ITO, Wd-8(1), Kolkata, Kolkata V. M/s Asian Financial Services Ltd., Kolkata

ITA 1513/KOL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91953 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-05-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 18-10-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Transactions in derivatives; Speculation loss; Notional interest; Commercial expediency
• Section: 14A; 43(5); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOLKATA [ BEFORE SHRI P.K.BANSAL , A . M . & SHRI MAHAVIR SINGH , J.M. ] I.T. A . NO. 1513 /KOL/20 12 : ASSESSMENT YEAR 2009 - 10 ITO, WARD - 8(1 ) , KOLKATA - VS - M/S. ASIAN FINANCIAL SERVIC ES LTD. PAN : AACCA 5475A ( APPELLANT ) ( RESPONDENT ) DATE OF CONCLUDING THE HEA RING : 13 . 05 .201 5 DATE OF PRONOUNCING THE ORDER : 22 . 05 .201 5 APPEARANCES : F OR THE APPELLANT : SHRI DILIP KR. MITRA , SR.DR , JCIT : FOR THE RESPONDEN : SHRI R.S.RAY, FCA O R D E R PER SHRI P.K.BANSAL : THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAI NST THE ORDER OF THE CIT(A) - VIII, KOLKATA DATED 12.07.2012 FOR THE ASSESSMENT YEAR 2009 - 10 BY TAKING THE FOLLOWING EFFECTIVE GROU NDS OF APPEAL. 1. THAT, ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(APPEALS) HAS ERRED IN RESTRICTING THE DISALLOWANCE MADE BY THE A.O. U/S.14A READ WITH RULE 8D OF THE INCOME TAX RULES, 1962, TO RS.4,89,937/ - AGAINST THE DISA LLOWANCE OF RS.9,79,873/ - WITHOUT HAVING REGARD TO THE FACT THAT DISALLOWANCE U/S.14A COULD BE MADE ONLY AS PER THE METHOD PROVIDED IN RULE 8D OF THE INCOME TAX RULES, 1962. 2. THAT, ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(APPEALS) HAS ERRED IN FAILING TO CONSIDER THAT THE PROVISIONS OF SECTION 14A READ WITH RULE 8D OF THE INCOME TAX RULES, 1962, DOES NOT PROVIDE ANY SCOPE IN DEVIATING FROM THE 2 I.T.A. NOS. 1513 /KOL/2012 ASIAN FINANCIAL SERVICES LTD. : A.YR. 2009 - 10 METHOD PRESCRIBED IN THE RULE 8D OF THE INCOME TAX RULE, 1962, IN C ALCULATING DISALLOWANCE U/S.14A OF THE INCOME TAX ACT, 1961. 3. THAT, ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(APPEALS) HAS ERRED IN HOLDING THAT THE LOSS OF THE ASSESSEE - COMPANY FROM FUTURE & OPTION (F&O) TRANSACTIONS AS NON - SPECULATIVE LOSS, WITHOUT HAVING REGARD TO THE FACT THAT DERIVATIVE TRANSACTIONS ARE NOT DELIVERY BASED TRANSACTIONS TO BE EXPRESSLY COVERED BY THE PROVISIONS OF SECTION 43(5) OF THE INCOME TAX ACT, 1961. 4. THAT, ON THE FACTS AND IN CIRCUMS TANCES OF THE CASE AND IN LAW, THE CIT(APPEALS) HAS ERRED IN HOLDING THAT THE LOSS OF THE ASSESSEE - COMPANY FROM FUTURE & OPTION (F&O) TRANSACTIONS AS NON - SPECULATIVE LOSS, IGNORING/ WITHOUT HAVING REGARD TO THE FACT THAT THE EXPLANATION TO SECTION 73 OF THE INCOME TAX ACT, 1961 APPLY TO THE LOSS FROM DELIVERY BASED TRANSACTIONS IN SHARES AND, THEREFORE, THIS EXPLANATION APPLIES TO LOSS FROM DERIVATIVE (F&O) TRANSACTIONS AND SUCH LOSS WAS IN THE NATURE OF SPECULATIVE LOSS. 5. THAT, ON THE F ACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.29,50,000/ - MADE BY THE A.O. AS NOTIONAL INTEREST ON ACCOUNT OF INTEREST - FREE LOANS/ADVANCES GIVEN BY THE ASSESSEE - COMPANY WITHOUT HAVING REGARD TO THE FACT THAT COMMERCIAL EXPEDIENCY OR THE BUSINESS PURPOSE OF SUCH ADVANCES WAS NOT ESTABLISHED BY THE ASSESSEE - COMPANY. 2. GROUND NOS.1 AND 2 RELATE TO THE RESTRICTION OF DISALLOWANCE UNDER SECTION 14A TO RS.4,86,108/ - I.E. 50% OF RS.9,72 ,216/ - AS MADE BY THE AO MERELY ON THE BASIS THAT DISALLOWANCE , IN THE OPINION OF THE CIT (A), IS AT MUCH HIGHER SIDE. 3 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CONSIDERED THE SAME . WE NOTED THAT IT IS NOT THE CASE OF THE ASSESSEE THAT THE AO HA S APPLIED RULE 8D, WHILE COMPUTING THE DISALLOWANCE UNDER SECTION 14A WITHOUT COMPLYING 3 I.T.A. NOS. 1513 /KOL/2012 ASIAN FINANCIAL SERVICES LTD. : A.YR. 2009 - 10 W ITH THE PROVISIONS OF SECTION 14 A(2), WHEREAS THE AO HAS COMPLIED W ITH THE PROVISIONS OF SECTION 14 A(2). WE ARE OF THE VIEW THAT THE DISALLOWANCE HAS TO BE MADE IN ACC ORDANCE WITH RULE 8D. THE CIT(A) CANNOT REDUCE THE DISALLOWANCE MERELY ON THE BASIS THAT THE DISALLOWANCE MADE BY THE AO IS ON THE HIGHER SIDE. IT IS NOT THE PLEA OF THE ASSESSEE THAT THE AO HAS NOT RECORDED ANY SATISFACTION BY REJECTING THE CLAIM OF THE A SSESSEE ON THE BASIS OF THE ACCOUNTS MAINTAINED BY THE ASSESSEE. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE ORDER OF THE AO. THUS, THIS ISSUE TAKEN BY THE REVENUE STANDS ALLOWED. 4. GROUND NOS. 3 AND 4 RELATE TO THE DELETION OF ADDIT ION OF RS. 3,24,76,185/ - IN RESPECT OF TRANSACTIONS IN SHARES TREATING THEM BY THE AO AS SPECULATIVE TRANSACTION, AS PER EXPLANATION TO SECTION 73. 5. BRIEF FACTS RELATING TO THESE GROUNDS ARE THAT THE ASSESSEE IS A LIMITED COMPANY INCORPORATED UNDER THE COMPANIES ACT AND THEY ARE CARRYING OUT BUSINESS OF TRADING IN SHARES, COMMISSION AND FINANCIAL ACTIVITIES. THE AO NOTED THAT THE ASSESSEE HAS SET OFF THE LOSS FROM THE SPECULATIVE BUSINESS WITH THE NORMAL BUSINESS INCOME. IN THE OPINION OF THE ASSESSEE, T HE LOSS SET OFF BY THE ASSESSEE FELL UNDER THE DEEMING PROVISIONS OF EXPLANATION TO SECTION 73. THEREFORE, HE APPLIED THE EXPLANATION TO SECTION 73 AND DID NOT ALLOW THE LOSS TO THE ASSESSEE. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). THE CIT(A) DELETE D THE DISALLOWANCE BY OBSERVING AS UNDER: I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS ADVANCED ON BEHALF OF THE APPELLANT. THAT THE APPELLANT COMPANY IS A NON BANKING FINANCE COMPANY DULY REGISTERED WITH THE RESERVE BANK OF IN DIA. DURING THE COURSE OF SCRUTINY VARIOUS DOCUMENTS AND BOOKS OF ACCOUNTS WERE ASKED TO PRODUCE AND 4 I.T.A. NOS. 1513 /KOL/2012 ASIAN FINANCIAL SERVICES LTD. : A.YR. 2009 - 10 COMPLIANCE WERE MADE ACCORDINGLY BY THE APPELLANT. FROM THE RECORDS, IT IS FOUND THAT DURING THE FINANCIAL YEAR 2008 - 09 RELEVANT WITH THE ASST. YEAR 2009 - 1 0, THE APPELLANT ENTERED IN FUTURE & OPTION TRANSACTIONS WITH THE RECOGNIZED STOCK EXCHANGE IN INDIA AND IT INCURRED LOSSES OF RS.3,24,1 85/ - DURING THE FINANCIAL YEAR UNDER CONSIDERATION. THE RELEVANT DOCUMENTS IN REGARD WITH THE TRANSACTIONS ARE ALSO PROD UCED DURING THE ASSESSMENT PROCEEDINGS. THE ASSESSING OFFICER HAS DELVED UPON HIS FINDING ON THE EXPLANATION TO SECTION 73 AND DECIDED THAT THE TRANSACTIONS ARE NOTHING BUT SPECULATIVE BY VIRTUE TO SECTION 73 OF THE INCOME TAX ACT, 1961. ON THE OTHER HAND, FROM THE MATERIAL PLACED ON RECORD, I FIND THAT THE TRANSACTIONS IN SHARES AND SECURITIES CARRIED OUT BY THE APPELLANT COMPANY ARE IN THE FORM OF ELIGIBLE TRANSACTIONS COVERED UNDER CLAUSE (D) OF SUB - SECTION (5) OF SECTION 43 OF THE ACT. ON CAREFUL CONSID ERATION OF THE FACTS, I FIND MERIT IN THE CONTENTIONS OF THE APPELLANT THAT ( I ) THE FINANCE ACT, 2005 HAS AMENDED THE SECTION 43(5) TO PROVIDE THAT AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING IN DERIVATIVES (FUTURE AND OPTION ) SECURITIES CARRIED OUT ON A RECOGNIZED EXCHANGE SHALL NOT BE DEEMED AS SPECULATIVE TRANSACTIONS WITH EFFECT FROM 24/01/2006. ( II ) THE BASIC PRINCIPLE OF THE LEGISLATION WAS TO AVOID LITIGATIONS AND TO REMOVE ANOMALIES IN THE INTERPRETATION OF THE INCOME TAX ACT, 1961. ( III ) THE ASSESSING O FFICER FAILED TO READ CORRECTLY THE CONTRACT NOTES AS BECAUSE THE CONTRACT NOTES OF THE DELIVERY BASED TRANSACTIONS AND FUTURE AND OPTION TRANSACTIONS ARE SIMILAR IN THE NATURE, WHEREIN IN THE FUTURE AND OPTION, IT IS SPECIFICALLY MENTIONED THAT THE TRANS ACTIONS ARE OF FUTURE AND OPTION. IT IS ALSO FOUND THAT IN A SIMILAR CASE, THE INDORE BENCH OF THE TRIBUNAL HELD THAT IN VIEW OF THE CIRCULAR NOTIFYING THE ELIGIBLE EXCHANGE W.E.F. 25.01.2006, THE LOSS SUFFERED THEREAFTER IS NON - SPECULATION LOSS ASST T. CIT VS. INDO THAI SECURITIES LTD. (2010) 16 ITJ 478 (TRIBUNAL - INDORE). IN SHARDA AGRAWAL VS. ASSTT. CIT (2009) 12 ITJ 485 (TRIBUNAL INDORE) IT HAS BEEN HELD THAT THE DEFINITION OF 5 I.T.A. NOS. 1513 /KOL/2012 ASIAN FINANCIAL SERVICES LTD. : A.YR. 2009 - 10 WORD SPECULATIVE TRANSACTION DID NOT CONTAIN DERIVATIVE AND THAT P ROVISO (D) TO SECTION 43(5) ALSO SUPPORTS THAT TRADING IN DERIVATIVE WAS NOT SPECULATIVE. IN THE LIGHT OF THE ABOVE DISCUSSION AND OBSERVATION AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE, I AM OF THE OPINION THAT THE ASSESSING OFFICER WAS NOT JUSTIFI ED IN HOLDING THE TRANSACTIONS AS SPECULATIVE TRANSACTIONS AS PER EXPLANATION TO THE SECTION 73, WHEREAS THE TRANSACTIONS IN QUESTION ARE NOT TO BE TREATED AS SPECULATIVE IN VIEW OF EXPRESS PROVISIONS OF SECTION 43(5) OF THE ACT. THEREFORE, THE ASSESSING O FFICER IS DIRECTED TO TREAT THE LOSS AS BUSINESS LOSS AND ALLOW SET OFF OR CARRY FORWARD FOR SET OFF AS BUSINESS LOSS. THE APPELLANT SHALL GET RELIEF OF RS.3,24,76,185/ - ACCORDINGLY AND THIS GROUND OF APPEAL OF THE APE IS ALLOWED. 6. WE HEARD THE RIVAL S UBMISSIONS AND CAREFULLY CONSIDERED THE SAME ALONG WITH THE ORDERS OF THE TAX AUTHORITIES BELOW. IN OUR OPINION, THE DEFINITION OF THE SPECULATIVE TRANSACTION AS GIVEN UNDER SECTION 43(5) IS RESTRICTED IN ITS APPLICATION TO WORK OUT THE MANDATE OF SECTION S 28 TO 41 . IT ACCOUNTS EXPLANATION TO SECTION 73 IN THE CASE OF THE ASSESSEE. THE AO HAS APPLIED THE EXPLANATION TO SECTION 73. THE CIT(A), BY APPLYING THE PROVISIONS OF SECTION 43(5), TOOK THE VIEW THAT SINCE THE TRANSACTIONS CARRIED OUT BY THE ASSESSEE A RE NOT SPECULATIVE TRANSACTIONS, AS PER THE DEFINITION GIVEN UNDER SECTION 43(5), THEREFORE, THE EXPLANATION TO SECTION 73 WILL NOT APPLY. OUR AFORESAID VIEW IS DULY SUPPORTED BY THE DECISION OF THE HON BLE DELHI HIGH COURT IN THE CASE OF CIT - VS - DLF COMME RCIAL DEVELOPERS LTD. 35 TAXMANN.COM 280 (DELHI), IN WHICH, THE HON BLE HIGH COURT HELD AS UNDER: 7. IT IS APPARENT, FACIALLY, THAT THE TERM 'SPECULATIVE TRANSACTION' HAS BEEN DEFINED ONLY IN SECTION 43 (5). AT THE SAME TIME, IT IS QUALIFIED, I.E. THAT T HE SCOPE OF THE DEFINITION IS RESTRICTED IN ITS APPLICATION TO WORKING OUT THE MANDATE OF SECTIONS 28 TO 41 OF THE ACT. IN TERMS OF THE EXPLANATION TO SECTION 73 (4) IN THE CASE OF A COMPANY, BUSINESS OF PURCHASE AND SALE OF SHARES IS DEEMED TO 6 I.T.A. NOS. 1513 /KOL/2012 ASIAN FINANCIAL SERVICES LTD. : A.YR. 2009 - 10 ITA 94/2013 PAGE 8 BE SPECULATION BUSINESS. HOWEVER, CERTAIN COMPANIES ARE EXCLUDED FROM THIS EXPLANATION WHICH ARE: (I) A COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS 'INTEREST ON SECURITIES', 'INCOME FROM HOUSE PR OPERTY', 'CAPITAL GAINS' AND 'INCOME FROM OTHER SOURCES'. (II) A COMPANY, THE PRINCIPAL BUSINESS OF WHICH IS THE BUSINESS OF BANKING OR THE GRANTING OF LOANS AND ADVANCES. 8. SECTION 43 DEFINES, FOR THE PURPOSE OF SECTIONS 28 TO 41, CERTAIN TERMS. THE SE LATTER PROVISIONS FALL IN CHAPTER IV, IN SECTION D, WHICH DEAL WITH COMPUTATION OF BUSINESS INCOME. THE SAID PROVISIONS PROVIDE FOR MATTERS RELATING TO COMPUTATION OF SUCH INCOME, RENT TAXES, INSURANCE OF BUILDINGS, REPAIRS OF PLANT AND MACHINERY, DEPRE CIATION, RESERVES FOR SHIPPING BUSINESS, REHABILITATION FUND, EXPENDITURE ON CERTAIN ELIGIBLE OBJECTS OR SCHEMES, DEDUCTIONS, AMOUNTS NOT DEDUCTIBLE, PROFITS CHARGEABLE TO TAX, ETC. THE ASSESSEE IS NO DOUBT CORRECT IN CONTENDING THAT THE ONLY DEFINITION OF DERIVATIVES IS TO BE FOUND IN SECTION 43 (5); YET THE COURT CANNOT IGNORE OR OVERLOOK THAT THE DEFINITION - TO THE EXTENT IT EXCLUDES SUCH TRANSACTIONS FROM THE MISCHIEF OF THE EXPRESSION 'SPECULATIVE TRANSACTIONS' IS CONFINED IN ITS APPLICATION. PARLIAME NTARY INTENDMENT THAT SUCH TRANSACTIONS ARE ALSO EXCLUDED FROM THE MISCHIEF OF EXPLANATION TO SECTION 73 (4), HOWEVER, IS NOT BORNE OUT. 9. IN THIS CONTEXT, IT WOULD BE INSTRUCTIVE TO NOTICE THAT IN RAJSHREE SUGARS AND CHEMICALS LTD (SUPRA), THE MADRAS H IGH COURT NOTICED, RATHER DRAMATICALLY, THA T ..'DERIVATIVES ARE TIME BOMBS AND FINANCIAL WEAPONS OF MASS DESTRUCTION' SAID WARREN BUFFETT, ONE OF THE WORLD'S GREATEST INVESTORS, WHO OVERTOOK MICROSOFT MAESTRO IN 2008 TO BECOME THE RICHEST MAN IN THE WORLD AND WHO IS KNOWN AS THE 'SAGE OF OMAHA OR ORACLE OF OMAHA'. DERIVATIVES, ACCORDING TO HIM, CAN PUSH COMPANIES ON TO A SPIRAL THAT CAN LE AD TO A CORPORATE MELT DOWN.... THE HIGH COURT THEN, AFTER EXAMINING THE NATURE AND CHARACTERISTICS OF DERIVATIVES TRA NSACTIONS, OBSERVED THAT: 7 I.T.A. NOS. 1513 /KOL/2012 ASIAN FINANCIAL SERVICES LTD. : A.YR. 2009 - 10 5. WHAT ARE THESE 'DERIVATIVES' WHICH HAVE GAINED SUCH A GREAT DEAL OF NOTORIETY? IN SIMPLE TERMS, DERIVATIVES ARE FINANCIAL INSTRUMENTS WHOSE VALUES DEPEND ON THE VALUE OF OTHER UNDERLYING FINANCIAL INSTRUMENTS. THE INTERNA TIONAL ACCOUNTING STANDARD (IAS) 39, DEFINES 'DERIVATIVES' AS FOLLOWS: A DERIVATIVE IS A FINANCIAL INSTRUMENT: (A) WHOSE VALUE CHANGES IN RESPONSE TO THE CHANGE IN A SPECIFIED INTEREST RATE, SECURITY PRICE, COMMODITY PRICE, FOREIGN EXCHANGE RATE, IN DEX OF PRICES OR RATES, A CREDIT RATING OR CREDIT INDEX, OR SIMILAR VARIABLE (SOMETIMES CALLED THE 'UNDERLYING'); (B) THAT REQUIRES NO INITIAL NET INVESTMENT OR LITTLE INITIAL NET INVESTMENT RELATIVE TO OTHER TYPES OF CONTRACTS THAT HAVE A SIMILAR RESPO NSE TO CHANGES IN MARKET CONDITIONS; AND (C) THAT IS SETTLED AT A FUTURE DATE. ACTUALLY, DERIVATIVES ARE ASSETS, WHOSE VALUES ARE DERIVED FROM VALUES OF UNDERLYING ASSETS. THESE UNDERLYING ASSETS CAN BE COMMODITIES, METALS, ENERGY RESOURCES, AND FIN ANCIAL ASSETS SUCH AS SHARES, BONDS, AND FOREIGN CURRENCIES . 10. IT IS NO DOUBT, TEMPTING TO HOLD THAT SINCE THE EXPRESSION 'DERIVATIVES' IS DEFINED ONLY IN SECTION 43 (5) AND SINCE IT EXCLUDES SUCH TRANSACTIONS FROM THE ODIUM OF SPECULATIVE TRANSACTION S, AND FURTHER THAT SINCE THAT HAS NOT BEEN EXCLUDED FROM SECTION 73, YET, THE COURT WOULD BE DOING VIOLENCE TO PARLIAMENTARY INTENDMENT. THIS IS BECAUSE A DEFINITION ENACTED FOR ONLY A RESTRICTED PURPOSE OR OBJECTIVE SHOULD NOT BE APPLIED TO ACHIEVE OTHER ENDS OR PURPOSES. DOING SO WOULD BE CONTRARY TO THE STATUTE. THUS CONTEXTUAL APPLICATION OF A DEFINITION OR TERM IS STRESSED; WHEREVER THE CONTEXT AND SETTING OF A PROVISION INDICATES AN INTENTION THAT AN EXPRESSION DEFINED IN SOME OTHER PLACE IN THE ENAC TMENT, CANNOT BE APPLIED, THAT INTENT PREVAILS, REGARDLESS OF WHETHER STANDARD EXCLUSIONARY TERMS (SUCH AS 'UNLESS THE CONTEXT OTHERWISE REQUIRES') ARE USED. IN THE VANGUARD FIRE & GENERAL 8 I.T.A. NOS. 1513 /KOL/2012 ASIAN FINANCIAL SERVICES LTD. : A.YR. 2009 - 10 INSURANCE CO. L TD., MADRAS V. M/S. FRASER AND ROSS & ANR AIR 1960 SC 971 IT WAS HELD THAT: IT IS WELL SETTLED THAT ALL STATUTORY DEFINITIONS OR ABBREVIATIONS MUST BE READ SUBJECT TO THE QUALIFICATION VARIOUSLY EXPRESSED IN THE DEFINITION CLAUSES WHICH CREATED THEM AN D IT MAY BE THAT EVEN WHERE THE DEFINITION IS EXHAUSTIVE INASMUCH AS THE WORD DEFINED IS SAID TO MEAN A CERTAIN THING, IT IS POSSIBLE FOR THE WORD TO HAVE A SOMEWHAT DIFFERENT MEANING IN DIFFERENT SECTIONS OF THE ACT DEPENDING UPON THE SUBJECT OR THE CONTE XT. THAT IS WHY ALL ITA 94/2013 PAGE 11 DEFINITIONS IN STATUTES GENERALLY BEGIN WITH THE QUALIFYING WORDS SIMILAR TO THE WORDS USED IN THE PRESENT CASE, NAMELY, UNLESS THERE IS ANYTHING REPUGNANT IN THE SUBJECT OR CONTEXT. THEREFORE IN FINDIN G OUT THE MEAN ING OF THE WORD 'INSURER ' IN VARIOUS SECTIONS OF THE ACT, THE MEANING TO BE ORDINARILY GIVEN TO IT IS THAT GIVEN IN THE DEFINITION CLAUSE. BUT THIS IS NOT INFLEXIBLE AND THERE MAY BE SECTIONS IN THE ACT WHERE THE MEANING MAY HAVE TO BE DEPARTED FROM ON ACC OUNT OF THE SUBJECT OR CONTEXT IN WHICH THE WORD HAS BEEN USED AND THAT WILL BE GIVING EFFECT TO THE OPENING SENTENCE IN THE DEFINITION SECTION, NAMELY, UNLESS THERE IS ANYTHING REPUGNANT IN THE SUBJECT OR CONTEXT. IN VIEW OF THIS QUALIFICATION, THE COURT HAS NOT ONLY TO LOOK AT THE WORDS BUT ALSO TO LOOK AT THE CONTEXT, THE COLLOCATION AND THE OBJECT OF SUCH WORDS RELATING TO SUCH MATTER AND INTERPRET THE MEANING INTENDED TO BE CONVEYED BY THE USE OF THE WORDS UNDER THE CIRCUMSTANCES. SIMILARLY, IN N.K. JAIN AND ORS. V C.K. SHAH AND ORS. AIR 1991 SC 1289, IT WAS HELD THAT: 4. THE SUBJECT MATTER AND THE CONTEXT IN WHICH A PARTICULAR WORD IS USED ARE OF GREAT IMPORTANCE AND IT IS AXIOMATIC THAT THE OBJECT UNDERLYING THE ACT MUST ALWAYS BE KEPT IN VIEW IN CONSTRUING THE CONTEXT IN WHICH A PAR TICULAR WORD IS USED........... 9 I.T.A. NOS. 1513 /KOL/2012 ASIAN FINANCIAL SERVICES LTD. : A.YR. 2009 - 10 11. THE STATED OBJECTIVE OF SECTION 73 - APPARENT FROM THE TENOR OF ITS LANGUAGE IS TO DENY SPECULATIVE BUSINESSES THE BENEFIT OF CARRY FORWARD OF LOSSES. EXPLANATION TO SECTION 73 (4) HAS BEEN ENACTED TO CLARIFY BEYOND ANY SHADOW OF DOUBT THAT SHARE BUSINESS OF CERTAIN TYPES OR CLASSES OF COMPANIES ARE DEEMED TO BE SPECULATIVE. THAT IN ANOTHER PART OF THE STATUTE, WHICH DEALS WITH ITA 94/2013 PAGE 12 COMPUTATION OF BUSINESS INCOME, DERIVATIVES ARE EXCLUDED FROM THE DEFINITION OF SPECULATIVE TRANSACTIONS, ONLY UNDERLINES THAT SUCH EXCLUSION IS LIMITED FOR THE PURPOSE O F THOSE PROVISIONS OR SECTIONS. TO BORROW THE MADRAS HIGH COURT'S EXPRESSION, DERIVATIVES ARE ASSETS, WHOSE VALUES A RE DERIVED FROM VALUES OF UNDERLYING ASSETS ; IN THE PRESENT CASE, BY ALL ACCOUNTS THE DERIVATIVES ARE BASED ON STOCKS AND SHARES, WHICH FALL SQUARELY WITHIN THE EXPLANATION TO SECTION 73 (4). THEREFORE, IT IS IDLE TO CONTEND THAT DERIVATIVES DO NOT FALL W ITHIN THAT PROVISION, WHEN THE UNDERLYING ASSET ITSELF DOES NOT QUALIFY FOR THE BENEFIT, AS THEY (DERIVATIVES - ONCE REMOVED FROM IT AND ENTIRELY DEPENDENT ON STOCKS AND SHARES, FOR DETERMINATION OF THEIR VALUE). 12. IN THE LIGHT OF THE ABOVE DISCUSSION , IT IS HELD THAT THE TRIBUNAL ERRED IN LAW IN HOLDING THAT THE ASSESSEE WAS ENTITLED TO CARRY FORWARD ITS LOSSES; THE QUESTION FRAMED IS ANSWERED IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. THE APPEAL IS, THEREFORE, ALLOWED; THERE SHALL BE NO ORDER AS TO COSTS. 6.1 THE LD. AR BEFORE US COULD NOT BRING TO OUR KNOWLEDGE ANY CONTRARY DECISION WHICH HAD A VIEW CONTRARY TO THE AFORESAID DECISION OF THE HON BLE DELHI HIGH COURT. WE, THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE HON BLE DELHI HIG H COURT, SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND RESTORE THE ORDER OF THE AO. THUS, THESE GROUNDS OF THE REVENUE STAND ALLOWED. 7. GROUND NO.5 RELATES TO THE DELETION OF ADDITION OF RS.29,50,000/ - TOWARDS THE NOTIONAL INTEREST. BRIEF FACTS RE LATING TO THIS GROUND ARE THAT THE ASSESSEE COMPANY ADVANCED A SUM OF RS.13,50,00,000/ - TO ONE M/S. AARHAT 10 I.T.A. NOS. 1513 /KOL/2012 ASIAN FINANCIAL SERVICES LTD. : A.YR. 2009 - 10 INVESTMENTS FOR THE PURCHASE OF BONDS AND SHARES, WHICH FIRM FAILED TO EXECUTE THE PURCHASE. THE AO CALCULATED THE NOTIONAL INTEREST OF RS.29,50,000/ - AND ADDED THE SAME IN THE INCOME OF THE ASSESSEE. WHEN THE MATTER WENT BEFORE THE CIT(A), THE CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER: I HAVE PERUSED THE RECORDS AND GONE THROUGH THE ARGUMENTS ADVANCED. INCOME - TAX ACT DOES NOT PROVIDE FOR CHA RGING INTEREST ON ADVANCES GIVEN. ON THE OTHER HAND, AS PER RATIO LAID DOWN IN THE CASE OF S.A. BUILDERS LTD. V. CIT (APPEALS) [2007] 288 ITR 1, IN ORDER TO DECIDE WHETHER INTEREST ON FUNDS BORROWED BY THE ASSESSEE TO GIVE AN INTEREST FREE LOAN SHOULD BE ALLOWED AS A DEDUCTION UNDER SECTION 36(1)(III) OF THE ACT, ONE HAS TO ENQUIRE WHETHER THE LOAN WAS GIVEN BY THE ASSESSEE AS A MEASURE OF COMMERCIAL EXPEDIENCY. THE EXPENDITURE MAY NOT HAVE BEEN INCURRED UNDER ANY LEGAL OBLIGATION, BUT IT IS ALLOWABLE AS B USINESS EXPENDITURE IF IT WAS INCURRED ON GROUNDS OF COMMERCIAL EXPEDIENCY. FOR THE PURPOSE OF BUSINESS IN CLUDES EXPENDITURE VOLUNTARILY INCU RRED FOR COMMERCIAL EXPEDIENCY, AND IT IS IMMATERIAL IF A THIRD PARTY ALSO BENEFITS THEREBY. THAT THE BORROWED AM OUNT I S NOT UTILIZED BY THE ASSESSEE IN ITS OWN BUSINESS BUT HAD BEEN ADVANCED AS INTEREST FREE LOAN TO ITS SISTER CONCERN IS NOT RELEVANT. CONVERSELY, THERE SHOULD HAVE BEEN A FINDING THAT BORROWED CAPITAL HAD BEEN ADVANCED TO A SISTER CONCERN OR OTHER PA RTY FOR NON - BUSINESS CONSIDERATIONS TO WORK NOTIONAL INTEREST AND DISALLOW THE SAME OUT OF INTEREST PAYMENTS CLAIMED BY AN ASSESSEE. THIS IS NOT THE CASE OF THE ASSESSING OFFICER. IN THIS BACK - GROUND, I AM OF THE OPINION THAT THERE IS NO MERIT IN THE ADDIT ION OF RS.29,50,000/ - MADE BY THE ASSESSING OFFICER. THE SAME IS NOT JUSTIFIED. THEREFORE, THE ADDITION SO MADE IS HEREBY DELETED. THE APPELLANT GETS A RELIEF OF LIKE AMOUNT ACCORDINGLY. 8. WE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CONSIDERED THE SAME ALONG WITH THE ORDERS OF THE TAX AUTHORITIES BELOW. THE INCOME UNDER THE INCOME TAX ACT IS LEVIABLE, AS PER THE PROVISIONS OF SECTION 4 ON THE REAL INCOME. THIS 11 I.T.A. NOS. 1513 /KOL/2012 ASIAN FINANCIAL SERVICES LTD. : A.YR. 2009 - 10 IS NOT A CASE OF THE AO TO DISALLOW THE INTEREST CLAIMED BY THE ASSESSEE AS DEDUCTION. UNTIL A ND UNLESS THE INCOME HAS BEEN RECEIVED OR ACCRUED TO THE ASSESSEE, IT CANNOT BE REGARDED TO BE THE INCOME OF THE ASSESSEE. INCOME - TAX IS LEVIABLE ON THE REAL INCOME. ONUS IS ON THE REVENUE TO PROVE THAT THE ASSESSEE HAS EARNED THE INCOME. ON THE CONTRARY, ONUS IS ON THE ASSESSEE WHEN THE ASSESSEE CLAIMED THAT AN INCOME IS EXEMPT FROM TAX. IT IS A CASE WHERE THE AO HAS ADDED THE INTEREST ASSUMING AS IF THE ASSESSEE HAS EARNED THE INCOME. BEFORE US, THE LD. DR EVEN THOUGH VEHEMENTLY RELIED ON THE ORDER OF THE AO BUT COULD NOT ADDUCE ANY EVIDENCE THAT ANY REAL INCOME HAS BEEN RECEIVED BY THE ASSESSEE BY WAY OF INTEREST ON THAT COUNT. WE, THEREFORE, CONFIRM THE ORDER OF THE CIT(A) DELETING THE ADDITION. THUS, GROUND NO.5 OF THE REVENUE IS DISMISSED. 9 . IN THE RE SULT, THE APPEAL FILED BY T HE REVENUE IS PARTLY ALLOWED . THIS ORDE R IS PRONOUNCED IN THE OPEN C OURT ON 22 MAY , 2015 . SD/ - SD/ - ( MAHAVIR SINGH ) (P. K. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 22 MAY , 2015 TALUKDAR(SR.P.S.) COPY OF THE ORDER FORWARDED TO: , 1 . M/S. ASIAN FINANCIAL SERVICES LTD., 1 ST FLOOR, ROOM NO.104, VINAYAK CHAMBER, 10A, HOSPITAL STREET, WELLINGTON, KOLKATA 700 072 2. ITO, WARD - 8(1 ) , KOLKATA 3 . THE CIT(A), KOLKATA 4. CIT, KOLKATA 5 . DR, KOLKATA BENCHES, KOLKATA TRUE COPY, BY ORDER, ASSTT. REGISTRAR , ITAT, KOLKATA 12 I.T.A. NOS. 1513 /KOL/2012 ASIAN FINANCIAL SERVICES LTD. : A.YR. 2009 - 10