M/S. RAJMA HOLDINGS PVT. LTD., ,KOLKATA vs. DCIT, CIRCLE - 4, KOLKATA , KOLKATA

Ground No. 1 raised by the assessee in this appeal is general in nature, which does not call for any specific adjudication.

The common issue involved in Grounds No 2 & 3 relates to the disallowance made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of assessee’s claim for loss in share trading M/s. Rajma Holdings Pvt. Limited amounting to Rs.57,22,133/- by treating the same as speculation loss by applying Explanation to Section 73.

4. The assessee in the present case is a Non-Banking Finance Company. The return of income for the year under consideration was filed by it on 21.09.2011 declaring a loss of Rs.98,20,851/-. The assessee- company was engaged in trading in shares and securities and a loss of Rs.57,22,133/- incurred in the said activity was claimed by it as a business loss. In the assessment completed under section 143(3) vide an order dated 23.01.2014, the Assessing Officer invoked Explanation to section 73 and treated the same as speculation loss. On appeal, the ld. CIT(Appeals) upheld the order of the Assessing Officer on this issue.

We have heard the arguments of both the sides and also perused the relevant material available on record. The ld. Counsel for the assessee has relied, inter alia, on the decision of the Hon’ble Calcutta High Court in the case of Middleton Investment & Trading Co. Limited (ITA No. 196 of 1999 dated 15.01.2014) to contend that the income of the assessee for the year under consideration earned from long-term capital gain, dividend, etc. being more than the loss computed in the share trading, the Explanation to section 73 is not applicable. He has also prepared and furnished a working to support and substantiate the case of the assessee on this issue. We accordingly direct the Assessing Officer to verify the said working and allow the claim of the assessee for loss in share trading as normal business loss by following the decision of the Hon’ble Jurisdictional High Court in the case of Middleton Investment & Trading Co. Limited (supra). Grounds No. 2 & 3 of the assessee’s appeal are accordingly treated as allowed.

The common issue involved in Grounds No. 4 to 6 relates to the disallowance made by the Assessing Officer under section 14A of the Act read with Rule 8D and sustained by the ld. CIT(Appeals).

During the year under consideration, the assessee-company had earned tax-free income in the form of dividend, tax free interest on bonds, interest on loans and long-term capital gains. The expenses incurred in relation to the earning of the said exempt income claimed to be Rs.2,84,341/- were disallowed by the assessee suo motu under section 14A of the Act. The Assessing Officer applied Rule 8D to work out such expenses at Rs.9,30,198/- and enhanced the disallowance under section 14A to that extent. On appeal, the ld. CIT(Appeals) confirmed the disallowance made by the Assessing Officer under section 14A by applying Rule 8D(2)(i) and (ii) on account of direct expenses and interest. As regards the balance disallowance made by the Assessing Officer by applying Rule 8D(2)(iii), he directed the Assessing Officer to re-compute the disallowance by taking into consideration only the investment, which actually yielded dividend income during the year under consideration.

We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. It is observed that the disallowance on account of expenses incurred in relation to the earning of exempt income was offered by the assessee suo motu under section 14A to the extent of Rs.2,84,341/-. The Assessing Officer, however, worked out such expenses by applying Rule 8D at Rs.9,30,198/- and made a disallowance to that extent. As submitted by the ld. Counsel for the assessee, no dissatisfaction whatsoever was recorded by the Assessing Officer as regards the correctness of the claim of the assessee in respect of the expenses disallowed under section 14A having regard to the accounts of the assessee and this position clearly evident from the assessment order made by the Assessing Officer is not disputed even by the ld. D.R. As stipulated in sub-section (2) of section 14A, the Assessing Officer has to determine the amount of expenditure in relation to the exempt income by applying Rule 8D only if he having regard to the M/s. Rajma Holdings Pvt. Limited accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. The condition stipulated in section 14A(2) for applying Rule 8D thus was not satisfied in the present case and this being the position, we hold that the disallowance made by the Assessing Officer and sustained by the ld. CIT(Appeals) under section 14A by applying Rule 8D is not maintainable. We accordingly direct the Assessing Officer to delete the same and allow Grounds No. 4 to 6 of the assessess’s appeal.