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2018 (3) TMI 1352 - AT - Income TaxAddition u/s 14A - expenses towards exempted income - borrowed funds had been utilized for making investments - Addition u/s 94(7) - short term capital loss - Held that:- The relevant assessment year under appeal is 2006-07 at which point of time, the provisions of Rule 8D was not in force and the same was made applicable only from Asst Year 2008-09 as decided in the decision of Godrej & Boyce Manufacturing [2010 (8) TMI 77 - BOMBAY HIGH COURT]. However, it is not in dispute that the assessee had derived taxable income as well as tax free income and incurred expenditure for deriving both the incomes and hence disallowance is definitely warranted in terms of section 14A which is brought in the statute book with retrospective effect from 1.4.1962. Disallowance had to be made only on an estimated basis with regard to the expenditure incurred for the purpose of earning tax free income. We direct the ld AO to disallow 1% of exempt income under this issue and accordingly, the Ground No. 1 raised by the assessee is partly allowed. Addition made u/s 94(7) - AO observed that the assessee had reported short term capital loss in respect of sale of shares of SAIL among other scrips - Held that:- We find that the assessee had neither purchased before three months from the record date the shares of SAIL nor sold the same within three months after the record date. Hence we hold that the transactions carried out by the assessee would be outside the ambit of provisions of section 94(7) of the Act. Hence we hold that the short term capital loss claimed by the assessee need not be reduced by the sum of ₹ 9,44,243/- . Accordingly, the Ground No. 2 raised by the assessee is allowed.
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