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TMI Blog2018 (4) TMI 520X X X X Extracts X X X X X X X X Extracts X X X X ..... : Mr.B.Sagadevan,JCIT,D.R ORDER PER ABRAHAM P GEORGE, ACCOUNTANT MEMBER These are appeals filed by the assessee for assessment years 2013-14 2014-15 directed against orders dated 29.06.2017 29.09.2017 of the Commissioner of Income-tax (Appeals)-4, Chennai. 2. Sole issue raised bythe assessee is on a disallowance made by the ld. Assessing Officer u/s.14A of the Income Tax Act, 1961 (in short the Act ), which was confirmed by the Ld.CIT(A). Such disallowance for assessment year 2013-14 came to ₹ 53,14,774/- and for assessment year 2014-15 came to ₹ 45,69,872/-. 3. Ld.A.R submitted that assessee was a fashion designer and trader in garments. As per the ld.A.R, assessee had taken substantial term loans from Indian Overseas Bank, which was invested for acquiring shares of a private limited company called M/s.Shilpi Saranya Apparels and M/s.Home Linen Pvt Ltd. As per the ld.A.R, the said company was selling designer sarees through its outlet called SHILPI . Contention of ld.A.R was that the investment made by the assessee in the equity shares of the above company was a part of its business strategy and done essentially for furthering its bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance u/s.14A of the Act. What was held by the Hon ble Apex Court in the said judgement is reproduced hereunder:- 31. We have given our thoughtful consideration to the argument of counsel for the parties on both sides, in the light of various judgments which have been cited before us, some of which have already been taken note of above. 32. In the first instance, it needs to be recognised that as per section 14A(1) of the Act, deduction of that expenditure is not to be allowed which has been incurred by the assessee in relation to income which does not form part of the total income under this Act . Axiomatically, it is that expenditure alone which has been incurred in relation to the income which is includible in total income that has to be disallowed. If an expenditure incurred has no causal connection with the exempted income, then such an expenditure would obviously be treated as not related to the income that is exempted from tax, and such expenditure would be allowed as business expenditure. To put it differently, such expenditure would then be considered as incurred in respect of other income which is to be treated as part of the total income. 33. There is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant passage whereof is already reproduced above, for the sake of continuity of discussion, we would like to quote the following few lines therefrom. The next phrase is, in relation to income which does not form part of total income under the Act . It means that if an income does not form part of total income, then the related expenditure is outside the ambit of the applicability of section 14A.. xxx xxx xxx The theory of apportionment of expenditure between taxable and non-taxable has, in principle, been now widened under section 14 A. 35. The Delhi High Court, therefore, correctly observed that prior to introduction of Section 14A of the Act, the law was that when an assessee had a composite and indivisible business which had elements of both taxable and non-taxable income, the entire expenditure in respect of said business was deductible and, in such a case, the principle of apportionment of the expenditure relating to the non-taxable income did not apply. The principle of apportionment was made available only where the business was divisible. It is to find a cure to the aforesaid problem that the Legislature has not only inserted Section 14A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act but would also be applicable to all banks/commercial banks, to which Banking Regulation Act, 1949 applies. 38. From this, Punjab and Haryana High Court pointed out that this circular carves out a distinction between 'stock-in-trade' and 'investment' and provides that if the motive behind purchase and sale of shares is to earn profit, then the same would be treated as trading profit and if the object is to derive income by way of dividend then the profit would be said to have accrued from investment. To this extent, the High Court may be correct. At the same time, we do not agree with the test of dominant intention applied by the Punjab and Haryana High Court, which we have already discarded. In that event, the question is as to on what basis those cases are to be decided where the shares of other companies are purchased by the assessees as 'stock-in-trade' and not as 'investment'. We proceed to discuss this aspect hereinafter. 39. In those cases, where shares are held as stock-in-trade, the main 38 purpose is to trade in those shares and earn profits therefrom. However, we are not concerned with those profits which would naturally be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res, the assessee knows that it may generate dividend income as well and as and when such dividend income is generated that would be earned by the assessee. In contrast, where the shares are held as stock-in-trade, this may not be necessarily a situation. The main purpose is to liquidate those shares whenever the share price goes up in order to earn profits. In the result, the appeals filed by the Revenue challenging the judgment of the Punjab and Haryana High Court in State Bank of Patiala also fail, though law in this respect has been clarified 40 hereinabove. 41. Having regard to the language of Section 14A(2) of the Act, read with Rule 8D of the Rules, we also make it clear that before applying the theory of apportionment, the AO needs to record satisfaction that having regard to the kind of the assessee, suo moto disallowance under Section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the AO was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. Further, while recording such a satisfaction, nature of loan taken by the assessee for purchasing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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