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TMI Blog2019 (1) TMI 275X X X X Extracts X X X X X X X X Extracts X X X X ..... R PER S.S.Godara, Judicial Member:- This assessee s appeal for assessment year 2005-06 arises against the Commissioner of Income Tax (Appeals)-2, Kolkata s order dated 06.04.2017 passed in case No.244/CIT(A)-2/14-15 involving proceedings u/s 143(3) of the Income Tax Act, 1961; in short the Act . Heard both the parties. Case file perused. 2. The assessee s sole substantive ground challenges both the lower authorities action invoking sec. 36(1)(iii) proportionate interest disallowance of ₹1,02,00,000/- during the course of assessment as affirmed in lower appellate proceedings. The CIT(A) s detailed discussion qua the instant issue reads as follows:- Grounds-1, 2, 3 These grounds of appeal as raised by the assessee against the order of the assessing officer are as under:- * That the Ld. AO erred in disallowing proportionate interest of ₹ 1,02,00,000/- on the borrowed fund utilized by the appellant in acquiring the shares which were held by it as investment. * That since no dividend was received by the appellant from the shares held as investment, the Ld. AO erred in disallowing proportionate interest of ₹ 1,02,00,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest attributable to such converted shares should be disallowed as the shares were no more the Appellant s business asset with effect from 01.04.2004. 2.1 In light of the above the appellant company would like to submit that the shares valued at ₹ 8.5 Crores were converted with effect from 31.03.2005 and not from 01.04.2004 as wrongly presumed by the Ld. AO (This is evidenced from the Ledger A/cs of both the Stock in Trade as well as Investments, copies of which are enclosed at pages 25-26 of the paper book) The appellant company by way of additional evidence is also producing herewith a copy of Board Resolution dated 28.02.2005 without which it could not have transferred the Shares from stock in trade to investment. (copy of which is enclosed herewith at pages 27 of the paper book) 2.2 Further, the appellant company would like to submit that the aforesaid fact was intimated to the Ld. AO by its letter dated 18.12.2007. The Ld. AO has not raised any question relating to the said letter dated 18.12.2007 submitted by the assessee. (copy of the letter dated 1812.2007 is enclosed at pages 28- 29 of the paper book) 2.3 From the aforesaid discussion, it is cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee as the main motive of the appellant is not to earn dividend income but to trade in shares. This has been held in many decisions of the hon'ble ITAT as well as High Courts. Some of these are quoted here and below: M/s CCI Ltd. Vs. JCIT (ITA No.359 of 2011) The Hon'ble High Court of Karnataka had held that: Where no expenditu9re is icured by the assessee in earning dividend income, no notional expenditure could be deducted from the said income. it is not the case of the assessee retaining any shares so as to have the benefit of dividend 63% of the shares, which were purchased, are sold and the income derived there from is offered to tax as business income. the remaining 37% of the shares are retained. It has remained unsold with the assessee. It is those unsold shares have yielded divided, for swhich, the assessee has not incurred any expenditure at all. Though the dividend income is exempted from payment of tax, if any expenditure is incurred in earning the said income, the said expenditure also cannot be deducted. But in this case, when the assessee has not retained shares with the intention of earning dividend income and the dividend income is incide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osed at page . of the paper book) * Ethio Plastics Private Ltd. vs. Dy. CIT, Circle-1(2) Baroda (ITA No:848/Ahd/2012) The Hon'ble ITAT, Ahmedabad had held that: After hearing both the parties and perusing the record we find that a is engaged in the business of dealing in shares and securities and there is no dispute about the fact that hares were held by the assessee a stock in trade. The intention of assessee was not to earn dividend income and this income being incidental to business of ale of shares, no notional expenditure could be deducted by invoking the provisions of Section14A of the Act. (order enclosed at pages of the paper book) * Apporva Patni vs. ACIT [2012] 24 Taxmann 223 (Pune) The Hon'ble ITAT Pune Bench had held that: Where no expenditure is canvassed to have been incurred by the assessee in earning dividend income, no notional expenditure can be deducted by invoking section 14A of the Act. Further in a case when assessee has not retained shares with the intention of earning dividend income and dividend income is incidental to the business of sale of shares, it cannot be said that the expenditure incurred in acquiring the shares ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion as framed would not rise. Hence disallowance made by the Ld. A.O in the backdrop of the above circumstances, is arbitrary and unreasonable. 6. Hence, it is being urged before your goodself that disallowance of interest amounting to ₹ 1,02,00,000/- made by the Ld. AO be kindly deleted and necessary relief be granted to the appellant. I have considered the submissions of the authorized representative of the appellant as well as the assessment order framed in the light of the materials available on record before the assessing officer during the assessment proceedings. The AO has considered the submissions of the AR during the assessment proceedings and made disallowance. The interest was disallowed while considering the share capital and reserve and surplus and unsecured loans. The AO has also considered the conversion of share held in stock to investment. I agree with the AO. in view of above, the order of the AO is upheld and these grounds of appeals re dismissed. 3. We have given our thoughtful consideration to rival contentions. Some key facts emerge from the instant lis. This assessee is a company engaged in real estate development as well as trading ..... X X X X Extracts X X X X X X X X Extracts X X X X
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