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2015 (12) TMI 1117 - AT - Income TaxLoss on account of non-speculation transaction as speculation - Held that - The trading of derivatives for the entire assessment 2006-07 is out of the definition of speculation business if it is carried out in the recognized stock exchange. The assessee has done the trading in the recognized stock exchange. So it is clear that loss on account of derivative transaction or very much covered in clause (d) of the proviso Section 43(5) of the Act. In view of such amendment under the Act, the income/loss arrived on derivative shall be treated as non-speculative loss. - Decided against revenue. Allowing relief of interest payment relying loss on trading of derivatives prior to 25.01.2006 as non-speculation business - Held that - AO disallowed the interest paid by assessee up-to 25.01.2006 on the ground that it pertains to speculation business. Therefore, it should not be allowed. However, we find that Ld. CIT(A) has allowed the claim of interest expense by treating the loss from the derivative transactions as non- speculative business. We find that this ground relates to the first ground of Revenue s appeal regarding treating the transaction of derivative as speculative business up to 25.01.2006. In the first ground of appeal, we have held the business of the assessee as nonspeculative. Accordingly, the interest disallowed by AO is allowable expense against the non-speculative business of the assessee. In our considered view, this ground of Revenue s appeal is dismissed.- Decided against revenue. Disallowance u/s. 14A - Held that - There was no applicability of Rule 8D in the instant case as this Rule 8D came in force w.e.f. 24.03.2008. In view of above, we find no reason to interfere in the order of Ld. CIT(A) and this ground raised by Revenue is dismissed.- Decided against revenue. Allowance for the expense of Security Transaction Tax (STT for short) - Held that - STT was duly shown under the head current asset in Schedule-7 for an amount of ₹ 1,38,26,870/-. Ld. AR further drew our attention on page 7 of the financial statement, wherein transaction, Demat & share transfer stamp charges under the head of Administrative charges were written. Hence the ld. AR claimed that no expense for STT has been debited in the profit and loss account of the assessee. From the aforesaid discussion, we find that assessee has not debited any amount of STT in its profit and loss account in the year under consideration but AO misunderstood from the financial statement submitted by assessee, where transaction/demat and share transfer stamp charges were debited. Therefore we do not find any reason to interfere in the order of Ld. CIT(A) and this ground raised by Revenue is dismissed.- Decided against revenue. Rebate u/s 88E of the STT paid while working out the tax under the provisions of Minimum Alternate Tax (MAT) as specified u/s 115JB - Held that - Rebate u/s 88E of the Act was to be allowed from the tax computed as per provisions of Sec.115JB of the Act to find out whether after set off of rebate u/s.88E of the Act, any tax liability remained or not. Admittedly, the tax liability as per MAT provisions was less and rebate admissible u/s.88E of the Act was more. Therefore, rebate u/s 88E had to be allowed even when total income is computed u/s. 115JB of the Act. Resultantly, the ground taken by Revenue is dismissed.- Decided against revenue.
Issues Involved:
1. Classification of loss on derivative transactions as speculative or non-speculative. 2. Allowability of interest expenses related to derivative transactions. 3. Disallowance under Section 14A of the Income Tax Act. 4. Allowability of Security Transaction Tax (STT) as an expense. 5. Rebate under Section 88E against Minimum Alternate Tax (MAT) provisions. Detailed Analysis: 1. Classification of Loss on Derivative Transactions: The primary issue was whether the loss incurred on derivative transactions before 25.01.2006 should be treated as speculative. The assessee argued that under Section 43(5)(d) of the Income Tax Act, trading in derivatives is not speculative if conducted on a recognized stock exchange. The Assessing Officer (AO) treated the loss as speculative based on Notification No. 2/2006 dated 25.01.2006, which recognized certain stock exchanges. The Commissioner of Income Tax (Appeals) [CIT(A)] and the Tribunal held that the amendment by Finance Act, 2005, effective from 01.04.2006, intended to exclude derivative transactions from speculative transactions for the entire assessment year 2006-07, irrespective of the notification date. The Tribunal cited several case laws, including CIT v. Nasa Finlease P. Ltd. and Vinod Kumar Rampuria v. ITO, supporting the retrospective application of the amendment. 2. Allowability of Interest Expenses: The AO disallowed interest expenses up to 25.01.2006, treating them as related to speculative business. The CIT(A) allowed the interest expenses, treating the derivative transactions as non-speculative. The Tribunal upheld CIT(A)'s decision, aligning with the conclusion that derivative transactions were non-speculative for the entire assessment year 2006-07. 3. Disallowance under Section 14A: The AO disallowed Rs. 6,64,404 under Section 14A read with Rule 8D, attributing expenses to tax-exempt dividend income. The CIT(A) partly allowed the appeal, disallowing only Rs. 29,002, including demat charges and 1% of the exempt income. The Tribunal upheld CIT(A)'s order, noting that Rule 8D was applicable from 24.03.2008 and not relevant for the assessment year 2006-07. It also found sufficient interest-free funds to cover the investments, negating the need for interest disallowance. 4. Allowability of Security Transaction Tax (STT): The AO disallowed Rs. 39,20,360 claimed under "Administrative Expenses" as STT, which is not allowable under Section 40(a)(ib). The CIT(A) found that the STT was shown under "current assets" and not debited in the profit and loss account. The Tribunal confirmed CIT(A)'s finding that the AO misunderstood the nature of the expenses. 5. Rebate under Section 88E against MAT Provisions: The AO disallowed the rebate claimed under Section 88E for STT paid, arguing it violated sub-section 2 of Section 88E. The CIT(A) allowed the rebate, following the ITAT Kolkata's decision in Ganeshan Securities Pvt. Ltd. The Tribunal supported CIT(A)'s decision, referencing the Bangalore Bench's ruling in M/s Horizon Capital Ltd., which allowed rebate under Section 88E even when computing income under MAT provisions. Conclusion: The Tribunal dismissed the Revenue's appeals on all grounds, affirming CIT(A)'s decisions. The assessee's cross-objection was dismissed as infructuous due to the dismissal of the Revenue's appeal. The judgment clarified that derivative transactions for the entire assessment year 2006-07 are non-speculative, interest expenses related to such transactions are allowable, and disallowance under Section 14A should consider the availability of interest-free funds. Additionally, STT shown under current assets is not an allowable expense, and rebate under Section 88E is applicable against MAT provisions.
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