2017 (9) TMI 844 - AT - Income Tax

Addition u/s 14A r.w. Rule 8D - application of own fund to earn the exempt income - Held that - CIT(A) nowhere applied the provision of section 14A r.w. Rule 8D of the Act properly. It has also not been observed that the assessee has applied his own fund to earn the exempt income or not. No satisfaction was recorded to decline the claim of the assessee if any. The facts are not disputed. The application of the funds have nowhere bifurcated. Since, there is no proper application of the provision u/s 14A r.w. Rule 8D of the Act, therefore, we are of the view that the finding of the CIT(A) is not correct and is not liable to be sustainable in the eyes of law. Therefore, in the said circumstances, we set aside the finding of the CIT(A) on this issue and restored the issue before the AO to decide the matter afresh by giving an opportunity being heard to the parties in accordance with law. Accordingly, the appeal of the revenue is hereby allowed. Loss occurred in trading of futures and Options - claimed as speculation loss in Return of Income - Held that - We noticed that the AO has already allowed the claim of the assessee for the A.Y 2007-08 and 2010-11 and specifically held that the income from F & O activities pertain to the head of business and not speculation. In the A.Y. 2007-08. AO has held that the as per Section 43(5) of the Act, loss in deviating trading is a business loss and therefore as per section 71 the same has to be set off against the income under any other head except salary. So the mistake was found apparent on record which is required to be rectified. Accordingly, the CIT(A) directed the AO to verify the record produced by assessee in respect of loss arising from F & O activities and allow the same as business loss rather than speculative loss as inadvertently claimed by assessee. The factual position is not different at this stage. No doubt, the assessee raised the wrong claimed which has not been ordered to be rectified by the CIT(A) in accordance with law. Therefore, the finding no irregularity and illegality in the order passed by the CIT(A) on this issue we confirmed the finding of the CIT(A) on this issue and decided this issue in favour of the assessee

Summary

Issues Involved:
1. Disallowance of expenditure incurred to earn exempt income u/s 14A r.w. Rule 8D.
2. Treatment of loss from trading of futures and options as business loss rather than speculative loss.

Issue 1 - Disallowance of Expenditure:
The appeal involved a dispute regarding the disallowance of expenditure to earn exempt income. The Assessing Officer disallowed an amount under section 14A r.w. Rule 8D, while the CIT(A) restricted the disallowance to a lesser amount. The revenue contended that the CIT(A) incorrectly assessed the expenditure without applying the relevant provisions. The CIT(A) had not properly applied Section 14A r.w. Rule 8D and failed to consider whether the assessee used their own funds to earn the exempt income. The Tribunal found that the CIT(A)'s decision was incorrect as there was no proper application of the provisions. Consequently, the Tribunal set aside the CIT(A)'s finding and remanded the issue back to the Assessing Officer for fresh consideration.

Issue 2 - Treatment of Loss:
The second appeal concerned the treatment of loss from trading of futures and options. The CIT(A) directed the Assessing Officer to verify the records regarding the loss and allow it as a business loss instead of a speculative loss. The revenue argued that the claim was not raised in the return and cited a previous court decision. However, the Tribunal noted that the AO had previously allowed the claim for similar years and held the income from such activities as business income. The Tribunal found that the mistake was apparent on record and upheld the CIT(A)'s decision to allow the loss as a business loss. Consequently, the appeal filed by the revenue was dismissed.

Conclusion:
The Tribunal's judgments addressed the issues of disallowance of expenditure to earn exempt income and the treatment of loss from trading activities. The first appeal resulted in the CIT(A)'s decision being set aside for reconsideration by the Assessing Officer. In the second appeal, the Tribunal upheld the CIT(A)'s decision to allow the loss as a business loss. The third appeal was withdrawn by the assessee. Overall, the Tribunal's decisions provided clarity on the application of relevant provisions and the treatment of specific types of income and losses.