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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI KULDIP SINGH
Per : Kuldip Singh, Judicial Member:
1. The appellant, M/s. Visaria Securities Pvt. Ltd. (hereinafter referred to as ‘the assessee’) by filing the present appeal, sought to set aside the impugned order dated 18.11.2019 passed by Commissioner of Income Tax (Appeals), Mumbai [hereinafter referred to as the CIT(A)] qua the assessment year 2013-14 on the grounds inter-alia that :- “Ground No. 1: On the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in upholding the additional disallowance made by the Ld. AO under Section 14A of the Act of Rs.19,74,797/-. 2 M/s. Visaria Securities Pvt. Ltd.
The Appellant prays that disallowance of Rs.19,74,797/- made under Section 14A of the Act is erroneous, unwarranted and be deleted. Ground No. 2: On the facts and in the circumstances of the case and in law, and without prejudice to the ground no.1, the Ld. CIT(A) grossly erred in not appreciating the fact that the appellant had sufficient own interest free funds to make the investments and accordingly, no disallowance from the finance cost is called for. The Appellant prays that disallowance of Rs. 15.11,331/- made under Section 14A of the Act read with Rule 8D(2)(ii) towards the finance cost is erroneous, unwarranted and be deleted. Ground No. 3: On the facts and in the circumstances of the case and in law, and without prejudice to the ground no. 1 and 2, the Ld. CIT(A) grossly erred in not netting off the interest income. against the interest expense, while computing the finance cost under Rule 8D(2)(ii). Thus, the Ld. CIT(A) failed to appreciate the fact that in the instant case, in view of excess interest income than interest expenses, no disallowance with respect to Finance cost under Rule 8D(2)(ii) is called for. The Appellant prays that disallowance of Rs. 15,11,331/- made under Section 14A of the Act read with Rule 8D(2)(ii) towards the finance cost is erroneous, unwarranted and be deleted. Ground No.4: On the facts and in the circumstances of the case and in law, and without prejudice to the ground no. 1,2 the Ld. CIT(A) grossly erred in upholding the AO's action of taking both the shares held as investment as well as stock in trade for the purpose of computing average investments. The appellant prays that for computing average investment, AO may be directed to consider only shares held as investments and thereby deleting the excess disallowance made by AO. Ground No 5: On the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in upholding the disallowance made by the Ld. AO in treating the business loss of Rs.1,88,88,857/- as speculation loss as per explanation to sec 73 of the I.T. Act. The appellant prays that disallowance made under speculation loss may kindly be deleted and treated as business loss.”
Briefly stated facts necessary for consideration and adjudication of the issues at hand are : the assessee is into the business of share broking and investment. The assessee’s return of income filed for the year under consideration declaring total income at Rs.NIL was subjected to scrutiny. Notices under section 142(1) 3 M/s. Visaria Securities Pvt. Ltd.
and 143(2) of the Income Tax Act, 1961 (for short ‘the Act’) were issued and in response thereto Mr. Vinay Pathak, Chartered Accountant appeared on behalf of the assessee filed requisite details which were verified on test check basis and placed on record. The Assessing Officer (AO) noticed from the balance sheet of the assessee company that the assessee company has made investment in equity shares and mutual funds to the tune of Rs.9,89,97,133/- and has shown dividend income from investment and equity shares in mutual funds to the tune of Rs.30,39,703/- in its computation of income which he has claimed as exempt. The AO by declining the contentions raised by the assessee and by invoking the provisions contained under section 14A read with rule 8D proceeded to conclude that the assessee has wrongly suo-moto disallowed an amount of Rs.6,47,006/- and computed the disallowance as under: Rs. Rs.
Amount of Expenditure (As per Rule 8D(2)(i)] 1,710 2. Amount as per the formula given in rule 8D(2)(ii)] (A) Amount of Interest 15,11,331
(B) Average value of investments (includes Stock- 30,13,47,150 in-trade) © Average value of total assets 40,97,04,004
Therefore, A *B/C 11,12,358
3 Amount equal to one-half percentage of 15,07,735 [B] [As per rule 8D(2}(iii) ] [As per calculation shown in the table above] GROSS DISALLOWANCE 26,21,803
Less: Suo-moto disallowance by the assesses 6,47,006
NET DISALLOWANCE 19,74,797
The AO has also noticed from the profit & loss account that the major activities of the assessee is from sale of equity shares and 4 M/s. Visaria Securities Pvt. Ltd.
the assessee has shown the share trading loss of Rs.1,51,66,748/- in own trading in shares. The assessee company was called upon to explain as to why the entire share trading loss should not be treated as speculation loss. The AO by invoking the provisions contained under explanation to section 73 of the Act treated the loss on account of share trading activity to the tune of Rs.1,51,66,748/- as claimed by the assessee as speculation loss.
Assessee carried the matter before the Ld. CIT(A) by way of filing appeal who has partly allowed the same. Feeling aggrieved with the impugned order passed by the Ld. CIT(A) the assessee has come up before the Tribunal by way of filing present appeal.
Ground Nos.1, 2, 3 & 4 5. Undisputedly as per balance sheet the assessee company has made investment in equity shares and mutual fund to the tune of Rs.9,89,97,133/-. It is also not in dispute that during the year under consideration the assessee has earned dividend income of Rs.30,39,703/- and claimed the same as exempt under section 10(34) of the Act. It is also not in dispute that the assessee has made suo-moto disallowance of Rs.6,47,006/- in order to earn the dividend income.
In the backdrop of the aforesaid undisputed facts the Ld. A.R. for the assessee contended that the AO while computing the disallowance under section 14A read with rule 8D (2) has also taken into consideration stock in trade in taking the average value of investment which is not includable as has been held by order passed by the Special Bench of the Tribunal in case of Vireet Investment ACIT vs. Vireet Investments Pvt. Ltd. (2017) 5 M/s. Visaria Securities Pvt. Ltd.
82 taxman.com 415 (Del. Trib. –SB). On the other hand, the Ld. D.R. for the Revenue relied upon the order passed by the AO as well as the Ld. CIT(A).
Perusal of the computation made by the AO in para 4.12 goes to prove that the AO has taken the average value of investment at Rs.30,15,47,150/- which includes stock in trade amounting to Rs.19,00,00,000/-.
Hon’ble High Court of Delhi in case of PCIT vs. Punjab National Bank (2022) 140 taxmann.com 131 (Delhi) while deciding the identical issue and by discussing the decision rendered by the Hon’ble Supreme Court in case of Maxopp Investment Ltd. vs. CIT 402 ITR 640 (SC) held that share held by the assessee as stock in trade and not as investment are not to be included for the purpose of computation of disallowance under section 14A as main purpose was to treat in those shares and earn profit therefrom. In other words, expenditure could not be disallowed in case of share held by the assessee company as stock in trade. In view of the matter the assessee has come up with revised working for the purpose of disallowance under section 14A which is as under:
Visaria Securities Pvt. Ltd. AY 2013-14 Revised Working of 14A disallowance (As per Decision of Vireet Investment Pvt. Ltd.)
Scrip Name Opening Value of Closing value of Amount (in Rs.) Investments investments (Investments on which dividend is earned) 35,89,344 35,89,344 Central Bank of India Essar Ports Ltd. 28,62,035 30,24,873 1,03,42,895 Ganesh Hsg. Corp. Ltd. 1,03,42,895 6 M/s. Visaria Securities Pvt. Ltd.
1,22,92,340 Guj Fluoro Chemicals Ltd. 1,22,92,340 Gulf Oil Corporation Ltd. 97,30,575 - 8,88,771 Genus Power 8,88,771 37,86,475 Hira Fero Alloys - Jindal steels & Power - - Muthoot Finance Ltd.. - 53,79,148 Provogue India Ltd. - 32,52,550 4,25,56,396 Total 3,97,05,960 Average value of 4,11,31,178 Investments
41,99,40,372 Total Assets 39,94,67,636 Average Value of Assets 40,97,04,004 Finance Cost - Expenditure as per Rule 1,710 8D(2)(i) Expenditure as per Rule NIL 8D(2)(ii) 2,05,656 Expenditure as per Rule 0.5% of Average 8D(2)(iii) Invetments from which dividend have been earned during the year 2,07,366 Total
Since the assessee has filed revised working for the purpose of disallowance under section 14A the issue is remitted back to the AO to decide afresh in view of the order passed by the Special Bench of the Tribunal in case of Vireet Investment (supra) as well as decision rendered by Hon’ble Delhi High Court in case of Punjab National Bank (supra) by providing opportunity of being heard to the assessee.
10. So far as second ground raised
by the assessee company challenging the disallowance made by the AO in treating the business loss of Rs.1,88,88,857/- as speculation loss as per explanation to section 73 of the Act is concerned, the Ld. A.R. for the assessee contended that when the positive figure is higher than the loss claimed by the assessee explanation to section 73 is not 7. M/s. Visaria Securities Pvt. Ltd. attracted and relied upon the decision rendered by Hon’ble Bombay High Court in case of Commissioner of Income Tax vs. HSBC Securities & Capital Markets India (P) Ltd. (2012) 23 taxmann.com 377 (Bom.)
So ground Nos.1, 2 , 3 & 4 are decided in favour of the assessee for statistical purposes.
Ground No.5 11. Undisputedly the assessee has shown the share trading loss of Rs.1,51,66,748/- in trading in shares in its own account. The AO after invoking the provisions contained under section 73 of the Act treated the assessee’s business loss of Rs.1,51,66,748/- as speculation loss and has also computed proportionate expenses of Rs.37,22,109/- on the basis of turnover and thereby treated the total amount of Rs.1,88,88,857/- comprising of loss and expenses thereof as speculation loss.
Undisputedly assessee company’s gross total income is mainly comprises of capital gains and income from other sources. Hon’ble Bombay High Court in case of HSBC Securities & Capital Markets India (P) Ltd. (supra) decided the identical issue in favour of the assessee by returning following findings: "8. In the present case, section 73 would not apply in view of the fact that the explanation thereto, does not operate in respect of a company whose gross total income consists mainly of income which is chargeable under the heads of "interest on securities", "income from house property", "capital gains" and "income from other sources". We have set out the relevant part of the assessment order which indicates that in the relevant year, the income from other sources was the only chargeable income, as the respondent had suffered a business loss otherwise."
It is a fact on record that during the year under consideration the assessee has income only from short term capital gain (STCG) 8 M/s. Visaria Securities Pvt. Ltd.
and income from other sources and in these circumstances by following the decision rendered by Hon’ble Bombay High Court in case of Hon’ble Bombay High Court this Bench is of the considered view that explanation to section 73 is not applicable to the case of the assessee as its gross total income consists mainly from income from STCG and income from other sources and as such loss suffered by the assessee company in share trading is not to be taken into account for the purpose of deciding the quantum of gross total income.
In these circumstances decision relied upon by the Ld. CIT(A) rendered by Hon’ble Supreme High Court in case of Snowtex Investment Ltd. Vs. PCIT, CC-2 Kolkata is not applicable as amendment made by Finance (No.2) Act, 2014 effects from 01.04.2015 was not retrospective but prospective in operation. This amendment is applicable prospectively from A.Y. 2015-16 onwards and not to the year under consideration i.e. A.Y. 2013-14. In para 4.6.2 the Ld. CIT(A) has categorically recorded the finding that “the Apex court further unequivocally stated that the amendment in explanation to section 73 of the Act by Finance (No.2) Act, 2014 is prospective and not to be applied retrospectively but erred in applying the same in case of the assessee by upholding the addition made by the AO”. So in these circumstances speculation loss of Rs.1,88,88,857/- treated by the AO as speculation loss is to be treated as business loss and the AO is directed accordingly.
Consequently ground No.5 raised by the assessee in this regard is determined in favour of the assessee. 9 M/s. Visaria Securities Pvt. Ltd.
In view of what has been discussed above present appeal filed by the assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 23.02.2023.