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TMI Blog2020 (2) TMI 1016X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee filed an application u/s 254(2) of the Act seeking rectification / recall of the order. The Said application was dismissed by the Tribunal. Being aggrieved, assessee filed writ application before the Hon'ble Jurisdictional High Court. Simultaneously, both assessee and Revenue filed appeals against the order of the Tribunal before the Hon'ble High Court. While disposing of the writ application as well as the appeals the Hon'ble High Court set aside the order passed by the Tribunal and directed for disposal of the appeals afresh on merits. In pursuance to aforesaid direction of Hon'ble Jurisdictional High Court, the appeals have came up for hearing before us. 3. Briefly the facts relating to ground Nos. 1 and 2 are, the assessee, a resident company, is engaged in the business of shares and stock broking, trading in debt securities, mutual funds distribution and other financial services. The assessee has also made investments in shares and debt securities. For the assessment year under dispute, assessee filed its return of income on 29.09.2008 declaring loss of Rs. 11,44,66,190/- under the normal provisions and book profit of Rs. 3,03,45.502/- u/s 115JB of the Act. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NSE). At the year end, there was certain outstanding position on which there was a mark to market loss of Rs. 5,96,510/-. Whereas, he submitted, learned Commissioner (Appeals) has treated it as speculation loss as per Sec. 43(5) of the Act. He submitted, before coming to such conclusion, learned Commissioner (Appeals) has neither issued any show cause notice to the assessee nor has been put a query regarding treating the loss as speculation loss u/s 43(5) of the Act. Drawing our attention to Sec. 43(5)(d) of the Act. He submitted, transaction in respect of trading in derivatives carried out in a recognized stock exchange are excluded from the definition of speculating transaction. Further, he submitted, the observation of learned Commissioner (Appeals) that the assessee is engaged in trading of over the counter derivative is factually incorrect as the assessee has carried out all its derivative transactions through National Stock Exchange (NSE). He submitted, had learned Commissioner (Appeals) issued a show cause notice before treating the mark to market loss as speculation loss u/s 43(5) of the Act, the assessee would have certainly explained before him that the transaction cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls), learned Authorized Representative has submitted before us that the assessee has not entered into even a single over the counter derivative transaction in respect of which mark to market loss has been claimed. He has submitted that the entire derivative transactions were carried through National Stock Exchange (NSE). Therefore, he has submitted that assessee's transactions are covered under Section 43(5)(d) of the Act. Pertinently in the statement of facts filed with the memorandum of appeal in form No. 35 before learned Commissioner (Appeals), the assessee has specifically stated that it has carried out its transactions in derivatives in future and option segments of National Stock Exchange. From the impugned order if learned Commissioner (Appeals) it is patent obvious that he has completely overlooked the aforesaid factual position while observing that the assessee has entered into over the counter derivative transaction and not in any recognized stock exchanges, while treating it as speculative loss u/s. 43(5) of the Act. Keeping in view, the factual position arising out if the material on record, the contention of the assessee that the derivative transaction in respect of w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wance u/s 14 r.w.r 8D, wherein, such disallowances were worked out to Rs. 39,19,175/-. The Assessing Officer, however, was not convinced either with the explanation or the working furnished by the assessee and proceeded to compute disallowance by applying Rule 8D. In the process, he disallowed an amount of Rs. 1,24,22,472/- comprising of direct expenditure of Rs. 1,75,583/- under Rule 8D(2)(i), Rs. 99,89,180/- towards interest expenditure under Rule 8D(2)(ii) and administrative expenditure of Rs. 22,57,709/- under Rule 8(D)(2)(iii). After adjusting the disallowance of Rs. 1,75,583/- made by the assessee, he made a net disallowance of Rs. 1,22,46,889/-. The assessee challenged the aforesaid disallowance before learned Commissioner (Appeals). 5.2 After taking note of the submissions of the assessee in the context of facts and material on record, learned Commissioner (Appeals) observed that while deciding similar issue in assessee's own case for the assessment year 2007-08, the first appellate authority directed the Assessing Officer to follow the said order, and if no borrowed fund is utilized for making investment in shares no part of interest expenditure should be disallowed. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s fund flow statement indicating that in the year under consideration it had sufficient interest free fund available to make the investment in shares. The aforesaid contention of the assessee has not been controverted either by the Assessing Officer or learned Commissioner (Appeals) with cogent reasoning. Rather, learned Commissioner (Appeals) has completely misconstrued the submissions of the assessee. From the material on record, prima-facie, it appears that the borrowed funds were sanctioned for specific purpose of utilization in debt securities. Unless, the Revenue brings any contrary material to dispute this fact, assessee's claim cannot be rejected. Moreover, the financial statement available on record clearly indicate that the assessee had sufficient interest free funds available with it. That being the case, it has to be presumed that the interest free funds were utilized in investment in shares. Thus, no part of the interest expenditure can be attributed for earning of exempt income. Therefore, the only disallowance which can be made u/s 14A of the Act is the administrative expenditure as per Rule 8D(2)(iii). Here also, while computing the disallowance the Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e disposing of assessee's appeals and the writ application filed for assessment year 2008-09 restored the issue raised in the appeals for de-novo adjudication on merits by the Tribunal. In so far as, assessment year 2007-08 is concerned, the Revenue's appeal against the order of the Tribunal was dismissed by the Hon'ble Jurisdictional High Court in order dated 05.12.2016 passed in Income Tax Appeal No. 771/2014. Thus, the order of the Tribunal for assessment year 2007-08 attained finality. However, while disposing of the writ application filed by the assessee for the assessment year 2008-09, in the writ petition No. 1744 of 2014 along with assessee's appeal in income tax appeal No. 807/2014 for the very same assessment year, the Hon'ble Jurisdictional High Court in order dated 12.09.2017 restored the issues back to the Tribunal for fresh adjudication. However, while doing so, the Hon'ble Jurisdictional High Court inadvertently referred to the order of the Tribunal in ITA No. 225/Mum/2011 pertaining to the assessment year 2007-08, instead of the appeal number relating to assessment year 2008-09. This is evident from paragraph 11 of Hon'ble Jurisdictional High Court's order. Whereas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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