2018 (12) TMI 1066 - AT - Income Tax

Disallowance of loss made by the assessee on account of Derivative Trading - Held that - Genuineness of the transactions made by the assessee on MCX Stock Exchange Ltd. through broker was duly established and the action of the authorities below in disallowing the claim of the assessee for the resultant loss in dealing in currency derivatives is not tenable. Therefore, delete the said disallowance and allow the appeal of the assessee. Disallowance u/s 14A r.w.r. 8D - Held that - Admittedly, there is no exempt income earned during the year and hence not disallowance can be made u/s 14A r.w.r. 8D, as held by the Hon ble Jurisdictional High Court in the case of CIT vs. Ashika Global Securities Ltd. 2018 (7) TMI 1425 - CALCUTTA HIGH COURT . Also see CHEMINVEST LIMITED VERSUS COMMISSIONER OF INCOME TAX-VI 2015 (9) TMI 238 - DELHI HIGH COURT

Summary

Issues Involved:
1. Disallowance of loss on account of Derivative Trading
2. Disallowance under section 14A read with Rule 8D

Analysis:

Issue 1: Disallowance of loss on account of Derivative Trading
The appeal by the revenue was directed against the order of the Learned Commissioner of Income Tax (Appeals) regarding the disallowance of loss made by the assessee on account of derivative trading. The Assessing Officer disallowed the loss on the basis that the transactions were pre-meditated trading. However, the CIT(A) allowed the appeal of the assessee, stating that the AO's action of accepting only gains and rejecting losses incurred in derivative business was not justified. The Tribunal upheld the CIT(A)'s decision, emphasizing that all details of profit and loss were filed by the assessee and the disallowance was made on presumptions. The Tribunal's finding was supported by relevant materials, and no substantial question of law was involved. The appeal was dismissed, and no costs were awarded.

Issue 2: Disallowance under section 14A read with Rule 8D
The grounds 2 and 3 of the revenue's appeal were against the disallowance under section 14A read with Rule 8D. As there was no exempt income earned during the year, the disallowance could not be made under section 14A read with Rule 8D, as per previous judgments by the Jurisdictional High Court and the Delhi High Court. The CIT(A) restricted the disallowance to a minimal amount, which the assessee did not appeal against. Consequently, the Tribunal did not interfere with the CIT(A)'s order on this issue. Grounds 2 and 3 of the revenue's appeal were dismissed.

General Ground:
Ground 4 of the revenue's appeal was general in nature and did not pertain to specific issues addressed in the judgment. The appeal of the revenue was dismissed in its entirety.

In conclusion, the Tribunal upheld the CIT(A)'s decision regarding the disallowance of loss on account of derivative trading and dismissed the revenue's appeal on the disallowance under section 14A read with Rule 8D. The general ground of the revenue's appeal was also dismissed. The judgment was delivered on December 12, 2018, in Kolkata.