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TMI Blog2019 (3) TMI 1465X X X X Extracts X X X X X X X X Extracts X X X X ..... ed transaction against the business income of Rs. 92,61,341/- derived by the assessee in transactions involving trading of derivatives. 3. Brief facts of the case as noted by the AO are that during the assessment proceedings based on the CIB information and the ITS details it was found that assessee carried out certain transactions in derivative trading through M/s. Geometry Vanijya Pvt. Ltd., an authorized broker of MCX Stock Exchange Ltd. and when the AO asked the assessee to reconcile the data with the transactions recorded in the books, the assessee was able to reconcile the data except that of 255 transactions which the assessee claimed it as not pertaining to the assessee. Thereafter the AO noted that out of 255 number of transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecorded against which sales of Rs. 2,89,01,716/- recorded resulting m a profit of Rs. 92,61,841/-. (4) Sales of Rs. 4,38,03,828/- recorded against which no purchase found. The Profit/loss generated out of unaccounted transactions was analysed by AO on the basis of taxability of income as under: 1. Loss generated out of unaccounted transactions is not allowed to be set off against business income. 2. The unaccounted purchase could not result in profit since no trace of sale of the derivatives found. Hence, the unrecorded purchase is ignored. 3. Profit generated of Rs. 92,61,841/- is treated as undisclosed income from derivative transaction. 4. From the purchase in respect of which sale is recorded has been found to be Rs. 10,77,26 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee. However, the AO himself acknowledges that the assessee had transactions which resulted in a loss of Rs. 91,36,345/- out of the said transactions in derivative. However, the AO has only added the profit of Rs. 92,61,841/- without giving set off of the loss which also he has unearthed by his enquiries from which profit of Rs. 92,61,841/- was discovered. We note that the assessee is engaged in the business of trading in shares and securities. We note that the assessee also deals in future and options. In the derivative scheme, the profit /loss of future /options is reflected in the P&L Account on net basis. In the course of the assessment, the AO had obtained information pertaining to the future transaction conducted by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the profit as well as the loss are from the derivative trading only and therefore, have to be deemed as business income by virtue of sec. 43(5) of the Act. In such a scenario, not allowing the set off of the loss component from the profit from the same transaction though un-recorded, is not just, fair or reasonable order of the AO. Therefore, relying on the ratio laid by the Hon'ble Supreme Court in Ch. Atchaiah (supra) as well as in the case of Maneka Gandhi Vs. Union of India reported in 1978 AIR 597 in which order the law has been laid down that a public authority should discharge his duties in a fair, just and reasonable, manner and the principle of due process of law was recognized by the Hon'ble Supreme Court. So, we uphold the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of this Tribunal in REI Agro Ltd. Vs. DCIT (144 ITD 141) has directed the AO to take into consideration 0.5% of the investment in scrips which had yielded dividend income. This action of the Ld. CIT(A) has been challenged by the Revenue. However, the assessee has also filed the Rule 27 application has contended that the AO's action in respect of application under Rule 8D(2)(iii) is fully supported by the assessee. However, brought to our notice that the Ld. CIT(A) while adjudicating the action of AO while disallowing under section 14A read with Rule 8D(2)(i) has not been adjudicated this ground and need us to adjudicate the same. We find that the Ld. CIT(A) has rightly adjudicated the application of sec. 14A read with Rule 8D(2)(iii) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id amount was erroneously disallowed by the AO presuming it to be as direct expenditure under Rule 8D(2)(i). We note that the AO seems to have not understood that STT was directly & intrinsically related to the activity of trading in derivatives, which yielded only taxable income, and which was also assessed to tax at normal rates. In the circumstances these charges had no correlation either with investments or for that matter with earning of dividend. In the circumstances the STT of Rs. 6,84,939/- being not relatable to investments was wrongly disallowed by the AO under Section 14A read with Rule 8D(2)(i). Therefore the AO is directed to delete the impugned disallowance to the extent of Rs. 6,84,939/-. 8. In the result, appeal of revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X
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