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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 ..... erefore, 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. - Sri D. K. Tyagi, JM,JJ. For the Appellant : Sri Ravi Tulsiyan For the Respondent : Sri R. K. Paul ORDER This appeal has been preferred by the assessee against the order of the Ld. CIT(A), Kolkata dated 31.03.2010 for assessment year 2005-06 on the following grounds :- 1(a) Under the facts and circumstances of the case Ld. CIT(A) was unjustified and wrong in directing the Assessing Officer to restrict the disallowance under section 14(A) of the I. T. Act as per the calculation of Rule 8D which came into force face only with effect from Assessment Year 2008-09 whereas the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve to be incurred in the same manner even if there is no dividend income or exempted income. On perusal of the reply of the assessee and on perusal of the accounts, the Assessing Officer held that the assessee failed to bifurcate the expenditure claimed in the light of section 14A of the Act and have applied pro rata basis the expenses claimed and disallowed a sum of ₹ 1,30,724/-in the light of section 14A of the I. T. Act. In appeal, the Ld. CIT(A) directed the Assessing Officer to apply Rule 8D of the Income Tax Rules on this issue and work out the quantum of disallowance. Aggrieved by the said order, now the assessee is in appeal before us. 3. At the time of hearing before us, the Ld. Counsel for the assessee while reiterating his same submissions as submitted before the lower authorities further submitted that the assessee Company is a Private Ltd Company engaged in the business of shares securities, mutual fund and also carrying trading activities. In course of assessment the A.O disallowed certain expenses u/s.14(A) against the dividend income received by the company. The assessee filed Appeal before CIT (Appeal) - VIII, Cal and submitted that the dividend Income i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd and the original units were transferred within 9 months from the record date and suffered loss. During the course of hearing, assessee was asked to show cause as to why the provision of sec. 94(7) should not be applicable for the above loss. No satisfactory reply was given. Hence, the above loss of ₹ 1,03,842.17 was ignored as per the provision of section 94(7) of the I. T. Act and the same was added to the total income of the assessee. In appeal, the Ld. CIT(A) confirmed this action of the Assessing Officer. Aggrieved by the said order, now the assessee is in appeal before us. 7. At the time of hearing before us, the Ld. Counsel for the assessee submitted the following : The brief facts relating to this issue are that the assessee is a private limited company engaged in the business of trading in shares, securities and units of mutual fund in addition to computers. During the relevant assessment year, the assessee purchased units of mutual fund which include Frankline India Prima Fund, Reliance Vision, DSP Merrill Lynch Opport, Fund, Prudential ICICI Power Fund and others. The assessee sold the said units during the relevant assessment year itself and suffered los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resaid addition alleging that although the assessee disputed the AO s claim but has not been able to bring on record any evidence in support of the same. However, before going into detailed discussion, attention is invited to the provisions of Section 94(7) of the Act as it stood after the amendment w.e.f lst April, 2005 which reads as follows : (7) Where- (a) any person buys or acquires any securities or unit within a period of three months priror to the record date; **(b) such person sells or transfers- (i) such securities within a period of three months after such date, or (ii) such unit within a period of nine months after such date; (c) the dividend or income on such securities or unit received or receivable by such person is exempt, then, the loss, f any, arising to him on account of such purchase and sale of securities or unit, to the extent such loss does not exceed the amount of dividend or income received or receivable on such securities or unit, shall be ignored for the purposes of computing his income chargeable to tax. In view of the foregoing, it is submitted that the provisions of sec.94(7) are not applicable to the assessee in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain, these units were sold on 19th April, 2004 which means that the 2 condition viz, that these units should be sold within a period of 9 months from the record date is satisfied. However, although the second condition is satisfied, the capital loss incurred by the assessee on redemption of aforementioned units of Pru. ICICI Power Fund is not liable for disallowance under sec.94(7) in view of the fact that the first condition is not fulfilled. On the contrary, the AO was of the opinion that in case of purchase and sale of all the aforementioned units, the provisions of sec.94(7) will apply. According to him, the provisions of sec. 94(7) will apply even if any one of the conditions is satisfied and that it was not necessary that all the three conditions have to be satisfied. Accordingly, the AO held that this was a case of dividend stripping and managed for creation of short-term losses only for adjustment of losses against the other taxable profit, which is sought to be prohibited by the provisions of sec.94(7) of the Act. Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A) who also confirmed the said addition. In this connection, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very clear that all the conditions prescribed in sec.94(7) of the Act are to be cumulatively satisfied. In the instant case, the conditions of three months before and nine months after the record date for purchase and sale respectively have not been satisfied in respect of aforementioned units of Pru-ICICI Power Fund cumulatively. In this regard, perusal of the statements of demat account of the assessee as maintained in CIII Bank, copies of which were already enclosed during the course of assessment, confirms the purchase date, record date and redemption date of the said units of mutual fund. Therefore, the allegation of the Ld. CIT(A) that the assessee has failed to bring on record any evidence in support of its claim is also not correct. Examination of these statements clearly shows that purchase of these units were made more than three months before the record date. This goes to prove that the first condition for attracting the provisions of sec.94(7) is not satisfied in this case. Now the only question which has to be considered in this connection is whether clauses (a), (b) and (c) of sec.94(7) needs to be satisfied cumulatively or not. For this, a glance may be had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of conditions and not otherwise. This interpretation is further approved by Circular No.14 of 2001, which explains the Finance Act, 2001 issued by CBDT. In the said circular, it is noticeable that in para 56.3, it uses the word and at couple of places thereby providing for cumulative application of all the three conditions. Thus, the view of the CBDT is also that all the conditions prescribed in sec. 94(7) are to be cumulatively satisfied and not otherwise. Therefore, in view of the above, it is submitted that the disallowance made by the Assessing Officer and sustained by the CIT on account of the claim of non-applicability of the provisions of sec. 94(7) of the Act in respect of transfer of aforementioned units of Pru. ICICI Power Fund on the alleged ground that each of the conditions laid down in sec. 94(7) is independent and if an assessee satisfies any one of the conditions, then he should be held to be covered within the mischief of the law, is bad in law and uncalled for. 8. The Ld. D.R. on the other hand, relied on the orders of the lower authorities. 9. I have heard the rival submissions and perused the material available on record and also the case laws ci ..... X X X X Extracts X X X X X X X X Extracts X X X X
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