DCIT, Circle - 6, Kolkata, Kolkata V. M/s. K. B. Capital Ltd., Kolkata

ITA 582/KOL/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100003 (ITAT-KOLKATA)
• Duration Of Justice: 4 year(s) 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-11-2015
• Appeal Filed By: Department
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 12-04-2011
• Court: TRIBUNAL
• Department Lawyers: P K CHAKRABORTY
• Assessee Lawyers: AKKAL DUDHWEWALA ACA
• Keywords: Business income; Charitable institution; Transactions in derivatives; Earning of tax free income; Period of limitation; Source of fund; Speculation loss
• Section: 14A; 115JB; 80G; 43(5); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA [BEFORE SHRI MAHAVIR SINGH, JM & SHRI WASEEM AHMED , AM] I.T.A NO.582/KOL/2011 ASSESSMENT YEAR: 2007-08 DEPUTY COMMISSIONER OF INCOME-TAX, VS. M/S. K. B. CAPITAL MARKETS (P) LTD. CIRCLE-6, KOLKATA. (PAN: AABCK1174F) ( APPELLANT ) ( RESPONDENT ) & I.T.A NO.607/KOL/2011 ASSESSMENT YEAR: 2007-08 M/S. K. B. CAPITAL MARKETS (P) LTD. VS. DEPUTY COM MISSIONER OF INCOME-TAX, CIRCLE-6, KOLKATA. (APPELLANT) (RESPONDENT) DATE OF HEARING: 28.10.2015 DATE OF PRONOUNCEMENT: 05.11.2015 FOR THE REVENUE: SHRI P. K. CHAKRABORTY, JCIT, S R. DR FOR THE ASSESSEE: SHRI AKKAL DUDHWEWALA, ACA ORDER PER SHRI MAHAVIR SINGH, JM: BOTH THESE CROSS APPEALS BY REVENUE AND ASSESSEE AR E ARISING OUT OF ORDER OF CIT(A)-VI, KOLKATA IN APPEAL NO.1018/CIT(A)-VI/2009 -10/CIR-6/KOL DATED 31.01.2011. ASSESSMENT WAS FRAMED BY DCIT, CIR-6, KOLKATA U/S. 143(3)/115WE(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FO R ASSESSMENT YEAR 2007-08 VIDE HIS ORDER DATED 31.12.2009. 2. THE FIRST ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) DELETING THE ADDITION MADE BY AO IN RESPECT TO EXPENSES RELATABL E TO EXEMPTED INCOME BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE I. T. RULES, 1962, (HEREINAFTER REFERRED TO AS THE RULES). FOR THIS , REVENUE HAS RAISED FOLLOWING GROUND NO.1: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, LD. CIT(A)-VI, KOLKATA HAS ERRED IN LAW IN HOLDING THAT RULE 8D WILL NOT BE APPLICABLE FOR THE ASSESSMENT YEAR 2007-08 AND THE ADDITION U/S. 14A SHOULD BE RESTRICTED TO RS.5,99,5 45/-. 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE CLAIM ED EXEMPT INCOME OF DIVIDEND OF RS.37,34,300/- AND LONG TERM CAPITAL GAIN OF RS.5,6 2,20,229/- BUT ATTRIBUTED ONLY EXPENSES 2 ITA NOS.582 & 607/K/2011 K. B. CAPITAL LTD. AY 2007-08 RELATABLE TO THIS EXEMPT INCOME AT RS.3,14,353/-. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT IN VIEW OF THE DECISION OF S PECIAL BENCH OF MUMBAI TRIBUNAL IN THE CASE OF ITO VS. DAGA CAPITAL MANAGEMENT PVT. LT D. [2009]312 ITR (A.T.) 0001 (SB MUM), WHEREIN THE APPLICABILITY OF RULE 8D OF THE R ULES IS HELD TO BE RETROSPECTIVE AND APPLYING THE SAME, HE MADE DISALLOWANCE OF INTEREST EXPENSES RELATABLE TO EXEMPT INCOME AT RS.16,60,862/- AND ALSO DISALLOWED OTHER EXPENSE S RELATABLE TO EXEMPT INCOME AT RS.9,15,267/- THEREBY TOTAL DISALLOWANCE WAS AT RS. 28,90,482/-. AGAINST THIS, ASSESSEE HAS ALREADY OFFERED THE DISALLOWANCE OF DIRECT EXPENSES AT RS.3,14,353/- U/S. 14A OF THE ACT. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO FOLLOWING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & B OYCEE MFG. CO. LTD. VS. DCIT (2010) 328 ITR 81 (BOM), WHEREIN IT IS HELD THAT RU LE 8D OF THE RULES IS PROSPECTIVE AND NOT RETROSPECTIVE AND RESTRICTED THE DISALLOWANCE A T 1% OF EXEMPT INCOME AND ACCORDINGLY, COMPUTED THE DISALLOWANCE AT RS.5,99,5 45/-. AGGRIEVED, NOW REVENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE RELEVANT ASSESSMENT YEAR IN VOLVED IS 2007-08 AND AS HELD BY HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & B OYCEE MFG. CO. LTD., SUPRA THAT RULE 8D OF THE RULES AS INSERTED BY THE I. T (FIFTH AMENDMENT) RULES, 2008 W.E.F. 24.3.2008 IS PROSPECTIVE AND NOT RETROSPECTIVE. WE FIND THAT THE EXEMPTED INCOME OF DIVIDEND IS TO THE EXTENT OF RS.37,34,300/- AND LON G TERM CAPITAL GAIN OF RS.5,62,20,229/- IN AY 2007-08. RULE 8D OF THE RULES IS NOT APPLICA BLE IN THIS ASSESSMENT YEAR IN THE ASSESSEES CASE AS HELD BY HONBLE BOMBAY HIGH COUR T IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. (SUPRA) BEING PROSPECTIVE. WE ARE OF THE VIEW THAT THE CIT(A) HAS RIGHTLY RESTRICTED THE DISALLOWANCE AT 1% OF THE EXEMPTED I NCOME AND WE CONFIRM THE SAME. THIS ISSUE OF REVENUES APPEAL DISMISSED. 5. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGAI NST THE ORDER OF CIT(A) IN DELETING THE DISALLOWANCE MADE BY AO ON ACCOUNT OF DONATION. FOR THIS REVENUE HAS RAISED FOLLOWING GROUND NO.2: 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, LD. CIT(A)-VI, KOLKATA HAS ERRED IN LAW IN DIRECTING THE AO TO ALLOW DONATION OF RS.18,002/ -. 3 ITA NOS.582 & 607/K/2011 K. B. CAPITAL LTD. AY 2007-08 6. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE AO HAS DISALLOWED THE CLAIM OF DONATION OF RS.18,000/- ON THE BASIS THAT NO EVIDENCE WAS PRODUCED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS BUT CIT(A) DIRECTED THE AO TO ALLOW THE CLAIM OF TH E ASSESSEE AFTER VERIFICATION OF COPIES OF RECEIPTS AND DECLARATION ISSUED BY APPROVED CHAR ITIES AND AS PRODUCED BY ASSESSEE BEFORE HIM. THE ASSESSEE PRODUCED RECEIPTS FROM TH E FOLLOWING APPROVED CHARITABLE INSTITUTIONS: SL. NO. NAME AMOUNT (RS.) REMARKS 1 2 3 CONCERN INDIA FOUNDATION VISION RESEARCH FOUNDATION SHREE POORNA TRUST 3,001 10,000 5001 DONATION QUALIFIED U/S. 80G DONATION QUALIFIED U/S. 35(1)(II) DONATION QUALIFIED U/S. 80G WE FIND THAT THE CIT(A) HAS DIRECTED THE AO TO EXAM INE THE RECEIPTS FOR THE DONATIONS MENTIONED ABOVE. HE HAS NOT DECIDED THE ISSUE. HOWE VER, WE FEEL THAT THIS ISSUE CAN BE VERIFIED BY THE AO AND ACCORDINGLY, THIS ISSUE OF R EVENUES APPEAL IS SET ASIDE AND ALLOWED FOR STATISTICAL PURPOSES. 7. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGAI NST THE ORDER OF CIT(A) DELETING THE ADDITION MADE BY AO IN RESPECT TO EXPENSES RELATABL E TO EXEMPTED INCOME BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE I. T. RULES, 1962, (HEREINAFTER REFERRED TO AS THE RULES). FOR THIS , REVENUE HAS RAISED FOLLOWING GROUND NO.3: 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, LD. CIT(A)-VI, KOLKATA HAS ERRED IN LAW IN HOLDING THAT RULE 8D WILL NOT BE APPLICABLE FOR THE ASSESSMENT YEAR 2007-08 AND THE ADDITION U/S. 14A SHOULD BE RESTRICTED TO RS.5, 99,545/- IN COMPUTING BOOK PROFIT U/S. 115JB. 8. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE STAT ED THAT THE ISSUE HAS ALREADY BEEN DEALT WITH AND IT IS THE SAME ISSUE WHICH IS DECIDE D WHILE ADJUDICATING THE FIRST ISSUE. HENCE, THIS ISSUE OF REVENUES APPEAL, EXACTLY ON I DENTICAL PRINCIPLES, IS DISMISSED. 9. THE NEXT ISSUE IS AS REGARDS TO THE ORDER OF CIT (A) ALLOWING REBATE U/S. 88E OF THE ACT ON THE COMPUTED BOOK PROFIT U/S. 115JB OF THE A CT. FOR THIS, REVENUE HAS RAISED FOLLOWING GROUND NO.4: 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, LD. CIT(A)-VI, KOLKATA HAS ERRED IN LAW IN HOLDING THAT REBATE U/S. 88E WILL BE ALLOWAB LE TO THE ASSESSEE WHEN ITS TAX PAYABLE IS COMPUTED AS PER SECTION 115JB. 4 ITA NOS.582 & 607/K/2011 K. B. CAPITAL LTD. AY 2007-08 10. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE STA TED THAT THIS ISSUE IS NOT ARISING OUT OF THE ORDER OF CIT(A), HENCE, THIS ISSUE CANNOT BE AD JUDICATED AND THIS GROUND CANNOT BE RAISED BY REVENUE. ON QUERY FROM THE BENCH, LD. SR . DR FAIRLY CONCEDED THAT NO SUCH GROUND WAS RAISED BEFORE CIT(A) BY THE ASSESSEE AND HENCE, HE CONCEDES THAT THIS ISSUE CANNOT BE RAISED BEFORE TRIBUNAL FOR THE FIRST TIME . ACCORDINGLY, THIS GROUND OF APPEAL OF REVENUE IS DISMISSED BEING INFRUCTUOUS. 11. THE ONLY ISSUE IN THIS APPEAL OF ASSESSEE IS AG AINST THE ORDER OF CIT(A) IN UPHOLDING THE ORDER OF AO IN APPLYING EXPLANATION T O SEC. 73 OF THE ACT DISALLOWING LOSS IN BUSINESS OF PURCHASE AND SALE OF SHARES TO BE AS SESSED AS DEEMED SPECULATION LOSS. FOR THIS, ASSESSEE HAS RAISED FOLLOWING GROUND NOS. 3 T O 5: 3) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN LAW AND ON FACT IN UPHOLDING THE FINDING OF THE ASSESSING O FFICER THAT THE EXPLANATION TO SEC. 73 OF THE INCOME TAX ACT WAS APPLICABLE TO THE APPELLANT' S CASE FOR THE A.Y. 2007-08 AND THEREFORE THE LOSS IN BUSINESS OF PURCHASE AND SALE OF SHARES WAS TO BE ASSESSED AS DEEMED SPECULATION LOSS. 4) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LOWER AUTHORITIES WRONGLY APPLIED EXPLANATION TO SEC. 73 OF THE INCOME TAX AC T IGNORING THE FACT THAT IF THE EXPLANATION TO SEC. 73 WAS APPLICABLE THEN THE SAME WAS APPLICABLE TO ALL SOURCES OF INCOME INVOLVING THE UNDERLYING BUSINESS TRANSACTIO NS OF PURCHASE & SALE OF SHARES AND THEREFORE INCOME DERIVED BY THE APPELLANT FROM STOC K BROKING, DERIVATIVE TRADING AND PORTFOLIO MANAGEMENT FEES SHOULD HAVE BEEN ASSESSED AS INCOME DERIVED FROM PURCHASE & SALE OF SHARES. 5) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE AO BE DIRECTED TO ASSESS THE LOSS IN PURCHASE & SALE OF SHARES AMOUNTING TO RS.95,02,451/- AS BUSINESS LOSS AND BE DIRECTED TO BE SET OFF AGAINST OTHER BUSINESS INCOM E. 12. BRIEFLY STATED FACTS ARE THAT THE AO NOTED FROM THE AUDITED ACCOUNTS OF THE ASSESSEE THAT THE ASSESSEE IS IN THE BUSINESS OF PURCHASE AN D SALE OF SHARES INCLUDING SHARE TRADING, SHARE BROKING, PORTFOLIO MANAGEMENT SERVICES AND DE RIVATIVE TRADING. ACCORDING TO AO, THE ASSESSEE HAS INCURRED LOSS OF RS.95,02,451/- IN THIS SCHEME OF BUSINESS AND THIS LOSS IS A SPECULATION LOSS WITHIN THE MEANING OF EXPLANATIO N TO SEC. 73 OF THE ACT. ACCORDING TO AO, THIS ISSUE IS COVERED BY THE DECISION OF HONBL E JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. PARKVIEW PROPERTIES PVT. LTD. (2003) 261 ITR 473. HE ALSO RELIED ON CBDT CIRCULAR NO. 204 DATED 24.07.1976 AND STATED THAT T HE SECOND CLAUSE OF EXPLANATION TO SEC. 73 OF THE ACT DOES NOT APPLY TO THIS CASE AND TO QUALIFY FOR THE FIRST EXCEPTION THE INCOME FROM BUSINESS IS TO BE COMPUTED WITH THE INC OME FROM OTHER SOURCES AND HE NOTED THAT THE BUSINESS INCOME IS AT RS.1,88,23,827/- FOR SETTING OFF OF SHARE TRADING LOSS WHICH IS MORE THAN THE OTHER SOURCES INCOME AT RS.1,31,18 ,686/-. THEREFORE, HE DISALLOWED THE 5 ITA NOS.582 & 607/K/2011 K. B. CAPITAL LTD. AY 2007-08 CLAIM OF THE ASSESSEE OF BUSINESS LOSS OF RS.95,02, 451/- BY TREATING THE SAME AS DEEMED SPECULATION LOSS U/S. 73 OF THE ACT. AGGRIEVED, AS SESSEE PREFERRED APPEAL BEFORE CIT(A), WHO ALSO CONFIRMED THE ACTION OF AO. AGGRIEVED, NO W ASSESSEE IS IN APPEAL BEFORE US. 13. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUG H FACTS AND CIRCUMSTANCES OF THE CASE. LD. COUNSEL FOR THE ASSESSEE FILED SUMMARY O F GROSS TOTAL INCOME OF THE ASSESSEE FOR AY 2007-08 AS ASSESSABLE AS PER THE ACCOUNTS OF THE ASSESSEE AND WHICH IS RELEVANT FOR THE ISSUE AND HENCE, THE SAME IS REPRODUCED FROM THE SU BMISSIONS OF THE ASSESSEE AS UNDER: HEADWISE SUMMARY OF INCOME INCLUDED IN THE ASSESSA BLE INCOME A. PROFITS & GAINS OF BUSINESS (I) BROKERAGE RS. 1,51,65,389 (II) SHARE SPECULATION PROFIT RS. 98,6 49 (III) INCOME FROM DEPOSITORY OPERATIONS RS. 13,97,970 (IV) PROPRIETARY TRADING IN DERIVATIVES RS. 1,31 ,81,302 (V) INTEREST RS. 5,95,198 (VI) OTHER INCOME RS. 7,58,915 INCOME FROM OTHER BUSINESS RS. 3,11,97,423 INCOME FROM SHARE TRADING RS. 95,02,450 RS. 2,16,94,973 LESS: BUSINESS ADMINISTRATIVE EXP., DEPN. & INTEREST ALLOWED BY ASSESSING OFFICER RS. 1,49 ,17,729 PROFITS & GAINS OF BUSINESS RS. 67,77,244 B. SHORT TERM CAPITAL GAINS RS. 1,31,18,686 GROSS TOTAL INCOME RS. 1,98,95,930 PARTICULARS AMOUNT (IN RS.) NET BUSINESS INCOME 67,77,244 INCOME FROM CAPITAL GAINS 1,31,18,686 LD. COUNSEL FOR THE ASSESSEE, FIRST OF ALL, BEFORE US CLAIMED THAT ASSESSEES GROSS TOTAL PRIMARILY COMPRISES OF INCOME FROM CAPITAL GAINS AND THEREFORE THE CASE FALLS UNDER THE FIRST LIMB OF EXCEPTION IN EXPLANATION TO SEC. 73 O F THE ACT. SECONDLY, HE ARGUED THAT THE ABOVE INCOME OF STEAMS WERE INTIMATELY CONNECTED WI TH TRANSACTIONS INVOLVING PURCHASE AND SALE OF SHARES AND ALL THE INCOME AND RECEIPTS WERE EARNED BY ASSESSEE IN THE COURSE OF SINGLE INTEGRATED BUSINESS INVOLVING TRANSACTIONS I N CAPITAL MARKET. ACCORDING TO LD. COUNSEL, THE UNDERLINED TRANSACTIONS FROM WHICH INC OME/REVENUES WERE GENERATED INVOLVED PURCHASE AND SALE OF SHARES. ACCORDING TO HIM, INCOME OF LOSS COULD NOT HAVE BEEN EARNED OR SUFFERED UNLESS TRANSACTIONS INVOLVI NG PURCHASE AND SALE OF SHARES WERE CARRIED OUT BY THE ASSESSEE. LD. COUNSEL FOR THE AS SESSEE RELIED ON COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF BHARTIA STOCK BROKING PVT. LTD. VS. ITO, ITA NO. 6 ITA NOS.582 & 607/K/2011 K. B. CAPITAL LTD. AY 2007-08 2058/KOL/2006 DATED 25.05.2007, WHEREIN THE EXPLANA TION TO SEC. 73, WHICH CREATES A LEGAL FICTION, AND THE ISSUE U/S. 43(5) OF THE ACT WAS DISCUSSED AS UNDER: EVEN OTHERWISE IF A TRANSACTION IS NOT TREATED AS SPECULATIVE TRANSACTIONS IT COULD BE PAR WITH A TRANSACTION FOR PURCHASE AND SALE OF SHARES WHERE ACTUALLY DELIVERY IS TAKEN. MERELY BECAUSE A TRANSACTION DOES NOT FALL WITHIN T HE DEFINITION OF SPECULATIVE TRANSACTION U/S. 43(5) WOULD BE NO GROUND FOR NON-APPLICATION O F THE EXPLANATION TO SEC. 73. THE OPERATION OF EXPLANATION TO SEC. 73 IS INDEPENDENT OF APPLICATION OR NON-APPLICATION OF TRANSACTION BEING A SPECULATIVE TRANSACTION OR NOT UNDER SECTION 43(5). IN VIEW OF THE ABOVE, WE DIRECT THE AO TO TREAT THE PROFIT FROM A FUTURE AND OPTION DIFFERENCE; CAPITAL MARKET TRADE DIFFERENCE ETC. AS PROFITS FROM SPECUL ATIVE BUSINESS WITHIN THE MEANING OF THE EXPLANATION TO SEC. 73. 14. WE FIND THAT IN EXACTLY IDENTICAL FACTS THE COO RDINATE BENCH IN THE CASE OF DCIT VS. BALJIT SECURITIES PRIVATE LIMITED IN ITA NO. 11 83/KOL/2012 DATED 21.10.2014 HAS CONSIDERED THIS ISSUE BY FOLLOWING SPECIAL BENCH OF MUMBAI IN THE CASE OF CIT VS. CONCORD COMMERCIAL PVT. LTD. (2005) 95 ITD 117 (MUM SB), WHEREIN IT IS HELD AS UNDER: 5. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROU GH FACTS AND CIRCUMSTANCES OF THE CASE. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SH ARE TRADING WHICH INVOLVES STOCK AND SHARE BROKING ACTIVITIES, PURCHASE AND SALE OF DELI VERY BASED SHARES AND PURCHASE & SALE OF NON-DELIVERY BASED SHARES I.E., DERIVATIVE TRADI NG. THE ASSESSEE INCURRED LOSS ON DELIVERY BASED PURCHASE AND SALE OF SHARES AT RS.7, 29,56,706/- AND EARNED PROFIT ON NON- DELIVERY BASED SALE PURCHASE OF SHARES AT RS.5,12,8 1,265/-. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDING BIFURCATED THE BUSINESS OF PU RCHASE AND SALE OF SHARES INTO TWO SEPARATE HEADINGS NAMELY TRADING IN SHARES AND F & O OPERATIONS. THE AO, THEREAFTER, APPLIED EXPLANATION OF SECTION 73 OF THE ACT AND DE NIED THE CLAIM OF SET OFF OF LOSS FROM DEALING OF SHARES WITH PROFIT FROM F & O OPERATIONS . THE ASSESSEE CARRIED THE MATTER TO CIT(A) WHO ALLOWED THE CLAIM OF THE ASSESSEE BY HOL DING THAT SHARE TRADING LOSS IS TO BE ALLOWED TO BE SET OFF WITH THE PROFITS EARNED IN DE RIVATIVE TRANSACTIONS. FURTHER, THE CIT(A) ALSO HELD THAT RECEIPT FROM THE SURRENDER OF KEYMAN INSURANCE POLICY HAS TO BE ASSESSED AS BUSINESS INCOME AND TO BE ALLOWED FOR S ET OFF WITH LOSS FROM BUSINESS UNDER THE SAME HEAD. THE ASSESSEE CONDUCTED ITS BUSINESS OF PURCHASE AND SALE OF SHARES UNDER THE FOLLOWING TWO HEADS:- A) THE FIRST MODE INVOLVED THE DELIVERY OF SHARES S O PURCHASED AND SOLD, KNOWN AS TRADING IN SHARES AND B) THE SECOND MODE BEING IN THE NATURE OF F&O OPERA TIONS DID NOT INVOLVE DELIVERY OF THE SHARES SO PURCHASED AND SOLD. THE ASSESSEE EARNED PROFIT FROM DERIVATIVE I.E., F& O OPERATION IN SHARES AND SUFFERED LOSS IN TRADING IN SHARES. THE ASSESSEE ALSO INVEST ED IN KEYMAN INSURANCE POLICY IN ORDER TO MITIGATE THE LOSSES IN SHARES BUSINESS AND FOR T HAT PAID PREMIUM OUT OF PROFIT DERIVED FROM BUSINESS OF PURCHASE OF SHARES. THE AO IN ASSE SSMENT COMPLETED FOR ALL PRIOR ASSESSMENT YEARS ALLOWED THE CLAIM OF THE ASSESSEE IN THE 5 ITA NO.1183/K/2012 BALJIT SEC. PVT. LTD. AY 2009-10 RESPECTIVE ASSESSMENT YEA RS. THE ASSESSEE TREATED THE ENTIRE ACTIVITY OF PURCHASE AND SALE OF SHARES WHICH COMPR ISED OF BOTH DELIVERY BASED AND NON- DELIVERY BASED TRADING, AS ONE, BEFORE APPLICATION OF THE DEEMING 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 THE PROFIT DERIVED F ROM DERIVATIVE TRADING AND FURTHER, WITH THE RECEIPT OF SURRENDER OF THE KEYMAN POLICY TREAT ED AS A BUSINESS RECEIPT. WE HAVE EXAMINED THE PROVISIONS OF SECTION 43(5) OF THE ACT , WHICH CONTAINS THE DEFINITION OF SPECULATIVE TRANSACTION, ONLY APPLIED FOR PURPOSE S OF SEC. 28 OF THE ACT I.E., IT DOES NOT APPLY TO THE OTHER SECTIONS OF THE ACT. ON THE CONT RARY, EXPLANATION TO SEC. 73 OF THE ACT CREATES A DEEMING FICTION BY WHICH AMONG THE ASSESS EE, WHO IS A COMPANY, AS INDICATED 7 ITA NOS.582 & 607/K/2011 K. B. CAPITAL LTD. AY 2007-08 IN THE SAID EXPLANATION DEALING WITH THE TRANSACTIO N OF SHARE AND SUFFER LOSS, SUCH TRANSACTION SHOULD BE TREATED TO BE SPECULATIVE TRA NSACTION WITHIN THE MEANING OF SEC. 73 OF THE ACT NOTWITHSTANDING THE FACT THAT ACCORDING TO THE DEFINITION OF SPECULATIVE TRANSACTION MENTIONED IN SEC. 43(5) OF THE ACT, THE TRANSACTION IS NOT OF THAT NATURE AS THERE HAS BEEN ACTUAL DELIVERY OF THE SCRIPS OF SHA RE. AS PER THE DEFINITION OF SECTION 43(5) OF THE ACT, TRADING OF SHARES WHICH IS DONE BY TAKI NG DELIVERY DOES NOT COME UNDER THE PURVIEW OF THE SAID SECTION. SIMILARLY AS PER CLAUS E (D) OF SECTION 43(5), DERIVATIVE TRANSACTION IN SHARES IS ALSO NOT SPECULATION TRANS ACTION AS DEFINED IN THE SAID SECTION. THEREFORE, BOTH PROFIT / LOSS FROM ALL THE SHARE DE LIVERY TRANSACTIONS AND DERIVATIVE TRANSACTIONS ARE HAVING THE SAME MEANING, SO FAR AS SEC. 43(5) OF THE ACT IS CONCERNED. AGAIN, IN VIEW OF THE FACT THAT BOTH DELIVERY BASED TRANSACTIONS AND DERIVATIVE TRANSACTION ARE NON-SPECULATIVE AS FAR AS SEC. 43(5) IS CONCERN ED, IT FOLLOWS THAT BOTH WILL HAVE THE SAME TREATMENT AS FAR AS APPLICATION OF EXPLANATION TO SEC. 73 IS CONCERNED. THEREFORE AGGREGATION OF THE SHARE TRADING LOSS AND PROFIT FR OM DERIVATIVE TRANSACTIONS SHOULD BE DONE BEFORE THE EXPLANATION TO SECTION 73 OF THE AC T, IS APPLIED. THE ABOVE VIEW HAS BEEN TAKEN UP BY SPECIAL BENCH OF THIS TRIBUNAL, MUMBAI BENCH, IN THE CASE OF CIT V. CONCORD COMMERCIAL PVT. LTD. (2005) 95 ITD 117 (MUM ) (SB). IN THIS CASE, THE SPECIAL BENCH HELD THAT, BEFORE CONSIDERING WHETHER THE ASSESSEES CASE IS HIT BY THE DEEMING PROVISION OF EXPLANATION TO SEC. 73 OF THE ACT, THE AGGREGATE OF THE BUSINESS PROFIT / LOSS HAS TO BE WORKED OUT BASED ON THE NON-SPECULATIVE P ROFITS; EITHER IT IS FROM SHARE DELIVERY OR FROM SHARE DERIVATIVE. 6. ITA NO.1183/K/2012 BALJIT SEC. PVT. LTD. AY 200 9-10 6. FROM THE ABOVE, IT IS CONCLUDED THAT BOTH TRADING OF SHARES AND DERIVATIV E TRANSACTIONS ARE NOT COMING UNDER THE PURVIEW OF SECTION 43(5) OF THE ACT WHICH PROVI DES DEFINITION OF SPECULATIVE TRANSACTION EXCLUSIVELY FOR PURPOSES OF SECTION 28 TO 41 OF THE ACT. AGAIN, THE FACT THAT BOTH DELIVERY BASED TRANSACTION IN SHARES AND DERIV ATIVE TRANSACTIONS ARE NON-SPECULATIVE AS FAR AS SECTION 43(5) IS CONCERNED GOES TO CONFIR M THAT BOTH WILL HAVE SAME TREATMENT AS REGARDS APPLICATION OF THE EXPLANATION TO SECTIO N 73 IS CONCERNED, WHICH CREATES A DEEMING FICTION. NOW, BEFORE APPLICATION OF THE SAI D EXPLANATION, AGGREGATION OF THE BUSINESS PROFIT/LOSS IS TO BE WORKED OUT IRRESPECTI VE OF THE FACT, WHETHER IT IS FROM SHARE DELIVERY TRANSACTION OR DERIVATIVE TRANSACTION. NOW , THIS VIEW HAS BEEN CONFIRMED BY THE HONBLE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE IN GA NO.3481 OF 2013 AND ITAT NO. 215 OF 2013 DATED 12TH MARCH, 2014, HAS HE LD AS UNDER:- CLAUSE (D) OF SECTION 43(5) BECAME EFFECTIVE WITH EFFECT FROM 1ST APRIL, 2006. THEREFORE, PRIOR TO 1ST APRIL, 2006 ANY TRANSACTION IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY INCLUDING STOCKS AND SHARES WAS PERIODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY OR SCRIP WAS A SPECULATIVE TRANSACTION. S UB-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 AGAINST PROFI TS 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 TAKEN AND ALSO IN SHARES WHERE DELIVERY WAS NOT ULTIMATELY TAKEN. IN OTHER WORDS, THE ASSESSEE HAS BEEN DEALING IN ACTUAL SELLING AND BUYING OF SHARES AS ALSO DEAL ING IN SHARES ONLY FOR THE PURPOSE OF SETTLING THE TRANSACTION OTHERWISE THAN BY ACTUAL DELIVERY. THE QUESTION ARISE WHETHER THE LOSSES ARISING OUT OF TH E DEALINGS AND TRANSACTION IN 8 ITA NOS.582 & 607/K/2011 K. B. CAPITAL LTD. AY 2007-08 WHICH THE ASSESSEE DID NOT ULTIMATELY TAKE DELIVERY OF THE SHARES OR GIVE DELIVERY OF THE SHARES COULD BE SET OFF AGAINST THE INCOME A RISING OUT OF THE DEALINGS AND TRANSACTIONS IN ACTUAL BUYING AND SELLING OF SHARES . AN ANSWER TO THIS QUESTION IS TO BE FOUND IN THE EXPLANATION APPENDED TO SECTION 73 WHICH READS AS FOLLOWS: EXPLANATION: WHERE ANY PART OF THE BUSINESS OF A C OMPANY OTHER THAN A COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS INTEREST ON SECURITIES , OR A COMPANY THE PRINCIPAL BUSINESS OF WHICH IS THE BU9SINESS OF BAN KING OR THE GRANTING OF LOANS AND ADVANCES) CONSISTS IN THE PURCHASE AND SA LE 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 S UCH SHARES. IN ORDER TO RESOLVE THE ISSUE BEFORE US, THE SECTIO N HAS TO BE READ IN THE MANNER AS FOLLOWS: EXPLANATION : WHERE ANY PART OF THE BUSINESS OF A COMPANY ( . . . .. .. .. .. .. .. .. . .. .. . ) CONSIST IN THE P URCHASE AND SALE OF SHARES OF OTHER COMPANIES, SUCH COMPANY SHA LL, FOR THE PURPOSES OF THIS SECTION, BE DEEMED TO BE CARRYING ON A SPEC ULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF THE PURCHA SE AND SALE OF SUCH SHARES. IT WOULD, THUS, APPEAR THAT WHERE AN ASSESSEE, BEIN G THE COMPANY, BESIDES DEALING IN OTHER THINGS ALSO DEALS IN PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, THE ASSESSEE SHALL BE DEEMED TO BE CARRY ING ON A SPECULATION BUSINESS. THE ASSESSEE, IN THE PRESENT CASE, PRINCI PALLY IS A SHARE BROKER, AS ALREADY INDICATED. THE ASSESSEE IS ALSO IN THE BUSI NESS OF BUYING AND SELLING OF SHARES FOR SELF WHERE ACTUAL DELIVERY IS TAKEN AND GIVEN AND ALSO IN BUYING AND SELLING OF SHARES WHERE ACTUAL DELIVERY WAS NOT INT ENDED TO BE TAKEN OR GIVEN. THEREFORE, THE ENTIRE TRANSACTION CARRIED OUT BY TH E 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 FRO M THE INCOME ARISING OUT OF BUYING AND SELLING OF SHARES. THIS IS WHAT THE LEAR NED TRIBUNAL HAS DONE. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES AND TH E PROPOSITION OF LAW AS DISCUSSED ABOVE, WE ARE OF THE VIEW THAT ASSESSEE HAS A LOSS WHICH IS ARISING OUT OF BUSINESS AND ACCORDINGLY, THE SAME IS A BUSINESS LOSS AND NOT SP ECULATION LOSS AS HELD BY LOWER AUTHORITIES. ACCORDINGLY, WE ALLOW THIS ISSUE OF A SSESSEES APPEAL. 15. GROUND NOS. 1 AND 2 RAISED BY ASSESSEE IS AGAIN ST THE ORDER OF CIT(A) IN UPHOLDING THE VALIDITY OF THE ASSESSMENT ORDER DATED 31.12.20 09 WITHOUT APPRECIATING THE SUBMISSIONS OF THE ASSESSEE THAT THE ORDER WAS PASS ED BEYOND THE PERIOD OF LIMITATION. FOR THIS, ASSESSEE HAS RAISED FOLLOWING TWO GROUNDS: 1. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT (A) ERRED IN UPHOLDING THE VALIDITY OF THE ASSESSMENT ORDER DATE D 31ST DECEMBER 2009; WITHOUT APPRECIATING THE SUBMISSIONS OF THE APPELLANT THAT THE ORDER WAS PASSED BEYOND THE PERIOD OF LIMITATION. 9 ITA NOS.582 & 607/K/2011 K. B. CAPITAL LTD. AY 2007-08 2) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE CIT(A) APPRECIATING THE FACT; THAT THERE WAS CONSIDERABLE DELAY IN SERVICE OF THE ASSESSMENT ORDER; OUGHT TO HAVE HELD THAT THE ORDER OF ASSESSMENT WAS PASSED BEYOND THE PERIOD OF LIMITATION AND FOR THIS REASON HE SHOULD HAVE HELD THE ORDER OF ASSESSMENT AB INITIO VOID AND SHOULD HAVE CANCELLED THE SAME. 16. AT THE TIME OF HEARING LD. COUNSEL FOR THE ASSE SSEE DID NOT PRESS THESE GROUNDS. HENCE THE SAME ARE DISMISSED AS NOT PRESSED. 17. IN THE RESULT, THE APPEAL OF REVENUE AS WELL AS THAT OF THE ASSESSEE, BOTH ARE PARTLY ALLOWED. 18. ORDER IS PRONOUNCED IN THE OPEN COURT ON 05/11/ 2015 SD/- SD/- (WASEEM AHMED) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 5 TH NOVEMBER, 2015 JD. SR. P.S COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT DCIT, CIRCLE-6, KOLKATA. 2 RESPONDENT M/S. K. B. CAPITAL MARKETS (P) LTD., 25 , SWALLOW LANE, KOLKATA-700 001 3 . THE CIT(A), KOLKATA 4. 5. CIT KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .