Lohia Securities Ltd., Kolkata V. DCIT, Circle - 6, Kolkata, Kolkata

ITA 487/KOL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100275 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 8 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2015
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 29-03-2012
• Court: TRIBUNAL
• Department Lawyers: G MALLIKARJUNA CIT LD
• Assessee Lawyers: DILIP KUMAR PATNI CA LD
• Keywords: Business income; Transactions in derivatives; Speculation loss
• Section: 6; 28; 10; 2; 11; 15; 143(3); 43(5)

Judgement Text

ITA NO. 487/KOL/2012-C-AM M/S. LOHIA SECURITIES LTD 1 IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH, K OLKATA BEFORE : SHRI MAHAVIR SINGH,JUDICIAL MEMBER, AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER ITA NO. 487/KOL/2012 A.Y 2008-09 M/S. LOHIA SECURITIES LTD VS. DCIT, CIRCLE-6 , KOLKATA PAN: AAACL 5834A (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI DILIP KUMAR PATNI, CA , LD.AR FOR THE RESPONDENT : SHRI G. MA LLIKARJUNA, CIT, LD.DR DATE OF HEARING: 18-11 -2015 DATE OF PRONOUNCEMENT: 9 -12- 2015 ORDER SHRI M.BALAGANESH, AM : THIS APPEAL OF THE ASSESSEE ARISES OUT OF THE ORDE R PASSED BY THE LEARNED CIT(A), VII, KOLKATA IN APPEAL NO. 238/CIT(A)-VI/CI R-6/10-11/KOL FOR THE ASST YEAR 2008-09 DATED 02-01-2012 AGAINST THE ORDER OF ASS ESSMENT PASSED BY THE LEARNED AO U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAF TER REFERRED TO AS THE ACT). 2. THE FIRST ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LOSS OF RS. 5,36 ,90,032/- IN RESPECT OF DELIVERY BASED TRANSACTIONS IN RESPECT OF PURCHASE AND SALE OF SHA RES HAS TO BE TREATED AS SPECULATION LOSS OR NOT. 2.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE AS SESSEE COMPANY IS MAINLY ENGAGED IN DEALING IN SHARES AND SECURITIES ON BEHALF OF THE C LIENTS I.E BROKING ACTIVITIES AND ALSO INVOLVED IN HEDGING AND ARBITRAGE BUSINESS. IN CAS E OF CLIENTELE BUSINESS, SOMETIMES CLIENTS REFUSED TO ACCEPT THE TRANSACTION AND THOSE TRANSACTIONS ARE KEPT IN THE NAME OF ITA NO. 487/KOL/2012-C-AM M/S. LOHIA SECURITIES LTD 2 COMPANY IN ITS OWN ACCOUNT. LOSSES IN SUCH TYPE OF TRANSACTIONS ARE NOT BECAUSE OF DEALING BY THE COMPANY IN ITS OWN ACCOUNT BUT INCID ENTAL TO BROKING ACTIVITIES OF THE COMPANY. 2.1.1. IN CASE OF ARBITRAGE / HEDGING ACTIVITIES, THE COMPANY TAKES A POSITION IN ONE SEGMENT OF THE EXCHANGE AND SIMULTANEOUSLY REVERSE POSITION IS TAKEN IN ANOTHER SEGMENT. FOR EXAMPLE IF COMPANY BUYS JP HYDRO IN C APITAL MARKET SEGMENT , THEN THE COMPANY ALSO SIMULTANEOUSLY SELLS THE SAME QUANTITY AND SCRIPT IN DERIVATIVES SEGMENT. IN CASE IF THE TRANSACTION GET REVERSED IN THE SAME DAY, PROFIT OR LOSS ARISING ON THE SAID TRANSACTION IN THE CAPITAL MARKET SEGEMENT BOOKED A S INTRA DAY PROFIT / LOSS OR IF THE TRADE IS REVERSED ON NEXT DAY OR SUBSEQUENT DAY, TH E PROFIT / LOSS ARISING ON THE SAID TRANSACTION IN THE CAPITAL MARKET SEGMENT IS BOOKED AS DELIVERY BASED PROFIT / LOSS. 2.1.2. THE ASSESSEE INCURRED LOSS IN DEALING IN SH ARES AMOUNTING TO RS. 5,36,90,032/- WHICH WAS CLAIMED AS REGULAR BUSINESS LOSS BY THE A SSESSEE. IN RESPECT OF NON-DELIVERY BASED TRANSACTIONS, THE BREAK UP OF PROFIT / LOSS O N SHARE DEALING IS AS FOLLOWS:- PROFIT ON NSE & BSE FUTURE & OPTION DEALINGS 36,86, 29,893 LESS: LOSS ON NSE & BSE CAPITAL MARKET 2,46,33,2 41 ------------------ NET PROFIT OUT OF FUTURE & OPTION DEALING 34,39,96 ,652 ------------------ 2.2. DURING THE YEAR UNDER APPEAL, THE ASSESSEE HA D INCURRED LOSS IN DEALING IN SHARES DUE TO ARBITRAGE. THE ASSESSEE CLAIMED THAT THE L OSS IN DEALING IN SHARES INCURRED BY THE COMPANY BECAUSE OF ABOVEMENTIONED TWO TYPES OF TRANSACTIONS ARE EXEMPTED FROM THE DEFINITIONS OF SPECULATION AND ACCORDINGLY THE APPLICABILITY OF SECTION 73 IS NOT RELEVANT. THE WORKINGS FOR ARRIVING AT THE LOSS IN DELIVERY BASED DEALING OF SHARES ARE AS BELOW:- ITA NO. 487/KOL/2012-C-AM M/S. LOHIA SECURITIES LTD 3 OPENING STOCK 5,96,79,242.46 SALES 2,19,23,56, 409.75 PURCHASES 2,24,74,30,512.74 CLOSING STOCK 5,50,63,313.42 TOTAL 2,30,11,09,755.20 TOTAL 2,24,74,19,723.17 LOSS = RS.5,36,90,032 THE ASSESSEE CLAIMED THAT ITS CASE FALLS UNDER THE PROVISO (B) AND (C) TO SECTION 43(5) OF THE ACT. 2.3. THE LEARNED AO OBSERVED THAT PROVISO (B) AND ( C) TO SECTION 43(5) OF THE ACT ARE NOT APPLICABLE FOR DELIVERY BASED TRANSACTIONS AND HENCE THE EXPLANATION TO SECTION 73 IS SQUARELY APPLICABLE IN THE INSTANT CASE. ACCOR DINGLY, THE LEARNED AO TREATED THE LOSS OF RS. 5,36,90,032/- AS SPECULATION LOSS. 2.3.1. THE LEARNED AO FURTHER OBSERVED THAT AS PE R THE PROVISIONS OF SECTION 43(5)(D) OF THE ACT, THE PROFIT OF RS. 36,86,29,893/- AS STA TED SUPRA OUT OF FUTURE & OPTION DEALING IN RESPECT OF TRADING IN DERIVATIVES SHALL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION. ACCORDINGLY, THE PROFIT OF RS. 36,86, 29,893/- IS TREATED AS REGULAR BUSINESS PROFIT (I.E NON SPECULATIVE PROFIT) BY THE LEARNED AO. 2.3.2. THE LEARNED AO FURTHER OBSERVED THAT THE LO SS ON ACCOUNT OF NSE & BSE CAPITAL MARKET TRANSACTIONS AMOUNTING TO RS. 2,46,3 3,241/- SHALL BE TREATED AS SPECULATION LOSS AND ALSO OBSERVED THAT THE ASSESEE HAD NOT ESTABLISHED ONE TO ONE MAPPING BETWEEN THESE TRANSACTIONS AND F&O OPERATIO NS AND ACCORDINGLY HE HELD THAT THE SAID TRANSACTIONS WOULD NOT FALL UNDER PROVISO (B) TO SECTION 43(5) OF THE ACT. HE ALSO HELD THAT IN THE AUDITED ACCUNTS, THESE TRANSA CTIONS HAVE NOT BEEN CATEGORIZED BY THE AUDITOR AS JOBBING OR ARBITRAGE . HE OBSERVED THAT IN THE AUDITED ACCOUNTS, THE AUDITOR OF THE ASSESSEE HAS TREATED THESE TRANSACTI ONS AS SPECULATIVE TRANSACTION AND CLUBBED THESE TRANSACTIONS WITH F & O OPERATIONS. THE ASSESSEE ALSO HAS NOT TREATED THESE TRANSACTIONS AS PART OF JOBBING OR ARBITRAGE. ACCORDINGLY, HE HELD THAT THE TRANSACTIONS DO NOT FALL UNDER PROVISO (C) TO SECTI ON 43(5) OF THE ACT. HE HELD THAT THE LOSS OF RS. 2,46,33,241/- IS TREATED AS SPECULATION LOSS. ITA NO. 487/KOL/2012-C-AM M/S. LOHIA SECURITIES LTD 4 2.4. THE TREATMENT OF SHARE TRANSACTIONS OF THE AS SESSEE COULD BE SUMMARIZED AS BELOW:- I. LOSS ON DELIVERY BASED TRANSACTIONS - RS. 5, 36,90,032/- TREATED AS REGULAR BUSINESS LOSS BY THE ASSESSEE. TREATED AS SPECULATION LOSS BY THE LEARNED AO II. PROFIT FROM FUTURE & OPTION ON NON-DELIVERY BA SED TRANSACTIONS (DERIVATIVE TRANSACTIONS) RS. 36,86,29,893/- TREATED AS REGULAR BUSINESS PROFIT BY THE ASSESSEE. TREATED AS REGULAR BUSINESS PROFIT BY THE LEARNED A O. III. LOSS FROM NON DELIVERY BASED TRANSACTIONS ( DERIVATIVE TRANSACTIONS) RS. 2,46,33,241/- TREATED AS REGULAR BUSINESS LOSS BY THE ASSESSEE. TREATED AS SPECULATION LOSS BY THE LEARNED AO. 2.4.1. FROM THE ABOVE , IT COULD BE SEEN THAT THE A SSESSEE HAD CHOSEN TO TREAT THE ENTIRE LOSS INCURRED ON BOTH DELIVERY AND NON-DELIVERY BAS ED SHARE TRANSACTIONS AS REGULAR BUSINESS LOSS AND SOUGHT TO SET OFF THE SAME AGAINS T THE REGULAR BUSINESS PROFIT DERIVED FROM DERIVATIVE TRANSACTIONS . THE LEARNED AO IN TURN TREATED THE ENTIRE LOSS INCURRED ON BOTH DELIVERY AND NON-DELIVERY BASED SHARE TRANS ACTIONS AS SPECULATION LOSS THEREBY MAKING THE ASSESSEE INELIGIBLE TO SET OFF THE SAME AGAINST THE REGULAR BUSINESS PROFIT DERIVED FROM DERIVATIVE TRANSACTIONS. ON FIRST AP PEAL, THE LEARNED CITA UPHELD THE ADDITION AND CONTENTIONS OF THE LEARNED AO. AGGRIEV ED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- ITA NO. 487/KOL/2012-C-AM M/S. LOHIA SECURITIES LTD 5 1. THE LD. CIT(A) HAS UPHELD THE DELIVERY LOSS OF 5,36,90,032/- AS DEEMED SPECULATION LOSS U/S. 73 OF THE INCOME TAX A CT, 1961. THE COMPANY IS ENGAGED IN A COMPOSITE BUSINESS OF SHARE BROKER, SHARE TRADING MAINLY IN THE FORM OF ARBITRAGE AND JOBBING ACTIVITIES. IN CASE OF ARBITRAGE ACTIVITIES, THE COMPANY TAKES A POSITION IN ONE SEGMENT OF THE EXCHANGE AND SIMULTANEOUSLY REVERSE POSITION IS TAK EN IN ANOTHER SEGMENT. IF THE TRADE IS REVERSED ON NEXT DAY OR SU BSEQUENT DAY THE PROFIT OR (LOSS) ARISING ON THE SAID TRANSACTION IN THE CA PITAL MARKET SEGMENT IS BOOKED AS DELIVERY PROFIT/(LOSS). LOSS IN DEALING I N SHARES INCURRED BY THE COMPANY BECAUSE OF ABOVE MENTIONED TYPE OF TRANSACT IONS ARE EXEMPTED FROM THE DEFINITIONS OF SPECULATION GIVEN U/S. 43(5 ) OF THE INCOME TAX ACT, 1961. HENCE QUESTION OF APPLICABILITY OF EXPLA NATION TO SECTION 73 DOES NOT ARISE. FURTHER IT IS WELL SETTLED LAW THAT IN CASE OF THE BUSINESS ACTIVITIES ARE COMPOSITE IN NATURE, THE PROFIT OR L OSS FROM THE SAME IS REQUIRED TO BE COMPUTED AS A WHOLE. 2.5. THE LEARNED AR ARGUED THAT DURING THE ASSESSM ENT YEAR UNDER CONSIDERATION, THE ASSESSEE INCURRED SUBSTANTIAL LOSS IN ITS SHARE TRA DING BUSINESS INVOLVING ACTUAL DELIVERY OF SHARES AMOUNTING TO RS. 5,36,90,032/- AND LOSS I NCURRED ON NON-DELIVERY BASED DERIVATIVE TRANSACTIONS AMOUNTING TO RS. 2,46,33,2 41/- BUT HOWEVER, THE ASSESSEE HAD EARNED INCOME ON ITS SHARE TRADING BUSINESS BY WAY OF DERIVATIVE TRANSACTIONS AMOUNTING TO RS. 36,86,29,893/-. THE LEARNED AR F URTHER ARGUED THAT , EVEN ASSUMING WITHOUT CONCEDING , THAT THE ACTION OF THE LEARNED AO IN TREATING THE SHARE TRADING LOSS AS SPECULATIVE LOSS OF RS. 5,36,90,032 /- AND RS. 2,46,33,241/- ARE TO BE ACCEPTED AS CORRECT, THEN HE OUGHT TO HAVE ADJUSTED THE SAID LOSS WITH THE PROFITS EARNED IN FUTURE & OPTIONS (F&O) DERIVATIVE TRANSACTIONS T O THE TUNE OF RS. 36,86,29,893/- WHICH ARE ALSO NON DELIVERY BASED AND HENCE IN ANY CASE, THERE IS NO LOSS AVAILABLE WITH THE ASSESSEE FOR INVOKING THE PROVISIONS OF SE CTION 70 TO 74A, MUCH LESS SECTION 73 READ WITH ITS EXPLANATION. HE FURTHER ARGUED TH AT FROM THE DETAILS OF SHARE TRANSACTIONS CLEARLY REVEALED THAT THE ASSESSEE HAS INCURRED LOSS IN DEALING IN SHARES DUE TO ARBITRAGE. FOR EXAMPLE, IN CASE OF JINDAL STEEL , THE ASSESSEE BOUGHT 1875 SHARES IN CAPITAL MARKET ON 8.2.2008 AND SOLD THE SAME QUANTI TY IN F & O SEGMENT IN ORDER TO HEDGE. THE ASSESSEE HAS REVERSED THE POSITION ON 1 2.2.2008. IN THIS TRANSACTION, THE ITA NO. 487/KOL/2012-C-AM M/S. LOHIA SECURITIES LTD 6 ASSESSEE HAS INCURRED DELIVERY LOSS OF RS. 5,83,031 /- IN CAPITAL MARKET AND EARNED RS. 5,51,000/- IN F & O SEGMENT. HE ARGUED THAT EVEN I F THE LOSS IN DELIVERY TRANSACTIONS AS MENTIONED ABOVE IS TREATED AS SPECULATION LOSS A S PER EXPLANATION TO SECTION 73 OF THE ACT, THE SAID EXPLANATION SHOULD BE TREATED AS NORMAL BUSINESS LOSS AS PER THE CLAUSE (B) AND (C ) OF SECTION 43(5) OF THE ACT. 2.6. THE LEARNED DR ARGUED THAT ASSESSEE IS A COMPA NY DEALING IN SHARES AND ALSO EARNING BROKERAGE INCOME AND DOES NOT FALL IN EXCEP TIONS TO EXPLANATION TO SECTION 73 OF THE ACT. HE ARGUED THAT SECTION 73 OF THE ACT IS A SPECIAL PROVISION WHEREAS SECTION 43(5) OF THE ACT IS A GENERAL PROVISION. THE ASSES SEE IS ENGAGED ONLY IN SPECULATION BUSINESS AND HENCE THE LOSS TREATED BY THE LEARNED AO AS SPECULATION LOSS NEED NOT BE DISTURBED. HE FURTHER ARGUED THAT NO HEDGING WAS DONE BY THE ASSESSEE SO AS TO FALL UNDER SECTION 43(5)(C ) OF THE ACT. HE FURTHER A RGUED THAT EXPLANATION TO SECTION 73 OF THE ACT DEEMS THE BUSINESS OF A COMPANY CONSISTING OF PURCHASE AND SALE OF SHARES AS SPECULATION BUSINESS. THIS EXPLANATION APPLIES TO A COMPANY, NOTWITHSTANDING THE FACT THAT THE TRANSACTIONS MAY OTHERWISE NOT HAVE BEEN R EGARDED AS SPECULATIVE TRANSACTIONS BY APPLYING THE PROVISIONS OF SECTION 43(5) OF THE ACT. HE ARGUED FURTHER THAT THE TRANSACTIONS OF PURCHASE AND SALE OF DERIVATIVES CA NNOT BE REGARDED AS TRANSACTIONS IN SHARES AND THE PROVISIONS OF EXPLANATION TO SECTION 73 WOULD THEREFORE NOT APPLY TO A DERIVATIVES TRADING BUSINESS AND THEREFORE THE PROF IT OR LOSS FROM DERIVATIVE CONSISTS OF A DISTINCT BUSINESS OF THE ASSESSEE AND IS NOT THE SAME AS THAT OF TRADING IN SHARES. 2.7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET, WE FIND THAT THE ACTIVITIES CARRIED ON BY THE ASSESSEE COULD BE SUMMARIZED AS UNDER:- 1. PURCHASE AND SALE OF SHARES ON BEHALF OF ITS CLIENT WHERE ACTUAL DELIVERY OF SECURITIES TAKE PLACE. ITA NO. 487/KOL/2012-C-AM M/S. LOHIA SECURITIES LTD 7 2. PURCHASE AND SALE OF SHARES ON BEHALF OF ITS CLIENT WHERE TRANSACTIONS HAS BEEN SQUARED UP WITHOUT DELIVERY BOTH IN CAPITAL MA RKET SEGMENT AND FUTURE & OPTION SEGMENT. 3. PURCHASE AND SALE OF SHARES IN ITS OWN ACCOUNT WHER E ACTUAL DELIVERY OF SECURITIES TAKE PLACE. 4. PURCHASE AND SALE OF SHARES IN ITS OWN ACCOUNT WHER E TRANSACTIONS HAS BEEN SQUARED UP WITHOUT DELIVERY IN BOTH CAPITAL MARKET SEGMENT & FUTURE AND OPTION SEGMENT. 2.7.1. ACCORDING TO THE LD.AR, THE LOSS INCURRED BY THE ASSESSEE IN PURCHASE AND SALE OF SHARES WHERE ACTUAL DELIVERY HAS TAKEN PLACE SHO ULD BE TREATED AT PAR WITH PROFIT / LOSS INCURRED IN DEALING OF SHARES WHERE NO DELIVER Y HAS TAKEN PLACE AS WELL AS WITH BROKERAGE AND OTHER INCOME AND PROFIT / LOSS FROM A LL THESE ACTIVITIES SHOULD BE ADJUSTED WITH EACH OTHER. WE ALSO FIND FROM THE MATERIALS AVAILABLE ON RECORD THAT LOSS INCURRED IN TRANSACTION WHERE NO DELIVERY HAS TAKEN PLACE WAS TREATED AS REGULAR BUSINESS LOSS IN ASST YEARS 2007-08 AND 2009-10 ON THE GROUND OF JOBBING AND ARBITRAGE AND THE SAME WAS ACCEPTED BY THE LEARNED AO IN BOTH THE ASSESSMENT YEARS. THIS FACT IS ALSO STATED AT PAGE 14 OF THE LEARNED CITA ORDER. THE RELEVANT OPERATIVE PORTION OF THE ASSESSMENT ORDER U/S 143(3) OF THE A CT DATED 2.12.2011 FOR THE ASST YEAR 2009-10 IS REPRODUCED HEREUNDER:- 3.9. FROM THE P&L IT IS FOUND THAT THE ASSESSEE H AS INCURRED A LOSS OF RS. 69,71,852.82. THE ASSESSEE WAS ASKED TO EXPLAIN WH Y NOT THE ABOVE BE TREATED AS SPECULATION LOSS. IN RESPONSE THE A/R OF THE ASSESSEE SUBMITTED THAT THE AMOUNT OF LOSS IS BASICALLY THE LOSS INCUR RED FOR JOBBING AND ARBITRAGE. IN SUPPORT OF THE SAME HE HAS GIVEN A D ETAILED SUBMISSION WITH EVIDENCE, WHICH ARE PLACED ON RECORD. IN VIEW OF S ECTION 43(5)(C ) OF THE INCOME TAX ACT, THE JOBBING AND ARBITRAGE IS NOT A SPECULATIVE TRANSACTION. HENCE, THE VIEW OF THE ASSESSEE IS CONSIDERED. ITA NO. 487/KOL/2012-C-AM M/S. LOHIA SECURITIES LTD 8 2.7.2. HERE WE ARE AWARE THAT THOUGH THE PRINCIPLE OF RES JUDICATA DOES NOT APPLY TO INCOME TAX PROCEEDINGS, THE PRINCIPLE OF CONSISTENC Y CANNOT BE GIVEN A COMPLETE GO BYE AS HAS BEEN HELD BY THE HONBLE SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG VS CIT REPORTED IN 193 ITR 321 (SC) , WHEREIN IT WAS HELD THAT : AS WE ARE AWARE OF THE FACT THAT, STRICTLY SPEAKIN G RES JUDICATA DOES NOT APPLY TO INCOME TAX PROCEEDINGS. AGAIN, EACH ASSES SMENT YEAR BEING A UNIT, WHAT IS DECIDED IN ONE YEAR MAY NOT APPLY IN THE FOLLOWING YEAR BUT WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE D IFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND THE PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLE NGING THE ORDER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR. 2.7.3. WE FIND THAT THE ASSESSEE HAD EARNED PROFIT FROM DERIVATIVES TRADING (FUTURE & OPTIONS) AMOUNTING TO RS. 36,86,29,893/- AND THE L EARNED AO HAD INVOKED EXPLANATION TO SECTION 73 TO PART OF THE TRANSACTIO NS ONLY I.E ONLY FOR DELIVERY BASED TRANSACTIONS WHEREIN SHARE TRADING LOSS OF RS. 5,36 ,90,032/- WAS INCURRED AND NON DELIVERY BASED TRANSACTIONS WHEREIN SHARE TRADING L OSS OF RS. 2,46,33,241/-, BUT WHEREAS THE TRANSACTIONS RELATED TO F&O ARE ALSO OF THE SAME NATURE WHEREIN PROFITS WERE EARNED AND THERE IS ONLY EFFECTIVE SURPLUS OUT OF THE SAME IF PROFIT FROM F & O ARE CONSIDERED AND HENCE THERE IS NO LOSS AVAILABLE WIT H THE ASSESSEE. HENCE WE FIND THAT THE ALTERNATE SUBMISSIONS OF THE LEARNED AR ALSO HO LDS GOOD THAT THE TRANSACTIONS IN F & O HAVE BEEN ENTERED INTO WITH A VIEW TO HEDGE AGA INST THE SHARES HELD BY THE ASSESSEE AND THE ASSESSEE HAS BEEN BENEFITED BY SU CH HEDGING BY THE FACT THAT THE LOSS SUFFERED IN SHARE TRANSACTIONS HAVE BEEN HEDGED BY WAY OF PROFIT IN F&O. 2.7.4. WE FIND THAT F&O TRANSACTIONS ARE BASED ON SHARES ON WHICH POINT THERE IS NO DISPUTE. THUS , THERE IS NO BAR ON THE ASSESSEE TO SUBMIT THAT SUCH TRANSACTIONS WERE IN ITA NO. 487/KOL/2012-C-AM M/S. LOHIA SECURITIES LTD 9 THE NATURE OF HEDGING. THE TRANSACTIONS IN THE DE RIVATIVES HAVE BEEN CARRIED ON SIMULTANEOUSLY WITH PURCHASES. HE SUBMITTED THAT H EDGING MAY BE CARRIED OUT IN ITEMS DIFFERENT THAN THE ITEMS PURCHASED / SOLD. 2.7.5. WE FIND THAT THE ASSESSEE DOES NOT DIFFEREN TIATE BETWEEN ITS BUSINESS OF SHARE TRADING OF DELIVERY BASED SHARES AND NON-DELIVERY B ASED SHARES, IT ARRIVED AT THE FIGURE OF NET BUSINESS INCOME FOR THE RELEVANT ASSESSMENT YEAR AFTER SETTING OFF THE LOSS INCURRED IN THE BUSINESS OF PURCHASE AND SALE OF DE LIVERY BASED SHARES WITH INCOME EARNED FROM DERIVATIVE TRANSACTIONS BY TREATING THE ENTIRE ACTIVITY OF PURCHASE AND SALE OF SHARES WHICH COMPRISED OF BOTH DELIVERY AND NON DELIVERY BASED TRADING AS ONE COMPOSITE BUSINESS BEFORE THE APPLICATION OF DEEMIN G PROVISION CONTAINED IN EXPLANATION TO SECTION 73. 2.7.6. WE FIND FROM THE FACTS AVAILABLE ON RECORD, THE ASSESSEE IS OPERATING IN ONE SEGMENT I.E DEALING IN SHARES AND SECURITIES AND AL L THE ACTIVITIES UNDER THIS SEGMENT ARE INTERRELATED. IN THIS REGARD, WE PLACE RELIANCE O N THE FOLLOWING DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ITO S SAND DUNE CREDIT PVT LTD IN ITA NOS. 2075 & 2076 /KOL / 2008 FOR THE ASST YEARS 2004-05 & 2005-06 DATED 24.4.2009 , WHEREIN THE TRIBUNAL UPHELD THE DECISION OF THE CI TA WITH REGARD TO DELETION OF THE ADDITION UNDER EXPLANATION TO SECTI ON 73 BY MAKING THE FOLLOWING OBSERVATIONS:- PAGES 12 & 13 OF LD.CIT(A)S ORDER : I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE LD.A.R. THE ASSESSING OFFICE HAS ADDED RS.10,06,974/- BEING LOS S SUFFERED IN TRADING IN SHARES WHICH WAS SET OFF AGAINST BROKERAGE INCOME O F SHARES OF RS.12,90,172/-. THE APPELLANT IS A SHARE BROKER, RE GISTERED WITH SEBI AND ITS ENTIRE ACTIVITY IN SHARES IS TO BE TREATED AS THE ACTIVITY OF SHARE BUSINESS WHETHER IT WAS BY WAY OF TRADING OF SHARES AND/OR BY WAY OF BROKERAGE IN SHARES. THE ACTIVITY WHICH WAS CONDUCT ED BY THE APPELLANT ON A/C OF OTHER PARTIES IN WHICH BROKERAGE INCOME WAS EARNED AND THE ACTIVITY OF DEALING IN SHARES IN THEIR OWN A/C WAS TREATED AS SHARE TRADING BUSINESS. THE ENTIRE ACTIVITY HAS TO BE TREATED AS ONE AND AS SUCH THE ITA NO. 487/KOL/2012-C-AM M/S. LOHIA SECURITIES LTD 10 EXPLANATION TO SECTION 73 IS NOT APPLICABLE IN THE INSTANT CASE. I HOLD THAT THE STATUTE HAS NOT MADE A DISTINCTION BETWEEN PUR CHASE AND SALE OF SHARES OF COMPANIES MADE ON OWN BEHALF AND/ OR BEH ALF OF OTHERS, WHERE ENTIRE BUSINESS ACTIVITY OF THE COMPANY CONSIST OF PURCHASE AND SALE OF SHARES OF OTHER COMPANIES IN WHICH SOME BROKERAGE WAS EARNED AND IN SOME OTHER LOSS OR PROFIT IS EARNED. THE ENTIRE BUS INESS ACTIVITY IS INTER LINKED AND IS TO BE TREATED AS SAME ACTIVITY. I AM OF THE OPINION THAT THE CASE REFERRED BY THE LD.A.R BEING CIT VS. NIRMAL KU MAR & CO. 161 ITR 413 (CAL) IS FULLY APPLICABLE IN THE PRESENT CASE. THE ADDITION OF RS.10,06,974/- UNDER THE HEAD DEEMED SPECULATION BY APPLYING THE EXPLANATION TO SECTION 73 IS, THEREFORE DELETED. SIMILARLY, IN CASE OF M/S. SOMANY STOCK BROKING P VT. LTD VS. ASSISTANT COMMISSIONER OF INCOME TAX, KOLKATA, ITA NO. 1914/KOL/2004, IT WAS HELD THAT:- THE ASSESSEE COMPANY IS ENGAGED IN A COMPOSITE BUS INESS OF SHARE BROKER, SHARE TRADING ETC DURING THE YEAR UND ER CONSIDERATION. THE ASSESSEE HAS EARNED INCOME FROM SUCH COMPOSITE BUSI NESS FOR TAXATION IN INCOME TAX RETURN. THERE IS A COMMON MANAGEMENT INT ER-LIAISON OF RESOURCES. THERE IS A COMMON WORK FORCE AS SUCH BI FURCATION OF SUCH BUSINESS IS NOT POSSIBLE. IN THIS REGARD THE REFER ENCE CAN BE MADE TO THE DECISION OF THE SUPREME COURT IN THE CASE OF PRIT HVI INSURANCE LTD REPORTED IN 53 ITR PAGE 632 AND 637 AND IN THE CASE OF EXCHANGE CORPORATION LIMITED 77 ITR 739 (SC) IN THE CASE OF EXCHANGE CORPORATION LIMITED, IT WAS HELD THAT THE TEST IS U NIT OF CONTROL AND NOT THE NATURE OF THE TWO LINE OF BUSINESS. HONBLE SUPREME COURT HELD THAT THE TRIBUNAL WAS RIGHT IN HOLDING SHARE BUSINESS AND O THER BUSINESS CARRIED BY THE APPELLANT COMPANY CONSTITUTING THE SAME BUSI NESS WITHIN THE MEANING OF SECTION 24(2). AS THUS BEFORE THE AMENDM ENT IN 1955 WHILE DECIDING THE CASE THE HONBLE SUPREME COURT HAS APP LIED THE RATIO OF DECISION IN THE CASE OF PRITHI INSURANCE LTD (SUPR A). THUS THIS IS NOW ACCEPTED AS PRINCIPLE OF LAW THAT ONCE SUCH ACTIVI TY ARE COMPOSITE IN NATURE, THE INCOME THEREFROM HAS TO BE ASSESSED AS A WHOLE. SINCE THE SHARE BROKING ACTIVITY, SHARE DEALING ON OWN ACCOUN T ALL FORM AN INTEGRATED BUSINESS OF THE APPELLANT COMPANY, THE P ROFIT OR LOSS FROM THE SAME IS REQUIRED TO BE COMPUTED AS A WHOLE. IN THE INSTANT CASE OF THE COMPANY, IT IS VERY DIFFICULT TO SEGREGATE BUSINES S ACTIVITIES AND ALLOCATE RESPECTIVE AMOUNT OF EXPENDITURE INCURRED FOR THE PURPOSE OF EARNING THE SAME. SINCE THE ACTIVITIES ARE BEING CARRIED OUT AT COMMON WORK PLACE WITH A WORK FORCE, THE WORK STAFF, THE EXPENSES INC URRED ARE ALSO COMMON IN NATURE. HENCE, THIS EXPENSES CANNOT BE BIFURCAT ED TO ARRIVE AT PROFIT UNDER SEPARATE HEADS. AS SUCH THE EXPLANATION APPEN DED TO SECTION 73 WILL NOT BE APPLICABLE IN THE PRESENT CASE. ITA NO. 487/KOL/2012-C-AM M/S. LOHIA SECURITIES LTD 11 IN CASE OF ITO, C.W 2(2) VS. GDB SHARE & STOCK BRO KING SERVICE LTD ITA NO.235(CAL) OF 2001 IT WAS HELD THAT THE ASSESSEE HAS SHOWN BROKERAGE INCOME OF RS.49.17 LACS, INTEREST INCOME OF RS.1.66 LACS & DIVIDEND INCOME OF RS. 0.74 LACS. ON THE OTHER HA ND THE ASSESSEE HAS SUFFERED LOSS OF SHARE DEALING AMOUNTING TO RS.3.9 7 LACS IN RESPECT OF WHICH ASSESSING OFFICER HAS ATTRACTED THE EXPLANATI ON TO SECTION 73. THE BROKERAGE INCOME EARNED BY THE ASSESSEE IS OUT OF ITS BUSINESS OF PURCHASE & SALE OF SHARES AND NOT IN RESPECT OF ANY OTHER ACTIVITY BEING CARRIED ON BY THE ASSESSEE COMPANY. AS PER OUR CONS IDERED VIEW WHILE ARRIVING AT THE TOTAL PROFIT ON ACCOUNT OF THE SAI D SHARE DEALING BUSINESS, ONE HAS TO TAKE INTO ACCOUNT NOT ONLY THE PROFIT O R LOSS ON SALE AND PURCHASE OF SHARES BUT ALSO THE BROKERAGE EARNED ON THE PURCHASE & SALE OF SHARES. AS THE BROKERAGE INCOME IS INEXTRICABLY RELATED WITH THE SAID SHARE TRANSACTION BUSINESS, THE NET PROFIT OF WHICH WORK OUT TO (RS.49.40- RS.3.97) RS. 45.20 LAKHS. THUS, THERE IS NO MERIT IN THE ACTION OF THE ASSESSING OFFICER IN TREATING THE LOSS OF RS. 3.97 LAKHS IN ISOLATION BY DISREGARDING INCOME EARNED BY THE ASSESSEE BY WAY OF BROKERAGE IN THE SAID SHARE TRADING BUSINESS ITSELF. IN VIEW OF THE ABOVE, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN ATTRACTING THE EXPLANATION TO SECTION 73 AND HOLDING THAT LOSS OF RS.3.97 LACS WAS DEEMED TO BE SPECULATION LOSS. WE ALSO FIND THAT THE DECISION OF KOLKATA TRIBUNAL HAS BEEN APPROVED BY THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS M/S SAND DUNE TRADE PVT LTD IN ITAT NO. 146 OF 2010 , G.A.NO. 1982 OF 2010 AND G.A.NO. 1983 OF 2010 DATED 21.7.2010 , WHEREIN IT WAS ORDERED AS BELOW:- THE COURT: BEING SATISFIED WITH THE EXPLANATIONS AS HAVE BEEN SUBMITTED WE ALLOW THE PRAYER FOR CONDONATION. TH E DELAY IS CONDONED. AT THIS JUNCTURE THE MATTER IS TAKEN UP FOR ADMISS ION HEARING. SINCE WE HAVE DISMISSED ALREADY AN APPEAL BEING ITA T 147 OF 2010 WHICH HAS ALSO BEEN IMPUGNED HERE ON THE SELF- SAME FACTS AND CIRCUMSTANCES AND IN THIS CASE ALSO IT APPEARS THAT ASSESSING OFFICER DELETED THE CLAIM OF RS.10,06,974/ ON ACCOUNT OF L OSS IN SHARE TRADING OPERATION. THE ASSESSEE PREFERRED APPEAL BEFORE THE COMMISSIONER OF INCOME TAX(APPEAL). THE COMMISSIONER OF INCOME TAX( APPEAL) HELD THAT LOSS INCURRED IN THE BUSINESS OF TRANSACTION O F SHARE WOULD NOT BE ITA NO. 487/KOL/2012-C-AM M/S. LOHIA SECURITIES LTD 12 SPECULATION LOSS AND HAS HELD THAT EXPLANATION TO S ECTION 73 WOULD NOT BE APPLICABLE TO THE CASE OF THE ASSESSEE COMPANY. THEREFORE, THE COMMISSIONER OF INCOME TAX (APPEAL)) WHILE RELYING ON THE JUDGMENT OF THIS COURT IN CASE OF [CIT VS. NIR MAL KUMAR & CO.] REPORTED IN 161ITR 413 HAS GRANTED RELIEF AND HELD THAT ADDITION OF RS.10,06,974/- UNDER THE HEAD DEEMED SPECULATION BY APPLYING THE EXPLANATION TO SECTION 73 IS DELETED. THE LEARNED TRIBUNAL WHILE NOTING THE AFORESAID FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPEAL) RECORDED THAT D URING THE COURSE OF HEARING DEPARTMENTAL REPRESENTATIVE HAS NOT DISP UTED THE FACT STATED BY CIT(A) (SUPRA). THE LEARNED TRIBUNAL ALSO OBSERV ED THAT INCOME OF THE ASSESSEE IN THE ASSESSMENT ORDER UNDER CONSIDER ATION FROM BROKERAGE INCOME OF SHARE OF RS.12,90, 172/- IS MOR E THAN THE LOSS OF RS.10,,06,974/- CLAIMED BY THE ASSESSEE IN RESPECT OF SALE AND PURCHASE OF THE SHARE BY WAY OF BROKERAGE OF SHARE. IT IS RE CORDED BY THE LEARNED TRIBUNAL FURTHER THAT THERE IS NO DISPUTE TO THE F ACT THAT EXPLANATION TO SECTION 73 DOES NOT APPLY TO AN INVESTMENT COMPANY OR A COMPANY WHOSE PRINCIPAL BUSINESS IS BANKING OR MONEY LENDIN G. THE LEARNED TRIBUNAL HAS, THEREFORE, AFFIRMED THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL) IN VIEW OF THE JUDGMENT OF THI S COURT [CIT VS. NIRMAL KUMAR & CO.] (SUPRA) REPORTED IN 161 ITR 413. IN VIEW OF THE AFORESAID FINDINGS AND APPLICATI ON OF LAW IN THIS MATTER WE DO NOT THINK IT IS A FIT CASE FOR ADMISSI ON. IT IS NOT SUBMITTED THAT THE DECISION RENDERED IN THE CASE OF [CIT VS.N IRMAL KUMAR & CO.] REPORTED IN 161 ITR 413 (SUPRA) IS NOT APPLICABLE I N THE FACTS AND CIRCUMSTANCES OF THIS CASE NOR IT IS ARGUED THAT TH E SAID DECISION OF THIS COURT HAS BEEN OVERRULED. ACCORDINGLY, THE APPEAL IS NOT ADMITTED AND THE S AME IS DISMISSED. THE APPLICATION BEING 1982 OF 2010 IS DISPOS ED OF. CERTIFIED PHOTOSTAT COPY OF THIS ORDER BE MA DE AVAILABLE TO THE PARTIES, IF APPLIED FOR, ON COMPLIANCE OF USUAL FOR MALITIES. ITA NO. 487/KOL/2012-C-AM M/S. LOHIA SECURITIES LTD 13 2.7.7. IT IS PERTINENT TO GET INTO THE EXPLANATION TO SECTION 73 OF THE ACT AT THIS JUNCTURE :- SECTION 73 : LOSSES IN SPECULATION BUSINESS: (1) *** *** *** *** *** *** *** (2) (I) & (II)*** *** *** *** *** *** *** (3) & (4) *** *** *** *** *** *** *** EXPLANATION - WHERE ANY PART OF THE BUSINESS OF A COMPANY[OTHER THAN A COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MA INLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS INTERES T ON SECURITIES, INCOME FROM HOUSE PROPERTY, CAPIT AL GAINS AND INCOME FROM OTHER SOURCES], OR A COMPANY THE PRINCIPAL BUSINESS OF WHICH IS THE BUSINESS OF BANKING OR TH E GRANTING OF LOANS AND ADVANCES) CONSISTS IN THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, SUCH COMPANY SHALL, FOR THE PU RPOSES OF THIS SECTION, BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSIST OF THE PU RCHASE AND SALE OF SUCH SHARES.] WE FIND THAT IT IS CLEAR THAT IN THE CASE OF A COMP ANY WHOSE BUSINESS CONSISTS MAINLY OR PARTLY OF PURCHASE AND SALE OF SHARES OF OTHER C OMPANIES, IT WILL AMOUNT TO SPECULATION BUSINESS UNLESS SUCH COMPANYS GROSS TO TAL INCOME CONSISTS MAINLY OF INCOME UNDER THE HEADS OF INTEREST ON SECURITIES , INCOME FROM HOUSE PROPERTY, CAPITAL GAINS AND INCOME FROM OTHER SOURCES, OR WHERE THE PRINCIPAL BUSINESS OF THE COMPANY IS THE BUSINESS OF BANKING OR OF GRANTI NG LOANS AND ADVANCES. HENCE FROM THIS, THE FOLLOWING POINTS EMERGE :- IT APPLIES TO COMPANIES WHOSE BUSINESS CONSISTS OF PURCHASE AND SALE OF SHARES OF OTHER COMPANIES. IT APPLIES TO ALL PURCHASE AND SALE OF SHARES. IT DOES NOT DIFFERENTIATE BETWEEN DELIVERY BASED T RANSACTIONS AND F&O OPERATIONS. ITA NO. 487/KOL/2012-C-AM M/S. LOHIA SECURITIES LTD 14 IT APPLIES TO THE ENTIRE BUSINESS OF PURCHASE AND S ALE OF SHARES, WHETHER SUCH TRADING IS DELIVERY BASED OR NON-DELIVERY BASED AND WHETHER THERE IS PROFIT OR LOSS FROM SUCH BUSINESS DEEMED AS SPECULATION. WE FIND THAT THE ASSESSEE HAD TREATED THE ENTIRE AC TIVITY OF PURCHASE AND SALE OF SHARES WHICH COMPRISED OF BOTH DELIVERY BASED AND NON-DELI VERY BASED TRADING AS ONE COMPOSITE BUSINESS BEFORE THE APPLICATION OF DEEMIN G PROVISION CONTAINED IN EXPLANATION TO SECTION 73 OF THE ACT AND ACCORDINGL Y, CLAIMED SET OFF OF THE LOSS INCURRED IN DELIVERY BASED TRADING WITH PROFIT DERI VED FROM DERIVATIVE TRADING. 2.7.8. WE HOLD THAT THE TRANSACTIONS DONE BY DELIV ERY AS WELL AS THE TRANSACTIONS OF DERIVATIVES ARE NOT HIT BY SECTION 43(5) OF THE ACT AND HENCE THE AGGREGATION OF THE SHARE TRADING LOSS AND PROFIT FROM DERIVATIVE TRANS ACTIONS SHOULD BE DONE BEFORE APPLICATION OF THE EXPLANATION TO SECTION 73 OF THE ACT. RELIANCE IS PLACED ON THE FOLLOWING DECISIONS:- A) KOLKATA TRIBUNAL IN THE CASE OF DCIT VS M/S BALJIT SECURITIES PRIVATE LIMITED IN ITA NO. 1183/KOL/2012 DATED 21.10.2014 F OR THE ASST YEAR 2009-10, WHEREIN IT WAS HELD AS BELOW:- IT IS CONCLUDED THAT BOTH TRADING OF SHARES AND DER IVATIVE TRANSACTIONS ARE NOT COMING UNDER THE PURVIEW OF SECTION 43(5) OF TH E ACT WHICH PROVIDES DEFINITION OF SPECULATIVE TRANSACTION EXCLUSIVELY FOR PURPOSES OF SECTION 28 TO 41 OF THE ACT. AGAIN, THE FACT THAT BOTH DELIVE RY BASED TRANSACTION IN SHARES AND DERIVATIVE TRANSACTIONS ARE NON-SPECULAT IVE AS FAR AS SECTION 43(5) OF THE ACT IS CONCERNED GOES TO CONFIRM THAT BOTH WILL HAVE SAME TREATMENT AS REGARDS APPLICATION OF THE EXPLANATION TO SECTION 73 IS CONCERNED, WHICH CREATES A DEEMING FICTION. NOW, B EFORE APPLICATION OF THE SAID EXPLANATION, AGGREGATION OF THE BUSINESS PROF IT / LOSS IS TO BE WORKED OUT IRRESPECTIVE OF THE FACT, WHETHER IS FROM SHARE DELIVERY TRANSACTION OR DERIVATIVE TRANSACTION. NOW, THIS VIEW HAS BEEN CO NFIRMED BY THE HONBLE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE IN GA NO. 3481 OF 2013 AND ITAT NO. 215 OF 2013 DATED 12.3.2014, HAS HELD AS UNDER:- CLAUSE (D) OF SECTION 43(5) BECAME EFFECTIVE WIT H EFFECT FROM 1 ST APRIL, 2006. THEREFORE, PRIOR TO 1 ST APRIL, 2006 ANY TRANSACTION IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY INCLUDING STOCKS AND ITA NO. 487/KOL/2012-C-AM M/S. LOHIA SECURITIES LTD 15 SHARES WAS PERIODICALLY OR ULTIMATELY SETTLED OTHER WISE THAN BY THE ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY OR SCRIP WAS A SPECULATIVE TRANSACTION. SUB-SECTION 1 OF SECTION 73 PROVIDES AS FOLLOWS: (1) ANY LOSS, COMPUTED IN RESPECT OF A SPECULATION BUSINESS CARRIED ON BY THE ASSESSEE, SHALL NOT BE SET OFF EXCEPT AGAINS T PROFITS AND GAINS, IF ANY, OF ANOTHER SPECULATION BUSINESS. THE RESULTANT EFFECT WAS THAT ANY LOSS ARISING OUT OF SPECULATIVE TRANSACTION COULD ONLY HAVE BEEN SET OFF AGAINST PROFITS ARISIN G OUT OF SPECULATIVE TRANSACTION. IN THE PRESENT CASE, THE ASSESSEE, AS ALREADY INDICATED, HAS BEEN DEALING IN SHARES WHERE DELIVERY WAS IN FACT T AKEN AND ALSO IN SHARES WHERE DELIVERY WAS NOT ULTIMATELY TAKEN. IN OTHER W ORDS, THE ASSESSEE HAS BEEN DEALING IN ACTUAL SELLING AND BUYING OF SHARE S AS ALSO DEALING IN SHARES ONLY FOR THE PURPOSE OF SETTLING THE TRANSA CTION OTHERWISE THAN BY ACTUAL DELIVERY. THE QUESTION ARISE WHETHER THE LOS SES ARISING OUT OF THE DEALINGS AND TRANSACTION IN WHICH THE ASSESSEE DID NOT ULTIMATELY TAKE DELIVERY OF THE SHARES OR GIVE DELIVERY OF THE SHAR ES COULD BE SET OFF AGAINST THE INCOME ARISING OUT OF THE DEALINGS AND TRANSACT IONS IN ACTUAL BUYING AND SELLING OF SHARES. AN ANSWER TO THIS QUESTION I S TO BE FOUND IN THE EXPLANATION APPENDED TO SECTION 73 WHICH READS AS F OLLOWS: EXPLANATION- WHERE ANY PART OF THE BUSINESS OF A COMPANY[OTHER THAN A COMPANY WHOSE GROSS TOTAL INCO ME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEAD S INTEREST ON SECURITIES, INCOME FROM HOUSE PROPERTY, CAPIT AL GAINS AND INCOME FROM OTHER SOURCES], OR A COMPANY THE PRIN CIPAL BUSINESS OF WHICH IS THE BUSINESS OF BANKING OR THE GRANTING OF LOANS AND ADVANCES) CONSISTS IN THE PURCHASE AND SALE OF SHA RES OF OTHER COMPANIES, SUCH COMPANY SHALL, FOR THE PURPOSES OF THIS SECTION, BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS T O THE EXTENT TO WHICH THE BUSINESS CONSIST OF THE PURCHASE AND SALE OF SUCH SHARES IN ORDER TO RESOLVE THE ISSUE BEFORE US, THE SECTI ON HAS TO BE READ IN THE MANNER AS FOLLOWS: EXPLANATION : WHERE ANY PART OF THE BUSINESS OF A COMPANY ) CONSIST 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 T O WHICH THE BUSINESS CONSIST OF THE PURCHASE AND SALE OF SHARES . IT WOULD, THUS, APPEAR THAT WHERE AN ASSESSEE, BEIN G THE COMPANY, BESIDES DEALING IN OTHER THINGS ALSO DEALS IN PURCH ASE AND SALE OF SHARES OF TOHER COMPANIES, THE ASSESSEE SHALL BE DE EMED TO BE ITA NO. 487/KOL/2012-C-AM M/S. LOHIA SECURITIES LTD 16 CARRYING ON A SPECULATION BUSINESS. THE ASSESSEE, IN THE PRESENT CASE, PRINCIPALLY IS A SHARE BROKER, AS ALREADY INDICATED . THE ASSESSEE IS ALSO IN THE BUSINESS OF BUYING AND SELLING OF SHARE S WHERE ACTUAL DELIVERY WAS NOT INTENDED TO BE TAKEN OR GIVEN. TH EREFORE, THE ENTIRE TRANSACTION CARRIED OUT BY THE ASSESSEE, INDICATED ABOVE, WAS WITHIN THE UMBRELLA OF SPECULATIVE TRANSACTION. THERE WAS, AS SUCH, NO BAR IN SETTING OFF THE LOSS ARISING OUT OF DERIVATIVES FR OM THE INCOME ARISING OUT OF BUYING AND SELLING OF SHARES. THIS IS WHAT T HE LEARNED TRIBUNAL HAS DONE. B) MUMBAI TRIBUNAL, SPECIAL BENCH IN CIT VS CONCORD CO MMERCIAL PVT LTD IN (2005) 95 ITD 117 (MUM) (SB) , WHEREIN IT WAS HELD THAT : BEFORE CONSIDERING WHETHER THE ASSESSEES CASE IS HIT BY THE DEEMING PROVISION OF EXPLANATION TO SECTION 73 OF THE ACT, THE AGGREGATE OF BUSINESS PROFIT / LOSS HAS TO BE WORKED OUT BASED O N THE NON- SPECULATIVE PROFITS, EITHER IT IS FROM SHARE DELIVE RY OR FROM SHARE DERIVATIVE. C) DECISION OF HONBLE DELHI HIGH COURT IN THE CASE O F CIT VS DLF COMMERCIAL DEVELOPERS LTD IN ITA NO. 94/2013 DATED 11.7.2013 WHEREIN IT WAS HELD THAT THE EXPLANATION TO SECTION 73 DOES NO T DIFFERENTIATE BETWEEN DERIVATIVES AND DELIVERY BASED SHARES. 11. THE STATED OBJECTIVE OF SECTION 73-APPARENT FROM THE TENOR OF ITS LANGUAGE IS TO DENY SPECULATIVE BUSINESS TH E BENEFIT OF CARRY FORWARD OF LOSSES. EXPLANATION TO SECTION 73( 4) HAS BEEN ENACTED TO CLARIFY BEYOND ANY SHADOW OF DOUBT THAT SHARE BUSINESS OF CERTAIN TYPES OR CLASSES OF COMPANIES A RE DEEMED TO BE SPECULATIVE. THAT IN ANOTHER PART OF THE STATUE , WHICH DEALS WITH COMPUTATION OF BUSINESS INCOME, DERIVATIVES A RE EXCLUDED FROM THE DEFINITION OF SPECULATIVE TRANSACTIONS, O NLY UNDERLINES THAT SUCH EXCLUSION IS LIMITED FOR THE PURPOSE OF T HOSE PROVISIONS OR SECTIONS. TO BORROW THE MADRAS HIGH COURTS EX PRESSION, DERIVATIVES ARE ASSETS, WHOSE VALUES ARE DERIVED FROM VALUES OF UNDERLYING SHARES, WHICH FALL SQUARELY WITHIN THE E XPLANATION TO SECTION 73(4). THEREFORE, IT IS IDLE TO CONTEND THAT DERIVATIVES ITA NO. 487/KOL/2012-C-AM M/S. LOHIA SECURITIES LTD 17 DO NOT FALL WITHIN THAT PROVISION, WHEN THE UNDER LYING ASSET ITSELF DOES NOT QUALIFY FOR THE BENEFIT, AS THEY (DERIVATIVES-ONCE REMOVED FROM IT AND ENTIRELY DEPENDENT ON STOCKS AN D SHARES, FOR DETERMINATION OF THEIR VALUE). 12. IN THE LIGHT OF THE ABOVE DISCUSSION, IT IS HE LD THAT THE TRIBUNAL ERRED IN LAW IN HOLDING THAT THE ASSESSEE WAS ENTITLED TO CARRY FORWARD ITS LOSSES; THE QUESTION FRAMED IS AN SWERED IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. THE APPEAL IS, THEREFORE, ALLOWED; THERE SHALL BE NO ORDER AS TO C OSTS. 2.7.9. FROM THE PROVISIONS OF SECTION 43(5)(D) OF THE ACT, IT IS CLEAR THAT THE DEFINITION OF SPECULATIVE TRANSACTION AS CONTAINED IN SECTIO N 43(5) OF THE ACT IS ONLY FOR PURPOSE OF SECTIONS 28 TO 41 OF THE ACT. IT DOES NOT APPLY TO THE OTHER SECTIONS OF THE ACT. 2.7.10 AS PER THE DEFINITION OF SECTION 43(5) OF THE ACT, TRADING OF SHARES WHICH IS DONE BY TAKING DELIVERY DOES NOT COME UNDER THE PURVIEW OF THE SAID SECTION. SIMILARLY, AS PER CLAUSE (D) OF SECTION 43(5), DERI VATIVE TRANSACTION IN SHARES IS ALSO NOT SPECULATION TRANSACTION AS DEFINED IN THE SAID SECTION. THEREFORE, BOTH PROFIT/LOSS FROM ALL SHARE DELIVERY TRANSACTIONS AN D DERIVATIVE TRANSACTIONS HAVE THE SAME MEANING AS FAR AS SECTION 43(5) OF THE ACT IS CONCERNED. IT THUS FOLLOWS THAT BOTH WILL HAVE THE SAME TREATMENT AS F AR AS APPLICATION OF THE SAID SECTION IS CONCERNED. 2.7.11. IN VIEW OF THE AFORESAID FACTS AND CIRCUMS TANCES AND JUDICIAL PRECEDENTS RELIED UPON HEREINABOVE, WE HOLD THAT THE CLAIM OF THE ASS ESSEE FOR SET OFF OF LOSS FROM SHARE DEALING SHOULD BE ALLOWED FROM THE PROFITS FROM F & O IN SHARE TRANSACTIONS, THE CHARACTER OF THE INCOME BEING THE SAME AND ALSO HOL D THAT BEFORE APPLICATION OF THE EXPLANATION TO SECTION 73, AGGREGATION OF THE BUSIN ESS PROFIT OR LOSS IS TO BE WORKED OUT IRRESPECTIVE OF THE FACT WHETHER IT IS FROM SHARE D ELIVERY TRANSACTION OR DERIVATIVE TRANSACTIONS. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. ITA NO. 487/KOL/2012-C-AM M/S. LOHIA SECURITIES LTD 18 3. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 -12-201 5 1. . THE APPELLANT: M/S. LOHIA SECURITIES LIMITED 4 BIP LABI TRAILOKYA MAHARAJ SARANI (BRABOURNE ROAD), 5 TH FL., KOL-1. 2 THE RESPONDENT-THE DCIT, CIR-6, AAYKAR BHAVAN, P-7 CHOWRINGHEE SQ., KOL-69. 3 / THE CIT, 4.THE CIT(A) 5 . DR, KOLKATA BENCH 6 . GUARD FILE . TRUE COPY, BY ORDER, ASSTT REGISTRAR SD/- ( MAHAVIR SINGH, JUDICIAL MEMBER ) SD/- (M. BALAGANESH, ACCOUNTANT MEMBER) DATE 9 /12/2015 COPY OF THE ORDER FORWARDED TO:-