TaxTMI 
TaxTMI 
2019 (4) TMI 1039
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.... 2. This appeal is filed by the revenue to challenge the judgment of Income Tax Appellate Tribunal ("Tribunal" for short). Following questions have been presented for our consideration:­ "a. Whether on the facts and in the circumstances of the case and in law, ITAT was justified in deleting the disallowance made u/s 14A of Rs. 16.76 lakhs ignoring the fact that the assessee failed to demonstrate the exact availability of the interest free funds available in hand at the time of making the said investments? b. Whether on the facts and in the circumstances of the case and in law, ITAT was justified in treating the Bonus Shares as investments with a cost of acquisition of Rs.Nil for the Year under consideration, ignoring ....
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....and also interest bearing funds, then presumption is that, investments must have been made out of interest free funds only and once that is so, then no disallowance of interest should be made. As can be seen from the chart incorporated above, for the AYs 2006­07, 2008­09 and 2009­10, there are excess of interest free/surplus funds over the investments, therefore, no interest disallowance should be made under section 14A for the assessment years 2006­07, 200809 and 2009­10 should be made. We order accordingly." 4. In relation to the assessment year 2007­08, giving rise to the Income Tax Appeal No.1504 of 2017 filed by the revenue, the Tribunal restricted the disallowance by making following observation :­ ....
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....f interest free funds were sufficient to meet such investment, no disallowance would be made. 6. In case of HDFC bank, this view was reiterated. After referring to the decision in case of Reliance Utilities and Power Ltd. (supra) the Court observed that the Tribunal had come to the factual finding that the assessee had its own funds and that such non­interest bearing funds were in excess of investments in tax free securities. In such circumstances, the Court held that disallowance under Section 14A could not have been made. 7. The facts are similar in the present case. The Tribunal therefore, correctly deleted the disallowance in three out of four assessment years and restricted the same in forth year to the extent the investments....
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....ssessee received the BONUS shares during the period it held the original shares. The original shares were the trading stock. Therefore the bonus shares are necessarily the trading stock and not investment stock due to the basis origin of the shares being trading stock. (ii) Therefore when the BONUS shares are sold, the character of the same remains the same i.e. Trading stock." 9. The Tribunal by the impugned judgment held in favour of the assessee by referring to and relying upon the judgment of the Supreme Court in case of Commissioner of Income­Tax, U.P. Vs. Madan Gopal Radhey Lal Vol.73 ITR 652. 10. In this respect, the counsel for the revenue submitted that the assessee was holding the shares by way of stock­in&s....
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....holder are, in the absence of any express provision to the contrary, liable to be treated as capital and not income. We are unable to agree with the judgment of the Bombay High Court (to which reference was made by the Tribunal) in Commissioner of Income ­tax v. Maniklal Chunnilal and Sons Ltd. (I.T. Reference No.16 of 1948) that bonus shares received by a shareholder who carries on business in shares and securities "ipso facto become accretion to his stok­in­trade." Bonus shares would normally be deemed to be distributed by the company as capital and the shareholder receives the shares as capital. The bonus shares are accretions to the shares in respect of which they are issued, but on that account those shares do not ....