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TMI Blog2010 (11) TMI 612X X X X Extracts X X X X X X X X Extracts X X X X ..... on u/s 36(1)(vii) by way of bad debts after having written of the said debts from the books of account as irrecoverable. - ITA No. 1817/Del/2005, - - - Dated:- 12-11-2010 - Rajpal Yadav, Shamim Yahya, JJ. Ved Jain and Rano Jain, CA's for the Appellant Sangeeta Gupta, CIT (DR) for the Respondent ORDER Rajpal Yadav:- 1. This appeal by the revenue is directed against the order of the Ld. Commissioner of Income Tax (Appeals) dated 25.1.2005 pertaining to assessment year 2001-02. 2. The first issue raised is that Ld. Commissioner of Income Tax (Appeals) in deleting the addition of Rs. 79,67,675/- made on account of speculative loss. 3. Assessee in this case is engaged in the business of share broking and dealing in shares. Assessing Officer observed that on examination of profit and loss account, it was observed that the assessee has shown an amount of Rs. 80,04,884/- as 'loss on trading in shares' as an expenditure in the profit and loss account. Assessing Officer was of the opinion that section 73 was attracted in this case. He observed that it was undisputed that assessee is a company and a company whose principal business is earning brokerage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of C.I.T. vs. Apollo Tyres Ltd. = 255 ITR 273. Ld. Commissioner of Income Tax (Appeals) found that in the case of C.I.T. vs Apollo tyres Ltd. a question has arisen whether the loss suffered by the assessee on sale/purchase of units of UTI shall be covered by Explanation to Section 73 of the Act. The contention of the revenue in the said case was that as per provisions of section 32(3) of the UTI Act, a fiction has been created to make the UTI a deemed company and distribution of income received by the unit holder as a deemed dividend by virtue of this deemed provision. The court rejected the above contention and held that "We have examined the provisions of UTI Act and we are of the opinion that even though the said section creates a fiction to make the UTI as a deemed company and distribution of income received by the unit holder as a deemed dividend, by virtue of this deemed provision, it can not be said that it also makes the unit of UTI a 'deemed share'." The Hon'ble court further stated that "if, as a matter of fact, the legislature had contemplated making the unit as also deemed share, then it would have stated so. In the absence of any such specific deeming provisions in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same as speculative loss. The third item of loss of Rs. 37209/- was sustained by the Ld. Commissioner of Income Tax (Appeals). Hence the total deletion made by the Assessing Officer amounting to Rs. 7967675/-. 6. Against this order the revenue is in appeal before us. 7. We have heard both the counsel and perused the records. Ld.counsel of the assessee submitted that the loss of Rs. 6891828/- in units is covered in favour of the assessee by the decision of the Hon'ble Supreme Court in the case of C.I.T. vs. Apollo Tyres Ltd. = 255 ITR 273. He further submitted that loss on account of Rs. 1075847/- on account of trading error covered by the judgement of the ITAT in the case of Parkar Securities Ltd. vs. DCIT 102 TTJ 235 (Ahd.) 8. Ld. Departmental Representative on the other hand relied upon the order of the Assessing Officer. 9. We find that the Hon'ble Apex Court in the case of C.I.T. vs. Apollo Tyres Ltd. cited above had clearly held that unit of UTI cannot be deemed to be a share and therefore the business of buying and selling of units of UTI by the assessee company is not amounting to speculative business for the purpose of allowing set off losses. We find that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 2097364/- as expenditure towards share trading business which he has held to be speculative. He noted that as held by him out of the total trading loss in shares worked out to Rs. 8804884/- a sum of Rs. 7967675/- is not speculative. Accordingly, the apportionment of the expenses has to be in respect of the balance loss of Rs. 37209/- only which Ld. Commissioner of Income Tax (Appeals) held to be speculative as per Explanation to Section 73. By applying the formula adopted by the Assessing Officer of proportionate allocation in the ratio of speculative loss to brokerage income, this figure of Rs. 2097364/- will get reduced to Rs. 8863/-. However, Ld. Commissioner of Income Tax (Appeals) further held that considering the assessee's arguments, he was of the opinion that allocation of the expenses in the above manner was not justified. He noted the assessee itself has worked a sum of Rs. 63616/- as administrative expenditure which can be allocated towards the trading activity in respect of sale/purchase of shares as well as units. He further found that a sum of Rs. 56850/- worked out by the assessee on the basis of active utilization of borrowed funds was held to be interest expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same was directed to be deleted. 18. Against this order the Revenue is in appeal before us. 19. We have heard both the counsel and perused the records. Ld. counsel of the assessee in this regard has submitted as under:- "The issue is now squarely covered in favour of the assessee by a latest judgement of the Special Bench of the ITAT in the case of DCIT vs. Shreyas S. Morakhia, ITA No. 3374/Mum/2004, dated 16.7.2010, whereby at para 32, relevant findings read as under:- We are of the view that the amount receivable by the assessee, who is a share broker, from his clients against the transactions of purchase of shares on their behalf constitutes debt which is trading debt. The brokerage/commission income arising from such transactions very much forms part of the said debt and when the amount of such brokerage/commission has been taken into account in computation of income of the assessee of the relevant previous year or any earlier year, it satisfies the condition stipulated in section 36(2)(i) and the assessee is entitled to deduction u/s 36(1)(vii) by way of bad debts after having written of the said debts from the books of account as irrecoverable. The is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive expenditure which needs to be allocated towards earning dividend income and a sum of Rs. 56850/- is the interest expenditure to be allocated towards earning dividend income. Accordingly, the disallowance of Rs. 1048682/- made by the Assessing Officer was directed to be reduced to Rs. 1,20,466/- and assessee was granted relief of 9,28,216/-. 24. Against this order the revenue is in appeal before us. 25. We have heard both the counsel and perused the records. We find that Hon'ble Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd. vs. DCIT in ITA No. 626 of 2010 = 234 CTR 1 has held that "Rule 8 D has been notified on 24.3.2008 and will be applicable only from Assessment year 2008-09." The Hon'ble High Court, has overruled tribunal decision of M/s Daga Capital Management P. Ltd (supra) to this point. Hence, assessee's contention is quite correct that Rule 8D cannot be applied for the present assessment year which is assessment year 2001-02. Hence, Assessing Officer has made an adhoc estimated disallowance. Ld. Commissioner of Income Tax (Appeals) on the other hand has accepted the working of the assessee. However, we find that the submission and computation done ..... X X X X Extracts X X X X X X X X Extracts X X X X
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