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2014 (8) TMI 155 - AT - Income TaxRestriction of disallowance u/s 14A r.w. Rule 8D - Unsubstantiated purchase price, unsubstantiated sale value of shares as well as the value of investments in shares Held that - No details of shares held as investments and shares held as stock-in-trade has been furnished - the assessee has been purchasing and selling shares of Private Limited Companies - a person can only invest in shares of a Private Limited Co. and cannot trade in the shares of a Private Limited Company - no details have been brought on record in respect of shares held as stock-in-trade, there was no error in the computation of the disallowance made u/s. 14A r.w. Rule 8D by the AO the order of the CIT(A) is set aside. Assessee s nature of business as claimed is trading in shares - Whatever little details are available from the assessment order show that the assessee is purchasing and selling shares of a Private Limited Company and claiming it to be its business activity it could not be understood as to how can a person trade in shares of a Private Limited Company - This aspect has not even considered by the AO during the course of the assessment proceedings nor the CIT(A) cared to apply his mind on the nature of activity of the assessee before deleting the addition of Rs. One crore - thus, the matter is remitted back to the AO for verification of nature of business activity Decided partly in favour of Revenue.
Issues:
1. Disallowance of expenses u/s. 14A r.w.r. 8D 2. Addition of unsubstantiated purchase price and sale value of shares Issue 1: Disallowance of expenses u/s. 14A r.w.r. 8D: The Revenue appealed against the Ld. CIT(A)'s order restricting disallowance u/s. 14A r.w.r. 8D to a lower amount without providing a basis. The AO computed disallowance at Rs. 2,24,086, but the Ld. CIT(A) restricted it to Rs. 1,49,800 due to the exempt income being lower. The Revenue contended that the disallowance should be as per Rule 8D without any restrictions. However, the Ld. CIT(A) considered the business turnover and reduced the disallowance. The Tribunal found no error in the AO's computation and reinstated the disallowance at Rs. 2,24,086, rejecting the Ld. CIT(A)'s relief. Issue 2: Addition of unsubstantiated purchase price and sale value of shares: The AO added Rs. 1 crore due to lack of documentary evidence supporting the purchase and sale value of shares, especially unquoted shares. The Ld. CIT(A) deleted this addition without considering the Companies Act's provisions for Private Limited Companies. The Tribunal noted that the nature of trading in shares of a Private Limited Company raised concerns as trading in such shares is legally restricted. The Tribunal directed the AO to investigate the business activity, verify transactions, and examine the Articles of Association of Private Limited Companies involved. The issue was remanded for a thorough reevaluation by the AO, emphasizing the need for a detailed investigation. In conclusion, the Tribunal upheld the disallowance of expenses u/s. 14A r.w.r. 8D at Rs. 2,24,086 and remanded the issue of the addition of Rs. 1 crore for further examination to determine the true nature of the business activity involving shares of Private Limited Companies.
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