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TMI Blog2024 (7) TMI 280X X X X Extracts X X X X X X X X Extracts X X X X ..... s completed by the AO by passing an order u/s. 143(3) of the Act, making addition on account of disallowance u/s. 14A read with Rule 8D of the Income Tax Rules, 1962 of Rs. 35,76,934/-, addition on account of treating loss of trading in shares Rs. 1,71,03,200/- as non-genuine and fabricated and addition on account of disallowance of speculation loss of Rs. 13,45,857/-. 2.1. The assessee filed an appeal before the Ld.CIT(A), who partly allowed the appeal restricting disallowance u/s. 14A to Rs. 13,970/- and deleted the additions on account of loss of trading in shares and speculation loss. 3. Aggrieved by the order of the Ld.CIT(A), the Revenue is in appeal before us with the following grounds of appeal: "1. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 35,62,964- u/s. 14A of the Act. 1.1. The Ld. CIT(A) has failed to appreciate that investment of Rs. 23,68,79,628/- was made in shares during the year, dividend income from which is exempt from tax. 1.2. The Ld. CIT(A) has failed to appreciate that since the assessee is not maintaining any separate account from which such investments had been made, the provision of Rule 8D are clearly applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. CIT(A) has failed to appreciate that in income Tax assessment proceedings, principle of preponderance of probability and normal human conduct/behaviour is applicable, which has been reiterated by the Hon'ble Supreme Court in various decisions. 3.6 Without prejudice to the aforesaid, the assessee being a company, such losses being losses incurred on trading of shares had to be treated as speculation loss in view of explanation to section 73 of the I.T. Act and, therefore, disallowable. 4. The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary." On Ground No.1 4. This ground relates with the disallowance of Rs. 35,76,934/- made by AO u/s. 14A r.w.Rule 8D and restricted by the Ld.CIT(A) to Rs. 23,970/-. The facts of the issue are such that during the year under consideration, the assessee has earned Dividend Income of Rs. 23,970/- as exempt income. As claimed by the assessee, the company has not made any direct expense to earn this exempt income and has not borrowed any funds specifically to fund the acquisition of such investments. It also has not incurred any administrative expense to earn this exempt income. The assessee on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me. The assessee is not required to deposit dividend warrant but is directly credited to bank account of assessee through ECS for which no specific administrative cost is required. The Assessing Officer, however, not satisfied with the submission of the assessee, calculated the disallowance u/s 14A as determined in accordance with Rule 8D. 4.3. During the course of proceedings before the Ld.CIT(A), the assessee placed reliance on some judicial proceedings. The Ld.CIT(A) considering the contention of the assessee restricted the disallowance to exempt income of Rs. 23,970/-. He also relied on the decision of the Ld.CIT(A) in case of assessee's own case of earlier years. The relevant para of his order is reproduced hereunder: "3.5. In view of the above facts of the case and the fact that identical issue on similar lines has been decided by this office in the immediately preceding years i.e. A. Y. 2013-14 dated 26/05/2017, A.Y. 2012-13 dated 17/04/2016 and also in A. Y. 2011-12 dated 20/08/2015, following the same and on merits, the disallowance u/s. 14A r.w. Rule-8D is restricted to Rs. 23,970/- i.e. exempt income in the form of dividend received. Since the appellant himself has su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred in relation to exempt income. The Court also noted that the AO must record reasons for not being satisfied with the correctness of the claim of the assessee regarding the expenditure incurred in relation to exempt income before proceeding to make a disallowance under Rule 8D. It was observed that in the present case, the AO had mechanically applied Rule 8D without recording the requisite satisfaction, thereby violating the procedural requirement stipulated under Section 14A(2) of the Act. 7.1. The Circular No. 05/2014 dated 11/02/2014, cited by the Revenue, suggests applying Section 14A even when no exempt income is earned, but this principle was deemed inapplicable to the facts of the current case. Conclusion: 8. We, therefore, uphold the Ld.CIT(A)'s decision to restrict the disallowance under Section 14A to the exempt income earned by the assessee, amounting to Rs. 23,970/-. Consequently, the Revenue's appeal on this ground is dismissed. On Ground No.2 9. This ground pertains to addition of Rs. 1,71,03,200/- made by AO on account of loss on sale of shares of Indian Infotech and Software Ltd. (loss of Rs. 44,21,400/-) and Shree Shalin Textile Ltd. (loss of Rs. 1,26, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ught on record to prove that the impugned transactions were sham. The Ld.CIT(A) also observed that nowhere in the report of investigations the name of assessee and his broker was mentioned and no information on the basis of which the addition was made was made available to the assessee for cross verification. The Ld.CIT(A) recorded that necessary documents like contract notes cum bills, Dmat statements, ledger account of broker and bank statements evidencing purchase and sale of shares were placed on records by the assessee. The Ld.CIT(A) placed on reliance of some judicial pronouncements including that of Hon'ble Gujarat High Court in case of Maheshchandra G. Vakil in 40 taxmann.com 326. 11. During the course of hearing, the Ld.Counsel for the assessee reiterated the facts and took us through the order of the Ld.CIT(A) and placed reliance on some judicial pronouncements including that of Hon'ble Gujarat High Court Judgment in the case of Prudent Finance (P) Ltd. (2013) 43 taxmann.com 317. 12. On the other hand, the Ld.DR relied on the order of AO. 13. We have heard the rival contentions and perused the material available on record. The AO disallowed the loss claimed by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that off market transactions were permitted in law, that there was no evidence to suggest that artificially they were sold at rates lower than the prevailing market rates and we further find that the Assessing Officer could not bring on record any material to show that the transactions were shown to be deliberately back-dated, the findings of the CIT (Appeals) as well as that of the Tribunal, in our opinion, call for no interference." 14. The Ld. DR has not controverted to the said decision. 15. After careful consideration of the facts, evidence, and submissions by both parties, we uphold the decision of the Ld.CIT(A) to delete the disallowance made by the AO. We concur with the Ld.CIT(A)'s observation that the AO failed to provide substantial evidence to disprove the genuineness of the transactions. We note the following key-points: * The AO's disallowance was based on information from the Investigation Wing without conducting independent verification or inquiries. * The assessee provided comprehensive documentary evidence to substantiate the genuineness of the transactions. * The investigation reports did not specifically implicate the assessee or their broker. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; Total depreciation as per IT Act pertaining to normal as well speculation business (iv) Share of profit from firm 900 (24,92,273) Profit from normal business (A) 88,17,482 Profit from Speculation Business Net profit as per P&L 20,48,829 Less: Depreciation (13,45,857) Profit from Speculation Business (B) 7,02,972 Total business profit (A+B) 95,20,454 16.2. Based on the findings and conclusion drawn by the Ld.CIT(A), it is evident that the amount of Rs. 13,45,857/- does not represent a speculation loss, but rather depreciation related to the speculation business. This depreciation has been separately accounted for by making a corresponding addition to the profits from the normal business, thereby having a nullifying effect on the returned income. As such, the observations made by the Assessing Officer are lack of factual basis. Consequently, this ground raised by the Revenue is dismissed. 17. In the combined result, the appeal filed by the Revenue is dismissed. Order pronounced in the Open Court on 2nd July, 202 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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