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TMI Blog2021 (1) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... n case [ 2019 (1) TMI 689 - ITAT DELHI] CIT -A rightly directed the granting of exemption under Section 10(23G) of the Act in respect of interest on such bonds whose certificate of exemption was filed before him. new certificates have also been received after the disposal of the appeal by the CIT(A) and he has sought for rectification of the above in the light of these certificates - after having gone through these submissions and material placed on record, think it fit in the interest of justice to set aside this issue to the file of the Assessing Officer with a direction to consider the assessee s claim for exemption under Section 10(23G) on its merits on the basis of the certificates that it may now produce in respect of the addition that was sustained by the learned CIT(A). If the assessee, for any reason, is not able to produce such certificates when the Assessing Officer is giving effect to, the Assessing Officer is free to confirm the addition to that extent. Disallowance of expenses u/s 14A - Assessee has suo moto made addition - We find that CIT(A) by following the orders of first appellate authorities had restricted the disallowance to the extent of 10% of the exempt inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payment was genuine or whether it was out of income from undisclosed sources. The terms of section 40A(3) are not absolute. Consideration of business expediency and other relevant factors are not excluded. Genuine and bona fide transactions are not taken out of the sweep of the section. Considering the totality of the facts cited herein above and following the aforesaid decision of Hon ble Apex Court, we are of the view that no disallowance of the expenses is called for. Thus the ground of appeal of the assessee is allowed. Levy of penalty u/s 271(1)(c) - denial of claim for exemption u/s 10(23G) and payment of penalty - HELD THAT:- AO has not recorded any satisfaction in the assessment order but had levied penalty for concealment of income. Considering the aforesaid facts in the light of the decision of Hon ble Bombay High Court in the case of Samson Perinchery [ 2017 (1) TMI 1292 - BOMBAY HIGH COURT] we are of the view that in the present case the basic condition for levy of penalty has not been fulfilled and that the penalty order suffers from non-exercising of jurisdiction power of AO and therefore penalty order cannot be upheld. We accordingly set aside the penalty order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10% of the total exempt income. It is prayed that the additions being unwarranted be deleted. 6. That the Learned Commissioner of Income Tax (Appeals) was not justified in confirming the additions made by Assessing Officer in the case of loss in investment amounting to ₹ 2,71,36,824/-. It is prayed that the additions being unwarranted be deleted. 7. That the learned Commissioner of Income Tax (Appeals) was not justified in confirming the action of Assessing Officer in disallowance of expenditure of ₹ 4,70,178/- as penalty. It is prayed, the same may be allowed. 8. That the learned Commissioner of Income Tax (Appeals) was not justified in disallowing an amount of ₹ 4,331/- treating payment of ₹ 21,657/- in contravention of section 40A(3) of Income Tax Act 1961. It is prayed, the same may be allowed. 9. That the above grounds of appeal are independent and without prejudice to one another. Your appellant craves leave to add, alter, amend or delete any of the grounds of appeal at the time of hearing." 4. Before us, Ld AR submitted that ground No 1 being general needs no separate adjudication. He thereafter submitted that Ground No 2 and ground No 3 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Tribunal vide order dated 16.03.2018 in ITA No.3843/Del/2010 had dismissed the ground of the assessee. He pointed to the relevant findings of the Tribunal which are reproduced in the synopsis that has been filed. He therefore, submitted that the issue be decided accordingly. 7. As far as ground No 3 is concerned, he submitted that in case in ground no 2, if the profits on the sale of investment in HTM Categories are held to be on account of capital gain, then the gains should be allowed to be set off against the carry forward capital loss. 8. Learned DR on the other hand supported the order of AO and CIT(A) and submitted that on identical issue the Co-ordinate Bench of Tribunal in earlier year has decided the issue against the assessee and there are no change in the facts in the year under consideration. He therefore submitted that the order of CIT(A) be upheld. 9. We have heard the rival submissions and perused the material available on record. The issue in ground No 2 is with respect to the treatment of profit on sale of HTM Securities. It is the plea of the assessee that the securities being held on capital account, the profit earned be held to be of capital in nature w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oresaid three companies to be valid for AY 2004-05 and accordingly held the assessee to be entitled to exemption u/s 10(23G) aggregating to ₹ 6,35,95,175/-. He accordingly granted the relief to that extent and confirmed the action of AO to the extent of denial of exemption aggregating to ₹ 38,31,28,642/- as the assessee could not produce any evidence about it being qualifying for exemption. Aggrieved by the order of CIT(A), assessee is now before us. 14. Before us, Learned AR reiterated the submissions made before the lower authorities and further submitted that the receipt of approval for the various infrastructure project by different companies from CBDT is a continuing exercise and delay occurs due to the time taken by the CBDT in assessing and certifying the applicant units. He submitted that subsequent to the order passed by the CIT(A), assessee has received certain more notifications showing the projects to be approved u/s 10(23G) and therefore the matter may be remitted to the file of AO for verification. He submitted that identical issue arose in A.Y 2005-06 and the Hon'ble Tribunal had restored the issue to the file of the AO with a direction to consider the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m for exemption under Section 10(23G) on its merits on the basis of the certificates that it may now produce in respect of the addition that was sustained by the learned CIT(A). If the assessee, for any reason, is not able to produce such certificates when the Assessing Officer is giving effect to, the Assessing Officer is free to confirm the addition to that extent. This issue is, therefore, to be treated as allowed for statistical purposes." 17. Since the facts of case in the year under consideration and that for A.Y 2005-06 are identical, we therefore, following the order of Co-ordinate Bench in assessee's own case for A.Y 2005- 06 (supra) and for similar reasons restore the issue to the file of AO. Thus the ground of appeal of the assessee is allowed for statistical purposes. 18. Ground No.5 is with respect to disallowance of expenses u/s 14A. 19. AO noted that assessee had claimed ₹ 242,0870,611/- as exempt income and had suo motto held ₹ 15,36,844/- as expenses attributable in terms of section 14A of the Act. Assessee was asked to show-cause as to why proportionate expenses in relation to tax free income earned by the Bank following the Assessment order for A.Y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect to disallowance u/s 14A of the Act. We find that CIT(A) by following the orders of first appellate authorities had restricted the disallowance to the extent of 10% of the exempt income. We find that identical issue arose before the Tribunal in Assessee's own case in earlier years. The Co-ordinate Bench of Tribunal following the order of Tribunal in assessee's own case in ITA Nos. 4253 & 2236/Del/2011, ITA Nos. 1788 & 4722/Del/2012, ITA Nos. 2406/Del/2013, ITA No. 2469/Del/2014 for Assessment Years 2006-07 to 2010-11 dated 09.01.2019 as under: "8. We have carefully perused the decision in the case of Maxopp Investment Ltd versus CIT (2018) 91 taxman.com 154 (SC) wherein the Hon'ble Apex Court considered two cases wherein the question of predominant intent of investment in shares was pleaded, though on different facts, on the ground that the objective of investing in shares was not to earn the dividend income, but to either retain controlling interest over the company in which the investment was made or to earn the profit from trading in shares. The question was whether the disallowance under section 14A of the Act could be invoked in the cases where exempt income was e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This triggers the applicability of Section 14A of the Act which is based on the theory of apportionment of expenditure between taxable and non-taxable income as held in Walfort Share and Stock Brokers P Ltd. case. Therefore, to that extent, depending upon the facts of each case, the expenditure incurred in acquiring those shares will have to be apportioned. 40) We note from the facts in the State Bank of Patiala cases that the AO, while passing the assessment order, had already restricted the disallowance to the amount which was claimed as exempt income by applying the formula contained in Rule 8D of the Rules and holding that section 14A of the Act would be applicable. In spite of this exercise of apportionment of expenditure carried out by the AO, CIT(A) disallowed the entire deduction of expenditure. That view of the CIT(A) was clearly untenable and rightly set aside by the ITAT. Therefore, on facts, the Punjab and Haryana High Court has arrived at a correct conclusion by affirming the view of the ITAT, though we are not subscribing to the theory of dominant intention applied by the High Court. It is to be kept in mind that in those cases where shares are held as 'stock-in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... common knowledge of the assessee that such shares would generate dividend income as well as and when such dividend income is generated that would be earned by the assessee only. Hon'ble Apex Court in unequivocal terms held that in contrast, where the shares are held as stock in trade, this may not be necessarily a situation and the main purpose was to liquidate those shares whenever the share price goes up in order to earn profits. Hon'ble Apex Court, therefore, while rejecting the theory of dominant purpose in making investment in shares- whether it was to acquire and retain controlling interest in the other company or to make profits out of the trading activity in such shares - clearly made a clear distinction between the dividend earned in respect of the shares which were acquired by the assessee in their exercise to acquire and retain the controlling interest in the investee company, and the shares that were purchased for the purpose of liquidating those shares whenever the share price goes up, in order to earn profits. It is, therefore, clear that though not the dominant purpose of acquiring the shares is a relevant for the purpose of invoking the provisions under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n loss. Aggrieved by the order of AO, assessee carried the matter before the CIT(A) who upheld the order to AO. Aggrieved by the order of CIT(A), assessee is now before us. 25. Before us, Learned AR reiterated the submissions made before the lower authorities and further submitted that identical issue arose in assessee's own case in earlier years and the Co-ordinate Bench of Tribunal in ITA No.2469/Del/2011 and 4241/Del/2010 order dated 09.01.2019 decided the issue in assesse's favour. He pointed to the relevant findings of the tribunal. He therefore submitted that following the order for earlier year, the issue be decided. Ld DR on the other hand did not controvert the submissions of Ld AR but however supported the order of lower authorities. 26. We have heard the rival submissions and perused the material available on record. The issue in the present ground is with respect to disallowing the loss on investment by holding it to be notional in nature. We find that identical issue arose in assessee's own case in ITA No 2469/Del/2011 order dated 09.01.2019 wherein the Coordinate Bench of Tribunal noted as under: "26. We have gone through the record and perused the order dated 16/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the facts of the case under consideration and that of earlier years. Further, Revenue has also not placed any material on record to demonstrate that the order of the Tribunal in Assessee's own case cited hereinabove has been set aside/ over ruled or stayed by higher judicial forum. We therefore, following the decision of the Co-ordinate bench in assessee's own case dated 09.01.2019 and for similar reasons hold that the AO was not justified in disallowing the claim of loss. We therefore direct the AO to allow the claim of loss. Thus the ground of appeal of the assessee is allowed. 28. Ground No.7 is with respect to disallowance of ₹ 4,70,178/- on account of penalty. 29. AO noted that in the tax audit report, it was pointed by the tax auditor that sum of ₹ 4,70,178/- has been debited to Profit and Loss account which is in nature of penalty. Assessee was asked to show-cause as to why the same not be disallowed. AO noted that no specific reply was received by the assessee. He therefore disallowed ₹ 4,70,178/-. Aggrieved by the order of AO, assessee carried the matter before the CIT(A). CIT(A) upheld the action of AO. Aggrieved by the order of CIT(A), assessee is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rajol in North East region in cash to the contractor on account of urgency to the contractor due to non availability of clearing facility in North East State. He submitted that the genuineness of the payment is not in doubt and considering the scale of activities, the disallowance be deleted. Learned DR on the other hand, supported the order of AO. 35. We have heard the rival submissions and perused the material available on record. The issue in the present ground is with respect to disallowance u/s 40A(3) for being the payment made in cash. It is assessee's submission that the payment was paid by the Branch in North East region to the Contractor on account of urgency and due to non availability of clearing facilities available in North East States. The aforesaid submission of the assessee has not been controverted by Revenue. Further the amount of expenditure which has been incurred in contravention of the provisions of s. 40A(3) is very small as compared to the total expenses of the Assessee. The expenditure has not been found to be bogus or not genuine. We find that Hon'ble Apex Court in the case of Attar Singh Gurmukh Singh vs ITO [1991] 191 ITR 667 (SC) has observed that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stances of the case and in law the authorities below erred in levying a penalty under section 271(1)(c) of Income tax Act 1961 on the alleged ground of furnishing inaccurate particulars of income. The action being most arbitrary, palpably erroneous and grossly unlawful must be quashed with directions for appropriate relief to the appellant. " 42. Before us, Learned AR submitted that the assessee has made all the necessary disclosure before the authorities. He thereafter pointing to the assessment order submitted that in the assessment order no satisfaction about the nature of default i.e. whether assessee has filed inaccurate particulars of income or has concealed the income has been recorded by the AO. He submitted that in the penalty order, the AO has held it to be case of furnishing of inaccurate particulars of income. He submitted that in the absence of clear satisfaction recorded by AO, no penalty u/s 271(1)(c) can be levied by the AO. He therefore, submitted that penalty levied by the AO and confirmed by the CIT(A) be deleted. The Learned DR on the other hand, supported the order of AO and CIT(A) and further relied on the decision in the case of MAK Data Pvt. Ltd. Vs. CIT re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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