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ITO Ward-3 (2) , Kolkata Versus M/s Steel Emporium Ltd.

Addition 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 c .....

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ncome 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 Ex .....

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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 .....

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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 th .....

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me Tax Act, 1961 (hereinafter referred to as the Act ) vide his order dated 27.12.2011 for assessment year 2009-10 and Revenue has raised following grounds:- 1. On the facts and in the circumstances of the case the Ld. CIT(A) was erred deleing the addition of short term capital gain of ₹ 14,34,741.17 (without STT payment) out of purchase and sale of units of mutual fund and taxed at normal rate and erred in deleting the disallowance of set off of speculation loss out of sale and purchase o .....

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hat ld. CIT(A) erred in deleting the addition made by the AO on account of short term capital gain of ₹ 14,34,741.00 and treating the speculation loss as per explanation to section 73 of the Act as loss from capital gain. 2.1 The facts of the case are that the assessee is a limited company and is engaged in business of trading of iron & steel. During the year the assessee has shown the following income. 1) Income from business a) Iron & steel business ₹ 66,551.00 b) Derivativ .....

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e the AO found that the explanation to section 73 of the Act is attracted to the losses which the assessee claimed to be capital gain losses. Therefore the loss of ₹ 42,19,538/- after adjusting the speculation profit of ₹ 8,864/- needs to be computed as speculation business loss and not as capital gain. Accordingly the gain from the sale and redemption of units for an amount of ₹ 14,34,741.00 is not allowed to be adjusted from the speculation loss rather to be taxed at the norm .....

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consists in the purchase and sale of shares of other companies shall for the purpose of section 73 of the Act be deemed to be carrying on speculation business to the extent to which the business consists of sale and purchase of shares. Hence the loss from speculation business amounting to ₹ 42,19,537.00 is allowed to be carried forward to the subsequent year. The income of ₹ 14,34,741.00 from mutual fund shall be taxed at the normal rate of tax. 3. Aggrieved assessee preferred an ap .....

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oss from share trading under the head Capital Gains. Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us. Shri Jai Narayan Gupta, Ld. Authorized Representative appearing on behalf of assessee and Shri Sanjit Das, Ld. Departmental Representative appearing on behalf of Revenue. 4. We have heard rival submissions of both the parties and perused the materials available on record. Ld. DR vehemently relied on the order of AO whereas Ld. AR relied on the order of Ld. CIT(A). Ld. .....

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t. On the other hand the ld. DR vehemently supported the order of the AO. From the aforesaid discussion we find that the AO has treated the losses declared by the assessee are in the nature of speculative loss in term of explanation to section 73 of the Act. Therefore the gain arising from the mutual fund will not be allowed to be set off against the speculation loss. However we find that the AO has wrongly held the losses from capital gain as speculation by misinterpreting the provisions of exp .....

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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 t .....

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raised by the Revenue in this appeal is that ld. CIT(A) erred in deleting the disallowance of ₹ 4,08,937/- made u/s 14A of the Act. 5.1 The assessee has made an income from dividend income of ₹ 16.03 lacs which the assessee claimed to be exempted from the tax by virtue of the provisions of section 10(34) of the Act. The assessee has disallowed the expenses for earning the dividend income to the tune of ₹ 58,611/- in the computation of income. The AO during the course of assess .....

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lied the rule 8D of the Income Tax Rules 1962. As per the provisions of rule 8D the disallowance was worked out for ₹ 4,08,937/- @ ½ % of the average value of investment ( ½% of 106584628 + 56990209)/2. 6. Aggrieved, assessee preferred an appeal before ld. CIT(A) who deleted the addition made by the AO by observing as under : I have carefully gone through the assessment order and the submissions of the Appellant. It is true that the App had, himself computed the amount disall .....

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pplied Rule 8D in his letter dated 09- 12-2011 and thereafter asked the Appellant to explain his computation of disallowance. The addition made by the AO is arbitrary and against the spirit of section 14A. Therefore, I direct the AO to delete the addition of ₹ 4,08,937 is disallowed u/s. 14A(2) read with Rule 8D which was over of the above expenses of ₹ 58,611/- disallowed by the assessee in Schedule - 13 of Profit and Loss A/c. Being aggrieved by this order of Ld. CIT(A) Revenue is .....

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the claim of the assessee either during the assessment proceedings or in the assessment order. He never raised any query about specific information and explanation required with respect to the claim. Here was no scope for explanation since the Ld. AO has never disputed the expenses as determined by the assessee. As such, Rule 8B was not attracted at all. The Ld AO had had predetermined to disallow the claim, even before seeking the explanation from the assessee, when he stated in his aforesaid .....

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as to the reasons for his rejecting the claim of the assessee. In fact, the Ld. AO has never bothered to examine the claim of the assessee. Ld. AO does not have suo-moto right to resort to Rule 8D. It is imperative on the part of the Ld. AO to resort to application of Rule 8D only if he is not satisfied with the correctness of the quantum of disallowance admitted by the assessee. From the aforesaid discussion we find that the AO has disallowed the expenses as per the provisions of Rule 8D of Inc .....

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tion 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 .....

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he Revenue in this appeal is that ld. CIT(A) erred in deleting the addition made by the AO for ₹ 1.83 crores u/s. 68 of the Act. 8.1 During the year the assessee has received a sum of ₹ 4 crores towards the share application money from 25 companies. The AO during the course of assessment proceedings observed that the assessee has given the addresses of 9 companies out 25 companies which are having the same address at 12, Waterloo Street, Kolkata-700069. The details of such companies .....

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00,000 9 Tridev Trade Link Pvt. Ltd. ₹ 20,00,000 Total Rs.1,83,00,000 However as per the ROC records, the companies were registered at different address. The confirmation letters sent to the companies were received by a single/ same person who acknowledges the receipt of notice with different rubber stamps. The AO further opined that the assessee has introduced its own undisclosed income in the disguise of share application money. On query by the AO, the assessee submitted that the address .....

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de by the AO by observing as under:- 16. I have carefully gone through the assessment order and the submissions of the Appellant. I am in agreement with the submissions, which is based on documentary evidences. The addition made by AO in respect of shares application money subscribed by 9 out of 25 applicants is unwarranted. Just on flimsy ground of notice u/s. 133(6), having been served at any particular address, which happened to be the old address of those Company share applicants, he cannot .....

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s available on record. The ld. DR vehemently supported the order of the AO. Before us the ld. AR submitted that the assessee raised share application money during the year from 25 applicants. The AO was furnished with the copy of Form 2 of Allotment of Shares to the Applicants as filed with the Registrar of Companies, West Bengal. On the date of receipt of Share applications from the Applicants, they furnished their addresses, which were recorded in the Register of Members. The AO observed that .....

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ld be served to these nine companies who had different address as per ROC records. The AO was explained vide letter dated 20.12.2011 of the assessee that those companies had changed their addresses since filing of Form 2 with the Registrar. Further, it was none of the business of the assessee to question the addresses of the applicants as long as they affirm the address. The applicants were duly incorporated bodies under the Companies Act, 1956 since long. They have been regularly filing their r .....

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letter was received at the old address instead of present address, it cannot be said that the identity of the applicant has not been verified. All of these companies had duly replied to notice u/s. 133(6) and confirmed the transaction with all the evidences. The AO has not raised any objection on any of the information furnished before him. The AO has not asked the respective Company applicants also to explain the alleged discrepancy in the address. The AO has not brought any material on accoun .....

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