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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 ..... the shares of Indusind Bank (Without Delivery) was speculative in nature because the transactions were settled without actual delivery of the shares. As explained by the appellant BEFORE US In this connection, the assessee specifically relies on the exception created under the proviso to section 43(5), wherein it is provided under clause (b) that a contract in respect of stock and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations is not to be deemed as speculative. 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 amendment by the Finance Act, 2005 wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l. 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 trade is covered against the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. 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 % 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 % 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 ..... day, i.e. disallowance u/s. 14A r.w.r. 8D can 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n share trading regularly as a nature of business. In this case, assessee 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a speculative transaction and the loss arising out of speculative transaction of Rs.33, 48,000/- should be treated as speculative loss. In this context, the assessee was asked to show cause as to why the loss should not be treated as loss from speculation business. The assessee vide letter dated 28.12.2012 submitted that: As mentioned in our letter dated 27.11.2012, we had suffered a loss of Rs. 33, 48,000/- on 29.03.2010 in the scrip of Indusind Bank Ltd. It is to submit that we had bought 10, 00,000 shares of the said scrip on the said date at a price of Rs.183.31 per share. However, the same was sold before the trading hours as the price of the said scrip was falling down. The prudent decision to exit from the same was taken to reduce our business losses as the price of the same was falling down and hence, instead of blocking our funds into the same, it was decided to acquire the same in near future at a lower price. It is to submit that the said losses were suffered in the regular course of our trading business and hence was allowable against our business income. Without prejudice, it is to submit that under Explanation to Section 73 of the Income Tax Act, any loss from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the appellant BEFORE US In this connection, the assessee specifically relies on the exception created under the proviso to section 43(5), wherein it is provided under clause (b) that a contract in respect of stock and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations is not to be deemed as speculative. 11. Relevant extract of section 43 sub-section (5) is reproduced as under: speculative transaction means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrip: Provided that for the purposes of this clause- (a) a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or (b) a contract in respect of stocks and shares entered into by a dealer or investor therein to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otified by the Central Government for this purpose;] [Explanation 2.-For the purposes of clause (e), the expressions- (i) commodity derivative shall have the meaning as assigned to it in Chapter VII of the Finance Act, 2013; (ii) eligible transaction means any transaction,- (A) carried out electronically on screen-based systems through member or an intermediary, registered under the byelaws, rules and regulations of the [recognised stock exchange] for trading in commodity derivative in accordance with the provisions of the Forward Contracts (Regulation) Act, 1952 (74 of 1952) and the rules, regulations or bye-laws made or directions issued under that Act on a [recognised stock exchange]; and (B) which is supported by a time stamped contract note issued by such member or intermediary to every client indicating in the contract note, the unique client identity number allotted under the Act, rules, regulations or bye-laws referred to in sub-clause (A), unique trade number and permanent account number allotted under this Act; [(iii) recognised stock exchange means a recognised stock exchange as referred to in clause (f) of section 2 of the Securities ..... 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