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TMI Blog2019 (10) TMI 1069X X X X Extracts X X X X X X X X Extracts X X X X ..... e. This triggers applicability of section 14A which is based on theory of apportionment of expenditure between taxable and non-taxable income. Therefore, to that extent, expenditure incurred in acquiring those shares will have to be apportioned In Vireet Investment (P.) Ltd. [ 2017 (6) TMI 1124 - ITAT DELHI] held that only those investments are to be considered for computing average value of investment which yielded exempt income during the year. We are of the considered view that the ratio laid down in the above decision is squarely applicable in the instant case. Therefore, we set aside the order of the Ld. CIT(A) for the impugned assessment years and restore the matter to the file of the AO to make a de novo order after following the ratio laid down in Vireet Investment (P.) Ltd.(supra). We direct the assessee to file the relevant documents/evidence before the AO. Needless to say, the AO would give a reasonable opportunity of being heard to the assessee before finalizing the order. - ITA No. 326-328/MUM/2018, ITA No. 359-361/MUM/2018 - - - Dated:- 16-10-2019 - Shri C.N. Prasad (Judicial Member) And Shri N.K. Pradhan (Accountant Member) For the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act in respect of expenditure allegedly incurred towards earning of income from investment that are strategic in nature. 5. The CIT(A) ought to have held that no disallowance could be made under section 14A of the Act in respect of those investments which did not yield any exempt income during the year. 4. In a nutshell, the facts are that the assessee filed his return of income for the A.Y. 2009-10 on 30.09.2009 declaring total income of ₹ 49,10,950/-, claiming current year loss of ₹ 29,19,34,970/-. Thereafter, he filed a revised return of income on 04.03.2010 declaring total income at Rs. Nil, claiming current year loss of ₹ 29,31,93,246/-. In the computation of income, the assessee has shown dividend income of ₹ 23,88,051/- and claimed it as exempt u/s 10(34) of the Act. Similarly, it claimed share of profit from firms at ₹ 61,590/-. During the course of assessment proceedings, the Assessing Officer (AO) asked the assessee to explain as to why provisions of section 14A r.w. Rule 8D should not be applied. In response to it the assessee filed a reply which has been produced at para 4.2 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 471 of the Report]. It is stated by him that in the present case the assessee has followed the formula laid down in Rule 8D and applied the same to the average value of investment. Thus it is stated that in these circumstances, the dissatisfaction, if any, as recorded by the AO has no objective basis and if this proposition is accepted, then the disallowance as made by the assessee needs to be accepted. Alternatively, the Ld. counsel submits that investments which have not yielded dividend income may be excluded from the investments for computation of average value of investments for the purposes of Rule 8D. In this regard, reliance is placed by him on the decision in ACIT v. Vireet Investment (P.) Ltd. 165 ITD 27 (Del) (SB). Another limb of the alternate submission made by the Ld. counsel is that stock-in-trade may be excluded from the investments for computation of average value of investments for the purpose of Rule 8D. In this regard, reliance is placed by him on the order of the Tribunal in the case of Nice Bombay Transport (P.) Ltd. v. ACIT, order dated 19.11.2018 in ITA No. 1331/Del/2012 and Punjab National Bank v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out for disallowance u/s 14A r.w. Rule 8D, the AO while calculating the average investments has included to the credit balance of firms in the books of the assessee, whereas for the purpose of 14A r.w. Rule 8D only average investment is to be taken and not the credit balance with firms as it is not a investment in the books of firms but it is a liability payable to the firm. 12. For AY 2012-13, the assessee has filed the following additional grounds of appeal: 1. The AO while working out disallowance u/s 14A r.w. Rule 8D of the Act has made calculation error while working out average investments in shares and stock in trade in shares. The average investment is wrongly worked out at ₹ 25,06,40,395/- instead of ₹ 12,53,20,197/-. 2. While working out disallowance under 14A r.w. Rule 8D, the AO has calculated disallowance of Administrative Expenses wrongly at ₹ 12,53,20,198/- i.e. 50% of ₹ 25,06,40,395/- instead of 0.5% of ₹ 12,53,20,197/- which works out to ₹ 6,26,601/-. 3. The Ld. CIT(A) has failed to dispose of grounds (No. 10 17) with regard to calculation error of average investments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. counsel, in addition to the contentions for AYs 2009-10 and 2011-12 submits that the AO has committed the following mistakes in computation of disallowance u/s 14A r.w. Rule 8D: i. The value of investments and stock in trade as on 01.04.2011 was ₹ 10,73,16,376 and as on 31.03.2012 was ₹ 14,33,24,019. The aggregate value of such investments as at the beginning and at the end of the year was ₹ 25,06,40,395 (being ₹ 10,73,16,376 + ₹ 14,33,24,019). The average value of investments would be ₹ 12,53,20,197 (being of ₹ 25,06,40,395). However, the AO has erroneously treated the amount of ₹ 25,06,40,395 being the aggregate value of such investments as at the beginning and at the end of the year as the average value of investment instead of ₹ 12,53,20,197. This will have an impact on the computation of disallowance as per rule 8D(2)(ii) and (iii). ii. For the purpose of rule 8D(2)(iii) 0.5% has to be applied to the average value of investments. Firstly, as stated above, the average value of investments have been taken as ₹ 25,06,40,395 (instead of ₹ 12,53,20,197). Secondly, tho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rks out to ₹ 11,014/-. However, the AO was not convinced with the said explanation of the assessee for the reason that in the computation of income the assessee has not made disallowance of any expenditure incurred for earning income which does not form part of total income. Thereafter, following the judgment of the Hon ble Bombay High Court in Godrej Boyce Manufacturing Co. Ltd. (supra), he computed the disallowance u/s 14A r.w. Rule 8D. For AY 2011-12, during the course of assessment proceedings, the AO asked the assessee to explain as to why the disallowance u/s 14A r.w. Rule 8D should not be made. In response to it the assessee filed a reply which was not acceptable to the AO for the reason that the basic object of introduction of section 14A in the Act is to disallow the direct and indirect expenditure incurred in relation to income which does not form part of total income irrespective of the fact that business is composite or not. Thereafter, the AO computed the disallowance u/s 14A r.w. Rule 8D. We refer here to para 4.1 and 4.2 of the assessment order dated 25.03.2014 passed by the AO. For AY 2012-13, durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als are already filed, they should be withdrawn. A reading of this circular would make it clear that the issue was as to whether income by way of interest on securities shall be chargeable to income tax under the head 'income from other sources' or it is to fall under the head 'profits and gains of business and profession'. The Board, going by the decision of this Court in Nawanshahar case, clarified that it has to be treated as income falling under the head 'profits and gains of business and profession'. The Board also went to the extent of saying that this would not be limited only to co-operative societies/Banks claiming deduction under Section 80P(2)(a)(i) of the 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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