2014 (7) TMI 1363 - AT - Income Tax

Loss from purchase and sale of shares holding the same as speculative loss - Whether CIT(A) has erred in holding that the assessee company s loss from purchase and sale of share to the tune was not covered by the explanation to provisions of section 73? - HELD THAT - As it is clear that the deployment of funds is more in the business of money lending from where the interest was earned and further the income as noted above is also from sources other than share transactions. Hence, we find no reasons to interfere in the order of the CIT(A) and same is confirmed. Disallowance u/s 14A r.w.r. 8D - HELD THAT - We find that assessee has not spent any amount on interest on borrowing as at 01-04-2008 and borrowing taken this year was not utilized in investment. Assessee has earned big income from derivative transactions at Rs.5,42,61,231/- and suffered loss on investment at Rs.1,22,81,662/- i.e. total expenses claimed are only Rs.1,42,48,311/-. Dividend income being only 1.5% of gross income Rs.2,13,724/- being 1.5% of expenses can be attributed to dividend against which the company has offered Rs.241,126/-. Further, there are direct expenses at 56,023/- as calculated by A.O. will apply in view of the provisions of section 14A r.w,r 8D of the rules. In assessee s case only Rule 8D(2)(i) is applicable and not 8D(2)(iii). Clause (ii), which clearly provides that formula giving therein is to be evoked only in a case where assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt. In this case Interest payment is only Rs.4,801/-. This interest is attributable to loans not utilized for investment but for giving loans to Shakti Sugar Ltd i.e. Rs. 3,00,000/- and Rs7,00,000/- paid as security deposit to SKP Securities. Rs.37,00,000/- taken from Parkview Properties Pvt. Ltd. and Rs. 3 Lacs and Rs. 7 Lacs from Bikanna Cornmercial Pvt. Ltd. and Shahjahanpure Electric Co. Ltd. respectively. In view of the above facts, we have no alternative except to confirm the order of CIT(A) and this issue of Revenue s appeal is dismissed.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Deletion of addition made by AO on account of disallowance of loss from purchase and sale of shares, holding the same as speculative loss.
3. Deletion of disallowance made by AO by applying Rule 8D(2) of the I.T. Rules, 1962 read with section 14A of the Income-tax Act for expenses incurred for earning exempt income.

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
At the outset, it was noticed that the revenue's appeal was barred by limitation by 5 days. The revenue filed a condonation petition along with an affidavit, arguing that there was a reasonable cause for the delay. The delay was conceded by the respondent's counsel, and hence, the delay was condoned, and the appeal was admitted for hearing.

2. Deletion of Addition Made by AO on Account of Disallowance of Loss from Purchase and Sale of Shares:
The first issue in the appeal was against the order of CIT(A) deleting the addition made by AO on account of disallowance of loss from purchase and sale of shares, holding the same as speculative loss. The AO noted that the assessee's principal business was not granting loans and advances but rather share trading and derivative transactions. Therefore, the loss claimed by the assessee was treated as speculation loss and added to the returned income.

The CIT(A), however, noted that the assessee was engaged in share trading, derivatives transactions, and investment activities. The CIT(A) observed that the gross total income of the appellant consisted mainly of income chargeable under heads other than business income, thus not falling under the explanation to section 73 of the Act. Relying on the decision of ITAT Mumbai Special Bench in the case of ACIT Vs. Concord Commercials (P) Ltd., the CIT(A) concluded that the principal business of the assessee was not share trading but granting loans and advances, as interest income was the major portion. The CIT(A) also referred to the case of Aman Portfolio (P) Ltd. Vs. DCIT.

The tribunal found that the deployment of funds and income sources supported the CIT(A)'s conclusion that the principal business was not share trading. Hence, the tribunal confirmed the order of the CIT(A) and dismissed this ground of the revenue's appeal.

3. Deletion of Disallowance Made by AO by Applying Rule 8D(2) of the I.T. Rules, 1962 Read with Section 14A of the Income-tax Act:
The second issue was against the order of CIT(A) deleting the disallowance made by AO by applying Rule 8D(2) of the I.T. Rules, 1962 read with section 14A of the Act for expenses incurred for earning exempt income. The AO noted that the assessee earned dividend income from investments in shares and mutual funds and proposed disallowance under Rule 8D. The AO made a total disallowance of Rs.23,80,398/- as the assessee did not maintain separate details regarding expenses for earning exempt income.

The CIT(A) deleted the disallowance of Rs.18,13,375/- and retained Rs.5,67,035/-, stating that the AO did not provide reasons for not being satisfied with the assessee's claim of expenditure. The CIT(A) relied on various High Court decisions that placed the onus on the AO to justify the disallowance.

The tribunal found that the assessee had not incurred significant interest expenses attributable to investments. The tribunal concluded that only Rule 8D(2)(i) was applicable, not 8D(2)(iii), and confirmed the order of the CIT(A), thereby dismissing this ground of the revenue's appeal.

Conclusion:
In the result, the appeal of the revenue was dismissed. The order was pronounced in the open court on 04.07.2014.