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TMI Blog2022 (11) TMI 175X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance while calculating disallowance u/s 14A. 3) The Learned CIT (A) has erred in law & on facts in directing the learned assessing officer to re-verify claim of long-term capital loss of Rs.7,82,60,511/- which otherwise accepted by him. 4) The Learned CIT (A) has erred in law & on facts in enhancing the income in case of Appellant Company by treating loss on sale of derivatives to the tune of Rs.9, 77, 79,340/- as speculative loss (with its consequential limitation to be carried forward periods and adjustments) and not a business loss as declared by the Appellant Company and accepted by the assessing officer. 5) The Learned CIT (A) has erred in law & on facts in enhancing the income in case of Appellant Company by disallowing treatment of reduction of debenture redemption reserve to the tune of Rs.18,40,00,000/- while computing book profit under section 115JB of the I.T Act, 1961. 6) The Appellant craves leave to add to and/ or amend and/ or delete and/ or modify and/ or alter the aforesaid grounds of appeal as and when the occasion demands. 7) All the aforesaid grounds of appeal are independent, in the alternative and without prejudice to one another." 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se shares during the year under consideration on overdraft facility from Punjab & Maharashtra Coop. Bank Ltd. and the same is utilized towards payment of creditors, payment of expenses, payment of advance for land. Hence, the assessee company had not incurred / paid any direct or indirect expenditure towards earning the exempt income and therefore section 14A r.w.r. 8D cannot be invoked. 4.3. Further, it was submitted that the assessee company had incurred demat charges of Rs.6,57,738/- duly debited / claimed against long term capital gain and short term capital loss and it was not debited to profit & loss account. Therefore, on without prejudice basis, disallowance u/s.14A can be restricted to the extent of Rs.6, 57,738/-. It was contended that there was no objective satisfaction recorded that the assessee has incurred expenditure to earn tax free income. It was further contended that no amount of interest expenditure should have been taken into account for computing the disallowance as per Rule 8D. It was submitted that the assessee company had incurred interest expenditure to the tune of Rs. 16, 70, 74,363/-. The interest was on unsecured loans obtained by the appellant compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idends of Rs. 60,35,871/- as exempt as seen from the computation of income filed in respect of the return of income filed by the appellant. There is share of profit from partnership firm of Rs.171588/-. The appellant did not compute any disallowance u/s 14A in the computation of income. There is a large increase in investments during the year having gone up from Rs 47.19 crores to Rs 360.79 crores during the year. The finance cost was Nil in preceding year but is Rs 16.70 crores in current year. The administrative expenses have gone up from Rs 1.14 crores last year to Rs 11.33 crores in the current year. The details of dividend income claimed as exempt were tabulated as follows: Name of the company Amount (Rs.) DHFL 48,81,063 Ruchi Soya Industries 1,18,000 India Bulls Securities 6,00,000 Amtek Auto Limited 29,000 Others 4,07,808 Total 60,35,871 4.6. The appellant has submitted that the assessing officer has not recorded has satisfaction that expenditure is incurred for earning of exempt income. I find that the assessing officer has clearly expressed his dissatisfaction with the claim of the appellant that no expenses are attributable to earning of exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act :] [Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001.] [Explanation.-For the removal of doubts, it is hereby clarified that notwithstanding anything to the contrary contained in this Act, the provisions of this section shall apply and shall be deemed to have always applied in a case where the income, not forming part of the total income under this Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in that situation Rule 8D will come into picture as mentioned (supra) and a formula for calculation of disallowance has been prescribed. 9. However, the total disallowance calculated under section 14A read with Rule 8D is restricted to the extent of exempt income earned by the assessee. 10. Considering the facts of the case, order of the AO and findings of the Ld. CIT (A), we are of the considered view that assessee is liable for disallowance of Rs. 62, 07,459/- as determined by the Ld. CIT (A), we are not inclined to disturb the order of Ld. CIT(A). Hence, this ground of appeal of the assessee is dismissed. 11. Ground No.2 is with reference to the direction of Ld. CIT (A) to the AO to exclude interest on any loan that is for specific purpose and only consider interest on such loans that are for general purpose for computing the disallowance while calculating disallowance under section 14A. 12. We have considered assessee's ground of appeal mentioned (supra) and found that assessee's interest cost had been increased from Rs. Nil to Rs. 16.70 Cr. in current year and fresh investments as well as fresh borrowings have also gone up. Despite of a specific query seeking details of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Rs. 7,82,60,511/- will tantamount to remand of matter back to the file of AO which is not permissible in the eyes of law. If required and Ld. CIT(A) deemed it fit to confirm, reduce, enhance or annul the assessment, he may ask for a report from the AO to act. Hence, this action of Ld. CIT (A) is bad-in-law and not sustainable. Hence, this ground of appeal raised by assessee is allowed. 15. Ground No.4 pertains to enhancement of income by treating loss on sale of derivatives to the tune of Rs. 9,77,79,340/- as speculative loss (with its consequential limitation to be carried forward periods and adjustments) and not a business loss as declared by the assessee and accepted by the AO. For ready reference, we are reproducing here-in-below the provisions of section 43(5) as under: "(5) "speculative transaction" means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrip's: Provided that for the purposes of this clause- (a) a contract in respect of raw materials or merchandise entered into by a person in the cours ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anent account number allotted under this Act; (ii) "recognised stock exchange" means a recognised stock exchange as referred to in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and which fulfils such conditions as may be prescribed and notified by the Central Government for this purpose.] [Explanation 2.-For the purposes of clause (e), the expressions- (i) "commodity derivative" shall have the meaning as assigned to it in Chapter VII of the Finance Act, 2013; (ii) "eligible transaction" means any transaction,- (A) carried out electronically on screen-based systems through member or an intermediary, registered under the bye-laws, rules and regulations of the [recognised stock exchange] for trading in commodity derivative in accordance with the provisions of the Forward Contracts (Regulation) Act, 1952 (74 of 1952) and the rules, regulations or bye-laws made or directions issued under that Act on a [recognised stock exchange]; and (B) which is supported by a time stamped contract note issued by such member or intermediary to every client indicating in the contract note, the unique client identity number allotted under the Act, rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of loss on sale of derivatives to the tune of Rs. 9,77,79,340/- is not sustainable, hence deleted. In the result, this ground of appeal of assessee is allowed. 17. Ground No.5 pertains to enhancement made by Ld. CIT(A) by disallowing treatment of reduction of debenture redemption reserve to the tune of Rs. 18,40,00,000/- while computing book profit under section 115JB of the Act. 18. Debenture is a loan liability, i.e., borrowed capital of the entity raising funds through the issue of debentures. The said liability is classified as a secured loan in the balance-sheet prepared under Part I of Schedule VI to the Companies Act, 1956 [Companies Act]. The interest accrued on the same would be a revenue expenditure of the enterprises, whether the said capital is utilized as working capital or for acquisition of any fixed asset, or for even discharge of any loan or liability undertaken earlier inasmuch as there is thereby a substitution of the source of financing of the business purpose for which the said liability was assumed therewith. The said interest would stand to be debited to the profit and loss account or the operating statement of the enterprises for the relevant p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asure to protect investor's confidence as well as to promote investment climate and corporate discipline. The set aside of profits is, therefore, only a sinking fund to fund (meet) a capital liability (out of the profits). 20. The set aside of profits, though for meeting a liability, is of one on capital account so that neither the assumption thereof (the liability) nor its liquidation (discharge) would impact the operating statement of the enterprises, i.e., the company's profit and loss account prepared /to be prepared under Parts II and III of Schedule VI to the Companies Act. The adjustments to the book profit undersection115JB are again also consistent with the preparation of the profit and loss account under the Companies Act. The set side of the profits is not to meet a trading liability or a liability on revenue account, so as to form part of or get incorporated therein, i.e., the profit and loss account. In fact, no set aside for meeting a trading liability would be required in actual practice. As such a liability would itself be charged to the operating statement, reducing the profit to that extent. That is, even if not actually discharged out of the profits, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of Section 14A which apply even if no exempt income has actually been earned or received during the year in any form whatsoever." (2) "On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in reducing the addition u/s 14A of the Income Tax Act, 1961 from Rs. 2,68,68,693 to Rs. 62,07,459 by ignoring the provisions of CBDT Circular no. 5/2014 dated 11.02.2014 wherein, it has been clarified that the Rule 8D r.w.s.14A provides for disallowance of expenditure even where the assessee in particular has not earned exempt income" The appellant prays that the order of Commissioner of Income-tax (Appeal) on the above ground be set aside and that of the Assessing Officer be restored. The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary." 27. Both the grounds of appeal raised by Revenue has already been elaborately discussed in assessee's appeal (supra) in para 10 & 12 wherein grounds raised by assessee has been adjudicated, hence no separate adjudication is required here. In the result, keeping in view the findings of para-10 & 12 of assessee's appeal, grounds raised by Revenue are dismissed. 28. In the resu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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