9911796707
TMI Blog2016 (4) TMI 1336X X X X Extracts X X X X X X X X Extracts X X X X ..... exceeding his jurisdiction in the matter. As decided in the case of CIT vs. Sardari Lal and Co. [2001 (9) TMI 1130 - DELHI HIGH COURT] has held that the CIT(A) has no power to direct the AO to bring to tax a new source of income, which was not considered by the AO in the order appealed against him. Wherever the question of taxability of income from a new source of income is concerned, which has not been considered by the AO, the jurisdiction to deal with the same in appropriate cases may be dealt with under section 147/148 and 263 if requisite conditions are fulfilled. It was also observed that in the presence of such specific provisions, the learned CIT(A) had no power to tax a new source of income not considered by the AO in the order of assessment which was appealed against before him - we delete the directions/observations issued by the learned CIT(A) to the AO - Decided in favour of assessee Loss from derivatives (future & options) trading - enhancement of assessment without affording the appellant reasonable opportunity of showing cause against such enhancement as provided u/s 249(2) - Held that:- From the observations and directions of CIT(A) it is not clear as to how the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he disallowance under section 14A w.r. Rule 8D, but further went on beyond the grounds raised to direct the Assessing Officer (AO) in the form of observations to verify and disallow loss of ₹ 1,84,10,736/- on derivative transactions as being speculation loss in terms of Explanation to section 73 of the Act after affording the assessee an opportunity of being heard. 3. Both Revenue and the assessee are aggrieved by the order of the CIT(A)-12, Mumbai dated 27.06.2014 and have filed appeals before the Tribunal. Assessee's appeal in ITA No. 5934/Mum/2014 for A.Y. 2009-10 3.1 The grounds raised in assessee's appeal are as under: - "1A. The ld. CIT (A) erred in confirming the addition of ₹ 9,21,062/- made u/s 14A of the I.T. Act 1961 r.w. rule 8D of IT Rules. 1B. The ld. CIT (A) erred in not appreciating the argument that unless there existed any nexus between the expenses incurred and income which does not form part of total income, disallowance u/s 14A was not justified. 1C. The ld. CIT (A) erred in confirming the addition u/s 14A r.w. rule 8D inspite of the fact that ld AO had not given any finding that any expenditure was incurred by the appellant for earning t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that the AO had not given any finding that any expenditure was in fact, incurred by the assessee to earn the exempt income or established that there was any nexus between the expenses incurred and the exempt income. At the outset, the learned A.R. for the assessee brought to the notice of the Bench that this very issue of disallowance under section 14A r.w. rule 8D was considered by a Coordinate Bench of the Tribunal in the assessee's own case for A.Y. 2008-09 and the matter was restored to the file of the AO for reconsideration. It was prayed that in these circumstances the matter be accordingly set aside to the file of the AO for de novo consideration in this year also. 4.2.1 We have heard the rival contentions of the parties and perused and carefully considered the material on record, including the judicial pronouncement cited (supra). We find that a Coordinate Bench of this Tribunal, while considering the very same issue of disallowance under section 14A r.w. Rule 8D for A.Y. 2008-09 in the assessee's own case in ITA No. 2219/Mum/2012 dated 28.07.2014 had restored the issue back to the file of the AO for de novo consideration after affording the assessee adequate opportu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rall facts and circumstances of the case, we restore this issue back to the file of the AO with a direction that the AO will give opportunity to the assessee to place on record all the relevant facts including its accounts and then examine the computation/calculation made in this regard by the assessee having regard to the accounts of the assessee. The AO will be at liberty to call for any record/evidences or statement etc. from the assessee as may be required by him for deciding the issue under consideration. After going through the details provided by the assessee, if the AO will be satisfied with the claim/calculation made by the assessee, then he will assess the income accordingly. However, if the AO does not agree with the computation made by the assessee and in that event, he will have to record his dissatisfaction with reasoning for the same by way of a speaking order, then he will be at liberty to resort to the provisions of Rule 8D. Needless to say, the assessee will co-operate and promptly supply the necessary details etc. to the AO for deciding the issue under consideration." 4.2.2 Following the aforesaid decision of the Coordinate Bench of this Tribunal in the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee placed reliance on the decision of the Hon'ble Madras High Court in the case of CIT vs. Lotte India Corporation Ltd. (2007) 290 ITR 248 (Mad). 5.3.1 We have heard both the learned D.R. for Revenue and the learned A.R. for the assessee in the matter and perused and carefully considered the material on record, including the judicial pronouncements cited. At the outset it would be appropriate to mention at this juncture that the learned CIT(A), after dismissing the grounds raised by the assessee in the appeal before him, then proceeded to record the following observation and directions to the AO in the impugned order at para 7 thereof: - "7. Observation as to speculative loss claimed as a business deduction, with an advice to fake remedial measure therefor - Without prejudice to the dismissal of the present appeal, an attention of the A.O. is drawn to one aspect as to omission of consideration of loss from derivatives' transactions in Future & Options segment within the meaning of Explanation to Section 73 of the Act. During the appellate proceedings, the Profit & Loss Account and Balance Sheet were examined and on perusal thereof, it is found that the appellant ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies business of purchase and sale of shares is deemed to be speculation business - Held, yes - Whether where by all accounts derivatives were based on stocks and shares, which fall squarely within Explanation to section 73, loss from sale purchase of such derivative would be speculative loss, which could not be permitted to be carried forward - Held, yes [Paras 7 and 11] [In favour of revenue]" "'The term 'speculative transaction' has been defined only in section 43(5). At the same time, it is qualified that the scope of the definition is restricted in its application to working out the mandate of sections 28 to 41. In terms of the Explanation to section 73 in the case of a company, business of purchase and sale of shares is deemed to be speculation business. However, certain companies are excluded from this Explanation, which are: (i) a company whose gross total income consists mainly of income which is chargeable under the heads 'Interest on securities', 'Income from house property', 'Capital gains' and 'Income from other sources'. (ii) a company, the principal business of which is the business of banking or the gran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ections. In the instant case, by all accounts the derivatives are based on stocks and shares, which fall squarely within the Explanation to section 73. Therefore, it is idle to contend that derivatives do not fall within that provision. [Para 11] Therefore, the order passed by the Tribunal was not justified [Para 12]" In view of the above cited decision and also as per provisions of Explanation to Section 73 of the Act, the appellant ought to have treated the said loss of ₹ 1,84,10,736/- as 'speculative loss' and it ought not to have claimed it as a business deduction under any head of expenditure, whether it be 'financial charges'. Thus, it appears that there is misleading nomenclature i.e. 'financial charges' under which the appellant has claimed such a huge loss from derivatives (F&O) trading as a business deduction / expenditure (in particular 'financial charges'). This fact also requires thorough verification on the part of the A.O. Therefore, the A.O. is directed to examine the relevant facts and take necessary remedial measure in accordance with the provisions of law and also having regard to the of afore-cited decision, after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 1,84,10,736/-. Accordingly, ground No. 2 of the assessee's appeal is allowed. 5.3.3 The observations and directions of the learned CIT(A) in para 7 of his order (supra) that it is not clear as to how the business loss from derivatives (futures and options) trading amounting to ₹ 1,84,10,736) has been allowed by the AO, expressing his disagreement therewith and further directing the AO to re-examine this issue, in our view, can lead to a possible enhancement of assessment and/or levy of penalty as the case may be. In these circumstances, as contemplated under section 251(2) of the Act, the learned CIT(A), in not affording the assessee reasonable opportunity to show cause against such adverse findings/directions to the AO for examination of a fresh issue that could lead to possible enhancement, etc., committed an error. In the case of CIT vs. Lotte India Corporation Ltd. (2007) 290 ITR 248 (Mad) the Hon'ble High Court on similar facts upheld the proposition that the learned CIT(A) had committed an error in denying the assessee opportunity of being heard as contemplated under section 251(2) of the Act before rendering a finding expressing disagreement with certain expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
