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2018 (1) TMI 191 - ITAT MUMBAIDisallowance of depository charges related to shares held as stock in trade - Held that:- FAA directed the AO to restrict the disallowance for earning exempt income to the extent of 0. 5% of average of the value of investment as per rule 8D of the Rules. However, he did not decide the issue of disallowance of depository charges of ₹ 2. 20 lakhs, though a specific ground was raised before him. As the ground of appeal is not arising out of the order of the FAA, so, we are not in a position adjudicate the same. As stated earlier, the assessee had raised the issue before the FAA. So, in the interest of the justice, we restore back the matter to the file of the FAA. First ground of appeal is decided in favour of the assessee, in part. Deduction claimed u/s. 35DD - Held that:- We find that before the AO the assessee for the first time claimed that expenditure was allowable u/s. 35DD of the Act, that he rejected the claim made by it. The basic issue is as to whether the expenditure is allowable u/s. 35DD of the Act or not. We are of the opinion that the matter needs further verification. So, in the interest of justice we are restoring back the issue to the file of the FAA, who would decide the issue after considering the judgment of Pruthvi Brokers (2012 (7) TMI 158 - BOMBAY HIGH COURT)of the Hon’ble Bombay High Court. Second ground of appeal is partly allowed. Valuation loss treated as speculation loss - Held that:- It was brought to our notice that identical issue had arisen in the earlier year [2017 (3) TMI 1327 - ITAT MUMBAI] and that tribunal had decided the issue in favour of the assessee as held both the authorities did not consider the argument about the exception to the explanation to section 73, that the assessee had earned profit of ₹ 2, 20, 67, 126/-, that it had STCG on sale of mutual funds to the tune of ₹ 2. 68 crores. It is a fact that shares traded by the assessee were not of any of the good companies. The assessee had in the normal course of business purchased the shares. Because of the turmoil in the share market in the year under consideration the assessee suffered huge loss. It was valuing its stock on cost or market price whichever was lower and had accordingly valued the shares. The resultant loss, in these circumstances, cannot be considered speculative loss as held by AO and confirmed by FAA. Disallowance made u/s. 14A - Held that:- Provisions of section 14A r. w. r. 8D were introduced to discourage the assessees from claiming double deductions i. e. claiming expenditure against exempt income. So, expenses booked against exempt income are not be allowed. But, first step is incurring of expenses. The AO/FAA has not given any details of expenses incurred by the assessee for earning exempt income. They have also not given any reason as to why the calculation made by the assessee was not acceptable. No automatic disallowance can be made u/s. 14A of the Act. Secondly, the assessee has made claim about stock-in-trade. No comment has been offered by the FAA in that regard. The assessee is offering income from business of share trading so all the expenses related to the business have to allowed. Considering the peculiar facts and circumstances of the case, we decide first ground of appeal in favour of the assessee. We would also like to refer the case of India Advantage Securities Ltd. (2015 (6) TMI 140 - BOMBAY HIGH COURT), wherein it has been held that no disallowance can be made u/s. 14A for the securities held as stock in trade.
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