TMI Blog2016 (7) TMI 1130X X X X Extracts X X X X X X X X Extracts X X X X ..... her sources is not justified and accordingly, we direct to assess the same under the head profit and gains of business and give benefit to allow carry forward this stock as opening stock of the succeeding year. Addition under the head other sources - Held that:- We find that without the excessive stock of ₹ 3,81,13,064/-, the trading result of the assessee was a loss of ₹ 64,41,401/- which was rejected by the Assessing Officer and assessed into profit of ₹ 20, 65, 885/-thus making the total addition of ₹ 85,07,286/-. The learned Commissioner of Income-tax (Appeals) in the impugned order has accepted the trading results of the assessee, however, directed to delete the addition of ₹ 20,65,885/-. In our opinion, once the trading results of the assessee have been accepted, the entire addition of ₹ 85,07,286/- was required to be deleted by the learned Commissioner of Incometax (Appeals). Accordingly, we direct to delete the addition of ₹ 64,41,401/- - Decided in favour of assessee. Disallowance under section 14A read with Rule 8D Held that:- We find that there is no dispute on the fact that no exempt income was earned by the assessee durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT (A) grossly erred in not appreciating that such an addition of ₹ 64,41,401 would amount to double taxation. 5. That in the facts and circumstances of the case in law, the Ld. CIT(A) grossly erred in interpreting Section 14A and Rule 8D by concluding that Rule 8D provides for allocation of expenditure relatable to exempt income and that such expenditure is to be disallowed even when there is actually no exempt income during the previous year. That the above grounds of appeal are without prejudice to each other. That the appellant reserves its right to add, alter, amend or withdraw any ground of appeal either before or at the time of hearing of this appeal. 2. The facts in brief are that a search and seizure action under section 132 of the Income-tax Act, 1961 (in short the Act ) was carried out at the premises of the assessee on 27/10/2009 along with other cases of Diamond Hut Group. The survey under section 133A of the Act was also carried out at the business premises of the assessee. In the course of survey proceedings, the assessee declared excessive stock of ₹ 3,81,30,064/- as income of the year under consideration. The assessee filed return of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... challenged the direction of the learned Commissioner of Income-tax (Appeals) to assess the surrendered undisclosed investment in stock under the head income from other sources and submitted that the Commissioner of Income Tax (Appeals) ought to have directed to consider the surrendered stock as part of closing stock and carry forward to succeeding year as opening stock. 4.1 Before us, the learned Authorized Representative of the assessee submitted that assessee had surrendered the excess stock found during the course of survey and included the same along with the closing stock in the books of accounts. He drawn our attention to page 93 of the assessee s paper book according to which stock in books of account at the year end was of ₹ 7,29,87,977.33 and then further, the surrendered stock of ₹ 3,81,13,064/- was added, making a total closing stock to ₹ 11,11,01,041.33/-, which was appearing in trading account for the year on page 79 of the assessee s paper book. Thus, according to the learned Authorised Representative, there was no justification in the direction of the learned Commissioner of Income-tax (Appeals) to assess the surrendered stock separately as in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 401/- by the learned Commissioner of Income-tax (Appeals). 5.1 Before us, the learned Authorized Representative of the assessee submitted that the addition was made by the Assessing Officer as part of the trading addition. He further submitted that on one side the learned Commissioner of Income-tax (Appeals) has accepted the trading results of the assessee, however, retained the addition of ₹ 64,41,401/-, which was part of the trading addition and, therefore, confirming of the addition by the learned Commissioner of Income-tax(Appeals) was not justified. 5.2 On the other hand, learned Sr. Departmental Representative relied on the finding of the learned Commissioner of Income-tax (Appeals). 5.3 We have heard the rival submission and perused the material on record. We find that without the excessive stock of ₹ 3,81,13,064/-, the trading result of the assessee was a loss of ₹ 64,41,401/- which was rejected by the Assessing Officer and assessed into profit of ₹ 20, 65, 885/-thus making the total addition of ₹ 85,07,286/-. The learned Commissioner of Income-tax (Appeals) in the impugned order has accepted the trading results of the assessee, howeve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me under the Act; (iii) There must be an expenditure incurred by the assessee; and (iv) The said expenditure must have a relation to the income which does not form part of the total income under the Act. It was further observed by the Tribunal that from the aforesaid condition it would be clear that in the concerned assessment year as there is no income which does not form part of the taxable income under the Act i.e. dividend from the shares, in our opinion, the provisions of section 14A of the Act cannot be invoked. In the present case, it is an admitted fact that the assessee was not in receipt of any dividend income as such there was no income from the investment in question which was taxable under the Act, therefore, the AO wrongly invoked the provisions of section 14A of the Act. On a similar issue, their lordships of the Hon ble Punjab High Court in the case of CIT Vs M/s Lakhani Marketing Incl. in ITA No.970/2008 vide order dated 02.04.2014 observed at paras 9 to 11 as under:- 9. The CIT(A) vide order dated 24.6.2004, Annexure A.II recorded as under:- 7.2 Keeping in view the above facts and circumstances of the case it is held that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee as deduction. In such cases only, the expenditure relating to the exempted income can be disallowed and not otherwise. Since in the present case, the entire income is found to be taxable, no disallowance can be made under section 14A of the Act. 10. Moreover, the AO has not established the nexus between invested funds and the interest bearing funds, since the investments in shares are in the years 1995-96, 1998-99 9 ITA Nos.1150 1151/Del./2013 and 1999-2000 and the interest disallowance is for the assessment years 2000-01 and 2001-02. On the contrary perusal of the balance sheet for the year ending 31.3.1995, 31.3.1998 and 31.3.1999, it is clear that interest bearing funds have not been utilized for investment for purchase of shares. 11. For the aforesaid reasons, we see no reason to interfere with the order of CIT(A) concerning assessment year 2000-01 and 2001-02 and hence the decision of CIT (A) in deleting the disallowance of interest by invoking section 14A of the Act is correct and in accordance with law. 11. In view of the aforesaid findings, which could not be shown to be erroneous, the plea of the revenue cannot be accepted. Furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... larly, the Hon ble Jurisdictional High Court in the case of CIT Vs Holcim India (P) Ltd. in ITA Nos. 486 299/2014 vide order dated 05.09.2014 dismissed the appeal of the revenue and observed in para 14 as under: 14. On the issue whether the respondent-assessee could have earned dividend income and even if no dividend income was earned, yet Section14A can be invoked and disallowance of expenditure can be made, there are three decisions of the different High Courts directly on the issue and against the appellant-Revenue. No contrary decision of a High Court has been shown to us. The Punjab and Haryana High Court in Commissioner of Income Tax, Faridabad Vs. M/s. Lakhani Marketing Incl., ITA No. 970/2008, decided on 02.04.2014, made reference to two earlier decisions of the same Court in CIT Vs. Hero Cycles Limited, [2010] 323 ITR 518 and CIT Vs. Winsome Textile Industries Limited, [2009] 319 ITR 204 to hold that Section 14A cannot be invoked when no exempt income was earned. The second decision is of the Gujarat High Court in Commissioner of Income Tax-I Vs. Corrtech Energy (P.) Ltd. [2014] 223 Taxmann 130 (Guj.). The third decision is of the Allahabad High Court in Inc ..... 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