2017 (6) TMI 914 - AT - Income Tax

Addition made u/s 94(7) - disallowance of loss on sale of shares - assessee has received dividend income and also the claim loss on sale of same shares from which it has received dividend - Held that - There were huge opening balances of shares of GHCL coming from earlier years which were more than 1.40 crore shares and during the year assessee has purchased only 5,65,864 shares. As against such huge holding of GHCL shares, only 16,50,414 of these shares were sold. Thus, prima facie it cannot be reckoned that the loss on sale of GHCL is only on account of the shares which were held for less than period of three months. This aspect has not been examined by the lower authorities. Under these facts and circumstances, we are of the considered opinion that this issue should be restored back to the file of the Assessing Officer who shall examine the details as furnished by the assessee and also examine the conditions as laid down in u/s 94(7) before disallowing the loss. Disallowance u/s 14A - Held that - Neither of the authorities have analysed the assessee s accounts specifically the nature of expenditure debited to the profit & loss account as well as the stocks of shares recorded in the books of account, i.e., whether it is held as stock-in-trade or as investment or as both. When the assessee has demonstrated that the interest bearing funds have been utilized for giving loans and advances on which huge interest income has been earned, then prima facie there could not be any case of disallowance of interest. Similarly with regard to the working of indirect expenditure there are various aspects which needs to be examined to like nature of expenses debited, working of average value of investment, if rule 8D at all is held to be applicable. None of these fact and assessee s nature of accounts have been examined by AO or CIT (A) as per law enshrined in section 14(2). Accordingly, the whole matter regarding disallowance u/s 14A should be restored back to the file of the Assessing Officer to re-examine the claim. Appeal of the assessee is allowed for statistical purposes.

Summary

Issues:
1. Disallowance under section 94(7) of the Income Tax Act, 1961.
2. Disallowance under section 14A of the Income Tax Act, 1961.

Issue 1: Disallowance under section 94(7) of the Income Tax Act, 1961:
The Assessing Officer disallowed a loss on the sale of shares under section 94(7) due to the assessee receiving dividend income from the same shares. The assessee contended that the shares sold were held from earlier years and not within the specified period as per section 94(7). The CIT (Appeals) upheld the disallowance without considering the assessee's submissions on merits. The ITAT Delhi found that the lower authorities did not adequately examine whether the conditions of section 94(7) were met. The case was remanded to the Assessing Officer for a thorough examination of the details provided by the assessee and compliance with section 94(7) conditions.

Issue 2: Disallowance under section 14A of the Income Tax Act, 1961:
The Assessing Officer disallowed expenses under section 14A as the assessee received exempt dividend income without attributing related expenses. The CIT (Appeals) confirmed the disallowance without proper examination of the assessee's submissions. The ITAT Delhi noted that the disallowance exceeded the exempt income and neither authority analyzed the nature of the expenses or the assessee's accounts. The case was remanded to the Assessing Officer to reevaluate the disallowance under section 14A, considering the nature of expenses, accounts maintained by the assessee, and providing an opportunity for the assessee to explain its case.

In conclusion, the ITAT Delhi allowed the assessee's appeal for statistical purposes, remanding both issues back to the Assessing Officer for a detailed examination and compliance with the relevant provisions of the Income Tax Act, 1961.