TaxTMI 
TaxTMI 
2012 (2) TMI 688
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....ct, covered in favour of assessee by Jurisdictional Delhi High Court order in case of Insilco Ltd. 3. That On the facts and in the circumstances of the case and in law, learned CIT(A) erred in confirming the order of Assessing Officer (AO) treating the subject loss amounting to Rs. 41,60,000/- as capital loss in nature ignoring the squarely applicable ruling of Bombay High Court in the case of Tainwala Trading ITA 490/2004 & latest Gujarat High Court order in case of Vadilal Financial Services Ltd. Disallowance u/s 14A where exclusive use of borrowed funds for business/ trade purposes is there. 4. That On the facts and in the circumstances of the case and in law, learned CIT(A) erred in approving the disallowance made by Ld. AO u/s 14A of the Act to the extent of Rs. 9,88,191/- being dividend received where admittedly total borrowing is directly used for trade purposes." 2. Brief facts, as emerge, are: (i) The assessee company, engaged in non banking financial business (NBFC), for A.Y. 2008-09, filed return declaring loss of Rs. 64,34,736/-. It had applied for 7,50,000/- convertible warrants @ 64/- per warrant of a listed group company Surya R....
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....sessee has in a capital asset whether or not such an asset is corporeal or incorporeal." 2.2. AO, however, rejected the assessee's claim and held it to be a capital loss, allowable under this head, by relying on following judgments: - CIT Vs. Mrs. Grace Collis (2001) 248 ITR 323 (SC) - DCIT v. BPL Sanyo Finance Ltd. (2009) 312 ITR 63 (Kar.) - CIT Vs. Chand Ratan Bagri (2010) 230 CTR 258 (Del.) - Vania Silk Mills (P) Ltd. Vs. CIT 98 CTR (SC) 153. 2.3. Aggrieved, assessee preferred appeal before the CIT(A), where it reiterated its stand and relied on the following judgments in support of its claim: - Bombay High Court judgment in the case of Tainwala Trading & Investment Co. Ltd. (ITA no. 490/2004); - RBG Investment & Finance 321 ITR 488 (Del.) - T.A. Quereshi Vs. CIT 287 ITR 547 (SC) - S.C. Kothari Indeed Profits 82 ITR 794 (SC) - Ramchandar Shivnarayan 111 ITR 263 (SC) - CIT Vs. Mysore Sugar Co. Ltd. (1962) 46 ITR 649 (SC) - CIT Vs. Maina Ore Transport (P) Ltd. (2010) 324 ITR 100(Bom) 2.4. CIT(A), however, held that these cases were not applicable to assessee's case and uphel....
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....n trade which arises only if the assessee is engaged in trading in shares. However, it is observed that an amount of Rs. 9,88,191/- has been received by the appellant on account of dividend income which is exempt from tax. Therefore, the disallowance of interest under section 14A of the Act read with Rule 8D of the Income-tax Rules, 1961 is restricted to the said amount of Rs. 9,88,191/-. As a result, the disallowance is confirmed to the extent of Rs. 9,88,191/- and the appellant gets relief of Rs. 9,65,412/- (Rs. 19,53,603/- minus Rs. 9,88,191/-). Hence ground of appeal no. 5 is partly allowed." Aggrieved, assessee is before us on both the issues. 3. Learned counsel for the assessee vehemently argues that AO has not disputed the following facts: (i) Assessee is NBFC (ii) As an object of business it invested in debenture and shares as stock in trade (iii) The convertible warrants along with debentures of public listed group company i.e. Surya Roshni Ltd., were purchased by assessee to be held as stock in trade. (iv) The transaction in question has been upheld, however, the revenue nature of loss claimed by assessee has been held to be capit....
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....n to forgo the amount invested in naked convertible warrants than to invest further amount by subscribing to the shares at a price offered by the company. Consequently, no fault can be found with the decision of the ITAT in allowing the loss incurred by the assessee on forfeiture of the amounts invested by the assessee in naked convertible warrants. Accordingly, the appeal is dismissed with no order as to costs." 3.2. In the cited case the assessee applied for shares of Tainwala Chemicals and Plastics (India ) Ltd. (TCPL), a public listed company. When this investment was made, TCPL was a profit making company. Thereafter the value of shares of TCPL drastically fell down and the assessee took a commercial decision to forego the amount invested in the convertible warrants as further investment would have resulted in more losses. The loss thus suffered, was allowed as a business loss. 3.3. The facts of cited case are similar to present assessee's case, as - (i) Assessee also invested in convertible debentures/ warrants of a public limited company; (ii) At the time of investment, the value of shares of Surya Roshni Ltd. were higher figure and thereafter in a pe....