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2016 (6) TMI 210 - AT - Income TaxAllowance of loss to be set off against the other capital gains - Held that:- The provisions of sec.94(8) provide that the loss arising out of ‘bonus stripping of units’ is to be ignored after 1.4.2005. The phraseology of sec.94(8) of the Act, itself reveals that the parliament in its wisdom restricted the scope of ‘bonus stripping’ under sec.94(8) of the Act from 1.4.2005. It may be noticed that u/s.94(8) of the Act, no disallowance to be made on account of ‘bonus stripping’ for the assessment year 2004-05 as it was came into effect on 1.4.2005 and the assessment year involved is 2004-05, there is gap in the law which appears to have been exploited by the assessee. The legislature appears to have been recognised the lacuna in this law and taken steps to rectify by introducing sec.94(8) w.e.f. 1.4.2005. Even the judgment of the Supreme Court in the case of CIT v. Walfort Share and Stock Brokers P. Ltd. (2010 (7) TMI 15 - SUPREME COURT ), also confirms that even assuming that transaction was pre-planned, there is nothing to impeach the genuineness of the transaction. Hence, loss arising in the course of dividend stripping transaction before the introduction of claim u/s.94(7) w.e.f. 1.4.2002 cannot be disallowed; dividend stripping transaction cannot be said to be “abuse of law” even if it is pre-planned. Being so, the finding of the CIT(Appeals) is based on the law, as it stood in the relevant asst. year and it cannot be said that there is any infirmity in the order of the CIT(Appeals). - Decided against revenue TDS u/s 195 - non deduction of TDS on the ‘foreign commission payments’ made to the non-resident - disallowance u/s.40(a)(i) - Held that:- In the present case, the assessee had not established that the non-resident had rendered services abroad and there was no business connection in India by producing relevant records, viz., either agreement entered into by the assessee with them or correspondence took between the parties. Without examining these details, one is not in a position to decide the nature of services rendered by the non-resident agent.Therefore, it is appropriate to remit the entire issue back to the file of the Assessing Officer with direction to the assessee to prove that it was sales commission towards procurement of orders from abroad. Addition made u/s.40(a)(i) on the payment of foreign service charges - Held that:- The above issue is identical to the issue of foreign commission payment. As such, we remit this issue is also to the file of the AO as discussed in earlier para with similar direction. Disallowance u/s 14A - estimation of expenses by the AO for earning the exemption income @ 0.5% of the average investments of the year under the step II of the Formula given in Rule 8D should be taken - Held that:- As decided in case of M/s. Marg Ltd. v. JCIT [2016 (4) TMI 1135 - ITAT CHENNAI] any expenditure incurred for earning any income which was not taxable under the Act was not an allowable expenditure. Dividend income was exempt under section 10(33) of the Act and the dividend earned by the assessee on the shares acquired by her with the borrowed funds did not constitute part of the total income in the hands of the assessee. Disallowance by applying section 14A, squarely applied to the interest paid on the borrowed funds because it was on record that the entire funds borrowed were utilised for the acquisition of shares by the assessee in the company. The assessee would be entitled to deduction of interest under section 36(1)(iii) of the Act on the borrowed funds utilised for the acquisition of shares only if shares were held as stock-intrade and that would arise only if the assessee was engaged in trading in shares. So far as the acquisition of shares was in the form of investment and the only benefit the assessee derived was the dividend income which was not assessable under the Act, the disallowance under section 14A was squarely attracted and the Assessing Officer rightly disallowed the claim - Decided against assessee
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