TMI Blog2014 (4) TMI 660X X X X Extracts X X X X X X X X Extracts X X X X ..... enue both are in appeal - At the time of hearing counsel of the assessee reiterated the submissions made before lower authorities and also highlighted certain portion of those submissions and relied upon case laws - it would not be proper to accept the submissions without getting them verified – thus, the matter is required to be remitted back to the AO for fresh adjudication – Decided in favour of Revenue. - ITA No.3479/Ahd/2010, ITA No.10/Ahd/2011 - - - Dated:- 24-1-2014 - Sri D.K Tyagi and Shri T.R. Meena, JJ. For the Appellant : Sri P L Kureel, Sr. DR For the Respondent : Smt Urvashi Shodhan, AR ORDER Per: D K Tyagi: These are cross appeals against the order of Ld. CIT(A)-XX, Ahmedabad dated 14-10-2010. 2. Ground No. 1 4 of assessee s appeal are general do not require adjudication. Ground No. 2 of assessee s appeal and Ground No. 1 of revenue s appeal relate to restricting of disallowance of interest expenses of Rs. 8,24,392/- u/s. 14A to Rs. 89,550/-. 3. A.O. while making disallowance of expenses to the extent of Rs. 8,24,392/- u/s. 14A of the Act has observed as under:- 4.1 On verification of Profit Loss A/c., ft is found that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses on presumptive basis. Further, we submit that unless pacific expenditure are found to be incurred for earning of dividend income no part thereof can be disallowed on presumption that a part thereof has been incurred for earning exempted income. (e) For this we relay upon Delhi I.T.A.T. decision in the case of CIT Vs. Eicher limited 101 TTJ 369 wherein it is held that the expenditure which the A.O. seeks to disallow u/s. 14A should be actually incurred, so in the absence of any material to show any nexus nothing could be disallowed. Reliance is also placed on the decision of Hon'ble ITAT, Kolkata 'D' Bench, in the case of EIH Associated Hotels Ltd. vs. Dy. CIT 16 DTR (Kol) (Trib) 181 wherein vide para 15 it is held that; We have considered the rival contentions put forward both by the Authorized Representative and Departmental Representative. While considering the Revenue's contention that the disallowance has been made u/s.14A mainly on assumptions that assessee had incurred huge management expenses and paid interest on borrowed funds, on the other hands, we agree with the contentions and the case references cited by the Authorized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5/- This is the maximum amount which can be disallowed. The reply of the assessee company and the calculation of allocation of expenses made by the assessee company were duly perused. However, the same is not tenable because of the following observation. The new provision for allocating expenses in relation to exempt income for the provisions of section 14A of the Income tax Act, 1961 are applicable where the assessee claims that no expenditure or negligible expenditure was incurred for earning exempt income or where the assessing officer is not satisfied with the explanation of the assessee. In the instant case, the explanation of the assessee company is not satisfactory and accordingly, the method of determining amount of expenditure in relation to income not includible in the total income specified in the Rule *D is followed. The expenditure relating to investment earned for earning exempt income is calculated as under as per Rule 8D; Aggregate of three i.e. (i) Direct Exps.- (share expenses) 42282 42282 + (ii) AxB/C A= amt. of expenditure by way of inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted during the appellate proceedings. It is seen that the appellant had interest free funds of Rs. 5,59,20,487/- as against the investment of Rs. 1,28,52,175/-. It is also seen that the AO has not made out a case that interest-bearing funds were utilized to make the purchases of investments which resulted in tax-free incomes by making enquiries. 4.2(i).In the case of CIT.III vs Jayesh Budhalal Mehta in civil appeal No. 111 of 2009 the hon ble Gujarat High Court has held that if the appellant had sufficient interest free funds and the AO had not brought any material on record to prove that interest-bearing funds were utilized in making investments in assets resulting in tax-free incomes then no disallowance could be made under section 36(1)(iii) of the IT Act 1961. In view of the above it is clear that the AO was not justified in making any disallowance out of interest under section 14A especially because rule 8D could not be applied retrospectively as held by the hon ble Mumbai High Court in the case of Godrej Boyce vs. CIT wherein it has held that though rule 8D is not retrospective the same be applied in case where it is not possible to compute the disallowance ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 007 dated : 15/06/2007. We are enclosing herewith the detail statement of Short Term Capital Gain earned by us during the financial year along with highlighted the date of purchases and sales per Ann.(H) In this statement, we have marked from Red ink and these are the transaction of within a month. The same is worked out at the end of the statement. In this respect we have to explain that we have not done trading business for the shares but our company is making investment in shares for long term benefit to earn dividend income. Our company holding various companies shares as can be seen from the schedule 1.6 of Audit report and therefore guideline issued by the Board in their circular dated : 15/02/2006 is not applicable to our case because of the following reasons. : {1} Our main business is to dismantle old ship. {2} We value our share investment at cost only. {3} Most of transaction of investment in share which is made within a month were not purchased from secondary market but are in possession through IPO's. {4} We also done business of share trading being F O and speculation under the separate portfolio. {5} We further submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are duly perused. However, the contention of the assessee company are not acceptable on the basis of following observations in view of the Circular No. 4 dated 15.06.2007. 'In the case of CIT (Central), Calcutta vs Associated Industrial Development Company (P) Ltd. (82 ITR 586), the Supreme Court observed that: Whether a particular holding of shares is by way of investment or forms part of stock-in-trade is a matter which is within the knowledge of the assessee who holds the shares and it should, in normal circumstances, be in a position to produce evidence from its records as to whether it has maintained any distinction between those shares which are its stock-in-trade and those which are held by way of investment . In the case of CIT, Bombay vs H. Holck Larsen (160 ITR 67), the Supreme Court observed that: The High Court, in our opinion, made a mistake in observing whether transactions of sale and purchase of shares were trading transactions or whether these were in the nature of investment was a question of law and fact. The principles laid down by the Apex Court in the above two cases afford adequate guideline for distinction b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for. On examination of details of purchase and sale of shares, it is found that aggregate gains on shares of following companies are found to be in the nature adventure in trade. Name of the company Amount of profit/gain ESS DEE Alluminium Ltd Rs. 61,194/- Hotel Leela Venture Ltd. Rs. 13,945/- IFCI Ltd Rs. 58,750/- Keval Kiran Clothing Ltd Rs. 1,88,255/- Rs. 3,22,144/- The above referred gain/profit of Rs. 3,22,144/- on sale of shares is found to be in the nature of adventure in view of the circular No. 4 dated 15.06.2007 since such shares were said within a very short period of time. Further, intention of the assessee company to earn profit therefrom by selling the same within a very shorter period of time clearly establishes that the assessee company has not held the same from the investment point of view. Further, magnitude of the transactions of shares, the ratio and frequency between purchases and sales and trading pattern also ..... X X X X Extracts X X X X X X X X Extracts X X X X
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