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2019 (3) TMI 1465 - AT - Income TaxBenefit of set off of unaccounted loss incurred in the undisclosed transaction against the business income derived by the assessee in transactions involving trading of derivatives - HELD THAT:- Transactions in the exchange was recorded in the name of the assessee, details have been given in the assessment order and has found as a fact that the assessee had not recorded the sales which resulted in profit as well as resulted in loss out of such transaction. AO being a quasi judicial body had to act in a fair, just and reasonable manner and should have only taxed the right income (even if undisclosed). We note that the profit as well as the loss are from the derivative trading only and therefore, have to be deemed as business income by virtue of sec. 43(5). In such a scenario, not allowing the set off of the loss component from the profit from the same transaction though un-recorded, is not just, fair or reasonable order of the AO. Therefore, relying on the ratio laid by the Hon’ble Supreme Court in Ch. Atchaiah [1995 (12) TMI 1 - SUPREME COURT] as well as in the case of Maneka Gandhi Vs. Union of India [1978 (1) TMI 161 - SUPREME COURT] in which order the law has been laid down that a public authority should discharge his duties in a fair, just and reasonable, manner and the principle of due process of law was recognized by the Hon’ble Supreme Court. So, we uphold the order of the CIT(A) directing the AO to restrict the addition after giving set off of the loss which does not require any interference from our part and so we confirm the same. Addition u/s 14A - HELD THAT:- AO the assessee in its submission dated 10.02.2015 had explained that out of the total STT, sum of ₹ 2,24,983/- was directly attributable to the investments and that the said amount had already been disallowed and added back to the total income. As regards the STT of ₹ 6,84,939/- paid on derivatives, it brought to our notice that the aforesaid amount was erroneously disallowed by the AO presuming it to be as direct expenditure under Rule 8D(2)(i). We note that the AO seems to have not understood that STT was directly & intrinsically related to the activity of trading in derivatives, which yielded only taxable income, and which was also assessed to tax at normal rates. These charges had no correlation either with investments or for that matter with earning of dividend. In the circumstances the STT being not relatable to investments was wrongly disallowed by the AO under Section 14A read with Rule 8D(2)(i). Therefore the AO is directed to delete the impugned disallowance to the extent of ₹ 6,84,939/-. Appeal of revenue is dismissed and assessee’s Rule 27 application is allowed as discussed above
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