TaxTMI 
TaxTMI 
TaxTMI 
2016 (8) TMI 258
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....me Tax Appellate Tribunal, Mumbai (hereinafter called "the Tribunal") in ITA no. 7068/Mum/2012 for the assessment year 2009-10 reads as under:- "(1). The learned Assessing Officer has not given reasonable opportunity of being heard to the appellant. The learned AO has erred in disallowing expenditure of Rs. 41,515/- on ad-hoc basis on the grounds that the same is relating to speculation business. (2) The learned assessing officer has erred in disallowing Rs. 3,38,556/- u/s 14A. (3) The learned AO has erred in adjusting the refund against previous dues. (4) The learned AO has erred in giving credit of T.D.S. for lesser amount than what actually is. (5) The appellant prays that the penalty proceedings u/s 271(1)(c) may be dropped and due justice may be given to the appellant. (6) The appellant prays that your honour to grant relief from payment of interest under Section 234A,B,C,D as applicable and oblige." The assessee company has also raised an additional grounds of appeal and prayed that these additional grounds raised by the assessee company be admitted as the grounds raised are legal and goes to the root of the matter . It was submitted that these additional grounds....
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....ning to its own name. Thus, it was submitted that ratio of own turnover to total turnover is 3.64%. Out of the total expenses debited to Profit and Loss account , most of them are fixed in the nature and out of that Rs. 1665/- belongs to its own turnover as only transaction charges of Rs. 45,748/- are variable in nature. It was submitted that in previous scrutiny assessment proceedings, the AO disallowed proportionate expenses relating to the assessee company's own turnover but in appeals it was allowed. The assessee company gave details of proportionate expenses as under: (i) Salary Rs. 25,000.00 (ii) Telephone Rs. 8,720.00 (iii) Postage Rs. 194.00 (iv) Stock Exchange Exp. Rs. 1,431.00 (v) General Expenses Rs. 1,089.00 (vi) STT Paid Rs. 1,716.00 (vii) Transaction Charges Rs. 739.00 (viii) Electricity Charges Rs. 2,626.00 -------------------- Rs. 41,515.00 The AO treated Rs. 41,515/- as expenses attributable to the speculation transactions and the same were added to the speculation loss and the same was allowed to be carried forward vide assessment order dated 22.12.2011 passed by the AO u/s 143(3) of the Act. Similarly, the AO observed that during the previous ....
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.... of Rs. 2,28,105/- and Rs. 1,10,451/- was made under Rule 8D(2)(iii) of Income Tax Rules,1962, vide assessment orders dated 22.12.2011 passed by the AO u/s 143(3) of the Act. 5. Aggrieved by the assessment orders dated 22.12.2011 passed by the AO u/s 143(3) of the Act, the assessee company filed appeal before the learned CIT(A). 6. Before the learned CIT(A), the assessee company contended that the AO has erred in disallowing the expenses of Rs. 41,515/- on ad-hoc basis . It was submitted that most of the expenses are fixed in nature and relating to non- speculative business.It was submitted that there is hardly any expenditure which relate to the speculative business. The learned CIT(A) held that the assessee company itself has submitted the details of proportionate expenses attributable to speculation expenses, aggregating to Rs. 41,515/- and hence the contentions of the assessee company were rejected by the learned CIT(A) vide appellate orders dated 17/10/2012 whereby the assessment orders dated 22.12.2011 passed by the AO u/s 143(3) of the Act was upheld. The assessee company did not contest before the learned CIT(A) the treatment of loss of Rs. 37,31,368/- as speculation los....
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....f speculative loss sought by the assessee company vide additional ground filed with the Tribunal. With respect to ground no. 2 concerning disallowance of Rs. 3,38,556/- u/s 14A of the Act. It was submitted that the assessee company has received Rs. 2,81,541/- as dividend income , while disallowance of Rs. 3,38,556/- has been made u/s 14A of the Act read with Rule 8D of Income Tax Rules, 1962.It was submitted that the assessee company has share capital and reserves of Rs. 3.39 crores as at 31-03-2009 , while the investments are to the tune of Rs. 3.19 crores.It was submitted that net owned funds are more than the investments made and hence there will be presumption that the assessee company has invested its owned fund in making investments and hence interest expenditure cannot be disallowed under Rule 8D(2)(ii) of the Income Tax Rules, 1962. The assessee company relied upon the decision of Hon'ble Bombay High Court in the case of Reliance Utilities and Power Limited(2009) 313 ITR 340(Bom. HC) . The learned counsel of the assessee company drew our attention to audited financial statements of the assessee company to contend that the interest income was earned of Rs. 36.51 lacs while ....
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....ties. We have observed that the assessee company is engaged in the business of dealing in shares whereby the assessee company is buying shares on its own account, and also on account of clients whereby the assessee company is getting income from brokerage and commission. The assessee company's main business is dealing in shares. With respect to delivery based transaction of sale and purchase of shares on its own account, the assessee company has incurred loss of Rs. 37,31,368/- which was claimed as speculative loss in the revised computation of income filed with the AO during assessment proceedings u/s 143(2) read with Section 143(3) of the Act as the same was hit by explanation to Section 73 of the Act. The AO treated the said loss as speculation loss and allowed it to be carried forward . The assessee company did not contested the same before the learned CIT(A) . The assessee company relied upon decision of CIT v. HSBC Securities and Capital Markets Private Limited(supra) . We have observed that the assessee company case is squarely covered by this decision of Hon'ble Bombay High Court. The asssessee company has income from business of Rs. 11,26,763/- from non- speculation busine....
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....he exception is that the provision of the explanation shall not apply to a company whose gross total income consists mainly of income which is chargeable under the heads "Interest on securities", "Income from house property", "Capital gains" and "Income from other sources" or a company whose principal business is of banking or the granting of loans and advances. 7. The submission which has been urged on behalf of the Revenue is that in computing the gross total income for the purpose of the explanation to Section 73, income under the heads of profits and gains of business or profession must be ignored. Alternatively, it has been urged that where the income from business includes a loss in the trading of shares, such a loss should not be allowed to be set off against the income from any other source under the head of profits and gains of business or profession. 8. In our view, the submission which has been urged on behalf of the Revenue cannot be accepted. Leaving aside for a moment, the exception, which is carved out by the explanation to Section 73, the explanation creates a deeming fiction by which a company is deemed to be carrying on a speculation business where any p....
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....ion that the gross total income consists predominantly of income from the four heads that are referred to therein. Obviously, in computing the gross total income the normal provisions of the Act must be applied and it is only thereafter, that it has to be determined as to whether the gross total income so computed consists mainly of income which is chargeable under the heads referred to in the explanation. 9. Consequently, in the present case the gross total income of the assessee was required to be computed inter alia by computing the income under the head of profits and gains of business or profession as well. Both the income from service charges in the amount of Rs. 2.25 crores and the loss in share trading of Rs. 2.23 crores, would have to be taken into account in computing the income under that head, both being sources under the same head. The assessee had a dividend income of Rs. 4.7 lacs (income from other sources). The Tribunal was justified, in coming to the conclusion that the assessee fell within the purview of the exception carved out in the explanation to Section 73 and that consequently the assessee would not be deemed to be carrying on a speculation business for th....
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....terest expenditure of Rs. 2,28,105/- made by the AO and as sustained by the learned CIT(A) . It is contended that the investment as reflected in audited financial statement in Schedule 'E' comprises of shares held in Bombay Stock Exchange of Rs. 1.22 crores and FDR held by the assessee company was Rs. 1.97 crores as at 31- 03-2009. It was submitted that the FDR is yielding taxable interest and the same shall be excluded . We are agreeable with the contention of the assessee company that the fixed deposit held by the assessee company which yielded taxable interest income cannot be included for computing the disallowance of expenditure u/s 14A of the Act read with Rule 8D(2)(iii) of Income Tax Rules, 1962 . We are also agreeable with the proposition of the assessee company that shares held as stock in trade are not to be included for the purposes of disallowance u/s 14A of the Act read with Rule 8D of Income Tax Rules, 1962 while computing investments for computing disallowance u/s 14A of the Act, we have observed that the AO did not include the shares held as stock in trade while computing disallowance u/s 14A of the Act read with Rule 8D(2)(iii) of Income Tax Rules, 1962 and no pre....
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....tegic investment are made for the purposes of doing business with a long term horizon and in that case no doubt that the objective is to earn profits/returns from the investment but normally the said profit / returns will come by way of dividend(s) when the companies come into profit and declare dividend to the shareholders . Such dividends in the hands of shareholders shall be exempt from tax. No doubt , the returns can also come by way of divestments of these investments but normally strategic investments are made with long term horizon where objective is to set up business and growth of these business over a long period of time. In these type of strategic investments, the investor has to normally devote significant time to plan, execute and monitor these investments regularly and periodically to ensure that these strategic investments are turned viable and profitable. These Investment decisions are very complex in nature. They require substantial market research, day-to-day analysis of market trends and decisions with regard to acquisition, retention and sale of shares at the most appropriate time. They require huge investment in shares and consequential blocking of funds. Besid....
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.... income by debiting the expenses, incurred to earn the exempt income, against taxable income. The basic principle of taxation is to tax the net income, i.e., gross income minus the expenditure. On the same analogy the exemption is also in respect of net income. Expenses allowed can only be in respect of earning of taxable income. This is the purport of section 14A. Insection 14A, the first phrase is "for the purposes of computing the total income under this Chapter" which makes it clear that various heads of income as prescribed under Chapter IV would fall within section 14A. The next phrase is, "in relation to income which does not form part of total income under the Act". It means that if an income does not form part of total income, then the related expenditure is outside the ambit of the applicability of section 14A. Further,section 14 specifies five heads of income which are chargeable to tax. In order to be chargeable, an income has to be brought under one of the five heads. Sections 15 to 59 lay down the rules for computing income for the purpose of chargeability to tax under those heads. Sections 15 to 59quantify the total income chargeable to tax. The permissible deduction....
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.... relevant aspects of the case including the provisions of law, the Chennai Bench has held that investment decisions are very strategic decisions in which top management is involved and therefore proportionate management expenses are required to be deducted while computing the exempt income from dividend. In Harish Krishnakant Bhatt v. Income Tax Officer (2004) 91 ITD 311 (Ahd.), the Ahmedabad Bench of this Tribunal has held that, the dividend income being exempt under section 10(33), the interest on capital borrowed for acquisition of relevant shares yielding such dividend cannot be allowed deduction by operation of section 14A. In Dy. CIT v. SG Investments &Industries Ltd. (2004) 89 ITD 44 (Cal.), the Calcutta Bench of this Tribunal has laid down two propositions: one, in view of section 14A inserted in the Income Tax Act with retrospective effect from 1-4-1962, pro rata expenses on account of interest relatable to investment in shares for earning exempt income from dividend are to be disallowed against taxable income and only the net dividend income is to be allowed exemption after deducting the expenses; and two, the expression "expenditure incurred by the assessee in relation t....
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....or considerable management attention and cannot be left to a junior clerk. The Hon'ble Supreme Court in the case of United General Trust Ltd. (supra), applying the decision oi Hon'ble Supreme Court in the case of Distributors (Baroda) (P) Ltd. v. Union of India (1985) 47 CTR (SC) 349: (1985) 155 ITR 120 (SC), reversed the decision of the Hon'ble Bombay High Court in CIT v. United General Trust (P) Ltd. (supra), wherein the question was as under: "Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in applying the decision of the Bombay High Court in the case of CIT v. New Great Insurance Co. Ltd. (1973) 90 ITR 348 (Bom) to the assessment year in question without considering the effect of the amendment operative from Ist April, 1968, and in thus holding that the assessee would be entitled to the deduction under section 80M on the gross dividend before deduction of the proportionate management expenses ?" Thus, when the decision of the Honble Bombay High Court has been reversed, the proportionate management expenses are required to be deducted while computing the dividend income. In the decision of the Hon'ble Calcutta....