TMI Blog2013 (11) TMI 565X X X X Extracts X X X X X X X X Extracts X X X X ..... h was eligible for depreciation has been converted into 10,000 shares AY 2006-07 as per the evidence on record and para 5.17 CIT(A). Therefore once the membership card was converted to equity shares, if any loss arise on conversion can only be considered in AY 2006-07 not on AY 2008-09. The cause of action arose in that year and so claim for loss should have been made in the year 2006-07, when the membership card was converted to shares, if at all, a claim can be made. During the year, assessee sold 2737 shares out of 10,000 shares it received from the BSE. Therefore, the entire loss if at all also cannot be allowed as there are still shares held by the Assessee. Another reason in not allowing the claim is that under the provisions of the Act, the cost of acquisition is always taken at the original cost of membership. There are no provisions either for adjusting the depreciation already allowed or allowing the loss so arrived at on the basis of WDV. Since assessee get higher benefit in taking the cost of acquisition at the original value, the loss can only be considered as Capital loss, which can not be adjusted or allowed - Decided against assessee. Disallowance under section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the balance of the interest paid on unsecured loans - Decided partly in favour of assessee. Deemed dividend - Held that:- section 2(22)(e) merely decides whether a payment is deemed to be dividend or not, it does not decide in whose hands the said sum is chargeable. For that purpose one will have to rely on section 8. As the appellant company is not the registered holder of shares of the lender concern, the loan/advance obtained by the appellant from the sister concerns cannot be treated as deemed dividend in the hands of the appellant company. At the most the amount of advance can be assessed in the hands of shareholder (Shri Kamal Bakliwal) who is the beneficial owner of such shares. - Decided against the revenue. - ITA No.4885, 4658/Mum/2011 & ITA No.2991, 2345/Mum/2012 - - - Dated:- 10-5-2013 - B Ramakotaiah and S T M Pavalan, JJ. For the Appellant : Shri Pravin Varma For the Respondent : Shri Anil Sathe ORDER:- Per: B Ramakotaiah: These are cross appeals by assessee and Revenue for the assessment years 2007-08 and 2008-09 against the orders of the CIT(A)-9 dated 10.03.2011 and 24.01.2012 respectively. Since issues are common these appeals are heard to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st free advances, it was submitted that the Assessing Officer has not made any disallowance in an earlier years and further the CIT(A) erred in considering the interest payment without examining the interest received. It was submitted that assessee had various deposits with the Banks and also Stock Exchange as part of the business activities and referred to the statement from the various Banks to support the contention bank interest to an extent of Rs. 28,54,283/- has a direct nexus with the interest paid to bank. It was further submitted that if at all any amount to be disallowed, only net amount is to be considered but not gross amount. With reference to the advances given to sister concern M/s Balkiwala Securities Pvt. Ltd, the Learned Counsel fairly admitted that there is a direct nexus with borrowed funds from M/s C.U. Shah as per the findings of the CIT(A). It was submitted that disallowance under section 36(1)(iii) is not warranted on the facts of the case. Various case law as submitted before the CIT(A) was also relied upon. 5. Learned DR, however relied on the orders of the CIT(A) as far as facts are concerned. 6. We have examined the issues and the rival contentions a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the interest received on fixed deposits to an extent of Rs.28,54,383/- has a direct nexus with the interest paid to Bank on over draft, therefore the contention that only net amount can be considered has validity. However since interest payment arose in regular business transactions, in our view, no further amount is required to be disallowed under section 36(1)(iii) as the interest paid has a direct nexus with the business activity of the assessee. Therefore, accepting the assessee s contentions and following the principles of Hon ble Bombay High Court in the case of CIT Vs Reliance Utility and Power Ltd. 313 ITR 43 (Bombay), no disallowance of interest is warranted, since interest free advances are covered by own funds. Accordingly, the assessee s grounds to that extent are allowed. AO is directed to restrict the disallowance to an extent of Rs.26 Lacs only on the interest paid to Mr. C.U. Shah and delete the balance of the amount. 9. In the result Appeal is partly allowed. ITA No. 4658/Mum/2011 - Assessment Year 2007-08 10. This Appeal of the Revenue is on the direction of the CIT(A) restricting the disallowance under section 14A to an extent of 5% on the dividend earne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancing the income by disallowing interest paid to banks and other creditors by sum of Rs.1,52,30,053/- in relation to interest free advances made to sister concern. 6. The Learned CIT(Appeals) erred in calculating interest on amounts advanced to sister concerns without appreciating that the amounts were given in the normal course of business activities and on account of commercial expediency. 7. The Learned CIT(Appeals) failed to appreciate that the appellant had sufficient interest free funds to make interest-free advances to sister concerns. 8. The Learned Commissioner of Income Tax (Appeals) erred in holding that there is direct nexus between the interest bearing fund taken and interest free advances given. 9. The Learned Commissioner (Appeals) erred in enhancing the income by Rs.29,80,385/- by making disallowance u/s 40(a)(ia) in respect of payments made on account of lease-line charges, Vsat charges or data processing charges. 14. In the course of arguments grounds No.1, ground No.2 were not pressed, however the assessee has raised an additional ground with reference to the above grounds. The additional ground is as under:- Whether the written down ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares, if at all, a claim can be made. During the year, assessee sold 2737 shares out of 10,000 shares it received from the BSE. Therefore, the entire loss if at all also cannot be allowed as there are still shares held by the Assessee. Another reason in not allowing the claim is that under the provisions of the Act, the cost of acquisition is always taken at the original cost of membership. There are no provisions either for adjusting the depreciation already allowed or allowing the loss so arrived at on the basis of WDV. Since assessee get higher benefit in taking the cost of acquisition at the original value, the loss can only be considered as Capital loss, which can not be adjusted or allowed. 15.3. For these reasons we are not convinced with the claim of the assessee for WDV of the Stock Exchange Card as a loss in this year. Accordingly, the additional ground is rejected. 16. Ground No.3 pertains to issue of disallowance under section 14A read with rule 8D. The Assessing Officer invoked section 14A and worked out the demands under Rule 8D at Rs.28,76,475/-. It was the contention that the assessee is reflecting the shares as stock in trade and not as investments and the inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his mainly consists of 6.82 crores by way of stock, 17.36 crores by way of sundry debtors and 8.75 crores by way of cash and bank balances. Thus the borrowing are predominantly invested in the business assets and consequently the allegation of diversion is unfounded. (b) On the basis of Nexus theory there is a complete correlation between the borrowing and utilization of funds and therefore no disallowance is warranted. Even on a holistic basis the in use of the funds is predominantly for business purpose. On a global basis the appellant had enough funds to finance the alleged interest-free advances. (c) Even otherwise the learned assessing officer came to a conclusion that out of the net interest liability only the interest of Rs.24,66,155 deserved to be disallowed and the balance has been fully considered for the purpose of disallowance under section 14A. From which an inference can be drawn that the finding of the assessing officer was that the balance interest pertained to utilization for business purpose which incidentally gave rise to exempt income in the form of dividend. This has not been controverted by the CIT(Appeals). As far as the enhancement figure of the CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... restrict the disallowance under section 36(1)(iii) out of the balance interest paid on unsecured loans to an extent of 20%. This excludes the Bank interest and bank charges. Thus, the order of the CIT(A) stands modified and the disallowance under section 36(1)(iii) with restricted to interest paid to Mr. C.U. Shah at 100% and 20% of the balance of the interest paid on unsecured loans. The grounds are accordingly considered partly allowed. 23. Ground No.9 pertains to the enhancement made by the CIT(A) under section 40a(ia) following the decision of the Kotak Securities Ltd. on transaction charges of Rs. 29,80,382/-. The Assessing Officer has not made out any disallowance on this transaction charges whereas the CIT(A) disallowed the amount under section 40a(ia) and enhanced the total income. It was submitted before us, by filing additional evidence that the so called transaction charges considered by the CIT(A) are nothing but D-mat charges paid to the Bank and no transaction charges were paid to the Stock Exchange. Since the finding itself is not correct, it was the submission that a disallowance under section 40a(ia) does not arise. The Ld. DR objected to the admission of additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. 25% Bakliwal Securities Pvt. Ltd. 32.16% Bakliwal Commodities Pvt. Ltd. 12.5% 4.3.7. The expression to any concern in which such shareholder is a member or a partner and in which he has a substantial interest referred to in the second limb of the provision of section 2(22(e) means that deemed dividend within the meaning of section 2(22)(e) can be assessed only in the hands of a person, who is a registered shareholder of the lender company having substantial interest in the payee concern. In the given case, the appellant company is not the registered holder of shares of Bakliwal Securities Pvt. Ltd. or Bakliwal Commodities Pvt. Ltd. The shares of the said companies are held in the names of the directors or shareholders of the appellant company. 4.3.8. Thus section 2(22)(e) merely decides whether a payment is deemed to be dividend or not, it does not decide in whose hands the said sum is chargeable. For that purpose one will have to rely on section 8. As the appellant company is not the registered holder of shares of the lender concern, the loan/advance obtained by the appellant from the sister concerns cannot be trea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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