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Income Tax Appellate Tribunal, “F”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI AMARJIT SINGH, JM
O R D E R PER R.C.SHARMA (A.M.) : This an appeal filed by the assessee against the order of CIT(A), Mumbai, for the assessment year 2009-10.
In the first ground the assessee is aggrieved for disallowance made u/s.14A of the I.T.Act.
We have considered rival contentions and found that the assessee is dealing in shares and securities. While computing disallowance under Rule 8D the AO had taken into account the amount invested in shares held as stock in trade. As per our considered view in the case of assessee dealing in shares and securities, wherein profit is earned on sale and purchase of shares and F&O, the amount invested in share held as stock in trade should be excluded while making the disallowance under rule 8D.
2 Our view finds support form the decision of ITAT Kolkata bench in the case of Baljit Securities (P) Ltd., 68 SOT 82, wherein it has been held that the shares held as stock-in-trade should not be taken into account while working the disallowance of expenses incurred on earning the tax free income.
In view of the above judicial pronouncements, we restore the issue back to the file of AO to recompute the disallowance under rule 8D after excluding the amount invested in shares held as stock in trade, and only shares held as investment is to be taken into account for working out the disallowance. We direct accordingly.
The assessee is also aggrieved for not allowing setting off loss of purchase and sale of shares against income earned on future and option. Similar issue has been considered by the Kolkata Bench of the Tribunal in the case of Baljit Securities (supra), wherein it was held that in case of assessee engaged in the business of share trading, the activity of purchase and sale of delivery based shares and purchase and sale of non-delivery based shares i.e. derivatives. And incurred loss on delivery based purchase and sale of shares and earned profit on non delivery based sale and purchase of shares, the entire transaction carried out by the assessee is within the umbrella of speculation transaction and, therefore, there was no bar in setting off loss arose out of derivative, from income arose out of buying and selling of shares. The I.T Act, 1961 has been amended by Finance Act, 2005 w.e.f 1.4.2005 and by inserting clause ‘d’ below Proviso of sub-Section 5 of Section 43 it has been 3 provided that trading in derivative carried out in the recognized stock exchange should not be considered as speculative business. The ITAT Kolkata Bench in the case of ITO vs. Arena Textiles & Industries Ltd. in ITA no. 1019/Kol/2011 dated 29.12.2011 has held that the transaction done by delivery as well as the transaction of derivative of shares profit / loss is not hit by Section 43(5) and therefore held that the aggregation of share trading loss and profit from derivative transactions should be done before the application of the explanation to section 73. The ITAT Kolkata Bench has taken the same view in the case of ITO vs. Rajanigandha Properties Ltd. in ITA no. 1011/Kol/2011 and also in Arion Commercial Pvt. Ltd. Kolkata in ITA no. 1010/Kol/2011 and held that the transaction done by delivery as well as the transaction of derivative of shares, profit/loss is not hit by Section 43(5) and therefore the aggregation of share trading loss and profit from derivative transactions should be done before the application of the Explanation to Section 73.
The Hon’ble Kolkata High Court in the case of Baljit Securities (P) Ltd., 368 ITR 470, had also held as under :- “6.It would, thus, appear that where an assessee, being the company, besides dealing in other things also deals in purchase and sale of shares of other companies, the assessee shall be deemed to be carrying on a speculation business. The assessee, in the present case, principally is a share broker, as already indicated. The assessee is also in the business of buying and selling of shares for self where actual delivery is taken and given and also in buying and selling of shares where actual delivery was not intended to be taken or given. Therefore, the entire transaction carried out by the assessee, indicated above, was within the umbrella of speculative transaction. There was, as such, no bar in setting off the loss arising out of derivatives from the income arising out of buying and selling of shares. This is what the learned Tribunal has done."