TMI Blog2014 (11) TMI 279X X X X Extracts X X X X X X X X Extracts X X X X ..... taken delivery of pepper and thereafter sold it, then the provisions of sec. 43(5) cannot be applied – thus, the matter is remitted back to the AO for fresh consideration. Bad debts disallowance – Held that:- The Assistant Commissioner of Income tax is not correct in disallowing the bad debts on the ground that it was not offered as income in earlier years and hence conditions u/s. 36(2) was not satisfied - The amounts written off were considered as income in the earlier years and hence bad debts written off should have been allowed as expenditure - allowing dues from client written off as bad debts on the ground that the conditions u/s. 36(2) were not satisfied is also not justified - The assessee is a stock broker and the amounts receivable from clients which includes brokerage payable by the client was a part of the debt and the debt had been taken into account in the computation of income, the conditions stipulated in section 36(1)(vii) and 36(2) stood satisfied - both the grounds have not been properly adjudicated – thus, the matter is remitted back to the AO for fresh consideration – Decided in favour of assessee. - I.T.A. No. 261/Coch/2014 - - - Dated:- 28-8-2014 - S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he year was ₹ 595.20 lakhs and the incremental investment during the year was only ₹ 135 lakhs which could be considered having been made out of the profit for the year. A comparative statement of the investment in each year along with the profit for each year was furnished from which it was clear that the investment were out of own funds and in such cases the disallowance was not to be attracted. 5.1 The Ld. AR further submitted that in addition to the fact that no borrowed funds were used for investments, the CIT(A) failed to note that disallowance u/s. 14A requires finding by the Assessing officer that an expenditure has been incurred. When the assessee had admitted that only a sum of ₹ 5000 was incurred for earning tax free income, the Assessing officer should have established that a higher expenditure was incurred before making disallowance under Rule 8D. Sub-section(2) of section 14A does not ipso facto enable the Assessing officer to apply the method prescribed by the rules straightaway without considering whether the claim made by the assessee in respect of the expenditure incurred in relation to income which does not form part of the total income is co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng in the balance sheet excluding the increase on account of revaluation of assets but including the decrease on account of revaluation of assets. 8. There is no dispute about working of this method so far as rule 8D(2)(i) and (iii) is concerned. It is only with regard to the computation under rule 8D(2)(ii) that the Assessing Officer and the assessee have different approaches. This provision admittedly deals with a situation in which the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt . Clearly, therefore, this sub clause seeks to allocate common interest expenses to taxable income and tax exempt income. In other words, going by the plain wordings of rule 8D(2)(ii) what is sought to be allocated is expenditure by way of interest ..which is not directly attributable to any particular income or receipt and the only categories of income and receipt, so far as scheme of rule 8 D is concerned, are mutually exclusive categories of tax exempt income and receipt and taxable income and receipt . No other classification is germane to the context in which rule 8 D is set out, no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. AR, we are inclined to hold that net current assets is to be considered while applying the formula under Rule 8D of the I.T. Rules instead of gross current assets. Accordingly, we direct the Assessing officer to re-compute the disallowance and decide the issue afresh in the light of the above observation. Accordingly, this ground is partly allowed. 15. The next ground is with regard to disallowance of ₹ 28,99,882/- on account of speculation loss. 16. The brief facts of the case are that the assessee claimed loss from commodity trading at ₹ 28,99,882/-. The assessee-company had purchased commodity item namely pepper (100 MT) valued at ₹ 1,12,50,000/- and sold it without actual purchase or delivery. The business of the company is commodity broking to provide a platform for its clients for commodity on line trading. It also offered future trading for its events of multiple exchanges in varied commodities such as agricultural commodities, precious metal, energy, products etc. However, when the company trades its own commodity without actual purchase or delivery it becomes a speculative transaction and the loss is speculative loss. The loss is not allowed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pepper and thereafter sold it and he prayed that this issue may be remitted back to the file of the Assessing officer for fresh consideration. 20. On the other hand, the Ld. DR submitted that the assessee has not produced any evidence before the lower authorities to suggest that the assessee has taken actual delivery of pepper and thereafter sold it. 21. We have heard both the parties and perused the record. In our opinion, it is proper to examine this issue afresh on the plea of the Ld. AR that the assessee has actually taken delivery of pepper. If the assessee has actually taken delivery of pepper and thereafter sold it, then the provisions of sec. 43(5) cannot be applied. Accordingly, with this observation, we remit the issue back to the file of the Assessing officer for fresh consideration. 22. The next ground is with regard to disallowance of bad debts of ₹ 19,57,037/-. According to the Ld. AR, the assessee has raised this ground before the CIT(A) which was not properly adjudicated. According to the Ld. AR all the conditions stipulated u/s. 36(1)(vii) and 36(2) have been complied with and the amounts written off were considered as income in the earlier years. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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