ITO 3(3)(3), MUMBAI vs. TCFC FINANCE LTD, MUMBAI

The assessee is engaged in the business of finance, investments, trading in shares, securities and derivatives. The first issue urged by the revenue relates to the disallowance made by the AO relating to exempt dividend/LTCG income for the purpose of computing book profit u/s 115JB of the Act. The assessee declared long term capital gain of Rs.3,53,750/- and dividend income of Rs.36,42,683/- during the year under consideration and claimed both the income as exempt. The assessee disallowed a sum of Rs.3,37,827/- both u/s 14A of the Act and for computing book profit u/s 115JB of the Act. The assessee excluded the securities held as stock in trade for the purpose of 2 M/s. TCFC Finance Ltd.

The Ld CIT(A), however, agreed with the contentions of the assessee that the securities held as stock in trade need not be taken into account as per the decision rendered by the Mumbai ITAT in the case of DCIT Vs. India Advantage Securities Ltd (ITA No.6711/Mum/2011 dated 14.09.2012) and other decisions. Accordingly he deleted the addition made by the AO and restricted the disallowance made for computing book profit u/s 115JB of the Act to the extent disallowed by the AO.

We heard the parties and perused the record. For the purpose of computing disallowance u/s 14A of the Act for computing total income under normal provisions of the Act, the securities held as stock in trade have to be excluded as per the decision of the co-ordinate bench rendered in the case of DCIT Vs. India Advantage securities Ltd (supra). The Ld A.R submitted that the assessee has disallowed a sum of Rs.3,37,827/- for the purpose of computing book profit u/s 115JB of the Act and the same would be reasonable and would meet the requirements of provisions of sec.115JB of the Act also. We have earlier noticed that the assessee has received dividend income of Rs.36.42 lakhs and long term capital gain of Rs.3.53 lakhs. The dividend income was mainly received from the securities held as stock in trade. Hence, in the facts and circumstances of the case, we are of the view that the disallowance of Rs.3,37,827/- made by the AO for the purpose of computing book profit u/s 115JB of the Act would meet the requirements of sec. 115JB. Accordingly we confirm the order passed by Ld CIT(A) on this issue.

The next issue urged by the revenue relates to the adjustment of loss arising on revaluation of shares as at the end of the year against profit in sale of shares. The assessee realized profit of Rs.2401.71 lakhs on purchase and sales of shares. On account of revaluation of shares as at the year end, the assessee suffered loss of Rs.255.05 lakhs. The assessee claimed set off of loss arising on account of revaluation of closing stock shares of shares against the profit arising from share trading activities. The AO treated the loss arising on revaluation of shares as notional loss and also speculation loss within the meaning of Explanation to sec. 73 of the Act. However he treated that the profit of Rs.2401.71 lakhs as business profit. Accordingly he held that the said loss cannot be set off against the business profits and accordingly rejected the claim of the assessee

The Ld CIT(A) held that the mark to market loss is not a notional loss. By following the decision rendered by Hon’ble Bombay High Court in the case of CIT Vs. Lokmat Newpapers (P) Ltd (322 ITR 43), the Ld CIT(A) held that the profit/loss arising on purchase and sale of shares is also speculation profit/loss. He agreed with the AO that the loss arising on valuation loss is also speculation loss. Accordingly he directed the AO to allow set off of valuation loss against the profits arising on purchase and sale of shares.

We heard the parties on this issue. The ld A.R submitted that an identical issue was considered by the co-ordinate bench in the assessee’s own case in AY 2009-10 in dated 19-12-2013 and the Tribunal has upheld the claim of the assessee by following the decision rendered by Hon’ble Bombay High Court in the case of Lokmat Newspapers (P) Ltd (supra). He submitted that the decision so rendered by the ITAT has since been upheld by the Hon’ble Bombay High Court, vide its order dated 19-10- 2016 passed in Income tax Appeal No.1052 of 2014. We notice that the Tribunal has held that the loss arising on valuation of shares is eligible for set off against the profit arising on purchase and sale of shares, meaning thereby, both the items have been treated as speculation loss.

Since the Ld CIT(A) has followed the decision rendered by the Hon’ble jurisdictional Bombay High Court in deciding this issue in favour of the assessee, we do not find any reason to interfere with his order.

In the result, the appeal of the revenue is dismissed. Order has been pronounced in the Court on 07.03.2018.