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2012 (10) TMI 667 - AT - Income TaxLoss arising from sale and purchase of shares - dis-allowance of set off of losses against other income on ground of it being speculative Loss under the provisions of Explanation to section 73 - dis-allowance of interest in relation to trading in shares and treating the same as part of speculation loss - trading and investment company - Held that:- Though Explanation to S73, exempts the companies, the principal business of which is the business of banking or granting of loans and advances, however in present case, assessee itself submitted that the assessee was a trading and investment company having its main business of making investment in equities and trading in shares, therefore, the arguments of the assessee that principal business of the assessee was granting loans and advances cannot be accepted and loss from trading in shares has to be treated as speculation loss. Further, authorities are also justified in allocating interest expenses towards the loss arising from trading of shares as while computing the profit or loss from trading of shares all expenses have to be considered. Dis-allowance of interest and treating the same as part of speculation loss in all the years under consideration is upheld. Dis-allowance u/s 14A of interest expenditure in relation to dividend income - Held that:- Assessee had made huge borrowings on which interest of Rs. 12.68 crores had been paid. Net capital of company was negative to the tune of Rs. 20.57 crores and there were no reserves nor any other interest free funds available in AY 2001-02. The conclusion of the AO that the borrowed funds had been utilized for investment in shares is, therefore, reasonable and dis-allowance of interest in relation to such investment is required to be made u/s 14A. However, interest relating to the borrowings used in the purchase of trading shares from which dividend had been received is required to be excluded from such dis-allowance. Dis-allowance of interest u/s 36(1)(iii) - huge borrowings on one side - amount advanced on other side towards application money for purchase of shares of group companies which had been pending for a long time - assessee has argued that trading and investment in shares was business of the assessee - Held that:- Assessee had advanced money for purchase of shares of the group companies for the purpose of acquiring controlling interest and for the acquisition of other companies for the group. The acquisition of controlling interest in companies was not the business of the assessee as the assessee had not acquired controlling interest in any company with a view to managing the same. Therefore, the interest expenses incurred by the assessee towards such interest free advances made for share application in group companies or for acquisition of other companies from the group has to be considered for dis-allowance.
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