MESH STOCK BROKERS P.LTD,MUMBAI vs. ACIT 4(3), MUMBAI

The present Appeal filed by the assessee is against the order of Ld. CIT (Appeal) – 8, Mumbai dated 19.03.13 for AY 2009-10 on the grounds mentioned herein below:-

The learned CIT(A) has erred in not accepting the plea of the appellant of modifying the revised return ! to the extent ignoring Rs 97,38,113/- as speculative loss and treating the same as a part of the arbitrage j activity.

The learned CIT(A), as a consequence of the treatment of share trading as speculative in terms of \ explanation to section 73, has erred in disallowing expenses relating to the same being STT of Rs. 32,44,048/- and other expenses of Rs. 28,90,831/-

Ld. AR appearing on behalf of the assessee submitted before us that the present case is fully covered by the order of Hon’ble ITAT in & 3660/Mum/14 for AY 2009- 10 in the case of M/s J. M. Financial Services Ltd. Vrs. JCIT, wherein the identical grounds raised in the present appeal have already been decided on merits.

We have heard both the parties and we have also perused the material placed on record as well as the orders passed by revenue authorities. We find that the identical ground has already been decided by the Coordinate Bench of Hon’ble ITAT in & 3660/Mum/14 for AY 2009-10 in the case of M/s J. M. Financial Services Ltd. Vrs. JCIT. The operative portion of the order of Hon’ble ITAT passed in ITA No. contained in para no. 21 & 22, which is reproduced below:-

We have considered the rival contentions. In this case, the peculiarity of the business of the assessee is that the assessee so manages his transactions of sale and purchase in shares in cash segment and in future segment that the final outcome will be a profit. The transactions of the assessee, therefore, cannot be segregated to arrive at profit and loss in both these transactions independently or separately. The nature of the business of the assessee is such that the transactions of the assessee in both segments are part of composite business of the assessee and the M/s Mesh Stock Brokers Pvt. Ltd. transactions are so managed that the resultant figure will be a profit. We, therefore, do not find any justification on the part of the lower authorities to interpret the provisions of the Income Tax Act to the disadvantage of the assessee and to segregate the transactions in cash and future segment which, in our view, will be against the spirit of the taxation laws. Even otherwise the case of the assessee is squarely covered by the decision of the Hon’ble Delhi High Court in the case of “CIT vs. DLF Commercial Developers’ (supra) wherein the Hon’ble Delhi High Court has categorically held that in terms of explanation to section 73, by all accounts, derivatives are based on stocks and shares which fall squarely within explanation to section 73 and therefore loss from sale-purchase of such derivatives would be speculative loss. The Hon’ble Delhi High Court has, thus, held that though under provisions of section 43(5), the transactions in derivatives at certain stock exchanges are deemed to be non-speculative, however, as per the explanation to section 73 for the purpose of computation of business loss the derivative transactions squarely fall within the scope of explanation to section 73. Under the circumstances, both the transactions i.e. the transactions in the derivative and transactions in the cash segment can be treated as speculative transactions as per explanation M/s Mesh Stock Brokers Pvt. Ltd. to section 73 and hence the profit or loss against both the segments can be adjusted or set off against each other.

Even otherwise as discussed above, the peculiarity of the business of the assessee is such that the transactions carried out by the assessee in cash segment and in future segment cannot be segregated. The business of the assessee survives on the ultimate resultant figure arrived at after setting off/adjusting of the profit and loss from each segment. It cannot be said that the transactions in each segment done by the assessee are independent of each other. Before parting we would like to further add that certain exceptions have been carved out under section 43(5) vide which certain transactions in derivative named as ‘eligible transactions,’ done on a recognized stock exchange, subject to fulfillment of certain requirements, are deemed to be nonspeculative. The said provisions have been inserted in the Act for the benefit of the assessees keeping in view the fact that in such type transactions on recognized stock exchange, the chance of manipulating and thereby adjusting the business profits towards speculative losses by the assessee is negligible because such transactions are done on recognized stock exchange and there are less chances of manipulation of figures of profits and losses. These M/s Mesh Stock Brokers Pvt. Ltd. provisions have been inserted for the benefit of the assessee so that the assessee may be able to set off and adjust his profit and losses from derivatives in commodities against the normal business losses. These provisions are intended to ease out the assessee from the difficulties faced due to the stringent provisions separating the speculative transactions from the normal transactions. However, these exclusions given to the assessee cannot be allowed to be so interpreted to the disadvantage of an assessee so as to give it a different meaning and thereby denying the assessee the set off of otherwise eligible business loss from one segment as against the other segment, especially when the activity done by the assessee is a composite activity and profit and loss in one segment not only depends but the very transaction is done taking into consideration not ‘expected’ but certain future profit or loss in other segment.