SATGURU CAPITAL & FINANCE P. LTD,MUMBAI vs. ITO 4(2)(2), MUMBAI

2 I . T . A . N o . 4 9 1 4 , 4 9 7 7 , 4 5 6 4 a n d 3 6 7 2 / M u m / 2 0 1 4 आदेश / O R D E R PER RAJESH KUMAR, A. M: The captioned are appeals by the assessees and the revenue pertaining to assessment year 2009-10 and 2010-11. The appeals for the assessment year 2010-11 is directed against the order of ld.CIT(A)-39, dated 23.5.2014 and appeals for the assessment year 2009-10 is directed against the order of ld.CIT(A)-8, dated 24.3.2014. Since the issues agitated in all these appeals filed by the assessee and revenue are almost identical in nature, we shall take up the appeal relating to the assessment year 2010-11 filed by the assessee first as this being the lead case. The facts relating to the issues under consideration are discussed hereunder with reference to A.Y 2010-11.

taken by the assessee are as under : “1) On the facts and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of Learned Assessing in disallowing the further expenses of Rs.16,65,8031 - u/s.14A of the Income Tax Act, 1961 by invoking the rule 80, without considering the facts and circumstances of the case. 2) On the facts and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of Learned Assessing in disallowing the claim of Bad Debts, without considering the facts and circumstances of the case. 3) On the fact and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of Learned

3. I . T . A . N o . 4 9 1 4 , 4 9 7 7 , 4 5 6 4 a n d 3 6 7 2 / M u m / 2 0 1

4. Assessing Officer in disallowing Research and processing fees of Rs.11,75,000/- without considering the fact and circumstances of the case.”

4 I . T . A . N o . 4 9 1 4 , 4 9 7 7 , 4 5 6 4 a n d 3 6 7 2 / M u m / 2 0 1 4 The net disallowance was made at Rs. 16,65,803/- after allowing the credit of suo motto disallowance by the assessee of Rs.3,64,985/-. In the appellate proceedings, the FAA confirmed the order of the AO on the ground by holding as under : “5.3 I have carefully considered the matter. The appellant had indeed made suo motu disallowance under section 14A in a sum of Rs.3,64,985/-. This indeed is a tacit admission on the part of the appellant that disallowance under section14A is indeed called for. Therefore, it is held that in the case of the appellant. As committed by the appellant himself, the provisions of section 14A are applicable and indeed the appropriate disallowance is called form. As regards the quantum of disallowance to be made, the sum disallowed by the appellant in a sum of Rs.3,64,985 is indeed an estimated figure. As pointed out by the AO, as held by the jurisdictional High Court in the case of Godrej and Boyce Mft. Co.Ltd (2010) 328 ITR 81 from AY 2008-09 and onwards. Rule 8D will apply. The Assessing Officer has clearly shown forth that he is not satisfied with the correctness of the computation as made by the appellant. In fact the appellant has certainly not been able to establish the basis or appropriateness of the disallowance computed at Rs. 3,64,098/-_ Therefore it is categorically held that in this case the Assessing Officer was correct in applying Rule 80 la compute the disallowance under 8.14A. The appellant has raised a contention that it has enough own funds and when the investments made arc much less that the own funds available, it can be deducted that the investment are made out of own funds. This is too facile an explanation to be accepted. In matters with regard to a fiscal statute there can be no assumptions/presumptions nor can anything be left to be deduced from. It is the statutory obligation of a tax payer to prove the contentions as raised by him. The appellant has not made any effort to establish that it had enough own free funds available to make the investments. It is one thing to have enough own funds and another thing to have enough own free funds available. As per the Balance Sheet as at 31.3.2010. the appellant has a share capital of Rs.3.26 Crores and Reserve and surplus of Rs.1.84 crores. But then it is common knowledge that the shareholders Funds have been deployed as fixed assets and otherwise. Hence, what is to be established is what is the quantum of own free funds available have 5 I . T . A . N o . 4 9 1 4 , 4 9 7 7 , 4 5 6 4 a n d 3 6 7 2 / M u m / 2 0 1 4 neither been submitted nor the presence of sufficient own free funds established. The case laws as relied upon by the appellant are distinguishable in that in the appellant’s case the appellant has not been able to satisfy the authorities that it had sufficient free fund available to source the investment. Therefore the action of the AO in applying rule 8D to compute the disallowance is confirmed. However, the AO will exclude the value of stock, if any, while computing the disallowance u/s 14A r.w.8D”

3.1. We have considered the rival contentions and perused the relevant material placed before us including the impugned order on the issue and the decisions relied upon by the ld.AR during the course of hearing. In this case, we find that the assessee has own available funds sufficient to cover the investments which yielded tax free income and therefore no disallowance is called for u/r 8D(2)(ii) of Rules . The assessee has share capital and reserves & surplus of Rs.3.26 crores and Rs.1.84 crores respectively as on 31.3.2010 whereas the investment were to the tune of Rs.4.20 crores and thus the assessee’s own tax fee funds were sufficient to cover the amount of investments from the assessee yielding income by way of dividend. We find merit in the contentions of the ld.AR that in view of the ratio laid down in the case of CIT V/s HDFC BANK LTD. [2014] 366 ITR 505 (Bom) where the mixed funds are available in the business both interest free funds as well as interest bearing funds and if the investments in the tax free securities are less than the tax free funds then the presumption would be drawn and that investments in the interest free 6 I . T . A . N o . 4 9 1 4 , 4 9 7 7 , 4 5 6 4 a n d 3 6 7 2 / M u m / 2 0 1 4 security was made out of own funds. Accordingly, following the ratio laid down in the case of HDFC Bank (supra) we are inclined to delete the disallowance of Rs.16,65,803/- by reversing the order CIT(A) on this issue. The AO is directed accordingly .This ground is allowed.

4.1.During the course of assessment proceedings, the AO noticed that the assessee has charged to the profit and loss account a sum of Rs.59,84,843/- on account of bad debts and sundry balances written off and accordingly issued show cause notice to the assessee as to why the assessee fulfilled the conditions of section 36(1)(vii) r.w.s.36(2) of the Act. The assessee submitted before the AO that this amount has been written off as the same pertains to clients the receipts from whom stand offered as income in the past and the money which could not be recovered was charged as per the provisions of the Act. However, the reply of the assessee did not find favour with the AO and he disallowed the same by observing that the assessee has failed to satisfy the conditions as laid down in section 36(1)((vii) read with section 36(2).

7 I . T . A . N o . 4 9 1 4 , 4 9 7 7 , 4 5 6 4 a n d 3 6 7 2 / M u m / 2 0 1 4 4.2.In the appellate proceedings, the ld. CIT(A) after taking into account the contentions and submissions of the assessee partly allowed the appeal by observing and holding as under vide para 6.3:

6.3 I have carefully examined the matter. After the amendment to section 36(1)(vii), the act of writing off a debt as irrecoverable in the accounts is deemed to be discharging the onus of the assessee in holding a debt as bad debt. Furher, in the instant case, the appellant is in the business of share broking. In the case of Shri Vinod Kumar Shastri of Rs.21,69,307/- and Bharat Kumart Vacchani of Rs.24,36,361/- the details as furnished show that all out efforts have been made in order to recover the debts that had become bad. The copies of the legal notice issued are placed on record. Further, the appellant being a share-broker, the monies recoverable, from a client to the extent of brokerage, is to be treated as a bad debt, as held in the case of DCIT V/s Shreyas J Morakhia. Hence, it is held that to the extent of brokerage payable, taken as part of income, the AO will allow the claim in respect of all the claims as made by the appellant 4.3. At the outset, the ld. AR submitted that the issue of bad debts is fully covered by the decision of the Co-ordinate Bench of the Tribunal in assessee’s own case in (AY-2008-09) dated 20.6.2012 and therefore the addition made should be ordered to be deleted. The ld. DR appeared to be fairly agreed with the contention of the ld.AR.

4.4. After hearing both the parties and on perusal of the record and after going through the order of the Tribunal in assessee’s own case, we find 8 I . T . A . N o . 4 9 1 4 , 4 9 7 7 , 4 5 6 4 a n d 3 6 7 2 / M u m / 2 0 1 4 that the issue stands covered in favour of the assessee. We for the ready reference reproduce the operative part of the Tribunal order as under:

5. On perusal of the submissions made before AO and the CIT (A) and perusing the paper book in this regard, we are of the opinion that assessee has satisfied the conditions stipulated in section 36(2)(i) since these are business debts which could not be recovered and written off. Following the principles laid down by the Special Bench in the case of Shreyas S. Morakhia (Supra) we hold that assessee satisfied the conditions prescribed under section 36(2). Moreover the Hon'ble Supreme Court in the case of TRF Ltd vs. CIT 323 ITR 397 has already considered that it is not necessary to establish that the debt had in fact had become irrevocable after the provisions were amended w.e.f. 1.4.1989. Following the above principles, since necessary details were already filed before the authorities, we have no hesitation in allowing the ground. AO is directed to allow the bad debt as claimed.

4.5. Respectfully following the precedent laid down by the Co-ordinate Bench of the Tribunal in the assessee’s own case, we direct the AO to allow the claim of the assessee.The ground is accordingly allowed.

5.1. Facts of the issue in brief are that the AO noticed that the assessee has debited to profit and loss account an amount of Rs.11,75,000/- towards Research and processing fees. Accordingly, the AO issued notice to the assessee as to why the same should not be disallowed. In 9 I . T . A . N o . 4 9 1 4 , 4 9 7 7 , 4 5 6 4 a n d 3 6 7 2 / M u m / 2 0 1 4 response, the assessee submitted that the main object of the assessee was to provide of business centers, housekeeping and infrastructural facilities, project consultancy and management services and also prove services in research development and marketing, manpower and conferencing internet facilities, develop e-commerce and electronics facilities and establish centres for providing facilities in software, hardware and web designing and also charging remuneration of the employees. However, the reply of the assessee did not find favour with the AO and accordingly, added the same to the total income of the assessee on the ground that the assessee failed to prove the genuineness of the claim and to failed to prove the wholly and exclusivity u/s 37(1).

5.2.In the appellate proceedings, the ld.CIT(A) confirmed the action of the AO by observing and holding as under :

7.3 I have carefully considered the matter. The appellant has made payment of Rs. 11,75,000/- to M/s Key tone Corporate Solutions P. Ltd. The appellant has furnished before me copies of the bills raised on it in order to vouch for the Said expenditure. On an appreciation of the matter, I am of the view that the appellant has not produced tangible material in order to prove its assertion that the said company had been engaged to carry out research as regards the equity market. Notwithstanding the fact that the said company may be a genuine entity, it is the burden of the appellant company to prove that the said entity had carried out the work as claimed so as to vouch for the genuineness said of the expenditure claimed. Merely because a company is genuine, expenses as debited cannot be allowed unless the bonafides or the claim arc proved. Nothing has been placed on record either before the AO or before the CIT(A) to 10 I . T . A . N o . 4 9 1 4 , 4 9 7 7 , 4 5 6 4 a n d 3 6 7 2 / M u m / 2 0 1 4 evidence the assertion that the expenditure was incurred wholly and exclusively for the purpose of business carried out. Though the appellant had stated that the daily/weekly research reports are received through email and other modes of communication copies of the said records have not been produced. Under the circumstances. I decline to interfere with the action of the AO. The addition of Rs.11,75,000/- is confirmed.

5.3. At the time of hearing, the ld.AR submitted that a similar issue had come up before the ld.CIT(A) in the assessment year 2009-10 and the ld.CIT(A) allowed the appeal of the assessee on the identical facts and circumstances as are in the present case. The revenue did not challenge the findings of the ld.CIT(A) before the higher forum and hence the issue raised in this ground is stands covered by the earlier decision of the First Appellate Authority and therefore prayed that similar stand be taken here also by ordering the deletion of the addition.

5.4. The ld. DR relied upon the orders of authorities below.

5.5. We have heard the rival contentions and perused the material placed before us. We find a similar issue arose in the assessment year 2009-10 in which the addition was made by the AO to the total income of the assessee but in the proceedings before the FAA, the ld. CIT(A) deleted the addition made by the AO vide para 6.3 of the appellate order in appeal No.8/Cir-4/344/11-12 AY-2009-10 and the revenue has not challenged the decision of ld.CIT(A) before the Tribunal. Therefore, revenue’s plea cannot 11 I . T . A . N o . 4 9 1 4 , 4 9 7 7 , 4 5 6 4 a n d 3 6 7 2 / M u m / 2 0 1 4 be raised at this juncture to rake up the same issue in the subsequent issue as the issue has been settled in the previous year. Moreover, even on merits the case of the assessee is very strong case as the payment is made to the same party viz M/s Key tone Corporate Solutions P. Ltd for providing data analysis and research on the stock market as well as commodity market. In view of the said facts and circumstances, we are inclined to direct the AO to delete the addition by reversing the findings of the ld. CIT(A).The appeal is allowed on this ground.

“1) Whether on the facts and circumstances of the case and in Law, the Learned CIT(A) has erred in deleting the disallowance of claim of bad debts of Rs.59,84,843 made by the AO. 2) Whether on the facts and circumstances of the case and in Law, the Learned CIT(A) has erred in deleting the disallowance of claim of repairs and maintenance expenses of Rs.23,83,275/- 7. The ground raised by the revenue in the first grounds of appeal is identical to that of ground no.2 in which we have decided in favour of assessee vide paragraph 4 of this order above. Since the issue has been decided by us and stands covered by the Co-ordinate Bench of the Tribunal (supra), we are inclined to dismiss the ground No.1 taken by the revenue. Accordingly ground no.1 is dismissed.

12 I . T . A . N o . 4 9 1 4 , 4 9 7 7 , 4 5 6 4 a n d 3 6 7 2 / M u m / 2 0 1 4 8. The issue raised by the revenue in grounds of appeal no.2 is against the deletion of addition of Rs.23,83,275/- made by the AO on account of repairs and maintenance expenses. 8.1. Brief facts of the issue are that the assessee has debited an amount of Rs.25,24,082 to its profit and loss account on account of repairs and maintenance expenses out of which Rs.19,22,385/- were incurred on purchase of Myanmar Gurjan Wood Logs and Rs.4,60,890/- on account of labour charges which as per the AO were of capital nature as the said expenses were apparently incurred either on renovation or to fabricate new structures and accordingly treated the same as capital expenditure by adding/disallowing the same.

8.2. In the appellate proceedings, the ld. CIT(A) allowed the appeal of the assessee after considering the contentions and submissions of the assessee treating the expenses incurred on repairs and maintenance and on renovation of office of revenue in nature. The observations and findings of the ld.CIT(A) are as under :

8..3 On a consideration of the matter, I am of the view that the expenses incurred towards purchase of Myanmar Gurjan Wood Logs and the labour charges cannot be treated as having resulted in advantage of enduring nature so as to be treated as capital. Further, the Assessing Officer has not brought on record that the expenditure has resulted in bringing into existence any new asset of an enduring nature. No clear finding has been given by the Assessing Officer in this regard. On an entire appreciation of the matter, the expenditure incurred towards purchase of Logs, for renovation of the 13 I . T . A . N o . 4 9 1 4 , 4 9 7 7 , 4 5 6 4 a n d 3 6 7 2 / M u m / 2 0 1 4 rented premises is in the nature of current repairs" and therefore held as revenue. The Assessing Officer is directed to allow the sum of Rs.23,83,275/- claimed under repairs and maintenance “ 8.3. After hearing the rival contentions and perusing the material placed before us, we find that the assessee has incurred an expenditure on repairs and maintenance and renovation of office premises and therefore the same cannot be treated as capital in nature. We are, therefore, in complete agreement with the ld.CIT(A) that the said expenses are admissible as revenue expenditure. Accordingly we uphold the order of CIT(A) dismissing the ground raised by the revenue.

9. Only ground raised

by the assessee in this appeal is as under : 1) On the facts and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the addition of Rs.29,77,239/- made by the AO by wrongly interpreting and applying the provisions of section 14A of the IT Act, 1961 r.w.rule 8D of the Income Tax Rules, 1962 while ignoring he submissions of the AR.:”

10. The facts of this issue are identical to that of ITA No. No.4914/Mum/2016, which we have decided in para 3 and 4 of this order above in favour of the assessee. Therefore, to maintain the consistency with our findings, we follow the same and direct the AO to delete the addition of Rs. 29,77,239/-. Accordingly this ground is allowed.

14 I . T . A . N o . 4 9 1 4 , 4 9 7 7 , 4 5 6 4 a n d 3 6 7 2 / M u m / 2 0 1 4

taken by the revenue are as under : 1. "Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the disallowance on account of treating the loss incurred in share trading in cash segment of Rs.77,49,221/- as Speculation Loss u/s 73?" 2. "Whether on the facts and in the circumstances of the case and in law, the Ld.CIT (A) was justified in deleting disallowance of Rs. 2,78,406/- made by the Assessing Officer on account of bad debts where the assessee has clearly not fulfilled the conditions laid down in Sec.36(2) of the Income Tax Act, 1961?"

12. The grounds of appeal no.1 is against the deleting the disallowance by the ld. CIT(A) by treating the share trading loss as speculation loss u/s 73 of the Act. 12.1. Facts in brief are that during the assessment proceedings, the AO noticed that the assessee has set off loss from share trading (cash division) of Rs.77,49,222/- against the income of Rs.1,15,64,503/- earned from F&O segment and thus offered an income of Rs.33,32,552/- from share trading. According to the AO, the loss incurred in the said trading division is speculation loss in terms of explanation (1) to section 73 of the Act whereas the income from F&O segment is a normal business income and therefore the said loss from trading division could not be set off against the income of F&O segment. The assessee replied before the AO 15 I . T . A . N o . 4 9 1 4 , 4 9 7 7 , 4 5 6 4 a n d 3 6 7 2 / M u m / 2 0 1 4 which has been incorporated in para 4.3 of the assessment order and is reproduced as under : “4.3 The assessee company had filed the explanation-as under: ( a) At the outset it is submitted that even on application of deeming provisions pursuant to explanation to sec. 73 of the Act the net result of dealing of the assessee company in thepurchase and sale of shares of other companies is a profit which is offered for tax and therefore the question. of carry forward of the speculation loss and. proportionate expense thereto does not arise. b) It appears that your good self while calculating the deemed speculation loss for. the relevant year for the assessee company has not taken into account the F&O profit which is also a result of transactions by way of purchase and sale of shares . of other companies carried out· by. the assessee company and as per the deeming provisions of explanation to Sec. 73 of the Act; are to be treated a speculation profit. In this : regard attention of your goods elf is invited to the legal position wherein-it is clear that explanation to sec. 73 is to be applied ignoring the definition of speculation profit / loss u /s 43(5) of the Act defining a speculative transaction.. on all the transactions by way of purchase and sale of shares of other companies. In view of the same one cannot apply the deeming provisions of explanation to sec. 73 only to the trading in delivery based share transaction as they are not included in speculative transaction u/ s. 43(5) of the Act and exclude F&O transactions which. are although non- delivery based and covered u/ s. 43(5) of the Act but specifically excluded as an exception to section 43(5) of the Act by way of a proviso (d) w.e.f as 1.4.2006 as such transaction are also by way of purchase and sale of shares of other companies within the definition of the Securities Contracts (Regulation) Act, 1956 and are carried out at recognized stock exchanges only.

12.2. However, the reply of the assessee did not find favour with the AO and He rejected the contentions of assessee regarding said loss of Rs.77,49,222/- by treating the same as speculation loss under explanation 16 I . T . A . N o . 4 9 1 4 , 4 9 7 7 , 4 5 6 4 a n d 3 6 7 2 / M u m / 2 0 1 4 (1) to section 73 of the Act thereby rejecting the setting off claim agains the F&O income by the assessee resulting into addition to the income of the assessee. 12.3. In the appellate proceedings, the ld. CIT(A) allowed the appeal of the assessee after considering the detailed submissions of the assessee incorporated in para 2.2 to 2.6 of the appellate order. The ld.CIT(A) vide para 2.7 to 2.15 decided the issue as under (only relevant paras are reproduced below): “2.7 I have…. 2.10 The AO is of the view…..in the case of Prasad Agents (P) Ltd V/s ITO (2009) Taxman 178 (Bom) (HC), while dealing exhaustively, the Honb’le High Court held as under: “Section 73 of the Income-tax Act, 1961 - Losses - In speculation business - Assessment year 2001-02 - Whether in view of clear language of Explanation to section 73, a company carrying on business of purchase and sale of shares shall be deemed to be carrying on speculation business - Held, yes - Whether Circular No. 204, dated 24-7-1976, which contains explanatory notes to Taxation Laws (Amendment) Act, 1975, may be considered to mean that Explanation to section 73 also includes cases of group companies, but that does not mean that Explanation must be restricted only to group companies and not to other companies who carry on business of sale and purchase of shares either having no controlling interest in other companies or purchasing shares to control other companies - Held, yes - Whether Explanation to section 73 cannot be read to mean only when there is purchase and sale of shares in course of a financial year, but it will cover both, shares which are stock-in- trade and shares which are traded in course of financial year, for purpose of considering loss and profit for that year - Held, yes - Whether, therefore, loss or profit on account of valuation of stock-in- trade of shares would amount to revenue loss or revenue receipt - Held, yes”

17 I . T . A . N o . 4 9 1 4 , 4 9 7 7 , 4 5 6 4 a n d 3 6 7 2 / M u m / 2 0 1 4 …….This position is further supported by the Hon’ble Delhi High Court in the case of CIT V/s DLF Commercial Developers Ltd in vide order dated 11.7.2013) wherein it has been held….

18 I . T . A . N o . 4 9 1 4 , 4 9 7 7 , 4 5 6 4 a n d 3 6 7 2 / M u m / 2 0 1 4 Doing so would be contrary to the statute. Thus contextual application of a definition or term is stressed; wherever the context and setting of a provision indicates an intention that an expression defined in some other place in the enactment, cannot be applied, that intent prevails, regardless of whether standard exclusionary terms (such as "unless the context otherwise requires") are used. In The Vanguard Fire & General Insurance Co. Ltd., Madras v. M/S. Fraser And Ross & Anr AIR 1960 SC 971 it was held that: ―It is well settled that all statutory definitions or abbreviations must be read subject to the qualification variously expressed in the definition clauses which created them and it may be that even where the definition is exhaustive inasmuch as the word defined is said to mean a certain thing, it is possible for the word to have a somewhat different meaning in different sections of the Act depending upon the subject or the context. That is why all ITA 94/2013 Page 11 definitions in statutes generally begin with the qualifying words similar to the words used in the present case, namely, unless there is anything repugnant in the subject or context. Therefore in finding out the meaning of the word " insurer " in various sections of the Act, the meaning to be ordinarily given to it is that given in the definition clause. But this is not inflexible and there may be sections in the Act where the meaning may have to be departed from on account of the subject or context in which the word has been used and that will be giving effect to the opening sentence in the definition section, namely, unless there is anything repugnant in the subject or context. In view of this qualification, the court has not only to look at the words but also to look at the context, the collocation and the object of such words relating to such matter and interpret the meaning intended to be conveyed by the use of the words under the circumstances.‖ Similarly, in N.K. Jain and Ors. v C.K. Shah and Ors. AIR 1991 SC 1289, it was held that: ―4. The subject matter and the context in which a particular word is used are of great importance and it is axiomatic that the object underlying the Act must always be kept in view in construing the context in which a particular word is used...........‖ 11. The stated objective of Section 73- apparent from the tenor of its language is to deny speculative businesses the benefit of carry forward of losses. Explanation to Section 73 (4) has been enacted to clarify beyond any shadow of doubt that share business of certain types or classes of companies are deemed to be speculative. That in another part of the statute, which deals with ITA 94/2013 Page 12 19 I . T . A . N o . 4 9 1 4 , 4 9 7 7 , 4 5 6 4 a n d 3 6 7 2 / M u m / 2 0 1 4 computation of business income, derivatives are excluded from the definition of speculative transactions, only underlines that such exclusion is limited for the purpose of those provisions or sections.To borrow the Madras High Court's expression, ―derivatives are assets, whose values are derived from values of underlying assets‖; in the present case, by all accounts the derivatives are based on stocks and shares, which fall squarely within the explanation to Section 73 (4). Therefore, it is idle to contend that derivatives do not fall within that provision, when the underlying asset itself does not qualify for the benefit, as they (derivatives - once removed from it and entirely dependent on stocks and shares, for determination of their value).

Therefore, the Hon’ble Delhi High Court has categorically observed that the provisions of section 73 of the Act would be applicable even in the case of derivatives to the extent they are backed by stock and shares. Therefore, if the AO invoked the provision of the explanation of section 73, the entire transaction of the appellant become speculative for this purpose as per Delhi High Court and the appellant is entitled for the set off which will make the addition nullified as made by the AO. 2.15 In view of the foregoing discussion, the set off of profit from F&O against loss in cash has to be allowed, the addition made by the ld.AO cannot be sustained both on facts and circumstances of the appellant’s case, the same are accordingly deleted. This ground of appeal is allowed.” 12.4. We have carefully considered the rival submissions and perused the materials placed before us including the case law and impugned orders. The undisputed facts are that during the course of business of share trading ,the assessee has suffered a loss of Rs.77,49,222/- in the share trading business and earning income from F&O segment to the tune of 20. I . T . A . N o . 4 9 1 4 , 4 9 7 7 , 4 5 6 4 a n d 3 6 7 2 / M u m / 2 0 1

4. Rs.1,15,64,503/- and after claiming the set off of the loss in trading division against the income of F&O the net income of Rs.33,23,552/- was offered to tax. The AO invoked the provisions of explanation (1) to section 73 treating it the loss from trading in shares to the tune of Rs.77,49,222/- as speculation loss while treating the income from F&O segment as normal business income and thus denied the set off of loss from trading in shares against the income from F&O segment. For the purpose of better understanding the Explanation (1) to section 73 of the Act we will first dwell into the provisions of explanation 1 to section 73 of the Act first. The said explanation postulate a situation where any part of business of the company consisted of purchases and sale of shares of other companies. In that case, the deeming fiction has been created by the Explanation with income/loss from share trading activity in shares and securities by way of sale and purchase would be deemed to be speculation income or speculation loss. The said explanation also provides for an explanation but it is not applicable in the present case and therefore not discussed. We find merit in the arguments of the ld.AR that if the income of the assessee is treated as speculation income in the trading division in terms of explanation (1) to section 73 of the Act then similar treatment has to be given to the income from F&O segment where the transactions are purely non-delivery based. The ld. CIT(A) has passed very detailed, 21 I . T . A . N o . 4 9 1 4 , 4 9 7 7 , 4 5 6 4 a n d 3 6 7 2 / M u m / 2 0 1 4 comprehensive and reasoned order as has been reproduced herein in above. We are in agreement with the conclusion drawn by the ld.CIT(A) that set off of loss in cash division in shares trading from profit from F&O segment has to be allowed. Accordingly, we uphold the order of the ld.CIT(A) by dismissing the appeal of the revenue.

is with regard to deletion of disallowance of Rs.2,78,406/- made by the AO on account of bad debts. 13.1. The facts of the issue are identical to that of one which has been decided by us in this order while dealing with ground no.2 in and therefore our findings and decision on the said ground would mutatis mutant apply to this ground as well. Accordingly, appeal of the revenue stands dismissed.

14. In sum and substance, the appeals of the assessee are allowed and that of revenue stand dismissed.