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Bidhata Synthetic Mills Private Limited Versus ACIT-4 (1) , Mumbai

2016 (3) TMI 864 - ITAT MUMBAI

Disallowance u/s 14A - Held that:- The assessee has incurred interest expenditure for earning exempt income. As per the balance sheet placed on record, the assessee was holding shares as stock-in-trade as well as investments. While working out disallowance u/s.14A the AO had worked out disallowance under rule 8D taking into account entire shares held by assessee treating the same as investments. In the interest of justice, we restore this issue back to the file of AO for recomputing the disallow .....

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) : These are the cross appeals filed by the assessee and revenue against the order of CIT(A), Mumbai, for the assessment year 2008-09. 2. The assessee in its appeal (i.e. ITA No.3255/Mum/2012) has taken the following grounds :- 1. That the learned CIT (A) has erred in law and on facts in confirming the profit on sale of future & option transactions as non-speculative transactions (instead of speculative transaction) for the purpose of section 73 and thus, not allowing set off of speculation .....

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revenue in its appeal (i.e. ITA No.3425/Mum/2012) has raised the following grounds :- 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the expenses of ₹ 4,54,12,400/- on account of disallowance u/s.14A of the I.T. Act. 2. On the facts and in the circumstances of the case and in law, the Impugned order of the Ld. CIT(A) is contrary to law to be set aside and that of the Assessing Officer be restored. 3. Rival contentions have been heard and r .....

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he impugned order, the CIT(A) deleted the disallowance made u/s.14A. However, he has confirmed the action of AO for invoking provisions of Explanation to Section 73, by not allowing setting off loss on sale of shares against income from sale of option. Against this order of CIT(A), both assessee and revenue are in appeal before us. 5. We have considered rival contentions and deliberated on judicial pronouncements referred by lower authorities in their respective orders as well as cited by ld. AR .....

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tives. And incurred loss on delivery based purchase and sale of shares and earned profit on non delivery based sale and purchase of shares, the entire transaction carried out by the assessee is within the umbrella of speculation transaction and, therefore, there was no bar in setting off loss arose out of derivative, from income arose out of buying and selling of shares. The I.T Act, 1961 has been amended by Finance Act, 2005 w.e.f 1.4.2005 and by inserting clause d below Proviso of sub-Section .....

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m derivative transactions should be done before the application of the explanation to section 73. The ITAT Kolkata Bench has taken the same view in the case of ITO vs. Rajanigandha Properties Ltd. in ITA no. 1011/Kol/2011 and also in Arion Commercial Pvt. Ltd. Kolkata in ITA no. 1010/Kol/2011 and held that the transaction done by delivery as well as the transaction of derivative of shares, profit/loss is not hit by Section 43(5) and therefore the aggregation of share trading loss and profit from .....

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against profit from business income, before invoking Explanation to Section 73 of IT Act. We direct accordingly. 8. The grievance of the revenue in its appeal relates to deleting disallowance of expenditure incurred in earning tax free income. The AO found that the assessee had earned dividend income which is not liable to tax. He further found that the assessee has incurred interest expenditure of ₹ 5,74,23,200/-. Since the disallowance offered by the assessee under section 14A was not a .....

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ing credit of the amount offered by the assessee for disallowance u/s.14A amounting to ₹ 34,310/-, the AO made the addition, which was deleted by CIT(A) in entirety. 9. Ld. AR placed on record order of the Tribunal in case of Baljit Securities (P) Ltd. (supra), in support of the proposition that since assessee was engaged in trading of shares, the shares held as stock-in-trade cannot be taken into account while computing disallowance of expenditure incurred for earning exempt income. As pe .....

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d recomputed the disallowance as per Rule 8D. However, as per the decision in the case of Baljit Securities (P) Ltd (supra), the shares held as stock-in-trade should not be taken into account while working the disallowance of expenses incurred on earning the tax free income. The Hon ble Kokata High Court in the case of Baljit Securities (P) Ltd., 368 ITR 470, had also held as under :- 6.It would, thus, appear that where an assessee, being the company, besides dealing in other things also deals i .....

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