9911796707
TMI Blog2010 (11) TMI 422X X X X Extracts X X X X X X X X Extracts X X X X ..... ture cannot be said to be wholly and exclusively incurred for the purpose of business of the assessee - Decided against of assessee. addition u/s.14A -In the absence of clear bifurcation of expenses for earning dividend income the Assessing Officer has made disallowance on ad hoc basis which appears to be highly excessive in view of the fact that the investments are not made out of the borrowed funds and only the administrative expenses are to be allocated and the efforts put in to achieve the turn over of 20.34 crores in share trading are more than making an investment in the mutual funds which have generated the dividend income - Hence, it will be fair and justified to restrict the disallowance to Rs.1.50 lacs and the appellant gets a relief of Rs.50,000/- Decided in favour of assessee. - ITA No. 5902/Mum/2005 - - - Dated:- 10-11-2010 - N.V. Vasudevan, Rajendra Singh, JJ. Satish Mody for the Appellant Ajit Kumar Sinha for the Respondent ORDER N.V. Vasudevan: This is an appeal by the Assessee against the order dated 12.08.2005 of the Commissioner of Income-tax (Appeals)-III, Mumbai, relating to the assessment year 2001-02. 2. The ground No.1 ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his submission was not accepted by the A.O. The A.O. therefore, did not allow the set off as claimed by the assessee and the speculation loss was added to the total income of the assessee. 5. On appeal by the assessee the CIT(A) confirmed the order of the A.O. observing as follows: "I have carefully considered the submissions of the appellant and the reasoning given by the Assessing Officer. I do not agree with the arguments of the appellant that the Assessing Officer invoked the provisions of section 73. In fact the Assessing Officer has treated the transactions as speculated by applying the provisions of Sec.43 which reads as under: "Speculative transaction means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips." Since the appellant has settled the transactions otherwise than taking physical delivery the transactions are clearly speculative transactions and any loss suffered on such transactions would be speculative loss. Accordingly, I agree with the findings of the Assessing Officer that the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her provisions of this Chapter, be carried forward to the following assessment year, and- (i) it shall be set off against the profits and gains, if any, of any speculation business carried on by him assessable for that assessment year; and (ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on. (3) In respect of allowance on account of depreciation or capital expenditure on scientific research, the provisions of sub-section (2) of section 72 shall apply in relation to speculation business as they apply in relation to any other business. (4) No loss shall be carried forward under this section for more than *four assessment years immediately succeeding the assessment year for which the loss was first computed. Explanation:- Where any part of the business of a company other than a company whose gross total income consists mainly of income which is chargeable under the heads "Interest on securities", "Income from house property", "Capital gains" and "Income from other sources" or a company the principal business of which is the business of banking or the granting of loans an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the words "speculation business" appearing in the Explanation. The definition of "speculation transaction" in s. 43(5) is only for the purposes of ss. 28 to 41 of the Act. The legislature apparently thought that the actual purchase and sale of shares by certain companies should be deemed to be speculative transactions as there was evidence to show that some companies were adopting a device to manipulate the prices of the shares, which are dealt with amongst controlling groups, to reduce their taxable income. That was the reason why the Explanation was inserted. 12. The provisions of Explanation to Sec.73 as we have already seen provides that where any part of the business of a company consists in the purchase and sale of shares of other companies, such company shall, for the purposes of this section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares. According to the learned D.R. the use of the expression "for the purposes of this Section" shows that the explanation is relevant only for the purpose of applicability of Sec.73. According to the learned D.R., Sec.73 is applicable only when los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trading in shares and not dealing in property. Therefore, the aforesaid expenditure cannot be said to be wholly and exclusively incurred for the purpose of business of the assessee. The assessee, however, submitted that doing real estate business was also permitted under the Memorandum of Association of the company. The A.O. however, held that the aforesaid expenses was not in relation to the business of the assessee and disallowed the claim for deduction made by the assessee. 17. On appeal by the assessee the CIT(A) also concurred with the view of the A.O. ad he held that assessee did not bring any material on record to show that it had intention to enter into the real estate business. 18. Before us the learned counsel for the assessee reiterated the stand of the assessee as was put forth before the revenue authorities. Before us it is also not in dispute that except this isolated instance there was no other attempt made by the assessee till date to enter into real estate business. We are of the view that the assessee failed to bring any material on record to show that it had an intention to do real estate business. In the circumstances we are of the view that the order o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income. 23. On appeal by the assessee, the CIT(A) held as follows: "I have carefully considered the reasoning given by the Assessing Officer and the submissions of the appellant. As per the appellant the dividend income earned is only Rs.9.30 lacs approx. while the interest income is 17.16 lacs which is included in the other income. That the disallowance of Rs.2 lacs out of total expenses of Rs.9.3 lacs is highly excessive because the dividend income is hardly 10% of the other income. The A.O. has made the disallowance by considering the quantum of investments made in the mutual funds as compared to the total turn over of sale and purchases of shares. Further, the claim of the appellant is that there are only 10 entries of dividends and much expenditure cannot be said to be relating to earning of such dividend. In the absence of clear bifurcation of expenses for earning dividend income the Assessing Officer has made disallowance on ad hoc basis which appears to be highly excessive in view of the fact that the investments are not made out of the borrowed funds and only the administrative expenses are to be allocated and the efforts put in to achieve the turn over of 20.34 cr ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
