TMI Blog2021 (6) TMI 395X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee. It s not as though Assessing Officer straightaway proceeded to compute the disallowance by invoking section 14A of the Act read with Rule 8D of the Rules. By recording the reasons, the learned Assessing Officer proceeded to compute the same. Hence, we reject the contention of the assessee that no satisfaction was recorded by the learned Assessing Officer and consequently the addition is bad. Alternative submission on behalf of the assessee to limit the disallowance to the tune of dividend income received - Submission supported by the decision of Joint Investments P. Ltd. [ 2015 (3) TMI 155 - DELHI HIGH COURT ] wherein it was held that the disallowance of expenditure u/s 14A of the Act cannot exceed the amount of tax exempt income. We, therefore, accept the same and direct the assessing officer to limit the disallowance under section 14A of the Act read with Rule 8D of the Rules and delete the rest of the addition. Appeal of the assessee is allowed in part. - ITA No.- 3503/Del/2015 - - - Dated:- 3-6-2021 - Shri G.S. Pannu, Hon ble Vice President And Shri K.Narasimha Chary, Judicial Member For the Assessee : Sh. KM Gupta, advocate, Sh. Rohit Tiwari, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings the assessee submitted that during the year under consideration, the investment in shares was valued on the basis of native realizable value at the year end and the same has resulted in the profit of ₹ 30, 75, 397/-whereas in the preceding years such valuation resulted in losses, and therefore, the assessee was claiming set off of the speculative losses carried forward from the earlier assessment years out of the speculative profits of this year; that the learned Assessing Officer further observed that since there is no actual purchase or sale of the shares during the year under consideration and the assessee has been treating the profits/losses so generated as notional profit/loss, the set off as claimed cannot be allowed. Ld. AR submits that the loss on account of a fall in value of stock is to be treated as a loss of that business on the ground of prudence and in view of the explanation to section 73 of the Act since the business of the assessee consists in the purchase and sale of shares of other companies, the assessee shall, for the purposes of section 73, may deemed to be carrying on a speculative business to the extent to which the business consists of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the business from dealing of shares against the speculative gains from the business in derivatives. 7. We have gone through the record in the light of the submissions made on either side. It could be seen from the orders of the authorities below, there is no denial of the fact that the assessee has been dealing in speculative transactions and adults regularly showing speculative profit/loss. As a matter of fact, by rallying the investment in shares on the basis of native realizable value at the year end, for the assessment year 2008-09 the assessee had shown a net loss of ₹ 31, 16, 840/-and for the assessment year 2009-10 a net loss of ₹ 23, 26, 578/-. Assessee, however, after setting off of this speculative loss in respect of the business of shares, had carried forward only a loss of ₹ 11, 09, 271/-for the assessment year 89 and ₹ 22, 78, 091/-for the assessment year 2009-10. 8. In view of explanation to section 73 of the Act, the assessee, whose business also consists in the purchase and sale of shares of other companies, has to be considered to have been carrying on a speculative business to that extent. Further, when the valuation of the investm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess, under the specified circumstances, will cover assessees business to the extent to which the business consists of the purchase and sale of such shares. The definition thus sought to be placed is of the speculation business and not speculation profits. As to what will constitute profits from such speculation business, this is to be essentially governed by the normal accounting principles and business practices. Unlike the definition under section 43(5) which defines speculative transactions per se, the deeming provisions of Explanation to section 73 lay down the circumstances in which, and the extent to which, a business is to be deemed as speculation business. The thrust of the pi'ovisions under Explanation to section 73 is on the nature of business, rather than nature of transaction. It is thus immaterial as to whether profit is, or is not, on account of sale and purchase of sharesbut, in our considered view, to the extent it is arising out of business of purchase and sale of shares, it will be hit by the provisions of Explanation to section 7.3- As held by Honble Supreme Court in the case of ChainrupSampatrams case (supra) loss on account of fall in value of stock is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set off against a speculative loss is accordingly deleted. 12. Now coming to the addition of ₹ 5, 04, 602/-by invoking the provisions under section 14A of the Act read with Rule 8D of the Rules, the case of assessee is twofold. Firstly, Ld. AR submits that such an addition is bad for nonrecording of the satisfaction by the learned Assessing Officer and secondly, no addition under section 14A of the Act read with Rule 8D of the Rules can exceed the amount of tax-exempt income. 13. So far as the 1st contention is concerned, it is an admitted fact that the assessee received dividend income of ₹ 93, 018/-during the year, and made no disallowance under section 14A of the Act read with Rule 8D of the Rules on the ground that no activity of purchase and sale took place during the year. It could be found from the assessment order that when asked to explain as to why the disallowance under section 14A of the Act read with Rule 8D of the Rules should not be computed, assessee did not furnish an explanation in that respect. It is submitted by the Ld. AR that since no activity of purchase or sale of shares took place during the year, no disallowance was made - the assessee di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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