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2016 (8) TMI 258 - AT - Income TaxTreating the loss as Speculation Loss under Explanation to Section 73 - Held that - The loss incurred by the assessee company on share trading carried on by it on its own behalf shall not be hit by the deeming fiction of explanation to Section 73 of the Act and shall be treated as normal business loss to be set aside against the other non- speculative business income and other income as per provisions of the Act. This disposes of the ground no 1 raised by the assessee company as well additional ground raised by the assessee company. Disallowance u/s 14A - Held that - Even strategic investment in group concerns for the purpose of control and not for earning dividend attract disallowance u/s 14A of the Act read with rule 8D of the Income Tax Rules, 1962., we hold that the investment made by the assessee company in Bombay Stock Exchange shall attract disallowance u/s 14A of the Act having regards to the accounts of the assessee company as provided u/s 14A(2) of the Act keeping in view Rule 8D(2)(iii) of the Income Tax Rules, 1962.We are therefore inclined to set aside the matter to the file of the AO for de-novo determination and quantification of disallowance u/s 14A of the Act of the indirect expenses incurred by the assessee company in relation to such income which does not form part of the total income having regards to the accounts of the assessee company as provided u/s 14A(2) of the Act and also keeping in view Rule 8D(2)(iii) of Income Tax Rules, 1962. n the case of Cheminvest Limited (2015 (9) TMI 238 - DELHI HIGH COURT ) while in the said case the Hon ble Delhi High Court has laid down that there can be no disallowance u/s 14A of the Act if there is no exempt income received or receivable by the tax-payer. In the instant appeal, the assessee company did received the exempt income vide dividend income from shares of ₹ 2,81,541/- . This disposes off ground no 2 of the assessee company.
Issues Involved:
1. Disallowance of ?41,515/- as speculative business expenditure. 2. Disallowance of ?3,38,556/- under Section 14A. 3. Adjustment of refund against previous dues. 4. Credit of T.D.S. for a lesser amount. 5. Penalty proceedings under Section 271(1)(c). 6. Relief from payment of interest under Sections 234A, B, C, D. 7. Additional ground on treating a loss of ?37,31,368/- as speculation loss under Explanation to Section 73. Issue-wise Detailed Analysis: 1. Disallowance of ?41,515/- as Speculative Business Expenditure: The assessee company argued that the AO incorrectly disallowed ?41,515/- on an ad-hoc basis, claiming it was related to speculation business. The CIT(A) upheld this disallowance, noting that the assessee itself provided the details of proportionate expenses attributable to speculation transactions. The Tribunal found that since the assessee had submitted these details, the disallowance was justified and upheld the CIT(A)’s order. 2. Disallowance of ?3,38,556/- under Section 14A: The AO disallowed ?3,38,556/- under Section 14A read with Rule 8D, attributing it to expenses incurred for earning tax-free dividend income of ?2,81,541/-. The assessee contended that its own funds exceeded the investments and cited the Bombay High Court decision in Reliance Utilities and Power Limited. The Tribunal agreed with the assessee, noting that net owned funds were more than the investments, and thus, interest expenditure under Rule 8D(2)(ii) should not be disallowed. However, the Tribunal did not accept the assessee’s claim that strategic investments in BSE should be excluded from disallowance under Rule 8D(2)(iii). The Tribunal set aside the matter to the AO for re-determination of the disallowance under Rule 8D(2)(iii), excluding FDRs yielding taxable interest. 3. Adjustment of Refund Against Previous Dues: The assessee chose not to pursue this ground, and it was dismissed as withdrawn. 4. Credit of T.D.S. for Lesser Amount: The assessee did not press this ground, and it was dismissed as withdrawn. 5. Penalty Proceedings under Section 271(1)(c): The assessee requested the penalty proceedings under Section 271(1)(c) be dropped. This ground was noted as consequential and did not require adjudication. 6. Relief from Payment of Interest under Sections 234A, B, C, D: The assessee sought relief from interest payment under Sections 234A, B, C, D. This ground was also noted as consequential and did not require adjudication. 7. Additional Ground on Treating a Loss of ?37,31,368/- as Speculation Loss: The assessee raised an additional ground, arguing that the AO erred in treating the loss of ?37,31,368/- as speculation loss under Explanation to Section 73. The Tribunal admitted this additional ground, citing the Supreme Court’s judgment in NTPC v. CIT. The Tribunal found that the assessee’s case was covered by the Bombay High Court decision in CIT v. HSBC Securities and Capital Market India Private Limited, which held that the loss should be treated as a normal business loss, not speculative. Consequently, the Tribunal ruled that the loss of ?37,31,368/- should not be treated as speculation loss and should be set off against other non-speculative business income. Conclusion: The Tribunal partly allowed the appeal, ruling in favor of the assessee on the issue of treating the loss of ?37,31,368/- as a normal business loss and deleting the disallowance of ?2,28,105/- under Rule 8D(2)(ii). The matter of disallowance under Rule 8D(2)(iii) was remanded back to the AO for re-determination. The other grounds were either dismissed as withdrawn or noted as consequential.
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