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2016 (10) TMI 983 - AT - Income TaxAddition on speculation loss - Speculation transaction - Held that - From all the foregoing discussion we find that the AO has treated the transaction of sale & purchase of shares in F&O market which was undertaken to safe guard the loss in his holdings of stocks and shares against price fluctuations as speculation. However we find that the existing transaction is falling within the exceptions provided in clause (c) to section 43(5) of the Act. As per the provisions of the section 43(5) of the Act the transaction is falling within the definition of speculation transaction but the same has been provided in the exception list as per clause (c) to section 43(5) of the Act. The transaction undertaken for the sale & purchase of the shares in F&O market to safeguard the loss on account of price fluctuations of the share held by the assessee within the same script cannot be regarded as speculation transactions. Disallowance u/s 14A - shares/securities held as stock in trade - Held that - Provisions of section 14A read with rule 8D of the Act are squarely applicable even for the shares/securities held as stock in trade. In the instant case the shares were held as stock in trade but no disallowance of any expenditure was made. We also find that no submission or any calculation was made before the AO at the time of assessment showing that no expenditure was incurred in connection with the dividend income. In the absence of any information the AO has no option except to resort to the provisions of rule 8D of Income Tax Rules 1962. Accordingly the plea of the assessee with regard to the satisfaction is not tenable. Hence this ground of Assessee s CO is dismissed. Addition on account of the payment of club membership fees - Held that - As decided in case of Commissioner of Income-tax Patiala v. Groz Beckert Asia Ltd. 2013 (2) TMI 375 - PUNJAB & HARYANA HIGH COURT corporate membership was obtained for running the business with a view to produce profit. Such membership does not bring into existence an asset or an advantage for the enduring benefit of the business. It is an expenditure incurred for the period of membership and is not long lasting. By subscribing to the membership of a club no capital asset is created or comes into existence. By such membership a privilege to use facilities of a club alone are conferred on the assessee and that too for a limited period. Such expenses are for running the business with a view to produce the benefits to the assessee. Consequently it cannot be treated as capital asset. - Decided in favour of assessee TDS u/s 194C - non deduction of tds on catering charges - disallowance u/s 40(a)(ia) - Held that - Assessee has organized the conferences and has purchased food items from M/s Deluxe Caters for the persons who attended the conference. From the facts of the case we find that the instant transaction is solely purchase of food items and therefore same is out of purview of TDS provision. The provisions of TDS u/s. 194C of the Act are applicable for a works on contract and they do not apply on the sale-purchase of products. Therefore in our considered view the transaction for purchase of food items is out of purview of TDS provision. - Decided in favour of assessee
Issues Involved:
1. Deletion of addition as speculation loss. 2. Treatment of transactions under Explanation to Section 73. 3. Disallowance under Section 14A read with Rule 8D. 4. Disallowance of club membership fees. 5. Disallowance of catering charges under Section 40(a)(ia). Detailed Analysis: 1. Deletion of Addition as Speculation Loss: The first issue raised by the Revenue was the deletion of an addition of ?33,60,261/- made by the Assessing Officer (AO) as speculation loss. The assessee, a Private Limited Company engaged in share/stock broking, claimed a day trading loss on the sale and purchase of shares. The AO treated this as a speculative transaction under Section 43(5) of the Income Tax Act, 1961, as the transactions were settled without actual delivery of shares. However, the assessee argued that these transactions were hedging/arbitrage activities to guard against losses from price differences between the cash market and the Futures & Options (F&O) market. The Commissioner of Income Tax (Appeals) [CIT(A)] accepted the assessee's claim, stating that such transactions fall under the exceptions provided in Section 43(5)(c) of the Act. The Tribunal upheld the CIT(A)'s decision, noting that the transactions were indeed to safeguard against losses and thus should not be treated as speculative. 2. Treatment of Transactions under Explanation to Section 73: The second issue raised by the Revenue was that the CIT(A) erred in treating the transaction out of the purview of Explanation to Section 73. The Tribunal observed that this issue did not emanate from the order of the lower authorities and hence dismissed it as infructuous. 3. Disallowance under Section 14A read with Rule 8D: The assessee earned a dividend income of ?5,68,583/- but did not disallow any expenses related to this exempted income. The AO disallowed ?1,12,385/- under Rule 8D(iii). The CIT(A) confirmed this disallowance. The Tribunal referenced a similar case (DCIT vs. M/s Teenlok Advisory Services Pvt. Ltd.), which held that Section 14A is applicable even if shares are held as stock-in-trade. The Tribunal upheld the disallowance, stating that the AO was correct in applying Rule 8D due to the absence of specific information from the assessee. 4. Disallowance of Club Membership Fees: The AO disallowed ?3,47,750/- as personal/capital expenses for club membership fees. The CIT(A) confirmed this disallowance. The Tribunal referred to the judgment in Commissioner of Income-tax, Patiala v. Groz Beckert Asia Ltd., which held that club membership fees are not capital expenditures and are incurred for business purposes. Therefore, the Tribunal allowed the assessee's claim, reversing the disallowance. 5. Disallowance of Catering Charges under Section 40(a)(ia): The AO disallowed ?1,98,500/- for catering charges due to non-deduction of TDS under Section 194C. The CIT(A) upheld this disallowance. The Tribunal found that the transaction was for the purchase of food items, not a works contract, and thus outside the purview of TDS provisions. Consequently, the Tribunal allowed the assessee's claim and directed the AO to reverse the disallowance. Conclusion: - The Revenue's appeal was dismissed. - The assessee's cross-objection was partly allowed, with specific relief granted on the issues of club membership fees and catering charges.
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