TaxTMI 
TaxTMI 
TaxTMI 
2020 (5) TMI 89
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....add any fresh ground(s) of appeal and/or delete or amend any of the ground(s) of appeal. 2. Briefly stated facts of the case are that the assessee, a Non- Banking Financial Company ( NBFC ) , filed its return of income on 20/09/2012 declaring total income of Rs. 25,77,78,259/-. The return of income filed was selected for scrutiny assessment , which was completed under section 143(3) of the Income-tax Act, 1961(in short 'the Act') on 02/03/2015 after making certain addition/disallowances. Aggrieved, the assessee filed appeal before the Ld. CIT(A), who partly deleted the addition/disallowances which were made by the Assessing Officer. Aggrieved, the Revenue is in appeal before the Tribunal raising the grounds as reproduced above. 3. The ground No. 1 of the appeal relates to disallowance of Rs. 3,92,60,000/-made under section 14A of the Act, which has been deleted by the Ld. CIT(A). 3.1 The brief facts qua the issue in dispute are that during the year, the assessee received dividend income of Rs. 4,78,249/-from investment including shares which were held as stock-in-trade. The assessee also received interest on bonds amounting to Rs. 4,15,80,043/-. Both the amount of dividend and ....
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....gh Court held that exempt income earned on stock in trade will no attract disallowance u/s 14A. The Ld. CIT(Appeals) vide her order in appeal for A.Y. 2011-12 had also held that disallowance under Rule 8D(2)(ii) was not attracted as the appellant held the securities, as stock in trade. It is also noted that the appellant had interest free funds by way of share capital and reserve and surplus of Rs. 577.64 lacs whereas the average investment in stock in trade from which exempt income is earned is at Rs. 6850.45 lacs only. In the case of CIT vs. Rliance Utilities and Power Ltd. 313 ITR 340, it was held that if there is sufficient interest free funds available, it can be presumed that the investments were made from such funds. Similarly, in the case of CIT vs. HDFC Bank Ltd., the Hon'ble Bombay High Court that in case the assessee's own funds were more than the investments in tax free securities, it would have to be presumed that the investment made by the assessee would be out of interest free funds available with the assessee. In view of the judicial pronouncements referred above, facts of the case and following the decisions of the Ld. CIT(Appeals) in the case of the appellant for ....
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.... What happens when the shares are held as 'stock-in-trade' and not as 'investment', particularly, by the banks? On this specific aspect, CBDT has issued circular No. 18/2015 dated November 02, 2015. 37) This Circular has already been reproduced in Para 19 above. This Circular takes note of the judgment of this Court in Nawanshahar case wherein it is held that investments made by a banking concern are part of the business or banking. Therefore, the income arises from such investments is attributable to business of banking falling under the head 'profits and gains of business and profession'. On that basis, the Circular contains the decision of the Board that no appeal would be filed on this ground by the officers of the Department and if the appeals are already filed, they should be withdrawn. A reading of this circular would make it clear that the issue was as to whether income by way of interest on securities shall be chargeable to income tax under the head 'income from other sources' or it is to fall under the head 'profits and gains of business and profession'. The Board, going by the decision of this Court in Nawanshahar case, clarified that it has to be treated as income f....
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.... and holding that section 14A of the Act would be applicable. In spite of this exercise of apportionment of expenditure carried out by the AO, CIT(A) disallowed the entire deduction of expenditure. That view of the CIT(A) was clearly untenable and rightly set aside by the ITAT. Therefore, on facts, the Punjab and Haryana High Court has arrived at a correct conclusion by affirming the view of the ITAT, though we are not subscribing to the theory of dominant intention applied by the High Court. It is to be kept in mind that in those cases where shares are held as 'stock-in-trade', it becomes a business activity of the assessee to deal in those shares as a business proposition. Whether dividend is earned or not becomes immaterial. In fact, it would be a quirk of fate that when the investee company declared dividend, those shares are held by the assessee, though the assessee has to ultimately trade those shares by selling them to earn profits. The situation here is, therefore, different from the case like Maxopp Investment Ltd. where the assessee would continue to hold those shares as it wants to retain control over the investee company. In that case, whenever dividend is declared ....
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.... Bonds was also made out interest free own funds. 3.10 In view of the above facts and circumstances of the case , we feel it appropriate to restore this issue to the file of the learned Assessing Officer for deciding a fresh in view of our finding above and in accordance with law. The assessee shall provide all details of the investment in assets yielding exempt income as well as own funds and funds borrowed. The assessee shall also provide details of apportionment of interest expenses in relation to a stock-in-trade towards earning dividend income as well as towards earning trading profit. If the AO finds that entire investment in assets yielding exempt income has been made out of the interest free own funds , then no disallowance will be called for under rule 8D(2)(ii) and he will not be required to look into the apportionment of the expenses towards dividend income form shares held as stock in trade. The ground No. 1 of the appeal of the Revenue is accordingly allowed for statistical purposes. 4. The ground No.2 of the appeal relates to disallowance of Rs.30,61,000/-under section 36(1)(iii) of the Act. 4.1 The Assessing Officer is of the view that interest paid on short-term ....
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....annot be allowed under the head profit in gains of the business. Under the head profit in gains of the business expenses related to the business income are only to be allowed as per the provisions of the Act. In the instant case, the assessee has claimed dividend income from the stock-in-trade as exempt but profit from trading of such stock-in-trade is taxable under the head profit in gains of the business. In the case of Maxopp investment Ltd (supra), the Hon'ble Supreme Court has directed to apportion such interest expenses towards exempted dividend income and towards trading income. The entire interest expenditure corresponding to stock-in- trade cannot be allowed to the assessee as business expenditure. 4.3 The portion of the interest expenses related to earning of the exempted dividend income has to be disallowed. Since the issue in dispute of apportionment of interest expenses corresponding to stock-in-trade has already been restored to the file of the Assessing Officer, while deciding the disallowance under section 14A read with rule 8D of the income tax rules, this issue being connected is also restored to the file of the learned Assessing Officer for deciding a fresh in ....
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....Income Tax Act is justified. In the case of Nedungadi Bank Limited (supra), the Hon'ble Kerala High Court has also held that it is now settled by a series of decisions of the High Courts and the Supreme Court that the securities held by the banks Institute there stock in trade for investment and consequently the loss claimed by the banks on the valuation of their securities should be allowed as deduction in computing the taxable profits. 4.2.2 It is also a fact that in case of Punjab National Bank my predecessors have considered similar issue and on the basis of above referred judgements, especially the decision of the Apex Court in the case of UCO Bank (supra), it was held that such laws on account of diminution of value of securities cannot be disallowed by the AO. The facts in the instant case are similar to the facts of PNB's case in Apl. No.6/CIT(A) XVII/Ddel/06-07 dated 8/3/2007 as the appellant as well as PNB are dealing with the government securities in a similar manner. Therefore, following the principle of consistency and the decisions of Hon'ble High Courts and Apex Court, referred above, the claim of deduction of expenditure on account of diminution in the value of se....