TMI Blog2020 (12) TMI 440X X X X Extracts X X X X X X X X Extracts X X X X ..... ble and non-satisfactory with regard to the correctness of the claim of the assessee. Hence, we hereby hold that the disallowance which has been made in contravention with the prescribed mode, methodology and steps for calculation envisaged u/s. 14A(2) is liable to be deleted. Loss transaction with regard to NSEL - Deduction under two specific section namely Section 28 and Section 36 and 37 - HELD THAT:- Assessee paid amount to Philip Commodities India Pvt. Ltd. in the month of June 2013 of ₹ 1,50,66,407/- and also got the amounts till March 2014 and could not receive money of ₹ 47,58,533/- owing to crash of NSEL. This gives rise to a situation where the assessee incurred business loss owing to his transaction with M/s. Philip Commodities India Pvt. Ltd. Hence, the loss will have to be allowable at loss incidental to the business while computing the income u/s. 28. It is not an expenditure, the provisions u/s. 30 to 37 are not attracted in this case. We hold that loss must be during the course or of incidental to business. It is the nexus with the business which is more relevant to claim the loss (CIT Vs. Textool Co. Ltd. - 1981 (9) TMI 92 - MADRAS HIGH COURT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g or which shall generate taxable income are to be excluded under rule 8D (2)(iii). d) That non dividend paving securities are to be excluded for the working under rule 8D (2)(iii). e) That the suo-moto disallowance of ₹ 14,00,000/- is withdrawn. It is prayed that the total addition of ₹ 47,07,953/- be deleted. 3. a) That on the facts and circumstances of the case and in law the Ld. CIT has misdirected himself in confirming addition of ₹ 47,58,833/- towards irrecoverable amount from NSEL. b) That the loss suffered, is an allowable loss u/s. 28 read with section 36(2) of the IT Act, as the loss is suffered during the course of the appellant business, including money lending, carried on in the ordinary course of business. c) Loss suffered is an allowable loss u/s. 37 of the IT Act: -In accordance with the accounting policies regularly followed, whereby known business losses, are written off in the year in which it is considered irrecoverable. Subsequent recoveries if any are treated as income. -When income from investment with NSEL is taxable, loss suffered in the process of earning of income, is also an allowable loss. d) Tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were made in the earlier year and from the assessee's own funds and in the absence of invocation of Section 14A(2), no further disallowance is called for. 7. Heard the arguments of both the parties and perused the material available on record. 8. We find that while the AO has disallowed ₹ 1.51 Cr. u/s. 14A. The ld. CIT(A) based on the judgment of the ITAT in the case of ACIT Vs. Vireet Investments Pvt. Ltd. (2017 TOIL 923 ITAT Del) has reduced the amount to ₹ 47.07 lacs by re-computing the average value of the investments yielding dividends. 9. We have also gone through the entire assessment order page nos. 3 to 13 and the commentary in the case laws quoted by the Assessing Officer. Infact, it is a treatise on the provisions of Section 14 which is well appreciable. However, the AO failed to follow the procedural aspects of invocation of Section 14A(2) which is a sine qua non for re-computation of the disallowance. There cannot be anything like deemed satisfaction or employed dissatisfaction while invoking the provisions of Section 14(2). There is no mention by the Assessing Officer as to how the AO is not satisfied with the correctness of the claim of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity. In that sense, the rules are not merely procedural but are substantive and can be said to be engrafted in the statute, as is evident from the mandate of the first part of Section 14A(2). That apart, significantly, the question of applying the statutorily prescribed method would arise only and only if the AO expresses an opinion rejecting the assessee's methodology and the figure offered at the time of assessment. This is material because the jurisdiction to go into the method prescribed in the Rules arises only if the amounts the assessee offers does not have any realistic correlation with the tax exempt income. For instance, in a given case, if a tax exempt income is to the tune of ₹ 5 crores and the assessee is able to satisfy that expenditure relatable to that income or the reasonable nexus to such income is ₹ 25 lakhs, there has to be strong reasons why the said amount of ₹ 25 lakhs are to be rejected. In other words, the opinion of the assessing officer in the latter part [of Section 14A(2)] is to be based upon an appraisal of objective material relating to the assessee's voluntary disallowance of amount/amounts. Not only that, if in the course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t as the amount has been invested and lost in the same year. 16. The ld. DR argued that the primary intention of the assessee is investment and hence at the most it can be allowed as capital loss. 17. Heard the arguments of both the parties and perused the material available on record. 18. The issue involves deduction under two specific section namely Section 28 and Section 36 and 37. There is a subtle difference between the business loss and business expenditure while loss arises from regular operation of the business, business expenditure is conscious charge in an endeavor to earn income. Sections 30 to 36 deal specifically with expenditure allowable in computing the taxable income and Section 37 is a general provision for allowing the deductions of expenditure taking into consideration the business of the assessee. The exception being capital expenditure and personal expenditure. The Hon'ble Supreme Court in the case of Quershi Vs. CIT 287 ITR 547 held that explanation II Section 37 is not applicable to the case of business loss but to business expenditure. In the instant case, the assessee paid amount to Philip Commodities India Pvt. Ltd. in the month of June 2013 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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