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Anjalee Exim Private Limited Versus Assistant Commissioner of Income Tax Circle 1, Ahmedabad

2015 (11) TMI 110 - ITAT AHMEDABAD

Disallowance under section 14A - Held that:- Having noted that there are admittedly no direction expenses incurred in earning the dividends which could qualify for being covered by rule 8D2(i), we delete the impugned disallowance. The assessee gets the relief accordingly. - Decided in favour of assesae

Allocation of STT - Held that:- With the consent of the parties, this issue is remitted to the file of the Assessing Officer for fresh adjudication in the light of the principles laid d .....

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that:- Allocation of common expenses between speculation and non-peculation business is covered by Tribunal’s decision in assessee’s own case for the immediately preceding assessment year. Explanation to Section 73(1) is not applicable and, therefore, loss from business of purchase and sale of shares on delivery basis cannot be considered as speculation loss and only the loss from commodity transaction business has to be considered as speculation loss. - I.T.A. No.: 2386/Ahd/11 - Dated:- 29-9-20 .....

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the following additions/ disallowances:- (a) disallowance under section 14A - ₹ 42,97,650; (b) allocation of STT- ₹ 10,12,199;and (c) allocation of common expenses- ₹ 27,57,751 . We will take up these three issues one by one. 3. As far as disallowance of ₹ 42,97,650 under section 14A is concerned, the relevant material facts are like this. The assessee company is engaged in the business of trading in shares. It had a closing stock of shares at ₹ 8,36,57,556 as agai .....

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e of closing stock of shares as investment income from which does not form part of the total income . On this basis, as against a dividend income of ₹ 5,28,274, a disallowance of ₹ 42,97,650 was computed. Aggrieved, assessee carried the matter in appeal before the CIT(A) but without any success. Learned CIT(A) noted that in view of the judgment of Hon ble Bombay High Court in the case of Godrej & Boyce Mfg Co Ltd Vs DCIT [ 328 ITR 81 (Bom)] and as the assessment year concerned is .....

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was held therein, computation provisions under rule 8D2 (ii) and (iii) will fail because the dividend yielding shares are held as stock in trade and not as investments, and the disallowance under rule 8D(2)(i) will be confined to only direct expenses for earning the tax exempt income. In this regard, following observations may be referred to: 5. We consider it appropriate to begin with reproducing Rule 8 D of the Income Tax Rules, which is as follows: "Method for determining amount of expen .....

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h income in accordance with the provisions of sub-rule (2). (2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely:- (i) the amount of expenditure directly relating to income which does not form part of total income; (ii) in a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in ac .....

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the first day and the last day of the previous year; (iii) an amount equal to one-half per cent of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year." 3. For the purposes of this rule, the 'total assets' shall mean, total assets as appearing in the balance sheet excluding the increase on account of revaluation of asse .....

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me from which does not or shall not form part of total income", and, when there are no such investments, the rule cannot have any application. When no amount can be computed in the light of the formula given in rule 8 D(ii) and (iii), no disallowance can be made under rule 8D (2)(ii) and (iii) either. As held by Hon'ble Supreme Court in the case of CIT v. B C Srinivasa Setty [1981] 128 ITR 294, when computation provisions fail, the charging provisions cannot be applied, and by the same .....

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he assessee gets the relief accordingly. 6. In the next grievance, the assessee is aggrieved of allocation of STT amounting to ₹ 10,12,199. However, with the consent of the parties, this issue is remitted to the file of the Assessing Officer for fresh adjudication in the light of the principles laid down by Hon ble Bombay High Court in the case of CIT Vs Manish D Innai [370 ITR 679 (Bom)] and in the light of such other binding judicial precedents as may be available at that point of time. .....

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see s own case for the immediately preceding assessment year. In the said decision, the coordinate bench has, inter alia, observed as follows: 9. We have considered the rival submissions, perused the material on record and have gone through the order of authorities below and the judgments cited by both the sides. Regarding this aspect as to whether allocation is to be made or not, we find that the judgement of Hon'ble Allahabad High Court cited by Ld. D.R. covers this issue against the asses .....

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by the A.O. for allocation of ₹ 13,76,995/- should be allocated to all the three activities i.e. purchase and sale of shares, having turnover of ₹ 1437.85 lacs, speculative loss of commodity transaction of ₹ 21.40 lacs and income from derivative transaction of shares of ₹ 50.43 lacs. If these expenses are allocated to these three activities in the ratio of the turnover of these three activities then, the amount to be allocated to speculation business of commodity should .....

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,08,145 and the remaining expenses of ₹ 48195/- is required to be allocated to income from derivative transaction of shares. Accordingly, the profit and loss of these three activities should be as under: A Profit & Loss in the business of purchase and sale of shares by delivery: Sale of shares Rs.14,37,85,465 Add: Closing Stock ₹ 2,99,59,113 Rs.17,37,44,578 Less: purchase se of shares Rs.17,37,34,136 Less DMAT charges Rs.95,496 Less: Service Tax ₹ 2,361 Less Share trading E .....

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l expenses Rs.16,70,336 Net income Rs.33,72,982 I.T.A.No. 1330 /Ahd/2011 10. Now, we consider the third aspect as to whether the loss in the business of share trading by delivery should be considered as speculation loss by invoking the provisions of Explanation to Section 73(1). For this issue, reliance was placed by the Ld. A.R. on the judgement of Hon'ble Bombay High Court rendered in the case of CIT Vs Darshan Securities Pvt. Ltd. (supra). In that case, it was held by the Hon'ble Bomb .....

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ding and there is loss of ₹ 21,60,668/- from business of commodity. After adjusting these two losses against the income from derivative transaction, there is net loss of ₹ 3,54,204/- and income under the head income from other sources as assessed by the A.O. is ₹ 5,46,854/- and hence, income from other sources is more than the business loss and, therefore, the Explanation to Section 73(1) is not applicable because gross total income consists mainly of income which is chargeable .....

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