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TMI Blog2018 (9) TMI 948X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowance on the interest on loan taken from Infoline Finance Ltd. of ₹ 67,30,620/- can be considered for making disallowance under the formula prescribed under Rule 8D(2)(ii) of the Act. AO will only verify the figures and restricted the disallowance only on proportionate interest. This issue of assessee’s appeal is decided in favour of assessee subject to above direction. Disallowing set off of carry forward business loss from trading activity in shares by treating the same as speculation loss - Held that:- Tribunal in earlier year has treated the loss from trading activity in shares as speculation loss and that finding has neither been challenged by Revenue nor by Assessee. Once, the finding of fact is final, the only alternative left is that the loss is to be considered as speculation loss. Once the loss is considered as speculation loss, the same is to be set off against the business loss from trading activity of shares treating the same as speculation loss in view of the decision in the case of Lokmat Newspapers P. Ltd [2010 (2) TMI 94 - BOMBAY HIGH COURT] as held that once the assessee is carry on a speculative business and the profit and gains after arising from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- and under Rule 8D(2)(iii) at ₹ 23,04,626/-. Accordingly, the AO computed the disallowance at ₹ 1,75,36,506/- and after allowing the sum already disallowed by assessee at ₹ 28,13,275/-, he restricted the disallowance at ₹ 47,23,231/-. Aggrieved, assessee preferred the appeal before CIT(A). Before CIT(A), the assessee contended that there is no issue regarding the disallowance under Rule 8D(2)(i) and 8D(2)(iii) of the Act. The only dispute before CIT(A) was regarding disallowance made by AO under Rule 8D(2)(iii) of the Act. The CIT(A) noted that the AO has computed the disallowance of interest on loan taken at ₹ 6,57,44,154/- and after applying formula under Rule 8D(2)(ii) of the Act, the disallowance comes to ₹ 49,68,448/-. The assessee before CIT(A) contended that the total interest paid reads as under: - Total Interest Interest expenses on PCFC/ PSFL 5,64,97,902 Interest on loan taken from India Infoline Finance Ltd. 67,30,620 Total Interest (net) 6,32,28,552 Interest income (which has been netted off the inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt export credit 104 136cr 3. Investments 71.45cr 4. Interest expenditure Interest attributable to exempt income 0.57 interest attributable to taxable income 8.01 8.58cr As seen from the above, no doubt the appellant is having enough interest free funds when compared to the investments. It has also got borrowed funds but the same were utilized for specific purposes which has nothing to do with the earning of exempt income. Since a significant part of the borrowed funds have been utilized for the business of the appellant in the form of pre-shipment and postshipment export credit when compared to investment as on 31.3.09 own funds and interest free funds are quite high, relying on the decision of the jurisdictional High Court in the case of Reliance Utilities there should not be any disallowance as per limb (ii) of rule 8D. However, as the appellant has not succeeded in identifying the own funds and the borrowed funds deployed for earning of exempt income and taxable income, he has proportionately worked out the interest attributable to the earning of exempt income and earning of taxable income. The working of the interest relating to earning of exempt income bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Counsel for the assessee that in the immediate preceding year the interest expenses paid by assessee to PCFC and PSFL amounting to ₹ 5,46,97,902/- has already been considered in earlier year and finding is given by the Tribunal in assessee s own case that the same has been invested in the business of the assessee. In view of the above, we are of the view that only proportionate disallowance on the interest on loan taken from Infoline Finance Ltd. of ₹ 67,30,620/- can be considered for making disallowance under the formula prescribed under Rule 8D(2)(ii) of the Act. Accordingly, we direct the AO to consider the working of the assessee working out the disallowance under Rule 8D(2)(ii) as under: - Accordingly the learned AR has worked out the disallowance under limb(ii) as under:- AxB/C= 67,30,620x 40,09,25,163 = 5,08,649 609,91,14,814 8. The AO will only verify the figures and restricted the disallowance only on proportionate interest. This issue of assessee s appeal is decided in favour of assessee subject to above direction. 9. The second issue in this appeal of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we dismiss the ground raised by assessee being covered against it by the decision of the Bombay High Court. 12. The learned Counsel for the assessee made alternative submission that if this is speculative loss, the same should be set off against profit earned from trading in shares and securities as profit from such activity falls within the purview of explanation to section 73 of the Act in view of the decision of Hon ble Bombay High Court in the case of CIT vs. Lokmat Newspapers P. Ltd (2010) 322 ITR 43 (Bom). 13. The learned Counsel for assessee specifically drew our attention to the judgment of Hon ble Bombay High Court, wherein the loss arising out of speculative transaction is to be set off against profit and gains of any speculative business. The Hon ble High Court held as under: - 9 . The contention of the Revenue in the present case, in essence is that the definition of the expression speculative transaction in Section 43(5) must be read into the provisions of Section 73, because a business cannot be a speculation business unless there is a speculative transaction and a speculative transaction is defined by the former as one, not involving an actual deliver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of a speculation business which has not been set off either in whole or in part, can be carried forward and can be set off against profits and gains of any speculation business . The expression any speculation business means a speculation business of the assessee in respect of which profits and gains for the Assessment Year in question have arisen and there is no justification to restrict the content of that speculation business where profits have arisen by excluding a business involving actual delivery of shares. No such restriction is found in the explanation. To impose one is a legislative function. In other words, once the assessee is carrying on a speculation business and the profits and gains have arisen from that business during the course of the Assessment Year, the assessee is entitled to set off the losses carried forward from a speculation business arising out of a previous Assessment Year. 11. In these circumstances, the view which has been formed by the Tribunal is consistent with the provisions of Section 73. The questions of law shall stand answered accordingly. The appeal shall stand dismissed. There shall be no order as to costs. 14. W ..... 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