TMI Blog2011 (12) TMI 545X X X X Extracts X X X X X X X X Extracts X X X X ..... and Boyce Mfg. Pvt. Ltd. (2010 (8) TMI 77 - BOMBAY HIGH COURT) we consider it to set aside this issue to the file of AO and direct the AO to determine the disallowance u/s 14A of the IT Act after giving a reasonable opportunity of being heard to assessee. The assessee is also at liberty to establish whether there is any nexus of the expenditure issue and the exempted dividend income. - ITA No.1019/Kol/2011 - - - Dated:- 29-12-2011 - Shri N.Vijayakumaran, Judicial Member And Shri C.D.Rao, Accountant Member For the Petitioner : Shri D.R.Sindhal For the Respondent : Shri A.K.Tulsiyan ORDER Per Shri C.D.Rao, AM This appeal is filed by Revenue against the order dated 25.03.2011 of the ld. CIT(A)-IV, Kolkata pertaining to A.Yr. 2008-09. 2. The grounds of appeal raised by the Revenue read as under :- 1. Whether on the facts and circumstances of the case and settled legal position, the Ld. CIT(A) is justified in holding that transactions in derivatives are not hit by section 43(5) of the I.T. Act. 2. Whether on the facts and circumstances of the case and settled legal position, the Ld. CIT(A) was justified on facts and in law in deleting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seen that the assessee company has incurred a loss on the non-derivative section of its business which has been set off against the profits arising out of the derivative segment of its operations. 3.2. Thereafter, the A.O made a discussion regarding Explanation to Sec.73 vis- vis the provision in Sec.43(5)(d) of the I. Tax Act, 1961 and he arrived at the following conclusion: Thus, from the above it is clear that even though section 73 of the Income Tax Act, 1961 deems purchase and sale of shares of other companies as a speculation business, section 43(5)(d) of the Income Tax Act, 1961, which has been introduced subsequent to section 73 of the Act caries out an exception to the deeming provision of Section 73 of the Act and lays down trading in derivatives i.e. futures and options would not be deemed to be speculative transaction. Hence, it is seen that the Income Tax act, 1961 has vide explanation to section 73 has deemed purchase and sale of shares under certain condition of deemed speculative business but at the same time has by a subsequent amendment has excluded from its ambit trading in derivatives under section 43(5)(d). Then he concluded that In view of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is loss cannot be set off against profit earned from Derivatives. 3.7. Therefore, the assessee has claimed the following expenses only as deductible expenses. Rs. Interest 4,29,76,612 Administrative Expenses 35,000 Advance 20,77,481 4,50,89,093 3.8. Considering the above expenses, profit/(loss) from various activities are computed as under allocating the expenses in proportion of profit/loss from various activities. Nature of income Profit/(Loss) Proportionate Expenses Profit/(Loss) Net Share Dealing (27,78,95,129) 2,06,76,358 (29,85,71,487) Dealing in Units 23,761 1,768 21,993 Share Difference 97,54,403 7,25,761 90,28,642 F O Difference 31,22,63,789 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the I. Tax Act and trading loss in shares is hit by the Explanation to Sec.73 of the I. Tax Act and hence the share dealing loss, which is a deemed speculation loss can not be adjusted with profit from derivatives transaction. 2.7. The Ld.A/R of the assessee has mainly relied that the aggregation of the share trading loss and profit from derivative transactions should be done before it is seen whether Explanation to Sec.73 is applicable. In my opinion, trading of shares which is done by delivery transactions are not hit by Sec.43(5) as speculation. Similarly, derivative transaction in shares profit/loss is also not hit by Sec.43(5) of the I. T. Act, which deals about speculation transaction. As such, both profit/loss from all the share delivery transactions and derivative transactions are having the same meaning, so far as, Sec.43(5) of the I. T. Act is concerned. I fully agree that net result of the assessee is a profit hence question of application of Sec.73 does not arise. Assessee s case is supported by the Hon ble ITAT, Special Bench decision in the case of CIT Vs Concord Commercial Pvt. Ltd. (2005) 95 lTD 117 (Mum) (SB), in which it is held that before making applicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eculative profits; either it is from share delivery or from share derivative. The net of the same is profit as such question of applying the deeming fraction of Explanation to Sec.73 of the I. T. Act does not arise. The assessee s case is fully covered by the decision of ITAT, Kolkata, in the case of ITO, Wd-3(1)/Kol Vs Lotus Homes Ltd. (supra) as well as the decision of the Hon ble Bombay High Court in the case of Lokmat News Papers (P) Ltd. (supra). 4. At the time of hearing the ld. DR appearing on behalf of the Revenue submitted that in paragraph no.2.7 of his order the ld. CIT(A) has held that transactions of delivery based share trading is not hit by section 43(5) of the Act and similarly trading in derivatives is also not hit by section 43(5). The ld. CIT(A) has failed to appreciate the fact that the AO has not applied the provisions of section 43(5) to the transactions of delivery based share trading, in which the assessee incurred losses. In fact, the loss of ₹ 28,95,42,845/- suffered in share trading has been treated by the AO as deemed speculation loss in terms of Explanation to section 73 of the Act. Further, if the contention of the ld. CIT(A) is that deriva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his case, has taken exactly the same view and treated the share trading loss as deemed speculative in nature. Thus, the above conclusion of the AO is clearly in tune with the above quoted provisions. 4.3. He further submitted that the reliance put by the ld. CIT(A) on the decision of ITAT, Special Bench, Mumbai appears to be erroneous and misplaced one in view of the fact that once a particular profit/income is held as non-speculative in nature, it cannot be set off against any loss which is speculative in nature. This view is well supported by the decision of the Hon ble Calcutta High Court in the case of CIT vs Parkview Properties (P) LTd reported in 261 ITR 473 (2003). In the instant case, once the AO held that profits earned by the assessee in the derivative transactions to be normal and non-speculative in terms of section 43(5)(d) and the profits earned from deliver based share transactions to be deemed speculative in nature there was no scope/feasibility under the law to allow adjustment of such loss against the aforesaid income from derivatives. 4.4. He further stated that the case laws relied by the assessee and ld. CIT(A) were related to assessment years prior to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of ₹ 4,50,325/- made u/s 14A of the IT Act with Rule 8D of IT Rules. 9 The brief facts of this issue is that while doing the scrutiny assessment the AO has disallowed an amount of ₹ 4,50,325/- by observing as under :- In course of the assessment proceedings, the assessee was asked to give details of expenses related to exempt income. In response to the same the assessee relying on the decision of Hon ble Kerala High Court in the case of CIT vs Leena Ramchandran (2010) 235 CTR 512 (Ker) held that Rule 8D r/w Section 14A applies only on shares held as investments and not in case where shares are held as stock in trade. However, I am unable to accept the contention of the assessee company that no expenses have been incurred to earn dividend which is exempt income. I, therefore, disallow ₹ 4,50,325/- as computed hereinbefore as expenses relatable to exempt income. Which was recorded by us at para 3.8 against dividend income. 9.1. On appeal the ld. CIT(A) has deleted the same by observing as under :- 3.7. On perusal of the balance sheet of the assessee, it has been found that no shares are held as investment. All the shares are stock-in-t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
