TMI Blog2012 (9) TMI 962X X X X Extracts X X X X X X X X Extracts X X X X ..... g the details submitted and duly supported by various decisions mentioned and relied on by the appellant. 3. The assessee is an Individual engaged in the business as Jewellery valuer. He is also engaged in the trading of shares, securities, mutual funds and has income from share business. The assessee filed his return of income on 31-10-2004 showing loss of ₹ 86,72,520/-.The case was selected for scrutiny. From the details submitted along with the Profit and loss account, A.O. observed that assessee had purchased /allotted units of ₹ 11,50,04,800/- and had made sales of units of ₹ 9,88,98,039. The assessee had also earned dividend income of ₹ 1,44,72,449. The details submitted by the assessee regarding dividend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1)(iii). He further submitted that the main intention to purchase units was to make profits from its sale and the dividend earned was incidental to the business. CIT (A) did not agree with the contentions of the assessee and accordingly upheld the order of the A.O. by holding as under:- 9. It is seen that the provisions of section 14A (inserted by the Finance Act, 2001, with retrospective effect from 1-4-1962) are unambiguous. They relate to expenditure incurred in relation to income not includible in total income. The appellant had raised loans from M/s. Kotak Mahindra for purchase of Mutual Fund Units, as a consequence of which, dividends earned therefrom, did not form part of the total income. The interest expenditure is, in the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofession and therefore, the assessee also gets its accounts audited u/s.44AB of the Act. The ld. A.R. submitted that the dividend income which has been received by it is incidental to the main activity of purchase and sale of shares, securities etc. During the year the assessee had borrowed funds from Kotak Mahindra Investment Ltd., and used them for purchase of units of various mutual funds. Subsequently these units were sold and the assessee incurred loss. Ld. A.R. further submitted that while framing assessment order u/s. 143(3), A.O. has treated the loss as business loss. The motive of the assessee to acquire shares and units was to sell it at higher price and earn profit. The receipt of dividend was incidental to the business activity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be treated as expenditure for earning dividend income which incidental to trading activity. When the real purpose and intent to use the borrowed funds was for trading activity and if incidentally resulted some dividend income on the shares purchased for trading then the same would not change the purpose, nature and character of the expenditure. Thus when the said expenditure (interest) incurred for trading activity then the same cannot be said to have been incurred for earning the dividend income. As per the basic principle of taxation only the net income i.e. gross income minus expenditure is taxed. Accordingly, the expenditure which was incurred for earning the taxable business income has to be allowed against the taxable income a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from Kotak Mahindra Investment Ltd. These facts have not been controverted by Revenue. The assessee has incurred interest expenses for purchase of shares and units of mutual fund and the borrowed funds have been used for acquisition of units are not in dispute. The A.O. also held that assessee is in the business of purchase/sale of shares, and while framing assessment u/s. 143(3) the loss of ₹ 1,51,21,196/-incurred on the sale/purchase of units has been treated as business loss. In view of the aforesaid facts, it can be stated that assessee is in the business of purchase and sale of shares. Once the purchase and sale of shares is held to be a business activity, the interest paid thereon has to be treated as business expenses in vie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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