TaxTMI 
TaxTMI 
2014 (4) TMI 660
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.... be disallowed in view of the provision of section 14A of the Income tax Act, 1961. In response the assessee company replied as under: "Details and explanation regarding expenses u/s. 14A of the IT Act. [A]Details of exempt income. During this accounting year we have earned following exempt income. (1) Dividend income of shares Rs. 1,48,401/- (2) Dividend income of Mutual Fund Rs.3,42,298/- Total Rs. 4,90,699/- [B] Explanation and objection for the proposed-Proportionate disallowances expenses. (1) That dividend income is earned out of the past year is investment and therefore such investment for said tax free income is not made during year, under consideration. (2) That as the we have not made any investment in relation to "income which does not form part of the total income" during this year and therefore it cannot be said that interest paid on borrowed capital have any element to earn dividend income. Thus, no expenditure of direct nature is incurred to earn exempted income. (3) That there is no ....
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....vant facts of the case we fee that in the interest of justice the addition U/S.14A should be restricted to 1 percent of the dividend received, which has been claimed as tax-free. It is therefore paid that as no expenses is incurred which can be disallowed u/s. 14A of this Act, no disallowances is to be made on this account. However, without prejudice to the above and without prejudice of our replied stated above and with strong objection we state and submit that your good self do not agree with our above submission and list to disallowed something on this account than in the provision of caused (iii) of the rule at the of the IT Act, can be applied for the expenditure in relation to income which does not part of the total income shall be computed as under: (i) The amount of expenditure directly relating to income which does not form part of total income:- 0.00 (ii) in a case where the assessee has incurred expenditure by way of interest during the previous year is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely:-AXB/C ....
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....bsp; Therefore, in view of the provisions of Rule 8D of the Income tax Rules, 1962, expenses to the extent of Rs. 824392/- is allowed and added to the total income of the assessee company." 4. In appeal Ld. CIT(A) after taking into consideration the submission of the assessee which has been reproduced by him in para. 4.2 of his order has restricted this addition to Rs. 89,550/- instead of Rs. 8,24,392/- made by AO. 5. Aggrieved by the relief given to the assessee, revenue is in appeal and against the confirmation of disallowance of Rs. 89,550/-, the assessee has filed the appeal. 6. After hearing both the parties and perusing the record, we find that Ld. CIT(A) has given relief to the assessee in view of the undisputed fact that assessee was having interest free funds of Rs. 5,59,20,487/- against the investment of Rs. 1,28,52,175/- in shares and there was no finding of AO that interest bearing funds were utilized by the assessee in making investments in shares resulting in tax free income by relying on the decision of jurisdictional Hon'ble High Court in the case of CIT vs. Jayesh Budhalal Mehta in Civil Appeal No. 111 of 2009 wherein it was held that if assessee has ....
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....is seen that the appellant has sold shares worth more than one crore. There is no justification in the contention of the assessee that no expenses were incurred for handling these investments particularly when such large No. of shares have been sold. This requires administrative costs as well as other costs related to use of assets. The action of the AO therefore in holding that expenses in the form of administrative costs were attributable to dividend income is correct. It is also seen that the appellant himself has also estimated the administrative costs at Rs. 89,550/- which is also the disallowance on account of administrative costs gone to by the AO." 7. In the result, ground no. 2 of assessee's appeal ground no. 1 of revenue's appeal are dismissed. 8. Ground no. 3 of assessee's appeal and ground no. 2 of revenue's appeal relate to addition of Rs. 3,22,144/- treating short term capital gain shown by the assessee of this amount as business profit. 9. AO while making this addition has observed as under:- "On verification of the details of purchase, and sales of shares furnished by the assesses company, it w....
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....howing the period of holding and the resulting profit on sale of the shares and terms of long term capital gain and short term capital gain as the case may be and past also similar isolated transaction record was maintained. {6}. We submit that our primary intention was not to enter into the venture of trade but only to generate an alternative income. Thus the intention behind such a venture is to get appreciation on the investments, {7}. That the circular No.4/2007 dated ; 15/06/2007 issued by the Central Board of Direct Taxes, lays guidelines to Assessing Officers to treat it such an event. Though there are no clear cut distinctions earmarked therein, however, it is instructed that broad perspectives should be borne in mind while treating a venture as 'trade' or 'investment'. The Authority for Advanced Ruling (AAR) (288 ITR 641), referring to the decisions of the Supreme Court in several case, has chartered out the following principles. (i). the substantial nature of transactions, manner of maintaining books of accounts, the magnitude of purchases and sales and the ratio between purchases and sales ....
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....and shares held as stock-in-trade (trading asset). No evidence as to whether separate portfolios in respect of shares held by way of stock-in-trade and shares held by way of investment is furnished. The Authority for Advance Rulings (AAR) (288 ITR 641), referring to the decisions of the Supreme Court in several cases, has culled out the following principles: (i). the substantial nature of transactions, the manner of maintaining books of accounts, the magnitude of purchases and sates and the ratio between purchases and sales and the holding would furnish a good guide to determine the nature of transactions. (ii). ordinarily the purchase and sale of shares with the motive of earning a profit, would result in the transaction being in the nature of trade / adventure in the nature of trade; but where the object of the investment in shares of a company is to derive income by way of dividend etc. then the profits accruing by change in such investment (by safe of shares) will yield capital gain and not revenue receipt. The first principle furnishes a guide....