TMI Blog2015 (1) TMI 1281X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act, therefore, the assessee was entitled to claim the loss of shares against the income of derivatives. Respectfully following the decision of Hon'ble Delhi High Court in the case of DLF Commercial Developers Ltd. [2013 (7) TMI 334 - DELHI HIGH COURT], we allow the alternative claim of the assessee and direct the AO to allow this loss against derivative incomes. - Decided against revenue Disallowance u/s 14A - Held that:- We find that relevant assessment year involved is 2007-08 and rule 8D will not apply being prospective as held by Hon’ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. vs. DCIT [2010 (8) TMI 77 - BOMBAY HIGH COURT ]. We find that the Tribunal is consistently estimating the net profit @1% of the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Briefly stated facts are that the assessee is engaged in the business of share trading and advancing loans on interest. Basically, the assessee company is a Non Banking Financial Company as certified by Reserve Bank of India. The assessee for the relevant assessment year 2007-08 reflected income from share trading, investment in shares and securities and also financing. The AO noticed from the Profit Loss a/c. that it had earned interest income of ₹ 3,53,956/- and also noticed that the assessee has suffered loss of ₹ 50,51,968/- in share trading business. The relevant computation worked out by the AO reads as under: Sale of shares: Rs.5,30,84,053/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 85/- (125.53% of fund) (ii) Investment in shares as on 31/3/2006: ₹ 7,91,47,888/-(81.18% of fund) (iii)Investment in shares as on 31/3/2006: ₹ 4,18,88,876/-(71.49% of fund) Accordingly, according to AO, the assessee s fund deployment in purchase of shares is worked out to 125.53% of the total capital whereas no fund was utilized for granting of loans and advances during the relevant financial year 2005-06. Also for the relevant financial year 2005-06 relevant to assessment year 2006-07, the deployment of fund in acquiring shares either as stock-in-trade or investment was to the tune of ₹ 81.18%, whereas the deployment of fund is only 4.30% in the relevant assessment year 2007-08 relevant to financial year 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces. As on 31-03-2007 the company has given loans and advances of ₹ 1,02,74,528/- compared to a stock in trade of shares for ₹ 6,17,576/-. The AO did not agree with the assessee and disallowed set off loss on sale of shares against interest income. I have gone through the findings of the AO and written submission filed by the AR during the appeal proceeding. I find that the intention of the legislature in inserting the Explanation after Section 73 was to check the evasion of tax by the business houses controlling Group of Companies, who were internally holding shares of different group companies and they internally exchange the shares for tax evasion. The Explanation to section 73 was introduced on the basis of report of Wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the amount involved for loans and advances in comparison to amounts involved for share transaction. I find the Kolkata Bench ITAT has decided the similar grounds in the case of ACIT 1(1) Vs. G.P. Trading Pvt. Ltd. ITA No. 223(Cal)/91 in which the Ld. Tribunal has held that funds deployment criteria should be considered for determining the principle business of a company. I, therefore, find that AO s findings on this ground cannot be sustained as a result thereof, the assessee s appeal on this ground is allowed. Aggrieved, now the Revenue is in appeal before the Tribunal. 5. We have heard rival contentions and gone through facts and circumstances of the case. Before us, the ld. Sr.DR, Smt. M.M.Ghosh relied on the assessment order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (4). Therefore, it is idle to contend that derivatives do not fall within that provision, when the underlying asset itself does not qualify for the benefit, as they (derivatives once removed from it and entirely dependent on stocks and shares, for determination of their value). In view of the alternative plea of the assessee, we are in agreement with the argument of Ld. counsel for the assessee that the income from derivatives is defined in section 43(5) of the Act and since it excludes such transactions from the nature of speculative transaction and AO treats that the transaction has not been excluded from section 73 of the Act, therefore, the assessee was entitled to claim the loss of shares against the income of derivatives. Respe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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