TMI Blog2021 (5) TMI 1004X X X X Extracts X X X X X X X X Extracts X X X X ..... that Section 14A is relatable to income of actual income or not notional or anticipated income. Therefore, the conclusion arrived at by us in M/S NOVEL SOFTWARE INDIA (P) LTD.[ 2021 (2) TMI 145 - KARNATAKA HIGH COURT] is affirmed but for different reasons. As also clarified by us that while recording the conclusion in KINGFISHER FINVEST LTD. [ 2020 (10) TMI 518 - KARNATAKA HIGH COURT] that disallowance under Section 14A has to be made even taxpayer has not earned any exempt income, this court has misread the ratio of the decision of the Supreme Court in MAXOPP INVESTMENT LTD [ 2018 (3) TMI 805 - SUPREME COURT] and therefore, the aforesaid view being contrary to the law laid down by the Supreme Court is not a binding precedent. - Decided in favour of assessee. - ITA NO.352/2018 C/W ITA NO.350/2018, ITA NO.351/2018 - - - Dated:- 25-5-2021 - THE HON'BLE MR. JUSTICE SATISH CHANDRA SHARMA AND THE HON'BLE MR. JUSTICE NATARAJ RANGASWAMY For the Appellant : SRI K V ARAVIND, ADVOCATE) For the Respondent : SRI BALARAM RAO, ADVOCATE) JUDGMENT Regard being had to the similitude in the controversy involved in all the three cases, they are heard analogously t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act. Explanation 2 to Section 28 - Where speculative transactions carried on by an assessee are of such a nature as to constitute a business, the business (hereinafter referred to as speculation business ) shall be deemed to be distinct and separate from any other business. Section 43(5): speculative transaction means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scripts: Provided that for the purposes of this clause - (a) a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the date of contract against the assessee to fulfill the same on the date of maturity and it is in the nature of a hedging contract because it is a contract entered into against possible future financial losses. The assessee would come to know of the actual profit/loss only on the date of maturity only unless there is any premature cancellation of the contract. Thereafter, the Tribunal has noted the well settled principles regarding the accounting principles and in Paragraph 4.5.5 has held that the contention of the assessee that, forward contract was to be revalued in accordance with Accounting standards 11 and therefore, the assessee had no option but to determine the profits / loss with regard to unmatured foreign exchange forward contracts in accordance with currency rates as on the date of the valuation i.e., 31st March has not been disputed by the revenue. Thereafter, in Paragraph 4.5.8, the Tribunal has held that it is not in dispute that the forward contracts have been entered into by the assessee in order to protect its interest against fluctuation in foreign currency, in respect of consideration for export proceeds which is a revenue item and has concluded as follows: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract is incidental to assessee's course of business, therefore, such a loss is not a speculative loss but a business loss. The aforesaid findings have not been demonstrated to be perverse. For the aforementioned reasons, the substantial questions of law No.1 and 3 are answered against the revenue and in favour of the assessee. 14. Now we may advert to the second substantial question of law. It is pertinent to note that for Assessment Year 2009-10 the assessee has not earned dividend income. The aforesaid fact has not been disputed by the revenue. It is also relevant to mention that Circular No.5/2014 dated 11.02.2014 is not applicable in the instant case as the instant case pertains to Assessment Year 2009-10. The aforesaid Circular has no retrospective operation. It is noteworthy that aforesaid Circular was not even relied by the parties. This court in COMMISSIONER OF INCOME TAX VS. KINGFISHER INVESTMENT INDIA LTD. vide judgment dated 29.09.2020 inter alia held that disallowance under Section 14A read with Rule 8D has to be made even when taxpayer in a particular year has not earned any exempt income. This court relied on the decision of the Supreme Court in MAXOPP INVESTM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee. In contrast, where the shares are held as stock-in-trade, this may not be necessarily a situation. The main purpose is to liquidate those shares whenever the share price goes upon order to earn profits. In the result, the appeals filed by the revenue challenging the judgment of the Punjab and Haryana High Court in State Bank of Patiala also fail, though law in this respect has been clarified hereinabove. 15. From perusal of the relevant extract of the Supreme Court, it is evident that the decision in MAXOPP INVESTMENT LTD. supra deals with applicability of Section 14A of the Act. Therefore, the observations made with regard to applicability of Section 14A in M/S NOVEL SOFTWARE INDIA (P) LTD. are factually incorrect and we hasten to clarify the same. However, from relevant extract of Paragraph 40, it is evident that only expenses proportionate to earning of exempt income could be disallowed under Section 14A of the Act and the decision of MAXOPP INVESTMENT LTD is an authority for the aforesaid proposition that the provision is relatable to earning of actual income. The object of Section 14A is to curb the practice to claim deduction of expenses incurred in relatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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