TaxTMI 
TaxTMI 
2024 (7) TMI 280
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....43(1) of the Act. The case was selected for scrutiny and the same was completed by the AO by passing an order u/s. 143(3) of the Act, making addition on account of disallowance u/s. 14A read with Rule 8D of the Income Tax Rules, 1962 of Rs. 35,76,934/-, addition on account of treating loss of trading in shares Rs. 1,71,03,200/- as non-genuine and fabricated and addition on account of disallowance of speculation loss of Rs. 13,45,857/-. 2.1. The assessee filed an appeal before the Ld.CIT(A), who partly allowed the appeal restricting disallowance u/s. 14A to Rs. 13,970/- and deleted the additions on account of loss of trading in shares and speculation loss. 3. Aggrieved by the order of the Ld.CIT(A), the Revenue is in appeal before us with the following grounds of appeal: "1. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 35,62,964- u/s. 14A of the Act. 1.1. The Ld. CIT(A) has failed to appreciate that investment of Rs. 23,68,79,628/- was made in shares during the year, dividend income from which is exempt from tax. 1.2. The Ld. CIT(A) has failed to appreciate that since the assessee is not maintaining any separate ac....
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....een reproduced by the Ld.CIT(A) was on account of derivative and option trading and not on account of actual purchase and sale of delivery-based shares. 3.5 The Ld. CIT(A) has failed to appreciate that in income Tax assessment proceedings, principle of preponderance of probability and normal human conduct/behaviour is applicable, which has been reiterated by the Hon'ble Supreme Court in various decisions. 3.6 Without prejudice to the aforesaid, the assessee being a company, such losses being losses incurred on trading of shares had to be treated as speculation loss in view of explanation to section 73 of the I.T. Act and, therefore, disallowable. 4. The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary." On Ground No.1 4. This ground relates with the disallowance of Rs. 35,76,934/- made by AO u/s. 14A r.w.Rule 8D and restricted by the Ld.CIT(A) to Rs. 23,970/-. The facts of the issue are such that during the year under consideration, the assessee has earned Dividend Income of Rs. 23,970/- as exempt income. As claimed by the assessee, the company has not made any direct expense to earn this exempt inc....
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.... administrative expenses should be made only on presumption of incurrence thereof for the purpose of earning tax free income. Further, it was submitted that, in recent era, it does not require any specific administrative efforts for earning dividend income. The assessee is not required to deposit dividend warrant but is directly credited to bank account of assessee through ECS for which no specific administrative cost is required. The Assessing Officer, however, not satisfied with the submission of the assessee, calculated the disallowance u/s 14A as determined in accordance with Rule 8D. 4.3. During the course of proceedings before the Ld.CIT(A), the assessee placed reliance on some judicial proceedings. The Ld.CIT(A) considering the contention of the assessee restricted the disallowance to exempt income of Rs. 23,970/-. He also relied on the decision of the Ld.CIT(A) in case of assessee's own case of earlier years. The relevant para of his order is reproduced hereunder: "3.5. In view of the above facts of the case and the fact that identical issue on similar lines has been decided by this office in the immediately preceding years i.e. A. Y. 2013-14 dated 26/05/2017, A....
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....r section 14A. The Court referred to the judgment of the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. v. CIT (2018) 402 ITR 640 (SC), where it was held that the primary condition for applicability of Section 14A is that the expenditure should have been actually incurred in relation to exempt income. The Court also noted that the AO must record reasons for not being satisfied with the correctness of the claim of the assessee regarding the expenditure incurred in relation to exempt income before proceeding to make a disallowance under Rule 8D. It was observed that in the present case, the AO had mechanically applied Rule 8D without recording the requisite satisfaction, thereby violating the procedural requirement stipulated under Section 14A(2) of the Act. 7.1. The Circular No. 05/2014 dated 11/02/2014, cited by the Revenue, suggests applying Section 14A even when no exempt income is earned, but this principle was deemed inapplicable to the facts of the current case. Conclusion: 8. We, therefore, uphold the Ld.CIT(A)'s decision to restrict the disallowance under Section 14A to the exempt income earned by the assessee, amounting to Rs. 23,970/-. Consequently, t....
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....A) concluded that the disallowance has been made by the AO on the basis of information received from the Investigation Wing, Kolkata without making further inquiries and rebutting the details and evidence submitted by the assessee. He further concluded that no further evidence has been brought on record to prove that the impugned transactions were sham. The Ld.CIT(A) also observed that nowhere in the report of investigations the name of assessee and his broker was mentioned and no information on the basis of which the addition was made was made available to the assessee for cross verification. The Ld.CIT(A) recorded that necessary documents like contract notes cum bills, Dmat statements, ledger account of broker and bank statements evidencing purchase and sale of shares were placed on records by the assessee. The Ld.CIT(A) placed on reliance of some judicial pronouncements including that of Hon'ble Gujarat High Court in case of Maheshchandra G. Vakil in 40 taxmann.com 326. 11. During the course of hearing, the Ld.Counsel for the assessee reiterated the facts and took us through the order of the Ld.CIT(A) and placed reliance on some judicial pronouncements including that of Hon'b....
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....8. Additionally, we also note that necessary entries were made in the account books of both sides, i.e. purchaser and seller and delivery receipts were also passed demonstrating contemporaneous sale and purchase of the shares. It is not even the case of the Revenue that such off market transactions were not permissible. When we find that off market transactions were permitted in law, that there was no evidence to suggest that artificially they were sold at rates lower than the prevailing market rates and we further find that the Assessing Officer could not bring on record any material to show that the transactions were shown to be deliberately back-dated, the findings of the CIT (Appeals) as well as that of the Tribunal, in our opinion, call for no interference." 14. The Ld. DR has not controverted to the said decision. 15. After careful consideration of the facts, evidence, and submissions by both parties, we uphold the decision of the Ld.CIT(A) to delete the disallowance made by the AO. We concur with the Ld.CIT(A)'s observation that the AO failed to provide substantial evidence to disprove the genuineness of the transactions. We note the following key-points: ....