9911796707
TMI Blog2016 (3) TMI 1404X X X X Extracts X X X X X X X X Extracts X X X X ..... has erred in deleting the disallowance made by the Assessing Officer u/s.14A. 2. On the facts & in the circumstances of the case and in law, the Ld.CIT(A) has erred in not considering Para.23.9 of the Hon'ble ITAT's order in the case of Daga Capital Management P Ltd (ITA No.8057/Mum/2003) wherein it is held that a person may make investment in shares and the shares so purchased may be held as 'stock in trade or 'investment'. The word 'investment' in this rule refers to the making of purchase of shares not holding it as investment. 3. On the facts & in the circumstances of the case and in law, the Ld.CIT(A) has erred in not considering the decision of Bombay High Court in the case of M/s. Godrej & Boyce Mfg Co. Ltd, Mumbai vs. DCIT (ITA 626/10 & WP 758/10) vide order dated 12.8.2010 whereby the Hon'ble Court has upheld the validity of section 14A of the Income tax Act, 1961 and that the Hon'ble High Court has also held that the provisions of Rule 8D are applicable from Assessment Year 2008-09." The appellant prays that the order of the CIT(A) on the grounds be set aside and matter may be decided according to law. The appellant craves leave to amend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operty. Thus in nutshell, no expense has been claimed in respect of personal set. The assessee further submitted that investments have been made out of self accumulated surplus and capital account of the assessee, no funds have been borrowed for making such investments and, therefore, no interest has been paid in making any investments in personal account. Thus, there is a direct nexus between the own funds and personal investments. Thus, as regards personal set, no question of disallowance of interest or expenses arises as neither any interest nor any expenditure has been claimed in the personal set. The assessee relied upon the decision of Mumbai-Tribunal in the case of Sh Pawan Kumar Parmeshwarlal in ITA No. 530/Mum/2009. With respect to the specific issue of disallowance of interest expenditure, it was submitted by the assessee that during the year interest expenditure has been incurred for business purposes and investments have been made out of profits earned by the assessee in past, therefore, no question of disallowance of interest arises. The interest claimed as expenditure in books of accounts of share business during the year has been paid to share brokers for amount fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance made by the AO u/s. 14A to Rs. 24,64,871/-. The decision of the CIT(A) was not accepted by the Revenue and appeal to the Mumbai-Tribunal was filed, decision of which was pending till the finalization of the assessment order for the impugned assessment year by the AO. Therefore, following the decision of his predecessor for the assessment year 2008-09, the A.O. made disallowance u/s 14A of the Act amounting to Rs. 57,53,785/- by applying Rule 8D(2)(ii) and (iii) of the Income Tax Rules, 1962, vide assessment orders dated 28.12.2011 passed by the AO u/s 143(3) of the Act. 5. Aggrieved by the assessment order dated 28.12.2011 passed by the A.O. u/s 143(3) of the Act, the assessee preferred first appeal before the CIT (A). 6. Before the CIT(A), the assessee submitted that the A.O. has just followed the decision of his predecessor for the assessment year 2008-09 without considering the facts of the case and submissions made by the assessee. The assessee submitted that the assessee has suo-motu disallowed an amount of Rs. 19,80,509/- u/s 14A of the Act at the time of filing return of income with Revenue and once the assessee has suo-motu disallowed an expense, provisions of Rule 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... back with respect to personal set while preparing the computation of income and these investments have been made out of self accumulated surplus and capital account of the assessee and no funds have been borrowed for making such investments and therefore no interest has been paid in making any investments in personal account and there is a direct nexus between the own funds and personal investments, thus as regards personal set no question of disallowance of interest or expenses arise as neither any interest nor any expenditure has been claimed in the personal set. The assessee submitted that the A.O. without verifying the fact that the investment transactions are being made through separate bank account maintained for business and personal purposes disallowed the expenses u/s.14A of the Act by applying Rule 8D of Income Tax Rules, 1962. Thus, the disallowance has been made by the A.O. merely on the basis of conjectures and surmises and not on the basis of any evidence. The assessee relied upon the decision of the MumbaiITA Tribunal in the case of Shri Pawan Kumar Parmeshwarlal in ITA No. 530/Mum/2009, decision of Mumbai-Tribunal in the case of Godrej Industries Ltd. v. DCIT in ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r's the issue. Thus, it was contended that no disallowance can be made u/s Rule 8D(2)(ii) of the Income Tax Rules, 1962. As regards the issue of disallowance of expenditure by applying Rule 8D(2)(iii) of Income Tax Rules, 1962 @ 0.5% of expenses is concerned, it was submitted that the A.O. has treated the shares as stock-in-trade and has computed the disallowance of 0.5%. The assessee submitted that there is no investments under the business set which generate an income which does not form part of total income. The assessee submitted that the assessee is carrying on trading in shares and If there were no investments, Rule 8D of Income Tax Rules, 1962 automatically becomes inoperative as the same is based on calculation of investments and Rule 8D of Income Tax Rules, 1962 specifically talks of calculation based on investments. The assessee relied upon the decision of Delhi Bench of ITAT in the case of M/s Gillettee Group India v. ACIT. 7. The CIT(A) after considering the arguments of the assessee held that it is a pre-requisite that before invoking Rule 8D of Income Tax Rules, 1962, the A.O. must record his satisfaction to show that expenditure has been incurred by the assessee for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersonal investments and trading stock of shares and no administrative expenses were required to be incurred for such personal investments and once it is held that section 14A of the Act cannot be invoked for earning the dividend on shares held as stock-in-trade as the dividend was only incidental to the trading activity, it follows that no disallowance out of administrative expenses can be made out of business set of . The tax free investments in personal balance sheet such as RBI relied bonds are one time investment made in earlier years only and hence do not require any administrative expenses. The assessee has himself made a disallowance of Rs. 19,80,509/- u/s 14A of the Act. The A.O. has not recorded his satisfaction as to the incorrect claim made by the assessee having regard to the accounts of the assessee which is sine qua-non for invoking the applicability of Rule 8D of Income Tax Rules, 1962. The A.O. has not at all stated as to how the said disallowance made by the assessee was incorrect, hence, Rule 8D(2)(iii) of Income Tax Rules, 1962 cannot be invoked ignoring the disallowance u/s 14A of the Act made by the assessee. Accordingly, the CIT(A) restricted the disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for the relevant assessment year. However, the issue is whether the disallowance of any expenses can be made under Section 14A in relation to trading in shares. The department has placed reliance on the decision of the Special Bench of the Tribunal in the case of Daga Capital Management Pvt. Ltd. (supra), in which it has been held that section 14A would apply even to the dividend income for trading in shares. However, subsequently 'the Hon'ble High Court of Karnataka in the case of CCI Ltd. Vs. JCIT (supra), have, in relation to trading shares held that the assessee had not retained shares with the intention of earning dividend income which was only incidental to the shares remained unsold by the assessee. The High Court, therefore, held that no disallowance of expenses was required in relation to dividend from trading shares. Recently, Mumbai Bench of the Tribunal in the case of DCIT vs. M/s. India Advantage Securities (supra), have held that in view of the judgment of Hon'ble High Court of Karnataka in case of CCI Ltd. vs. JCIT (supra), the decision of the Special Bench of the Tribunal in the case of Daga Capital Management Pvt. Ltd. could not be followed and no dis ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
