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TMI Blog2011 (5) TMI 652X X X X Extracts X X X X X X X X Extracts X X X X ..... oth the sides. In respect of consultancy charges - The Assessing Officer will verify that whether these are paid in connection with income-tax matter in that event the Assessing Officer is directed to allow. Further in respect of interest expenses the the matter is restored back to the file of the Assessing Officer to quantify the extent of the disallowance keeping in view provisions of Section 14A(1). Appeals filed by the assessees are partly allowed for statistical purposes. - I.T.A. No. 1752/Ahd./2009 I.T.A. No. 1753/Ahd./2009, I.T.A. No. 1754/Ahd./2009, I.T.A. No. 1755/Ahd./2009, I.T.A. No. 1756/Ahd./2009 - - - Dated:- 6-5-2011 - Shri T.K. Sharma, Shri A.N.Pahuja, JJ. Appellant by : Shri S.N.Soparkar, A.R. Respondent by : Shri R.K.Dhanesta, D.R O R D E R Per Bench : These appeals filed by different assessees are against the separate orders of various dates passed by the Learned Commissioner of Income Tax (Appeals)-XVI, Ahmedabad for the assessment years 2004-05 and 2005-2006, as the case may be in respect of different appeals. As all these appeals were heard on the same day and argued by the common representative, therefore, these are decided by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n facts and circumstances of the Appellant s case, the learned CIT(A) has grossly erred in holding that charging of interest u/s.234B is consequential. 5. In law and in facts and circumstances of the Appellant s case, the learned CIT(A) has grossly erred in holding that charging of interest u/s.234C is consequential 2.3 Various grounds raised in ITA No. 1755/Ahd./2009 for the assessment year 2005-06 by the assessee Harsidh Specific Family Trust are as under: 1. In law and in facts and circumstances of the Appellant s case, the learned CIT(A) has grossly erred in points of law and facts. 2. In law and in facts and circumstances of the Appellant s case, the learned CIT(A) has grossly erred in confirming disallowance of Rs.2,90,000 out of consultation expenses, rent expenses Rs.4,000 and accounting charges Rs.10,00,000. 3. In law and in facts and circumstances of the Appellant s case, the learned CIT(A) has grossly erred in holding that charging of interest u/s.234B is consequential. 4. In law and in facts and circumstances of the Appellant s case, the learned CIT(A) has grossly erred in holding that charging of interest u/s.234D is consequential. 5. In l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In law and in facts and circumstances of the Appellant s case, the learned CIT(A) has grossly erred in holding that charging of interest u/s.234B is consequential. 4. In law and in facts and circumstances of the Appellant s case, the learned CIT(A) has grossly erred in holding that charging of interest u/s.234D is consequential. 2.7 Various grounds raised in ITA No. 1976/Ahd./2009 for the assessment year 2004-05 by the assessee Shiva Specific Family Trust are as under: 1. In law and in facts and circumstances of the Appellant s case, the learned CIT(A) has grossly erred in points of law and facts. 2. In law and in facts and circumstances of the Appellant s case, the learned CIT(A) has grossly erred in confirming disallowance of interest expenses Rs.25,37,280. 3. In law and in facts and circumstances of the Appellant s case, the learned CIT(A) has grossly erred in confirming disallowance of Rs.2,50,000 out of accounting charges and consultation fees Rs.1,00,000. 4. In law and in facts and circumstances of the Appellant s case, the learned CIT(A) has grossly erred in holding that not issuing refund of Rs.5,69,000 is consequential. 3. Ground no.1 of al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.1 I have considered the submissions of the appellant and perused the assessment order. To claim the benefit of indexation or not is the choice and option at the appellant. If it is beneficial to take the benefit of indexation, then the appellant would opt for this option for indexation otherwise not. In this case the appellant has opted for the benefit of indexation wherever there was long term capital loss and wherever, there was long term capital gain, the appellant did not opt for the benefit of indexation. The long term capital loss was then set off against the long term capital gain. By not following uniform method of indexation, the long term capital gain was reduced by the appellant to the extent at Rs. 7,19,407/-. In my opinion, though there is an option available with the appellant to take the benefit of indexation or not, uniform method of indexation has to be followed by him in respect of all the securities. Proviso to section 112 (which prescribes the tax on long term capital gain) says that - " Provided that wherever the tax payable in respect of any income arising from the transfer of a long term capital asset, being listed securities or unit or zero coupon bond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we have carefully gone through the orders of the authorities below as well as the decision of ITAT Mumbai Bench B in the case of Mohanlal N. Shah (HUF) (supra), relied on by the Counsel of the assessee. In this decision, ITAT Mumbai B Bench, has followed the decision of the Hon'ble Delhi Bench of ITAT in the case of Devinder Prakash Kalra vs- ACIT [2006] 151 Taxman 17 (Mag.) wherein it was held that section 112 is not only a beneficial provision but is also mandatory provision and if several transactions have taken place by way of sale of shares, the assessee can avail of the benefit of indexation in a few transactions and avail of 10% tax rate in the remaining transactions. We are, therefore, following the decisions of ITAT Mumbai B bench and Delhi Bench of ITAT (supra), set aside the order of the Learned Commissioner of Income Tax(Appeals) on this issue and direct the Assessing Officer to verify the working of capital gains submitted by the assessee. In case, it is in accordance with the ratio of decision of the aforesaid two Tribunal decisions, in that event, the Assessing Officer is directed to accept the capital gains, as declared by the assessee. Resultantly, this gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Management Services Pvt. Ltd. cannot be allowed. It was also observed that details of services rendered by Nirma Management Services Pvt. Ltd. was not furnished before him. 11. On appeal before the Learned Commissioner of Income Tax(Appeals), the assessee filed written submission dated 28.01.2009, which reads as under: "The contentions of the ld. A.O. is incorrect and improper. The appellant has claimed as deduction Rs. 10,00,000 against income from other sources. The appellant had taken services of Nirma Management Services Pvt. Ltd. and paid service charges of Rs.10,00,000. The appellant had Banking transactions 153 and Journal and other transactions 165 aggregating to 316 transactions. Nirma Management Services Pvt. Ltd. was assigned the work of accounting and banking related transactions. Appellant had total assets of Rs.85,37,25,671. The copy of the accounts for the current Asst.Year: 2004-05 is enclosed herewith marked Annexure F. Looking to the volume of assets and the transactions under the head income from other sources, the expenses of Rs. 10,00,000 are reasonable and allowable u/s.57(iii) of Income-tax Act. The appellant had earned substantial income by way of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contained in section 40A(2) are not attracted. The Counsel of the assessee further pointed out that looking to the services rendered by Nirma Management Services Pvt. Ltd., the accounting charges and consultation charges, both are neither excessive nor unreasonable. Therefore, the Assessing Officer be directed to allow the entire expenses. 13. On the other hand, Shri R. K. Dhanesta, D.R., appearing on behalf of the Revenue, vehemently supported the order of the Learned Commissioner of Income Tax(Appeals). He pointed out that in the case of Kisan Discretionary Family Trust in ITA No.1966/A/2007 for the assessment year 2003-04, the disallowance is confirmed by the Tribunal. Therefore, the Assessing Officer can examine the reasonableness of the expenditure. Looking to the fact that the income derived by various assessees in this bunch of appeals is from interest and dividend, which is assessable under the head other sources and capital gain , disallowance made is fair and reasonable. Therefore, the view taken by the Learned Commissioner of Income Tax(Appeals) be upheld. 14. Having heard both the sides, we have carefully gone through the orders of the authorities below. The I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd to both the sides. 14.2. In respect of consultation charges of Rs.5 lacs in the case of Kisan Discretionary Family Trust, Ahmedbad, Rs.50,000/- in the case of Shiva Specific Family Trust, Ahmedabad (ITA No.1754/Ahd/2009 for A.Y.2005-06) and Rs.1 lac in the case of Shiva Specific Family Trust (ITA No.1976/Ahd./2009 for A.Y. 2004-05) it was contended that these were paid under income-tax matter and same are allowable. The Assessing Officer will verify this contention and if these are paid in connection with income-tax matter in that event the Assessing Officer is directed to allow the same in accordance with law after giving opportunity to being heard to the assessee. 15. Two of the grounds in almost all the appeals except in ITA No.1976/A/2009 are against levy of interest under section 234B and 234C of the I.T. Act. Both are consequential in nature and the Assessing Officer is directed to allow consequential relief on account of levy of interest under both the sections, if any. 16. Ground no.3 in ITA No.1753/A/2009 is relating to disallowance of bank commission expenses of Rs.31,426/-. The facts relating to the controversy involved in this ground are that in the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 68,674/- one can not justifiably claim the incurring of Rs.4,26,522/- interest expense. Accordingly Rs.3,57,848/- interest expense is disallowed. 19. On appeal before the Learned Commissioner of Income Tax(Appeals), it was claimed that income of REC bonds/OFCPNs is offered by the assessee in the year of receipt because the assessee is following cash method of accounting. For the assessment year under appeal, the assessee has actually incurred expenses and as per the method of accounting, it is allowable though there is no income in the current year. 19.1 After considering the aforesaid submissions, in the impugned year, the Learned Commissioner of Income Tax(Appeals) confirmed the disallowance on the ground that the assessee has not been able to prove as to why and where the net interest expenses of Rs.3,57,848/- was incurred and whether the corresponding income had been shown. The Learned Commissioner of Income Tax(Appeals) further held that if the interest expenses are incurred for acquiring shares and securities on which the assessee received tax-free dividend income, the same is not allowable under section 14A of the I.T.Act. In the absence of purpose of utilization ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ombay High Court in the case of Godrej Boyce Mfg. Co.Ltd. Therefore, we deem it proper to follow the verdit of the Hon'ble Bombay High Court pronounced in the case of Godrej Boyce Mfg. Co.Ltd. Mumbai vs. Dy.CIT in Income tax Appeal No.626 of 2010 and Writ Petition No.758 of 2010 order dated 12/08/2010 [now reported as 328 ITR 81(Bom)]. In this judgement at the end, the Hon'ble Court has also recapitulated the conclusion and pronounced that a finding is required whether the investment in shares is made out of own funds or out of borrowed funds. A nexus is required to be established between the investments and the borrowings. In section 14A of the Act expenditure incurred in relation to exempted income is to be disallowed only if the Assessing Officer is satisfied with the expenditure claimed by the assessee pertaining to the said exempt income. Rather, the Court was very specific that in case, no such exercise was carried out by the Assessing Officer then the matter is to be remanded back for afresh investigation. It has also been made clear that the proviso to section 14A of the Act was effective from 2001-02. The Hon'ble Court has also pointed out the importance of Rule 8D of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the assessee had incurred any expenditure in relation to the earning of income which does not form part of the total income under the Act and if so to quantify the extent of the disallowance. The Assessing Officer would have to arrive at his determination after furnishing an opportunity to the assessee to produce its accounts and to place on the record all relevant material in support of the circumstances which are considered to be relevant and germane. For this purpose and in light of our observations made earlier in this section of the judgment, we deem it appropriate and proper to remand the proceedings back to the Assessing Officer for a fresh determination. Conclusion : 74. Our conclusions in this judgment are as follows ; i) Dividend income and income from mutual funds falling within the ambit of Section 10(33) of the Income Tax Act 1961, as was applicable for Assessment Year 2002-03 is not includible in computing the total income of the assessee. Consequently, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to such income which does not form part of the total income under the Act, by virtue of the provisions of Section 14A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .3. For this purpose, we set aside . the order of the Learned CIT(Appeals) and restore the issue back to the file of Assessing Officer with the direction that the assessee should furnish the complete details, Assessing Officer will examine the same and readjudcate the disallowance of interest expenses of Rs.3,57,848/- afresh after giving opportunity of being heard to the assessee. 21. Ground no.4 in ITA No.1755/A/2009 is against levy of interest under section 234D and ground no.5 is against withdrawing interest charged under section 244A of the I.T. Act, 1961 in ITA Nos. 1755/A/2009 and 1756/A/2009. No specific arguments were raised against both these grounds of appeal. Therefore, both these grounds are dismissed. 22. Ground no.4 in ITA No.1756/A/2009 and ITA No.1757/A/2009 is against levy of interest under section 234D of the I.T. Act, 1956. The ITAT, Special Bench in the case of ITO vs- Ekta Promoters Pvt. Ltd. reported in [2008] 113 ITR 719 (Delhi) held that section 234D has been brought on the Statute from 01/06/2003 which will have application only with effect from A.Y.2004-05 and therefore interest u/s.234D cannot be charged for earlier years, even though regular ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Rs.11,86,00,000 ------------------- Rs.15,33,90,985 As regards the investment in debentures, interest thereof is not exempt and hence ld.A.O. has wrongly stated that it is investment in exempted assets. Further, it is submitted that the income of REC bonds/OFCPNs is offered by the appellant in the year of receipt as the appellant is following cash method of accounting. Appellant had interest expenses during the year and the expenses has to be allowed. The income may be taxed in the current year or in the subsequent year would not make any difference. It may also be noted that shares of Rs.154 of Mirza Tanners Ltd. and shares of Nirma Ltd. Rs.3,47,90,831 which were acquired before few years. There is no interest expenses on the borrowing either in the current Asst.Year 2004-05 or in the earlier Asst.Year 2003-04 for acquisition of these shares. Hence, whole of the interest expenses Rs.25,37,280 should be allowed. 25.2. After considering the addition in the impugned order, the Learned CIT(Appeals) confirmed the disallowance keeping in view of his ..... X X X X Extracts X X X X X X X X Extracts X X X X
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