TMI Blog2016 (8) TMI 998X X X X Extracts X X X X X X X X Extracts X X X X ..... that at the time of calculation of disallowance of Sec.14A of the Act net interest expenditure (i.e. gross interest paid minus interest received) should be used in the formula for calculating proportionate disallowance u/s 14A of the Act. Further we also observe that ld. AR has not brought on record audited financial statements, details 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 Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment proceedings, ld. Assessing Officer observed that the assessee has earned dividend income of ₹ 10,62,439/-, income from 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 PMS fees ₹ 2,7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of shares is considered as income from business. It is seen 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). 10. In the case of Addl. C!T vs. Laxmi Agents Pvt Ltd, (1980) 125 ITR 227 (Guj.) the Hon'ble Gujarat High Court has held that if once it is established that capital was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bject 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 purchase of such shares and accordingly there is no live connection between the expenditure incurred and dividend income. 13. Considering the factual positioning in the present case in light of the decisions of High Court and Tribunal, we- are of the view that no disallowance of interest is called for in the present case. We therefore direct the deletion of the disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving main source of income from financing, share trading and portolio management services and has declared loss of ₹ 97,91,666/-. Apart from earning dividend income of ₹ 10,62,439/- , assessee firm has also earned interest income from banks, short term capital, rental income, interest and financing and has also incurred long term capital loss paid interest on borrowings and to partners. We further observe that assessee has incurred a portfolio management fees of ₹ 2,78,477/- for earning short term capital gain of ₹ 23,68,330/-. Further at the close of the year investment in shares stood at ₹ 4,32,44,624/- as against partners capital of ₹ 2,63,07,331/-. 8. The reason for detailing the above income, exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestments 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 present case, we find that assessee has also earned interest income during the year. In various decisions of Co-ordinate Benches it has been repeatedly held that at the time of calculation of disallowance of Sec.14A of the Act net interest expenditure (i.e. gross interest paid minus interest received) should be used in the formula for calculating proportionate disallowance u/s 14A of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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