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TMI Blog2015 (12) TMI 1117X X X X Extracts X X X X X X X X Extracts X X X X ..... t ground of Revenue’s appeal regarding treating the transaction of derivative as speculative business up to 25.01.2006. In the first ground of appeal, we have held the business of the assessee as nonspeculative. Accordingly, the interest disallowed by AO is allowable expense against the non-speculative business of the assessee. In our considered view, this ground of Revenue’s appeal is dismissed.- Decided against revenue. Disallowance u/s. 14A - Held that:- There was no applicability of Rule 8D in the instant case as this Rule 8D came in force w.e.f. 24.03.2008. In view of above, we find no reason to interfere in the order of Ld. CIT(A) and this ground raised by Revenue is dismissed.- Decided against revenue. Allowance for the expense of Security Transaction Tax (STT for short) - Held that:- STT was duly shown under the head ‘current asset’ in Schedule-7 for an amount of ₹ 1,38,26,870/-. Ld. AR further drew our attention on page 7 of the financial statement, wherein ‘transaction, Demat & share transfer stamp charges’ under the head of “Administrative charges” were written. Hence the ld. AR claimed that no expense for STT has been debited in the profit and loss account o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st on loan and debentures, dividend and capital gains. During the year, assessee has incurred loss at ₹ 2,73,14,421/- on account of sale-purchase of derivatives and break-up of the loss from its derivative business stands as under :- a) loss on sale of derivatives from 01.04.2005 to 24.1.2005 at ₹ 1,47,47,937/-; b) loss of sale of derivatives from 25.01.2006 to 31-3-2006 at ₹ 1,25,66,484/-; The Assessing Officer sought clarification from assessee by issuing notice stating that why loss incurred on sale/purchase of derivative prior to 25.01.2006 should not be treated as speculation loss. Assessee submitted that as per section 43(5)(d) of the Act, trading in derivatives is not a speculative business. The relevant sub-clause (d) in Sec. 43(5) of the Act was inserted by Finance Act, 2005 which is effective from 01.04.2006 clarifying that the trade in derivatives shall not amount speculation business if it is carried out in the recognized exchange. However, claim of assessee was disregarded by AO relying on the Notification No. 2/2006 dated 25.01.2006, wherein Bombay Stock Exchange Ltd., Mumbai and National Stock Exchange of India Ltd., Mumbai were notified as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prospective in nature and no inference should be drawn that it was retrospective. The ITAT, Kolkata Special Bench further explains what is prospective:- In view of the above, clause (d) of section 43(5) is prospective in nature and will be effective from the date from which the legislature made it effective, i.e, 1-4-2006 and will be applicable from assessment year 2006-07 onwards. Being aggrieved by this order of Ld. CIT(A) Revenue preferred appeal before us. Shri A.K. Tibrewal, Ld. Authorized Representative appearing on behalf of assessee and Shri Amitabha Choudhuri, Ld. Departmental Representative appearing on behalf of Revenue. 5. We have heard rival contentions of both the parties and perused the materials available on record. Ld. DR vehemently relied on the order of Assessing Officer whereas Ld. AR also relied on the order of Ld. CIT(A). Ld. AR submitted various case laws in support of his claim. From the aforesaid discussion we find that AO has treated the loss incurred by assessee on account of derivative transaction up-to 25.01.2006 as speculation loss in terms of Notification No. 2/2006 issue on dated 25.1.2006 and explanatory memorandum in notifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l of Kolkata Bench in C Bench in the case of Vinod Kumar Rampuria v. ITO in ITA No.1902/Kol/2009 order dated 16.07.2010 where the issue was decided in favour of assessee. The relevant extract is mentioned below:- 4. We have heard the parties and perused the material placed before us. We find that the issue in question is covered by the decision of Tribunal in the case of G.K. Anand Bros. Buildwell (P) Ltd. (supra), wherein on identical facts and circumstances of the case and considering the Special Bench decision of ITAT in the case of Shree Capital Services Ltd. vs. ACIT, reported in 318 ITR (AT) 1 (Kol-SB), the Tribunal treated the loss incurred by the assessee on derivative transaction as business loss. The finding of the Tribunal in the said case is as under:- Section 43(5) defines speculative transaction which means a transaction in which a contract for the purchase or sale of any commodity including stocks and shares is periodical or ultimately settled otherwise than by the actual delivery or the transfer of commodity or scraps. Proviso below section 43(5) cares out exceptions to section 43(5). As per clause (d) of the said provision an eligible transaction i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... derivative transaction as speculation loss instead of business loss as claimed by the assessee. Therefore, the addition made of the said amount to the assessee s total income is deleted. We order accordingly. From the above case laws we find that the trading of derivatives for the entire assessment 2006-07 is out of the definition of speculation business if it is carried out in the recognized stock exchange. The assessee has done the trading in the recognized stock exchange. So it is clear that loss on account of derivative transaction or very much covered in clause (d) of the proviso Section 43(5) of the Act. In view of such amendment under the Act, the income/loss arrived on derivative shall be treated as non-speculative loss. Taking a consistent view and relying on the above cited case law, we confirm the order of Ld. CIT(A) and this ground of Revenue s appeal is dismissed. 6. Next ground raised by Revenue is regarding that the Ld. CIT(A) erred in allowing relief of interest payment for ₹ 78,191/- relying loss on trading of derivatives prior to 25.01.2006 as non-speculation business. 7. During the year under consideration, AO disallowed the interest paid by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ores and interest income was to the extent of ₹ 23 lacs and assessee has substantial interest free funds for ₹ 13.77 crores and share worth ₹ 5.76 crores were held as stock-in-trade. Keeping in view these facts and circumstances no interest is attributable to earning tax-free income and the administrative expenses in relation to tax-free income may be taken as 1% of the total exempt income of ₹ 25,14,872/- (LTCG plus dividend) and amount disallowable u/s. 14A is quantified at [(Rs.25,148/- plus demat charges for ₹ 3,854/-) = ₹ 29,002/-]. Therefore this ground is partly allowed. Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us. 11. We have heard rival contentions and perused the materials available on record. Before us Ld. AR submitted that disallowance u/s. 14A of the Act can be made if AO, after having regard to the accounts of the assessee is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does form part of total income under this act. The AO in his order has not recorded the charge of dissatisfaction. Besides this the ld. AR submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for A.Y. 2008-09 12. First ground raised by Revenue is regarding that Ld. CIT(A) erred in giving relief to assessee by allowing for the expense of Security Transaction Tax (STT for short). 13. During the course of assessment proceeding, AO found that assessee has claimed an expenditure of ₹ 7,38,99,101/- under the head Administrative Expenses . From the breakup of Administrative Expenses the AO found that the assessee has claimed an expense for an amount of ₹ 39,20,360/- towards the transaction, Demat and share transfer charges . The AO called upon the assessee to explain the expenses and found that these expenses are the payment of STT. The AO disallowed the expenses of STT by virtue of section 40(a)(ib) of the Act. The expense incurred on STT is not allowable expense, therefore, AO disallowed STT expense and added it to the income of assessee. 14. Aggrieved, assessee preferred appeal before Ld. CIT(A) who deleted the addition made by AO on account of STT by observing as under:- Next ground no.3 relates to addition of ₹ 39,20,360/- on account of STT. Assessee has debited expenditure of ₹ 39,61,222/- on account of transaction, demat and sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 88E of the STT paid while working out the tax under the provisions of Minimum Alternate Tax (MAT) as specified u/s 115JB of the Act. The AO found that there is no scope of applying the average rate of tax on the income for the adjusting the tax under the provisions of MAT under section 88E(2). So there is a clear cut violation of sub-section 2 of 88E of the Act. Hence, the AO disallowed the rebate claimed by assessee of STT paid under section 88E of the Act. 18. Aggrieved, assessee preferred appeal before Ld. CIT(A) who deleted the disallowance made by AO by observing as under:- Next ground nos. 4 5 are relates to deduction u/s. 8E. The AO allowed rebate u/s. 88E to the extent of ₹ 39,20,360/- on account of STT paid while calculating the tax on the normal computation as per IT Act and did not allow the rebate while computing the MAT liability u/s 115JB. It was contended by the assessee that total STT paid as per Form 10DB was ₹ 1,93,73,008/- on derivatives, speculative transactions and shares transactions on account of business and the receipt on account of above heads was duly credited in P L a/c for the financial year. The A/R further relied upon the judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided that where the income tax payable by the assessee on the total income computed under regular provisions of the Act is less than 7 % of the book profit prepared in accordance with the Companies Act, the higher of the tax i.e. the book profit shall be deemed to be the total income of the assessee and tax payable by the assessee shall be the amount of income tax at the specified rate. When we look at the provisions of section 77 of the Income Tax Act, 1961, we find that the rebate is to be granted from the amount of income tax chargeable on the total income of the assessee. The income tax is computed after arriving at the total income of the assessee and section 87 of the Income Tax Act, 1961 does not differentiate between the total income computed under the regular provisions of the Act or under section 115JB starts with the nonabstante clause, Notwithstanding anything contained in any other provision of this Act , we find that it is only for the computation of the total income and the sub-section (5) of section 115JB provides for a saving clause that the rest of the provisions of the Income Tax Act relating to deductions, rebate, etc., the other provisions of the Income Tax Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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