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TMI Blog2016 (6) TMI 210X X X X Extracts X X X X X X X X Extracts X X X X ..... sec.94(8) w.e.f. 1.4.2005. Even the judgment of the Supreme Court in the case of CIT v. Walfort Share and Stock Brokers P. Ltd. (2010 (7) TMI 15 - SUPREME COURT ), also confirms that even assuming that transaction was pre-planned, there is nothing to impeach the genuineness of the transaction. Hence, loss arising in the course of dividend stripping transaction before the introduction of claim u/s.94(7) w.e.f. 1.4.2002 cannot be disallowed; dividend stripping transaction cannot be said to be “abuse of law” even if it is pre-planned. Being so, the finding of the CIT(Appeals) is based on the law, as it stood in the relevant asst. year and it cannot be said that there is any infirmity in the order of the CIT(Appeals). - Decided against revenue TDS u/s 195 - non deduction of TDS on the ‘foreign commission payments’ made to the non-resident - disallowance u/s.40(a)(i) - Held that:- In the present case, the assessee had not established that the non-resident had rendered services abroad and there was no business connection in India by producing relevant records, viz., either agreement entered into by the assessee with them or correspondence took between the parties. Without examining these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds/2014 are directed against different orders of the Commissioner of Incometax( Appeals) for the assessment years 2004-05, 2008-09, 2009- 10 and 2010-11. The assessee has also filed corresponding cross appeals in ITA Nos.1530, 1531 and 1532/Mds/2015. Since, the issues involved in these appeals are common, they are clubbed together, heard together and disposed off by this common order for the sake of convenience. 2. First, we take up the Revenue's appeal in ITA No.2023/Mds/2014 and C.O. No.100/Mds/2014 for the assessment year 2004-05. 3. The ground raised by the Revenue in this appeal is that the Commissioner of Income-tax (Appeals) erred in directing the Assessing Officer to allow the loss of ₹ 10,53,12,695/- to be set off against the other capital gains. The assessee has filed the Cross-objection in supportive of the order of the CIT(Appeals). 4. The facts of the case are that the assessee, during the financial year 2003-04 relevant to the asst. year 2004-05 purchased 17,338,188.397 units of ING Vysya Income Fund Regular Bonus Option (Mutual Fund) for ₹ 27 crores on 19.11.2003. Subsequently, the assessee received 10,456,440.524 bonus units, at a cost of Rs. nil. Aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated date for the allotment of bonus units was 19.11.2003 and the assessee had applied for the units on the nominated date and sold the same on the very next day. As the units purchased were redeemed on the very next day, the intention of the assessee obviously is to incur loss and set off the loss against the income earned on sale of shares of M/s. Shri Vljaya Gimpex Mining Ltd. The whole transaction is not that of simple investment but with the primary motive of generating loss for setting off against other income under the head "Capital Gains". 5. The decision at the Panjab & Haryana High Court in the case of Vaneet Jain vs CIT 294 ITR 432 is to be applied in this case. The primary motive of the assessee is to avoid the incidence of Capital Gains which resulted by sale of shares of M/s.Shri Vijaya Gimpex Mining Ltd. The entire loss booked by the assessee in respect of sale of ING Vysya Bank issue is disallowed. This has been further strengthened by the fact that the Section 94 of the Income Tax Act, 1961, itself was amended subsequently. Disallowance ₹ 10,53,12,695" Aggrieved, the assessee went in appeal before the CIT(Appeals), who allowed the ground of appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. ITA Nos. 2024, 2025 & 2026/Mds/14 & CO Nos. 101, 102 & 103/Mds/14 : 6. First ground in ITA Nos. 2025 & 2026/Mds/2014 is with regard to deletion of disallowance u/s.40(a)(i) of the Act holding that the assessee is not liable to deduct at source on the 'foreign commission payments' made to the non-resident u/s.195 of the Act. 7. The facts of the case as narrated in ITA No.2025/Mds/14 are that the assessee in its returns of income filed for asst. years 2009-10 and 2010-11 claimed foreign sales commission of ₹ 88,53,677/- and ₹ 1,28,44,758/- respectively. The Assessee has not deducted any TDS while remitting the said amounts abroad. The Assessing Officer in his order disallowed the foreign commission u/s.40(a)(i) of the Act for nondeduction of TDS. The Assessing Officer in his order noticed that the assessee company, during the financial years 2009-10 and 2010-11 made export sales commission of ₹ 88,53,677/- and ₹ 1,28,44,758/- to non-resident agents, without deduction of any TDS. Hence, the AO opined that the said payments of 'foreign commission' was a violation u/s.40(a)(i) r.w.s.195 of the Act. Accordingly, the AO disallowed the said 'foreign commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices were rendered by those non-residents abroad. In the present case, the assessee had not established that the non-resident had rendered services abroad and there was no business connection in India by producing relevant records, viz., either agreement entered into by the assessee with them or correspondence took between the parties. Without examining these details, one is not in a position to decide the nature of services rendered by the non-resident agent. Therefore, it is appropriate to remit the entire issue back to the file of the Assessing Officer with direction to the assessee to prove that it was sales commission towards procurement of orders from abroad. In the result, the appeal of the revenue is allowed for statistical purposes." 8.1 In view of the above, we are inclined to remit the issue back for both the assessment years to the file of the Assessing Officer with similar direction. Accordingly, this ground of appeal is allowed for statistical purposes, for both the assessment years. 9. The next common issue in all the three appeals is with regard to deletion of addition made u/s.40(a)(i) on the payment of foreign service charges. 10. The facts of the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt years 2009-10 and 2010-11, disallowances to the extent of ₹ 14,24,646/- and ₹ 15,03,265/- are confirmed and the balance of disallowances of ₹ 1,56,20,406/- and ₹ 1,82,17,041/- are deleted. However, for the assessment year 2008-09, the AO is directed to enhance the disallowance u/s.14A r.w. Rule 8D to ₹ 7,43,362/- (subject the verification of the total assets as on 1.4.2007 and recomputation of the disallowance), as against the disallowance of ₹ 6,87,014/- made by the AO in his assessment order, as under : A.Y. Disallowance made by the AO Disallowanceu/s.14A confirmed now Relief granted to the assessee 2008-09 ₹ 6,87,014 ₹ 7,43,362 Enhanced 2009-10 ₹ 1,70,45,052 ₹ 14,24,646 ₹ 1,56,20,406 2010-11 ₹ 1,97,20,306 ₹ 15,03,265 ₹ 1,82,17,041 Against this, the Revenue is in appeal before us for the assessment years 2009-10 and 2010-11. 15. We have heard both the parties and perused the material on record. Similar issue came for consideration before this Tribunal in the case of M/s. Marg Ltd. v. JCIT in ITA Nos.344 to 346/Mds/2016 dated 6.4.2016, wherein following its earlier order in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against the assessment order, the first appellate authority reversed the order of the assessing authority by applying the decision of the Supreme Court reported in CIT Vs. Rajendra Prasad Moody [1978] 115 ITR 519. The Revenue took up the matter in second appeal before the Income-tax Appellate Tribunal, hereinafter called as "the Tribunal" in short. The Tribunal reversed the decision of the first appellate authority and restored the order of the assessing authority. Being aggrieved by the same, the assessee is before us by filing this appeal framing substantial questions of law and urged the grounds in support of the same. Smt. Anuradha, learned counsel for the appellant relied upon the decision reported in CIT Vs. Rajendra Prasad Moody [1978] 115 ITR 519 wherein, it is held that interest paid on money borrowed for investment in shares is deductible under section 57(iii) of the Income-tax Act, which requires that the expenditure must be laid out or expended wholly and exclusively for making or earning income. She also relied upon another decision in the case of CIT Vs. Smt. Sushila Devi Khadaria [2009] 319 ITR 413 (Bom); [2009] TIOL 171 HC (Mum-IT) and submits that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come was taxable in the hands of the assessee. With the introduction of section 10(33) of the Income-tax Act from the assessment year 1998-99 the position of law in regard to taxability of dividends has been changed since such income becomes a part of income which do not form a part of total income of the assessee. The provisions of section 14A introduced by the Finance Act, 2001, with effect from April 1, 1962, retrospectively bars allowing any expenditure in respect of income which is not includible in the total income. Considering this change in the position of law the decision of the Supreme Court relied upon by the assessee does not apply to the assessee's case." Therefore, the dividend income is exempted from the tax liability under section 10(33) of the Act. Under section 14A of the Act, expenditure relating to exempted income is not allowable. The assessing authority has considered the above relevant factor and disallowed the claim of the assessee. The first appellate authority reversed the order of the assessing authority by applying the decision in Rajendra Prasad Moody's case [1978] 115 ITR 519 (SC), referred to supra, which was rendered prior to intro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but made a disallowance of ₹ 2 lakhs being the interest stated to be attributable to the dividend income of ₹ 3 lakhs earned by the assessee from the leasing company during the previous year. On appeal: Held, allowing the appeal, that any expenditure incurred for earning any income which was not taxable under the Act was not an allowable expenditure. Dividend income was exempt under section 10(33) of the Act and the dividend earned by the assessee on the shares acquired by her with the borrowed funds did not constitute part of the total income in the hands of the assessee. The reasoning given by the Tribunal for disallowance of ₹ 2 lakhs, i.e., by applying section 14A, squarely applied to the interest paid on the borrowed funds because it was on record that the entire funds borrowed were utilised for the acquisition of shares by the assessee in the company. The assessee would be entitled to deduction of interest under section 36(1)(iii) of the Act on the borrowed funds utilised for the acquisition of shares only if shares were held as stock-intrade and that would arise only if the assessee was engaged in trading in shares. So far as the acquisition of shares wa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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