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TMI Blog2018 (10) TMI 1115X X X X Extracts X X X X X X X X Extracts X X X X ..... he same in accordance with Clause (i) of sub-section (1) of section 35D after verifying the claim of the assessee of having commenced the business of transportation in the financial year 1995-96. Disallowance of assessee’s claim for set off of speculation loss against the profit earned by the assessee from delivery based transactions - Held that:- The gross total income of the assessee would not consist mainly of income, which is chargeable under the head “capital gains” as its business income could be more than income from capital gains and the profit from the purchase and sale of shares could be deemed to be a speculation profit as per Explanation to section 73. Consequently the assessee would be entitled to set off this speculation loss from the said profit as per section 73 as rightly claimed by it. Therefore, allow the claim of the assessee for such set off and allow assessee's appeal Disallowance u/s 14A r.w.r. 8D - sufficiency of own funds - Held that:- As clearly evident from the relevant balance-sheet of the assessee-company showing that sufficient own funds were available with the assessee-company to make the investment in shares at the relevant time, find merit in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he nature of such expenditure aggregating to ₹ 32,24,172/- as claimed by the assessee-company was also explained before the Assessing Officer and it was contended that the same was deductible under section 35D to the extent of 1/10th during the year under consideration, as the new business activity was commenced by the assessee during the financial year 1995-96. This claim of the assessee was not found acceptable by the Assessing Officer in the absence of any evidence to substantiate that the assessee-company had commenced its business activity only after the public issue of shares made in the financial year 1995-96. He accordingly disallowed the claim of the assessee for deduction under section 35D for the following reasons:- (i) More than 10 years have ended since the incorporation of the assessee-company; (ii) The assessee-company is not an Industrial Company; (iii) Share issue expenses were not for setting up of an Industrial Undertaking; (iv) Share issue expenses were not for extension of an Industrial Undertaking; (v) Share issue expenses were in the nature of capital expenditure. 4. The disallowance made by the Assessing Officer on accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the expenditure in question was incurred by the assessee-company before commencement of its transportation business. In this regard, he has invited my attention to the Profit Loss Account of the assessee-company for the financial year 1995-96 as placed at pages no. 5 8 of the paper book to show that the income from freight having been received by the assessee-company from its operation for the first time in the financial year 1995-96, the business had commenced in that year and the assessee was entitled for deduction on account of preliminary expenses to the extent of 1/10th in each of the ten successive years. It is, however, observed that the similar claim made by the assessee of having commenced the business of transportation in the financial year 1995-96 was rejected by the Assessing Officer on the ground that there was no evidence produced by the assessee to support and substantiate the same. The ld. CIT(Appeals), on the other hand, confirmed the said disallowance made by the Assessing Officer by referring to Clause (ii) of sub-section (1) of section 35D, whereas the claim of the assessee, as submitted by the ld. Counsel for the assessee, is made as per Clause (i) of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this point and the assessee also admits the same as speculative loss. However, the AO treated the profit on delivery based share transaction as non-speculative profit. The assessee, on the other hand, treated the same as speculative in nature in terms of the provisions of Explanation to section 73. The AO did not allow the set off of the speculative loss ₹ 6,49,330/- against the profit on delivery based transactions of ₹ 28,90,809/- treating them as normal business income. The dispute, therefore, is whether the share transaction profits, of ₹ 28,90,809/- can be treated as speculative profit under Explanation to section 73. The Explanation has two exceptions: ( i) The gross total income of the said company should consist mainly of incomes chargeable under the heads income from house property , capital gains and income from other sources . (ii) A company the principal business of which is granting of loans and advances. The company is not engaged in the business of granting of loans and advances so it does not fall in the second category of exception. To examine whether the company falls under the first exception the composition of income under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to set off this speculation loss from the said profit as per section 73 as rightly claimed by it. I, therefore, allow the claim of the assessee for such set off and allow Ground No. 2 of the assessee s appeal for A.Y. 2005-06. 9. Now we shall take up the appeal of the assessee for A.Y. 2010-11 being ITA No. 1025/KOL/2016, which involves a solitary issue relating to the disallowance of ₹ 11,46,263/- made by the Assessing Officer under section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962, which is confirmed by the ld. CIT(Appeals). 10. During the previous year relevant to the Assessment Year 2010-11, the assessee-company had earned dividend income of ₹ 10,02,821/- which was claimed to be exempt from tax. The disallowance of expenses incurred in relation to the said exempt income to the extent of ₹ 3,77,450/- was offered by the assessee in the computation of total income in accordance with section 14A. For the reasons given in the assessment order, the Assessing Officer did not accept the quantum of disallowance offered by the assessee under section 14A and proceeded to work out such disallowance to be made under section 14A by apply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue were not found acceptable by the ld. CIT(Appeals), he confirmed the said disallowance for the following reasons given in his impugned order:- The grievance of the assessee is that while working disallowance as per Rule 80(2)(ii) the AO has taken the figure of interest at ₹ 28,61,176/- as against the figure purposed by them of ₹ 8,14,713/-. The difference in the interest figure comes on account of Interest on loan for purchase of vehicle of ₹ 20,46,463/ . It is the contention of the assessee that since the loan for purchase of vehicle was for acquiring trucks and tankers, which were subsequently used in the transportation business, the same should not be considered for the purposes of computing the disallowance u/s. 14A. In the assessment order the AO has recorded his satisfaction for invoking Rule 8D. The assesee had suomoto offered disallowance of ₹ 3,77,450/ u/s. 14A. The AO observed that the assessee had substantial investments in shares from which considerable exempted income was earned, Further, he observed that the assessee had not maintained the separate books of accounts so as to quantify the expenses in relation to the exempt income. Accord ..... X X X X Extracts X X X X X X X X Extracts X X X X
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