST DIVIDE ND INCOME. 9.1. ON APPEAL THE LD. CIT(A) HAS DELETED THE SAME BY OBSERVING AS UNDER :- 3.7. ON PERUSAL OF THE BALANCE SHEET OF THE ASSESS EE, IT HAS BEEN FOUND THAT NO SHARES ARE HELD AS INVESTMENT. ALL THE SHARES ARE STOCK-IN -TRADE AS ASSESSEE IS ENGAGED IN THE TRADING IN SHARES. ASSESSEES CASE IS FULLY COVERED BY THE PROPOSITION LAID DOWN BY THE HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS LEE NA RAMCHANDRAN (210) 235 CTR 512 (KER.) IN VIEW OF THIS, NO PROVISION OF THE EXP ENDITURE CAN BE APPORTIONED FOR EARNING EXEMPT INCOME AS DIVIDEND INCOME WHICH IS R ECEIVED OUT OF ALL THE SHARES HELD AS STOCK-IN-TRADE. ALL THE EXPENSES ARE RELATI NG TO BUSINESS ACTIVITY AND SHOULD BE ALLOWED AS BUSINESS EXPENDITURE. NOWADAYS, DIVIDEND S ARE RECEIVED AND DIRECTLY CREDITED INTO THE BANK A/C OF THE SHAREHOLDER THROU GH ELECTRONICS CLEARANCE. SO, IT CANT BE SAID THAT FOR RECEIPT OF DIVIDEND, ASSESSE E HAS TO INCUR ANY EXPENDITURE. THE ADDITION MADE, THEREFORE, OF RS.4,50,325/- IS DELET ED. 10. AFTER HEARING THE RIVAL SUBMISSIONS AND ON CARE FUL PERUSAL OF MATERIALS AVAILABLE ON RECORD, THOUGH RULE 8 D OF IT RULES IS APPLICABLE TO ASSESSMENT YEAR UNDER CONSIDERATION IN THIS CASE THE ALLOCATION MAD E BY AO IS NOT BASED ON ANY NEXUS DRAWN IN BETWEEN THE DIVIDEND INCOME AND THE EXPEND ITURE INVOLVED. AT THE SAME TIME IT IS OBSERVED THAT THE LD. CIT(A) IS ALSO NOT JUST IFIED TO DELETE THE SAME BY OBSERVING THE APPLICATION OF THE DECISION OF THE HONBLE KERA LA HIGH COURT IN THE CASE OF CIT VS LEENA RAMACHANDRA (SUPRA) WHEREIN THEIR OBSERVATION S ARE RELATED TO THE INTEREST EXPENDITURE. IN THIS CASE AO HAS NOT DISALLOWED ANY EXPENDITURE ON ACCOUNT OF INTEREST. THEREFORE, RESPECTFULLY FOLLOWING THE DEC ISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. PVT. LTD . (SUPRA) WE CONSIDER IT TO SET ASIDE THIS ISSUE TO THE FILE OF AO AND DIRECT THE A O TO DETERMINE THE DISALLOWANCE U/S 14A OF THE IT ACT AFTER GIVING A REASONABLE OPPORTU NITY OF BEING HEARD TO ASSESSEE. THE ASSESSEE IS ALSO AT LIBERTY TO ESTABLISH WHETHE R THERE IS ANY NEXUS OF THE EXPENDITURE ISSUE AND THE EXEMPTED DIVIDEND INCOME. 11. IN THE RESULT GROUND NO.4 OF THE REVENUES APPE AL IS ALLOWED FOR STATISTICAL PURPOSES. 11 12 IN THE RESULT THE APPEAL OF THE REVENUE IS ALL OWED IN PART FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 29.12.2011. SD/- SD/- . .. . , ,, , ' ' ' ' N.VIJAYAKUMARAN, JUDICIAL MEMBER . .. .'# '#'# '#. .. . , , , , $% $% $% $% , C.D.RAO, ACCOUNTANT MEMBER. ( (( (#% #% #% #%) )) ) DATE: 29.12.2011. $5 1 /'' 6$)7- COPY OF THE ORDER FORWARDED TO: 1. M/S.ARENA TEXTILES & INDUSTRIES LTD., 8, CAMAC STRE ET, SHANTINIKETAN BUILDING, KOLKATA-700017.. 2 THE I.T.O., WARD-4(3), KOLKATA. 3. THE CIT, 4. THE CIT(A)-IV, KOLKATA. 5. DR, KOLKATA BENCHES, KOLKATA 0 /'/ TRUE COPY, $5/ BY ORDER, DEPUTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES R.G.(.P.S.)