TMI Blog2012 (11) TMI 1188X X X X Extracts X X X X X X X X Extracts X X X X ..... gains. Assessee is also a partner in the firm M/s. Zaveri Co. Exports. The assessee filed his return of income on 31-10-2004 showing total loss of ₹ 57,31,265/-.The case was selected for scrutiny. 3. On the basis of details submitted, the A.O. noticed that assessee had purchased/allotted units of ₹ 8,07,56,958/- and also sold units of ₹ 7,22,97,926/- and earned dividend of ₹ 1,13,95,811/- on units of mutual funds which was claimed as exempt income u/s. 10(33). The assessee also claimed loss of ₹ 1,24,45,114/- on the sale of units. The A.O. noticed that the assessee had borrowed funds from Kotak Mahindra Investments Ltd. for the purpose of investing in units of mutual funds and on the money borrowed had pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and on the other hand he has treated the transactions of purchase/sale of units as that being business of assessee. It was thus contended that the interest payment was on account of business and therefore no disallowance u/s.14A was called for. 5. CIT (A) vide his order dated 18-12-2006 dismissed the appeal of the assessee by holding as under:- 9. It is seen that the provisions of section14A (inserted by the Finance Act, 2001, with retrospective effect from 1-4-1962) are unambiguous. They relate to expenditure incurred in relation to income not includible in total income. The appellant had raised loans from M/s. Kotak Mahindra for purchase of Mutual fund Units, as a consequence of which, dividends earned therefrom did not form part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivity of the assessee and the dividend that was earned was incidental to the business of the assessee. The interest that is incurred for the purchase of shares and units of mutual funds were in the normal course of business and are therefore allowable as deduction u/s. 36(1)(iii). It was further submitted that the A.O. has considered the loss on sale of units of mutual fund/share transactions carried on out of borrowed funds as a business loss. He further relied on the following decisions (1) CIT vs. Laxmi Agents P. Ltd. 125 ITR 227 (Guj.) (2) CIT vs.Cotton Fabrics Ltd.(1981) 131 ITR 99(Guj.) (3) Yatish Trading Co. P. Ltd. vs. ACIT (2011) 129 ITD 237 8. On the other hand the Ld. D.R. submitted that the kind of transactions ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned dividends which are exempt us/ 10(33). 10. In the case of Addl. CIT 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 borrowed for the purpose of business, it is immaterial how that borrowed capital was applied because all that Cl. (iii) of Sec.36(1) requires is that borrowings on which interest is paid should be for the purpose of business. 11. In the case of CIT vs. Cotton Fabrics Ltd. (1981) 131 ITR 99 (Guj.), the Hon ble Gujarat 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 inv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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