2015 (11) TMI 1538 - AT - Income Tax

Addition u/s. 14A - CIT(A) restricted the addition - Held that - We find that the relevant assessment year involved is 2007-08 and as held by Hon ble Bombay High court in the case of Godrej & Boycee Mfg. Co. Ltd., 2010 (8) TMI 77 - BOMBAY HIGH COURT that Rule 8D of the Rules as inserted by the I. T (Fifth Amendment) Rules, 2008 w.e.f. 24.3.2008 is prospective and not retrospective. We find that the exempted income of dividend is to the extent of ₹ 37,34,300/- and long term capital gain of ₹ 5,62,20,229/- in AY 2007-08. Rule 8D of the Rules is not applicable in this assessment year in the assessee s case as held by Hon ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. (Supra) being prospective. We are of the view that the CIT(A) has rightly restricted the disallowance at 1% of the exempted income and we confirm the same. - Decided against revenue Disallowance on account of donation - Held that - We find that the AO has disallowed the claim of donation on the basis that no evidence was produced by the assessee during the assessment proceedings but CIT(A) directed the AO to allow the claim of the assessee after verification of copies of receipts and declaration issued by approved charities and as produced by assessee before him.We find that the CIT(A) has directed the AO to examine the receipts for the donations mentioned above. He has not decided the issue. However, we feel that this issue can be verified by the AO and accordingly, this issue of revenue s appeal is set aside and allowed for statistical purposes. Rebate u/s. 88E of the Act on the computed book profit u/s. 115JB - Held that - This issue is not arising out of the order of CIT(A), hence, this issue cannot be adjudicated and this ground cannot be raised by revenue. On query from the Bench, Ld. Sr. DR fairly conceded that no such ground was raised before CIT(A) by the assessee and hence, he concedes that this issue cannot be raised before Tribunal for the first time. Accordingly, this ground of appeal of revenue is dismissed being infructuous. Disallowance of loss in business of purchase and sale of shares to be assessed as deemed speculation loss - applicability of Explanation to sec. 73 - Held that - Where an assessee, being the company, besides dealing in other things also deals in purchase and sale of shares of other companies, the assessee shall be deemed to be carrying on a speculation business. The assessee, in the present case, principally is a share broker, as already indicated. The assessee is also in the business of buying and selling of shares for self where actual delivery is taken and given and also in buying and selling of shares where actual delivery was not intended to be taken or given. Therefore, the entire transaction carried out by the assessee, indicated above, was within the umbrella of speculative transaction. There was, as such, no bar in setting off the loss arising out of derivatives from the income arising out of buying and selling of shares. In view of the above facts and circumstances and the proposition of law as discussed above, we are of the view that assessee has a loss which is arising out of business and accordingly, the same is a business loss and not speculation loss as held by lower authorities. - Decided in favour of assessee

Summary

Issues Involved:
1. Applicability of Rule 8D for AY 2007-08 under Section 14A.
2. Disallowance of donation claims.
3. Applicability of Rule 8D in computing book profit under Section 115JB.
4. Allowability of rebate under Section 88E on computed book profit under Section 115JB.
5. Treatment of loss in business of purchase and sale of shares under Explanation to Section 73.
6. Validity of the assessment order dated 31.12.2009 concerning the period of limitation.

Detailed Analysis:

1. Applicability of Rule 8D for AY 2007-08 under Section 14A:
The revenue challenged the CIT(A)'s decision to restrict the disallowance under Section 14A to Rs. 5,99,545, arguing that Rule 8D should be applied retrospectively. The assessee had claimed exempt income and attributed only Rs. 3,14,353 as expenses relatable to this income. The AO, relying on the Special Bench decision in Daga Capital Management Pvt. Ltd., applied Rule 8D retrospectively, leading to a higher disallowance. However, CIT(A) followed the Bombay High Court's decision in Godrej & Boycee Mfg. Co. Ltd., which held Rule 8D to be prospective. The Tribunal upheld CIT(A)'s decision, confirming that Rule 8D is not applicable for AY 2007-08 and the disallowance should be restricted to 1% of the exempt income.

2. Disallowance of Donation Claims:
The AO disallowed a donation claim of Rs. 18,002 due to lack of evidence. The CIT(A) directed the AO to verify the receipts and declarations from approved charitable institutions, which the assessee provided. The Tribunal found that CIT(A) had not decided the issue but directed verification. Therefore, the Tribunal set aside this issue for the AO to verify the donations, allowing the appeal for statistical purposes.

3. Applicability of Rule 8D in Computing Book Profit under Section 115JB:
The revenue raised a similar issue as the first one but in the context of computing book profit under Section 115JB. The Tribunal dismissed this issue, stating it had already been decided while adjudicating the first issue.

4. Allowability of Rebate under Section 88E on Computed Book Profit under Section 115JB:
The revenue contended that rebate under Section 88E should not be allowed when tax is computed under Section 115JB. The assessee argued that this issue was not raised before CIT(A) and cannot be adjudicated for the first time at the Tribunal. The Tribunal dismissed this ground as infructuous since it was not part of the CIT(A)'s order.

5. Treatment of Loss in Business of Purchase and Sale of Shares under Explanation to Section 73:
The assessee contested the treatment of loss from share trading as speculation loss under Explanation to Section 73. The AO and CIT(A) treated the loss of Rs. 95,02,451 as speculation loss based on the jurisdictional High Court's decision in Parkview Properties Pvt. Ltd. The Tribunal, referencing the Special Bench decision in Concord Commercial Pvt. Ltd., held that both delivery-based and derivative transactions should be aggregated before applying Explanation to Section 73. The Tribunal concluded that the loss is a business loss, not a speculation loss, and allowed the assessee's appeal on this issue.

6. Validity of the Assessment Order Dated 31.12.2009 Concerning the Period of Limitation:
The assessee raised grounds challenging the validity of the assessment order, arguing it was passed beyond the period of limitation. However, during the hearing, the assessee did not press these grounds. Consequently, the Tribunal dismissed these grounds as not pressed.

Conclusion:
The Tribunal partly allowed the appeals of both the revenue and the assessee. The revenue's appeals concerning the applicability of Rule 8D and the allowability of rebate under Section 88E were dismissed. The issue of donation disallowance was set aside for verification. The assessee's appeal regarding the treatment of share trading loss was allowed, while the grounds challenging the validity of the assessment order were dismissed as not pressed.