2019 (7) TMI 355 - AT - Income Tax

Addition u/s 14A r.w.r. 8D - Addition of PPF Interest - According to the assessee, she has made investment in PPF account after receiving maturity amount earlier invested - HELD THAT - To our mind the assessee has demonstrated the source of fund and no disallowance is required on account of administrative expenses for managing PPF account. Therefore, addition to the extent of ₹ 29,989/- deserves to be deleted. We delete accordingly. Addition of Dividend income - Contentions of the assessee is that she has capital out of which it can be alleged that she made investment - HELD THAT - Proprietor s capital has been shown at ₹ 42,08,954/- as on 31.3.2012, but her investments are more than this. Her total investment was at ₹ 1,33,52,645/-. Against immovable properties she has shown investment of ₹ 9,98,150/-. Now what are these immovable properties, is not ascertainable, and what is the source of these, is also not identifiable. Her interest free fund is far less than the investment, and therefore, AO has rightly haboured a belief that interest expenses required to be calculated on the investment made by the assessee. One of the arguments raised by the assessee before the ld.Revenue authorities was that since she was in the business of trading in shares and securities, therefore, no disallowance out of interest expenditure is to be made. This aspect has been settled in the decision of Hon ble Bombay High Court in the case of Godrej Boyce vs. CIT 2010 (8) TMI 77 - BOMBAY HIGH COURT as well as in the case of Maxopp Investment Ltd v/s CIT 2018 (3) TMI 805 - SUPREME COURT that if the assessee has been trading in shares and earned incidental income on such trading in the shape of dividend then also expenses relatable to exempt income are required to be calculated and disallowed. For Asstt.Year 2012-13, we allow the appeal of the assessee partly and confirm the disallowance at ₹ 46,625/-. As far as Asstt.Year 2014-15 - assessee failed to give any plausible explanation as to how the expenses are not required to be disallowed. CIT(A) has examined this issue in detail. She has made investment in the mutual fund to the extent of ₹ 94,54,500/- in the financial year 2013-14. She has failed to show that such investment was made out of interest free funds. AO has rightly worked out the disallowance under section 14A. The only amount which requires to be excluded is allowance of ₹ 9600/- which has been received by the assessee as transport allowance. Appeals of the assessee are partly allowed.

Summary

Issues:
Challenging addition under section 14A of the Income Tax Act for Asstt. Years 2012-13 and 2014-15.

Analysis:
1. Common Facts: The Assessee, an individual, derived income from trading in shares, securities, derivative transactions, and salary in the relevant years. The AO noted investments in shares, PPF account, and exempt income like dividend and interest.

2. Asstt. Year 2012-13: The Assessee objected to the addition of PPF interest and dividend income. She argued that PPF investment was made from maturity amount, demonstrating the source of funds. The Tribunal agreed and deleted the addition of PPF interest but confirmed the addition of dividend income due to insufficient explanation on investments.

3. Asstt. Year 2014-15: The Assessee earned transport allowance, claimed as exempt income under section 10(14)(ii). However, the AO disallowed expenses related to investments in mutual funds. The Tribunal partially allowed the appeal, restricting the disallowance to &8377; 75,255, excluding the transport allowance.

4. Legal Precedents: The Tribunal referenced legal decisions like Godrej & Boyce vs. CIT and Maxopp Investment Ltd v/s CIT to justify disallowing expenses related to exempt income, even in cases of trading in shares. The Tribunal upheld the disallowance based on the nature of investments and the source of funds.

5. Conclusion: The Tribunal partially allowed both appeals, deleting the addition of PPF interest for Asstt. Year 2012-13 but confirming the disallowance of dividend income. For Asstt. Year 2014-15, the disallowance was restricted to &8377; 75,255, excluding the transport allowance. The judgments were pronounced on 5th July 2019 at Ahmedabad by the ITAT Ahmedabad.