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2012 (11) TMI 230 - AT - Income TaxDisallowance u/s. 14A - CIT(A) allowed the claim - Held that - No dispute to the fact that the assessee has raised the loan of Rs.297.75 crores up to 97-98 and majority of investment has been made before 97-98 and the assessee had been claimed deduction u/s. 80M. The A.O. in this year had made a disallowance of the interest expenses incurred for the earning the dividend. Whereas the CIT (A) and the Tribunal in particular up to 1996-97 had deleted the disallowance so made along with the deduction u/s.80M on the gross dividend receipt - Though in such a situation, the interest bearing fund are bound to merge that the assessee in capital which is non interest bearing fund. There is no dispute to the fact that the assessee having non interest bearing fund. As decided in Maruti Udhyog Ltd. Vs. DCIT 2004 (10) TMI 278 - ITAT DELHI-A Nexus between the borrowed funds and investments can be said to be established only where it is shown that interest free funds are not available with the assessee. In the present case, there is no nexus of such kind proved by the A.O. thus as per the past history of the assessee, the Department has been taking the view that no expenses including the interest had been attributed to dividend for computing the deduction u/s. 80M - the assessee having non interest bearing fund as mentioned hereinabove and no nexus between borrowed fund and the investment having been established by the Department cannot help the Revenue - in favour of assessee. Long Term Capital gain - share transaction not routed through stock exchange - CIT(A) deleted the addition - Held that - The A.O. had not brought on record any evidence or instruction which prohibits the off market transaction of shares. The assessee has routed these transactions from demat account. There is no prohibition in Income Tax law on such transfers of share. The shares were transferred at the market price on the date of transaction. There was no objection from the transferee that off market transaction is prohibited by the law. It is immaterial whether assessee has paid STT on these transactions or not but capital gain has to be calculated as per the provisions of Income Tax Act. The appellant had sold shares of GSFC to GSIL as per the agreement dated 07th March, 2005. Therefore, the transfer of capital assets had taken place on account of sale - The appellant had received consideration of Rs.69,51,87,840/- & further, the shares were transferred to the depository UTI Security to the buyer. These shares were reflected in the demat account of the buyer. The appellant sold these shares to GSIL which is not a subsidiary company of the appellant. The common factor is that both the appellant as well as GSIL are owned by the Gujarat Government. But as per Company law, both the companies are having legal status under the Companies Act - CIT(A) was correct to delete the addition - in favour of assessee. Inclusion of service charges to income - Held that - While filing the return of income for the assessment year 05-06, the appellant suo moto disallowed the amount towards reversal of service charges income. The claim for deduction of such sum had already been placed for A.Y.04-05. In A.Y. 05-06, this claim has been rejected by the A.O., which was confirmed by the CIT(A) in A.Y. 05-06 because the adjustments have been made in the books for the period of pertaining for A.Y. 05-06 - as similar income has been allowed to be reduced on the basis of real income theory, thus the order of the CIT(A) is confirmed - against assessee. Application of Rule 8D - Held that - As decided in Godrej and Boyce Mfg. Co. Ltd. vs. DCIT 2010 (8) TMI 77 - BOMBAY HIGH COURT Rule 8D is not retrospective and applies from A.Y. 08- 09 and investment in question has not been changed during the year. The A.O. has not brought on record any material / evidence which shows that the investment position has been changed in case of appellant during the year from A.Y. 97-98, when during the year no investment has been made by the appellant - in favour of assessee.
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act, 1961. 2. Addition on account of Long Term Capital Gain. 3. Inclusion of service charges. 4. Disallowance of Long Term Capital Losses. Issue-wise Detailed Analysis: 1. Disallowance under Section 14A of the Income Tax Act, 1961: The Revenue's appeal argued that the CIT(A) erred in deleting the disallowance of Rs. 23,97,98,520/- made under Section 14A. The Assessing Officer (A.O.) had added this amount, reasoning that the assessee had invested Rs. 199.83 crores in shares and paid interest on loans taken for these investments. The A.O. noted that the dividend income from these investments was exempt under Section 10(34) and thus disallowed the interest expenditure proportionate to the investments. The CIT(A) deleted the disallowance, stating that all investments were made before 1997 from own funds and no interest expenses were incurred for these investments. The Tribunal upheld the CIT(A)'s decision, affirming that the assessee had sufficient non-interest-bearing funds and no nexus was established between borrowed funds and investments. 2. Addition on account of Long Term Capital Gain: The Revenue contested the deletion of an addition of Rs. 38,26,20,327/- made on account of Long Term Capital Gain. The A.O. observed that the assessee had shown capital gains and losses, including a significant loss from the sale of GSFC shares in an off-market transaction to Gujarat State Investment Ltd. (GSIL). The A.O. argued that this transaction was a colorable device to avoid tax and not a valid sale as per SEBI regulations. The CIT(A) disagreed, noting that the shares were sold at market price, the transaction was recorded by the company, and there was no prohibition on off-market transactions. The Tribunal upheld the CIT(A)'s decision, stating that the transaction was genuine, and capital gains should be calculated as per the Income Tax Act. 3. Inclusion of service charges: The assessee's cross-objection challenged the inclusion of service charges of Rs. 4,49,95,181/- received from Reliance Industries Ltd. The assessee argued that the scheme for which the charges were received was withdrawn, and thus no services were rendered. The amount was initially accounted for as income in A.Y. 04-05 but was reversed in A.Y. 05-06. The CIT(A) confirmed the A.O.'s decision to include the amount in A.Y. 05-06. However, the Tribunal referred to its earlier decision for A.Y. 04-05, where it allowed the reduction of similar income based on the real income theory and confirmed the CIT(A)'s order for A.Y. 05-06. 4. Disallowance of Long Term Capital Losses: The Revenue's appeal for A.Y. 06-07 challenged the deletion of Rs. 12,56,58,640/- of Long Term Capital Losses. The A.O. disallowed the loss, arguing that the off-market transactions were a means of tax avoidance. The CIT(A) allowed the appeal, stating that off-market transactions are valid, and the loss should be recognized as per the Income Tax Act. The Tribunal upheld the CIT(A)'s decision, noting that there was no prohibition on off-market transactions, and the loss was genuine. Conclusion: The Tribunal dismissed the Revenue's appeals and the assessee's cross-objection while allowing the assessee's appeal for A.Y. 06-07. The Tribunal upheld the CIT(A)'s decisions, emphasizing the genuineness of transactions and the proper application of the Income Tax Act provisions.
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