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2013 (10) TMI 364 - AT - Income TaxDisallowance of loss on sale of iron ore – sham transaction or not - Held that:- Assessee has sold 28.213.75 MTs to Trademin International Private Limited. Cuddapah on 17.01.2007 @ Rs.975 per MT which was exported by then to China in the same month. It is to be noted here that due to time gap between dates of purchase and sale and rains, the FE content of iron ore dropped to 56% and Silicon content increased to 13% which drastically reduced the market value of the ore. To compound the problem. prices of iron ore declined during that period - Parties to whom the material is sold are outsiders and are not connected either to the promoters or Directors in any way. They are well reputed organizations of international standing with experience in iron ore trading - Assessing Officer's objection that there is no physical movement of stocks and it is only an accommodative transaction is incorrect as the iron ore was already mined and transported to the port for the purpose of export - Transaction is not a sham transaction. Therefore, the Assessing Officer has wrongly disallowed a sum of Rs.3,10,49,752/- being loss incurred by the assessee on sale of iron ore while computing the income of the assessee – Decided in favor of Assessee. Disallowance u/d 14A of the Income Tax Act - Dividend income – Held that:- As per Mumbai High Court in Godrej Boyce Mfg. Co. Ltd. [2010 (8) TMI 77 - BOMBAY HIGH COURT], it has been held that Rule 8D applies prospectively from A.Y. 2008-09 only and hence its application in A.Y. 2007-08 is incorrect – Further, Mumbai High court held that quantum of disallowance u/s. 14A for years prior to A.Y. 2008-09 has to be worked-out by adopting some reasonable method - Subsequently the Mumbai Tribunal, amongst others, in Godrej Agrovet Ltd. [2010 (9) TMI 291 - ITAT, MUMBAI] and Reliance Industrial Infrastructure Ltd. vs. ACIT [2013 (5) TMI 473 - ITAT MUMBAI] has held that 2% of exempt income being a reasonable disallowance – In the instant case, assessee had not furnished the details of expenditure incidental to the earning of dividend income, estimation was made on the expenditure attributable to dividend income at 2% of the gross total income - It would be reasonable and appropriate if the disallowance is restricted @ 2% of the exempt income as returned by the assessee – A.O. is directed to restrict the disallowance in question @ 2% of the exempt income in hand.
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