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Digvijay Finlease Ltd. Versus The DCIT (OSD) Range-1 Ahmedabad

Disallowance under section 14A - disallowance has been worked out with reference to Rule 8D(2)(iii) being administrative and general expenses estimated at 0.5% of the average value of investment - Held that:- As per financial data before us, the substantive part of expenditure incurred obviously has proximate connection with the earning of dividend income. The expenditure incurred is towards all business activities including investment activities and remains undivisible. Hence, we are unable to .....

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e into play. - Indication of prima facie presence of satisfaction can be deemed to be substantial compliance of the provisions without there being any explicit assertion about the same. As noted, the affirmative steps by way of SCN on the issue in the first instance tantamount to subsistence of ‘satisfaction’ in the instant case. Hence, in our view, S. 14A as presently codified does not provide impetus on explicit recording of satisfaction per se. The requirement of section would stand addre .....

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ed to be decided as per the facts and the circumstances of the individual case and not having regard to the smaller period of holding alone. As pointed out by the assessee before the CIT(A), the assessee has sold the shares held for less than thirty days in only six instances which in our view does not give any indication of systematic and organized business activity. The loss declared on similar transactions as capital loss which is detrimental to assessee was duly accepted by the revenue in th .....

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14 - Dated:- 6-2-2017 - SHRI RAJPAL YADAV, JUDICIAL MEMBER And SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER For The Appellant : Mr. P.F. Jain, AR For The Respondent : Mr. Prasoon Kabra, Sr.DR ORDER PER PRADIP KUMAR KEDIA, AM: This appeal by the Assessee is directed against the order of the Commissioner of Income Tax(Appeals)-III, Ahmedabad [CIT(A) in short] dated 18/12/2013 for Assessment Year Assessment Year (AY) 2008-09). 2. The grounds of appeal raised by the assessee read as under:- 1. The Ld. .....

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pts/shares which are held for less than 30 days, instead of holding the income under the head income from short term gain . 3. The first and second ground concerns disallowance of ₹ 12,19,173/- under section 14Aof the Income Tax Act, 1961 (hereinafter referred to as "the Act"). The aforesaid disallowance has been worked out with reference to Rule 8D(2)(iii) being administrative and general expenses estimated at 0.5% of the average value of investment. 4. A few facts relevant to c .....

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e has shown investment of ₹ 24,38,34,685/- as on 31.3.2008. The Assessing Officer (AO) observed that in view of the tax-free income earned by the assessee, disallowance of indivisible expenditure attributable to dividend income is called for in terms of section 14A read with Rule framed thereon by way of Rule 8D of the income Tax Rules, 1962. He accordingly calculated disallowance as per statutory formula prescribed under Rule 8D of the IT Rules. The aggregate disallowance arrived at ͅ .....

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SOT 172 (URO)/15 ITR (Trib.) 393, by Hon ble ITAT, Chennai Bench that even if there may not be any direct visible expenditure to earn dividend income, a reasonable portion of top management time/expenditure could be attributed to earning of that income. Therefore, second argument of the appellant that no disallowance is required out of indirect expenses is not acceptable. I therefore hold that AO has rightly made disallowance of ₹ 12,19,173/- under Rule 8D(2)(iii) and the disallowance is .....

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mstances of the case and therefore requires to be cancelled. The Ld.AR adverted our attention to the final statements placed by way of paper-book and submitted that the major expenses, are towards professional charges amounting to ₹ 11,25,240/- and rent ₹ 2,17,650/-. Such expenditure by its very nature are not required to be incurred for earning self generated dividend income. The Ld.AR next contended that in the earlier assessment year 2005-06, the disallowance has been made on a re .....

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action of the AO falls short of the statutory requirement and thus a nullity. Therefore, the order of the CIT(A) confirming the disallowance on the basis of Rule 8(2)(iii) is erroneous and requires to be viewed with disfavor. 8. The Ld.DR Mr.Prasoon Kabra, on the other hand, submitted with reference to the financial statement that major part of its resources have been applied towards investments. Various expenditure incurred as reflected in Profit & Loss Account including professional charge .....

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of the case notwithstanding that it may not have been reduced in writing in explicit terms. The Ld.DR accordingly contended that the assessee cannot escape the applicability of statutory formula prescribed under rule 8D of the IT Rules. 9. We have considered the rival submissions with regard to objection of the assessee on disallowance of expenditure incurred in relation to dividend income not forming part of total income in terms of S. 14A of the Act. From the facts culled out above and on peru .....

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ax free dividend income is investment in these shares. The total resources at the disposal of the assessee as on 31.03.2008 stands at ₹ 25.93 crores. The investment in shares stands at ₹ 24.38 cores as on that date. The major contributory of income comprises of dividend at ₹ 270.01 lakhs and profit on sale of investments ₹ 81.40 lakhs out of gross income ₹ 364.10 lakhs. As a corollary, the expenditure as returned in the Profit & Loss Account has been incurred fo .....

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tion to dividend income. The proposition towards reasonable estimated expenditure with reference to dividend income as propounded on behalf of assessee cannot be ordinarily accepted in derogation of the statutory frame work provided by the statue. No tangible cause has been shown by the assessee for doing so. Thus, in the given set of facts, in our considered opinion, the formula provided under Rule 8D would come into play. 10. We shall now delineate on the next limb of argument canvassed on beh .....

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ble income and remains indivisible. The expression accounts used in section 14A is not confined to books of account but includes financial statements. Thus, there exists adequate and prima facie material to support formation of satisfaction. Therefore, presence of satisfaction contemplated under section 14A having regard to accounts cannot be discredited. It would be pertinent here to say that phraseology employed in section 14A(2) of the Act suggests that what is required to trigger section 14A .....

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with the expression record reasons as a jurisdictional requirement as noted with reference to section 148(2) of the Act. Thus, the indication of prima facie presence of satisfaction can be deemed to be substantial compliance of the provisions without there being any explicit assertion about the same. As noted, the affirmative steps by way of SCN on the issue in the first instance tantamount to subsistence of satisfaction in the instant case. Hence, in our view, S. 14A as presently codified does .....

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ed opinion that the AO has correctly applied formula prescribed under Rule 8D(2) for determination of expenditure attributable to dividend income. Hence, we decline to interfere with the order of the CIT(A). Ground Nos.1 & 2 of the assessee s appeal are accordingly dismissed. 12. Ground No.3 concerns treating the Short Term Capital Gain (STCGs) as business income arising from sale of shares and securities which are held for less than 30 days. The AO noted that the assessee has inter alia dec .....

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377; 55,79,921/- as business income of the assessee. 13. In first appeal, the CIT(A) however on consideration of host of factors as noted in paras-11 to 13 of its order granted partial relief. By the same token, the CIT(A), however, endorsed the action of the AO in treating the capital gains arising on sale of shares as business income where shares were held for less than 30 days during the year. 14. In second appeal before the Tribunal, the Ld.AR for the assessee relied upon the facts placed be .....

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e in law. The Ld.AR further submitted that the assessee has inter alia earned Long Term Capital Gains (LTCGs) during the year which has not been called into question. The adversarial action has been taken only with reference to STCGs to simply collect more revenue for the Department. The Ld. AR pointed out that in the earlier assessment year 2005-06, the assessee incurred loss on sale of shares and therefore no SCN was issued while framing the assessment under section 143(3) as it was convenient .....

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ssional rate of 10% has been availed only in respect of remaining amount of ₹ 35.29 lakhs where security transaction tax has been paid. The Ld.AR submitted that in view of very few transactions held for less than thirty days, the action of CIT(A) in denying relief on gains arising therefrom merely owing to smaller period of holding is not quite befitting. 15. The Ld.DR, on the other hand, relied upon the order of the CIT(A). 16. To adjudicate the issue, we have carefully considered the riv .....

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