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2016 (3) TMI 363 - AT - Income TaxAddition made on account of short term capital gain - treatment to speculation loss as per explanation to section 73 as loss from capital gain - Held that:- AO has wrongly held the losses from capital gain as speculation by misinterpreting the provisions of explanation to section 73 of the Act. The first conditions used the words ‘mainly’ relevant to the income from the specified four heads of income which has to be understood in true legal terms. The dictionary meaning of the word ‘mainly’ is chiefly, principally, much etc. This is very clear that the aggregate income from the specified four heads should be the main portion of the gross total income of the company. The plain meaning of the word ‘mainly’ is more than half. It means any element which has the presence of more than half in the total shall be termed as main element. So, if the aggregate income of the four specified heads is more than 50% of the gross total income of a company, it can be said that the company has the main income from the four specified heads. So, if the aggregate income of the four specified heads is 51% and above of the gross total income of a company, it should be said the company has the income mainly from the four specified heads. From the figures put narrated by the Ld AO as reproduced above, it is evident that the gross total income of the company consisted mainly of income which is chargeable under the heads “Capital Gains” and “Income from other sources”. Such a Company is exempted from Explanation to Section 73. In view of above we find that the explanation to section 73 of the Act does not apply to assessee - Decided against revenue Disallowance u/s 14A - Held that:- Rule 8D r.w.s. 14A(2) can be invoked only if the Assessing Officer “having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of expenditure incurred” in relation to tax-free income. The burden Ion the Assessing Officer to establish nexus of expenses incurred with the earning of exempt income, before making any disallowance under section 14A. There cannot be any presumption that the assessee must have incurred expenditure to earn tax free income. The AO cannot proceed to determine the amount of expenditure incurred in relation to exempt income without recording a finding that he is not satisfied with the correctness of the claim of the assessee. This is a condition precedent. While rejecting the claim of the assessee with regard to the expenditure or no expenditure in relation to exempt income, the AO will have to indicate cogent reasons for the same Rule 8D of the IT Rules, comes into play only when the AO records a finding that he is not satisfied with the assessee’s method. - Decided against revenue Addition u/s. 68 - Held that:- AO has made the addition of the share application money because all the nine companies were having the common address and the notice sent under section 133(6) was received by the single person. Accordingly the AO opined that the assessee has used its unaccounted money in the share application transactions. However we find that all the money received in the form of share capital is duly supported with the requisite document as discussed above. To our mind the basis on which the addition was made by the AO is not tenable. The ld. DR also could not brought anything on record to controvert the findings of the ld. CIT(A). In view of above we find no reason to interfere in the order of the ld. CIT(A). - Decided against revenue
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