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2016 (6) TMI 210 - ITAT CHENNAI

2016 (6) TMI 210 - ITAT CHENNAI - [2016] 48 ITR (Trib) 347 - Allowance of loss to be set off against the other capital gains - Held that:- The provisions of sec.94(8) provide that the loss arising out of ‘bonus stripping of units’ is to be ignored after 1.4.2005. The phraseology of sec.94(8) of the Act, itself reveals that the parliament in its wisdom restricted the scope of ‘bonus stripping’ under sec.94(8) of the Act from 1.4.2005. It may be noticed that u/s.94(8) of the Act, no disallowance t .....

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I 15 - SUPREME COURT ), also confirms that even assuming that transaction was pre-planned, there is nothing to impeach the genuineness of the transaction. Hence, loss arising in the course of dividend stripping transaction before the introduction of claim u/s.94(7) w.e.f. 1.4.2002 cannot be disallowed; dividend stripping transaction cannot be said to be “abuse of law” even if it is pre-planned. Being so, the finding of the CIT(Appeals) is based on the law, as it stood in the relevant asst. year .....

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hem or correspondence took between the parties. Without examining these details, one is not in a position to decide the nature of services rendered by the non-resident agent.Therefore, it is appropriate to remit the entire issue back to the file of the Assessing Officer with direction to the assessee to prove that it was sales commission towards procurement of orders from abroad.

Addition made u/s.40(a)(i) on the payment of foreign service charges - Held that:- The above issue is ide .....

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rning any income which was not taxable under the Act was not an allowable expenditure. Dividend income was exempt under section 10(33) of the Act and the dividend earned by the assessee on the shares acquired by her with the borrowed funds did not constitute part of the total income in the hands of the assessee. Disallowance by applying section 14A, squarely applied to the interest paid on the borrowed funds because it was on record that the entire funds borrowed were utilised for the acquisitio .....

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nce under section 14A was squarely attracted and the Assessing Officer rightly disallowed the claim - Decided against assessee - ITA Nos. 2023, 2024, 2025 & 2026/Mds/14, CO Nos. 100, 101, 102 & 103/Mds/2014, ITA Nos. 1530, 1531 & 1532/Mds/2014 - Dated:- 4-5-2016 - Shri Chandra Poojari, Accountant Member And Shri Duvvuru RL Reddy, Judicial Member For the Department : Shri A.B.Koli, JCIT For the Assessee : Shri D. Anand, Advocate ORDER Per Chandra Poojari, Accountant Member One set of appeals by t .....

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this common order for the sake of convenience. 2. First, we take up the Revenue s appeal in ITA No.2023/Mds/2014 and C.O. No.100/Mds/2014 for the assessment year 2004-05. 3. The ground raised by the Revenue in this appeal is that the Commissioner of Income-tax (Appeals) erred in directing the Assessing Officer to allow the loss of ₹ 10,53,12,695/- to be set off against the other capital gains. The assessee has filed the Cross-objection in supportive of the order of the CIT(Appeals). 4. Th .....

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sessee computed the capital loss (short term) on the sale of the original 16,338,188.397 units at ₹ 10,53,12,695/- (i.e. ₹ 27,00,00,000-Rs. 16,46,87,305).The assessee claimed these losses as set off against other long term capital gains from the sale of shares of M/s. Shri Vijaya Gimpex Mining Pvt Ltd. The Assessing Officer in his order did not accept the assessee's contentions. The Assessing Officer opined that the intention of the assessee in purchasing the 16,338,188.397 units .....

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the assessment order is as under: 3. During the course hearing, it is learnt that the assessee, an exporter, has purchased ING Vysya Income Fund Regular Bonus Option (16,338,188.397 units) for ₹ 27 crores on 19.11.2003. The Mutual Fund had come out with a Bonus issue for which 10,456,440.524 units had been allotted free of cost for which no cost has been paid by the company. Since the company had only redeemed the original units for ₹ 16,46,87,305/ - against a cost of ₹ 27 cro .....

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ular Bonus Option on 19.11.2003 for ₹ 27 crores and redeemed the same on the very next date i.e. 20.11.2003 for ₹ 16,46,87,305/- incurring loss of ₹ 10,53,12,695/-. It is also ascertained that the nominated date for the allotment of bonus units was 19.11.2003 and the assessee had applied for the units on the nominated date and sold the same on the very next day. As the units purchased were redeemed on the very next day, the intention of the assessee obviously is to incur loss a .....

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ed by sale of shares of M/s.Shri Vijaya Gimpex Mining Ltd. The entire loss booked by the assessee in respect of sale of ING Vysya Bank issue is disallowed. This has been further strengthened by the fact that the Section 94 of the Income Tax Act, 1961, itself was amended subsequently. Disallowance ₹ 10,53,12,695 Aggrieved, the assessee went in appeal before the CIT(Appeals), who allowed the ground of appeal. Against this, the Revenue is in appeal before us. 5. We have heard both the parties .....

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eology of sec.94(8) of the Act, itself reveals that the parliament in its wisdom restricted the scope of bonus stripping under sec.94(8) of the Act from 1.4.2005. It may be noticed that u/s.94(8) of the Act, no disallowance to be made on account of bonus stripping for the assessment year 2004-05 as it was came into effect on 1.4.2005 and the assessment year involved is 2004-05, there is gap in the law which appears to have been exploited by the assessee. 5.2 The legislature appears to have been .....

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idend stripping transaction cannot be said to be abuse of law even if it is pre-planned. Being so, the finding of the CIT(Appeals) is based on the law, as it stood in the relevant asst. year and it cannot be said that there is any infirmity in the order of the CIT(Appeals). 5.3 Further, our view is supported by the order of this Tribunal, Bangalore Bench in the case of DCIT v. B.G. Mahesh (64 SOT 39). Accordingly, we dismiss this ground of appeal of the Revenue. 5.4 The Cross Objection is in sup .....

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Act holding that the assessee is not liable to deduct at source on the foreign commission payments made to the non-resident u/s.195 of the Act. 7. The facts of the case as narrated in ITA No.2025/Mds/14 are that the assessee in its returns of income filed for asst. years 2009-10 and 2010-11 claimed foreign sales commission of ₹ 88,53,677/- and ₹ 1,28,44,758/- respectively. The Assessee has not deducted any TDS while remitting the said amounts abroad. The Assessing Officer in his orde .....

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ommission payments for violation of the provisions of sec.40(a)(i) r.w.s. 195 of the Act and added to the total income. Against this, the assessee went in appeal before the CIT(Appeals), who deleted the addition made by the AO. Aggrieved, the Revenue is in appeal before us. 8. We have heard both the parties and perused the material on record. The primary contention of the ld. AR is that the payment was made to non-resident agents towards sales commission and non-resident agents were not having a .....

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held as under : Section 40(a)(i) makes it clear that the disallowance shall be made in case of any payment made which is chargeable under this Act and is payable outside India or in India to a nonresident not being a company or to a foreign company on which tax is deductible at source. Therefore, the first condition required to be fulfilled is the payment must be chargeable under the Act, thereafter the question of deduction of tax will arise. Section 195(1) also prescribes that tax has to be d .....

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es, the assessee has not discharged the burden cast upon it to show the nature of services rendered by non-resident agent. If there are services rendered by non-residents, who have no permanent establishment in India or have any business connection in India, by virtue of which the payment of commission accrued or arose in India then, it is exempted, if the assessee is able to prove that the services were rendered by those non-residents abroad. In the present case, the assessee had not establishe .....

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that it was sales commission towards procurement of orders from abroad. In the result, the appeal of the revenue is allowed for statistical purposes. 8.1 In view of the above, we are inclined to remit the issue back for both the assessment years to the file of the Assessing Officer with similar direction. Accordingly, this ground of appeal is allowed for statistical purposes, for both the assessment years. 9. The next common issue in all the three appeals is with regard to deletion of addition m .....

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e Act. Accordingly, the AO disallowed the said foreign service charges payments for violation of the provisions of sec.40(a)(i) r.w.s. 195 of the Act and added to the total income. Against this, the assessee went in appeal before the CIT(Appeals), who deleted the addition made by the AO. Aggrieved, the Revenue is in appeal before us. 11. We have heard both the parties and perused the material on record. In our opinion, the above issue is identical to the issue of foreign commission payment. As s .....

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2009-10 relevant to the A.Ys 2008-09, 2009-10 and 2010-11 respectively made substantial amounts of investments in purchase of shares/mutual funds, the income from which is exempt from tax in the hands of the assessee. The exempt income, in the form of dividends earned, during the A.Ys. 2008-09, 2009-10, 2010-11 are ₹ 22,57,008/-, ₹ 7,779/- and ₹ 6,189/- respectively. However, the AO invoked the provisions of sec.14A r.w.r 8D of the I.T.Rules and worked out the expenses in earn .....

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1, disallowances to the extent of ₹ 14,24,646/- and ₹ 15,03,265/- are confirmed and the balance of disallowances of ₹ 1,56,20,406/- and ₹ 1,82,17,041/- are deleted. However, for the assessment year 2008-09, the AO is directed to enhance the disallowance u/s.14A r.w. Rule 8D to ₹ 7,43,362/- (subject the verification of the total assets as on 1.4.2007 and recomputation of the disallowance), as against the disallowance of ₹ 6,87,014/- made by the AO in his assess .....

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ration before this Tribunal in the case of M/s. Marg Ltd. v. JCIT in ITA Nos.344 to 346/Mds/2016 dated 6.4.2016, wherein following its earlier order in the case of M/s. Lakshmi Ring Travellers in ITA No.2083/Mds/2011 dated 2.3.2012, held as under: 6. We considered the arguments of both the sides in detail. Sec.14A(1) declares the law that the expenditure incurred by the assessee in relation to the income which does not form part of the total income under the Act shall not be allowed as a deducti .....

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prescribed. Sub-sec.(3) further provides that even in a case where an assessee claims that no expenditure was incurred, the assessing authority has to presume the incurring of such expenditure as provided under sub-sec.(2) read with Rule prescribed. Therefore, it becomes clear that even in a case where the assessee claims that no expenditure was so incurred, the statute has provided for a presumptive expenditure which has to be disallowed by force of the statute. In a distant manner, literally .....

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ment of factual evidence, the question of enquiry does not arise. Therefore, we are unable to agree with the argument of the learned CA. 7. In result, this appeal filed by the assessee is dismissed. 6.5 This view of ours is also fortified by the judgment of the Karnataka High Court in the case of Pradeep Kar v. ACIT (319 ITR 416), wherein it was observed as under : The claim of the assessee for deduction of interest on the amounts borrowed by him for purchase of shares is disallowed by the Asses .....

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assessing authority. Being aggrieved by the same, the assessee is before us by filing this appeal framing substantial questions of law and urged the grounds in support of the same. Smt. Anuradha, learned counsel for the appellant relied upon the decision reported in CIT Vs. Rajendra Prasad Moody [1978] 115 ITR 519 wherein, it is held that interest paid on money borrowed for investment in shares is deductible under section 57(iii) of the Income-tax Act, which requires that the expenditure must be .....

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ed to set aside the order passed by the Tribunal. The substantial questions of law framed in the appeal are extracted as hereunder. "(i) Whether or not the Tribunal was right in not allowing the interest incurred by the assessee as expenditure in computing income of the assessee? (ii) Whether or not the Tribunal was right in reversing the findings of the Commissioner of Income-tax (Appeals), which was based on a Supreme Court's decision by relying on the decision of other Tribunals? (ii .....

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essing authority, the first appellate authority and the Tribunal with a view to find out as to whether the substantial questions of law framed in this appeal would arise for consideration of this court. It is not in dispute that the assessee had borrowed loans and invested the same in shares. Deduction is claimed by him of the interest amount paid on the borrowed loans. The amounts borrowed by the appellant were invested in shares and dividend is earned. When deduction for the interest paid is c .....

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n allowable under section 57(iii) of the Income-tax Act. The decision relates to an assessment year where dividend income was taxable in the hands of the assessee. With the introduction of section 10(33) of the Income-tax Act from the assessment year 1998-99 the position of law in regard to taxability of dividends has been changed since such income becomes a part of income which do not form a part of total income of the assessee. The provisions of section 14A introduced by the Finance Act, 2001, .....

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ing authority has considered the above relevant factor and disallowed the claim of the assessee. The first appellate authority reversed the order of the assessing authority by applying the decision in Rajendra Prasad Moody's case [1978] 115 ITR 519 (SC), referred to supra, which was rendered prior to introduction of section 14A of the Act and which has no application to the fact situation. The Tribunal has rightly set aside the order of the first appellate authority. It cannot be disputed th .....

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the assessing authority and the Tribunal and differ from the view taken by the first appellate authority. For the reasons stated supra, interference with the impugned order of the Tribunal is not warranted in this case. No substantial questions of law much less the questions of law framed by the appellant will arise for consideration of this court. The appeal is devoid of merit and liable to be dismissed. Accordingly, the appeal is dismissed. 7. Similarly, in the case of CIT v. Smt. Leena Ramach .....

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f the borrowed funds was for business purpose entitling the assessee to deduction of interest under section 36(1)(iii) of the Income-tax Act, 1961. The Assessing Officer held that the assessee made investments by utilising the borrowed funds ill the form of acquisition of shares in the company and the only benefit the assessee got was dividend income of ₹ 3 lakhs. Since section 14A of the Act bars any deduction pertaining to any expenditure incurred by the assessee for earning any income w .....

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s not taxable under the Act was not an allowable expenditure. Dividend income was exempt under section 10(33) of the Act and the dividend earned by the assessee on the shares acquired by her with the borrowed funds did not constitute part of the total income in the hands of the assessee. The reasoning given by the Tribunal for disallowance of ₹ 2 lakhs, i.e., by applying section 14A, squarely applied to the interest paid on the borrowed funds because it was on record that the entire funds .....

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t assessable under the Act, the disallowance under section 14A was squarely attracted and the Assessing Officer rightly disallowed the claim. In view of the above, we allow this ground of appeal of the Revenue. 16. In ITA No.2024/Mds/2014, the Revenue has raised one more ground, which is as follows: 3. The ld. CIT(A) erred in deleting the addition of ₹ 16,37,262/- made on account of difference in the sales turnover shown in the tax returns and the sales shown in the return of income 17. Af .....

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