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TMI Blog2022 (5) TMI 1099X X X X Extracts X X X X X X X X Extracts X X X X ..... or delete any of the grounds taken in this appeal. 2. Brief facts of the case are that the assessee-company is engaged in the business of Financial Service Sector-Non Banking Finance Companies (NBFC) filed its return of income for AY 2010-11 on 01.10.2010 declaring loss of Rs. Nil. Subsequently, case was selected for scrutiny and statutory notices were issued and duly served on the assessee. 3. On verification of the details filed during the course of scrutiny proceeding and after discussion total income of the assessee is computed after making disallowance under section 14A of the Act amounting to Rs. 2,52,536/- and disallowance of loss of Rs. 33,48,000/- treating the same as speculation loss. 4. On the issue of section 14A disallowance finding of the ld. CIT (A) is as under: "I have considered the submission made by the appellant and the reasons recorded by the AQ. It is seen that the submission made by the appellant is beyond the issues raised in the ground of appeal. In the ground of appeal, the appellant has only challenged the action of the AO in making disallowance u/s 14A in respect of the stock in trade. The issue of making disallowance in respect of the stock in trad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in question. 4. Thus, following this decision, the disallowance cannot exceed the exempted income bring dividends of Rs. 1, 58,998/- being dividend income received from Mutual Funds. xxxxx xxxxx "1.4 In so far as the investments in Mutual Funds are concerned, and considering the above facts, since there was taxable income generated during 'the year, the opening value of these Mutual Funds could not quality for disallowance of average investments for the purposes of Rule 8D(iii). In this context, reliance is placed on the Allahabad High Court decision, in the matter of Shivam Motors Pvt. Ltd. - 272 CTR 277. P&H High Court in the matter of Lakhani Marketing Inc. 272 CTR 268. 1.5 Further, reliance is also placed on the Kolkata Tribunal decision rendered in the matter of REI Agro Ltd. - 144 ITD 141, wherein, the Kolkata Tribunal held that -under Rule 8D(2)(iii), what is disallowable amount equal to ½% of the average value of investment the income from which does not or shall not form part of the total income. Thus, under, sub-clause (iii), what is disallowed is ½% of the numerator B in Rule 8D (2)(iii). This has to be calculated on the same lines as mentioned e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t exceed the exempted income claimed. Decision relied upon by the revenue in the case of Maxopp Investment Ltd Vs CIT [2018] 91 taxmann.com 154 (SC} is distinguishable and not applicable on the present case. 7.1 In the light of the decision rendered by Hon'ble Jurisdictional High Court in the case of Nirved Traders (P.) Ltd. (supra), disallowance under section 14A of the IT Act cannot be more than the exempt income earned by the Assessee during the assessment year in question. In this case, there is no dispute that the dividend i.e. the exempt income earned by the Assessee during the relevant Assessment Year, was only Rs. 1,58,998/-. Accordingly, the disallowance in this case could not have exceeded Rs. 1, 58,998/-. It is only because the Assessee voluntarily offered a disallowance to the extent of Rs. 2, 52,536/-, we confirm disallowance to the extent of Rs. 2, 52,536/-. Thus, this question is required to be answered against the Revenue and in favour of the Assessee. We hereby direct the AO to delete the addition of Rs. 1, 88,562/- and accept the disallowance offered by the assessee. This ground of appeal is decided in favour of assessee. 8. As regards the second issue in appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee has maintained two portfolios i.e. one for business income and one for capital gain. Units of Birla FTP, Kotak FMT etc. are treated as part of capital gain portfolios. Other than this, all the shares trading were shown to be part of business portfolio and assessee had declared as business income. Further the assessee has submitted all its trading activities happened during the assessment year 2010-11. Among that, it is important to note that, the assessee has purchased Indusind Bank shares between 07.12.2009 to 27.01.2010 @ Rs.135/- and major stakes are sold on 2.03.2010 @ Rs.159/-. In this process, the assessee has made business gain of Rs.68.23 lakhs. This transactions show pattern of business of income and none of the trades, i.e. purchase and sale, happened on the same day. It is important to understand that on 29.03.2010 the assessee has entered into purchase of Indusind Bank shares in the following manner: Order No. Order Time Security Quantity Gross rate per security (Rs.) Gross Amount 33565082 09:11:53 Indusind Bank Ltd. 1000 179,7449 17974490 33593720 Indusind Bank Ltd. 1000 179,6964 17969640 33822027 Indusind Bank L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is submitted that this loss has to be assessed as business loss only. 6.3 The assessee's submissions are not acceptable. It is important to note that the assessee has bought certain number of Indusind Bank scripts on 19.03 2010 and sold it on 26.03.2010 incurred a loss of Rs. 8.46 lakhs. These transactions are not treated as speculation they are not on intraday basis and reflecting the continued business operation of the assessee. Thus while computing the profit of the share trading the loss incurred through speculation activity on 29 03.2010 is not allowed to set off with the business income derived from the share trading. In the case of V Amirtham Ammal Vs. CIT 74 ITR 739, Hon'ble High Court, Madras held that the purchase and sale of share of private company within a short period amounts to adventure in the nature of trade even if such shares are shown as investment m the books of account. It is important to note that Circular No. 4 of 2007 dated 15.06.2007 has stated that the substantial nature of transaction, the manner of maintaining books of account, the magnitude of purchase and sale, the ratio between the purchase and sale, and the holding would furnish a good gui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member; [or] [(d) an eligible transaction in respect of trading in derivatives referred to in clause [(ac)] of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognised stock exchange; [or]] [(e) an eligible transaction in respect of trading in commodity derivatives carried out in a [recognised stock exchange] [, which is chargeable to commodities transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013),]] shall not be deemed to be a speculative transaction: [Provided further that for the purposes of clause (e) of the first proviso, in respect of trading in agricultural commodity derivatives, the requirement of chargeability of commodity transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013) shall not apply.] [Explanation 1].-For the purposes of [clause (d)], the expressions- (i) "eligible transaction" means any transaction,- (A) carried out electronically on screen-based systems through a stock broker or sub-broker or such other intermediary registered under section 12 of the Securities and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst loss in his holdings of stocks and shares through price fluctuations. 12. Clause (b) to the proviso to section 43(5), mentioned (supra) clearly indicates about the nature of transactions to be covered by it. It simply covers transactions in the nature of Future & Options (F&O) entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations. 13. In this case transaction entered into by the assessee does not fall in the nature of transactions discussed (supra). Hence falls in the category of speculative transaction. Discussion of section 73 is not relevant here, as first of all the nature of transaction has to be ascertained by virtue of section 43(5) and then only question of set-off/ carry forward as defined in section 73 will arise. The provisions of Section 43(5) were amended by the Finance Act, 2005. Prior to the amendment, Section 43(5) defined a 'speculative transaction' to mean a transaction in which a contract for the purchase or the sale of any commodity including stocks and shares is settled otherwise than by the actual delivery or transfer of the commodity or scrip. The impact of the amendm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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