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2016 (10) TMI 983 - ITAT KOLKATA

2016 (10) TMI 983 - ITAT KOLKATA - TMI - Addition on speculation loss - Speculation transaction - Held that:- From all the foregoing discussion we find that the AO has treated the transaction of sale & purchase of shares in F&O market which was undertaken to safe guard the loss in his holdings of stocks and shares against price fluctuations as speculation. However we find that the existing transaction is falling within the exceptions provided in clause (c) to section 43(5) of the Act. As per the .....

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ities held as stock in trade - Held that:- Provisions of section 14A read with rule 8D of the Act are squarely applicable even for the shares/securities held as stock in trade. In the instant case the shares were held as stock in trade but no disallowance of any expenditure was made. We also find that no submission or any calculation was made before the AO at the time of assessment showing that no expenditure was incurred in connection with the dividend income. In the absence of any information .....

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th a view to produce profit. Such membership does not bring into existence an asset or an advantage for the enduring benefit of the business. It is an expenditure incurred for the period of membership and is not long lasting. By subscribing to the membership of a club, no capital asset is created or comes into existence. By such membership, a privilege to use facilities of a club alone, are conferred on the assessee and that too for a limited period. Such expenses are for running the business wi .....

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ut of purview of TDS provision. The provisions of TDS u/s. 194C of the Act are applicable for a works on contract and they do not apply on the sale-purchase of products. Therefore, in our considered view, the transaction for purchase of food items is out of purview of TDS provision. - Decided in favour of assessee - ITA No.1614/Kol/2011 & C.O. No.25/Kol/2012 - Dated:- 10-8-2016 - Shri Waseem Ahmed, Accountant Member And Shri S. S. Viswanethra Ravi, Judicial Member By Assessee : Shri M. Jungio, J .....

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presentative appeared on behalf of assessee and Shri M.Jungio, Ld. Departmental Representative appeared on behalf of Revenue. 2. At the outset, it was observed that there is small delay of 13 days in the appeal filed by Revenue and condonation petition has been filed explaining the reasons for delay in filing appeal. Ld. AR did not object for condoning the delay. Hence, we condone the delay and admit the appeal for hearing. First we take up Revenue s appeal in ITA No.1614/Kol/11 3. The first iss .....

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e was selected for scrutiny and notice u/s 143(2) r.w.s. 142(1) was issued to the assessee. The assessee during the year has claimed day trading loss of ₹ 33,60,261/- on the sale & purchase of the shares. The AO observed that the transaction for the sale & purchase of shares was settled otherwise than by actual delivery of shares. Therefore it is a speculative transaction as per the provisions of section 43(5) of the Act. However the assessee claimed it as non-speculative business .....

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tive by virtue of provision of Sec.43(5) clause (b) and (c) of the Act. However, AO disregarded the claim of assessee by observing that speculative transactions cannot be explained as the ordinary course of assessee s business by as stock broker. Accordingly, AO held that the above loss as speculative transactions and is not covered under the exception as discussed in provision of Section 43(5) of the Act. 5. Aggrieved, assessee preferred an appeal before Ld. CIT(A) whereas assessee submitted th .....

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der section 43(5) (c) of the Act. The allegation of AO that two speculative transactions cannot be explained as having been entered into the ordinary course of business is against the practice of arbitrary or jobbing which are in the nature pre-supposes two transactions, one being the primary transactions and second being the supportive transactions to guard the loss of first transaction. Accordingly, Ld CIT(A) deleted the addition made by AO by observing as under:- 11 I have carefully considere .....

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tends to earn only arbitrage difference between two Segment (Cash vs F & O) and or two Exchanges (BSE, NSE etc). this difference may be an outcome of delivery or without delivery on the same day or over a period of time. Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us. 6. Before us both the parties relied on the orders of Authorities Below as favourable to them. Ld. AR filed Index which is running pages from 1 to 88 and drew our attention at pages 29 to 66 where th .....

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he exceptions provided in clause (c) to section 43(5) of the Act. As per the provisions of the section 43(5) of the Act the transaction is falling within the definition of speculation transaction but the same has been provided in the exception list as per clause (c) to section 43(5) of the Act. At this juncture we find relevant to reproduce the provisions of section 43(5) of the Act which reads as under : (5) speculative transaction means a transaction in which a contract for the purchase or sal .....

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se 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 of his business as such member; [or] (d) An eligible transaction in respect of trading .....

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at the transaction undertaken for the sale & purchase of the shares in F&O market to safeguard the loss on account of price fluctuations of the share held by the assessee within the same script cannot be regarded as speculation transactions. 7.1 We find that in similar facts of the case, issue has been decided in favour of assessee by the Hon ble Bench of Kolkata in the case Lohia Securities Ltd. v. Deputy Commissioner of Income-tax, Circle-6, Kolkata 66 taxmann.com 86 the relevant head .....

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ve transactions have same meaning as far as section 43(5) is concerned - Held, yes - Whether loss from share dealing should be allowed to be set off from profits from F & O in share transactions - Held, yes - Whether thus, before application of Explanation to section 73, aggregation of business profit or loss from these transactions is to be worked out irrespective of fact whether it is from share delivery transaction or derivative transactions - Held, yes [Paras 2.7.8 & 2.7.11][In favou .....

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by Revenue is that the ld. CIT(A) erred in treating the transaction out of the purview of Explanation to Section 73 of the Act. 9. At the outset, it was observed that this issue raised by Revenue is not emanating from the order of the lower authorities. Therefore the same is dismissed as infructuous. 10. In the result, Revenue s appeal is dismissed. Coming to assessee s CO No. 25/Kol/2012. 11. Issues raised by assessee are reproduced below:- 1. In the facts and the circumstances of the case and .....

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h no expenses were incurred to earn dividend & income from arbitrage is not exempt. 3. In the fats and the circumstances of the case and in law the Learned Assessing Officer erred in disallowing ₹ 347750/- out of club membership fees by wrongly treating it as personal/capital expenses. 4. In the facts and the circumstances of the case and in law the Learned Assessing Officer erred in disallowing ₹ 198500/- out of catering charges u/s. 40a[ia] even though TDS is not applicable to .....

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8 & 9 of this order. Accordingly, the issue raised by the assessee in its CO is allowed. 14. Next issue in assessee s CO is that AO erred in disallowing ₹ 1,12,385/- u/s 14A r.w.s 8D of the IT Rules. 15. The assessee during the year has earned dividend income of ₹ 5,68,583/- but did not disallow any expenses in relation to aforesaid exempted income. Accordingly, AO disallowed the administrative expense of ₹ 1,12,385/- under Rule 8D(iii). 16. Aggrieved, assessee preferred an .....

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come. However the Ld. CIT(A) has confirmed the order of the AO by disallowing the expense of ₹ 1,12,385/- under Rule 8D(iii). Being aggrieved by this order of Ld. CIT(A), the assessee filed CO before us. 17. The ld. AR reiterated the submission made to the ld. CIT(A) before us. On the other hand the ld. DR vehemently supported the order of the lower authorities. 18. We have heard the rival contentions of both the parties and perused the materials available. At the outset we find that the i .....

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e the disallowance to be made under section 14A on account of expenses incurred I relation to such exempt income by applying Rule 8D. in this regard, the ld. counsel for the assessee has relied on the decision of the Coordinate Bench of this Tribunal in the case of Gulshan Investment Co. Limited (supra) to contend that even if section 14A read with Rule 8D is held to be applicable in the case of the assessee, the disallowance on account of expenditure incurred in relation to the earning of exemp .....

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mited (Supra). The ld. Accountant member, with whom the ld. Third Member finally concurred, however, did not accept the same by relying on the decision of Special Bench of the Tribunal in the case of Daga Capital Management Pvt. Limited (Supra), wherein a similar contention was rejected by the Tribunal by observing that the reference in Rule 8D is to the value of investment and not to the assets held as investment . It was held that a person may make investment in shares and the shares so purcha .....

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tfully following the same, we reject the contention of the ld. counsel for the assessee that the disallowance in the case of the assessee can be restricted only to direct expenses incurred in relation to the earning of exempt dividend income by applying Rule 8D(2)(i). We are accordingly putting our reliance in the above case and conclude that the provisions of section 14A read with rule 8D of the Act are squarely applicable even for the shares/securities held as stock in trade. In the instant ca .....

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d of Assessee s CO is dismissed. 19. The next issue raised by the assessee in CO is that ld. CIT(A) erred in confirming the order of the AO by sustaining the disallowance for a sum of ₹ 3,47,750.00 on account of the payment of club membership fees. 20. At the outset, we find that this issue is already covered in favour of assessee by the judgment of Hon ble Punjab and Haryana in the case of Commissioner of Income-tax, Patiala v. Groz Beckert Asia Ltd. [2013] 31 taxmann.com 155 (Punjab & .....

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penditure' has been interpreted by various judgments. In Assam Bengal Cement Co. Ltd.v. CIT [1955] 27 ITR 34 the Supreme Court deduced that, an outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment and; expenditure may be treated as properly attributable to capital when it is made not only once and for all, but with a view to bringing into existence as asset or an advantage for the enduring .....

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or an advantage for the enduring benefit of a trade. In the present case, the corporate membership of ₹ 6 lakhs was for a limited period of 5 years. The corporate membership was obtained for running the business with a view to produce profit. Such membership does not bring into existence an asset or an advantage for the enduring benefit of the business. It is an expenditure incurred for the period of membership and is not long lasting. By subscribing to the membership of a club, no capita .....

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aised by the assessee in its CO is that Ld. CIT(A) erred in confirming the order of AO by sustaining the disallowance of ₹ 1,98,500/- u/s 40(a)(ia) of the Act on account of catering charges. 22. The assessee, during the year, has incurred catering charges without deducting TDS u/s 194C of the Act. Therefore, the AO disallowed the same and added back to the total income of assessee. 23. Aggrieved, assessee preferred an appeal before Ld. CIT(A) who has confirmed the action of AO by observing .....

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nd gets its food packed for self consumption. The caterer when supplies food under a contract/supply order at particular place for large number of people by having an advance order, falls under category of carrying out work in pursuance of a contract. The person paying any sum to the said caterer is responsible for deduction of TDS u/s. 194C. the assessee has violated the provisions of Section 194C read with section 40(a)(ia). Therefore, the appellant is not allowed to claim the said expenditure .....

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