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TMI Blog2019 (7) TMI 1081X X X X Extracts X X X X X X X X Extracts X X X X ..... n sale of securities. 4. Whether on the facts and in the circumstances of the case, the ld CIT(A) has erred in deleting addition of Rs. 2,24,140/- made u/s 35D in respect of preliminary expenses written off during the year. 5. Whether on the facts and in the circumstances of the case, the ld CIT (A) has erred in deleting addition of Rs. 11,425/- made on account of prior period expenses." 3. Briefly, the fact shows that Assessee Company is a promoter company of Sahara India life insurance Co Ltd having the main object to promote life insurance Company for conduct of the life insurance business. The assessee during the year received from dividend income of INR 1640946/- and interest income of INR 57064296/-. It filed its return of income on 31/10/2005 declaring income of Rs. 44104390/-. The assessment u/s 143 (3) of The Income Tax Act was passed on 28/12/2007 by the learned assessing officer determining the total income of the assessee at INR 5 6783515/- by making following additions. a. Disallowance u/s 14 A of the income tax act of INR 8 403/- b. disallowance of loss on sale of securities debited to the profit and loss account of INR 1 2435157/- c. disallowance of expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, without pinpointing any particular expenditure, which can be attributable to the earning of dividend income by the assessing officer, he deleted the above disallowance. 7. The learned departmental representative vehemently submitted that as the assessee has earned huge dividend income and therefore the disallowance u/s 14 A of the income tax act is required to be made which has been made by the learned assessing officer on proportionate basis. 8. The learned authorised representative vehemently submitted that the assessee has earned dividend income however; no expenditure has been incurred by the assessee for earning of exempt income. He submitted that in absence of any satisfaction of the learned assessing officer that assessee has incurred any expenditure for the purpose of earning of exempt income the disallowance cannot be made. 9. We have carefully considered the rival contention and perused the orders of the lower authorities. In the present case the learned assessing officer has failed to record his satisfaction under section 14 A of the income tax act that assessee has incurred any expenditure for the purpose of earning of the exempt income. It is mandatory for learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the balance sheet for the year ended on 31/3/2005 wherein the securities of INR 1 828328401/- has been shown by the assessee as investment and not in stock in trade. It further referred to the object of the investment in shares stating that it was to earn income by way of a dividend etc., hence the losses incurred by the assessee on sale of shares should be capital loss and not revenue loss. He further stated that losses, which are not deductible from business income, include losses due to sale of security held as investment. He further referred to the circular number 4 of the central board of direct taxes which provides that when the assessee company has an investment comprising of securities than same are to be treated as capital asset and not the trading asset. Therefore, he held that the loss on sale of securities is a capital loss and loss on sale of securities cannot be debited to the profit and loss account and it is being disallowed. 11. The assessee aggrieved with the order of the learned assessing officer on this ground preferred an appeal before the learned CIT - A who held that such losses are business losses of the assessee. 12. The learned departmental represent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e insurance Company for conduct of life insurance business. In pursuance of its main object of the appellant company made investment in Sahara India life insurance Co Ltd and promoted the same and also purchased shares and securities of other companies from the market which were kept by it in its investment portfolio. From time to time, the appellant company was trading in securities and shares of other companies except for the life insurance company, which it had promoted. The appellant company has been showing income, which has been derived from the trading in the securities et cetera, as well as interest under the head business income in the past, which has been accepted by the Department all along. During the relevant previous year, there was a loss on sale of securities, which was claimed as business loss, and the same was disallowed by the assessing officer on the pretext that the assessee has given contradictory replies to his queries. During the course of assessment proceedings the assessing officer raised a quarry to the appellant as to justify the claim of loss on sale of securities in response to which the appellant"s responded that the business of the appellant is i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the main object of the appellant company was to promote life insurance business and, therefore, the investment, which the appellant company has made in the investment promotion of life insurance business, can be treated as an investment, which will be subjected to capital gains. As regards the other investment although wrong nomenclature given by the company, the same was in the nature of shortterm investment, which was being regularly, switched over and traded by the appellant company. The same is in the nature of short-term investment or stock in trade and therefore, the business of the appellant company being a keen to that of investment company, the income/loss arises there from was in the nature of business income/loss. Further, the action of the appellant in the preceding years of treating the income as business income also further strengthens stand of the appellant that the law is also is in the nature of business loss or otherwise the appellant would have opted to get the profit on purchase, sales of securities taxed under the head capital gains which, in turn, would have also helped it to save tax. The conduct of the appellant shows that the income arising from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... un chemicals and drugs Ltd 73 taxman.com 293 (Supreme Court). Admittedly this is not the 1st year of the claim u/s 35D out of block of 5 years. The honourable Supreme Court in para number 13 of the decision has held that in any case, it warrants reputation that in the instant case under the very same provisions benefit is allowed for the first two assessment years and, therefore, it could not have been denied in the subsequent block period. The issue before the honourable Supreme Court was also with respect to the benefit of section 35D of the act. In view of this, we dismiss ground number 4 of the appeal of the learned assessing officer. 17. Ground number 5 of the appeal is with respect to the disallowance of prior period expenses of Rs. 11425/- which is deleted by the learned CIT - A. The above issue is also squarely covered against the assessee in the decision of the Supreme Court in Saurashtra cement and chemical industries Ltd vs Commissioner of income tax 213 ITR 523/-. In the present case also the bills for the expenditure was received in the current financial year relating to the earlier financial year and therefore such expenditure has crystallized during this year and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NR 2 24140/- and expenses of INR 1 0154708/- (INR 1 0996898/- less INR 8 42910/-) claimed as interest expenses cannot be allowed and being added back to the income of the assessee." 21. The assessee aggrieved with the order of the learned assessing officer preferred an appeal before the learned CIT - A. He granted the deduction of the claim of the assessee of Rs. 224140/- under section 35D of the income tax act. He further directed the learned assessing officer to delete the disallowance of INR 1 0154708/- holding that the income is chargeable to tax of the assessee under the head business income and therefore assessee is entitled to deduction of interest expenditure claimed by it as same is related to the borrowed funds which in turn has been utilized in the business of the appellant. He also alternatively held that above expenditure is also deductible u/s 57 of the act under the head income from other sources. Therefore the revenue is aggrieved with the order of the learned CIT - A against the deletion of the addition of Rs. 224140/- and 10154708/- of the interest expenses has preferred this appeal in ITA 981/del/2011. 22. Ground number 1 of the appeal is general in nature and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horised representative vehemently supported the order of the learned CIT - A. 27. We have carefully considered the rival contentions and perused the orders of the lower authorities. The learned CIT - A has dealt with the whole issue along with the deduction claimed by the assessee u/s 35D of the income tax act as under:- "5.3.2 I have gone through the facts and circumstances of the case and argument placed before me by the learned counsel for the appellant. As already held by me in my decision against the ground number 2, the income which has been on by the appellant should be subjected to tax under the head business income as rightly claimed by the appellant and consequently the appellant is entitled to deduction of interest which has been claimed by him as an expenditure, the sum being relatable to the borrowed funds which in turn have been utilized in the business of the appellant. It is not the case of the assessing officer that the funds on which interest is being paid have not been used for the business purposes of the appellant and therefore I find no justification in disallowing the expenditure of INR 1 0154708/-. Alternatively also, if the income is subjected to tax u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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