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TMI Blog2013 (6) TMI 534X X X X Extracts X X X X X X X X Extracts X X X X ..... irming the disallowances of Rs. 75,505/- under section 94(7) of the Income Tax Act though this provision was not applicable as the Mutual Fund units was acquired beyond 3 months from record date as stated by the Assessing Officer in his Assessment Order itself. 3. The Ld. CIT(A) was not justified in confirming the disallowance of certain expenses incurred on account of calculating the Capital Gain as the expenses incurred are to be taken as cost of investments and the Capital Gain to be arrived accordingly. Demat Charges, Brokerage and Portfolio charges aggregating to Rs. 1,18,484.93." 2. Ground No. 1 relates to restricting the disallowance u/s. 14A of the I. T. Act as per the calculation of Rule 8D. Briefly stated facts of the case are that during the course of verification of books of accounts, the Assessing Officer observed that during the relevant previous year the assessee company had earned dividend income, profit on sale/purchase of mutual fund units, shares and sale of computer. The company debited expenses under various heads including electrical expenses but could not bifurcate the same in relation to income not included in total income i.e. dividend income in the ligh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owards the dividend cannot be disallowed if actually there was no expenses. The Ld CIT (Appeal) did not appreciate these facts and though did not agree with A.O's disallowance of proportionate expenses but direct that the Rule 8D should be applied and the expenses disallowance should be restricted to the amount calculated under Rule 8D. The Ld. CIT(A) also did not appreciate that Rule 8D was applicable only from 24.03.2008 and the relevant assessment year under appeal is much earlier to this. He, therefore, submitted that the Ld. CIT(A) was wrong in not giving the relief by deleting the disallowance of expenses made by the Assessing Officer u/s. 14A of the Act and prayed before the bench to set aside the orders of the lower authorities and delete the disallowance of expenses made by the Assessing Officer u/s. 14A of the Act. 4. On the other hand, the Ld. DR relied on the order of the Ld. CIT(A). 5. Heard the rival submissions, perused the material available on record and the decisions relied on by the Ld. Authorised Representative of the assessee cited supra. We find that on the issue of disallowance u/s. 14A, this Bench of the Tribunal has been taking a consistent view that this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch was claimed exempt u/s. 10(34) of the Act. In this connection, the relevant date of purchase, date of receipt of dividend and date of redemption of units are reproduced below in the following chart : Particulars Purchase date Purchase price Units purchased Dividend date Re-invested Dividend Amount Sale date Units sold Sale price Gain/loss DSP Merrill Lynch Oppor Fund 12/12/2003 994,098.44 59455.647 @ 16.72/unit 19/01/2004 178,366.00 13/04/2004 59349.16 @ 16.51/Unit 981,612.73 -12,485.68 Pru. ICICI Power (D) 23/07/2003 100,000.00 7067.1378 @ 14.15/unit 25/07/2003 14,134.28 19/04/2004 7067.1378 @ 12.19 86,148.40 -13,851.59 Pru.ICICI Power (D) 11/07/2003 300,000.00 16565.4335 @ 18.11/unit 24/10/2003 26/12/2003 77,505.49 94,805.82 19/04/2004 17626.321 @ 12.19 214,864.85 -85,135.14 During the year under appeal, the assesee earned dividend income but due to the effect of the above transactions there was a capital loss of Rs. 1,03,842.17 (12485.68 +13851 +77505.49). The Assessing Officer, however, disallowed the said loss which was incurred on sale of aforesaid units alleging that the said transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be sold within a period of 9 months from the record date is also satisfied and hence, the provisions of sec.94(7) is attracted in case of loss suffered from transfer of units of DSP Merrill Lynch. As far as the purchase and sale of units of Prudential ICICI Power Fund are concerned in one case, the date of purchase was 23rd July, 2003 and the record date for declaration of dividend was 25th July, 2003 which means that the 1st condition i.e., purchase of units within 3 months prior to the record date is satisfied. These units were sold on 19th April, 2004 within 9 months from the record date and, therefore, the second condition is also satisfied. Hence, the provisions of sec. 94(7) of the I. T. Act are applicable in respect of transfer of these units of Pru. ICICI Power fund. However, in respect of another set of units of Prudential ICICI Power Fund: The date of purchase was 11th July, 2003. The record date for declaration of dividend was 24th October, 2003. Therefore, the 1st condition i.e. purchase of the units within a period of 3 months prior to the record date is not satisfied. This itself shows that the provisions of section 94(7) of the Act arc not applicable in respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... normally be higher than the ex-dividend price at which they are sold. Such transaction would result in a loss which could be set off against other income of the year. At the same time, the dividends received would be exempt from tax under section 10(33). The net result would be the creation of a tax loss, without any actual outgoings. 56.3. With a view to curb the creation of such short-term losses, the Act has inserted a new sub-section (7) in the section to provide that where any person buys or acquires securities or units within a period of three months prior to the record date fixed for declaration of dividend or distribution of income in respect of the securities or units, and sells or transfers the same within a period of three months after such record date, and the dividend or income received of receivable is exempt, then, the loss, if any, arising from such purchase or sale shall be ignored to the extent such loss does not exceed the amount of such dividend or interest, in the computation of the income chargeable to tax of such person." As is clearly evident, the aforesaid circular uses the word 'and' and not 'or'. In view of the same, the intention of the Board was very ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in (2008) 116 TTJ 784, wherein it was held as follows : "For application of sub-section (7) of sec. 94, all the three conditions mentioned in cls. (a), (b) and (c) thereof must be cumulatively satisfied; conditions of three months before and after record date for purchase and sale respectively of units having not been satisfied cumulatively in all the transactions, loss incurred in those transactions could not be disallowed by invoking sub-s. (7) of sec. 94." In light of the aforesaid judgment, it can be safely concluded that the absence of word 'or' at the end of clauses (a) and (b) does not provide for the interpretation that sub-section (7) of sec. 94 applies, where transactions satisfy at least one condition. Rather, simple reading of the clauses even without the expression 'and' can lead only to one condition that all the three conditions cumulatively are required to be satisfied before invoking sec.94(7). Further, the use of words as 'such person', 'such unit', 'such date', 'such securities or units' in clauses (b) and (c) of sec. 94(7), also indicates that the three clauses have to be read together. Thus, they advocate for cumulative application of conditions and not ot ..... X X X X Extracts X X X X X X X X Extracts X X X X
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