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2013 (6) TMI 534 - AT - Income TaxDisallowance u/s 14A - CIT(A) restricted it to 1% only - Held that - As on the issue of disallowance u/s. 14A, this Bench of the Tribunal has been taking a consistent view that this disallowance should be restricted to 1% of dividend income. Following the same, in this appeal also we hold that the disallowance u/s 14A for earning exempt dividend income should be restricted to 1% of dividend income. Disallowance u/s. 94(7) - assessee has only challenged disallowance of loss in respect of transfer of units of Pru. ICICI Power Fund on the ground that all the three conditions as laid down in section 94(7) are not satisfied in this transaction - Held that - In respect of Pru. ICICI Power Fund the units were purchased on 11.7.2003 and date of dividend was 24.10.2003 and 26.12.2003, therefore, the first condition as laid down in clause (a) of Sec. 94(7) that the units be purchased or acquired within a period of three months prior to the record date is not satisfied. Therefore, following the ratio of Income Tax Officer Vs. Shambhu Mercantile Ltd. (2008 (2) TMI 467 - ITAT DELHI-I) for application of sub-section 7 of section 94 all the three conditions mentioned in clauses (a), (b) and (c) thereof must be cumulatively satisfied., thus the provisions of section 94(7) are not attracted in respect of this transaction and, therefore, the authorities below are not justified to disallow the claim of the assessee in respect of loss suffered by him on sale of units of Pru. ICICI Power fund as no contrary decision was cited by the DR. In favour of assessee.
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act. 2. Disallowance under Section 94(7) of the Income Tax Act. 3. Confirmation of disallowance of expenses related to the calculation of Capital Gain. Issue-wise Detailed Analysis: 1. Disallowance under Section 14A of the Income Tax Act: The primary issue concerns the disallowance under Section 14A of the Income Tax Act as per the calculation of Rule 8D. The assessee contended that Rule 8D, which came into effect from Assessment Year 2008-09, should not apply to the Assessment Year 2005-06. The assessee argued that no specific expenditures were incurred to earn the dividend income, and thus, the disallowance was uncalled for. The CIT(A) directed the Assessing Officer to apply Rule 8D, despite the assessee's contention that Rule 8D was not applicable for the relevant assessment year. The Tribunal, following its consistent view, held that the disallowance under Section 14A should be restricted to 1% of the dividend income. Consequently, the Assessing Officer was directed to work out the quantum of disallowance accordingly. This ground of appeal was allowed in favor of the assessee. 2. Disallowance under Section 94(7) of the Income Tax Act: The second issue pertains to the disallowance of Rs. 75,505 under Section 94(7). The assessee argued that the provisions of Section 94(7) were not applicable as the mutual fund units were acquired beyond three months from the record date. The Assessing Officer disallowed the loss of Rs. 1,03,842.17 on the ground that the transactions were within the purview of Section 94(7). The CIT(A) confirmed this disallowance. The Tribunal examined the conditions under Section 94(7) and found that for one set of units of Prudential ICICI Power Fund, the first condition (purchase within three months prior to the record date) was not satisfied. Citing the judgment in the case of Income Tax Officer vs. Shambhu Mercantile Ltd., which held that all three conditions under Section 94(7) must be cumulatively satisfied, the Tribunal concluded that the provisions of Section 94(7) were not applicable for the relevant transaction. Thus, the disallowance of Rs. 77,505.49 was not justified, and this ground of appeal was allowed in favor of the assessee. 3. Confirmation of Disallowance of Expenses Related to the Calculation of Capital Gain: The third issue involves the confirmation of disallowance of certain expenses incurred on account of calculating the Capital Gain. The assessee argued that expenses such as demat charges, brokerage, and portfolio charges aggregating to Rs. 1,18,484.93 should be considered as part of the cost of investments. However, this specific issue was not elaborated upon in the provided judgment text, and thus, no detailed analysis or conclusion was provided by the Tribunal in the provided document. Conclusion: The Tribunal allowed the appeal of the assessee on the grounds of disallowance under Section 14A and Section 94(7), directing appropriate adjustments by the Assessing Officer. The order was pronounced in the open court on 24.9.10.
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