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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 ..... xclude 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 u/s 14A - HELD THAT:- As 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 the source of the investments during the year, the appellant has not been able to demonstrate that no interest bearing borrowed funds were used for investments, hence, we are not inclined to disturb the factual finding given by Ld. CIT(A). In the result, this ground of appeal of assessee is dismissed. Powers of the Ld. CIT (A) to re-verify claim of Long Term Capital Loss - HELD THAT:- CIT (A) can confirm, reduce, enhance or annul the assessment, but he cannot remand the matter back to the file of AO. Direction of Ld. CIT(A) in directing the AO to re-verify claim of Long Term Capital Loss 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 ann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA No. 340/Mum/2021 And 7279/Mum/2019 - - - Dated:- 20-7-2022 - SHRI ABY T VARKEY, JUDICIAL MEMBER AND SHRI GAGAN GOYAL, ACCOUNTANT MEMBER Assessee by: None Revenue by: Sh. Dharam Veer Singh, CIT-DR ORDER PER GAGAN GOYAL, A.M: These cross appeals by Assessee and Revenue are directed against the common order of Ld. Commissioner of Income Tax (Appeals)-53, Mumbai [hereinafter referred to as the CIT (A) ] dated 03.09.2019 for the Assessment Year (AY) 2010-11. The assessee has raised the following grounds of appeal: Following grounds of appeal are without prejudice to each other: 1) The Learned CIT (A) has erred in law on facts in partiality upholding the Ld. AO's action of disallowance u/s 14A to the tune of Rs.62,07,459/-. 2) The Learned CTT (A) has further erred in this connection in law on facts in directing the learned assessing officer to exclude interest on any loan that is for specific purpose and only consider Interest on such loans that are general purpose for computing the disallowance while calculating disallowance u/s 14A. 3) The Learned CIT (A) has erred in law on facts in directing the learned assessing o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of AO and submissions made by the assessee as under: Assessee has earned dividend income of Rs.60, 39,871/ which was claimed as exempt. The assessee had not made any suo motu disallowance u/s 14A. The AO invoked section 14A read with Rule #D. The disallowance of Rs.2, 68, 68,693/- was computed as per Rule 8D, the computation of which has been given in para 4.11 of the assessment order. This comprises of expenditure of Rs.6, 57,738/- as direct expenses as per Rule 8D (2)(1). Rs.2.07,73,366/- out of interest expenses as per Rule 8D(2)( and Rs.54,37,789/- as 0.5% of investment of Rs. 108,75,57,795/- as per Rule 8D(2)(iii). 4.2. In the appellate proceedings, it was submitted that during the year, had incurred total administrative expenses of Rs. 11, 17, 78,569/-. None of the expenses were incurred towards earning exempt income of Rs.60, 35,871/-. The assessee had incurred / paid finance expenses of Rs. 16, 70, 74,363/-. Such interest is paid /credited on unsecured loan obtained by the appellant company during the previous year and the same is not to purchase shares during the year under consideration on overdraft facility from Punjab Maharashtra Coop. Bank Ltd. and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Particulars of investment Purchased / invested during the year Sold during the year Net increase in investment Quoted Shares Rs. 124,78,74,295 Rs. 124,78,74,295 Unquoted shares Rs. 16,24,00,010 Rs.2,51,50,000 Rs. 13,72,50,010 Investment in debentures Rs. 189,20,00,000 Rs. 189,20,00,000 Investment in capital account with firms Rs.14,49,09834 Rs. 14,11,60,544 Total Rs. 313,59,63,761 The appellant submitted that the investment in Kiran Promoters Developers to the tune of Rs.1, 28, 31,974/- and debentures of Rs. 189, 20, 00,000/- should be excluded since the interest income is offered for taxation under the head Income from Other Sources. Similarly, the investment in Housing Development Infrastructure Ltd. to the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... details of the source of investments during the year, the appellant has not been able to show that no borrowed funds are used for investments. Further the borrowings from Punjab and Maharshtra Co-op Bank Ltd. is not earmarked from which any specific purpose can be shown. However, the assessing officer is directed to exclude interest on any loan that is for specific purpose and only consider interest on such loans that are general purpose for computing the disallowance. Further, the assessing officer has already excluded increase in investments such as debentures and as such Rule 8D (2)(i) has been correctly applied, subject to what has been directed above. 4.10. The computation as per Rule 8D (2)(iii) at Rs 54,37,789 is upheld as the administrative expenses claimed are Rs 11.33 crores and the disallowance as per Rule 8D(2)(iii) at Rs 54,37,789 is reasonable. 4.11. The alternative argument that the disallowance cannot exceed the exempt income has support of judicial decisions. The same is accepted. Hence the disallowance u/s 14A is restricted to Rs 60, 35,871 plus Rs. 171588/- i.e. Rs. 62, 07,459/-. Ground of appeal no 2 is partly allowed. 7. For sake of clarity, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee that no expenditure has been incurred, in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). 51. Substituted by the IT (Fourteenth Amdt.) Rules, 2016, w.e.f. 2-6-2016. Prior to its substitution, sub-rule (2) read as under: (2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely:- (i) the amount of expenditure directly relating to income which does not form part of total income; (ii) in a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely :- A B C Where A = amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year ; B = the average of value of investme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... To understand the nuances of this issue, we are reproducing here-in-below the provisions of section 251 of the I.T. Act. Powers of the Commissioner (Appeals). 251. (1) In disposing of an appeal, the Commissioner (Appeals)] shall have the following powers- (a) in an appeal against an order of assessment, he may confirm, reduce, enhance or annul the assessment; [(aa) in an appeal against the order of assessment in respect of which the proceeding before the Settlement Commission abates under section 245HA, he may, after taking into consideration all the material and other information produced by the assessee before, or the results of the inquiry held or evidence recorded by, the Settlement Commission, in the course of the proceeding before it and such other material as may be brought on his record, confirm, reduce, enhance or annul the assessment;] (b) in an appeal against an order imposing a penalty, he may confirm or cancel such order or vary it so as either to enhance or to reduce the penalty; (c) in any other case, he may pass such orders in the appeal as he thinks fit. (2) The (Commissioner (Appeals)] shall not enhance an assessment or a penalty or reduce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member; [or] [(d) an eligible transaction in respect of trading in derivatives referred to in clause [(ac)] of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognised stock exchange; [or]] [(e) an eligible transaction in respect of trading in commodity derivatives carried out in a [recognised stock exchange] [, which is chargeable to commodities transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013),]] shall not be deemed to be a speculative transaction: [ Provided further that for the purposes of clause (e) of the first proviso, in respect of trading in agricultural commodity derivatives, the requirement of chargeability of commodity transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013) shall not apply.] [Explanation 1].-For the purposes of [clause (d)], the expressions- (i) eligible transaction means any transaction,- (A) carried out electronically on screen-based systems through a stock broker ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... INCOME TAX : By virtue of insertion of clause (d) to proviso to section43(5), transactions in respect of trading in derivatives as prescribed in clause (d) inserted in proviso to section43(5) would not be a speculative transaction INCOME TAX : Section 73(1) as well as Explanation inserted by Taxation Laws (Amendment) Act, 1975 with effect from 1-4-1977 would not apply to loss having arisen in trading in derivatives being not speculative transaction which is excluded from definition of speculation transaction described under section43(5) [2022] 138 taxmann.com 187 (Bombay) Souvenir Developers (I) (P.) Ltd. v. Union of India Section43(5), read with sections28(i) and 73, of the Income-tax Act, 1961 - Speculative transactions (Derivative transactions) - Assessment year 2009-10 - Whether by virtue of insertion of clause (d) to proviso to section43(5), transactions in respect of trading in derivatives as prescribed in clause (d) inserted in proviso to section43(5) would not be a speculative transaction - Held, yes [Paras 43 and 44] [In favour of assessee] Section73, read with section43(5), of the Income-tax Act, 1961 - Losses - In speculative business (Derivative transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sition of the relevant asset in the assessee's accounts. It would also, likewise, form part of the actual cost of the said asset in terms of section 43 read with Explanation 8 thereto, and not allowable under section 36(1)(iii) in the computation of business income. The accounting treatment of both the loan liability as well as of the interest thereon, i.e., as prescribed by the applicable accounting standards as well as the principles of commercial accounting, is in complete harmony and agreement with the corresponding provisions of the Act. 19. As the debenture funds form part of the capital structure of the enterprise, the relevant provisions of the Companies Act provide that its profits are to that extent, and over the period of its currency, set aside for the purpose. This ensures, simultaneously, two things. Firstly, that the debentures are redeemed out of the profits of the enterprise and, two, that the profits are capitalized to that extent. This is also a measure of prudence, which is a fundamental accounting assumption, so that even if not mandated by the provisions of the Companies Act, is so by the accounting norms. The Companies (Acceptance of Deposit) Rules, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany. The issue, in fact, is not if it is a 'provision' against an ascertained liability or a 'reserve' per se, but whether it could be considered as deductible in computing the profit of the enterprise. On the contrary, as afore stated, the said accounting treatment, i.e., the set aside of profit, ensures capitalization of the profits, so that the debenture funds forming part of the capital structure, the same (capital) is no depleted on the redemption of the liability representing the said source of funds. In short, the liability, for the discharge of which the profits are being set aside, is in the capital field, so that neither the liability (on its assumption) nor the profit set aside (for its discharge) could be considered as a charge against the profits. This is precisely the reason that the same is not either claimed or allowed as deduction in the computation of income under the regular provisions of the Act. 22. Accordingly, the adjustment made by the assessee in the computation of book profit undersection115JB gets validated. 23. Further reliance is placed on the judgement of Hon ble Apex Court in the case of National Rayon Corporation Limited vs. C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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