TaxTMI 
TaxTMI 
2016 (4) TMI 1336
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.... 143(1) of the Income Tax Act, 1961 (in short 'the Act') and the case was subsequently taken up for scrutiny. The assessment was completed under section 143(3) of the Act vide order dated 16.12.2011, wherein the income of the assessee was determined at Rs. 1,33,32,800/- in view of disallowance of Rs. 9,21,062/- under section 14A r.w. Rule 8D. 2.2 Aggrieved by the order of assessment for A.Y. 2009-10 dated 16.12.2011, the assessee preferred an appeal to the CIT(A)-12, Mumbai. The learned CIT(A), vide order dated 27.06.2014, not only dismissed the grounds raised in assessee's appeal with regard to the disallowance under section 14A w.r. Rule 8D, but further went on beyond the grounds raised to direct the Assessing Officer (AO) in the form of observations to verify and disallow loss of Rs. 1,84,10,736/- on derivative transactions as being speculation loss in terms of Explanation to section 73 of the Act after affording the assessee an opportunity of being heard. 3. Both Revenue and the assessee are aggrieved by the order of the CIT(A)-12, Mumbai dated 27.06.2014 and have filed appeals before the Tribunal. Assessee's appeal in ITA No. 5934/Mum/2014 for A.Y. 2009-10 3.1 The ....
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....virtue of section 251(1)(a) of the I.T. Act, to confirm, reduce, enhance or annul the assessment but has no power to set aside an issue not arising from the assessment order to the A.O. for verification." These cross appeals will be disposed off as under in seriatum: - Assessee's appeal in ITA No. 5934/Mum/2014 for A.Y. 2009-10 4. Grounds No. 1A to 1(C) 4.1 In these grounds (supra), the assessee has assailed the impugned order of the learned CIT(A) in confirming the disallowance of Rs. 9,21,062/- made under section 14A of the Act r.w. rule 8D of the IT Rules inspite of the fact that the AO had not given any finding that any expenditure was in fact, incurred by the assessee to earn the exempt income or established that there was any nexus between the expenses incurred and the exempt income. At the outset, the learned A.R. for the assessee brought to the notice of the Bench that this very issue of disallowance under section 14A r.w. rule 8D was considered by a Coordinate Bench of the Tribunal in the assessee's own case for A.Y. 2008-09 and the matter was restored to the file of the AO for reconsideration. It was prayed that in these circumstances the matter be accordingly set as....
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.... perusal of the assessment order reveals that the AO has not followed the guidelines of objective satisfaction as laid down by the hon'ble Bombay high Court in the case of Godrej & Boyce (supra) while making the disallowance. He without recording any reasoning for his dissatisfaction with regard to the working/claim of the assessee, straightway applied Rule 8D against the mandate of the provisions of section 14A of the Income Tax Act. The ld. CIT(A) also ignored the mandate of the provisions of section 14 A, while confirming the disallowance. 7. So keeping in view of the overall facts and circumstances of the case, we restore this issue back to the file of the AO with a direction that the AO will give opportunity to the assessee to place on record all the relevant facts including its accounts and then examine the computation/calculation made in this regard by the assessee having regard to the accounts of the assessee. The AO will be at liberty to call for any record/evidences or statement etc. from the assessee as may be required by him for deciding the issue under consideration. After going through the details provided by the assessee, if the AO will be satisfied with the claim....
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.... to the AO with regard to the loss Rs. 1,84,10,736/- from derivatives (future and options) trading which amounted to enhancement without affording the assessee adequate opportunity of showing cause against such enhancement as provided in section 251(2) of the Act and therefore such directions were not tenable in law. The learned A.R. for the assessee was heard in support of the grounds raised. In support of the proposition that the learned CIT(A) could not enhance income without giving opportunity as provided under section 251(2) of the Act, the learned A.R. for the assessee placed reliance on the decision of the Hon'ble Madras High Court in the case of CIT vs. Lotte India Corporation Ltd. (2007) 290 ITR 248 (Mad). 5.3.1 We have heard both the learned D.R. for Revenue and the learned A.R. for the assessee in the matter and perused and carefully considered the material on record, including the judicial pronouncements cited. At the outset it would be appropriate to mention at this juncture that the learned CIT(A), after dismissing the grounds raised by the assessee in the appeal before him, then proceeded to record the following observation and directions to the AO in the impugn....
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....13] 35 taxmann.com 280 [vide order dated 11.07.2013 in ITA No.94/2013], the Headnote and the relevant portion of findings of which are reproduced hereunder; "Section 43(5), read with section 73, of the Income-tax Act, 1961 - Speculative transactions [Derivatives] - Whether definition of 'speculative transaction' as indicated in section 43(5) is restricted in its application to working out mandate of sections 28 to 41 only - Held, yes - Whether in terms of Explanation to section 73, in case of certain types or classes of companies business of purchase and sale of shares is deemed to be speculation business - Held, yes - Whether where by all accounts derivatives were based on stocks and shares, which fall squarely within Explanation to section 73, loss from sale purchase of such derivative would be speculative loss, which could not be permitted to be carried forward - Held, yes [Paras 7 and 11] [In favour of revenue]" "'The term 'speculative transaction' has been defined only in section 43(5). At the same time, it is qualified that the scope of the definition is restricted in its application to working out the mandate of sections 28 to 41. In terms of the Ex....
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....pparent from the tenor of its language is to deny speculative businesses the benefit of carry forward of lasses. Explanation to section 73 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 computation of business income, derivatives are excluded from the definition of speculative transactions, only underlines that such exclusion is limited for the purpose of those provisions or sections. In the instant case, by all accounts the derivatives are based on stocks and shares, which fall squarely within the Explanation to section 73. Therefore, it is idle to contend that derivatives do not fall within that provision. [Para 11] Therefore, the order passed by the Tribunal was not justified [Para 12]" In view of the above cited decision and also as per provisions of Explanation to Section 73 of the Act, the appellant ought to have treated the said loss of Rs. 1,84,10,736/- as 'speculative loss' and it ought not to have claimed it as a business deduction under any head of expenditure, whether it be 'financial charges'. Thu....
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....) 251 ITR 864 we hold that the learned CIT(A) had no power to issue directions to the AO as done in para 7 of the impugned order (supra) to bring to tax a new source of income, which was not the subject matter of appeal in the order appealed against before him. In this view of the matter, we delete the directions/observations issued by the learned CIT(A) to the AO at para 7 of the impugned order on the issue of verification and disallowing business loss from derivative (futures and options) trading amounting to Rs. 1,84,10,736/-. Accordingly, ground No. 2 of the assessee's appeal is allowed. 5.3.3 The observations and directions of the learned CIT(A) in para 7 of his order (supra) that it is not clear as to how the business loss from derivatives (futures and options) trading amounting to Rs. 1,84,10,736) has been allowed by the AO, expressing his disagreement therewith and further directing the AO to re-examine this issue, in our view, can lead to a possible enhancement of assessment and/or levy of penalty as the case may be. In these circumstances, as contemplated under section 251(2) of the Act, the learned CIT(A), in not affording the assessee reasonable opportunity to show cau....