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TMI Blog2015 (11) TMI 110X X X X Extracts X X X X X X X X Extracts X X X X ..... e following additions/ disallowances:- (a) disallowance under section 14A - Rs. 42,97,650; (b) allocation of STT- Rs. 10,12,199;and (c) allocation of common expenses- Rs. 27,57,751". We will take up these three issues one by one. 3. As far as disallowance of Rs. 42,97,650 under section 14A is concerned, the relevant material facts are like this. The assessee company is engaged in the business of trading in shares. It had a closing stock of shares at Rs. 8,36,57,556 as against the opening stock of shares at Rs. 2,99,59,113. The assessee had earned a dividend income of Rs. 5,28,274 which is tax exempt in the hands of the assessee. On these facts, and relying on the special bench decision of this Tribunal in the case of ITO Vs Daga Capital Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his regard, following observations may be referred to: 5. We consider it appropriate to begin with reproducing Rule 8 D of the Income Tax Rules, which is as follows: "Method for determining amount of expenditure in relation to income not includible in total income. 8D(1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with- (a) the correctness of the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditure has been incurred, in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s but including the decrease on account of revaluation of assets." 6. A plain look at the above rule shows that 8 D(2)(ii) and (iii) can only be applied in the situations in which shares are held as investments, and that this rule will not have any application when the shares are held as stock in trade. It is so for the elementary reason that the one of the variables on the basis of which disallowance under rules 8D(2)(ii) and (iii) is to be computed is the value of "investments, income from which does not or shall not form part of total income", and, when there are no such investments, the rule cannot have any application. When no amount can be computed in the light of the formula given in rule 8 D(ii) and (iii), no disallowance can be m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... last issue in appeal before us. i.e. allocation of common expenses between speculation and non-peculation business, amounting to Rs. 27,57,751, we find that this issue is covered by Tribunal's decision dated 18th May 2013 assessee's own case for the immediately preceding assessment year. In the said decision, the coordinate bench has, inter alia, observed as follows: 9. We have considered the rival submissions, perused the material on record and have gone through the order of authorities below and the judgments cited by both the sides. Regarding this aspect as to whether allocation is to be made or not, we find that the judgement of Hon'ble Allahabad High Court cited by Ld. D.R. covers this issue against the assessee. In this aspect, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equired to be allocated to income from derivative transaction of shares. Accordingly, the profit and loss of these three activities should be as under: A Profit & Loss in the business of purchase and sale of shares by delivery: Sale of shares Rs.14,37,85,465 Add: Closing Stock Rs. 2,99,59,113 Rs.17,37,44,578 Less: purchase se of shares Rs.17,37,34,136 Less DMAT charges Rs.95,496 Less: Service Tax Rs. 2,361 Less Share trading Exp. Rs.1,70,958 Less expenses allocated Rs. 13,08,145 Rs. 17,53,11,096 Net loss: Rs. 15,66,518 B Profit & Loss on speculative Transaction in commodity: Net loss as per P & L Account Rs. 21,40,013 Add: Allocation of expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the A.O. is Rs. 5,46,854/- and hence, income from other sources is more than the business loss and, therefore, the Explanation to Section 73(1) is not applicable because gross total income consists mainly of income which is chargeable under the head 'income from other sources'. But there is one lacuna. Loss of Rs.(- )21,60,668/- from speculation business of commodity cannot be reduced from business income. Even if the speculation loss from the business of commodity transaction of Rs. 21,60,668/- is not reduced from the income form derivative transaction of Rs. 33,72,982/-, set off of brought forward business loss of Rs. 19,91,409/- as allowed by the A.O. in the assessment order, has to be reduced from business profit and when we ..... X X X X Extracts X X X X X X X X Extracts X X X X
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