9911796707
TMI Blog2012 (5) TMI 482X X X X Extracts X X X X X X X X Extracts X X X X ..... all the department appeals. The facts in brief are that the AO during the assessment proceedings noted that the assessee had earned huge income from dividend and interest from tax free bonds which were exempt from tax. The AO therefore, asked the assessee to explain as to why the expenses relating exempt income should not be disallowed. The assessee submitted that no borrowed funds were used in making investments. The borrowings had been utilized for financing trading activities. It was pointed out that once the investments were made, there were hardly any expenses required for earning the dividend income. It was also pointed out that investment decisions were taken only by the PD (primary dealer) division. The AO however was not satisfied by the explanation given and attributed 10% of general expenses of PD division to the earning of exempt income in assessment years 2000-01 and 2001-02 and disallowed the same. The AO noted that in assessment years 2004-05 and 2005-06, the assessee itself had disallowed suo-moto a sum of Rs.18.50 lacs and Rs.4,95,000/- as expenses relating to exempt income. In assessment years, 2002-03, 2004-05 and 2005-06 the AO changed the basis of disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fully. The dispute is regarding disallowance of expenses relating to dividend and interest income from bonds which were exempt from tax under the provisions of section 14A. Under the provisions of the said section, expenditure incurred in relation to exempt income is not allowable as deduction. There is no dispute that the assessee had received substantial income from dividend and interest from tax free bonds in all these years which was exempt from tax. It is also not in dispute that the investment had been managed by the PD division. The dispute is only regarding quantum of disallowance of expenses. There is no disallowance of interest relating to borrowed funds which shows that the claim of the assessee that the investment had been made from borrowed funds has been accepted by the AO. The disallowance is in respect of general expenses of the PD division. The AO in assessment years 2000-01 and 2001-02 attributed 10% of general expenses of PD division to the exempt income which was disallowed. In assessment years 2002-03, 2004-05 and 2005-06, the AO changed the basis of disallowance which was made @ 10% of exempt dividend income. CIT(A) in all the years had confirmed the disallowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... percentage of dividend income cannot be justified in all cases. There may be cases where huge dividend income may be earned only from few shares requiring not much expenditure and disallowance as percentage of dividend income in such cases may lead to absurd results. In this particular case we note that the assessee in assessment year 2004-05 itself disallowed suo-moto a sum of Rs.18.50 lacs as expenditure relatable to exempt income. Though ld. AR argued that suo-moto disallowance was without prejudice to claim of no disallowance, it is difficult to believe that the assessee in its own suo-moto computation will make an excessive disallowance. Therefore, suo-moto disallowance computed by the assessee can be reasonably taken as the expenditure relatable to the exempt income. In that year, CT(A) restricted the disallowance to 1% i.e. Rs.1,87,760/- which means that suo moto disallowance made by the assessee was about 10% of expenses. AO has also disallowed 10% of general expenses relating to PD division. Under these circumstances disallowance upheld by CIT(A) @ 1% of general expenses of PD division can not be upheld. Considering the facts and circumstances above, we set aside the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levying interest under section 234C, aggrieved by which assessee is in appeal before the Tribunal in both the years. 3.3 Before us the Ld. Authorised Representative for the assessee reiterated the submissions made before the CIT(A) that lower payment of installment was for a reasonable cause. It was pointed out that there were specific reasons of shortfall in the payment of installments and there was no over all shortfall in payment of advance tax which was clear from the fact that no interest under section 234B had been levied. It was also submitted that main business of the assessee was PD activity which was dealing in securities which had been badly affected by the terrorist attack. It was pointed out that the assessee had to estimate current income on the basis of situations prevailing on the date of instalments. He placed reliance on the judgment of Hon'ble Bombay High Court in the case of Prime Securities Ltd. vs. ACIT (333 ITR 464) in which in similar situations the Hon'ble High Court had deleted the interest levied under section 234B of I.T. Act. He also referred to the decision of the Tribunal in the case of Kotak Mahindra Securities Ltd. vs. ACIT (ITA No.3272/M/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... current income has been explained on account of uncertainty created in the financial market by 9/11 (September 11, 2001) terrorist attack which resulted in much lower September installment. In our view the AO has no discretion to reduce or waive interest once there is shortfall in payment of installments and interest is found payable under the provisions of section 234C. This position is settled by judgment of Hon'ble Supreme Court in case of Anjum M.H. Ghaswala (supra), in which the Hon'ble Supreme Court held that levy of interest under section 234A, 234B and 234c was mandatory in view of the expression 'shall' used in the said section from assessment year 1989-90. Even in relation to settlement commission which was empowered to settle the tax cases, it was held that settlement commission had no power to reduce or waive interest once interest was payable except to the extent provided in Circular 400/334/95-IT(PD of CBDT). The said Circular provides for waiver of interest by the competent authority in suitable cases. The AO is not authorized to waive any interest and therefore, once interest is found payable under section 234A, 234B and 234C, AO has no discretionary power to reduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome which was not so in case of Prime Securities Ltd. (supra), in which the shortfall was in relation to assessed income. The judgment cited has, therefore, no application to the facts of the present case. The ld. AR has also referred to the decision of the Tribunal in case of Kotak Mahindra Securites Ltd. vs. ACIT (supra) in which following the judgment of Hon'ble High Court of Bombay in case of Prime Securities Ltd. vs. ACIT (supra), the Tribunal had restored the issue of levy of interest to the file of the AO for fresh decision. We have carefully perused the said order of the Tribunal. The Tribunal had restored the issue on the ground that neither AO nor CIT(A) had examined the matter as to whether the assessee had committed default for payment of advance tax. In the present case there is no dispute that there was default in payment of advance tax installment and there was shortfall on which no dispute has been raised by the assessee. We therefore do not consider it necessary to restore the issue to the file of the AO as the same can be decided on the basis of material available on record. Once there is shortfall in payment of advance tax installment, the levy of interest is man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has escaped assessment, being expenditure related to exempted income, being interest on tax free bonds of Rs.2,31,89,736/- within the meaning of section 147 of the Act on the same reasoning mentioned above. Accordingly, notice u/s.148 is issued for A.Y. 2002-03 today." 4.1 The assessee challenged the decision of the AO to reopen the assessment and submitted before CIT(A) that the AO had no evidence in his possession to come to the conclusion that any expenditure had been incurred for earning exempt income. The judgment of the Hon'ble Supreme Court in the case of United General Trust (supra), was not applicable as the same relate to disallowance of expenses under section -80M. There was no connection between the material available and the formation of belief for escapement of income. It was also submitted that the AO had reopened the assessment without there being any fresh material and therefore reopening was based on change of opinion which was not permitted. CIT(A) however did not accept the contentions raised. It was observed by him that the return of income in this case had been processed under section 143(1) in which AO was not empowered to take any view on an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in relation to which expenses had not been disallowed. It was not possible to earn such huge income without incurring any expenses. There was therefore, reasonable ground for the AO to come to belief that income chargeable to tax had escaped assessment. 4.3 We have perused the records and considered the rival contentions carefully. The dispute is regarding legal validity of reopening of assessment under section 147 of the IT Act for escapement of income chargeable to tax. The return of income in this case had only been processed under section 143(1) of the IT Act on 19/2/2003 and thereafter assessment had been reopened for the reasons recorded which have been reproduced earlier. Since the return had only been processed under section 143(1) in which the AO had no jurisdiction to make any additions or alterations to the returned, reopening the assessment subsequently cannot be said to be based on change of opinion. This issue is supported by the judgment of Hon'ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers Pvt. Ltd. (291 ITR 500) in which it was held that there was no change of opinion involved if assessment is reopened after issue of intimation under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the exempt income have to be disallowed and, therefore, not only the expenses having direct nexus with earning of dividend income but also indirect expenses have to be considered for disallowance under section14A. This view is supported by the judgment of Hon'ble High Court of Bombay in the case Godrej Boyce Manufacturing Co. Ltd.(328 ITR 81) in which it has been held that both direct and indirect expenses relatable to the exempt income have to be considered for disallowance under section 14A. 4.5 Thus if the proportionate management expenses could be considered as incurred for the purpose of earning dividend under section 80M, the same would definitely be considered as relatable to dividend income under section 14A. Under these circumstances when the assessee had not disallowed any expenses relatable to exempt dividend income, it was quite reasonable for the AO to form a belief that income chargeable to tax had escaped assessment on the ground that some expenses relatable to exempt income have been claimed and allowed in the intimation issued under section 143(1). It is a settled legal position that for reopening of assessment it is not necessary that there should be su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal before the Tribunal. In assessment years 2004-05 and 2005-06, also the AO had treated the profit from share trading as business profit and not speculation profit. However, CIT(A) following the decision of the Tribunal in the case of Samba Trading and Investment Pvt. Ltd.(58 ITD 360) held that Explanation to section 73 was applicable in case of profit from share trading also and accordingly allowed the claim of the assessee, aggrieved by which revenue is in appeal before the Tribunal in these two years. 5.1 We have heard both the parties, perused the records and considered the matter carefully. The dispute is whether the Explanation to Section 73 would apply to only losses from purchases and sale of shares by a company or also to profits. The said Explanation provides that in case of a company whose gross total income does not consist mainly of income from interest, house property, capital gain, other sources or a company the principal business of which is banking or granting of loans and advances, a part of the business consists of purchase and sale of shares of other companies, such activity of purchase and sale of shares will be deemed to be speculation business bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew that once debt had been written off as bad, the same had to be allowed and it was not required to be proved that it had actually become irrecoverable. Aggrieved by the said decision, revenue is in appeal before the Tribunal. 6.1 Before us the ld. Authorised Representative submitted that there were no disputes that debts were trading debts. AO had disallowed the claim only on the ground that there was no evidence to prove that it had become irrecoverable. It was further submitted that the action of AO could not be justified in view of the judgment of Hon'ble Supreme Court in the case of TRF Ltd. (323 ITR 397)in which it has been held that burden was no longer on the assessee to prove that the debt had actually become irrecoverable during the year. The ld. DR placed reliance on the order of the AO. 6.2 We have perused the records and considered the matter carefully. The dispute is regarding disallowance of bad debt which had arisen on account of two parties i.e., IDBI and Kevin Care Pvt. Ltd. aggregating to Rs.2,72,934/- . The AO has not disputed that the debts were trading debts and made the disallowances only on the ground that there was no evidence to prove tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
