TaxTMI 
TaxTMI 
2016 (2) TMI 1353
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....e along with audited financial statements. The assessee's cases were selected for scrutiny assessments and notices u/s 143(2) of the Act were issued and assessments were framed u/s 143(3) of the Act on 28.12.2007 for Asst. Year 2005-06, on 30.12.2008 for Asst. Year 2006-07, on 22.12.2009 for Asst. Year 2007-08, on 29.11.2010 for Asst. Year 2008-09 & on 28.12.2011 for Asst. Year 2009-10 and made certain additions. 4. Ground No.1 of ITA No.637, 638/Ahd/2011 and Ground no.3 of ITA No.639/Ahd/2011, Ground No.2 of ITA No.62/Ahd/2012 and Ground No.1 of ITA No.1659 relate to deletion of addition of business development expenses by ld. CIT(A) and not holding them as capital expenses. 5. The ld. AO has disallowed the business development expenses and treated them as capital expenditure for following Asst. Years:- Asst. Year Amount 2005-06 25,96,09,700/- 2006-07 22,25,22,761/- 2007-08 19,56,96,676/- 2008-09 19,32,98,364/- 2009-10 9,89,60,372/- 6. The ld. DR supported the orders of Assessing Officer. 7. At the outset ld. AR of the assessee submitted that similar grounds relating to business development expenditure being business expenses and not capital expenditure had....
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....or not. It is not in dispute that by incurring the expenditure under consideration, the assessee has not acquired any new capital asset. Thus, in our considered view, the contention of the revenue that the expenditure incurred was capital in nature, is wholly unsustainable. Only because an expenditure may result in some benefit in the unspecified subsequent period, does not make the revenue expenditure as capital expenditure. The other reason given by the AO that there is no direct corelation between the amount of expenditure and number of subscribers, is also irrelevant for deciding the nature of expenditure or the allowability of the expenditure. For an expenditure being allowable, it is not necessary that the expenditure must have yielded immediate or quantifiable benefit to the assessee. In respect of the other argument of the revenue that expenditure was incurred gratuitously and not exclusively for the purposes of business, we find that it is not in dispute that the expenditure was incurred for giving benefit or gift to the subscribers of daily newspaper who paid the entire subscription of the year in advance. Thus, we find that the expenditure had a close nexus with the busi....
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....lved in this ground is that the assessee company bought certain assets from RSEB in previous years and the same were leased back to RSEB. The assessee has been showing income from lease from RSEB and also claiming depreciation on the assets leased to RSEB. This fact that depreciation has not been claimed by RSEB and only claimed by assessee is not controverted by the Revenue. Further on perusal of the records, we find that the co-ordinate bench in assessee's own case has decided similar issue in ITA No.479/Ahd/2005 for Asst. Year 2001-02 and others, vide order dated 19.11.2010 in the following manner:- 2. Ground No 1 in the appeal of the revenue for assessment year 2001-02, ground No 2 in assessment year 2002-03, and ground No. 1 in the A.Y. 2004- 05 are directed against the order of the CIT(A) deleting the disallowance of depreciation Rs. 9,04,59,142 in A.Y. 2001-02, Rs. 6,78,44,356 in A.Y. 2002-03 and Rs. 1,76,67,150 in A.Y. 2004-05. 3. At the outset, the Ld. AR submitted that this issue is covered in favour of the assessee by the consolidated order of this Tribunal dated 17-7-2009 in the case of the assessee itself in A.Y. 1999-2000 and 2000-01 in ITA Nos. ....
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....668 1999-00 11,63,31,388 16,08,16,251 2000-01 14,55,12,762 12,06,12,188 2001-02 19,40,03,963 9,04,59,142 2002-03 24,01,74,952 6,78,44,356 2003-04 26,69,24,757 5,08,83,267 2004-05 13,09,492 3,81,62,451 2005-06 11,87,844 2,47,74,630 2006-07 11,87,844 1,85,80,972 2007-08 5,87,535 1,39,35,729 TOTAL 1,15,51,76,011 1,13,76,24,463 4. The AO disallowed the claim on ground that it is only paper transaction. The Ld. CIT(A) allowed the claim, following the order of the tribunal in A.Y. 1996-97, from which the Ld. CIT(A) has quoted para-4.1 and 4.2 in his impugned order. He then referred to the findings of the tribunal as under:- "(a) The Ld. CIT(A) accordingly held that the AO was not justified in treating the transaction between the assessee and RSEB as paper transaction. The above finding of the CIT(A) has not been challenged by the revenue either by filing an appeal or in cross objection before the tribunal and as such has become final. (b) We have perused various documents, viz. i) Sale deed by RSEB in favour of the assessee executed on 20-9-95 copies of which have been given to us at page 1 to 5 of the paper book. ii) Invoice cum delivery c....
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....the RSEB itself prior to the arrangement and the subsequent to arrangement. At best, it is only a financial transaction whereby the assessee has provided money to the RSEB though in the form of lease. If sale and lease back are ignored, then what is left is only a financial transaction. On the other hand, Ld. AR submitted that no new assets have been purchased this year by the assessee and leased out to RSEB. Depreciation have been claimed only on the old assets, therefore, decision taken in the earlier years has to be followed for the sake of consistency. Since no new facts are brought on record by the revenue, question of holding that sale and lease back transactions are only a financial transaction would not be proper. He further submitted that Hon. Rajasthan High court in CIT vs. Rajasthan State Electricity Board, 207 CTR 415 has held that sale cum lease back transaction entered into by RSEB were genuine and RSEB is entitled to deduction of lease rent paid by it. Thus, according to the Ld. AR in the case of RSEB the matter is settled by the Hon. Rajasthan High court. This decision of the Hon. Rajasthan High court has been followed by the Hon. Gujarat High Court in the case of C....
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....actions as operating lease in respect of which depreciation was allowable to the assessee in the earlier years, we find no error in the order of CIT (A) in allowing depreciation in respect of these assets during the years under appeals. We therefore, find that the facts in the years involved in the present appeals are identical to the facts of the case in the A.Y. 1999-2000 and 2000- 01 wherein the tribunal confirmed the order of the CIT (A) vide its consolidated order dated 12-7-2009 which is quoted above. Therefore, in the present years of appeals also, we confirm the order of the CIT (A) in vacating the disallowance of depreciation on sale and lease back transactions and dismiss the grounds of appeal of the revenue for all the years under consideration. 14. Respectfully following the decision of the co-ordinate bench in the above case of assessee, we confirm the order of ld. CIT(A) and dismiss the grounds of appeals of Revenue. 15. Now we take up ground no.2 for Asst. Year, 2005-06, 2006- 07, 2007-08 against the order of ld. CIT(A) giving relief of Rs. 4,71,12,297 for Asst. Year 2005-06, Rs. 1,62,85,000/- for Asst. Year 2006-07 and Rs. 82,01,292/- for Asst. Year 2007-08 disall....
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.... further relied on the decision of Hon'ble Jurisdictional High Court in the case of CIT vs. Torrent Power Ltd. (2014) 363 ITR 474 wherein their Lordships have upheld the decision of the Tribunal deleting the disallowance u/s 14A by observing that assessee has sufficient funds for making investment and it had not used the borrowed funds for such purpose. 23 We have heard the rival contentions and perused the material on record and gone through the decision relied upon by the assessee. The issues before us are in relation to Asst. Years 2005- 06, 2006-07 & 2007-08 wherein as per provisions of section 14A of the Act the duty is cast upon the Assessing Officer to determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act. 24. We find that this issue has also been decided by the coordinate bench in assessee's own case in ITA No.479/Ahd/2005 for Asst. Year 2001-02 and others, vide order dated 19.11.2010 in the following manner:- 37. Ground No.3 of the Revenue's appeal in A.Y. 2003-04 is directed against the order of the Learned Commissioner of Income Tax (Appeals) restricting the disallowance under Section 1....
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....interest expenses to Rs. 24,20,456/-. 42. We have heard the rival submissions and perused the materials available on record. In the instant case, in assessment year 2003-04 the Learned Assessing Officer observed that the assessee has made investment of Rs. 106.73 crores as on 31-3-2003 from which tax free income was earned by the assessee. The Learned Assessing Officer therefore disallowed proportionate interest expenditure which he worked out to Rs. 95,59,825/-. On appeal the Learned Commissioner of Income Tax (Appeals) restricted the disallowance under Section 14A in assessment year 2003-04 by observing as under: "4.3 I have considered the submission of the appellant and the fcts of the case carefully. As the dividend was taxable during this year, which has been offered for tax, the Learned Assessing Officer was not justified in disallowing the interest undersection 14A on the investments which were made towards shares from which income has been shown as taxable. Under the provisions of section 14A, the interest would be disallowed only which is attributable for tax exempt income. During the year, the appellant's tax free income was from the bonds of Sardar Sarovar Narmad....
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....the period for which this investment has been made during the year. Therefore, the total disallowance on pro-rata basis which is to be disallowed undersection 14A will be for 7 months, which will be determined as under: Interest expenses x Investment in tax free securities Total funds with the assessee company Rs.1,91,89,061 x Rs. 50,00,00,000/- Rs.2,31,22,95,019 = Rs. 41,49,354/- On this amount, pro-rata disallowance will be as under: Rs.41,49,354 x 7 months 12 months = Rs. 24,20,456/- 4.3.1 Accordingly out of the disallowance of Rs. 95,59,825/-, addition of Rs. 24,20,456/- is hereby confirmed and the remaining amount is deleted. As far as administrative expenses of Rs. 5,00,000/- is concerned, I find that considering the fact that the tax free income has been received only from two bonds, the disallowance made by the Learned Assessing Officer of Rs. 5,00,000/- towards collection of this interest is too high and therefore the same restricted to Rs. 50,000/- and the remaining amount is hereby deleted. Accordingly, this ground is partly allowed." 25. To examine the applicability of provisions of sec.14A of the IT Act and applicability of decision of the co-ordinat....
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....ed by the assessee to show that tax free funds have only been used for the purpose of investment and for this reason proportionate disallowance was made by the Assessing Officer which was corrected by by ld. CIT(A). 27. Therefore, applying the ratio of the decision taken by the coordinate bench in assessee's own case upholding the decision of ld. CIT(A) and looking to the facts of the present case as discussed above we are of the opinion that there is no reason to interfere with the order of ld. CIT(A). Accordingly, these grounds of appeals of Revenue are dismissed. 28 Now we take up ground no.4 of Revenue's appeal for Asst. Years 2005-06 & 2006-07 and ground no.1 for Asst. Year 2007-08 and 2008-09, against the decision of ld. CIT(A) directing the Assessing Officer to treat the surplus derived from transaction of shares and mutual funds by not treating them as business income. 29 Following additions were made by Assessing Officer :- Asst. Year 2005-06 Rs.11,76,00,463 Asst. Year 2006-07 Rs.12,23,56,823 Asst. Year 2007-08 Rs.4,82,03,338 30. The assessee company has been deriving income from sale of investments since many years. However, Assessing Officer has framed ....
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....d that the surplus was the profit and gains of such business. On the facts of that case, it was held that the surplus resulting from sale of shares and securities constituted business income. Thus applying the above test it proves that the assessee is a trader and not investor in shares and mutual funds. (ii) The length of the period of ownership: On going through the details filed, it is noticed that the assessee has sold the shares within a short period. The details are summarized as under : Name of the Company No. of shares Date of purchase Date of sale Aptech 691116 15.01.2004 30.06.2004 DCM 2403 04.01.2005 07.01.2005 DishmanPharma 10900 20.04.2004 07.10.2004 Datamatics 33775 08.05.2004 08.11.2004 GAIL 20000 03.06.2004 28.10.2004 ICICI Bank 42132 20.04.2004 31.12.2004 NTPC 50000 05.11.2004 08.11.2004 TCS 110111 23.08.2004 31.10.2004 to 14.12.2004 The above data indicates that the assessee's period of holding remained short in most of the cases. Thus, the result of this test is not in favour of assessee. (iii) The frequency or number of transaction by the same person : It can be verified from the details of purchase and s....
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....of shares in IPOs and earn profit as most of the IPOs were listed on premium. In respect of IPO of NTPC Ltd, Punjab National Bank and TCS, 1360, 2675 and 589 applications, have been made by SmtRupalNareshPanchal in fictitious/benami names out of the funds made available by the assessee. The assessee also made funds available to Ganpati, S.H. Vora, etc. for making multiple applications in IPO of TCS .Records shows that the assessee has employed total of Rs. 980205 137- in IPO of TCS. Similarly, in IPO of Punjab National Bank, Dena Bank, NTPC and Vishal Exports, total fund employed by the assessee is Rs. 12,51,68,1007-, Rs. 2,70,00,0007-, Rs. 6,75,35,4017- and Rs. 54,00,0007- respectively. Through this activity, the assessee managed to buy shares at the lowest possible price with a clear cut intention to sale them at profit. Buying of shares at the time when price was low and selling them on profit subsequently is considered to be the activity as adventure in nature of trade Dalhousie Investment Trust Co. Ltd. 68 ITR 486 (SC) (c) The assessee transferred the funds to certain persons just prior to the date of closing of the IPOs who in turn transferred the said funds to the persons ....
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....shares, the assessee cannot be an investor but is found to be a trader. In the case of H.Mohammad&Co. Vs. CIT (1977) 107 ITR 637, the Gujarat High Court observed that It is possible that one and the same commodity may in the case of one assessee be his stock-in-trade, whereas in the case of another assessee it may be his capital asset. For example, in the case of an assessee who carries on the business of buying and selling land, land may be his stock-in-trade but in the case of an assessee who has invested his savings in land and gets income from the land or the structures put up on the land, the land is his capital asset. Therefore, one of the indications for deciding as to what is stock-in-trade is whether a particular assessee is buying or selling the commodity or whether he has merely invested his amount with a view to earn further income or with a view to carry on his other business. It may be pointed out that "trade" means that particular business activity where the person engaged in the profession buys or sells. All businesses may be carried on for the purpose of earning a profit but that particular kind of business where the businessman buys and sells a commodity can only ....
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....n investor and become trader. The short term capital gain on sale of shares/securities and mutual fund as declared, for the reasons discussed in detail in foregoing paras, is taxed as business income of the assessee. 2.9 In view of above stated facts, the short term capital gain of Rs. 622726487- on sale of shares and short term capital gain of Rs. 55327815/- on sale of units of mutual fund is taxed as business income of the assessee. It is further clarified that profit on sale of the shares acquired in various IPOs either through the persons involved in IPO scam or HNI category and not sold during the year will be taxed as business income in the year of sale of such shares. 32. Aggrieved, assessee went in appeal before CIT(A), who partly allowed the assessee's appeal by following the decision of the Tribunal in the case of Sugamchand C. Shah vs. ACIT in ITA No.3554/Ahd/2008 dated 29th January, 2010 and decided the profit on sale of shares wherein shares are held for less than one month to be treated as income from business and profession and remaining amount of income to be considered as capital gain. 33 In the same order ld. CIT(A) has directed the Assessing Officer to tax ca....
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....f transactions are abnormally high in the current year as compared to what was done in earlier years. 12 There is also no material to come to the conclusion that the valuation of investment has been done on cost or net reliable value whichever is low. The assertion of the assessee is that entire portfolio has been valued at cost as at the end of accounting year which remained unchallenged 13 The shares which are sold out of such investment this year were mostly purchased a year or earlier showing that the assessee had intention while purchasing them to hold them and they were reflected in that balance-sheet as investment. The assessee has enjoyed dividend income and declared the same in the return of income trading the transactions as investment, even if frequency of selling of shares may be more but in respect of shares held for a considerable longer period (for more than 366 days) as per finding given by the Learned CIT(Appeals). This finding remained uncontroverted. The assessee has earned gain of Rs. 37,52,281/-, oh sale of those shares which were held for more than 366 days and upto 6832 days. In any case, when those shares were purchased it could not be said that intentio....
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.... a fact that he has not borrowed any money for investing in shares. Merely because, assessee had some borrowed funds it would not by itself show that they were deployed in investment. Notwithstanding, even borrowing are required to settle payments obligations in respect of investments, like one takes loan for purchasing a house. In any case, high frequency transactions and low period holdings indicate trade, whereas low frequency transactions and high period holdings indicate investment. 16 In this case, the assessee has discharged the onus of showing that it is investment but Revenue is able to show that there are high frequencies and low holdings in many transactions of shares indicating that assessee has some intention of purchasing and selling shares as a trader. The case of the assessee is supported by the fact that it has entered the purchases in the books as investment, shares are valued at cost and Revenue is holding such accounting treatment as investment in the past. Thus, there cannot be fixed criteria to decide as in the present case whether assessee has traded in shares even though assessee held them as investment. 17 Though it has been held in the case of Sarnath ....
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....term capital gain, the appellant has entered into frequent transactions of purchase and sales and in many :cases, the period of holding is even less than a month Applying the ratio of decision of Ahmedabad ITAT referred herein above, profit on sale of shares wherein shares are held for less than one month is treated as income from business and profession and remaining amount of income is considered as capital gain. From the details of capital gain submitted by appellant, it is seen that in both the assessment years under appeal, the appellant has earned capital gain from sale of shares and mutual funds held for less than one month. The quantum of such gain earned by appellant in both the years when the holding period is less than one month is as under: Particulars A.Y 2005-06 Amount (Rs.) A.Y 2006-07 Amount (Rs.) STCG on Shares having holding period less than one month(excluding PMS) 7,06,568/- 43,69,7507- STCG on Mutual Funds having holding period less than one month(Excluding PMS) 1,08,12,619/- 1,14,9147- Thus applying the decision of Ahmedabad ITAT (supra), I direct assessing officer to tax aforesaid income as income from business & profession subject to verif....
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....of Punjab national bank, Appellant has been holding the shares. In respect of others, it is noticed that the appellant has earned capital gain as under: Name of Script Amount of capital gain (Rs.) Remarks NTPC 6,62,8807- STGG arising on account of sale of shares in A.Y 2005-06 IDFC 43,69,7507- STCG arising on accpunt of sale of shares in A.Y 2006-07 Yes Bank 19,69,5807- STCG arising on account of sale of shares in A.Y 2006-07 In respect of capital gain of Rs. 43,69,7507- in the A.Y 2006-07 from sale of shares of IDFC, it is noticed that the holding period in respect of the same was less than one month, hence the said profit has already been taxed as business income, in view of the finding given at para 10.8 above. Accordingly, no separate addition in respect of said Rs. 43,69,750/- is done case of appellant. However, in respect of capital gain derived from sale of other scripts, the Assessing Officer is directed to tax the same as income from business and profession in respective assessment years. 10.10 From the details submitted by appellant, it is noticed that in the A.Y 2006- 07 the appellant earned short term capital gain of Rs. 1.55.63.670 - from Portfo....
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....ome by the Assessing Officer was resting upon the fact that there had been considerable number of transactions involving huge amount involving profit motive to corner upon equity shares allotted in the IPOs of various companies which have been acquired in HNI category or by making funds available to the persons who were involved in making multiple applications. Assessing Officer has mentioned names of various companies and indicated the movement of funds who were involved in IPO scam namely Smt. Rupal Naresh Panchal, Sugandh Estate Pvt. Ltd. wherein investigating wing has observed that these two groups had cornered IPO shares reserved for retail investor by making multiple application in the retail segments through medium of thousands of fictitious/benami applications. Assessing Officer also observed on page 15 of his order on a chart showing transfer of funds to certain persons just prior to the date of closing of the IPOs to these activities assessee managed to buy shares at the lower possible price with a clear intention to sale them at profit. Further on page 17 of the assessment order ld. AO has provided details of shares acquired in various IPOs sales in HNI category. Due to ....
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....r or reinvestment of the capital gain is forthcoming. She has also been maintaining stock portfolio qua some of her share investments (supra). These profits from sale of shares have arisen from the shares not forming part of her stock. All the assessee had done is to sell the shares in a period of less than three months. Rather one scrip sold within three days in the former assessment year. And in a similar span of holding period in the latter assessment year wherein she purchased IDFC, IL & F;S shares on 8.8.2005 and 20.7.2005 and sold them on 18.8.2005 for profits of Rs. 11,23,961/-. The case file reveals that the assessee in Vaibhav Shah case had entered into 64 sale transaction in 27 scrips and 17 sale transactions in 11 scrips in two consecutive assessment years which had been held to have resulted in capital gains instead of business income. A co-ordinate bench in identical case of Hitesh Doshi 46 SOT 336 (Mum.) held that when an assessee maintains similar number of companies and only number of shares therein increase or decrease, he is only a prudent investor. We take into account all the above-stated facts, circumstances and case law quoted hereinabove to hold that the asse....
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....ently achieved in past many years. Along with the main object of carrying on the business income from investments has also been consistently earned by the assessee and has been accepted. To our view once this fact is not in dispute that assessee is regularly carrying on certain business activity and the question is of treating the income from investment as capital gain or business is concerned then either whole of this activity of investment in shares and mutual fund is to be treated as business income due to intensity of transactions coupled with profit motive with an adventure of trading or it remains in the flavour of capital gain. In assessee's case business is established and regular activity has been carried on, long term capital gain from sale of shares has been duly accepted by the assessing officer in past as well as for the year under appeal, short term capital gain/loss has been consistently accepted in the past then there hardly remains any reason for not accepting some part of profit on sale of investment as short term capital gain from sales of shares and mutual fund. Also in some judicial pronouncements it has been held that if any short term capital gain is arrived ....
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....re was nothing to suggest that the assessee had obtained any benefit either by way of cessation of any liability when the liabilities were continually admitted by the assessee in their balance-sheet. (ii) ITO vs. Rainbow Housing Development & Finance Corpn.Ltd. (ITA No.4052/Ahd/2007) wherein addition u/s 41(1) was deleted holding that the assessee company had shown the liability in the balance sheet and no evidence of cessation of liability had been brought on record. 11. After going through rival submissions, it is seen that the addition u/s 41(1) has been made in a very vague and sweeping way. It is not clear how did the AO arrive at the figure of Rs. 1,24,38,772. The assessment order does not mention the names of the creditors, nor the respective amounts of such creditors which the AO has added u/s 41(1). The printed annual report for AY 2008-09 of the appellant company gives in schedule D -Current Liabilities and provisions of an amount totaling to Rs. 193,73,42,231/-. Out of this sundry creditors (Rs.58,87,465/-) and others have been shown at a total figure of Rs. 65,88,34,387/-. Now out of this which particular creditors the AO has in mind while making the addition u/s ....
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....d from the balance sheet of assessee that various creditors were very old and no interest had been paid on those loans. He gave various opportunities to the assessee to furnish details of such creditors, the assessee failed to produce the necessary information and details in this regard. The assessee also failed to furnish the postal addresses, PAN, confirmations of outstanding balance etc. Accordingly, the Assessing Officer held that liability incurred in regard to the purchase from the parties as claimed, for the earlier years had seized to exist. On appeal, the Commissioner (Appeals) confirmed the addition made by the Assessing Officer under section 41 (I) holding that when the liability itself was not to be paid as the party was not traceable, and the assessee had claimed the expenses in the earlier years, the same had to be taxed under section 41. On further appeal, the Tribunal deleted the addition made by the Assessing Officer holding that the assessee continued to show the admitted amounts as liability in its balance sheet and such liabilities reflected in the balance sheet could not be treated as cessation of liabilities. The Tribunal was of the view that merely because th....
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....round no.2 in ITA No.1510/Ahd/2012 for Asst. Year 2009-10 are against the orders of ld. CIT(A) treating some portion as short term capital gain from sale of shares and mutual funds as business income wherein period of holding of the investment is less than 30 days and also in relation to Asst. Year 2006-07 wherein income from mutual funds being managed by portfolio manager has been treated as business income. 48. At the outset, we would like to mention that while dealing with grounds of Revenue relating to treatment of capital gains income as business income, we have dismissed the grounds of Revenue as discussed in para 39 above wherein we have held that transactions of purchase and sales of shares and mutual funds claimed by the assessee as long term capital gains and short term capital gains to be correct and have also decided that transactions of short term capital gain need not be bifurcated into two portions being those held for less than 30 days and others on the facts wherein assessee company is regularly carrying on the business activity of printing newspaper and earning income from advertisement regularly since last many years and income from capital gain as long term / s....
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....sessee, we do not deem it proper that the same should have been applied on the assessee for Asst. Year 2007-08. In case Assessing Officer has to make any disallowance then specific finding must have been given by the Assessing Officer as emanating from the books of accounts of the assessee that certain expenses are directly incurred in relation to earning of income not chargeable to tax. From going through the assessment order, we find that Assessing Officer has not brought out any material evidence to prove that certain administrative expenses need to be disallowed. However, one cannot ignore the fact that looking to the quantum of tax free income earned by assessee some expenses ought to have been incurred and, therefore, ld. CIT(A) has rightly confirmed the disallowance of Rs. 2,50,000/- out of administrative expenses. We uphold the same and dismiss the ground of assessee for Asst. Year 2007-08. 53. Now we take up the disallowance of administrative expenses of Rs. 84,15,667/- u/s 14A read with respect to Rule 8D for Asst. Year 2009-10. For Asst. Year 2009-10 Assessing Officer has made disallowance u/s 14A by applying the method mentioned relevant to Rule 8D of IT Rules accordin....
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.... no disallowance was called for when enough funds in the form of reserve and surplus are available with the appellant. 7. After going through rival submissions, it is seen that the appellant has not been able to establish the nexus(date and amount-wise) of interest free funds available with the appellant, with specific date and amount-wise investment, made in a particular Mutual fund or shares of any company or in any tax-free bond. General statements have been given by the appellant that enough funds are there, but even the break-up of the type of fund available and how much of it has been invested, when and where by the appellant has not been furnished. In .his background Hon'ble Bombay High Court reported in 238 ITR 81 in the case of Godrej & Boyce is applicable wherein it was held that Rule 8D for calculating the proportionate interest disallowance is applicable from AY 2008-09 onwards. In this case, the Assessing Officer has applied Rule 8D as the year under consideration is AY 2009-10. And as even during appellate proceedings the nexus between the availability of funds and the specific investment made of the same , where and when , has not been established, the disallow....
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....unds of Rs. 40,10,861/-. He also observed that the assessee has not made disallowance of interest expenditure according to section 14A read with Rule 8D of the Act. He therefore computed the proportionate disallowance of interest expenditure at Rs. 5,84,706/- and disallowed the same. Before the Commissioner of Income Tax (Appeals), the assessee submitted that the assessee had borrowed funds for the purposes of vehicle and old loan of Rs. 2005/- for Captive Power Plant, and therefore no borrowed funds were used for non-business purposes. Further, the assessee relied upon the decision of the Hon'ble Supreme Court in the case of S A Builders (supra) and Munjal Sales Corporation (supra) and the decision of Hon'ble Mumbai High Court in the case of Reliance Utility & Power Ltd. (supra) where it was held that if the interest free funds of the assessee were sufficient for making investments, no disallowance of interest expenditure was called for. The Commissioner of Income Tax (Appeals) held that the finding of the Assessing Officer was not correct that the assessee has not charged any interest free loan to associate concerns. He held that the assessee in fact earned interest incom....
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...., ground no.l of appeal of the assessee is allowed." We are in complete agreement with the view taken by the learned Tribunal and the reasons given by the learned Tribunal while deleting the disallowance of interest expenses under Section 14A of the Act." 55. On the other hand ld. DR supported the orders of lower authorities. 56. We have heard the rival contentions and perused the material on record. From going through the facts of the case, we find that the assessee has been consistently earning tax free income in the form of dividend and tax free interest as well as free income from long term capital gain from sale of shares and in few years considerable portion of the net profit was from tax free income from such investment. Further going through the balance sheet of the assessee also we find that on an average 30-40% of the total of share capital and reserve and surplus are being invested in investments in the form of govt. securities equity shares and mutual fund which mainly gives tax free income to the assessee. Upto Asst. Year 2007-08 there was no methodology available with the Assessing Officer to compute such expenditure incurred by assessee in respect of exempt inco....
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....s which reads as under with respect to section 14 of the Act. Sec. '14A. Expenditure incurred in relation to income not includible in total income.-(1)For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. (2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act: Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under ....
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....n account of revaluation of assets. (c) An amount equal to ½ % of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the relevant accounting year. 59. Going through the facts of the case of assessee we find it to be a fit case for the applicability of Rule 8D of IT Rules relating to provisions of section 14A of the Act because huge funds have been invested in the shares and securities substantive income of assessee in past and present have been earned from profit on sale of investments, regular movements of funds from the source of interest bearing as well as interest free funds in the books of accounts relevant to investment in tax free funds and also in the case under appeal in order to satisfy the requirements of section 14A sub-sec.(2) as well as requirements of Rule 8D sub rule (1) Assessing Officer has made specific objections that he is not satisfied with the correctness of the claim of expenditure made by the assessee towards expenditure incurred in relation to income not includible to total income. 59.1 During the co....
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....tion that the expenditure has been incurred for negotiating deal for import of newspaper viz. parties with whom such negotiations took place as well the details of any import made as a result of such negotiations etc. and in the absence of any such details, the appellant cannot be said to have discharged the onus of proving expenditure as having been incurred for business purpose. Under such circumstances, 1 find no infirmity in the disallowance made by the Assessing Officer. The addition mad(c) in both the years is accordingly confirmed." 62 Aggrieved, assessee is now in appeal before the Tribunal. 63. Ld. AR of the assessee submitted that details of foreign travel expenses have been duly submitted before the lower authorities and they have been again shown at page 160 of the paper book relating to Asst. Year 2006-07 and the same have been incurred for business purposes. 64. On the other hand, ld. DR supported the orders of lower authorities. 65. We have heard the rival contentions and perused the material on record. This ground relates to foreign travel expenses claimed to be incurred by assessee for business purposes but they have been disallowed by Assessing Officer for wan....