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TMI Blog2016 (3) TMI 363X X X X Extracts X X X X X X X X Extracts X X X X ..... nd above of the gross total income of a company, it should be said the company has the income mainly from the four specified heads. From the figures put narrated by the Ld AO as reproduced above, it is evident that the gross total income of the company consisted mainly of income which is chargeable under the heads “Capital Gains” and “Income from other sources”. Such a Company is exempted from Explanation to Section 73. In view of above we find that the explanation to section 73 of the Act does not apply to assessee - Decided against revenue Disallowance u/s 14A - Held that:- Rule 8D r.w.s. 14A(2) can be invoked only if the Assessing Officer “having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of expenditure incurred” in relation to tax-free income. The burden Ion the Assessing Officer to establish nexus of expenses incurred with the earning of exempt income, before making any disallowance under section 14A. There cannot be any presumption that the assessee must have incurred expenditure to earn tax free income. The AO cannot proceed to determine the amount of expenditure incurred in relation to exempt inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) was erred deleing the disallowance of ₹ 4,08,937 made u/s. 14A read with rule 8D without considering the merit. 3. On the facts and in the circumstances of the case the Ld. CIT(A) was erred deleing the addition made u/s 68 without considering the merit. 2. The first issue raised by the Revenue in this appeal is that ld. CIT(A) erred in deleting the addition made by the AO on account of short term capital gain of ₹ 14,34,741.00 and treating the speculation loss as per explanation to section 73 of the Act as loss from capital gain. 2.1 The facts of the case are that the assessee is a limited company and is engaged in business of trading of iron steel. During the year the assessee has shown the following income. 1) Income from business a) Iron steel business ₹ 66,551.00 b) Derivative trading business ₹ 18,24,635.00 2) Income from speculative business ₹ 8,864.00 3) Income from capital gain a) Short term capital loss from shares Rs. (-) 33,90,390.00 b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant, does, in fact, mainly comes from the 4 heads of income as stated in the Appellant s submission, which is the requirement of the provisions in the statute. Therefore, the AO is directed assess the loss from share trading under the head Capital Gains. Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us. Shri Jai Narayan Gupta, Ld. Authorized Representative appearing on behalf of assessee and Shri Sanjit Das, Ld. Departmental Representative appearing on behalf of Revenue. 4. We have heard rival submissions of both the parties and perused the materials available on record. Ld. DR vehemently relied on the order of AO whereas Ld. AR relied on the order of Ld. CIT(A). Ld. AR submitted paper book which is running pages 1 to 230. Before us the ld. AR submitted that the AO has first treated the capital gain/ loss from shares as speculative transactions and thereafter computed the test of applicability of explanation to section 73 of the Act wrongly. The AO first should have determined the income under various heads of income without deciding the nature of share transactions and then should have applied the test of applicability of explanation to section 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r earning the dividend income to the tune of ₹ 58,611/- in the computation of income. The AO during the course of assessment proceedings recorded his dissatisfaction regarding the correctness of the claim of the assessee in respect of expenditure in relation to exempt income and issued notice to the assessee for the clarification. The assessee submitted that the expenses incurred in relation to the exempted income for ₹ 58,612.00 only. The assessee further demonstrated to the AO to bring something on record for his dissatisfaction of the expenses. However the AO disregarded the claim of the assessee and applied the rule 8D of the Income Tax Rules 1962. As per the provisions of rule 8D the disallowance was worked out for ₹ 4,08,937/- @ % of the average value of investment ( % of 106584628 + 56990209)/2. 6. Aggrieved, assessee preferred an appeal before ld. CIT(A) who deleted the addition made by the AO by observing as under : I have carefully gone through the assessment order and the submissions of the Appellant. It is true that the App had, himself computed the amount disallowable u/s. 14A. The AO has not disputed the computation of the Appellant. Merel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ought any material on record as to the reasons for his rejecting the claim of the assessee. In fact, the Ld. AO has never bothered to examine the claim of the assessee. Ld. AO does not have suo-moto right to resort to Rule 8D. It is imperative on the part of the Ld. AO to resort to application of Rule 8D only if he is not satisfied with the correctness of the quantum of disallowance admitted by the assessee. From the aforesaid discussion we find that the AO has disallowed the expenses as per the provisions of Rule 8D of Income Tax Rules 1962. The AO has not recorded the dissatisfaction about specific expenses in relation to the exempted income. The ITAT Delhi Bench in the case of DCIT Vs. Jindal Photo Ltd. in ITA No. 814/Del/2011 for AY 2008-09 dated 23.09.2011, where the Tribunal has held that Rule 8D r.w.s. 14A(2) can be invoked only if the Assessing Officer having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of expenditure incurred in relation to tax-free income. The burden Ion the Assessing Officer to establish nexus of expenses incurred with the earning of exempt income, before making any disallowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,00,000 Total Rs.1,83,00,000 However as per the ROC records, the companies were registered at different address. The confirmation letters sent to the companies were received by a single/ same person who acknowledges the receipt of notice with different rubber stamps. The AO further opined that the assessee has introduced its own undisclosed income in the disguise of share application money. On query by the AO, the assessee submitted that the addresses of the companies have changed since the date of the allotment of shares and necessary forms for change of addresses have been submitted to the ROC. But the AO found that the assessee has not replied on the query of signing the acknowledgment by the single person. Therefore the AO has disregarded the claim of the assessee and added a sum ₹ 1.83 crores u/s 68 of the Act to the total income of the assessee. 9. Aggrieved assessee preferred an appeal to ld. CIT(A) who deleted the addition made by the AO by observing as under:- 16. I have carefully gone through the assessment order and the submissions of the Appellant. I am in agreement with the subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being assessed by the Revenue since long. Some of them are even registered as Non-Banking Financial Companies with Reserve bank of India. They have been filing returns regularly with Registrar of Companies and RBI since long. The letters might have been received at their old addresses because in case of change in the address, people instruct the incumbents at old addresses not to refuse the receipt of letters and receive the same. Just because, a letter was received at the old address instead of present address, it cannot be said that the identity of the applicant has not been verified. All of these companies had duly replied to notice u/s. 133(6) and confirmed the transaction with all the evidences. The AO has not raised any objection on any of the information furnished before him. The AO has not asked the respective Company applicants also to explain the alleged discrepancy in the address. The AO has not brought any material on account of record to disbelief the evidences furnished with him and treat the transaction as not genuine. The assessee submitted the following material at the time of assessment. a) Copy of share applications from the share applicants (copies enclosed) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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