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2016 (8) TMI 459 - AT - Income TaxDisallowance u/s. 14A - Held that:- The balancesheet reflects an adequate balance of net working capital, i.e., current assets less current liabilities, both as at the beginning and the close of the year, being at ₹ 52.80 crores and ₹ 43.76 crores respectively. That leaves only unsecured loan/s, which continues at the opening balance of ₹ 101.37 lakhs during the year. No part of it can therefore be said to finance, even if partly, the increase of ₹ 222.39 lakhs in the investment in shares and mutual funds during the year. The opening investment of ₹ 21.06 lakhs pales into insignificance in light of the interest-free under capital of ₹ 2722.22 lakhs at the beginning of the year, and which stands increased by ₹ 1.40 crores during the year. The decision by the Hon’ble jurisdictional High Court in CIT vs. HDFC Bank Ltd. [2014 (8) TMI 119 - BOMBAY HIGH COURT] holding that where sufficient interest-free capital is available, the same must be set off or allocated against investment, is thus clearly applicable in the facts and circumstances of the case. As regards administrative expenditure, the disallowance for the same has been restricted to the ratio (0.5% of the investment) in terms of rule 8D(2)(iii) of the Rules. We find the same as reasonable and, accordingly, confirm the same. Activity of purchase and sale of scrips - in the nature of trade or business transaction, or in the nature of an investment - Held that:- The activity, which in the instant case is systemic and regular, is a manifestation of this intent and, thus, relevant, clearly reflecting a trading activity, i.e., a regular activity of trade. This finding of fact by the Assessing Officer, has not been, as afore-stated, disputed or controverted in any manner. We, accordingly, are in no manner of any doubt that the assessee’s activity of purchase and sale of scrips is, as in the case of speculation business, which is admitted to be business activity (resulting though at a loss of ₹ 42.68 lakhs for the current year) as well as the trading in derivatives, only a business activity. Rather, the said activities, which are allied and pari materia, being in the same market and in the same scrips, reinforce and endorse the Revenue’s stand of the assessee’s activity of buying and selling of shares as being regular trading activity. The assessee has reported the income on such activity through its profit and loss account which, by definition, reflects the result of the operations of the company (for the account period). As such, regardless of shares held (for the time being) being classified as investment in the assessee’s final accounts (balance-sheet), we confirm the purchase and sale therein as being only a business activity, so that the impugned income is liable to be assessed as business income Invocation of section 145(3) - quantum of the estimated income - Held that:- With regard to the invocation of section 145(3), we do not find or observe any infirmity therein; the company or Shri Sunil Aggarwal failing to furnish any satisfactory reply to the several queries raised by the Assessing Officer in the matter. We may though clarify that the Bhillai unit being a unit of the assesseecompany, it’s books of account form part of the accounts of the company. The provision of s. 145(3) would, accordingly, apply to the assessee’s accounts, even as the same may result in the Assessing Officer disturbing the book results only of the said unit, with the accounts of which he is essentially dis-satisfied with, i.e., finds as not reliable and as not reflecting correct income. With regard to the claim for depreciation, we observe that the same stands allowed by the Assessing Officer himself, with the ld. CIT(A) only directing likewise, i.e., for allowance of depreciation as per law. Without doubt, the allowance of depreciation can only be in terms of the provisions of law, so that the Assessing Officer has rightly reduced the sale consideration (of ₹ 128.40 lakhs) in respect of the fixed assets sold during the previous years relevant to A.Ys. 2004-05 & 2005-06 in computing the written down value (WDV) of the relevant block of assets. As regards sale of fixed assets, even if unauthorized, being not challenged by the company (which has presumably ratified the sale) and no longer its’ property, depreciation thereon could not be allowed. The Revenue’s claim is accordingly allowed.
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