2014 (4) TMI 395 - AT - Income Tax

Allowability of business loss Loss specifically covered u/s 73 of the Act business activity of institutional stock broking in shares - Loss has occurred in respect of error trade - Held that - CIT(A) was of the view that the amount was allowable as business loss to the assessee - Due to dispute with the clients, for the transaction, it does not change the relation of principal and the agent - The assessee for business consideration chooses not to recover the losses - These losses are in the course of business and should be allowed as such u/s 28 of the Act - The AO has not brought any material on record to suggest that the contentions of the assessee are either false or incorrect - No material has also been brought on record that these losses are on account of assessee s own trading in shares - If it is so, the loss accrued to the assessee will be governed by the aforementioned decisions of Tribunal where consistent view has been taken that loss occurred to share broker on account of client disowning transaction is business loss and not speculative loss - the CIT(A) did not commit any error in accepting the claim of the assessee Decided against Revenue. Disallowance u/s 14A of the Act r.w.r. 8D(2)(iii) of the Rules Held that - The third component to compute disallowance u/s 14A as described in Rule 8D(2)(iii) is an amount equal to % of the average of the value of investment, income from which does not or was not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year - the third component which to be is taken into consideration while calculating the disallowance is prescribed in the Rules - In absence of concrete material made available by the assessee to show that such component was not warranted, the case of the assessee cannot be accepted - no concrete material has been brought on record by the assessee to come out of the component described in Rule 8D(2) (iii) to content that the same was not applicable thus, there is no reason to interfere in the order of CIT(A) Decided against Assessee.

Summary

Issues involved:
1. Allowance of business loss under section 73 of the Income Tax Act.
2. Disallowance under section 14A of the Income Tax Act.

Issue 1: Allowance of business loss under section 73 of the Income Tax Act:

The case involved cross-appeals against the order passed by Ld. CIT(A)-39, Mumbai for the assessment year 2008-09. The Revenue's appeal contested the allowance of a loss as a business loss under section 73 of the Act. The AO treated the loss as speculative, invoking the explanation to Section 73. The assessee, a broker for institutional clients, argued that errors in trading due to immediate execution requirements led to losses, which should be considered as business losses. The Ld. CIT(A) accepted the assessee's contentions, relying on relevant decisions. The Tribunal upheld the Ld. CIT(A)'s decision, emphasizing that the losses were due to error trades, not speculative activities. The Department's appeal was dismissed, affirming the allowance of the loss as a business loss.

Issue 2: Disallowance under section 14A of the Income Tax Act:

In the assessee's appeal, the disallowance under section 14A r.w. Rule 8D was contested. The AO calculated the disallowance at Rs. 74,42,765/-, whereas the assessee's calculation was Rs. 96,524/-. The Ld. CIT(A) upheld the disallowance under Rule 8D(2)(iii) for administrative expenses related to tax-free investments. The assessee argued that non-maintenance of separate accounts for tax-free income did not justify the disallowance. The Tribunal noted that the assessee failed to provide concrete evidence to exclude the disallowance component under Rule 8D(2)(iii). Consequently, the Tribunal dismissed the assessee's appeal, upholding the disallowance under section 14A.

In conclusion, the Tribunal dismissed both appeals, upholding the allowance of business loss under section 73 and the disallowance under section 14A of the Income Tax Act as decided by the Ld. CIT(A).