DCIT, Circle - 6, Kolkata V. Loknath Saraf Securities Ltd., Kolkata

ITA 852/KOL/2008

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4592 (ITAT-KOLKATA)
• Duration Of Justice: 8 year(s) 1 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-07-2016
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 23-05-2016
• Assessment Year: 2003-2004
• Appeal Filed On: 15-05-2008
• Court: TRIBUNAL
• Department Lawyers: RAJAT SUBHRA BISWAS
• Keywords: Capital asset; Business income; Transactions in derivatives; Earning of tax free income; Additional evidence; Speculation loss; Capital expenditure
• Section: 43B; 143(3); 14A; 43(5); 37; 12; 28

Judgement Text

I.T.A. NO. 852/KOL./2008 ASSESSMENT YEAR: 2003-2004 ITA NO. 299/KOL/2011 ASSESSMENT YEAR: 2005-2006, ITA NO. 417/KOL/2011 ASSESSMENT YEAR: 2005-2006 & ITA NO. 1200/KOL/2012 ASSESSMENT YEAR: 2008-2009 PAGE 1 OF 27 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA A BENCH, KOLKATA BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER I.T.A. NO. 852/KOL/ 2008 ASSESSMENT YEAR: 2003-2004 & I.T.A. NO. 299/KOL/ 2011 ASSESSMENT YEAR: 2005-2006 DEPUTY COMMISSIONER OF INCOME TAX,................. .................APPELLANT CIRCLE-6, KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 -VS.- LOKENATH SARAF SECURITIES LIMITED,................. ...................RESPONDENT M-33, FORTUNE CHAMBERS, 6, LYONS RANGE, KOLKATA-700 001 [PAN: AAACL 4567 A] -A N D I.T.A. NO. 417/KOL/ 2011 ASSESSMENT YEAR: 2005-2006 & I.T.A. NO. 1200/KOL/ 2012 ASSESSMENT YEAR: 2008-2009 LOKENATH SARAF SECURITIES LIMITED,................. ......................APPELLANT M-33, FORTUNE CHAMBERS, 6, LYONS RANGE, KOLKATA-700 001 [PAN: AAACL 4567 A] -VS.- DEPUTY COMMISSIONER OF INCOME TAX,................. .................RESPONDENT CIRCLE-6, KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 I.T.A. NO. 852/KOL./2008 ASSESSMENT YEAR: 2003-2004 ITA NO. 299/KOL/2011 ASSESSMENT YEAR: 2005-2006, ITA NO. 417/KOL/2011 ASSESSMENT YEAR: 2005-2006 & ITA NO. 1200/KOL/2012 ASSESSMENT YEAR: 2008-2009 PAGE 2 OF 27 APPEARANCES BY: SHRI RAJAT SUBHRA BISWAS, CIT, D.R. & SHRI SALLONG YADEN, ADDL. CIT, SR. D.R., FOR THE DEPARTMENT SHRI ASHWANI KUMAR, FCA, FOR THE ASSESSEE DATE OF CONCLUDING THE HEARING : MAY 23, 2016 DATE OF PRONOUNCING THE ORDER : JULY 14, 2016 O R D E R PER SHRI P.M. JAGTAP :- OUT OF THESE FOUR APPEALS, ITA 852/KOL/2008 IS THE APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2003-04 AND ITA 1200/KO L/2012 IS THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2008-09, WHILE THE REMAINING TWO APPEALS BEING ITA 417/KOL/2011 (ASSESSEES APPE AL) AND ITA 299/KOL/2011 (REVENUES APPEAL) ARE THE CROSS APPEA LS FOR ASSESSMENT YEAR 2005-06. SINCE SOME OF THE ISSUES INVOLVED IN THESE APPEALS ARE COMMON, THE SAME HAVE BEEN HEARD TOGETHER AND ARE B EING DISPOSED OF BY A SINGLE COMPOSITE ORDER. 2. FIRST WE SHALL TAKE UP THE APPEAL OF THE REVENUE FOR A.Y. 2003-04 BEING ITA NO. 852/KOL/2008, WHICH IS DIRECTED AGAIN ST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-VI, KOLKATA DA TED 05.03.2008. 3. THE MAIN ISSUE INVOLVED IN THIS APPEAL RELATES T O THE ACTION OF THE LD. CIT(APPEALS) IN HOLDING THAT THE PROVISION OF E XPLANATION TO SECTION 73 IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE AN D DIRECTING THE ASSESSING OFFICER TO CLUB TOGETHER THE PROFIT/LOSS FROM SHARE TRADING, SELF- DIFFERENCE, JOBBING, FUTURE AND OPTION AND SHARE BR OKERAGE BUSINESS. 4. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY, W HICH IS ENGAGED IN THE BUSINESS OF SHARE BROKING. THE RETURN OF INCOME FOR THE YEAR UNDER I.T.A. NO. 852/KOL./2008 ASSESSMENT YEAR: 2003-2004 ITA NO. 299/KOL/2011 ASSESSMENT YEAR: 2005-2006, ITA NO. 417/KOL/2011 ASSESSMENT YEAR: 2005-2006 & ITA NO. 1200/KOL/2012 ASSESSMENT YEAR: 2008-2009 PAGE 3 OF 27 CONSIDERATION WAS FILED BY IT ON 28.11.2003 DECLARI NG A LOSS OF RS.1,88,47,120/-. IN THE SAID RETURN, THE LOSS SUFF ERED FROM PURCHASE AND SALE OF SHARES ON ITS OWN ACCOUNT AMOUNTING TO RS.2 ,84,99,205/- WAS SHOWN BY THE ASSESSEE UNDER THE HEAD PROFIT AND GA INS OF BUSINESS OR PROFESSION ALONG WITH THE LOSS OF RS.56,88,920/- S UFFERED ON ACCOUNT OF MARK TO MARK/DIFFERENCES/JOBBING AND AFTER ADJUSTIN G THE SAME AGAINST THE INCOME FROM SELF-DIFFERENCE/JOBBING PREMIUM ON F&O ON ACCOUNT OF BROKERAGE, DIVIDEND AND INTEREST ON FIXED DEPOSIT D ECLARED UNDER THE SAME HEAD, A NET LOSS OF RS.1,88,47,120/- WAS DECLA RED BY THE ASSESSEE. ACCORDING TO THE ASSESSING OFFICER, VARIOUS TRANSAC TIONS ENTERED INTO BY THE ASSESSEE IN SHARES WERE EITHER IN THE NATURE OF SPECULATIVE OR NON- SPECULATIVE TRANSACTIONS AND ACCORDINGLY HE PROCEED ED TO EXAMINE SEPARATELY THE NATURE OF ALL SUCH TRANSACTIONS WHIC H HAD GIVEN RISE TO INCOME/LOSS TO THE ASSESSEE. ON SUCH EXAMINATION, H E WAS OF THE VIEW THAT THE LOSS OF RS.2,84,99,205/- INCURRED BY THE ASSESS EE ON ACCOUNT OF PURCHASE AND SALE OF SHARES ON ITS OWN ACCOUNT WAS LIABLE TO BE TREATED AS SPECULATION LOSS AS PER EXPLANATION TO SECTION 73. IN THIS REGARD, FOLLOWING SUBMISSION WAS MADE BY THE ASSESSEE BEFOR E THE ASSESSING OFFICER IN SUPPORT OF ITS STAND THAT THE SAID EXPLA NATION WAS NOT APPLICABLE IN ITS CASE:- REGARDING TREATMENT OF LOSS OF RS.2,84,99,205/- IN SHARE TRANSACTIONS AND INVOKING OF EXPLANATION IN SECTION 73 OF THE INCOME TAX ACT, YOU ARE KINDLY INFORM THAT THE SAME IS NOT APPLICABLE IN OUR CASE FOR THE FOLLOWING REASON S. BEFORE TREATING THE BUSINESS LOSS AS SPECULATION LO SS WE HAVE TO ASCERTAIN THE NATURE OF TRANSACTIONS WHICH GENER ATES THE INCOME. SECTION 43(5) DEFINES SPECULATIVE TRANSACTI ONS- AS UNDER 'SPECULATIVE TRANSACTION MEANS A TRANSACTION IN WHI CH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY, INCLUDING STOCKS AND SHARES, IS PERIODICALLY OR ULT IMATELY I.T.A. NO. 852/KOL./2008 ASSESSMENT YEAR: 2003-2004 ITA NO. 299/KOL/2011 ASSESSMENT YEAR: 2005-2006, ITA NO. 417/KOL/2011 ASSESSMENT YEAR: 2005-2006 & ITA NO. 1200/KOL/2012 ASSESSMENT YEAR: 2008-2009 PAGE 4 OF 27 SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TR ANSFER OF THE COMMODITY OR SCRIPTS: PROVIDED THAT FOR THE PURPOSES OF THIS CLAUSE (I) A CONTRACT IN RESPECT OF RAW MATERIALS OR MERCH ANDISE ENTERED INTO BY A PERSON IN THE COURSE OF HIS MANUF ACTURING OR MERCHANTING BUSINESS TO GUARD AGAINST LOSS THROU GH FUTURE PRICE FLUCTUATIONS IN RESPECT OF HIS CONTRAC TS FOR ACTUAL DELIVERY OF GOODS MANUFACTURED BY HIM OR MERCHANDISE SOLD BY HIM; OR (II) A CONTRACT IN RESPECT OF STOCKS AND SHARES ENT ERED INTO BY A DEALER OR INVESTOR THEREIN TO GUARD AGAINST LO SS IN HIS HOLDING OF STOCKS AND SHARES THROUGH PRICE FLUCTUAT IONS; OR (III) A CONTRACT ENTERED INTO BY A MEMBER OF A FORW ARD MARKET OR A STOCK EXCHANGE IN THE COURSE OF ANY TRA NSACTION IN THE NATURE OF JOBBING OR ARBITRAGE TO GUARD AGAI NST LOSS WHICH MAY ARISE IN THE ORDINARY COURSE OF HIS BUSIN ESS AS SUCH MEMBER. THE FOLLOWING CLAUSE (D) INSERTED AFTER CLAUSE (C) IN THE PROVISO TO CLAUSE (5) OF SECTION 43 BY THE FINANCE ACT, 2005 W.E.F. 1.4.2006. (IV) AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING IN DERIVATIVES REFERRED TO IN CLAUSE (AA) OF SECTION 2 OF THE SECURITIES CONTRACTS (REGULATION) ACT 1956 (42 OF 1 956) CARRIED OUT IN A RECOGNIZED STOCK EXCHANGE; SHALL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION ; AS YOU ARE AWARE THAT WE ARE MEMBER OF LEADING STOC K EXCHANGE OF INDIA AND OUR INCOME HAD GENERAL ONLY O UT OF NORMAL COURSE OF BUSINESS WITH REGULAR TRANSACTIONS THROUGH STOCK EXCHANGES BUSINESS AND AS SUCH IT IS OUR BUSINESS INCOME. REGARDING INVOKING OF EXPLANATIONS OF SECTION 73 IS APPLICABLE ONLY WHEN THE SECTION 73 ITSELF APPLIES, AS THE EXPLANATION SO OF ANY SECTIONS WITHOUT APPLICATION OF THAT PARTICULAR SECTION IS NOT JUSTIFIED. I.T.A. NO. 852/KOL./2008 ASSESSMENT YEAR: 2003-2004 ITA NO. 299/KOL/2011 ASSESSMENT YEAR: 2005-2006, ITA NO. 417/KOL/2011 ASSESSMENT YEAR: 2005-2006 & ITA NO. 1200/KOL/2012 ASSESSMENT YEAR: 2008-2009 PAGE 5 OF 27 SIR, WHEN WE HAVE NO SPECULATIVE TRANSACTIONS AT AL L AS SPECIFIED IN S N (A) HOW OUR INCOME CAN BE OF SPECU LATION INCOME. IN THE CIRCUMSTANCES WE HOPE THAT EXPLANATIONS TO S ECTION 73 IS NOT APPLICABLE. 5. THE ABOVE SUBMISSION OF THE ASSESSEE WAS NOT FOU ND ACCEPTABLE BY THE ASSESSING OFFICER. ACCORDING TO HIM, IT WAS CLE AR FROM THE PLAIN READING OF EXPLANATION TO SECTION 73 THAT THERE WAS NO DISTINCTION MADE BETWEEN A BROKER AND ANY OTHER PERSON. HE HELD THAT THE SAID EXPLANATION WAS APPLICABLE UNIFORMLY TO ALL CLASS OF ASSESSEES AND SINCE THE GROSS TOTAL INCOME OF THE ASSESSEE DID NOT CONSIST MAINLY OF INTEREST ON SECURITIES OR INCOME FROM OTHER SOURCES AND ITS PRI NCIPAL BUSINESS WAS PURCHASE AND SALE OF SHARES INCLUDING BROKING ON BE HALF OF THE CLIENTS AND NOT OF GRANTING OF LOANS AND ADVANCES, EXPLANATION TO SECTION 73 WAS CLEARLY APPLICABLE IN ITS CASE. HE, THEREFORE, INVO KED THE SAID EXPLANATION AND TREATED THE LOSS SUFFERED BY THE ASSESSEE ON PU RCHASE AND SALE OF SHARES ON ITS OWN ACCOUNT AMOUNTING TO RS.2,84,99,2 05/- AS SPECULATION LOSS. ALL OTHER INCOMES EARNED BY THE ASSESSEE DURI NG THE YEAR UNDER CONSIDERATION INCLUDING THE LOSS SUFFERED ON ACCOUN T OF MARK TO MARK/DIFFERENCES/JOBBING, HOWEVER, WAS TREATED BY T HE ASSESSING OFFICER AS NORMAL BUSINESS OR NON-SPECULATIVE AND ACCORDING LY, THE CLAIM OF THE ASSESSEE FOR ADJUSTMENT/SET OFF OF LOSS SUFFERED ON ACCOUNT OF PURCHASE AND SALE OF SHARES ON ITS OWN ACCOUNT AGAINST THE S AID INCOME WAS DISALLOWED BY HIM IN THE ASSESSMENT COMPLETED UNDER SECTION 143(3) VIDE AN ORDER DATED 13.12.2005. 6. AGAINST THE ORDER PASSED BY THE ASSESSING OFFICE R UNDER SECTION 143(3), AN APPEAL WAS PREFERRED BY THE ASSESSEE BEF ORE THE LD. CIT(APPEALS) CHALLENGING, INTER ALIA, THE ACTION OF THE ASSESSING OFFICER IN I.T.A. NO. 852/KOL./2008 ASSESSMENT YEAR: 2003-2004 ITA NO. 299/KOL/2011 ASSESSMENT YEAR: 2005-2006, ITA NO. 417/KOL/2011 ASSESSMENT YEAR: 2005-2006 & ITA NO. 1200/KOL/2012 ASSESSMENT YEAR: 2008-2009 PAGE 6 OF 27 TREATING THE LOSS OF RS. 2,84,99,205/- INCURRED ON PURCHASE AND SALE OF SHARES ON ITS OWN ACCOUNT AS SPECULATION LOSS BY AP PLYING THE EXPLANATION TO SECTION 73. DURING THE COURSE OF APPELLATE PROCE EDINGS, A DETAILED SUBMISSION WAS MADE BY THE ASSESSEE BEFORE THE LD. CIT(APPEALS) IN SUPPORT OF ITS CASE THAT EXPLANATION TO SECTION 73 IS NOT APPLICABLE IN ITS CASE AND AFTER CONSIDERING THE SAME IN THE LIGHT OF THE RELEVANT PROVISIONS OF THE ACT AS WELL AS THE JUDICIAL PRONO UNCEMENTS ON THE ISSUE, THE LD. CIT(APPEALS) ALLOWED THE CLAIM OF THE ASSES SEE FOR SET OFF OF LOSS ON PURCHASE AND SALE OF SHARES MADE ON ITS OWN ACCO UNT AGAINST OTHER INCOME BY HOLDING THAT EXPLANATION TO SECTION 73 WA S NOT APPLICABLE IN THE CASE OF THE ASSESSEE-COMPANY. THE RELEVANT OBSE RVATIONS/FINDINGS RECORDED BY THE LD. CIT(APPEALS) IN THIS CONTEXT IN HIS IMPUGNED ORDER ARE REPRODUCED HEREUNDER:- 3.9. I HAVE CONSIDERED THE SUBMISSION OF THE APPEL LANT. THE APPELLANT COMPANY IS A REGISTERED SHARE BROKER AND DURING THE YEAR APART FROM BROKERAGE RECEIPTS, IT MADE TRADING IN SHARES ON ITS OWN, DEALT IN FUTURES AND OPTIONS, RECEIVED DIV IDEND ON TRADED SHARES AND EARNED INTEREST ON FIXED DEPOSIT. IN COURSE OF ITS BUSINESS ACTIVITY OF SHARE TRADING , THE APPELLANT SUFFERED LOSS OF RS.2,84,99,205/- AND EARNED PROFIT UNDER SELF DIFFERENCE/JOBBING RS.2,53,95,129/-, PREMIUM ON FUT URES AND OPTIONS AMOUNTING TO RS.56,33,840/-. THE PROFIT IN SHARE TRADING, JOBBING PROFIT, PROFIT ON FUTURE TRADING & OPTION TRADING AND ALSO THE PREMIUM PAID ON ACCOUNT OF FUTURE AND OPTION ARE PART OF SHARE BUSINESS OF APPELLANT. DIFFERENT TREA TMENT TO TRANSACTION SEPARATELY DOES NOT CONSTITUTE BUSINESS ACTIVITY. WHEN THE SHARE BROKER TRADING IN EXCHANGE AT ITS OW N, HE SAFEGUARD FUTURE TRANSACTION, ENTERED INTO JOBBING TRANSACTION, PURCHASE SALE STOCK OF SHARES. THE ENTIRE ACTIVITY OF SHARE BUSINESS BY REGISTERED STOCK EXCHANGE BROKER CONSTI TUTES BUSINESS ACTIVITY, AND THE SAME COULD NOT BE DEALT SEPARATELY. SECTION 73 OF THE INCOME TAX ACT READ AS FOLLOWS: LOSSES IN SPECULATION BUSINESS: I.T.A. NO. 852/KOL./2008 ASSESSMENT YEAR: 2003-2004 ITA NO. 299/KOL/2011 ASSESSMENT YEAR: 2005-2006, ITA NO. 417/KOL/2011 ASSESSMENT YEAR: 2005-2006 & ITA NO. 1200/KOL/2012 ASSESSMENT YEAR: 2008-2009 PAGE 7 OF 27 (1) ANY LOSS, COMPUTED IN RESPECT OF A SPECULATION BUSINESS CARRIED ON BY THE ASSESSEE, SHALL NOT BE SET OFF EX CEPT AGAINST PROFITS AND GAINS, IF ANY, OF ANOTHER SPECULATION B USINESS. (2) WHERE FOR ANY ASSESSMENT YEAR ANY LOSS COMPUTED IN RESPECT OF A SPECULATION BUSINESS HAS NOT BEEN WHOLLY SET O FF UNDER SUB- SECTION (1), SO MUCH OF THE LOSS AS IS NOT SO SET O FF OR THE WHOLE LOSS WHERE THE ASSESSEE HAD NO INCOME FROM ANY OTHE R SPECULATION BUSINESS, SHALL, SUBJECT TO THE OTHER P ROVISIONS OF THIS CHAPTER, BE CARRIED FORWARD TO THE FOLLOWING ASSESS MENT (I) IT SHALL BE SET OFF AGAINST THE PROFITS AND GAI NS, IF ANY, OF ANY SPECULATION BUSINESS CARRIED ON BY HIM ASSESSABLE F OR THAT ASSESSMENT YEAR; AND (II) IF THE LOSS CANNOT BE WHOLLY SO SET OFF, THE A MOUNT OF LOSS NOT SO SET OFF SHALL BE CARRIED FORWARD TO THE FOLLOWIN G ASSESSMENT YEAR AND SO ON. (3) IN RESPECT OF ALLOWANCE ON ACCOUNT OF DEPRECIAT ION OR CAPITAL EXPENDITURE ON SCIENTIFIC RESEARCH, THE PROVISIONS OF SUB-SECTION (2) OF SECTION 72 SHALL APPLY IN RELATION TO SPECUL ATION BUSINESS AS THEY APPLY IN RELATION TO ANY OTHER BUSINESS. (4) NO LOSS SHALL BE CARRIED FORWARD UNDER THIS SEC TION FOR MORE THAN EIGHT ASSESSMENT YEARS IMMEDIATELY SUCCEEDING THE ASSESSMENT YEAR FOR WHICH THE LOSS WAS FIRST COMPUT ED. [EXPLANATION-WHERE ANY PART OF THE BUSINESS OF A CO MPANY 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', 'CAPITAL GAINS' AND 'INCOME FROM OTHER SOURCES', OR A COMPANY THE PRINC IPAL BUSINESS OF WHICH IS THE BUSINESS OF BANKING OR THE GRANTING OF LOANS AND ADVANCES CONSISTS ILL. THE PURCHASE AND S ALE OF SHARES OF OTHER COMPANIES, SUCH COMPANY SHALL, FOR THE PUR POSES 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. THE TERM 'SPECULATION BUSINESS' HAS NOT BEEN DEFINE D IN THE DEFINITION SECTION I.E., SECTION 2 OF THE INCOME TA X ACT 1961. HOWEVER, SECTION 43 (5) OF THE ACT HAS DEFINED THE TERM 'SPECULATIVE TRANSACTION'. IT DEFINES SPECULATIVE T RANSACTION TO I.T.A. NO. 852/KOL./2008 ASSESSMENT YEAR: 2003-2004 ITA NO. 299/KOL/2011 ASSESSMENT YEAR: 2005-2006, ITA NO. 417/KOL/2011 ASSESSMENT YEAR: 2005-2006 & ITA NO. 1200/KOL/2012 ASSESSMENT YEAR: 2008-2009 PAGE 8 OF 27 MEAN A TRANSACTION IN WHICH A CONTRACT FOR THE PURC HASE OR SALE OF ANY COMMODITY, INCLUDING STOCK AND SHARES, IS PE RIODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN BY ACTUAL DELIVER Y OR TRANSFER OF THE COMMODITY OR SCRIPS. HOWEVER, IN SECTION 73, AN EXPLANATION HAS BEEN INS ERTED BY FINANCE ACT, 1961 TO PROVIDE THAT THAT THE BUSINESS OF PURCHASE AND SALE OF SHARE BY COMPANIES EVEN IF THERE IS ACT UAL DELIVERY OF SHARES WILL BE DEEMED TO BE A SPECULATION BUSINESS. THE EXPRESSION 'SPECULATION BUSINESS' IS DEFINED AT TWO PLACES IN THE I.T. ACT- FIRST IN EXPLN. (2) TO SECTION 28 REA D WITH SECTION 43(5) AND SECOND EXPLANATION TO SECTION 73 OF IT AC T. IN BOTH OF THESE PLACES, THE EMPHASIS IS ON BUSINESS AS A WHOL E AND NOT ON TRANSACTIONS, EXPLANATION (2) TO SECTION 28 STATES THAT WHERE SPECULATION TRANSACTIONS CARRIED ON BY THE ASSESSEE ARE OF SUCH IT NATURE AS TO CONSTITUTE A BUSINESS, SUCH SPECULATIO N BUSINESS SHALL BE DEEMED TO BE DISTINCT AND SEPARATE FROM AN Y OTHER BUSINESS, SPECULATIVE TRANSACTIONS, IN TURN, ARE DE FINED IN SECTION 43(5) WHICH BROADLY, AND SUBJECT TO CERTAIN EXCEPTI ONS WHICH ARE NOT RELEVANT FOR THE PURPOSES, COVER THE TRANSACTIO NS IN WHICH A CONTRACT FOR SALE AND PURCHASE OF ANY COMMODITY, IN CLUDING FOR STOCKS AND SECURITIES IS PERIODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN BY ACTUAL DELIVERY OR TRANSFER OF TH E COMMODITY OR SCRIPS, IT IS TH.US CLEAR WHEN AN ASSESSEE CARRI ES ON SPECULATIVE TRANSACTIONS IN THE COURSE OF, WHAT CAN BE DESCRIBE D AS, BUSINESS, SUCH BUSINESS IS TO BE DEEMED AS DISTINCT FROM ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE. THE EMPHASIS IS ON A BU SINESS AS A WHOLE. THE COMPUTATION OF PROFITS OF SUCH A SPECULA TION BUSINESS HAS TO BE THEREFORE SOMETHING MORE THAN ARITHMETICA L EXERCISE OF AGGREGATING THE PROFITS AND LOSSES FROM THE SPECULA TIVE TRANSACTIONS. IT MUST THEREFORE TAKE INTO ACCOUNT A LL PROFITS AND LOSSES WHICH ARE ATTRIBUTABLE TO SUCH SPECULATION B USINESS. EXPLANATION TO SECTION 73 EXPANDS THE SCOPE OF 'SPE CULATION BUSINESS' A LITTLE FURTHER, BY INTRODUCING A DEEMIN G FICTION. THIS DEEMING FICTION PROVIDES THAT WHERE BUSINESS OF A C OMPANY INCLUDES PURCHASING AND SELLING OF SHARES OF OTHER COMPANIES TO THAT EXTENT, THE COMPANY SHALL BE DEEMED TO BE CARR YING 'SPECULATION BUSINESS'. ONCE AGAIN THE EMPHASIS IS ON THE BUSINESS AS A WHOLE AND NOT TO THE TRANSACTIONS OF SALE AND PURCHASE PERSE. WHAT IS TO BE, THEREFORE COMPUTED A S 'LOSSES OF SPECULATION BUSINESS' IN THE CONTEXT OF BAR IN SET OFF IN SECTION 73 (1), IS OF THE BUSINESS AS A WHOLE AND NOT MERELY T HE AGGREGATE OR NET RESULT OF PROFIT AND LOSSES ON ALL SUCH TRANSAC TION OF PURCHASE I.T.A. NO. 852/KOL./2008 ASSESSMENT YEAR: 2003-2004 ITA NO. 299/KOL/2011 ASSESSMENT YEAR: 2005-2006, ITA NO. 417/KOL/2011 ASSESSMENT YEAR: 2005-2006 & ITA NO. 1200/KOL/2012 ASSESSMENT YEAR: 2008-2009 PAGE 9 OF 27 AND SALE. THERE ARE TWO EXCLUSION CLAUSES HOWEVER F ROM THIS DEEMING FICTION AND THESE EXCLUSION CLAUSES ARE BUI LT IN THE EXPLANATION TO SECTION 73 ITSELF. THE FIRST EXCLUSI ON CLAUSE IS BASED ON INCOME COMPOSITION TEST AND SECOND EXCLUSI ON CLAUSE IS BASED ON BUSINESS ACTIVITY TESTING EITHER OF TEST S ATISFIED, AGAIN THIS DEEMING FICTION WILL HAVE NO APPLICATION. THE TRIBUNAL IN THE CASE OF AMAN PORTFOLIO (P) LTD VS. DY. CIT (2005) 92 ITD 324 (DEL) ANALYSE THE SCOPE OF EXPLAN ATION TO SECTION 73 AND THE BACK GROUND IN WHICH IT WAS INTR ODUCED. ONE WAY OF SO READING DOWN THE PROVISIONS COULD BE, AS WAS HELD BY THE TRIBUNAL IN AMAN PORTFOLIO'S CASE (SUPRA), THAT THE PROVISIONS OF EXPLANATION TO SECTION 73 COULD NOT BE INVOKED U NLESS THERE WAS SOME MATERIAL ON RECORD TO SHOW THAT THE ASSESS EE IS A COMPANY CONTROLLED BY A BUSINESS HOUSE AND THE SHAR E TRANSACTIONS IN QUESTION ARE EFFECTED WITH A VIEW T O MANIPULATE OR REDUCE ITS INCOME HOWEVER THE AFORESAID DECISION HAS SUBSEQUENTLY BEEN SPECIFICALLY DISAPPROVED BY A DIV ISION BENCH OF THIS TRIBUNAL IN THE CASE OF DY.CIT VS. FRONTLINE C APITAL SERVICES (P) LTD (2006) 96 TTJ (DEL 201. THE QUESTION WHETHE R OR NOT THE PROVISIONS OF EXPLANATION TO SECTION 73 COULD BE IN VOKED, WITHOUT MEETING THE TESTS LAID DOWN IN AMAN PORTFOLIO'S CAS E (SUPRA), COULD BE PURELY ACADEMIC. SECTION 70 AND SECTION 71 OF THE ACT MEANING AND IN TERPRETATIONS ARE AS UNDER:- SECTION 70: SET OFF OF LOSS FROM ONE SOURCE AGAINST INCOME FROM ANOTHER SOURCE UNDER THE SAME HEAD OF INCOME. (1)SAVE AS OTHERWISE PROVIDED IN THIS ACT, WHERE TH E NET RESULT FOR ANY ASSESSMENT YEAR IN RESPECT OF ANY SOURCE FA LLING UNDER ANY HEAD OF INCOME, OTHER THAN 'CAPITAL GAINS', IS A LOSS, THE ASSESSEE SHALL BE ENTITLED TO HAVE THE AMOUNT OF SU CH LOSS SET OFF AGAINST HIS INCOME FROM ANY OTHER SOURCE UNDER THE SAME HEAD. 2) WHERE THE RESULT OF THE COMPUTATION MADE FOR ANY ASSESSMENT YEAR UNDER SECTIONS 48 TO 55 IN RESPECT OF ANY SHOR T-TERM CAPITAL ASSET IS A LOSS, THE ASSESSEE SHALL BE ENTITLED TO HAVE THE AMOUNT OF SUCH LOSS SET OFF AGAINST THE INCOME, IF ANY, AS ARRIVED AT UNDER A SIMILAR COMPUTATION MADE FOR THE ASSESSMENT YEAR IN RESPECT OF ANY OTHER CAPITAL ASSET. (3) WHERE THE RESULT OF THE COMPUTATION MADE FOR AN Y ASSESSMENT YEAR UNDER SECTIONS 48 TO 55 IN RESPECT OF ANY CAPI TAL ASSET (OTHER THAN A SHORT-TERM CAPITAL ASSET) IS A LOSS, THE ASSESSEE I.T.A. NO. 852/KOL./2008 ASSESSMENT YEAR: 2003-2004 ITA NO. 299/KOL/2011 ASSESSMENT YEAR: 2005-2006, ITA NO. 417/KOL/2011 ASSESSMENT YEAR: 2005-2006 & ITA NO. 1200/KOL/2012 ASSESSMENT YEAR: 2008-2009 PAGE 10 OF 27 SHALL BE ENTITLED TO HAVE THE AMOUNT OF SUCH LOSS S ET OFF AGAINST THE INCOME, IF ANY, AS ARRIVED AT UNDER A SIMILAR C OMPUTATION MADE FOR THE ASSESSMENT YEAR IN RESPECT OF ANY OTHE R CAPITAL ASSET NOT BEING A SHORT-TERM CAPITAL ASSET. SECTION 71: SET OFF OF LOSS FROM ONE HEAD AGAINST I NCOME FROM ANOTHER. (1) WHERE IN RESPECT OF ANY ASSESSMENT YEA R THE NET RESULT OF THE COMPUTATION UNDER ANY HEAD OF INCOME, OTHER THAN 'CAPITAL GAINS', IS A LOSS AND THE ASSESSEE HAS NO INCOME UNDER THE HEAD 'CAPITAL GAINS', HE SHALL, SUBJECT TO THE PROVISIONS OF THIS CHAPTER, BE ENTITLED TO HAVE THE AMOUNT OF SUC H LOSS SET OFF AGAINST HIS INCOME, IF ANY, ASSESSABLE FOR THAT ASS ESSMENT YEAR UNDER ANY OTHER HEAD. (2) WHERE IN RESPECT OF ANY ASSESSMENT YEAR, THE NE T RESULT OF THE COMPUTATION UNDER ANY HEAD OF INCOME, OTHER THAN 'C APITAL GAINS', IS A LOSS AND THE ASSESSEE HAS INCOME ASSES SABLE UNDER THE HEAD 'CAPITAL GAINS', SUCH LOSS MAY, SUBJECT TO THE PROVISIONS OF THIS CHAPTER, BE SET OFF AGAINST HIS INCOME, IF ANY , ASSESSABLE FOR THAT ASSESSMENT YEAR UNDER ANY HEAD OF INCOME INCLU DING THE HEAD 'CAPITAL GAINS' (WHETHER RELATING TO SHORT-TER M CAPITAL ASSETS OR ANY OTHER CAPITAL ASSETS). [(2A) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SEC TION (1) OR SUB-SECTION (2), WHERE IN RESPECT OF ANY ASSESSMENT YEAR, THE NET RESULT OF THE COMPUTATION UNDER THE HEAD 'PROFITS A ND GAINS OF BUSINESS OR PROFESSION' IS A LOSS AND THE ASSESSEE HAS INCOME ASSESSABLE UNDER THE HEAD 'SALARIES', THE ASSESSEE SHALL NOT BE ENTITLED TO HAVE SUCH LOSS SET OFF AGAINST SUCH INC OME.] (3) WHERE IN RESPECT OF ANY ASSESSMENT YEAR, THE NE T RESULT OF THE COMPUTATION UNDER THE HEAD 'CAPITAL GAINS' IS A LOS S AND THE ASSESSEE HAS INCOME ASSESSABLE UNDER ANY OTHER HEAD OF INCOME, THE ASSESSEE SHALL NOT BE ENTITLED TO HAVE SUCH LOS S SET OFF AGAINST INCOME UNDER THE OTHER HEAD. [(4) WHERE THE NET RESULT OF THE COMPUTATION UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY' IS A LOSS, IN RESPECT OF THE ASSESSMENT YEARS COMMENCING ON 1 ST DAY OF APRIL, 1995 AND THE 1ST DAY OF APRIL, 1996, SUCH LOSS SHALL BE FIRST SET OF F UNDER SUB- SECTIONS (1) AND (2) AND THEREAFTER THE LOSS REFERR ED TO IN SECTION 71A SHALL BE SET OFF IN THE RELEVANT ASSESSMENT YEA R IN ACCORDANCE WITH THE PROVISIONS OF THAT SECTION.] I.T.A. NO. 852/KOL./2008 ASSESSMENT YEAR: 2003-2004 ITA NO. 299/KOL/2011 ASSESSMENT YEAR: 2005-2006, ITA NO. 417/KOL/2011 ASSESSMENT YEAR: 2005-2006 & ITA NO. 1200/KOL/2012 ASSESSMENT YEAR: 2008-2009 PAGE 11 OF 27 THE NORMAL PRESUMPTION IS THAT LOSS OF ANYONE BUSIN ESS HAS TO BE SET OFF AGAINST THE INCOME OF OTHER BUSINESS, ALL C OMING UNDER THE SAME HEAD OF BUSINESS INCOME. THE ABOVE PRESUMPTION IS THE SUBSTANCE OF LAW STATED IN SECTION 70 OF THE SAID A CT. THE APPELLANT SUBMITTED THAT THE ASSESSEE COMPANY W AS DEALING IN SHARE AS ONE OF ITS BUSINESS AND THEREFORE LOSS IF ANY COULD BE SET OFF AGAINST THE PROFITS OF OTHER BUSINESS CARRIED O N BY THE ASSESSEE COMPANY, UNDER THE SAME HEAD OF INCOME AS PROVIDED IN SECTION 70 OF THE ACT. IT IS SUBMITTED THAT THE ASSESSING OFFI CER HAS NOT POINTED OUT ANY PROVISION OF LAW IN THE ACT WHICH D OES NOT SUPPORT THE ABOVE PRESUMPTION REGARDING INTRA-HEAD SET OFF OF INCOME/LOSS ARISING OUT OF DIFFERENT BUSINESS CARRI ED ON BY AN ASSESSEE. AGAIN REMAINDER LOSS COULD BE SET OFF AGAINST INCOM E FROM OTHER HEAD AS PROVIDED IN SECTION 71 OF THE ACT. ACCORDIN GLY THE ASSESSEE COMPANY HAS CALCULATED THE GROSS TOTAL INCOME APPLY ING THE PROVISIONS OF SECTION 70 AND 71 OF THE ACT AND THAN IT HAS LOOKED INTO THE MATTER OF APPLICABILITY OF SECTION 73. IT ALSO SUBMITTED THAT EXPLANATION TO SECTION 73 CANNOT BE INVOKED WI THOUT ADJUSTING THE LOSSES AND GAINS FROM VARIOUS SOURCES UNDER THE HEAD 'BUSINESS' AS PERMITTED BY THE PROVISIONS OF S ECTION 70 AND 71 OF THE SAID ACT. IT IS ALSO SUBMITTED THAT LAW DOES NOT MANDATE TO B IFURCATE THE BUSINESS INCOME ONCE COMPUTED UNDER THE HEAD 'PROFI TS AND GAINS OF BUSINESS OR PROFESSION' IN THE CONTEXT OF COMPUT ING THE GROSS TOTAL INCOME OF ASSESSEE COMPANY. IF ANY SPECIFIC I TEM IS TO BE CONSIDERED DIFFERENTLY, THE SAME WOULD HAVE BEEN SP ECIFICALLY STATED IN EXPLANATION TO SECTION 73 AS IN THE CASE OF SECTION 32A(3), 32AB(3) ETC. IN EXPLANATION TO SECTION 32A(3) IT HAS SPECIFICALL Y MENTIONED THE ITEMS TO BE CONSIDERED FOR COMPUTING TOTAL INCOME. EXPLANATION.-WHERE FOR ANY ASSESSMENT YEAR, INVESTM ENT ALLOWANCE IS TO BE ALLOWED IN ACCORDANCE WITH THE P ROVISIONS OF THIS SUB-SECTION IN RESPECT OF ANY SHIP OR AIRCRAFT ACQUIRED OR ANY MACHINERY OR PLANT INSTALLED IN MORE THAN ONE PREVI OUS YEAR, AND THE TOTAL INCOME OF THE ASSESSEE ASSESSABLE FOR THA T ASSESSMENT YEAR [THE TOTAL INCOME FOR THIS PURPOSE BEING COMPU TED AFTER DEDUCTION OF THE ALLOWANCES UNDER SECTION 33 AND SE CTION 33A, BUT WITHOUT MAKING ANY DEDUCTION UNDER SUB-SECTION (1) OF THIS I.T.A. NO. 852/KOL./2008 ASSESSMENT YEAR: 2003-2004 ITA NO. 299/KOL/2011 ASSESSMENT YEAR: 2005-2006, ITA NO. 417/KOL/2011 ASSESSMENT YEAR: 2005-2006 & ITA NO. 1200/KOL/2012 ASSESSMENT YEAR: 2008-2009 PAGE 12 OF 27 SECTION OR ANY DEDUCTION UNDER CHAPTER VI-A) IS LES S THAN THE AGGREGATE OF THE AMOUNTS DUE TO BE ALLOWED IN RESPE CT OF THE ASSETS AFORESAID FOR THAT ASSESSMENT YEAR, THE FOLL OWING PROCEDURE SHALL BE FOLLOWED, NAMELY:- (A) THE ALLOWANCE UNDER CLAUSE (IZ) SHALL BE MADE B EFORE ANY ALLOWANCE UNDER CLAUSE (L) IS MADE; AND (B) WHERE AN ALLOWANCE HAS TO BE MADE UNDER CLAUSE (II) IN RESPECT OF AMOUNTS CARRIED FORWARD FROM MORE THAN ONE ASSES SMENT YEAR, THE AMOUNT CARRIED FORWARD FROM AN EARLIER ASSESSME NT YEAR SHALL BE ALLOWED BEFORE ANY AMOUNT CARRIED FORWARD FROM A LATER ASSESSMENT YEAR. IT WAS HELD IN THE CASE ASSISTANT COMMISSIONER OF I NCOME TAX, SPECIAL CIRCLE (1) V. CONCORD COMMERCIALS (P) LTD. (2005) 95 ITD 117 (MUM) (SPECIAL BENCH) THAT: THERE IS NO MATERIAL ON RECORD TO SHOW THAT THE ASS ESSEE COMPANY DID MAKE LOSS IN THE SHARE TRADING ACTIVITIES IN OR DER TO REDUCE THE TAX INCIDENCE. IN RESPECT OF THE CONTENTION REGARDI NG 'GROSS TOTAL INCOME' SECTION 73 DOES NOT PROVIDE FOR ANY SPECIAL TREATMENT. THE SUPREME COURT HAS HELD IN CIT VS. VENKATESWARA HATCHERIES (P) LTD (1999) 237 ITR 1743 THAT THE SAME WORD OCCU RRING MORE THAN ONCE IN THE ACT SHOULD GENERALLY BE GIVEN THE SAME MEANING, BUT THE CONTEXT MAY INDICATE THE CONTRARY LEGISLATI VE INTENTION. THERE IS NO SUCH INDICATION IN SECTION 73 AND THE E XPLANATION THERETO. THEREFORE, THE MEANING OF THE EXPRESSION ' GROSS TOTAL INCOME' HAS TO BE CONSTRUED AS GIVEN IN SECTION 80B (5). IN THE LIGHT OF ABOVE, I HOLD THAT PROVISIONS OF SE CTION 73 READ WITH EXPLANATION THERETO, ARE NOT APPLICABLE TO THE ASSE SSEE COMPANY, I THEREFORE, DIRECT TO ALLOW THE LOSS IN SHARE BUSINE SS AGAINST THE SHARE TRADING, AGAINST SELF DIFFERENCE/JOBBING, FUT URE OPTION BUSINESS AND WITH OTHER SHARE BROKERAGE BUSINESS OF ASSESSEE COMPANY. THE ENTIRE BUSINESS PROFIT/LOSS SHALL BE C LUBBED AND BE COMPUTED AS PROFIT OR LOSS OF SHARE BUSINESS AND IN CASE OF LOSS FROM SHARE BUSINESS ACTIVITY BE ALLOWED TO CARRY FO RWARD FOR SET-OFF WITH SHARE BUSINESS OF APPELLANT IN SUBSEQU ENT YEARS AS PER PROVISION OF SECTION 70 & 71 OF IT ACT. ACCORDINGLY , GROUND NO. 4 IS ALLOWED. I.T.A. NO. 852/KOL./2008 ASSESSMENT YEAR: 2003-2004 ITA NO. 299/KOL/2011 ASSESSMENT YEAR: 2005-2006, ITA NO. 417/KOL/2011 ASSESSMENT YEAR: 2005-2006 & ITA NO. 1200/KOL/2012 ASSESSMENT YEAR: 2008-2009 PAGE 13 OF 27 7. THE LD. D.R. CONTENDED THAT THE PROVISIONS OF EX PLANATION TO SECTION 73 ARE CLEARLY APPLICABLE IN THE CASE OF THE ASSESS EE-COMPANY AS MADE OUT BY THE ASSESSING OFFICER. HE CONTENDED THAT THE LD. CIT(APPEALS), HOWEVER, FAILED TO APPRECIATE THE CASE MADE OUT BY THE ASSESSING OFFICER WHILE APPLYING THE SAID EXPLANATION IN THE RIGHT PE RSPECTIVE AND ALLOWED THE CLAIM OF THE ASSESSEE FOR SET OFF OF THE LOSS O N PURCHASE AND SALE OF SHARES MADE ON ITS OWN ACCOUNT AGAINST OTHER INCOME MAINLY ON THE GROUND THAT ALL THE RELEVANT TRANSACTIONS RELATED T O SHARES CONSTITUTED ONE COMPOSITE BUSINESS OF THE ASSESSEE. HE CONTENDE D THAT THE EXPLANATION TO SECTION 73 IS APPLICABLE EVEN IN SUC H CASE WHERE THE ENTIRE TRANSACTIONS ARE RELATED TO SHARES AND CITED THE DE CISIONS OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS.- ARVIND INVESTMENTS LIMITED [192 ITR 365] AND IN THE CASE OF CIT VS.- PARK VIE W PROPERTIES PVT. LIMITED [261 ITR 473] IN SUPPORT OF THE REVENUES C ASE. 8. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER H AND, SUBMITTED THAT ALL THE RELEVANT TRANSACTIONS RESULTING INTO PROFIT /LOSS ARE PERTAINING TO THE SAME BUSINESS OF THE ASSESSEE OF DEALING IN SHA RES AND KEEPING IN VIEW THE NATURE OF THE BUSINESS OF THE ASSESSEE, TH E LD. CIT(APPEALS) IS FULLY JUSTIFIED IN HOLDING THAT EXPLANATION TO SECT ION 73 COULD NOT BE APPLIED TO TREAT THE TRANSACTIONS MADE BY THE ASSES SEE OF PURCHASE AND SALE OF SHARES ON ITS OWN ACCOUNT AS SPECULATIVE TR ANSACTIONS. HE CONTENDED THAT THE SAID EXPLANATION AT THE MOST CAN BE APPLIED ONLY AFTER COMPUTING INCOME OF THE ASSESSEE FROM THE BUSINESS OF DEALING IN SHARES AS ALL THE TRANSACTIONS RELATING TO THE SHARES AS E NTERED INTO BY THE ASSESSEE-COMPANY WERE PART OF ONE COMPOSITE BUSINES S. IN SUPPORT OF THIS CONTENTION, HE RELIED, BESIDES VARIOUS DECISIONS OF THIS BENCH, ON THE DECISION OF MUMBAI, SPECIAL BENCH OF ITAT IN THE CA SE OF ACIT VS.- CONCORD COMMERCIALS (P) LIMITED [95 ITD 117 (MUM.), HYDERABAD BENCH OF ITAT IN THE CASE OF GODAVARI CAPITAL LIMITED VS .- DCIT [91 ITD 274]. I.T.A. NO. 852/KOL./2008 ASSESSMENT YEAR: 2003-2004 ITA NO. 299/KOL/2011 ASSESSMENT YEAR: 2005-2006, ITA NO. 417/KOL/2011 ASSESSMENT YEAR: 2005-2006 & ITA NO. 1200/KOL/2012 ASSESSMENT YEAR: 2008-2009 PAGE 14 OF 27 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALS O PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERV ED THAT THE MAIN BUSINESS OF THE ASSESSEE IS THAT OF PURCHASE AND SA LE OF ITS SHARES EITHER ON ITS OWN ACCOUNT OR ON BEHALF OF ITS CLIENTS ON B ROKERAGE BASIS, AND ALL THE TRANSACTIONS GIVING PROFIT OR LOSS FROM DIFFERE NT ACTIVITIES WERE PART OF THE SAME BUSINESS. ALTHOUGH THE ASSESSING OFFICER A CCEPTED THAT THE NATURE OF ALL THESE TRANSACTIONS WAS MAINLY NORMAL BUSINESS TRANSACTIONS OR NON-SPECULATIVE TRANSACTIONS, HE TREATED THE TRA NSACTIONS ENTERED INTO BY THE ASSESSEE-COMPANY OF PURCHASE AND SALE OF SHA RES ON ITS OWN ACCOUNT AS SPECULATIVE IN NATURE BY APPLYING EXPLAN ATION TO SECTION 73. IN THE CASE OF M/S. SOMANI STOCK BROKING PVT. LIMITED VS.- ACIT (ITA NO. 1914/KOL/2004), A SIMILAR ISSUE HAD COME UP FOR CON SIDERATION BEFORE THE COORDINATE BENCH OF THIS TRIBUNAL IN THE IDENTI CAL FACTS AND CIRCUMSTANCES AND THE SAME WAS DECIDED BY THE TRIBU NAL IN FAVOUR OF THE ASSESSEE BY HOLDING AS UNDER:- THE ASSESSEE COMPANY IS ENGAGED IN A COMPOSITE BUSI NESS OF SHARE BROKER, SHARE TRADING ETC DURING THE YEAR UNDER CONS IDERATION. THE ASSESSEE HAS EARNED INCOME FROM SUCH COMPOSITE BUSINE SS FOR TAXATION IN INCOME TAX RETURN. THERE IS A COMMON MANAGEMENT IN TER-LIAISON OF RESOURCES. THERE IS A COMMON WORK FORCE AS SUCH BIFUR CATION OF SUCH BUSINESS IS NOT POSSIBLE. IN THIS REGARD THE REFERENC E CAN BE MADE TO THE DECISION OF THE SUPREME COURT IN THE CASE OF PRITHVI I NSURANCE LTD REPORTED IN 53 ITR PAGE 632 AND 637 AND IN THE CASE O F EXCHANGE CORPORATION LIMITED 77 ITR 739 (SC) IN THE CASE OF EX CHANGE CORPORATION LIMITED, IT WAS HELD THAT THE TEST IS UNIT OF CONTROL AND NOT THE NATURE OF THE TWO LINE OF BUSINESS. HONBLE SUPRE ME COURT HELD THAT THE TRIBUNAL WAS RIGHT IN HOLDING SHARE BUSINESS AND OT HER BUSINESS CARRIED BY THE APPELLANT COMPANY CONSTITUTING THE SAM E BUSINESS WITHIN THE MEANING OF SECTION 24(2). AS THUS BEFORE THE AMENDMENT IN 1955 WHILE DECIDING THE CASE THE HONBLE SUPREME COUR T HAS APPLIED THE RATIO OF DECISION IN THE CASE OF PRITHI INSURANCE LTD (SUPRA). THUS THIS IS NOW ACCEPTED AS PRINCIPLE OF LAW THAT ONCE SU CH ACTIVITY ARE COMPOSITE IN NATURE, THE INCOME THEREFROM HAS TO BE A SSESSED AS A WHOLE. SINCE THE SHARE BROKING ACTIVITY, SHARE DEALING ON OWN ACCOUNT ALL FORM AN INTEGRATED BUSINESS OF THE APPELLANT COM PANY, THE PROFIT OR I.T.A. NO. 852/KOL./2008 ASSESSMENT YEAR: 2003-2004 ITA NO. 299/KOL/2011 ASSESSMENT YEAR: 2005-2006, ITA NO. 417/KOL/2011 ASSESSMENT YEAR: 2005-2006 & ITA NO. 1200/KOL/2012 ASSESSMENT YEAR: 2008-2009 PAGE 15 OF 27 LOSS FROM THE SAME IS REQUIRED TO BE COMPUTED AS A W HOLE. IN THE INSTANT CASE OF THE COMPANY, IT IS VERY DIFFICULT T O SEGREGATE BUSINESS ACTIVITIES AND ALLOCATE RESPECTIVE AMOUNT OF EXPEND ITURE 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 INCURRED ARE ALSO COMMON IN NATURE. HENCE, THIS EXPENSES CANNOT BE BIFURCATED TO ARRIVE AT PROFIT UNDER SEPA RATE HEADS. AS SUCH THE EXPLANATION APPENDED TO SECTION 73 WILL NOT BE A PPLICABLE IN THE PRESENT CASE. 10. THE SIMILAR ISSUE AGAIN CAME UP FOR CONSIDERATI ON BEFORE THE DIVISION BENCH OF THIS TRIBUNAL IN THE CASE OF ITO VS.- SAND DUNE CREDIT PVT. LIMITED AND THE SAME WAS DECIDED BY THE TRIBUN AL IN FAVOUR OF THE ASSESSEE FOR THE FOLLOWING REASONS GIVEN IN PARAGRA PH NO. 6 OF ITS ORDER DATED 24.04.2009 PASSED IN ITA NOS. 2075 & 2076/KOL /2008:- 6. WE OBSERVE THAT THE ASSESSEE IS A PRIVATE LIMIT ED COMPANY, REGISTERED WITH SEBI WHOSE ENTIRE BUSINESS CONSISTS OF DEALING IN SHARES AND THE ASSESSEE DEBI TED AN AMOUNT OF RS.10,06,974/- TOWARDS 'LOSS IN SHARE TRA DING OPERATION'. THE A.O. HAS HELD THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SHARE BROKERAGE BUSINESS REGISTERED WITH SEBI. THE A.O. HAS STATED THAT THE CONDITIONS LAID DOWN IN EXPLANATION TO SECTION 73 ARE SATISFIED IN THE CASE OF THE ASSESSEE. THEREFORE, THE ASSESSEE IS DEEMED TO BE C ARRYING ON A SPECULATION BUSINESS WITH REGARD TO THE BUSINE SS OF SALE AND PURCHASE OF SHARES. ACCORDINGLY, THE A.O. HELD THAT THE LOSS INCURRED IN THE BUSINESS OF TRANSACTIONS IN SH ARES WOULD BE A SPECULATION LOSS AS PER EXPLANATION TO SECTION 73 AND ADDED THE SAME TO THE BUSINESS OF THE ASSESSEE. HOWEVER, IN THE FIRST APPEAL, THE ID. CIT(A) HAS HELD THAT THE EXPLANATION TO SECTION 73 WOULD NOT BE APP LICABLE TO THE CASE OF THE ASSESSEE-COMPANY. THEREFORE, THE ID. CIT(A) HAS DELETED THE SAID ADDITION BY OBSERVING A S UNDER :- 'I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE LD. A.R THE ASSESSING OFFICER HAS ADDED RS. 10,06,974/- BEING THE LOSS SUFFERED IN TRADING IN SHARES WHICH WAS SET OFF AGAINST BROKERAGE INCOME OF SHARES OF RS.12,90,172/-. THE APPELLANT IS A SHARE BROKER, REGISTERED WITH SEBI AND ITS ENTIRE I.T.A. NO. 852/KOL./2008 ASSESSMENT YEAR: 2003-2004 ITA NO. 299/KOL/2011 ASSESSMENT YEAR: 2005-2006, ITA NO. 417/KOL/2011 ASSESSMENT YEAR: 2005-2006 & ITA NO. 1200/KOL/2012 ASSESSMENT YEAR: 2008-2009 PAGE 16 OF 27 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 CONDUCTED 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 SHARES TRADING BUSINESS. THE ENTIRE ACTIVITY HAS TO BE TREATED AS ONE AND AS SUCH THE EXPLANATION TO SECTION 73 IS NOT APPLICABLE IN THE INSTANT CASE. I HOLD THAT THE STATUTE HAS NOT MADE A DISTINCTION BETWEEN PURCHASE AND SALE OF SHARES OF COMPANIES MADE ON OWN BEHALF AND/OR ON BEHALF OF OTHERS, WHERE ENTIRE BUSINESS ACTIVITY OF THE COMPANY CONSIST OF PURCHASE AND SALE OF SHARES OF OTHER COMPANIES IN SOME OF WHICH BROKERAGE WAS EARNED AND IN SOME OTHERS LOSS OR PROFIT IS EARNED. THE ENTIRE BUSINES S ACTIVITY IS INTER LINKED AND IS TO BE TREATED AS SA ME ACTIVITY. I AM OF THE OPINION THAT THE CASE REFERRE D BY THE ID. A.R. BEING CIT-VS.- NIRMAL KUMAR & 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'. DURING THE COURSE OF HEARING, THE ID. DEPARTMENTAL REPRESENTATIVE HAS NOT DISPUTED THE ABOVE FACTS AS STATED BY THE ID. CIT(A). WE ALSO OBSERVE THAT THE INCOME OF THE ASSESSEE IN THE ASSESSMENT YEAR UNDER CONSIDERATION FROM BROKERAGE INCOME OF SHARES OF RS.12,90,172/-, WHICH IS MORE THAN THE LOSS OF RS.10,06,974/- CLAIMED BY THE ASSESSEE IN RESPECT OF THE SALE/PURCHASE OF SHARES AND /OR BY WAY OF BROKERAGE OF SHARES. THERE IS NO DISPUTE TO THE FACT THAT THE EXPLANATION TO SECTION 73 DOES NOT AP PLY TO AN INVESTMENT COMPANY OR A COMPANY WHOSE PRINCIPAL BUSINESS IS BANKING OR MONEY LENDING. BY RESPECTFUL LY FOLLOWING THE DECISION OF THE HON'BLE KOLKATA HIGH COURT IN THE CASE OF NIRMAL KUMAR & CO. [161 ITR 413] (SUPRA ), WE ARE OF THE CONSIDERED VIEW THAT THE CASE OF THE ASS ESSEE FALLS IN THE EXCLUDED CATEGORY TO EXPLANATION OF SE CTION 73 OF THE ACT. ACCORDINGLY, WE HOLD THAT THE ID. CIT(A ) HAS RIGHTLY HELD THAT THE EXPLANATION TO SECTION 73 WOU LD NOT BE APPLICABLE TO THE CASE OF THE ASSESSEE AND AS SU CH WE FIND NO INFIRMITY IN THE ORDER OF THE ID. CIT(A) AN D AGREE I.T.A. NO. 852/KOL./2008 ASSESSMENT YEAR: 2003-2004 ITA NO. 299/KOL/2011 ASSESSMENT YEAR: 2005-2006, ITA NO. 417/KOL/2011 ASSESSMENT YEAR: 2005-2006 & ITA NO. 1200/KOL/2012 ASSESSMENT YEAR: 2008-2009 PAGE 17 OF 27 WITH THE ID. CIT(A) TO DELETE THE SAID ADDITION OF RS.10,06,974/- MADE BY THE A.O. ACCORDINGLY, THE GR OUND OF APPEAL TAKEN BY THE DEPARTMENT IS REJECTED. 11. A SIMILAR ISSUE THUS WAS DECIDED BY THE TRIBUNA L IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE DECISION OF THE HONBLE C ALCUTTA HIGH COURT IN THE CASE OF CIT VS.- NIRMAL KUMAR & COMPANY [161 I TR 430] AND WHEN THE DEPARTMENT PREFERRED AN APPEAL AGAINST THE SAI D ORDER OF THE TRIBUNAL BEFORE THE HONBLE CALCUTTA HIGH COURT, TH E SAME WAS DISMISSED BY THEIR LORDSHIPS BY OBSERVING THAT THERE WAS NO C ASE MADE OUT BY THE DEPARTMENT BY SUBMITTING THAT THE DECISION RENDERED IN THE CASE OF CIT VS.- NIRMAL KUMAR & COMPANY (SUPRA) IS NOT APPLICAB LE IN THE FACTS AND CIRCUMSTANCES OF THE CASE NOR IT WAS ARGUED BY THE DEPARTMENT THAT THE SAID DECISION OF THE COURT HAS BEEN OVERRULED. A SI MILAR ISSUE AGAIN AROSE FOR CONSIDERATION BEFORE THE COORDINATE BENCH OF TH IS TRIBUNAL RECENTLY IN THE CASE OF M/S. LOHIA SECURITIES LIMITED VS.- DCI T AND KEEPING IN VIEW THE RATIO OF THE JUDICIAL PRONOUNCEMENTS DISCUSSED HEREIN ABOVE, THE TRIBUNAL DECIDED THE SAME IN FAVOUR OF THE ASSESSEE VIDE ITS ORDER DATED 09.12.2015 PASSED IN ITA NO. 487/KOL/2012 BY HOLDIN G THAT THE CLAIM OF THE ASSESSEE FOR SET OFF OF LOSS FROM SHARE DEALING SHOULD BE ALLOWED FROM THE PROFITS EARNED FROM F&O TRANSACTIONS BEING OF T HE SAME CHARACTER. IT WAS HELD BY THE TRIBUNAL THAT BEFORE APPLICATION OF EXPLANATION TO SECTION 73, AGGREGATION OF THE BUSINESS PROFIT OR LOSS HAS TO BE DONE IRRESPECTIVE OF THE FACT WHETHER IT IS FROM SHARE DELIVERY TRANS ACTIONS OR DERIVATIVE TRANSACTIONS. IN OUR OPINION, THE ISSUE INVOLVED IN THE PRESENT CASE RELATING TO APPLICABILITY OF EXPLANATION TO SECTION 73 THUS IS SQUARELY COVERED BY THE VARIOUS DECISIONS OF THE COORDINATE BENCH OF THIS TRIBUNAL AS WELL AS THE DECISION OF THE HONBLE CALCUTTA HIG H COURT IN THE CASE OF SANDVIEW TRADING PVT. LIMITED (SUPRA). AS REGARDS T HE CASES OF ARVIND INVESTMENTS LIMITED (SUPRA) AND PARK VIEW PROPERTIE S P. LIMITED (SUPRA) CITED BY THE LD. D.R., IT IS OBSERVED THAT THE ISSU E RELATING TO APPLICABILITY I.T.A. NO. 852/KOL./2008 ASSESSMENT YEAR: 2003-2004 ITA NO. 299/KOL/2011 ASSESSMENT YEAR: 2005-2006, ITA NO. 417/KOL/2011 ASSESSMENT YEAR: 2005-2006 & ITA NO. 1200/KOL/2012 ASSESSMENT YEAR: 2008-2009 PAGE 18 OF 27 OF EXPLANATION TO SECTION 73 WAS INVOLVED IN THE SA ID CASES IN ALL TOGETHER DIFFERENT CONTEXT AND EVEN THE FACTS INVOLVED IN TH E SAID CASES WERE DIFFERENT FROM THE FACTS INVOLVED IN THE PRESENT CA SE. THE DECISION RENDERED BY THE HONBLE CALCUTTA HIGH COURT IN THE SAID CASES THUS HAS NO APPLICATION IN THE PRESENT CASE AND THE RELIANCE OF THE LD. D.R. THEREON IS CLEARLY MISPLACED. WE, THEREFORE, UPHOLD THE IMPUGN ED ORDER OF THE LD. CIT(APPEALS) ALLOWING THE CLAIM OF THE ASSESSEE FOR SET OFF OF LOSS FROM THE PURCHASE AND SALE OF SHARES MADE ON ITS OWN ACC OUNT AGAINST OTHER INCOME ARISING FROM THE TRANSACTIONS FORMING PART O F THE SAME BUSINESS OF SHARE TRADING BY HOLDING THAT EXPLANATION TO SECTIO N 73 HAS NO APPLICATION IN THE FACTS OF THE ASSESSEES CASE. 12. THE ONLY OTHER ISSUE RAISED BY THE REVENUE IN I TS APPEAL FOR A.Y. 2003-04 AS TAKEN IN GROUND NO. 5 RELATES TO THE DEL ETION BY THE LD. CIT(APPEALS) OF THE ADDITION OF RS.22,75,185/- MADE BY THE ASSESSING OFFICER BY WAY OF DISALLOWANCE UNDER SECTION 43B. 13. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERV ED THAT A SUM OF RS.22,75,185/- PAID TOWARDS TURNOVER FEES FOR THE E ARLIER YEAR WAS DEBITED BY THE ASSESSEE-COMPANY IN THE PROFIT & LOS S ACCOUNT AS PRIOR PERIOD EXPENSES. IN THE ASSESSMENT COMPLETED UNDER SECTION 143(3), THE ASSESSING OFFICER DISALLOWED THE SAME WITHOUT MAKIN G ANY DISCUSSION WHATSOEVER. BEFORE THE LD. CIT(APPEALS), IT WAS POI NTED OUT BY THE ASSESSEE THAT THE SAID EXPENDITURE ON ACCOUNT OF TU RNOVER FEES PERTAINING TO EARLIER YEARS WAS CLAIMED IN THE YEAR UNDER CONS IDERATION AS PER THE PROVISIONS OF SECTION 43B ON PAYMENT BASIS. THE LD. CIT(APPEALS) ACCORDINGLY ALLOWED THE DEDUCTION CLAIMED BY THE AS SESSEE ON ACCOUNT OF TURNOVER FEES PERTAINING TO THE EARLIER YEAR AS PER THE PROVISIONS OF SECTION 43B. THE LIMITED GRIEVANCE OF THE REVENUE O N THIS ISSUE AS I.T.A. NO. 852/KOL./2008 ASSESSMENT YEAR: 2003-2004 ITA NO. 299/KOL/2011 ASSESSMENT YEAR: 2005-2006, ITA NO. 417/KOL/2011 ASSESSMENT YEAR: 2005-2006 & ITA NO. 1200/KOL/2012 ASSESSMENT YEAR: 2008-2009 PAGE 19 OF 27 PROJECTED IN THE GROUND AND FURTHER REITERATED BY T HE LD. D.R. BEFORE US IS THAT THE LD. CIT(APPEALS) OUGHT TO HAVE GIVEN AN OP PORTUNITY TO THE ASSESSING OFFICER TO VERIFY THE CLAIM OF THE ASSESS EE OF HAVING PAID THE AMOUNT OF TURNOVER FEES IN QUESTION DURING THE YEAR UNDER CONSIDERATION AS PER RULE 46A OF THE INCOME TAX RULES, 1962. ALTH OUGH THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE FACTUM OF S UCH PAYMENT WAS NEVER DISPUTED BY THE ASSESSING OFFICER, HE HAS NOT RAISE D ANY OBJECTION IN SENDING THIS MATTER BACK TO THE ASSESSING OFFICER F OR THE LIMITED PURPOSE OF VERIFICATION OF THE PAYMENT OF TURNOVER FEES BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. ACCORDINGLY, THIS ISSUE I S RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR THE LIMITED PURPOSE OF VE RIFYING THE CLAIM OF THE ASSESESE OF HAVING PAID THE AMOUNT OF TURNOVER FEES IN QUESTION DURING THE YEAR UNDER CONSIDERATION SO AS TO ALLOW THE SAM E AS DEDUCTION ON PAYMENT BASIS UNDER SECTION 43B. GROUND NO. 5 OF TH E REVENUES APPEAL IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURP OSES. 14. NOW WE SHALL TAKE UP THE CROSS APPEALS FOR A.Y. 2005-06 BEING ITA NO. 417/KOL/2011 (ASSESSEES APPEAL) AND ITA NO. 29 9/KOL/2011 (REVENUES APPEAL), WHICH ARE DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-VI, KOLKATA DA TED 12.11.2010. 15. AS REGARDS GROUND NO. 1 RAISED IN THE APPEAL OF THE ASSESSEE FOR A.Y. 2005-06, IT IS OBSERVED THAT THE ISSUE INVOLVED THE REIN RELATING TO THE TREATMENT GIVEN BY THE ASSESSING OFFICER AND CONFIR MED BY THE LD. CIT(APPEALS) TO THE LOSS SUFFERED BY THE ASSESSEE F ROM THE DELIVERY BASED SHARE TRADING AMOUNTING TO RS.9,02,696/- AS DEEMED SPECULATION LOSS AS PER EXPLANATION TO SECTION 73 IS SIMILAR TO THE ONE INVOLVED IN THE APPEAL OF THE REVENUE FOR A.Y. 2003-04, WHICH HAS ALREADY BEEN DECIDED BY US IN THE FOREGOING PORTION OF THIS ORDER. SINCE ALL THE MATERIAL FACTS RELEVANT TO THIS ISSUE AS WELL AS THE ARGUMENTS ADVANCED BY BOT H THE SIDES ARE SIMILAR I.T.A. NO. 852/KOL./2008 ASSESSMENT YEAR: 2003-2004 ITA NO. 299/KOL/2011 ASSESSMENT YEAR: 2005-2006, ITA NO. 417/KOL/2011 ASSESSMENT YEAR: 2005-2006 & ITA NO. 1200/KOL/2012 ASSESSMENT YEAR: 2008-2009 PAGE 20 OF 27 TO A.Y. 2003-04, WE FOLLOW THE CONCLUSION DRAWN BY US IN A.Y. 2003-04 AND DIRECT THE ASSESSING OFFICER TO TREAT THE LOSS INCURRED BY THE ASSESSEE IN DELIVERY BASED SHARE TRADING AS NORMAL BUSINESS LOSS. GROUND NO. 1 IS ACCORDINGLY ALLOWED. 16. AS REGARDS GROUND NO. 2 OF THE APPEAL OF THE AS SESSEE FOR A.Y. 2005- 06, IT IS OBSERVED THAT THE ISSUE INVOLVED THEREIN RELATING TO THE TREATMENT GIVEN BY THE ASSESSING OFFICER AND UPHELD BY THE LD . CIT(APPEALS) TO THE INCOME OF RS.1,71,54,470/- EARNED AS WELL AS LOSS O F RS.1,00,42,079/- AND RS.1,14,73,595/- SUFFERED FROM THE OPERATIONS IN TH E F&O SEGMENT IN THE STOCK BROKING BUSINESS AS SPECULATION INCOME/LOSS I S SQUARELY COVERED IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE BY T HE DECISION OF SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF SHREE CAPITAL SERVICES LIMITED RENDERED VIDE ITS ORDER DATED 31.07.2009, WHEREIN I T WAS HELD THAT INCOME/LOSS FROM THE F&O TRANSACTIONS PRIOR TO 24.0 1.2006 HAS TO BE TREATED AS SPECULATION PROFIT/LOSS AND THIS POSITIO N IS ACCEPTED EVEN BY THE LD. COUNSEL FOR THE ASSESSEE AT THE TIME OF HEA RING BEFORE US. WE, THEREFORE, RESPECTFULLY FOLLOW THE SAID DECISION OF THE SPECIAL BENCH OF THIS TRIBUNAL AND UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(APPEALS) ON THIS ISSUE. GROUND NO. 2 IS ACCORDINGLY DISMISSED. 17. AS REGARDS GROUNDS NO. 3 & 4 OF THE ASSESSEES APPEAL FOR A.Y. 2005- 06, IT IS OBSERVED THAT THE ISSUES INVOLVED THEREIN RELATING TO THE ACTION OF THE AUTHORITIES BELOW IN TREATING THE EXPENDITURE I NCURRED ON STT AMOUNTING TO RS.4,87,093/-, TRANSACTION CHARGES AMO UNTING TO RS.5,02,978/- AND TURNOVER FEES AMOUNTING TO RS.35, 000/- RELATING TO THE TRANSACTIONS IN F&O SEGMENT AS RELATED TO THE SPECU LATIVE TRANSACTIONS AND NOT NORMAL BUSINESS TRANSACTIONS ARE CONSEQUENT IAL TO THE MAIN ISSUE INVOLVED IN GROUND NO. 2 IN ASSESSEES APPEAL FOR A .Y. 2005-06. SINCE WE HAVE DECIDED THE ISSUE INVOLVED IN GROUND NO. 2 AGA INST THE ASSESSEE BY I.T.A. NO. 852/KOL./2008 ASSESSMENT YEAR: 2003-2004 ITA NO. 299/KOL/2011 ASSESSMENT YEAR: 2005-2006, ITA NO. 417/KOL/2011 ASSESSMENT YEAR: 2005-2006 & ITA NO. 1200/KOL/2012 ASSESSMENT YEAR: 2008-2009 PAGE 21 OF 27 FOLLOWING THE DECISION OF SPECIAL BENCH OF THIS TRI BUNAL IN THE CASE OF SHREE CAPITAL SERVICES LIMITED (SUPRA), WE DECIDE T HESE CONSEQUENTIAL ISSUES RAISED IN GROUNDS NO. 3 & 4 OF THE ASSESSEE S APPEAL ALSO AGAINST THE ASSESSEE. THESE GROUNDS ARE ACCORDINGLY DISMISS ED. 18. THE ISSUE INVOLVED IN GROUND NO. 5 OF THE ASSES SEES APPEAL FOR A.Y. 2005-06 RELATES TO THE DISALLOWANCE OF RS.11,00,000 /- MADE BY THE ASSESSING OFFICER UNDER SECTION 14A, WHICH IS SUSTA INED BY THE LD. CIT(APPEALS) TO THE EXTENT OF RS.5,16,000/-. 19. DURING THE YEAR UNDER CONSIDERATION, DIVIDEND I NCOME OF RS.60,46,319/- AND LONG-TERM CAPITAL GAIN OF RS.1.5 6 CRORES ARISING FROM THE SALE OF SHARES WAS CLAIMED TO BE EXEMPT BY THE ASSESSEE IN THE RETURN OF INCOME. NO DISALLOWANCE ON ACCOUNT OF EXPENSES I NCURRED IN RELATION TO THE SAID EXEMPT INCOME, HOWEVER, WAS OFFERED BY THE ASSESSEE AS REQUIRED BY SECTION 14A OF THE ACT. THE ASSESSING OFFICER ES TIMATED SUCH EXPENSES RELATING TO EXEMPT DIVIDEND INCOME AT RS.3,00,000/- AND RELATING TO LONG- TERM CAPITAL GAIN AT RS.8,00,000/- AND MADE A DISAL LOWANCE OF RS.11,00,000/- UNDER SECTION 14A. ON APPEAL, THE LD . CIT(APPEALS) REVISED THE SAID ESTIMATE MADE BY THE ASSESSING OFFICER TO RS.5,16,000/- AND ACCORDINGLY RESTRICTED THE DISALLOWANCE UNDER SECTI ON 14A TO THAT EXTENT. 20. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES O N THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON REC ORD. IT IS OBSERVED THAT IN THE RELEVANT YEAR UNDER CONSIDERATION I.E. A.Y. 2005-06, RULE 8D WAS NOT APPLICABLE AND, THEREFORE, THE DISALLOWANCE UND ER SECTION 14A ON ACCOUNT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO THE EXEMPT INCOME IS REQUIRED TO BE MADE ON SOME REASONABLE BA SIS. IN THIS REGARD, THIS TRIBUNAL HAS TAKEN A CONSISTENT VIEW THAT THE DISALLOWANCE UNDER SECTION 14A ON ACCOUNT OF EXPENSES INCURRED IN RELA TION TO THE EXEMPT I.T.A. NO. 852/KOL./2008 ASSESSMENT YEAR: 2003-2004 ITA NO. 299/KOL/2011 ASSESSMENT YEAR: 2005-2006, ITA NO. 417/KOL/2011 ASSESSMENT YEAR: 2005-2006 & ITA NO. 1200/KOL/2012 ASSESSMENT YEAR: 2008-2009 PAGE 22 OF 27 INCOME AT 1% OF SUCH EXEMPT INCOME WOULD BE FAIR AN D REASONABLE. FOLLOWING THIS CONSISTENT STAND TAKEN BY THE TRIBUN AL, WE RESTRICT THE DISALLOWANCE UNDER SECTION 14A TO THE EXTENT OF 1% OF THE EXEMPT INCOME IN THE FORM OF DIVIDEND AND LONG-TERM CAPITAL GAIN AND ALLOW PARTLY GROUND NO. 5 OF THE ASSESSEES APPEAL. 21. NOW WE SHALL TAKE UP THE REVENUES APPEAL FOR A .Y. 2005-06 BEING ITA NO. 299/KOL/2011. AT THE OUTSET, IT IS NOTICED THAT THERE IS A DELAY OF 10 DAYS ON THE PART OF THE REVENUE IN FILING THIS A PPEAL BEFORE THE TRIBUNAL. IN THIS REGARD, THE REVENUE HAS FILED AN APPLICATION SEEKING CONDONATION OF THE SAID DELAY AND KEEPING IN VIEW T HE REASONS GIVEN THEREIN, THE SAID DELAY IS CONDONED AND THE APPEAL OF THE REVENUE IS BEING DISPOSED OF ON MERIT. 22. IT IS OBSERVED THAT THE ISSUE INVOLVED IN GROUN D NO. 1 OF THIS APPEAL RELATING TO THE DELETION BY THE LD. CIT(APPEALS) OF THE DISALLOWANCE OF RS.64,946/- MADE BY THE ASSESSING OFFICER ON ACCOUN T OF PENALTY CHARGES PAID TO STOCK EXCHANGE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE VARIOUS DECISIONS OF THIS TRIBUNAL, WHEREIN IT HAS BEEN CON SISTENTLY HELD THAT THE PENALTY IMPOSED BY STOCK EXCHANGE AUTHORITIES FOR D ELAY IN COMPLYING WITH THE VARIOUS REQUIREMENTS BY THE MEMBERS IS COM PENSATORY IN NATURE AND THE SAME NOT BEING IMPOSED FOR INFRINGEMENT OF ANY LAW, EXPLANATION TO SECTION 37 CANNOT BE INVOKED TO DISALLOW SUCH PE NALTY. FOLLOWING THIS CONSISTENT STAND TAKEN BY THE TRIBUNAL, WE UPHOLD T HE IMPUGNED ORDER OF THE LD. CIT(APPEALS) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE AND DISMISS GROUND NO. 1 OF THE REVENUES APPEAL. 23. AS REGARDS THE ISSUE INVOLVED IN GROUND NO. 2 O F THE REVENUES APPEAL RELATING TO THE DELETION BY THE LD. CIT(APPE ALS) OF THE DISALLOWANCE OF RS.1,00,000/- MADE BY THE ASSESSING OFFICER UNDE R SECTION 40A(9) OF I.T.A. NO. 852/KOL./2008 ASSESSMENT YEAR: 2003-2004 ITA NO. 299/KOL/2011 ASSESSMENT YEAR: 2005-2006, ITA NO. 417/KOL/2011 ASSESSMENT YEAR: 2005-2006 & ITA NO. 1200/KOL/2012 ASSESSMENT YEAR: 2008-2009 PAGE 23 OF 27 THE ACT, IT IS OBSERVED THAT THE DISALLOWANCE ON TH IS ISSUE WAS MADE BY THE ASSESSING OFFICER MAINLY RELYING ON THE TAX AUD IT REPORT. BEFORE THE LD. CIT(APPEALS), IT WAS POINTED OUT BY THE ASSESSE E THAT THE AMOUNT OF RS.1,00,000/- IN QUESTION ACTUALLY REPRESENTED PAYM ENT MADE BY THE ASSESSEE TO PRIME MINISTERS RELIEF FUND AND THE SA ME WAS WRONGLY MENTIONED AS DISALLOWABLE UNDER SECTION 40A(9) IN T HE TAX AUDIT REPORT. KEEPING IN VIEW THIS SUBMISSION MADE BY THE ASSESSE E FOR THE FIRST TIME BEFORE HIM AND THE DOCUMENTARY EVIDENCE FILED IN SU PPORT AS ADDITIONAL EVIDENCE, THE LD. CIT(APPEALS) DIRECTED THE ASSESSI NG OFFICER TO VERIFY THE SAME. AT THE TIME OF HEARING BEFORE US, THE ONLY GR IEVANCE THAT IS RAISED BY THE LD. D.R. ON THIS ISSUE IS THAT THIS DIRECTIO N GIVEN BY THE LD. CIT(APPEALS) IS BEYOND THE POWERS CONFERRED UPON HI M AS HE NO MORE HAS POWER TO SET ASIDE THE ISSUE TO THE FILE OF THE ASS ESSING OFFICER. WE FIND MERIT IN THIS ARGUMENT OF THE LD. D.R. THE IMPUGNED ORDER OF THE LD. CIT(APPEALS) ON THIS ISSUE IS ACCORDINGLY SET ASIDE AND THE MATTER IS REMITTED BACK TO HIM FOR DECIDING THE SAME AFRESH I N ACCORDANCE WITH LAW. GROUND NO. 2 OF THE REVENUES APPEAL IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 24. THE ISSUE RAISED IN GROUND NO. 3 OF THE REVENUE S APPEAL FOR A.Y. 2005-06 RELATES TO THE DELETION BY THE LD. CIT(APPE ALS) OF THE ADDITION OF RS.95,95,480/- MADE BY THE ASSESSING OFFICER ON ACC OUNT OF DISALLOWANCE OF INTEREST EXPENSES. 25. DURING THE YEAR UNDER CONSIDERATION, THE EXPEND ITURE ON ACCOUNT OF INTEREST AMOUNTING TO RS.1,78,48,733/- WAS INCURRED BY THE ASSESSEE. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE HA D SUBSTANTIAL OPERATIONS IN F&O SEGMENT WHICH REQUIRED PAYMENT OF MARGIN MONEY TO THE STOCK EXCHANGE AND, THEREFORE, IT WAS A CASE WH ERE THE BORROWED FUNDS WERE UTILIZED BY THE ASSESSEE BOTH FOR NORMAL BUSINESS TRANSACTIONS I.T.A. NO. 852/KOL./2008 ASSESSMENT YEAR: 2003-2004 ITA NO. 299/KOL/2011 ASSESSMENT YEAR: 2005-2006, ITA NO. 417/KOL/2011 ASSESSMENT YEAR: 2005-2006 & ITA NO. 1200/KOL/2012 ASSESSMENT YEAR: 2008-2009 PAGE 24 OF 27 AS WELL AS SPECULATIVE TRANSACTIONS IN F&O. HE, ACC ORDINGLY, APPORTIONED THE INTEREST EXPENDITURE INCURRED BY THE ASSESSEE B ETWEEN THESE TWO TYPES OF TRANSACTIONS IN THE RATIO OF VOLUME OF TRA NSACTIONS AND THE INTEREST EXPENDITURE ALLOCATED TO THE F&O TRANSACTI ONS ON SUCH BASIS AMOUNTING TO RS.95,95,480/- WAS TREATED BY THE ASSE SSING OFFICER AS RELATED TO THE SPECULATIVE BUSINESS AND NOT TO THE NORMAL BUSINESS. 26. THE ACTION OF THE ASSESSING OFFICER IN TREATING THE INTEREST EXPENDITURE TO THE EXTENT OF RS.95,95,480/- AS RELA TED TO THE SPECULATIVE BUSINESS WAS CHALLENGED BY THE ASSESSEE IN THE APPE AL FILED BEFORE THE LD. CIT(APPEALS) AND AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE AS WELL AS THE MATERIAL AVAILABLE ON RECORD, THE LD . CIT(APPEALS) DIRECTED THE ASSESSING OFFICER TO TREAT THE ENTIRE INTEREST EXPENDITURE INCURRED BY THE ASSESSEE AS RELATED TO THE NORMAL BUSINESS FOR THE FOLLOWING REASONS GIVEN IN HIS IMPUGNED ORDER:- I HAVE CONSIDERED THE ABOVE SUBMISSIONS OF LD. A.R . FROM THE BALANCE SHEET OF THE ASSESSEE IT IS SEEN THAT A S ON 31.3.2005, THE LOAN FUNDS ARE ABOUT RS.18.6 CR. AND THE INVENTORIES ARE ABOUT RS.20.9 CR. FURTHER LD AR HAS GIVEN THE DETAILS OF LOAN TAKEN FROM SHRI SURESH SARAF DU RING THE PREVIOUS YEAR. THESE DETAILS SHOW THAT THE MAJO RITY OF FUNDS TAKEN FROM SHRI SARAF ON DIFFERENT OCCASIONS HAVE BEEN INVESTED IN ACQUIRING SHARES AND VERY FEW FUND HAVE BEEN USED OF PAYING MARGIN MONEY. THESE FACTS SHOW THAT BORROWED FUNDS ARE MAINLY USED FOR ACQUIRING STOCK IN TRADE AND NOT MUCH ARE USED FOR PAYING THE MARGIN MONEY. LD. A.R. HAS ALSO SUBMITTED DETAILS ABOUT TH E DAY TO DAY MOVEMENT OF MARGIN MONEY USED IN DIFFERENT S HARE TRANSACTIONS OF THE ASSESSEE. THESE MOVEMENTS SHOW THAT ON A LARGE NUMBER OF OCCASIONS THE ASSESSEE MAINTAI NS SUBSTANTIAL CREDIT BALANCE WITH THE STOCK EXCHANGE WHICH COMPRISES NET PROFIT EARNED ON THAT DAY AND THE MAR GIN MONEY. IN VIEW OF THESE FACTS IT APPEARS THAT NOT M UCH OF TNE BORROWED FUNDS ARE USED AS MARGIN MONEY IN THE F&O SEGMENT TRANSACTIONS OF THE ASSESSEE. EVEN IF SOME FUNDS OF THE ASSESSEE ARE UTILIZED AS MARGIN MONEY THEY C AN BE SAID TO HAVE COME OUT OF NON INTEREST BEARING FUNDS SUCH I.T.A. NO. 852/KOL./2008 ASSESSMENT YEAR: 2003-2004 ITA NO. 299/KOL/2011 ASSESSMENT YEAR: 2005-2006, ITA NO. 417/KOL/2011 ASSESSMENT YEAR: 2005-2006 & ITA NO. 1200/KOL/2012 ASSESSMENT YEAR: 2008-2009 PAGE 25 OF 27 AS SHARE CAPITAL, RESERVES AND SURPLUS. THEREFORE, I AM OF THE OPINION THAT NO PORTION OF INTEREST PAID BY THE ASSESSEE CAN BE SAID TO BE RELATED TO THE F&O SEGME NT TRANSACTIONS OF THE ASSESSEE WHICH HAS BEEN TREATED BY THE A.O. AS SPECULATION BUSINESS. THEREFORE, THE AO IS DIRECTED NOT TO TREAT INTEREST OF RS.95,95,480/- S RELATED T O SPECULATIVE BUSINESS. 27. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS FOUND BY THE LD. CIT(APPEALS) FROM THE RELEVANT DETAILS FURNISHED BY THE ASSESSEE , THE INTEREST EXPENDITURE WAS INCURRED BY THE ASSESSEE MAINLY IN RESPECT OF LOAN TAKEN FROM ONE SHRI SURESH SARAF, WHICH WAS SUBSTANTIALLY USED FOR ACQUIRING SHARES. IT WAS ALSO FOUND BY THE LD. CIT(APPEALS) F ROM THE BALANCE-SHEET OF THE ASSESSEE AS ON 31.03.2005 THAT THE LOAN FUND S RAISED BY THE ASSESSEE WERE ABOUT RS.18.6 CRORES, WHILE THE INVES TMENT MADE IN SHARES WAS RS.20.9 CRORES. AS FURTHER FOUND BY THE LD. CIT (APPEALS) FROM THE RELEVANT DETAILS FURNISHED BY THE ASSESSEE THAT THE NET PROFIT EARNED BY THE ASSESSEE WAS USED AS MARGIN MONEY ON A LARGE NU MBER OF OCCASION DURING THE YEAR UNDER CONSIDERATION. ON THE BASIS O F THESE FINDINGS OF FACT, THE LD. CIT(APPEALS) ARRIVED AT A CONCLUSION THAT THE BORROWED FUNDS WERE MAINLY UTILIZED BY THE ASSESSEE FOR SHARE TRAD ING BUSINESS AND NOT FOR KEEPING MARGIN MONEY IN THE F&O SEGMENT. AT THE TIME OF HEARING BEFORE US, THE LD. D.R. HAS NOT BEEN ABLE TO REBUT OR CONTROVERT THE FINDINGS RECORDED BY THE LD. CIT(APPEALS) IN THIS C ONTEXT. WE, THEREFORE, FIND NO JUSTIFIABLE REASON TO INTERFERE WITH THE IM PUGNED ORDER OF THE LD. CIT(APPEALS) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE AND UPHOLDING THE SAME, WE DISMISS GROUND NO. 3 OF THE REVENUES APPE AL. 28. AS REGARDS THE ISSUE INVOLVED IN GROUND NO. 4 O F THE REVENUES APPEAL FOR A.Y. 2005-06 RELATING TO THE TREATMENT G IVEN BY THE LD. CIT(APPEALS) TO THE ASSESSING OFFICER TO CHARGE TAX ON SHORT-TERM CAPITAL I.T.A. NO. 852/KOL./2008 ASSESSMENT YEAR: 2003-2004 ITA NO. 299/KOL/2011 ASSESSMENT YEAR: 2005-2006, ITA NO. 417/KOL/2011 ASSESSMENT YEAR: 2005-2006 & ITA NO. 1200/KOL/2012 ASSESSMENT YEAR: 2008-2009 PAGE 26 OF 27 GAIN AT 10% AS PER SECTION 111A OF THE ACT, IT IS O BSERVED THAT THE SAID SECTION HAS BEEN INTRODUCED IN THE ACT W.E.F. 01.04 .2005 AND THE SAME, THEREFORE, HAS BEEN MADE APPLICABLE FROM THE YEAR U NDER CONSIDERATION, I.E. A.Y. 2005-06 AND NOT FROM A.Y. 2006-07 AS SOUG HT TO BE CONTENDED BY THE LD. D.R. WE, THEREFORE, FIND NO INFIRMITY IN TH E DIRECTION GIVEN BY THE LD. CIT(APPEALS) TO THE ASSESSING OFFICER TO LEVY T AX ON SHORT-TERM CAPITAL GAIN AT 10% AS PER SECTION 111A. GROUND NO. 4 OF TH E REVENUES APPEAL IS ACCORDINGLY DISMISSED. 29. ALTHOUGH THE ASSESSEE HAS FILED AN APPEAL FOR A .Y. 2008-09 IN ITA NO. 1200/KOL/2012, THE LD. COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING BEFORE US HAS SOUGHT PERMISSION OF THE BENC H TO WITHDRAW THIS APPEAL FILED BY THE ASSESSEE. THE PERMISSION AS SOU GHT BY THE ASSESSEE IS GRANTED AND THE APPEAL IS DISMISSED AS WITHDRAWN. 30. IN THE RESULT, TO SUM UP ITA NO. 852/KOL/2008 F ILED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES, ITA NO. 417/KOL/2011 FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURP OSES, ITA NO. 299/KOL/2011 FILED BY THE REVENUE IS PARTLY ALLOWED AND ITA NO. 1200/KOL/2012 FILED BY THE ASSESSEE IS DISMISSED AS WITHDRAWN. ORDER PRONOUNCED IN THE OPEN COURT ON JULY 14, 2016 . SD/- SD/- (S.S. VISWANETHRA RAVI) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER KOLKATA, THE 14 TH DAY OF JULY, 2016 COPIES TO : (1) DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-6, KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 I.T.A. NO. 852/KOL./2008 ASSESSMENT YEAR: 2003-2004 ITA NO. 299/KOL/2011 ASSESSMENT YEAR: 2005-2006, ITA NO. 417/KOL/2011 ASSESSMENT YEAR: 2005-2006 & ITA NO. 1200/KOL/2012 ASSESSMENT YEAR: 2008-2009 PAGE 27 OF 27 (2) LOKENATH SARAF SECURITIES LIMITED, M-33, FORTUNE CHAMBERS, 6, LYONS RANGE, KOLKATA-700 001 (3) COMMISSIONER OF INCOME-TAX (APPEALS)-VI, KOLKA TA, (4) COMMISSIONER OF INCOME TAX, KOLKATA (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.