TaxTMI 
TaxTMI 
2006 (7) TMI 357
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessing Officer noted that the assessee has borrowed the money for shares held as investments as well as for trading. The assessee is an investment company and main object of the company is to earn income from investment, financing, leasing the equipment, trading in shares etc. The Assessing Officer also held that earning profit from trading in shares and earning dividend are inseparable from each other. 2.2 Learned CIT(A) confirmed the action of the Assessing Officer. He held that any decision for investment in share is being made to earn dividend as well as to earn profit thereon. He further held that activity of trading in share and earning of dividend income is camposite activity which is inter-related and inter-dependent. Thus, the earning of dividend in the case of dealer in shares is to be treated as business income and accordingly, the interest and depository/custodial charges in relation to such shares are to be proportionately disallowed on the basis of various components of income. 2.3 The learned counsel for assessee Shri V.P. Gupta submitted that the assessee being an investment and finance company in accordance with its Memorandum and Articles of Association was ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f section 14A, there cannot be proportionate disallowance so long as it is not held that the expenditure is incurred in relation to income which does not form part of the total income. Similarly, the depository and custodial charges are paid in respect of the demat account maintained for trading in shares. The shares can be traded only in de-materialize form and as per the norms of Securities Exchange Board of India (SEBI). Since the expenses are incurred wholly and exclusively for the purpose of business and not merely for earning the dividend income, no part of such expenditure can be attributed to earn the dividend income and no disallowance can be made on proportionate basis. The learned counsel for assessee relied upon the decisions of Minos Trading (India) (P.) Ltd. v. CIT [IT Appeal No. 1719 (Delhi) of 2002] and Asstt. CIT v. Eicher Ltd. [2006] 101 TTJ (Delhi) 369. 2.4 The learned DR, on the other hand, strongly relied upon appellate order. He submitted that since the assessee is earning the dividend income which is exempt under the provisions of section 10(33) of the Income-tax Act and since the total expenses are composite which are not bifurcated by the assessee either f....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... sub-section (2) and sub-section (3) thereon by Finance Act, 2006 with effect from 1-4-2007 which provides as under : "14A. (2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regards to the accounts of the assessee, is not satisfied with the correctness of the claim 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 dose not form part of the total income under this Act." 2.7 Thus, from the aforesaid amendment is clear that but for the prescribed method, the Assessing Officer cannot merely allocate the expenses in relation to trading results by proportionately disallowing the same. The provisions of sub-sections (2) and (3) to section 14A are to take effect from asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fficer should be in a position to pinpoint, with an acceptable degree of accuracy, the expenditure which was incurred by the assessee to produce non-taxable income. The word "incurred" signifies that the expenditure must have been actually incurred not notionally. Reading both the above mentioned expressions together, the conclusion seems inescapable that the expenditure which the Assessing Officer seeks to disallow under section 14A should be actually incurred and so incurred with a view to producing non-taxable income. If this much is clear from the section, it follows that it is the duty of the Assessing Officer to pinpoint such expenditure on the basis of the material on record. Section 14 only removes the disability on the part of the Assessing Officer to disallow such expenditure, a disability to which he was subjected by the three judgments of the Supreme Court, the mere removal of the disability statutorily, however, does not ipso facto authorize him to assume that a part of the expenditure has been incurred by the assessee in relation to the exempted income and to proceed to disallow the same on estimate. The section does not relieve the Assessing Officer of the burden of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....was equipped with GPWS system on or before the 31st December, 1988 (Later extended till 31st day of March, 1999). Therefore, to remove the legal obstruction/restrictions and to comply with the DGCA instructions, the appellant had bought the said part. If the appellant would not have incurred this expenditure, its aircraft would have come to a permanent halt and would have lost airworthiness. In the audited accounts dated 22nd October, 1999, the cost of the GPWS part was shown as additions to the aircraft and no depreciation in the books was charged. However, in the tax audit report under section 44AB, the statutory auditor shown the cost of GPWS as addition to aircraft and depreciation allowable thereon was computed at Rs. 3,41,149. In the return of income, the appellant claimed the depreciation as computed by the tax auditor in its tax audit report. In fact the said GPWS system was installed on 31st March, 1999 but after installation, the aircraft was subjected to test flights to check the operation of GPWS in various modes and after having standard air worthiness practices issued by the DGCA, a formal installation certificate was issued on 8th April, 1999. He submitted that the a....