MILI CONSULTANTS AND INVESTMENT PVT. LTD., MUMBAI V. DCIT - 4(3)(2), MUMBAI

CO 206/MUM/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 7796 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 13 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 12-06-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 30-08-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JYOTHI LAKSHMI NAYAK SR
• Assessee Lawyers: JITENDRA SINGH
• Keywords: Earning of tax free income; Period of limitation; Retrospective amendment; Reasonable cause; Speculation loss; Condonation of delay; Futures and options; Speculative transactions; Rule 8D; Capital Gains
• Section: 143(3); 14A; 73; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D, BENCH MUM BAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ITA NO.5032/MUM/2018 ( ASSESSMENT YEAR: 2011-12 ) DCIT, CIRCLE-4(3)(2) ROOM NO.649, 6 TH FLOOR AAYKAR BHAVAN M.K.ROAD MUMBAI-400 020 VS. MILI CONSULTANTS AND INVESTMENTS PVT.LTD. 204, SHREEPAL COMPLEX SUREN ROAD NEAR CINE MAGI ANDHERI (E) MUMBAI-400 093 PAN/GIR NO. AA ACM6095 Q APPELLANT ) .. RESPONDENT ) & CROSS OBJECTION NO.206/MUM/2019 ( ASSESSMENT YEAR: 2011-12 ) MILI CONSULTANTS AND INVESTMENTS PVT.LTD. 204, SHREEPAL COMPLEX SUREN ROAD NEAR CINE MAGI ANDHERI (E) MUMBAI-400 093 VS. DCIT, CIRCLE-4(3)(2) ROOM NO.649, 6 TH FLOOR AAYKAR BHAVAN M.K.ROAD MUMBAI-400 020 PAN/GIR NO. AAACM6095Q APPELLANT ) .. RESPONDENT ) ASSESSEE BY SHRI JITENDRA SINGH, AR REVENUE BY MS. JYOTHI LAKSHMI NAYAK, SR.AR, DR DATE OF HEARING 22/01/2020 DATE OF PRONOUNCEME NT 12 /0 6 / 20 20 / O R D E R PER G.MANJUNATHA, ACCOUNTANT MEMBER : ITA NO.5032/MUM/2018 CO.NO.206/MUM/2019 MILI CONSULTANTS AND INVESTMENTS PVT.LTD. 2 THIS APPEAL FILED BY THE REVENUE AND CROSS OBJECTIO N FILED BY THE ASSESEE IS DIRECTED AGAINST ORDER OF THE LD. CO MMISSIONER OF INCOME TAX (APPEALS)-9, MUMBAI, DATED 12/06/2018 AN D IT PERTAINS TO ASST.YEAR 2011-12. SINCE, FACTS ARE IDENTICAL AND I SSUES ARE INTERCONNECTED, FOR THE SAKE OF CONVENIENCE, THE AP PEAL FILED BY THE REVENUE AND CROSS OBJECTION FILED BY THE ASSESSEE W ERE HEARD TOGETHER AND ARE DISPOSED-OFF BY THIS CONSOLIDATED ORDER. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE LOSS INCURRED BY T HE ASSESSEE IN PURCHASE AND SALE OF SHARES IS A BUSINESS LOSS WITH OUT APPRECIATING THE FACT THAT BY VIRTUE OF EXPLANATION U/S 73 OF I.T.AC T, SUCH LOSS INCURRED BY THE ASSESSEE IS IN THE NATURE OF SPECULATION LOSS.' 2. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD NEW GROUND WHICH MAY BE NECESSARY.' 3. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF CRO SS OBJECTIONS:- 1. THE LD. COMMISSIONER OF INCOME TAX (APPEA LS)- 9, MUMBAI [HEREINAFTER REFERRED TO AS 'LD. CIT(A)'] ERRED IN PASSING THE ORDER DATED 12.06.2018 UPHOLDING THE ACTION OF THE LD. A.O. IN MAKING DISALLOWANCE UNDER SECTION 14A BY INVOKING THE PROVISIONS OF RUL E 8D AMOUNTING TO RS.75,12,025/- WITHOUT APPRECIATING THE FACT THAT P ROVISIONS OF SECTION 14A ARE NOT AT ALL ATTRACTED TO THE FACTS OF THE IM PUGNED CASE. THE RESPONDENT, THEREFORE, PRAYS THAT THE DISALLOWANCE OF RS.75,12,025/- BY INVOKING THE PROVISIONS OF SECTION 14A READ WITH RU LE 8D IS NOT AT ALL JUSTIFIED AND HENCE, THE SAME MAY BE DELETED. 2. THE LD. CIT(A) FURTHER ERRED IN UPHOLDING THE ACTION OF THE LD. A.O. IN MAKING DISALLOWANCE UNDER SECTION 14A BY INVOKIN G RULE 8D WITHOUT APPRECIATING THAT WHILE MAKING THE DISALLOWANCE THE LD. A.O. HAS NOT RECORDED ANY SATISFACTION UNDER SUB SECTION (2) OF SECTION 14A WITH RESPECT TO CORRECTNESS OF THE VOLUNTARY ALLOCATION OF EXPENSES AMOUNTING TO RS.72,359/- MADE BY THE RESPONDENT FOR EARNING T HE EXEMPT INCOME. HENCE, DISALLOWANCE OF RS.75,12,025/- UNDER SECTION 14A IS UNJUSTIFIED AND THE SAME MAY BE DELETED. 3. THE LD. CIT(A) FURTHER ERRED IN DISALLOWI NG THE ENTIRE DIVIDEND INCOME AMOUNTING TO RS.75,12,025/- INVOKING THE PRO VISIONS OF SECTION ITA NO.5032/MUM/2018 CO.NO.206/MUM/2019 MILI CONSULTANTS AND INVESTMENTS PVT.LTD. 3 14A OF THE ACT WITHOUT APPRECIATING THAT THE ENTIRE DIVIDEND INCOME CANNOT BE ALLOCATED FOR EARNING THE SAME. HENCE, TH E DISALLOWANCE OF ENTIRE DIVIDEND INCOME AMOUNTING TO RS.75,12,025/- UNDER SECTION 14A IS UNJUSTIFIED AND THE SAME MAY BE DELETED. 4. THE LD. CIT(A) FURTHER ERRED IN MAKING DISALLOWA NCE OF RS.75,12,025/- INVOKING THE PROVISIONS OF SECTION 14A WITHOUT APPR ECIATING THAT THE DIVIDEND WAS RECEIVED ON THE SHARES /SECURITIES HEL D AS STOCK IN TRADE. THUS, THE PROVISIONS OF SECTION 14A WOULD NOT APPLY TO THE SAME. THE RESPONDENT, THEREFORE, PRAYS THAT THE DISALLOWANCE OF RS.75,12,025/- UNDER SECTION 14A IS UNJUSTIFIED AND THE SAME MAY B E DELETED. 4. AT THE TIME OF HEARING, THE LD. AR FOR THE ASSES SE SUBMITTED THAT THERE IS A DELAY OF 22 DAYS IN FILING CROSS OB JECTION, FOR WHICH NECESSARY PETITION FOR CONDONATION OF DELAY ALONG W ITH AFFIDAVIT EXPLAINING THE REASONS FOR DELAY IN FILING CROSS OB JECTION HAS BEEN FILED. THE LD. AR, FURTHER SUBMITTED THAT THE DIREC TOR OF THE ASSESSEE COMPANY SHRI MANAK CHAND DAGA, WAS OUT OF TOWN ON P RE-OCCUPIED BUSINESS PURPOSE DUE TO THIS, HE COULD NOT HAVE SIG NED, THE CROSS OBJECTION TO BE FILED BEFORE THE TRIBUNAL, ALTHOUGH THE TAX CONSULTANT HAS FINALIZED THE GROUNDS OF CROSS OBJECTION . THER EFORE, THERE IS A DELAY OF 22 DAYS, WHICH IS BEYOND THE CONTROL OF TH E ASSESSEE AND HENCE, THE DELAY MAY BE CONDONED AND CROSS OBJECTIO N MAY BE HEARD ON MERITS. THE LD. DR, ALTHOUGH OPPOSED CONDO NATION OF DELAY IN FILING CROSS OBJECTION, BUT FAIRLY ACCEPTE D THAT THE DELAY MAY BE CONDONED KEEPING IN VIEW REASONS GIVEN BY THE AS SESSE IN ITS AFFIDAVIT. HAVING CONSIDERED ARGUMENTS OF BOTH THE SIDES, WE FIND THAT REASONS GIVEN BY THE ASSESSEE FOR NOT FILING C ROSS OBJECTION WITHIN THE TIME ALLOWED UNDER THE ACT, IS COMES UND ER THE REASONABLE CAUSE AND HENCE, THE DELAY IN FILING CRO SS OBJECTION HAS BEEN CONDONED AND ADMITTED FOR ADJUDICATION ON MERI TS. 5. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE BUSINESS OF STOCK BROKING, TRADING & INVESTMENT IN ITA NO.5032/MUM/2018 CO.NO.206/MUM/2019 MILI CONSULTANTS AND INVESTMENTS PVT.LTD. 4 SHARES, SECURITIES, COMMODITIES & CURRENCIES LIKE A RBITRAGE ETC, FILED ITS RETURN OF INCOME FOR AY 2011-12 ON 27/09/2011, DECLARING TOTAL LOSS OF RS.4,14,03,602/-. THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT HAS BEEN COMPLETED U/S 143(3) OF THE I.T .ACT, 1961 ON 22/03/2014 DETERMINING THE TOTAL INCOME AT RS.1,45, 82,780/-, WHERE THE LD. AO HAS DISALLOWED DEEMED SPECULATION LOSS O F RS.1,85,25,973/-, BUT ALLOWED THE SAME TO BE CARRY FORWARD AND SET OFF AGAINST SPECULATION INCOME OF FUTURE YEARS, ON THE GROUND THAT THE LOSS INCURRED BY THE ASSESSEE FROM TRADING IN S HARES IS IN THE NATURE OF SPECULATION LOSS AND IN VIEW OF EXPLANATI ON TO SECTION 73 OF THE I.T.ACT, 1961 SAID LOSS CANNOT BE ALLOWED TO BE SET OFF AGAINST INCOME EARNED FROM TRADING IN FUTURES AND OPTIONS B EING DERIVATIVE TRANSACTIONS. THE LD. AO HAS ALSO, MADE ADDITIONS T OWARDS DISALLOWANCES OF EXPENDITURE IN RELATION TO EXEMPT INCOME U/S 14A R.W.RULE 8D OF I.T.RULES, 1962, AMOUNTING TO RS.82, 94,849/-, ON THE GROUND THAT ALTHOUGH, THE ASSESSEE HAS EARNED DIVID END INCOME, BUT MADE A SUO-MOTO DISALLOWANCES OF RS.72,359/-, WHICH IS CONTRARY TO THE PRESCRIBED PROCEDURE PROVIDED UNDER RUE 8D OF I .T.RULES, 1962, FOR DETERMINATION OF DISALLOWANCES OF EXPENDITURE I N RELATION TO EXEMPT INCOME U/S 14A OF THE I.T.ACT, 1961. 6. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE HAS FILED AN APPEAL BEFORE THE LD.CIT(A). BEFORE THE LD .CIT(A), THE ASSESSEE HAS CHALLENGED ADDITIONS MADE BY THE LD. A O TOWARDS DISALLOWANCES OF SPECULATION LOSS, IN LIGHT OF CERT AIN JUDICIAL PRECEDENTS, INCLUDING THE DECISION OF ITAT, MUMBAI IN THE CASE OF FIDUCIARY SHARES & STOCK PVT.LTD VS ACIT IN ITA NO. 321/MUM/2013 AND ARGUED THAT EXPLANATION INSERTED TO SECTION 73 OF THE ACT, BY FINANCE ACT, 2014 W.E.F 01/04/2015 IS CLARIFICATOR Y IN NATURE AND ITA NO.5032/MUM/2018 CO.NO.206/MUM/2019 MILI CONSULTANTS AND INVESTMENTS PVT.LTD. 5 WOULD THEREFORE, OPERATE RETROSPECTIVELY FROM 01/04 /1977, FROM WHICH DATE THE EXPLANATION TO SECTION 73 WAS PLACED ON THE STATUTE. THE ASSESSEE HAS ALSO, CHALLENGED ADDITIONS MADE BY THE LD. AO TOWARDS DISALLOWANCES U/S 14A OF THE ACT, IN LIGHT OF CERTAIN JUDICIAL PRECEDENTS, INCLUDING THE DECISION OF HONBLE BOMBA Y HIGH COURT, IN THE CASE OF HDFC BANK LD. VS DCIT (SUPRA) AND CIT V S RELIANCE UTILITIES & POWER LTD. 313 ITR 340 AND ARGUED THAT IN CASE OWN FUNDS IS MORE THAN THE VALUE OF INVESTMENTS IN SHAR ES, THEN NO DISALLOWANCES COULD BE MADE TOWARDS INTEREST EXPEND ITURE. THE ASSESEE HAS ALSO, CHALLENGED THE FINDINGS OF THE LD . AO IN COMPUTING AVERAGE VALUE OF INVESTMENTS BY INCLUDING SHARES HELD AS STOCK IN TRADE IN LIGHT OF DECISION OF HONBLE BOMB AY HIGH COURT, IN THE CASE OF DCIT VS INDIA ADVANTAGE SECURITIES LIMI TED (SUPRA). THE LD.CIT(A) AFTER CONSIDERING RELEVANT SUBMISSIONS OF THE ASSESSE AND ALSO, BY RELIED UPON THE DECISION OF ITAT, IN THE CASE OF FIDUCIARY SHARES & STOCK PVT.LTD. (SUPRA), HAS DELETED ADDITI ONS MADE BY THE LD. AO TOWARDS DEEMED SPECULATION LOSS BY HOLDING T HAT WHEN, THE MAIN ACTIVITIES OF THE ASSESEE IS TRADING IN SHARES AND SECURITIES, THE EXPLANATION TO SECTION 73 HAS NO APPLICATION. HE, F URTHER, OBSERVED THAT THE AMENDMENT INSERTED IN EXPLANATION TO SECTI ON 73 OF THE ACT, BY FINANCE ACT, 2004 W.E.F. 01/04/2015 IS CLARIFICA TORY IN NATURE AND WOULD THEREFORE OPERATE RETROSPECTIVELY FROM 01/04/ 1977 AND ACCORDINGLY, LOSS INCURRED BY THE ASSESSEE FROM TRA DING IN SHARES CANNOT BE DISALLOWED BY INVOKING EXPLANATION TO S ECTION 73 OF THE I.T.ACT, 1961. AS REGARDS, DISALLOWANCES U/S 14A R. W.RULE 8D OF THE I.T.RULES, 1962, THE LD.CIT(A) HAS REJECTED THE CO NTENTIONS OF THE ASSESSEE THAT SHARES HELD AS STOCK IN TRADE CANNOT BE INCLUDED FOR THE PURPOSE OF COMPUTATION OF AVERAGE VALUE OF INVE STMENTS BY FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF ITA NO.5032/MUM/2018 CO.NO.206/MUM/2019 MILI CONSULTANTS AND INVESTMENTS PVT.LTD. 6 MAXOPP INVESTMENTS LIMITED VS CIT 91 TAXMANN.154. H OWEVER, HE HAS ACCEPTED THE CONTENTIONS OF THE ASSESSEE, INSOF AR AS NETTING OFF, OF INTEREST EXPENDITURE BY FOLLOWING THE DECISION O F HONBLE GUJARATH HIGH COURT, IN THE CASE OF PCIT VS NIRMA CREDIT & C APITAL PVT.LTD. (SUPRA) AND DIRECTED THE LD. AO TO NET OFF INTERES T PAID AGAINST INTEREST INCOME EARNED BY THE ASSESEE AND THEN, COM PUTE DISALLOWANCES AS PER RULE 8D(2)(II) OF I.T.RULES, 1 962. FINALLY, THE LD.CIT(A) HAS DETERMINED DISALLOWANCES OF RS.75,12, 025/-, AS AGAINST TOTAL DISALLOWANCES QUANTIFIED BY THE LD. A O AT RS.82,94,849/-. AGGRIEVED BY THE LD.CIT(A) ORDER , THE REVENUE IS IN APPEAL BEFORE US AND THE ASSESSEE HAS FILED CROSS O BJECTION. 7. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM REVENUE APPEAL IS DELETION OF ADDITIONS MADE BY THE LD. AO TOWARDS DEEMED SPECULATION LOSS OF RS.1,85,25,973/- BY INVO KING EXPLANATION TO SECTION 73 OF THE I.T.ACT, 1961. THE FACTS WITH REGARD TO THE IMPUGNED DISPUTES ARE THAT THE ASSESEE IS EN GAGED IN THE BUSINESS OF STOCK BROKER AND TRADING IN SHARES HAS INCURRED LOSS OF RS.4,32,65,063/- FOR THE YEAR UNDER CONSIDERATION. ACCORDING TO THE LD. AO, THE MAJOR PORTION OF INCOME OF THE ASSESSEE IS FROM SHARE TRADING ACTIVITY AND ACCORDINGLY, AS PER SECTION 73 OF THE I.T.ACT, 1961, WHEN ANY PART OF BUSINESS OF A COMPANY CONSIS T OF PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, SUCH COMPANY SHALL FOR THE PURPOSE OF THE SECTION DEEMED TO BE CARRYING ON SPE CULATION BUSINESS TO THE EXTENT, WHICH BUSINESS CONSIST OF P URCHASE AND SALE OF SHARES. THEREFORE, THE LD. AO CALLED UPON THE AS SESSE TO EXPLAIN AS TO WHY, LOSS CLAIMED UNDER THE HEAD INCOME FROM BUSINESS BEING LOSS FROM SHARE TRADING CANNOT BE CONSIDERED AS SPE CULATIVE LOSS IN VIEW OF EPLANATION TO SECTION 73 OF THE I.T.ACT, 19 61. IN RESPONSE, ITA NO.5032/MUM/2018 CO.NO.206/MUM/2019 MILI CONSULTANTS AND INVESTMENTS PVT.LTD. 7 THE ASSESSEE SUBMITTED THAT THE MAIN ACTIVITY OF TH E ASSESSEE IS TRADING IN SHARES AND ACCORDINGLY, AS PER NEWLY INS ERTED PROVISO TO SECTION 73 OF THE I.T.ACT, 1961, BY THE FINANCE ACT , 2014 W.E.F. 01/04/2015, WHEN THE MAIN ACTIVITY OF THE ASSESSEE IS TO PURCHASE AND SALE OF SHARES, THEN CONSEQUENT LOSS FROM SUCH ACTIVITY CANNOT BE CONSIDERED AS SPECULATION LOSS. THE LD. AO WAS N OT CONVINCED WITH THE EXPLANATION FILED BY THE ASSESEE AND ACCOR DING TO HIM, THE ASSESSE HAS INCURRED LOSS OF RS.1,85,25,973/- FROM SHARE TRADING ACTIVITY AND ACCORDINGLY, BY INVOKING EXPLANATION T O SECTION 73 OF THE I.T.ACT, 1961, A SUM OF RS.1,85,25,973/- HAS BEEN T REATED AS DEEMED SPECULATION LOSS AND IS ALLOWED TO BE CARRIE D FORWARD TO SUBSEQUENT YEARS. ON AN APPEAL BEFORE THE LD.CIT(A) , THE LD.CIT(A), BY FOLLOWING THE DECISION OF ITAT IN THE CASE OF FIDUCIARY SHARES & STOCK PVT.LTD (SUPRA), DELETED ADDITIONS M ADE BY THE LD. AO. 8. THE LD. DR SUBMITTED THAT THE LD.CIT(A) WAS ERRE D IN HOLDING THAT LOSS INCURRED BY THE ASSESSEE FROM THE ACITIVI TY OF PURCHASE AND SALE OF SHARES IS A BUSINESS LOSS, WITHOUT APPRECIA TING THE FACT THAT BY VIRTUE OF EXPLANATION TO SECTION 73 OF THE I.T.A CT, 1961, SUCH LOSS INCURRED BY THE ASSESSEE IS IN THE NATURE OF SPECU LATION LOSS AND CANNOT BE ALLOWED TO BE SET OFF AGAINST PROFIT F ROM DERIVATIVE TRADING. IN THIS REGARD, HE RELIED UPON THE DECISIO N OF HONBLE SUPREME COURT, IN THE CASE OF SNOWTEX INVESTMENTS L IMITED VS PCIT (2019) 414 TR 227 (SC). 9. THE LD. AR FOR THE ASSESSEE, ON THE OTHER HAND S UPPORTING ORDER OF THE LD.CIT(A) SUBMITTED THAT WHEN, MAIN A CTIVITY OF THE ASSESSEE IS PURCHASE AND SALE OF SHARES, THEN CONSE QUENT LOSS ITA NO.5032/MUM/2018 CO.NO.206/MUM/2019 MILI CONSULTANTS AND INVESTMENTS PVT.LTD. 8 CANNOT BE TREATED AS SPECULATIVE LOSS. THE LD. AR, FURTHER SUBMITTED THAT ALTHOUGH, THE ASSESEE HAS DECLARED LOSS FROM B USINESS, BUT A STAND-ALONE RESULTS OF PURCHASE AND SALE OF SHARES RESULTED IN PROFIT OF RS.2,37,59,943/- AND HENCE, ONCE THERE IS PROFI T FROM SHARE TRADING ACTIVITY, THE PROVISIONS OF EXPLANATION TO SECTION 73 HAS NO APPLICATION. THE LD.CIT(A) AFTER CONSIDERING RELEVA NT FACTS HAS RIGHTLY DELETED ADDITIONS MADE BY THE LD. AO AND HIS ORDER SHOULD BE UPHELD. 10. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. AS PER THE PROVISIONS OF SECTION 73 AND EXPLANATION PROVID ED THERETO, WHERE ANY PART OF THE BUSINESS OF THE COMPANY ( [OTHER TH AN A COMPANY WHOSE GROSS TOTAL INCOME CONSIST MAINLY OF INCOME, WHICH IS CHARGEABLE UNDER THE HEADS INTEREST ON SECURITY, IN COME FROM HOUSE PROPERTY, CAPITAL GAINS AND INCOME FROM OTHER SOUR CES] OR A COMPANY THE PRINCIPLE BUSINESS OF WHICH IS THE BU SINESS OF TRADING IN SHARES OR BANKING OR THE GRANTING OF LOANS AND ADVANCES ) CONSISTS IN THE PURCHASE AND SALE OF SHARES OF OTHE R COMPANIES, SUCH COMPANY SHALL, FOR THE PURPOSE OF THIS SECTION , BE DEEMED TO BE CARRYING ON SPECULATIVE BUSINESS TO THE EXTENT T O WHICH, THE BUSINESS CONSISTS OF PURCHASE AND SALE OF SUCH SHAR ES. FROM THE ABOVE, IT IS VERY CLEAR THAT IF A PART OF A BUSINES S OF A COMPANY IS PURCHASE AND SALE OF SHARES, THEN SUCH TRANSACTIONS SHALL BE DEEMED TO BE CONSIDERED AS SPECULATIVE TRANSACTIONS AND PROFIT ON SUCH ACTIVITY SHALL BE DEEMED TO BE SPECULATIVE LOS S AND CANNOT BE ALLOWED TO BE SET OFF AGAINST ANY OTHER INCOME, INC LUDING PROFIT FROM DERIVATIVE TRADING. THE PROVISIONS OF SECTION 73 AN D EXPLANATION PROVIDED THERETO HAS BEEN AMENDED BY INSERTION OF T HE PRINCIPLE ITA NO.5032/MUM/2018 CO.NO.206/MUM/2019 MILI CONSULTANTS AND INVESTMENTS PVT.LTD. 9 BUSINESS OF WHICH IS THE BUSINESS OF TRADING IN SHA RES OR BANKING BY THE FINANCE ACT, 2014. W.E.F 01/04/2015. THE SAID A MENDMENT HAS BEEN INTERPRETED BY THE HONBLE SUPREME COURT, IN T HE CASE OF SNOWTEX INVESTMENTS LTD. VS PCIT (SUPRA), WHERE IT HAS BEEN HELD THAT AMENDMENT TO EXPLANATION TO SECTION 73 BY THE FINANCE ACT, 2014 IS PROSPECTIVE AND EFFECTIVE FROM 01/04/2015 A ND CANNOT BE GIVEN RETROSPECTIVE EFFECT. FROM THE ABOVE, IT IS V ERY CLEAR THAT THE FINDINGS RECORDED BY THE LD.CIT(A), IN LIGHT OF DEC ISION OF ITAT, MUMBAI, IN THE CASE OF FIDUCIARY SHARES & STOCK PVT .LTD IS CONTRARY TO THE SETTLED POSITION OF LAW AS PER THE DECISION OF HONBLE SUPREME COURT AND ACCORDINGLY, THE SAME DESERVES TO BE REVE RSED. 11. INSOFAR AS, THE FINDINGS OF THE LD.CIT(A) REGAR DING PROFIT FROM TRADING IN SHARES AND SECURITIES, WE FIND THAT THE LD. AO HAS RECORDED A CATEGORICAL FINDING THAT THE ASSESSEE HAS INCURRE D LOSSES FROM SHARES TRADING ACTIVITY, WHEREAS, THE LD.CIT(A) HAS RECORDED CATEGORICAL FINDING THAT THE ASSESSEE HAS EARNED P ROFIT FROM SHARE TRADING ACTIVITY. WE FURTHER NOTED THAT ALTHOUGH, T HE ASSESSEE CLAIMS TO HAVE EARNED PROFIT FROM SHARE TRADING ACTIVITY, BUT SUCH PROFIT HAS BEEN COMPUTED WITHOUT CONSIDERING DIRECT AND INDIR ECT EXPENSES RELATABLE TO SHARE TRADING ACTIVITY, ALTHOUGH THE M AJOR PORTION OF INCOME OR LOSS OF THE ASSESSEE IS FROM SHARE TRADIN G ACTIVITY. THE FACTS AND CONSEQUENT FINDINGS RECORDED BY THE LD. A O, AND THE LD.CIT(A) ARE CONTRARY TO EACH OTHER AND REQUIRES F RESH VERIFICATION FROM THE LD. AO, IN LIGHT OF THE FACT THAT THE ASSE SSEE HAS NOT CONSIDERED EXPENDITURE INCURRED IN RELATION TO SHAR E TRADING ACTIVITY. THEREFORE, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THIS CASE, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE IS HIT BY THE PROVISIONS OF EXPLANATION TO SECTION 73 OF THE I.T.ACT, 1961, IN VIEW OF THE ITA NO.5032/MUM/2018 CO.NO.206/MUM/2019 MILI CONSULTANTS AND INVESTMENTS PVT.LTD. 10 DECISION OF HONBLE SUPREME COURT, IN THE CASE OF S NOWTEX INVESTMENTS LTD. (SUPRA) AND ACCORDINGLY, IN CASE, THE ASSESSEE INCURRED LOSSES FROM SHARE TRADING ACTIVITY, THE SA ME NEEDS TO BE CONSIDERED AS DEEMED SPECULATIVE LOSS AND CANNOT BE ALLOWED TO BE SET OFF AGAINST PROFIT DERIVED FROM TRADING IN DER IVATIVES. IN CASE, THE ASSESSEE HAS EARNED PROFIT FROM SHARE TRADING ACTIV ITY, THEN EXPLANATION TO SECTION 73 HAS NO APPLICATION AND AC CORDINGLY, THE SAID LOSS NEEDS TO BE TREATED AS NORMAL BUSINESS LO SS AND ALLOWED TO BE SET OFF AGAINST ANY OTHER INCOME. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE ISSUE NEEDS TO BE RE-EXAMI NE BY THE LD. AO, IN LIGHT OF VARIOUS FACTS BROUGHT OUT BY BOTH T HE PARTIES AND TO RECOMPUTE PROFIT AFTER CONSIDERING RELEVANT EXPENDI TURE RELATABLE SAID TRADING ACTIVITY AND THEN TO DECIDE APPLICABILITY O F EXPLANATION TO SECTION 73 OF THE I.T.ACT, 1961. ACCORDINGLY, WE SE T ASIDE THE ISSUE TO THE FILE OF THE LD. AO AND DIRECT HIM TO RECONSI DER THE ISSUE AFRESH IN ACCORDANCE WITH LAW. 12. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM CROSS OBJECTION FILED BY THE ASSESSEE IS DISALLOWANCES OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME U/S 14A OF TH E I.T.ACT, 1961. THE LD. AO HAS DETERMINED DISALLOWANCES OF RS.82,94 ,849/-, BY INVOKING RULE 8D(2) OF I.T.RULES, 1962. THE FACTS W ITH REGARD TO THE IMPUGNED DISPUTES ARE THAT THE ASSESSE HAS EARNED D IVIDEND INCOME OF RS.75,12,025/-, WHICH DOES NOT FORM PART OF TOTA L INCOME. THE ASSESEE HAS ALSO, COMPUTED SUO-MOTO DISALLOWANCES O F RS.72,359/- U/S 14A OF THE I.T.ACT, 1961.DURING THE COURSE OF A SSESSMENT PROCEEDINGS, THE LD. AO CALLED UPON THE ASSESSEE TO EXPLAIN AS TO WHY, DISALLOWANCES CONTEMPLATED U/S 14A SHALL NOT B E COMPUTED IN ACCORDANCE WITH PRESCRIBED METHOD PROVIDED UNDER R ULE 8D OF ITA NO.5032/MUM/2018 CO.NO.206/MUM/2019 MILI CONSULTANTS AND INVESTMENTS PVT.LTD. 11 I.T.RULES, 1962. IN RESPONSE, THE ASSESSEE SUBMITTE D THAT DISALLOWANCES COMPUTED U/S 14A OF THE ACT, IS IN AC CORDANCE WITH LAW AND IN CONFORMITY WITH TAX FREE INCOME EARNED F OR THE YEAR. THE ASSESSEE, FURTHER CONTENDED THAT FOR THE PURPOSE OF COMPUTATION OF AVERAGE VALUE OF INVESTMENTS SHARES HELD AS STOCK I N TRADE CANNOT BE INCLUDED, BECAUSE THE ASSESSE MAIN ACTIVITIES IS PURCHASE AND SALE OF SHARES, THE SHARES HELD AS STOCK IN TRADE A T THE END OF THE YEAR IS IN THE NATURE OF INVENTORY AND THEREFORE, T HE SAME CANNOT BE PART OF INVESTMENTS TO COMPUTE DISALLOWANCES OF EXP ENDITURE, IN RELATION TO EXEMPT INCOME U/S 14A OF THE I.T.ACT, 1 961. THE LD. AO WAS NOT SATISFIED WITH EXPLANATION FURNISHED BY THE ASSESSEE AND ACCORDING TO HIM, DISALLOWANCES CONTEMPLATED U/S 14 A OF THE ACT, SHALL BE DETERMINED IN ACCORDANCE WITH PROVISIONS O F RULE 8D OF I.T.RULES, 1962 AND ACCORDINGLY, DETERMINED TOTAL D ISALLOWANCES OF RS.83,67,208/- AND AFTER REDUCING SUO-MOTO DISALLO WANCES MADE BY THE ASSESSEE OF RS.72,359/-, HE HAS MADE FURTHER DI SALLOWANCES OF RS.82,94,849/-. 13. THE LD. AR FOR THE ASSESSEE HAS SUBMITTED THAT THE LD. AO HAS ERRED IN MAKING DISALLOWANCES U/S 14A, BY INVOK ING PROVISIONS OF RULE 8D, WITHOUT APPRECIATING THE FACT THAT PROVISI ONS OF SECTION 14A ARE NOT AT ALL ATTRACTED TO THE FACTS OF THE ASSESS EE CASE. THE LD. AR FURTHER SUBMITTED THAT THE LD. AO HAS ERRED IN INVO KING RULE 8D WITHOUT APPRECIATING THE FACT THAT WHILE, MAKING TH E DISALLOWANCES THE LD. AO HAS TO RECORD SATISFACTION AS REQUIRED U NDER SUB-SECTION (2) OF SECTION 14A WITH RESPECT TO CORRECTNESS OF V OLUNTARY DISALLOWANCES MADE BY THE ASSESSEE AND IN ABSENCE O F ANY SATISFACTION, HE CANNOT INVOKE METHOD PROVIDED UNDE R RULE 8D(2) OF I.T.RULES, 1962. THE LD. AR, FURTHER SUBMITTED THAT THE LD. CIT(A) ITA NO.5032/MUM/2018 CO.NO.206/MUM/2019 MILI CONSULTANTS AND INVESTMENTS PVT.LTD. 12 HAS ERRED IN NOT APPRECIATING THE FACT THAT WHEN, M IXED FUNDS ARE MORE THAN THE AMOUNT OF INVESTMENT IN SHARES, THEN A GENERAL PRESUMPTION IS THAT INVESTMENTS IN SHARES IS OUT OF OWN FUNDS, THEN NO INTEREST EXPENDITURE COULD BE DISALLOWED U/S 14 A OF THE I.T.ACT, 1961. 14. THE LD. DR, ON THE OTHER HAND STRONGLY SUPPORTI NG ORDER OF THE LD.CIT(A) SUBMITTED THAT THE LD.CIT(A) HAS RIGHTLY APPRAISED THE FACT IN LIGHT OF DECISION OF HONBLE SUPREME COURT, IN T HE CASE OF MAXOPP INVESTMENTS LIMITED VS CIT (SUPRA), WHERE THE ISSUE HAS BEEN SETTLED AND ACCORDINGLY, FOR THE PURPOSE OF COMPUTA TION OF EXPENSES RELATABLE TO EXEMPT INCOME U/S 14A OF THE ACT, EVEN SHARES HELD AS STOCK IN TRADE NEEDS TO BE CONSIDERED. 15. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. THERE IS NO DOUBT WITH REGARD TO THE FACT OF APPLICABILITY O F PROVISIONS OF SECTION 14A R.W.RULE 8D OF I.T.RULES, 1962. IN FACT , THE ASSESSEE HAS COMPUTED SUO-MOTO DISALLOWANCES OF RS.72,359/- BY INVOKING PROVISIONS OF RULE 8D OF I.T.RULES, 1962. HOWEVER, WHEN COMPUTING DISALLOWANCES, THE ASSESSEE HAS NOT CONSIDERED INTE REST EXPENDITURE, ON THE GROUND THAT INTEREST EXPENDITUR E HAS NO RELATION TO EXEMPT INCOME, AND FOR THIS PURPOSE, THE ASSESSE E HAS RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT, IN THE CASE OF CIT VS HDFC BANK LTD AND ARGUED THAT WHEN, MIXED FUNDS ARE USED FOR INVESTMENT IN SHARES, A GENERAL PRESUMPTION GOES IN FAVOR OF THE ASSESSE THAT INVESTMENTS IN SHARES IS OUT OF OWN FU NDS AND CONSEQUENTLY, NO DISALLOWANCES COULD BE MADE. THE A SSESSEE HAS ALSO NOT CONSIDERED SHARES HELD AS STOCK IN TRADE F OR THE PURPOSE OF ITA NO.5032/MUM/2018 CO.NO.206/MUM/2019 MILI CONSULTANTS AND INVESTMENTS PVT.LTD. 13 COMPUTATION OF AVERAGE VALUE OF INVESTMENTS. INSOF AR AS, THE FIRST ARGUMENTS OF ASSESSEE THAT THE LD. AO HAS NOT RECO RDED SATISFACTION AS REQUIRED UNDER SECTION 14A(2) OF TH E ACT, WE FIND THAT THE LD. AO HAS RECORDED CLEAR SATISFACTION HAVING R EGARD TO THE SUO- MOTO DISALLOWANCES MADE BY THE ASSESEE AND AMOUNT O F EXEMPT INCOME EARNED FOR THE YEAR UNDER CONSIDERATION AND CAME TO THE CONCLUSION THAT SUO-MOTO DISALLOWANCES MADE BY THE ASSESSEE IS NOT IN ACCORDANCE WITH PRESCRIBED PROCEDURE LAID DO WN U/S 14A R.W.RULE 8D OF RULES, 1962 AND ACCORDINGLY, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO MERIT IN ARGUMENT S OF THE LD. AR FOR THE ASSESSEE THAT THE LD. AO HAS NOT RECORDED SATIS FACTION AS REQUIRED U/S 14A(2) OF THE I.T.ACT, 1961. 16. AS REGARDS, THE CLAIM OF THE ASSESSEE THAT SHA RES HELD AS STOCK IN TRADE CANNOT BE FORMS PART OF AVERAGE VALU E OF INVESTMENTS , WE FIND THAT THE HONBLE SUPREME COURT, IN THE CASE OF MAXOPP INVESTMENT LTD. VS CIT HAS SETTLED THE CONTROVERSY AND HELD THAT THE MOMENT CERTAIN DIVIDEND IS EARNED, THOUGH INCIDENT ALLY FROM SHARES HELD AS STOCK IN TRADE BY VIRTUE OF SECTION 10(34) OF THE ACT, THE SAID DIVIDEND INCOME IS NOT TO BE INCLUDED IN THE TOTAL INCOME AND IS EXEMPT FROM TAX, THIS TRIGGERS THE APPLICABILITY OF SECTION 14A OF THE ACT, WHICH IS BASED ON THE THEORY OF APPORTIONME NT OF EXPENDITURE BETWEEN TAXABLE AND NON TAXABLE INCOME. FROM THE A BOVE, IT IS VERY CLEAR THAT EVEN, SHARE HELD AS STOCK IN TRADE NEEDS TO BE INCLUDED FOR THE PURPOSE OF COMPUTATION OF AVERAGE VALUE OF INVE STMENTS AND ACCORDINGLY, WE REJECT THE ARGUMENTS OF THE LD. AR FOR THE ASSESSEE THAT SHARES HELD AS STOCK IN TRADE CANNOT BE FORM P ART OF AVERAGE VALUE OF INVESTMENTS. AS REGARDS, INTEREST EXPENDIT URE, WE FIND THAT THE ASSESEE MAIN BUSINESS ACTIVITY IS PURCHASE AND SALE OF SHARES. ITA NO.5032/MUM/2018 CO.NO.206/MUM/2019 MILI CONSULTANTS AND INVESTMENTS PVT.LTD. 14 IN THE PROCESS, THE ASSESSEE HAS BORROWED SECURED L OANS FROM BANKS AND FINANCIAL INSTITUTIONS AGAINST SECURITY O F SHARES AND INCURRED HUGE FINANCE EXPENDITURE. WE FURTHER NOTED THAT OWN CAPITAL OF THE ASSESSE, INCLUDING RESERVES AND SURPLUS IS L OWER THAN THE AMOUNT OF INVESTMENTS IN SHARES, IF SHARES HELD AS STOCK IN TRADE IS CONSIDERED AS INVESTMENTS FOR THE PURPOSE OF AVERAG E VALUE OF INVESTMENTS. THEREFORE, WE ARE OF THE CONSIDERED VI EW THAT THERE IS NO MERIT IN THE ARGUMENTS OF THE ASSESSE THAT WHEN, OWN FUNDS IS IN EXCESS OF INVESTMENTS IN SHARES, THEN NO INTEREST E XPENDITURE SHOULD BE DISALLOWED, BECAUSE AS ADMITTED BY THE ASSESEE B EFORE THE LD. AO, INVESTMENTS IN SHARES, INCLUDING SHARES HELD AS STOCK IN TRADE IS MORE THAN THE OWN CAPITAL, INCLUDING RESERVES AND S URPLUS. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO MERIT IN THE ARGUMENTS OF THE ASSESSEE THAT NO INTEREST EXPENDIT URE COULD BE DISALLOWED. INSOFAR AS, DISALLOWANCES OF EXPENDITU RE UNDER RULE 8D(2)(III) OF I.T.RULES, 1962, IT IS A SETTLED POS ITION THAT ONLY, THOSE INVESTMENTS, WHICH HAS EARNED EXEMPT INCOME FOR THE YEAR UNDER CONSIDERATION NEEDS TO BE CONSIDERED FOR THE PURPOS E OF AVERAGE VALUE OF INVESTMENTS TO DETERMINE DISALLOWANCES OF EXPENDITURE @ 0.5% OF AVERAGE VALUE OF INVESTMENTS. THEREFORE, WE DIRECT THE AO TO CONSIDER ONLY THOSE INVESTMENTS WHICH YEILD EXEM PT INCOME FOR THE YEAR FOR DISALLOWANCE OF EXPENDITURE. TO SUM UP , THE ISSUE NEEDS TO GO BACK TO THE FILE OF THE LD. AO TO DETER MINE DISALLOWANCES OF EXPENDITURE, IN RELATION TO EXEMPT INCOME U/S 14 A, IN LIGHT OF OUR DISCUSSIONS GIVEN HEREINABOVE AND ACCORDINGLY, WE S ET ASIDE THE ISSUES TO THE FILE OF THE LD. AO AND DIRECT HIM TO RECOMPUTE THE DISALLOWANCES IN ACCORDANCE WITH IN TERMS OF OUR OB SERVATIONS GIVEN HEREINABOVE. ITA NO.5032/MUM/2018 CO.NO.206/MUM/2019 MILI CONSULTANTS AND INVESTMENTS PVT.LTD. 15 17. IN THE RESULT, APPEAL FILED BY THE REVENUE AND CROSS OBJECTION FILED BY THE ASSESSE IS TREATED AS ALLOWED FOR STAT ISTICAL PURPOSE. 18. BEFORE PARTING, WE SHALL DEAL WITH PROCEDURAL A SPECT OF PROUNCEMENT OF ORDER AS PRESCRIBED UNDER RULE 34(4) OF INCOME TAX (APPELLATE TRIBUNAL) RULES 1963. AS PER RULE 34(4), NO ORDER SHALL BE PRONOUNCED AFTER EXPIRY OF 90 DAYS FROM THE DATE OF HEARING. THIS APPEAL WAS HEARD ON 22/01/2020 AND ORDINARILY, THE ORDER SHALL BE PRONOUNCED ON OR BEFORE 20/04/2020. BUT, THIS ORDER COULD NOT BE PRONOUNCED ON OR BEFORE 20/04/2020, DUE TO THE FACT THAT THE GOVT. OF INDIA HAS IMPOSED NATIONWIDE LOCKDOWN FROM 25/03 /2020 AND THE SAME HAS BEEN EXTENDED TIMT TO TIME UP TO 31/05/202 0 AND BECAUSE OF THIS THE OFFICE WAS CLOSED UP TO 21/05/2020. FUR THER, IF THE ABOVE LOCKDOWN PERIOD IS EXCLUED FOR THE PURPOSE OF LIMIT ATION, THEN THE ORDER CAN BE PRONOUNCED ON OR BEFORE 17/06/2020. FU RTHER, WHETHER LOCKDOWN PERIOD CAN BE EXCLUDED OR NOT HAS BEEN EXH ASTIVELY DEALT BY THE CO-ORDINATE BENCH OF ITAT, MUMBAI, IN THE CA SE OF DCIT VS JSW LIMITED, IN ITA NO. 6264/MUM/2018, DATED 14/05/ 2020, WHERE IT WAS HELD THAT DUE TO CORONA VIRUS PANDAMIC, THE PERIOD OF LIMITATION AUTOMATICALLY GETS EXTENDS TILL SUCH PERIOD THE LOC KDOWN IS IN FORCE. WE, THEREFORE, ARE OF THE OPINION THAT CONSIDERING THE PREVAILING SITUATION AND ALSO, BY RESPECTFULLY FOLLOWING THE D ECISION OF CO- ORDINATE BENCH IN THE CASE OF DCIT VS. JSW LIMITED (SUPRA), THE ORDER IS PRONOUNCED WELL WITHIN THE TIME ALLOWED UN DER RULE 34(4) OF INCOME TAX (APPELLATE TRIBUNAL) RULES 1963. ORDER PRONOUNCED AS PER RULE 34(4) THROUGH NOTICED BOARD 12/06/2020 ITA NO.5032/MUM/2018 CO.NO.206/MUM/2019 MILI CONSULTANTS AND INVESTMENTS PVT.LTD. 16 SD/- (SAKTIJIT DEY) SD/- (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 12/06/2020 THIRUMALESH SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//