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TMI Blog2022 (1) TMI 240X X X X Extracts X X X X X X X X Extracts X X X X ..... st paid for acquisition of the shares having not been claimed as deduction in any of the earlier years has been found false or has been controverted by Revenue by bringing any contrary material on record. In such a situation, we relying on the aforesaid decisions, are of the view that the interest payable by the assessee for acquisition of shares should be added to the cost of acquisition and therefore be considered while computing capital gains. We therefore direct the AO to allow the indexed cost on account of interest on shares to compute the deduction under capital gains. Thus the grounds of assessee are allowed. Disallowance u/s 14A - AO noticed that assessee had received dividend which was claimed as exempt u/s 10(34) - HELD THAT:- We find that AO had given detailed reason to discard the assessee s working of disallowance u/s 14A. In such a situation, we are of the view that the requirement of the statue has been satisfied. No infirmity in the action of AO in invoking the provisions of Rule 8D r.w. Section 14A for working the disallowance is concerned. Alternate submissions of the AR in working the disallowance u/s 14A only after considering the investment which have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Appeal No.87/2016-17 granted partial relief to the assessee. Aggrieved by the order of CIT(A), assessee is now before us and has raised the following grounds: 1. The Ld. CIT(A) erred on facts and in law in confirming the disallowance of ₹ 18,01,158/- being the indexed cost of interest having direct nexus to the purchase of shares of ANS Construction Ltd. in computing the capital gains from sale of the said shares. The disallowance made is wrong and bad in law and hence deserves to be deleted. 2. The Ld. CIT(A) as well as AO had failed to appreciate that interest cost is having direct nexus to the Investment in ANS shares. The complete details of cost as well as interest on the ICDs taken by the assessee for the purpose of said investments in the earlier years duly showing the nexus has been provided to CIT(A) as well as AO. Such interest cost having direct nexus to the investment should be allowed with indexation. 3. The Ld. CIT(A) erred on facts and in law in confirming the disallowance of ₹ 37,46,362/- u/s 14A by mechanically applying Rule 8D without appreciating the facts of the appellant s case. The addition is wrong and bad in law and should be de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that the interest cost being part of the cost of acquisition of the investment, at the time of sale of said investments and according to the provisions of Section 48 of the Act, the cost of acquisition, i.e. the basic cost plus the interest cost upto the date of holding of such investments has been indexed and reduced from the gross sale consideration to arrive at the long term capital gain. The submissions of the assessee was not found acceptable to AO. AO inter alia noted that though the claim of the assessee to the extent of funds having been received as ICDs is correct but assessee had not placed any material to demonstrate that the ICDs have been only utilized for acquiring the shares of ANS Construction Limited. He was therefore of the view that in the absence of the documents to authenticate the number of shares purchased, date of purchase, the assessee s claim w.r.t index interest cost amounting to ₹ 18,01,518/- remains unverifiable. He accordingly denied the claim of assessee of ₹ 18,01,518/- on account of indexed interest cost while computing Capital Gain on sale and held it to be not allowable. Aggrieved by the order of AO, assessee carried the matter b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e earlier years. The aforesaid contention of the assessee has not been controverted by Revenue by placing any material in its support. We find that identical issue arose in the case of Fritz Desilva (supra) before the Coordinate Bench of Mumbai Tribunal in ITA No.236/Mum/2010. The Co-ordinate Bench vide order dated 08.05.2015 for A.Y. 2005-06 and after relying on the decision of Hon ble Madras High Court in the case of Trishul Investments Ltd. (2008) 305 ITR 434 (Mad.) held that interest paid for acquisition of shares would partake the character of cost of shares and therefore the interest would be considered as cost of acquisition for the purpose of computing of capital gains. We further find that in the case of CIT vs. Maithreyi Pai (supra), the Hon ble High Court has held that the interest paid on borrowings for the acquisition of a capital asset must fall for deduction under Section 48, if the same sum has not been claimed as deduction under any other heads. Before us, the submissions of the assessee about the interest paid for acquisition of the shares having not been claimed as deduction in any of the earlier years has been found false or has been controverted by Revenue by b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that no efforts were made by the assessee to realize the dividend income and assessee had voluntarily added back ₹ 4,99,833/- on account of the gross salary of one Sr. Accounts Officers and part of Whole Time director s salary for working out the disallowance. He further submitted that AO has mechanically applied Rule 8D without recording the satisfaction as to why the working given by the assessee for working out the disallowance was not acceptable. He relying on the decision of Hon ble Delhi High Court in the case of Maxopp Investments Ltd. vs. CIT (2012) 347 ITR 272 (Delhi) submitted that Hon ble High Court has held that before invoking the disallowance u/s 14A of the Act, AO must record the satisfaction with respect to the correctness of the claim of the assessee in respect of such expenditure and only when the AO is not satisfied with the working of the claim of the assessee, the AO gets jurisdiction to determine the amount of disallowance. He therefore submitted that in the absence of any satisfaction being recorded by the AO about the working of disallowance by the assessee to be incorrect, the disallowance u/s 14A of the Act needs to be deleted. In the alternative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e find that Hon ble Delhi High Court in the case of CIT vs. Holcim India Pvt. Ltd. reported in (2014) 90 CCH 81 (Delhi) (HC) , Hon ble Gujarat High Court in the case of CIT vs. Corrtech Engineering Pvt. Ltd. 372 ITR 97 (Gujarat) and Hon ble Allahabad High Court in CIT v. Shivam Motors (P.) Ltd. [2015] 230 Taxman 63 (Allahabad) has held that Section 14A of the Act cannot be involved when no exempt income was earned. Before us, Learned AR has submitted that out of the total investments which the AO has considered for working of disallowance u/s 14A r.w.r 8D, the investments which had yielded dividend were to the extent of ₹ 20,55,16,081/- (as on 31.03.2013) and ₹ 20,98,25,264/- (as on 31.03.2012). The contention of the assessee that it has received dividend only from the aforesaid investments has not been controverted by Revenue. In such a situation, relying on the aforesaid decisions, we are of the view that disallowance u/s 14A needs to be re-worked on the basis of the investments which have yielded tax free income. We therefore direct the AO to work out the disallowance u/s 14A r.w.r 8D on the basis of investments which had yielded dividend. Thus Ground of assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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