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TMI Blog2009 (12) TMI 723X X X X Extracts X X X X X X X X Extracts X X X X ..... have been treated as speculative loss. 1.4 That the aforesaid loss of Rs. 24,96,424 deserves to be allowed as business loss." The brief facts of the case are that it is noted by the Assessing Officer in paragraph No. 4 of the assessment order that in the profit and loss account, the assessee has claimed an expenditure of Rs. 24,96,424 under the head loss on hedging. The Assessing Officer asked the assessee to explain as to how it is an allowable expense and furnish documentary evidence in support of this claim. In reply, it was submitted by the assessee before the Assessing Officer that these losses were incurred on account of futures and options trading of shares of ICICI Bank on two occasions and of Reliance Industries Ltd. (RIL) on one occasion. It was also submitted by the assessee that the loss was allowable in terms of the amended provision of section 43(5) of the Income-tax Act, 1961, particularly, as per proviso (d) inserted by the Finance Act, 2005 with effect from April 1, 2006, i.e., from the assessment year 2006-07. A clear finding is given by the Assessing Officer that these transactions in shares were not made to guard against losses in the assessee's holdings be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decided by following the decision of the Special Bench of the Tribunal rendered in the case of Shree Capital Services Ltd. v. Asst. CIT [2009] 318 ITR (AT) 1 (Cal) ; [2009] 124 TTJ 740. We have heard the rival submissions and have gone through the material available on record and we find that the same issue was considered by the Special Bench of the Tribunal rendered in the case of Shree Capital Services Ltd. v. Asst. CIT [2009] 318 ITR (AT) 1 (Cal) ; [2009] 124 TTJ 740. In this decision, it was held that clause (d) of the proviso to section 43(5) cannot be said to be clarificatory in nature. It was held that it is prospective in nature with effect from April 1, 2006, i.e., the assessment year 2006-07 onwards. After holding this, it was also held that loss on account of future option was rightly treated as speculative loss for the assessment year 200405 which was under consideration before the Special Bench of the Tribunal. In the present case, the assessment year involved is 2005-06 and hence as per this decision of the Special Bench of the Tribunal, clause (d) of the proviso to section 43(5) inserted by the Finance Act, 2005 with effect from April 1, 2006 is not applicable to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns taxable under a special rate, there cannot be any disallowances of expenses by prorating them between various activities being carried out by the company. 2.4 That the learned Commissioner of Income-tax (Appeals) has failed to appreciate that the computation of capital gains is to be made with reference to the sale consideration from which cost of acquisition, cost of improvement of the asset and expenditure incurred in connection with the sale/transfer is to be deducted and that the various expenditure incurred by the assessee-company and disallowed by the Assessing Officer are the expenditure incurred in connection with the sale/transfer of the capital assets, and accordingly the disallowance made by the Assessing Officer is without the sanction of law, and is therefore illegal and erroneous. 3. That the learned Commissioner of Income-tax (Appeals) has failed to appreciate that in view of the decision of the hon'ble Supreme Court in S. A. Builders Ltd. v. CIT [2007] 288 ITR 1 interpreting the term `for the purpose of earning income' the opinion of the Assessing Officer that the assessee's expenditure has to be prorated for capital gains and speculation transactions is erro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowed which are in connection with earning of exempt income and since the capital gain is not an exempt income, the Assessing Officer was not justified in disallowing expenses which are related to earning of taxable capital gain. As against this, it was submitted by the learned Departmental representative for the Revenue that even those expenses which are connected with investment activity are to be disallowed because the expenses connected with investment activity have to be considered as expenses incurred for earning dividend income and hence the disallowance made by the Assessing Officer is justified. We have heard the rival submissions and have gone through the material available on record. After going through the assessment order, we find that while working out the proportionate expenses attributable to investment activity, the Assessing Officer has considered the amount of capital gain as short-term as well as long-term as the basis for working out the proportionate expenses. We are not in agreement with the Assessing Officer on this aspect. We are of the opinion that any expenses which are attributed to investment activity have to be considered as expenses incurred for ..... 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