MGL HOLDINGS PRIVATE LIMITED,CHENNAI vs. ITO, CHENNAI

This appeal of the assessee is directed against the order of CIT(A) -8, Chennai dated 10.02.2016 and pertains to Assessment Year 2012-13.

The first issue arises for consideration is disallowance made by the assessing officer under Section 14A of the Act. The learned representative for the assessee submitted that the assessee invested in the capital market in two portfolios. One portfolio is investment and another port folio is for trading. The expenditure directly related to share trading activity is Rs.30,881/-. Since the assessee was trading in shares, the provisions of Section 14A is not applicable at all. The dividend earned by the assessee in the course of trading in shares is incidental to the activity. Therefore, the provisions of Section 14A cannot be applied in respect of trading activity.

Referring to the investment portfolio, the learned department representative for the assessee submitted that the disallowance made by the assessing officer exceeds the actual expenditure incurred by the assessee which is directly attributable to investment. Referring to the decision of Mumbai Bench of the Tribunal in the case of ACIT Vs. Iqbal M Chagala (ITATMumbai) in the learned representative for the assessee submitted that the provisions of Rule 8D cannot and should not be applied in a mechanical way. Disallowance made by the Assessing Officer cannot exceed the expenditure claimed by the assessee in relation to exempt income. Referring to loss on sale of shares, the learned representative for the assessee submitted that the main business of the assessee is investment. Therefore, the provisions of Section 73 are not applicable at all.

The learned representative for the assessee further submitted that the transaction made electronically which are subject to service tax, sales tax, etc. cannot be treated as speculative business even though the settlement was made without actual delivery. In case of electronic trading, there cannot be any physical delivery of the derivatives and the shares will be credited only in demat account. Therefore, the concept of physical delivery of shares cannot be put into service when the assessee traded in electronic mode. Therefore, the representative for the assessee submitted that the assessing officer is not justified in treating the loss claimed by the assessee as from speculative transaction.

On the contrary, the learned department representative submitted that the fact that the assessee was maintaining two port folios, one for investment and another for share trading was not brought to the notice of the assessing officer. The assessing officer found that the assessee invested funds in the shares and earned exempted income. Therefore, the expenditure claimed by the assessee has to be disallowed. Referring to the loss from sale of shares, the learned department representative submitted that the principal business of the assessee is plying busses and not investment. The losses claimed by the assessee resulted in share trading. Referring explanation to Section 73 of Income Tax Act, more particularly, explanation 2, the learned department representative submitted that the loss suffered by the assessee is Rs.26,94,968/- is from speculative business. Therefore, the same can be set off against the speculative income. Hence, the CIT(A) has rightly confirmed the order of the Assessing Officer.

We have considered the rival submissions on either side and also perused the material available on record. The assessee claims that the main business is investment and maintaining two portfolios. One portfolio is investment and another port folio is for trading. This factual aspect was not brought to the notice of either the Assessing Officer or the CIT(A).

In the result, the appeal filed by the assessee stands allowed for statistical purposes.