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TMI Blog2020 (8) TMI 191X X X X Extracts X X X X X X X X Extracts X X X X ..... reciating the fact that by virtue of explanation u/s 73 of I.T.Act, such loss incurred by the assessee is in the nature of speculation loss." 2. The appellant craves leave to amend or alter any ground or add new ground which may be necessary." 3. The assessee has raised following grounds of cross objections:- 1. The Ld. Commissioner of Income Tax (Appeals)- 9, Mumbai [hereinafter referred to as "Ld. CIT(A)"] erred in passing the order dated 12.06.2018 upholding the action of the Ld. A.O. in making disallowance under Section 14A by invoking the provisions of Rule 8D amounting to Rs. 75,12,025/- without appreciating the fact that provisions of section 14A are not at all attracted to the facts of the impugned case. The Respondent, therefore, prays that the disallowance of Rs. 75,12,025/- by invoking the provisions of Section 14A read with Rule 8D is not at all justified and hence, the same may be deleted. 2. The Ld. CIT(A) further erred in upholding the action of the Ld. A.O. in making disallowance under section 14A by invoking Rule 8D without appreciating that while making the disallowance the Ld. A.O. has not recorded any satisfaction under sub section (2) of section 14A with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... broking, trading & investment in shares, securities, commodities & currencies like arbitrage etc, filed its return of income for AY 2011-12 on 27/09/2011, declaring total loss of Rs. 4,14,03,602/-. The case was selected for scrutiny and the assessment has been completed u/s 143(3) of the I.T.Act, 1961 on 22/03/2014 determining the total income at Rs. 1,45,82,780/-, where the Ld. AO has disallowed deemed speculation loss of Rs. 1,85,25,973/-, but allowed the same to be carry forward and set off against speculation income of future years, on the ground that the loss incurred by the assessee from trading in shares is in the nature of speculation loss and in view of Explanation to section 73 of the I.T.Act, 1961 said loss cannot be allowed to be set off against income earned from trading in futures and options being derivative transactions. The ld. AO has also, made additions towards disallowances of expenditure in relation to exempt income u/s 14A r.w.Rule 8D of I.T.Rules, 1962, amounting to Rs. 82,94,849/-, on the ground that although, the assessee has earned dividend income, but made a suo-moto disallowances of Rs. 72,359/-, which is contrary to the prescribed procedure provided und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s stock in trade cannot be included for the purpose of computation of average value of investments by following the decision of Hon'ble Supreme Court in the case of Maxopp Investments Limited vs CIT 91 taxmann.154. However, he has accepted the contentions of the assessee, insofar as netting off, of interest expenditure by following the decision of Hon'ble Gujarath High Court, in the case of PCIT vs Nirma Credit & Capital Pvt.Ltd. (supra) and directed the Ld. AO to net off interest paid against interest income earned by the assesee and then, compute disallowances as per Rule 8D(2)(ii) of I.T.Rules, 1962. Finally, the Ld.CIT(A) has determined disallowances of Rs. 75,12,025/-, as against total disallowances quantified by the Ld. AO at Rs. 82,94,849/-. Aggrieved by the Ld.CIT(A) order , the revenue is in appeal before us and the assessee has filed cross objection. 7. The first issue that came up for our consideration from revenue appeal is deletion of additions made by the Ld. AO towards deemed speculation loss of Rs. 1,85,25,973/- by invoking Explanation to section 73 of the I.T.Act, 1961. The facts with regard to the impugned disputes are that the assesee is engaged in the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is purchase and sale of shares, then consequent loss cannot be treated as speculative loss. The Ld. AR, further submitted that although, the assesee has declared loss from business, but a stand-alone results of purchase and sale of shares resulted in profit of Rs. 2,37,59,943/- and hence, once there is profit from share trading activity, the provisions of Explanation to section 73 has no application. The Ld.CIT(A) after considering relevant facts has rightly deleted additions made by the ld. AO and his order should be upheld. 10. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. As per the provisions of section 73 and explanation provided thereto, where any part of the business of the company ( [other than a company whose gross total income consist mainly of income, which is chargeable under the heads interest on security, income from house property, capital gains and income from other sources] or a company the principle business of which is the business of trading in shares or banking or the granting of loans and advances ) consists in the purchase and sale of shares of other companies, such company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is hit by the provisions of Explanation to section 73 of the I.T.Act, 1961, in view of the decision of Hon'ble Supreme Court, in the case of Snowtex Investments Ltd. (supra) and accordingly, in case, the assessee incurred losses from share trading activity, the same needs to be considered as deemed speculative loss and cannot be allowed to be set off against profit derived from trading in derivatives. In case, the assessee has earned profit from share trading activity, then Explanation to section 73 has no application and accordingly, the said loss needs to be treated as normal business loss and allowed to be set off against any other income. Therefore, we are of the considered view that the issue needs to be re-examine by the Ld. AO, in light of various facts brought out by both the parties and to recompute profit after considering relevant expenditure relatable said trading activity and then to decide applicability of Explanation to section 73 of the I.T.Act, 1961. Accordingly, we set aside the issue to the file of the Ld. AO and direct him to reconsider the issue afresh in accordance with law. 12. The next issue that came up for our consideration from cross object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hod provided under Rule 8D(2) of I.T.Rules, 1962. The Ld. AR, further submitted that the Ld. CIT(A) has erred in not appreciating the fact that when, mixed funds are more than the amount of investment in shares, then a general presumption is that investments in shares is out of own funds, then no interest expenditure could be disallowed u/s 14A of the I.T.Act, 1961. 14. The Ld. DR, on the other hand strongly supporting order of the Ld.CIT(A) submitted that the Ld.CIT(A) has rightly appraised the fact in light of decision of Hon'ble Supreme Court, in the case of Maxopp Investments Limited vs CIT (supra), where the issue has been settled and accordingly, for the purpose of computation of expenses relatable to exempt income u/s 14A of the Act, even shares held as stock in trade needs to be considered. 15. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. There is no doubt with regard to the fact of applicability of provisions of section 14A r.w.Rule 8D of I.T.Rules, 1962. In fact, the assessee has computed suo-moto disallowances of Rs. 72,359/- by invoking provisions of Rule 8D of I.T.Rules, 1962. However, when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. In the process, the assessee has borrowed secured loans from banks and financial institutions against security of shares and incurred huge finance expenditure. We further noted that own capital of the assesse, including reserves and surplus is lower than the amount of investments in shares, if shares held as stock in trade is considered as investments for the purpose of average value of investments. Therefore, we are of the considered view that there is no merit in the arguments of the assesse that when, own funds is in excess of investments in shares, then no interest expenditure should be disallowed, because as admitted by the assesee before the Ld. AO, investments in shares, including shares held as stock in trade is more than the own capital, including reserves and surplus. Therefore, we are of the considered view that there is no merit in the arguments of the assessee that no interest expenditure could be disallowed. Insofar as, disallowances of expenditure under Rule 8D(2)(iii) of I.T.Rules, 1962, it is a settled position that only, those investments, which has earned exempt income for the year under consideration needs to be considered for the purpose of average value o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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