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2016 (8) TMI 459 - ITAT MUMBAI

2016 (8) TMI 459 - ITAT MUMBAI - TMI - Disallowance u/s. 14A - Held that:- The balancesheet reflects an adequate balance of net working capital, i.e., current assets less current liabilities, both as at the beginning and the close of the year, being at ₹ 52.80 crores and ₹ 43.76 crores respectively. That leaves only unsecured loan/s, which continues at the opening balance of ₹ 101.37 lakhs during the year. No part of it can therefore be said to finance, even if partly, the incr .....

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is available, the same must be set off or allocated against investment, is thus clearly applicable in the facts and circumstances of the case. As regards administrative expenditure, the disallowance for the same has been restricted to the ratio (0.5% of the investment) in terms of rule 8D(2)(iii) of the Rules. We find the same as reasonable and, accordingly, confirm the same. - Activity of purchase and sale of scrips - in the nature of trade or business transaction, or in the nature of an in .....

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ted to be business activity (resulting though at a loss of ₹ 42.68 lakhs for the current year) as well as the trading in derivatives, only a business activity. Rather, the said activities, which are allied and pari materia, being in the same market and in the same scrips, reinforce and endorse the Revenue’s stand of the assessee’s activity of buying and selling of shares as being regular trading activity. The assessee has reported the income on such activity through its profit and loss acc .....

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ion of section 145(3), we do not find or observe any infirmity therein; the company or Shri Sunil Aggarwal failing to furnish any satisfactory reply to the several queries raised by the Assessing Officer in the matter. We may though clarify that the Bhillai unit being a unit of the assesseecompany, it’s books of account form part of the accounts of the company. The provision of s. 145(3) would, accordingly, apply to the assessee’s accounts, even as the same may result in the Assessing Officer di .....

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Assessing Officer has rightly reduced the sale consideration (of ₹ 128.40 lakhs) in respect of the fixed assets sold during the previous years relevant to A.Ys. 2004-05 & 2005-06 in computing the written down value (WDV) of the relevant block of assets. As regards sale of fixed assets, even if unauthorized, being not challenged by the company (which has presumably ratified the sale) and no longer its’ property, depreciation thereon could not be allowed. The Revenue’s claim is accordingly a .....

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of the Income Tax Act, 1961 ( the Act hereinafter) dated 31.12.2007 for the assessment year (A.Y.) 2005-06. Assessee s Appeal 2. Vide its Ground 1, the assessee agitates the disallowance u/s. 14A of the Act, since restricted to ₹ 13,11,549/-, i.e., as against at ₹ 22,21,205/- by the Assessing Officer (AO), comprising disallowance qua interest and the other administrative expenses at ₹ 5,01,596/- and ₹ 17,19,609/- respectively. The part relief by the ld.CIT(A) has been on .....

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aring capital toward investment yielding tax-exempt income. We observe that while investment in shares and securities has increased from ₹ 21.06 lakhs (as at the beginning of the year) to ₹ 243.45 lakhs as at its end, there has been, rather, a decline in the borrowed capital during the year, i.e., from ₹ 4352.15 lakhs (as at the beginning of the year) to ₹ 3518.86 lakhs at its end. That apart, as clarified by the ld. AR with reference to Schedule III to the balance-sheet, .....

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ase of ₹ 222.39 lakhs in the investment in shares and mutual funds during the year. The opening investment of ₹ 21.06 lakhs pales into insignificance in light of the interest-free under capital of ₹ 2722.22 lakhs at the beginning of the year, and which stands increased by ₹ 1.40 crores during the year. The decision by the Hon ble jurisdictional High Court in CIT vs. HDFC Bank Ltd. [2014] 366 ITR 505 (Bom), holding that where sufficient interest-free capital is available, .....

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in respect of the rejection of the assessee s book results, i.e., in relation to its Bhilai/Tedessara unit, estimating the same at 5% of the gross turnover of ₹ 96.94 lakhs, i.e., instead of taxing it in the hands of Mr. Sunil Aggarwal. Mr. Sunil Aggarwal is the brother of Mr. Anil Aggarwal, Director and Principal Officer of the assessee-company. The two brothers, as it appears, share an estranged relationship. Mr. Sunil Aggarwal resigned as a director of the assessee-company on 14.1.2000. .....

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.e., without incorporating the same. That is, except for ₹ 81,05,139/- claimed by way of depreciation on the fixed assets of the said Unit on the ground that the same forms part of the assessee s block of assets. Shri Sunil Aggarwal, being the person managing the said unit was summoned by the Assessing Officer u/s. 131 of the Act, who attended in response thereto (on 19.10.2007), submitting tax audit report u/s. 44AB of the Act (qua the accounts of the said Unit), and also replied the quer .....

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details of the material, purchased for ₹ 41.07 lakhs, stand furnished. In view of non-furnishing of any satisfactory answer to these queries, he, rejecting the assessee s books result (i.e., qua the Bhillai unit), disclosing loss of ₹ 47.13 lakhs, estimated its income at 5% of its turnover. Further, the claim for deprecation was adjusted for the sale of plant and machinery for ₹ 128.40 lakhs during the previous years relevant to A.Y. 2004-05 & 2005-06, i.e., as reflected in .....

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illai unit. The income or, as the case may be, loss arising there-from from year to year, consequently, is only of/to the assessee-company. All that it has granted, as we understand, is to allow the right of management thereof to Shri Sunil Aggarwal, restraining the company (Head Office) from interfering therewith. He, nevertheless, yet, operates only for and on behalf of the assessee-company, just as Mr. Anil Aggarwal does in respect of the company s other Units. It is the company, acting throu .....

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for long, so the petition of Sh. Sunil Aggarwal, who is no longer a director, and may also be having either nil or nominal shareholding, continues to remain undisposed even after over a decade and half, an early disposal of which would be in the interest of the company as well as both the parties. Even if the petitioner (Sh. Sunil Aggarwal) had for some reason/s not pursued the matter, so has not the assesseecompany. It has failed to invoke CLB in the matter, seeking its indulgence to define the .....

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h the Board of Directors of the company. Are there any Board resolutions authorising the sale of the company s fixed assets? Further, even if being realised at fair value, the property therein only belongs to the company, which is entitled to the fair value, i.e., apart from any action arising out of the unauthorized sale. Again, the unit incurring loss, it appears strange that there should at all be a dispute to claim the management rights. Be that as it may, the Revenue s stand is unexceptiona .....

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result in the Assessing Officer disturbing the book results only of the said unit, with the accounts of which he is essentially dis-satisfied with, i.e., finds as not reliable and as not reflecting correct income. With regard to the claim for depreciation, we observe that the same stands allowed by the Assessing Officer himself, with the ld. CIT(A) only directing likewise, i.e., for allowance of depreciation as per law. Without doubt, the allowance of depreciation can only be in terms of the pr .....

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Revenue s claim is accordingly allowed. 6. We next take up the only surviving Gd. 1 of the Revenue s appeal. The same relates to assessment of income on the sale of shares (Rs.43,90,684/-) as business income, as against short-term capital gain returned by the assessee. The matter has been dealt with extensively by the Assessing Officer, and for which reference is made to para 7 (pages 8-25) of the assessment order. The purchase/sale activity has been examined by him in detail and with reference .....

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Supply Agency Limited (100 ITR 706); and viii. CIT vs. H. Hoick Larsen [1986] 160 ITR 67 (SC). However, for the sake of completeness of our order, we may analyse his findings and which remains undisputed or uncontroverted even before us: (a) Firstly, in terms of Accounting Standard-17 (AS-17), requiring it to report on its different business segments, clearly states to be dealing in buying/selling of shares and securities and trading in derivatives, as amongst one of its business, viz. soya crus .....

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Authority of India and United Western. It is clear therefore that the assessee has traded on the movement in the shares prices from day to day, dealing in the scrips on a dayto- day basis, rather than holding it as an investment. (c) The said activity entails sizable investment of the company s resources. By way of an example, the bank statement for 15 days for the month of April has been reproduced, to show and demonstrate that out of a total of 40 transactions, 30 are respect of purchase or s .....

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nt becomes unmistakable. The primary test for determining whether a transaction is in the nature of trade or business transaction, or in the nature of an investment, is the motive or the intent with which purchase has been made, i.e., the market entered into. Buying and selling activity reflects an intent to capitalize on the movement in the (market) price of the relevant scrips, which may or may reflect a secular or be consistent with the longterm projection of the value and, thus, the market p .....

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