TaxTMI 
TaxTMI 
2017 (3) TMI 185
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....nt year 2007-08 by the assessee in memo of the appeals filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called "the tribunal") read as under:- "I. The Commissioner of Income-tax (Appeals) - 5, Mumbai (hereinafter referred to as the CIT(A)) erred in upholding the action of the Deputy Commissioner of Income-tax - 2(2), Mumbai (hereinafter referred to as the Assessing Officer) in disallowing a sum of Rs. 2,94,880 on account of expenses incurred for earning dividend income by invoking the provisions of section l4A of the Act. The appellants contend that on the facts and in the circumstances of the case and in law, the CIT(A) ought not to have upheld the action of the Assessing Officer in disallowing the aforesaid amount of Rs. 2,94,880 as there is no expenditure incurred in relation to earning dividend income and as such, no disallowance can be made under section 14A. Without prejudice, the appellants contend that the calculation of proportionate expenses allocated to the earning of exempt income is not in consonance with the provisions of Rule 8D and hence, needs to be calculated as per law. 2. The CIT(A) erred in upholding the action of the Assessing Offi....
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....dividend income by the assessee and hence, no disallowance can be made u/s 14A of the Act. The ld. CIT(A) observed that the A.O. has made disallowance u/s 14A of the Act by invoking the provisions of Rule 8D(2)(iii) of Income-tax Rules, 1962 , the disallowance was upheld by ld. CIT(A). The ld. CIT(A) relied on the following case laws while upholding the assessment order dated 27-10-2009 passed by the AO u/s 143(3) of the Act , vide appellate order dated 23-11-2012:- i) Southern Petro Chemical Industries v. DCIT (2005) 93 TTJ (Chennai) 161. Held, Expenditure attributable to earning of dividends which are exempt under s.10(33)-Whether to invest or not to invest and whether to retain the investments or to liquidate the same are very strategic decisions in which top management is involved-Said decision -making process is very complicated and requires very careful analysis - Thus, proportionate management expenses are required to be deducted while computing the dividend income. ii) DCIT v. S. G. Investments and Industries Ltd (2004) 89 ITD 44 (Cal), Held, expenditure incurred by the assessee in relation to income which does not form part of the total income as mentioned in Sec.14A....
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....this appeal has been fixed from time to time since April 2014. The counsels who were appointed by the assessee to argue this appeal are all qualified Chartered Accountants namely CA Rajiv Khandelwal, CA Neelkanth Khandelwal and CA. Hetal Panchal . The said Chartered Accountants were appointed by the assessee company vide Power of Attorney dated 18th March, 2014 executed in favour of these Chartered Accountants, which is placed in file . The said Chartered Accountants duly accepted the appointment on 18-03-2014 itself to attend to this appeal before the tribunal. We have observed that said counsels have sought adjournments on one pretext or another from time to time or they have not attended the hearing on the dates fixed for hearing by the tribunal , which we will explain in details hereinafter. We have observed that on 01-12-2014, the adjournment was sought on the ground that CA Neelkanth Khandelwal, who is briefed in the matter has to attend marriage in family on 01-12-2014 (letter of adjournment dated 01-12-2014 placed in file). The adjournment was granted by tribunal and matter was fixed for hearing on 07-01-2015. Then , again on 16-09- 2015, letter of adjournment dated 16-09-2....
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....appearances of the assessee or its counsels cost time and resources of the country. If counsels after accepting appointment does not want to represent the assessee before the tribunal due to any reason whatsoever, then as per established standards and procedures, they should make a request before the tribunal to withdraw their Power of Attorney with copy to assessee instead of continuing with such appeals . We hope that our comments will be taken in true spirit by learned counsels and they will ensure due compliance at the time of hearing before the tribunal and help in quick disposal of the appeals by the tribunal. 7. The ld. D.R. submitted that the assessee has earned dividend amount of Rs. 5,35,539/- which has been claimed to be exempt u/s 10(34) of the Act. The A.O. disallowed an amount of Rs. 2,94,880/- by invoking provisions of section 14A of the Act r.w.r. 8D(iii) of Income-tax Rules, 1962 which has been later upheld by the ld. CIT(A). 8. We have heard ld. D.R. and perused the material placed on record. We have observed that the impugned assessment year is assessment year 2007- 08. The AO has invoked Section 14A read with Rule 8D of Income-tax Rules, 1962 for making di....
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....e ld. D.R. submitted that the assessee has claimed loss on open position in futures and options to the tune of Rs. 15,71,714/- being marked to market loss. It is submitted that these are notional losses which cannot be allowed. It was also stated that apart from business losses , the assessee also had earned speculation profits to the tune of Rs. 18.68 lacs . The ld. D.R. further relied upon the order of the ld. CIT(A). 10. We have heard ld. D.R. and perused the orders of authorities below and material on record. We have observed that the assessee has entered into futures and options transactions in the shares whereby contracts have been taken w.r.t. Gujarat Ambuja Cement Limited and Reliance Industries Limited wherein marked to market losses amounting to Rs. 15,71,714/- has been claimed as business loss by the assessee. In our considered view, section 43(5) of the Act has been amended by Finance Act, 2005 w.e.f. 1.4.2006 wherein clause (d) is inserted to Section 43(5) of the Act wherein eligible transactions in respect of trading in derivatives referred to in clause (ac) of Section 2 of the Securities Contract (Regulation) Act, 1956 carried out in a recognized stock exchange is....
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.... issue on merits for verifying whether the said transactions carried out by the assessee falls within the mandate of Section 43(5)(d) of the Act read with explanation 1 to be covered as business loss vis-à-vis speculative loss and the assessee is directed to produce all relevant cogent evidences and explanations to support its contention. The assessee is in business of trading in shares and stocks. The marked to market loss arising out of derivative contract entered into by the assessee shall be allowed arising due to adverse movement of share prices on the last date of previous year. Reference may be drawn to the decision of the Mumbai benches of the tribunal in the case of Inventurus Knowledge Services (P.) Ltd. v. ITO (2016)156 ITD 727(Mum.-trib), wherein the tribunal allowed marked to market losses by holding as under: "9. Thus in view of our above foregoing discussions, we allow the appeal of the assessee company on following reasons:- 1. That the assessee company has entered into derivative transactions in foreign currency through recognised stock exchange and has complied with the other conditions as stipulated in Section 43(5) read with proviso(d) and Exp....
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....e said marked to market losses so allowed to the assessee are duly factored / reflected by way of reduction in the opening stock of derivative contract valuation for the succeeding year so that there is no duplicity in claiming the said loss by the assessee in the immediately succeeding year when the said derivative contracts are finally concluded/completed. In the result, appeal of the assessee is allowed for statistical purposes. We order accordingly. 11. In the result, appeals of the assessee in ITA No. 538/Mum/2013 for assessment year 2008-09 is allowed for statistical purposes as indicated above. Now, we shall take up assessee's appeal in ITA No. 539/Mum/2013 for assessment year 2008-09. 12. The following grounds of appeal have been raised by the assessee in this appeal:- "1. The Commissioner of Income-tax (Appeals) - 5, Mumbai (hereinafter referred to as the CIT(A)) erred in upholding the action of the Income-tax Officer - 2(2)(1), Mumbai (hereinafter referred to as the Assessing Officer) in disallowing a sum of 87,56,848 on account of expenses incurred for earning dividend income by invoking the provisions of section 14A read with rule 8D of the Act. The appel....
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....imed exempt u/s 10(34) of the Act. The assessee did not disallowed any amount of expenses for earning of the dividend income as contemplated u/s 14A of the Act. The assessee was asked by the AO to furnish working of the disallowance u/s 14A of the Act read with Rule 8D of Rules of 1962. In reply, the assessee submitted detailed explanation stating that there were no direct or indirect or common expenses debited to the P&L account related to earning of dividend income. It was also submitted by the assessee that for the purpose of calculation of disallowance under Rule 8D(2) of Rules of 1962, the investment will not include stock-intrade. However, the A.O. did not agree with the contentions of the assessee and worked out the disallowance u/s 14A of the Act r.w.r. 8D of Rules of 1962 as under:- Particulars Amount Rs) Amount (Rs) i) Direct expenditure relating to exempt income 46,491 ii) Amount computed as per Rule 8D(2) [A X B/C] A = Interest expenses 5,37,73,185 B = Average investment 9,35,64,244 C = Average total asset 61,04,00,40....
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....allowance u/s 14A r.w.r. 8D(2)(ii) should not be made? The appellant could not produce the bank statement to show that on the date of investments in securities having tax free income - the appellant was having surplus funds. * Under the overall facts and circumstances of the case, the appellant has failed to discharge its onus that interest free funds have not been used for investments in securities income from which is exempt. * The disallowance made by the AO as per Sec.14A r.w.r. 8D(2)(ii) is therefore called for. * The disallowance of Rs. 82,42,536/- made by the AO is therefore upheld. (c) Disallowance u/s 14A r.w.r. 8D(2)(iii) - Rs. 4,67,821/- * The appellant has substantial amount of investments in securities income from which is exempt. Besides, the appellant is also having purchases and sales of securities, dividend income from which is exempt, which is being shown by the appellant as stock in trade. The same is also covered u/s 14A r.w.r. 8D(2)(iii). * Under these facts and circumstances the disallowance made by the AO u/s 14A r.w.r. 8D(2)(iii) is called for. This view has also been upheld in various case laws. i) Southern Petro Chemical Industries Vs. DCIT ....
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....that substantial amount of interest bearing loans were raised which increased from 21 crores to 82 crores and hence facts in the instant year are different from preceding year as there are substantial interest bearing funds which were raised by the assessee for business purposes. Thus, learned CIT(A) vide appellate order dated 24.11.2012 confirmed the treatment of short term capital gains as business income of the assessee. 17. Aggrieved by the appellate order dated 24.11.2012 passed by the ld. CIT(A), the assessee is in appeal before the tribunal. 18. The ld. D.R. submitted that the assessee has earned dividend income of Rs. 16,07,123/- which is claimed as exempt u/s 10(34) of the Act. The learned DR submitted that the impugned assessment year is 2008-09 and the authorities below have rightly invoked Section 14A r.w.r. 8D of Rules of 1962 to disallow expenditure to the tune of Rs. 87,56,848/- incurred in relation to earning of income which does not form part of the total income. The ld. D.R. relied upon the order of the ld. CIT(A). With respect to the second issue of treating short term capital gains as business income , the learned DR submitted that facts in the instant ....
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....business of trading in shares. The assessee has sold shares of Rs. 13,38,36,535.62 against scrips bought of Rs. 12,71,09,491.62 , the ld. CIT(A) held that the holding period was not very large and in many cases it varies from 28 to 84 days. It was also observed by the authorities below that huge amount of interest bearing funds were raised by the assessee which increased from Rs. 21 crores to Rs. 82 crores during instant assessment year. We do not find any infirmity in the well reasoned order of the ld. CIT(A) treating the profit of Rs. 67,27,044 /- shown by the assessee as business income and not short term capital gain keeping in view the factual matrix of the case and more-so the assessee is engaged in the business of trading in shares and stocks. Thus, we are not inclined to interfere with the well reasoned order of learned CIT(A) which we confirms/sustain. We order accordingly. 20. Ground No. 3 is with respect to the disallowance of Rs. 56,916/- on account of provision for loss-ESF Account which is similar to ground No. 2 in assessee's appeal in ITA No. 538/Mum/2013 for assessment year 2007-08 which we have already adjudicated in this order vide para No. 9 and 10 of this or....