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2017 (8) TMI 76 - AT - Income TaxSale of shares - business income or capital gain - Held that:- We find that the assessee has been investing in shares for the last more than ten years. He has always shown the shares purchased as ‘Investment’ in the balance sheet for all the years and valued the same at cost. The gains arising from sale of shares was also classified by the assessee as capital gains only. The assessee has earned dividend of ₹ 28,37,719/- during the financial year 2006-07 relevant to the impugned assessment year. We find that the Co-ordinate Bench of the Tribunal in the case of the assessee for the A.Y. 2004-05, A.Y. 2008-09 and A.Y. 2009-10 have held the share transactions as capital gains and not as income from business. Addition u/s 14A read with rule 8D - Held that:- We find that the AO has worked out the disallowance u/s 14A r.w.r. 8D. The same rule is not retrospective as it was notified on 24/03/2008 and would be applicable only from AY 2008-09. In Godrej & Boyce Mfg. Co. Ltd. (2010 (8) TMI 77 - BOMBAY HIGH COURT ), it has been held that Rule 8 D is not retrospective. The Hon’ble Bombay High Court in CIT vs. M/s. Godrej Agrovet Ltd [2014 (8) TMI 457 - BOMBAY HIGH COURT] has held that percentage of the exempt income can constitute a reasonable estimate for making disallowance in the years earlier to the assessment year 2008-09. In the above case it upheld the disallowance to the extent to 2% of the total exempt income.Respectfully following the above decision, we direct the AO to restrict the disallowance to 2% of the total exempt income. Disallowance u/s 94(7) out of business loss claimed by the assessee - whether the loss incurred on sale of securities to the extent of dividend income earned is not allowable, which was confirmed by the learned CIT(A) - Held that:- There is merit in the contentions of the learned counsel of the assessee that in case, loss for scrips held for 6 months is treated as STCL, then the disallowance u/s 94(7) must also be made out of STCL and not out of business loss. In view of the above, the order of the learned CIT(A) on the above issue is set aside and the AO is directed to restrict the disallowance to ₹ 1,56,177/- under the business head and adjust the balance of ₹ 37,560/- against STCL under capital gains head. Disallowance of interest expenses - Held that:- We find that (i) 99.46% of funds is interest free funds (ii) 0.32% of funds is interest free borrowed funds and (iii) 0.22% is interest bearing funds bearing in a common pool of funds. In the case of Reliance Utilities & Power Ltd. (2009 (1) TMI 4 - BOMBAY HIGH COURT ), it is held that “if there be interest-free funds available to an assessee to meet its investments and at the same time the assessee has raised a loan, it can be presumed that the investments were from the interest-free 9 funds available.” We follow the ratio laid down in the above judgement and delete the disallowance of ₹ 40,500/- made by the AO
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