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2015 (7) TMI 909 - AT - Income TaxDisallowance of speculation loss by invoking the provisions of Explanation to Sec. 73 - CIT(A) deleting the addition - Held that - Assessee filed complete details of deployment of fund during last three years including the position of income and turnover of the assessee in different business. At this stage it is not possible to verify these details because this is being filed now for the first time before us. We find that the AO has only verified the deployment of funds for last three years and has not gone into the profits earned from various sources and also the turnover of the assessee from various sources. However, CIT(A) has only examined increase in loans and advances and not compared it with investment in shares. As the authorities below have lacked in their investigation into the correct facts, we feel that this issue needs re-examination. In term of the above, we set aside this issue to the file of the AO for fresh examination of this issue in terms of the Explanation to section 73 of the Act, wherein the AO will first determine the principal business of the assessee. For this, the AO will find out the deployment of funds in shares and in other business. The AO will also find out the profit or loss from shares and also in other business. The AO will also find out the turnover of the assessee in all the business and then compare the same on comparative basis. He has to give a finding qua the principal business of the assessee and then decide the issue - Decided in favor of assessee for statistical purposes. Disallowance u/s 14A - CIT(A) deleting the addition - Held that - The assessee has earned dividend income of ₹ 58,311/- and the same is exempt income inviting the provisions of section 14A of the Act read with Rule 8D of the Rules. We find from the assessment order that there is no satisfaction recorded for application of Rule 8D of the IT Rules 1962 and simply formula prescribed under the said Rule is applied without giving any finding qua the nexus of expenditure with exempted income. Hence, we confirm the order of the CIT(A) and this issue of appeal of Revenue is dismissed. - Decided against revenue.
Issues:
1. Disallowance of speculation loss under Explanation to Sec. 73 of the Income-tax Act. 2. Addition made by AO in respect to expenses incurred for earning exempt income under section 14A of the Act. Issue 1: Disallowance of Speculation Loss: The appeal by revenue challenges the CIT(A)'s deletion of the disallowance of speculation loss under Explanation to Sec. 73 of the Act. The Assessing Officer (AO) noted that the assessee primarily engaged in share trading suffered losses in share trading business. The AO required the assessee to explain the allowability of speculation loss under Explanation 73 of the Act. The assessee argued that its primary business was not share trading, supported by income distribution figures for various assessment years. The CIT(A), relying on the submissions, deleted the disallowance, emphasizing the increase in loans and advances. The Tribunal observed deficiencies in the investigation by the authorities, leading to a lack of clarity on the principal business of the assessee. Consequently, the issue was remanded to the AO for fresh examination to determine the principal business based on fund deployment, profits, and turnover. Issue 2: Addition of Expenses for Exempt Income: The second issue pertains to the addition made by the AO for expenses incurred to earn exempt income under section 14A of the Act. The AO invoked Rule 8D of the Income Tax Rules, disallowing a portion of the average investment against dividend income. The CIT(A) reversed this disallowance, stating that since the share trading loss was considered a business loss, the disallowance of expenses under section 14A was also not warranted. The Tribunal upheld the CIT(A)'s decision, noting the absence of a recorded satisfaction for applying Rule 8D and confirming that the disallowance lacked a clear nexus between expenditure and exempted income. Consequently, the appeal of the revenue on this issue was dismissed. In conclusion, the Tribunal partly allowed the revenue's appeal for statistical purposes, remanding the first issue for fresh examination by the AO to determine the principal business of the assessee. The second issue regarding the addition of expenses for earning exempt income was decided in favor of the assessee, with the Tribunal upholding the CIT(A)'s decision to delete the disallowance.
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