TMI Blog2015 (10) TMI 2373X X X X Extracts X X X X X X X X Extracts X X X X ..... tile system of accounting and recognizing the revenue on accrual basis. Since, the interest has accrued to the assessee in the period relevant to assessment year 2008-09, the same has to be taxed in the relevant assessment year. However, we find force in the submissions of the assessee that once income has been offered to tax in assessment year 2009-10 and the tax has been paid thereon the same income should not be taxed twice. The addition of ₹ 3,81,863/- with regard to the interest income received by the assessee in the impugned assessment year is sustained. The Assessing Officer is directed to delete the interest income that has been added in assessment year 2008-09 from the income of assessee in assessment year 2009-10. This ground of appeal of the assessee is partly accepted.- Decided in favour of assessee in part. Interest on borrowed funds allegedly diverted by the assessee for non-business purposes disallowed u/s. 36(1)(iii) - contention of the assessee is that the assessee has diverted borrowed interest bearing funds for non-business purposes - Held that:- Although, the ld. AR has argued that the assessee has sufficient own funds but at the same time has also conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ER VIKAS AWASTHY, JM: The appeal has been filed by the assessee against the order of Commissioner of Income Tax (Appeals)-I, Pune dated 30-03-2012 for the assessment year 2008-09. 2. The brief facts of the case as emanating from records are : The assessee company is a distributor of mobile handsets, PCOs and RCVS of Reliance Communication Infrastructure Ltd. and set top box of Tata Sky etc. Apart from above, the assessee is also trading in shares and is a dealer of FIBC plastic bags. The assessee filed its return of income for the assessment year 2008-09 on 30-09-2008 declaring total loss of ₹ 32,11,919/-. The case of the assessee was selected for scrutiny and notice u/s. 143(2) was issued to the assessee on 20-08-2009. The assessee had suffered loss of ₹ 1,22,51,544/- in share trading business. The assessee claimed the same as business loss. During the course of scrutiny assessment, the Assessing Officer held that in view of Explanation to section 73, the loss suffered by the assessee in share trading business is speculative loss and hence, the same cannot be allowed against business income from other trading activities. The Assessing Officer further disallowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nges by means of on-line trading platforms, were regarded as speculative even where actual deliveries were taken and given. Thus, the legislature recognized that if the transactions are carried on through on line and electronic trading platform on approved stock exchanges and where such transactions are supported by time stamped contracts bearing unique transaction number, then the genuineness of profit/loss from such transaction need to be accepted. In support of his submissions, the ld. AR placed reliance on the judgment of Hon'ble Bombay High Court in the case of CIT Vs. HSBC Securities Capital Markets India (P.) Ltd. reported as 23 taxmann.com 377 (Bom.). 3.2 In respect of second ground in appeal, the ld. AR submitted that the Commissioner of Income Tax (Appeals) has erred in confirming addition of ₹ 3,81,863/-. The said amount was received as interest from M/s. Yash Developers. On the interest amount received from M/s. Yash Developers had deducted tax in the assessment year 2009-10. The assessee accordingly offered the income for tax in the assessment year 2009-10. However, the Assessing Officer insisted that the amount should be assessed to tax in the impugne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the assessee cannot claim set off of loss from share trading against business income of the assessee. With regard to interest received from M/s. Yash Developers, the ld. DR submitted that the assessee had not filed any document to show the interest was earned by the assessee in assessment year 2009-10. The ld. DR defending the disallowance made u/s. 14A submitted that irrespect of the fact whether the assessee has held the shares as investment or stock-intrade disallowance u/s. 14A has to be made. The assessee has earned tax free income. The Assessing Officer is bound to make disallowance u/s. 14A r.w. Rule 8D, once he is satisfied that the assessee has not made correct disallowance u/s. 14A. In respect of disallowance u/s. 40(a)(i), the assessee failed to show that the payment made was not taxable in India. There is no evidence to support the contentions of the assessee. The ld. DR prayed for dismissing the appeal of the assessee. 5. We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below. The assessee has raised six grounds in its appeal. The same are summarized as under: i. Loss in share business c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the assessee is engaged in speculative transactions/business of shares? Sub-section (5) of section 43 defines speculative transaction which reads as under: (5) speculative transaction means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips: Provided that for the purposes of this clause- (a) a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or (b) a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; or (c) a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otal income for the purpose of the explanation to Section 73, the income from service charges had to be adjusted against the loss in share trading. This contention of the assessee has found acceptance by the Commissioner (Appeals) and the Tribunal. The provision of the explanation to Section 73 falls for determination in the Appeal. 5. Under Section 28, income which is chargeable to income tax under the head of profits and gains of business or profession includes the profits and gains of any business or profession, which was carried on by the assessee at any time during the previous year. Explanation (2) to Section 28 provides that where speculative transactions carried on by an assessee are of such a nature as to constitute a business, the business shall be deemed to be distinct and separate from any other business. Section 43 which contains a statutory dictionary of definitions of certain terms relevant to income from profits and gains of business or profession defines the expression speculative transaction in sub section (5). That expression is defined to mean a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is that the provision of the explanation shall not apply to a company whose gross total income consists mainly of income which is chargeable under the heads Interest on securities , Income from house property , Capital gains and Income from other sources or a company whose principal business is of banking or the granting of loans and advances. 7. The submission which has been urged on behalf of the Revenue is that in computing the gross total income for the purpose of the explanation to Section 73, income under the heads of profits and gains of business or profession must be ignored. Alternatively, it has been urged that where the income from business includes a loss in the trading of shares, such a loss should not be allowed to be set off against the income from any other source under the head of profits and gains of business or profession. 8. In our view, the submission which has been urged on behalf of the Revenue cannot be accepted. Leaving aside for a moment, the exception, which is carved out by the explanation to Section 73, the explanation creates a deeming fiction by which a company is deemed to be carrying on a speculation business where any part of its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total income consists predominantly of income from the four heads that are referred to therein. Obviously, in computing the gross total income the normal provisions of the Act must be applied and it is only thereafter, that it has to be determined as to whether the gross total income so computed consists mainly of income which is chargeable under the heads referred to in the explanation. [Emphasis added by us] 9. Consequently, in the present case the gross total income of the assessee was required to be computed inter alia by computing the income under the head of profits and gains of business or profession as well. Both the income from service charges in the amount of ₹ 2.25 crores and the loss in share trading of ₹ 2.23 crores, would have to be taken into account in computing the income under that head, both being sources under the same head. The assessee had a dividend income of ₹ 4.7 lacs (income from other sources). The Tribunal was justified, in coming to the conclusion that the assessee fell within the purview of the exception carved out in the explanation to Section 73 and that consequently the assessee would not be deemed to be carrying on a spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod relevant to assessment year 2008-09, the same has to be taxed in the relevant assessment year. However, we find force in the submissions of the assessee that once income has been offered to tax in assessment year 2009-10 and the tax has been paid thereon the same income should not be taxed twice. The addition of ₹ 3,81,863/- with regard to the interest income received by the assessee in the impugned assessment year is sustained. The Assessing Officer is directed to delete the interest income that has been added in assessment year 2008-09 from the income of assessee in assessment year 2009-10. This ground of appeal of the assessee is partly accepted. 8. The third ground raised in the appeal by the assessee is with regard to disallowance of ₹ 3,41,955/-. The contention of the assessee is that the assessee has diverted borrowed interest bearing funds for non-business purposes. Although, the ld. AR has argued that the assessee has sufficient own funds but at the same time has also conceded that proportionate disallowance can be made by considering the availability of own funds. We remit, this issue back to the file of the Assessing Officer to decide this ground afres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned on shares held as stock-in-trade. Our view is fortified by the decision of Mumbai Bench of the Tribunal in ITA No. 6711/Mum/2011 in the case of DCIT Vs. M/s. India Advantage Securities Ltd. for the assessment year 2008-09 decided on 14-09-2012. In the said case, the assessee had received dividend income of ₹ 1,40,859/- on shares shown as stock-in-trade in the books of account of the assessee. The assessee had not made any disallowance of expenses relating to exempt income. The Assessing Officer made disallowance u/s. 14A r.w. Rule 8D. The Commissioner of Income Tax (Appeals) held that disallowance under Rule 8D could be made only with respect to investment and not in stock-in-trade. The Revenue preferred appeal before the Tribunal against the order of Commissioner of Income Tax (Appeals). The Tribunal by placing reliance on the judgment of Hon'ble Karnataka High Court in the case of CCI Ltd. Vs. JCIT reported as 250 CTR 291 held that no disallowance u/s. 14A is to be made in relation to shares held as stock-intrade. The order of the Tribunal was challenged by the Department before the Hon'ble Bombay High Court in Income Tax Appeal No. 1131 of 2013. The Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X
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