TaxTMI 
TaxTMI 
2016 (2) TMI 1353
X X X X Extracts X X X X
X X X X Extracts X X X X
....009-10 were filed within the statutory time lime 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 busines....
X X X X Extracts X X X X
X X X X Extracts X X X X
....expenditure as to whether capital or revenue and whether the expenditure was incurred out of commercial expediency 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... perused the material on record. After considering the facts of the case and material on record, we find that the issue involved 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 assesse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ctive years as noted by the Ld. CIT(A) are as under:- Asstt. Years Lease Depreciation 1996-97 99,43,526 5,12,48,38,250 1997-98 8,02,87,259 28,58,95,559 1998-99 9,77,24,689 21,44,21,668 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 a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....." Following the above order of the tribunal, Ld. CIT(A) allowed the claim of depreciation this year also. 6. Ld. D.R. submitted that these transactions are only paper transaction or at best a financial transaction because the assets have not been actually transferred from RSEB to the assessee. They are in the premises of the RSEB and used by 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....depreciation under dispute does not relate to any new asset which was acquired during the years under appeal. Further, it is also not in dispute that the assessee derived similar lease rental income in respect of assets in question in all the years under present appeal which were derived by it in the A.Ys 1999-2000 and 2000- 01. As the tribunal has already accepted the transactions 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-ord....
X X X X Extracts X X X X
X X X X Extracts X X X X
....20 Ld. DR relied on the orders of Assessing Officer. 21 Ld. AR submitted that assessee company is having sufficient interest free funds in the form of share capital, reserve and surplus which are much more than the investments in shares and mutual funds. So there should not be any reason for any disallowance of interest because interest expenditure is solely incurred for the business purpose. 22 Ld. AR 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 u....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the investment. In absence of the details of source of investment in shares and mutual fund, the Learned Assessing Officer concluded that during the year assessee company invested interest bearing funds for making investment in shares and mutual fund. Accordingly, he disallowed proportionate interest expenditure of Rs. 95, 59,825/-. 41. In appeal, the Learned Commissioner of Income Tax (Appeals) restricted the disallowance out of 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 wa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the income which was not taxable during this year, which has been shown by the appellant as tax free, is interest on bonds of Sardr Sarovar Narmada Nigam Ltd., Series-I and bonds of Ahmedabad Municipal Corporation. The basic question which is to be decided is the amount of interest which is relatable to the investment of Rs. 50 crores in the bonds. The appellant has mentioned that the proportionate interest which is to be disallowed on such investments is for 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gainst the share holding funds of Rs. 2607.18 crores which means that only 7% of the available tax free funds were invested whereas in the case of the assessee the investment is almost around 40% of the available funds of share capital & reserve/surplus and further the major addition in each year in the reserve and surplus is only on account of profit from sale of investments. Also there has been a considerable movements of funds from bank account of the assessee and these funds are being used for the working capital as well as funds for the purpose of investments. There is no separate bank account maintained 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... which a trader or a businessman deals whereas his capital asset is something with which he deals. It was further held by the Hon'ble High Court that the distinction between stock-in-trade and investment is that of selling outright in the course of business activity and deriving income from exploitation of one's own assets. Further, on the facts of the case, the Hon'ble Supreme Court in the case of SardarIndrasigh and Sons Ltd. 24 ITR 415, it was observed that the principle applicable in all such cases was well settled and the question always was whether the sales which produce the surplus were so connected with the carrying on of the assessee's business that it could fairly be said 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he ownership of the assets is missing. In the case of G.Venkata Swami Naidu & co. Vs. CIT(1959) 35 ITR 594, the Supreme Court in this case discussed the test of intention. It held that in cases where the purchase has been made solely and exclusively with the intention of resale at a profit and the purchaser has no intention of holding the property for himself or otherwise enjoying it or using it, the presence of such intention is a relevant factor and unless it is off-set by the presence of other factors, it would raise a strong presumption that a transaction is an adventure in the nature of trade. (b) The shares in large quantity of various IPOs have been purchased by the assessee from the key operators who cornered the said shares by illegal means.It was found to be a wellplanned, thought of and organized activity to corner large quantity 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 222.22 crores by obtaining loan. Interest of Rs. 149041947-has been debited to the sundry interest account. It is noted that the assessee has obtained overdraft facility/loan from various financial institutions/banks for acquiring the shares either in IPOs or purchase through market transactions and also purchase of units of mutual funds. The interest paid has either been added to the cost of shares/units or debited in the interest account. Hon'ble Supreme Court in the case of Dalhousie Investment Trust Co. Ltd. (supra) has observed that shares purchased out of borrowed funds on interest cannot be for earning dividend which would be very nominal as compared to the interest. Therefore, the purchase of shares must be for purpose of earning profit on their sale and hence the transaction of such nature amounted to adventure in the nature of trade. Since multiple applications have been made and borrowed funds have been used for acquiring maximum number of 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 14,5I,80I/- as an allowable expenditure. These expenses are towards the activity of purchase and sale of sharcs/seeunties/mutual fund. Thus, on one hand the assessee is claiming the surplus as capital gain which is either exempt from tax or taxed at a lower rate and on the other hand, the expenses have been claimed from the business income. This proves that the surplus on short term share transactions is nothing but business income. As the surplus on share trading is being taxed as business income, the securities service charges are allowed as deduction. 2.8 Applying the above tests to the transactions entered into by the assessee as discussed above, it is clear that the surplus arising out of sale of shares and mutual fund is nothing but the business income as the assessee held the shares as trading assets. This view also finds support from the CBDT Instruction No. 1827 dated 31.08.1989 and supplementary instructions in the form of Circular No. 4 of 2007 dated 15.06.2007. The magnitude of the activity indicates that the assessee ceases to be an investor and become trader. The short term capital gain on sale of shares/securities and mutual fund as declared, for the reaso....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng term capital gain shown in return of income. 10.8 In the present case, the issue of determination is as to whether the surplus of arising on account .of sale of shares and mutual funds is to be taxed as short term capital gain or the same should be taxed as business income at normal rates. Recently the Hon'ble Ahmedabad ITAT in case of Shri Sugamchand C. Shah in ITA No. 3554/Ahd/2008 vide order dated 29th January, 2010 on issue identical to this case, has held as under: "11 When we examine the facts of the case, we find assessee has maintained the books of account in respect of dealing in shares and assessee has shown the transactions in shares as investment and not as stock-in-trade. It has been shown consistently for several years in. the past and Department has not challenged the book keeping or accounting 'of shares' as investment. No contrary material or facts have been pointed out by the Revenue to show that facts in the current year are different than the facts in earlier years. It is also not pointed out by the Revenue that frequency and number of transactions are abnormally high in the current year as compared to what was done in earlier ye....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g 'short-term capital gain' as claimed by the assessee and held as profits assessed under that business by two authorities, we .found that in many cases, there is delivery of shares and share were registered in the name of the assessee. The holding period of the shares is from '0' days to '366' days. In some cases, the frequency of transactions are apparently substantial as on one day the assessee has purchased several scripts and sold several of them on the same day. 15 The question is whether therefore, merely from frequency of the transactions carried on by the assessee, he is treated as dealer in shares or still he is held as investor. As found in the case of Samath Infrastructure (P) Ltd. vs. Asstt. CIT (supra) also, assessee adduced evidence to show that his holdings are for investment as recorded in the books of account. The holdings are valued at cost, and such accounting has been accepted by the Revenue in earlier years. There is no material to show that assessee has declared himself as a trader in shares and legal requirements therefore have been complied with. It is also a fact that he has not borrowed any money for investing in shares. M....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eria has to be fixed for determining as'to when he is acting as trader and when as investor. Accordingly, we decide following criteria to hold when gains are to be taxed as profit to be earned under the business or to be taxed as short term capital gain. We hold that if shares are not held even say for a month, then the intention is clearly to reap profit by acting as a trader and he did not intend to hold them in investment portfolio. We believe that if a person intends to hold his purchases of shares as investment, he would watch the fluctuation of rates in the market for which a minimum time is necessary, which we estimate at one month. Where shares are held for more than a month, they should be treated as investment and on their sale short term capital gain should be charged. When shares are held for less than a month, gain on them should be treated as profit from business." The Assessing officer has also accepted income from long term capital as such and only dispute is regarding treatment given from shares and mutual funds held for less than 365 days as income from short term capital gain. In case of income shown as short term capital gain, the appellant has ente....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... there is considerable risk of loss as well as chance of gain." In the present case, the appellant has obtained finance form certain concerns for applying " IPOs of companies. After allotment, these shares have been transferred to appellant. Such an activity has to be termed as an organized and systematic activity, carried on continuously with a view to earn profits. The sole intention at the time of acquisition of shares through such mode was to sell these shares at a profit. Such an activity has to be construed as adventure in the nature of trade. In such a situation, the surplus arising on sale of shares acquired in aforesaid IPOs has to be treated as income from adventure in the nature of trade and the same has to be taxed as business income. During the course of appellate proceedings, the appellant was asked to submit details of surplus earned from these IPOs. In response to which, the learned counsel of appellant submitted that in respect of the allotment made under IPO of Sasken Comm., the appellant company is still holding these shares and no sale has been effected in respect of the said securities for the assessment years under appeal. Even with regards to issue o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....6, we find that Assessing Officer has made detailed analysis in regard to the short term capital gain and long term capital gain shown by the assessee under the head "sale of investment" shown in the profit and loss account. During Asst. Year 2005-06 total income from transactions relating to shares and investment has been shown at Rs. 44.39 crores and the respective heads of such income are as below :- i) Long term capital gain on shares 32.56 crores ii) Short term capital gain on shares 6.23 crores iii) Short term capital gain on mutual funds 5.53 crores iv) Future option trading 0.07 crores Total 44.39 crores Out of the above, Assessing Officer has accepted the claim of long term capital gain made by assessee for Rs. 32.56 crores and only the balance income from shares transactions assessee company has itself shown profit from future option trading as business income of Rs. 0.07 crores and the remaining income from short term capital gain on shares and mutual funds at Rs. 11.76 crores (Rs.6.23 crores + Rs. 5.53 crores) has been treated by the Assessing Officer as business income. The main reason for the treatment o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....olour of business income. The CIT(A) twin reasoning stands overruled accordingly. The short question that arises for our dependent adjudication in these appeals is as to whether the assessee's income derived from sale of shares/mutual funds is to be treated as short term capital gains or business income. In our considered opinion, this is a perennial issue to be decided as per facts of each case. The hon'ble jurisdictional high court in case Tax Appeal No.77 of 2010 decided on 27.6.2012 CIT vs. Vaibhav J. Shah holds that the most important test for judging nature of profits arising from sale purchase of shares has to be based on volume, frequency, continuity and regularity of transactions withholding period, usage of borrowed funds, assessee's books maintained etc. It transpires that the assessee had chosen to invest interest and non interest bearing funds on share investments acquired at IPO stage in HNI category. The assessee's salary income is more than share profits in these years. This proves her to be only a prudent investor instead of a trader. There is no evidence in this case file demonstrating the assessee to be engaged in any organized activity of share trading. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ls of accepting transactions of purchase/sale on shares as short term and long term capital gain for Asst. Year 2001-02, 2003-04 & 2004-05 is mentioned below :- Asst. Year STCG/STCL LTCG/(LTCL) Date of asst. order u/s 143(3) 2001-02 (15,61,33,149) (52,28,340) 11.03.2004 2003-04 1,56,58,030 (72,68,961) 30.11.2005 2004-05 (7,63,08,132) 2,17,92,444 21.12.2006 38. However, ld. CIT(A) has taken a view of bifurcating the transactions shown by the assessee under the head short term capital gain from sale of shares and mutual funds on the basis of period of holding and has held that shares held for more than 30 days to be treated as short term capital gain and those less than 30 days to be treated as business income and as regards income from mutual funds earned by the assessee from its portfolio management by its portfolio manager has been treated as business income. 39. Various decisions have been referred and we find that these decisions are based on the facts which are differentiable from case to case and one set pattern cannot be applied/followed for each case. Assessee company whose main business is of printing newspaper....
X X X X Extracts X X X X
X X X X Extracts X X X X
....through the details of sundry creditors remaining outstanding for more than 3 years, Assessing Officer took a view that as most of the amounts are small amounts and there can be no reason for them to remain outstanding for more than 3 years and therefore, he went ahead to make addition of Rs. 1,24,38,771/- u/s 41(1) of the Act for cessation of liability. However, in the assessment order no specific observations of the sundry creditors about their whereabouts and inability of the creditors to pay the liability has been recorded. 41. Aggrieved, assessee went in appeal before CIT(A) who has deleted the impugned disallowance made u/s 41(1) of the Act by observing as under :- "10 During the course of appellate proceedings, it was stated that the ld. AO has not come across any evidence to prove that liabilities have ceased to exist and neither appellant has written off the said amounts. It was further stated that merely because the liability has become time barred it is not valid for invoking provisions of sec.41(1). Several case laws were relied upon in support of the argument just because that liability was outstanding for more than three years was not sufficient ground for....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... last three years without mentioning about any single creditor. Ld. AR submitted that assessee company is a Limited company and its books of accounts are regularly audited under various Acts and no specific defects have been pointed out in the books of accounts. Ld. AR further relied on the decision of Hon. Jurisdictional High Court in the case of CIT vs.Nitin S. Garg (2012) 22 taxmann.com 59 (Guj) wherein on similar ground Revenue lost the case. 44. We have heard the rival contentions and perused the material on record. We find that Assessing Officer made disallowance of Rs. 1,24,38,772/- u/s 41(1) of the Act on account of cessation of liability. We further find that no specific observations have been made by the Assessing Officer nor any further action has been taken by Assessing Officer by way of issuing notices to the creditors, collecting of evidences to prove that there is no inability on the part of the creditor to pay. Over and above, assessee company has itself not written off the liability and submitted audited balance sheet showing sundry creditors stood as payable. Further as referred to by ld. AR we have gone through the decision of Jurisdictional High Court in the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e non-existent. [Para 15] In view of aforesaid, impugned order passed by the Tribunal was to be upheld." 45. Respectfully following the decision of Hon. Jurisdictional High Curt, we find that the facts of the case of assessee are quite similar to the facts being discussed in the above referred decision wherein it has been held that no disallowance u/s 41(1) of the Act can be made merely because liabilities were outstanding for last many years and it cannot be inferred that said liabilities ceased to exist for the very reason that assessee has duly shows its liability in its balance sheet and no specific fact controverting the same has been brought before us by Revenue. We, therefore, find no reason to interfere with the order of ld. CIT(A) on this issue and accordingly confirm the same. This ground of Revenue is dismissed. 46. Remaining ground nos. 5 & 6 in appeal No.637/Ahd/2011,and No.638/Ahd/2011, ground nos.4 & 5 in appeal No.639/Ahd/2011, ground nos. 3 & 4 in appeal No.62/Ahd/2012 & appeal No.1659/Ahd/2012 are general in nature, which need no adjudication. Now we take up cross appeals of assessee 47. Ground no.4 in ITA No.528/Ahd/2011 for Assy. Year 2005- ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....07-08 for disallowing administrative expenses calculated on the basis of 0.5% value of investment and for Asst. Year 2008-09 & Asst. Year 2009-10 applying the method mentioned in Rule 8D of the IT Rules r.w.s. 14A of the Act. 51. While dealing with the Revenue's appeals we have decided that on the basis of co-ordinate bench decision in assessee's own case that ld. CIT(A) has made no error in confirming the proportionate disallowance of interest expenditure u/s 14A of the Act. In view of our decision made in the Revenue's appeals discussed at para 26 & 27 of this order, we dismiss the grounds of assessee relating to disallowance of interest expenditure u/s 14A of the Act and confirm the decision of the ld. CIT(A) on this issue for all the five Asst. Years from Asst. Years 2005-06 to Asst. Year 2009-10. 52. However, in regard to disallowance of administrative expenses for Asst. Year 2007-08 at Rs. 84,51,292/- calculated @ 0.5% of average value of investment at Rs. 169 crores, we find that Assessing Officer has made disallowance by computing the same by applying the method mentioned in Rule 8D of IT Rules which have been inserted by the IT (Vth Amendment) Rules, 2008 w.e.f. 24.3....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ra 4.2 that as per balance-sheet (as on 31.3.2009), the assessee has Secured loans of Rs. 3,56,36,111. He has also noted that the assessee has debited interest of Rs. 19,69,881 in the profit and loss account. His point is that secured funds on which interest has been paid, have been diverted into making investments, on which tax free income , has been earned. In 4.3 of the assessment order, the Assessing Officer has applied Rule 8D for calculating disallowance of proportionate expenditure which has been debited in the profit and loss account in the form of various expenses including interest, incurred by the assessee on earning tax free income. 6. During the course of appellate proceedings, the Id.ARs argued that the Reserve and surplus available with the appellant at the beginning of the year i.e. 1.4.2008 was Rs. 507.67 crores and at the end of the year i.e. 31.03.2009 was Rs. 523.18 crores which includes share capital also. It was argued that as investment in earning tax free income was less than the amount of interest free funds in the form of share capital, reserve and surplus, no disallowance u/s.14A was called for. Hon'ble Bombay High Court in the case of CIT vs....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Jurisdictional High Court in the case of Principal CIT-2 vs. India Gelatine & Chemicals Ltd. in Tax Appeal No.276 & 277 of 2015 wherein their Lordships have confirmed the view taken by the Tribunal while deleting the disallowance of interest expenses u/s 14A of the Act by observing as under :- "[5.1] Now, so far as the deletion of disallowance of interest expenses under Section 14A of the Act by the learned Tribunal / CIT(A) is concerned, it is required to be noted that the AO made the disallowance under Section 14A of the Act on the ground that the assessee was not able to justify that the investments made in the shares and mutual funds amounting to Rs. 21,14,07,8507- was made out of the interest: free funds. However, it is required to be noted that both, the learned GIT (A) as well as the learned Tribunal have categorically found on the basis of the material on record that as such the assessee was having interest free funds out of which the investment was made. Therefore, by observing in paras 6 to 9 extracted hereinbelow, the learned Tribunal has deleted the entire disallowance of Rs. 12,06,9347- made by the AO under section 14A of the Act. "6. We have heard t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 8. Further, the Assessing Officer abo made disallowance of Rs. 8,22,228/- out of administrative expenses, but had restricted the disallowance made to Rs. 6,22,228/- as the assessee himself had made disallowance of Rs. 2,00,000/- as expenses incurred for earning tax free divided income. The Commissioner of Income Tax (Appeals) observed that the said expenses must have been incurred by the assessee in making the investments and therefore confirmed the disallowance of Rs. 6,22,228/- made by the Assessing Officer. The Authorized Representative of the assessee submitted that the assessee has earned divided income of Rs. 12,200/- as will be evidenced from the statement of accounts of the assessee at pave 26 of the paper book for which disallowance of Rs. 6,22,228/- cannot be made. 9. We find that the Assessing Officer as well as the Commissioner of Income Tax (Appeals) could not pinpoint any error in the computation of disallowance made by the assessee of Rs. 2,00,000/- in earning tax free divided income. In the circumstances, in our considered opinion, disallowance of Rs. 6,22,228/-- could not have been made by the Assessing Officer and confirmed by the Commissioner of <....
X X X X Extracts X X X X
X X X X Extracts X X X X
....een included by Finance Act 2001 with retrospective effect from 1.4.1962 to nullify the judgment of Hon. Supreme Court in the case of Rajasthan State Ware Housing Corporation vs. CIT 242 ITR 450 wherein their Lordships have held as under :- "in computing Rs. profits and gains of business or profession' when an assessee is carrying on business in various ventures and some among them yield taxable income and the others do not, the question of allowability of the expenditure u/s. 37 of the Act will depend on: (a) fulfilment of requirements of that provision noted above; and (b) on the fact whether all the ventures carried on by him constituted one indivisible business or not; if they do, the entire expenditure will be a permissible deduction but if they do not, the principle of apportionment of the expenditure will apply because there will be no nexus between the expenditure attributable to the venture not forming integral part of the business and the expenditure sought to be deducted as the business expenditure of the assessee." 58. However, even after the insertion of section 14A of the Act it was incumbent on the Assessing Officer to calculate such disallowance on the f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....th which S. 14A was enacted. 2.2 Broadly stated, the new Rule 8D provides as under : (i) The method prescribed in the Rule is to be applied only if the AO is not satisfied with : (a) The correctness of the claim of expenditure incurred for earning the exempt income made by the assessee or (b) The claim made by the assessee that no expenditure has been incurred for earning exempt income. (ii) The method prescribed in the Rule states that the expenditure in relation to income which does not form part of the total income shall be theaggregate of the following amounts : (a) The amount of expenditure directly relating to income which does not form part of total income. (b) In the case of interest on borrowed funds which is not directly attributable to any particular income or receipt, the amount computed in accordance with this following formula : A x B C A = Amount of interest, other than the amount of interest which is directly attributable to the exempt income stated in (a) above. B = The average of value of investment, income from which does not or shall not form part of the total inco....
X X X X Extracts X X X X
X X X X Extracts X X X X
....there is no correctness in the claim made by assessee looking to the fact of investment made as well as tax free income earned by the assessee and accordingly Assessing Officer proceeded towards calculation of such expenditure to be disallowed u/s 14a of the Act on the basis of method given in Rule 8D of IT Rules. We find that ld. CIT(A) has rightly confirmed the same and accordingly we dismiss this ground of assessee for Asst. Year 2009-10. 60. Now we take up ground no.3 of ITA No.528/Ahd/2011 for Asst. Year 2005-06 and ground no.4 of ITA No.529/Ahd/2011 for Asst. Year 2006-07 against the order of ld. CIT(A) confirming the disallowance of foreign travel expenses of Rs. 23,74,188/- for Asst. Year 1005-06 and Rs. 7,45,334/- for Asst,. Year 2006-07. 61. From going through the orders of lower authorities we find that assessee has been unable to satisfy the Assessing Officer as well as the ld. CIT(A) by justifying the foreign travel expenses in regard to Asst. Year 2005-06 and 2006-07. Ld. CIT(A) has confirmed the addition for Asst. Year 2005-06 and 2006-07 relating to disallowance of foreign travel expenses of Rs. 23,74,188/- and Rs. 7,45,334/- respectively, by observing as unde....