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ACIT, Circle-11, Ahmedabad Versus Shri Parshwanath

Disallowance u/s 14A r.w.s. 8D - Held that:- In the given case, where the assessee has earned exempted income and also has a substantial investments in shares the provisions of section 14A of the Act for disallowance of expenditure incurred in relation to income earning dividend income is clearly attracted. We find that ld. Assessing Officer has applied the gross amount of interest expenditure of ₹ 75,53,433/- in the formula for working out proportionate disallowance of interest. In the pr .....

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of investment, partners’ capital account, indirect income earned, which could help to calculate the actual disallowance u/s 14A of the Act. We, therefore, set aside this issue to the file of ld. Assessing Officer to recalculate the disallowance u/s 14A of the Act by using net interest paid figure at the place of gross interest paid during the year in the formula. Needless to mention that ld. Assessing Officer will provide reasonable opportunity of being heard to the assessee to produce all the n .....

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for Asst. Year 2009-10, passed against order u/s 143(3) of the IT Act, 1961 (in short the Act), framed on 14.12.2011 by Jt. CIT, Range-11, Ahmedabad. Grounds of appeal raised in this appeal are as under :- (1) The Ld.CIT(A) has erred in law and on facts in deleting the addition of ₹ 32,75,430/- on account of disallowance u/s 14A r.w.s. 8D without properly appreciating the facts of the case and the findings brought out by the AO.. (2) On the facts and circumstances of the case, the Ld.CIT(A .....

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short-term and longterm capital gain and interest income along with carrying on share trading business. It was also observed that assessee incurred a portfolio management services (PMS) of ₹ 2,78,477/- for earning short term capital gain of ₹ 23,68,330/- but did not disallow PMS fees. Accordingly, assessment was completed on 14/12/2011 at an assessed loss of ₹ 62,37,759/- after making following two additions- i) Disallowance u/s 14A Rs.32,75,430/- ii) Disallowance on a/c of PM .....

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so recorded in the order that interest bearing funds were utilised for purchase of shares, some of which yielded dividend income. Perusal of the assessment order indicates that the basis of disallowance of interest by the A O rests upon his presumption that some expenditure was incurred towards shares from which dividend was earned. It is pertinent to note that Hon'ble jurisdictional tribunal in the case of Bharatkumar P Mandalia (ITA No 472/Ahd/2007 dt 30-11-2012), relying upon the decision .....

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that the A.O. has computed the loss on the mutual fund/share transactions carried out of borrowed funds and treated as loss from business. In view of the aforesaid facts the activity of the assessee as business and the loss arising out of transactions of redemption of units as business loss is not under dispute. During the year the assessee had borrowed money from Kotak Mahindra investments Ltd. and used it for purchase of units. The assessee has also earned dividends which are exempt us/ 10(33 .....

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High court that it has been held that if the borrowing is for the purpose of the business then interest need not be apportioned between the business requirements and the moneys borrowed for the purpose of investment in shares. U/s. 36' interest paid by an assessee for the purpose of carrying on its business is deducted in its entirety while computing profits and gains of business and therefore it is not possible to allocate a portion of that interest as against income from dividends by stat .....

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e same cannot be said b have been incurred for earning the dividend income In the case of dealer in shares and securities the primary object and intention for acquisition of the shares is to earn profit on tracing of shares. The income on sale and purchase of the shares of a dealer is chargeable to tax. Therefore, if the said activity of purchase and sale a/so incidentally yields some dividend income on the shares held by him as stock in trade such dividend income is not intended at the time of .....

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the same are nearly identical to those adjudicated by Hon'ble jurisdictional tribunal supra. It is not disputed that the appellant is engaged in the business of share trading activity and that some dividend was received from such shares. In respectful compliance to the order of Hon'ble Tribunal supra, it is held that in view of peculiar facts of this case, no disallowance u/s. 14A rws Rule 8D was required to be made in this case. Consequently, the addition made by the A O is deleted and .....

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res and securities. 7. We have heard the rival contentions and perused the material on record. Solitary grievance of the Revenue is against the order of ld. CIT(A) deleting the disallowance of ₹ 32,75,430/- made u/s 14A of the Act r.w. Rule 8D of the IT Rules. From going through the assessment order, we find that assessee being a partnership firm is having main source of income from financing, share trading and portolio management services and has declared loss of ₹ 97,91,666/-. Apar .....

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/- as against partners capital of ₹ 2,63,07,331/-. 8. The reason for detailing the above income, expenditure, capital and investments is to understand that even if ld. AR is pressing the aspect that assessee is engaged in business of share trading and financing which do not call for a disallowance u/s 14A of the Act, we see another picture on the basis of above facts. Apart from being engaged in the business of share trading assessee is earning income from short term capital gain, dividend .....

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above but it seems that ld. CIT(A) has failed to appreciate the complete facts. Judgements of Hon. Jurisdictional High Court referred in the order of ld. CIT(A) are relating to those cases where the interest bearing funds have been used for business purposes and dividend income has been earned incidentally. As the facts of the case of assessee do not match with the facts dealt in by Hon. Jurisdictional High Court, ld. CIT(A) was not correct to straight away applying the same to the case of asse .....

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