TMI Blog2017 (8) TMI 76X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Bombay High Court in CIT vs. M/s. Godrej Agrovet Ltd [2014 (8) TMI 457 - BOMBAY HIGH COURT] has held that percentage of the exempt income can constitute a reasonable estimate for making disallowance in the years earlier to the assessment year 2008-09. In the above case it upheld the disallowance to the extent to 2% of the total exempt income.Respectfully following the above decision, we direct the AO to restrict the disallowance to 2% of the total exempt income. Disallowance u/s 94(7) out of business loss claimed by the assessee - whether the loss incurred on sale of securities to the extent of dividend income earned is not allowable, which was confirmed by the learned CIT(A) - Held that:- There is merit in the contentions of the learned counsel of the assessee that in case, loss for scrips held for 6 months is treated as STCL, then the disallowance u/s 94(7) must also be made out of STCL and not out of business loss. In view of the above, the order of the learned CIT(A) on the above issue is set aside and the AO is directed to restrict the disallowance to ₹ 1,56,177/- under the business head and adjust the balance of ₹ 37,560/- against STCL under capital gains h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng a sum of ₹ 1,93,737/- u/s 94(7) of the Act. Appellant submits that in view of facts and circumstances of the case as well as in law the said disallowance u/s 94(7) of the Act is bad in law and deserves to be deleted. iv. Learned Commissioner of Income Tax (Appeals) erred in confirming the order of Learned Assessing Officer of disallowing a sum of ₹ 40,500/- out of interest expenses. 3. Briefly stated the facts are that the assessee, a Doctor by profession filed his return of income for the A.Y. 2007-08 on 12.10.2007 declaring total income of ₹ 70,95,200/-. Besides professional income, the assessee derives income from share trading. We now begin with the 1st ground of appeal. The assessee has shown Short Term Capital Gains (STCG) of ₹ 1,51,88,155/- on sale of shares and securities. The Assessing Officer (AO) was not convinced with the explanation filed by the assessee before him and held the STCG of ₹ 92,38,459/- in respect of gain / loss from the scrips held upto 6 months as business income. The learned CIT(A) upheld the above order of the AO. 3.1 Before us, the learned counsel of the assessee relied on the judgment of the Hon'ble Bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re always shown as investment in his balance sheet and considered to be an investment. The dividend earned was ₹ 8.36 lacs on the investment of ₹ 2.77 crores also establishes that the intention of the respondent was to earn dividend income. Moreover, as observed by the CIT(A) the respondent-assessee was a busy Doctor and would not have time to deal in share transaction on day to day basis. Thus, the Tribunal on the above facts concluded that income earned on sale of shares held for less than six months are to be taxed under the head Capital Gain. Moreover, we are informed that even for the earlier assessment years gain on sale of shares has been taxed by the revenue as short term capital gain and not as business income. In view of the fact that the decision of the Tribunal taxing the gain made on sale of shares under the capital gain is based on a concurrent finding of fact, no question of law arises. Thus, we do not entertain this appeal. 3.6 We find that the Co-ordinate Bench of the Tribunal in the case of the assessee for the A.Y. 2004-05, A.Y. 2008-09 and A.Y. 2009-10 have held the share transactions as capital gains and not as income from business. 3.7 Fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 9,33,741/- is indirect expenses which are in nature of common expenses. The common expenses after disallowance come to ₹ 6,83,743/-. Even if disallowance of expenses has to be made u/s 14A, then disallowance has to be restricted to 10% of the above sum which comes to ₹ 68,374/-. 4.2 On the other hand, the learned DR relies on the order passed by the learned CIT(A). 4.3 We have heard the rival submissions and perused the relevant material on record. We find that the AO has worked out the disallowance u/s 14A r.w.r. 8D. The same rule is not retrospective as it was notified on 24/03/2008 and would be applicable only from AY 2008-09. In Godrej Boyce Mfg. Co. Ltd. (supra), it has been held that Rule 8 D is not retrospective. The Hon ble Bombay High Court in CIT vs. M/s. Godrej Agrovet Ltd vide Income Tax Appeal No. 934 of 2011, dated 8.1.2013, has held that percentage of the exempt income can constitute a reasonable estimate for making disallowance in the years earlier to the assessment year 2008-09. In the above case it upheld the disallowance to the extent to 2% of the total exempt income. 4.4 Respectfully following the above decision, we direct the AO to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unds at his disposal for advancing interest free loans. It is stated by him that 99.46% of the total funds at his disposal are own funds. It is submitted that all funds have gone into common pool of funds and nexus with interest bearing funds having been utilised for advancing interest free loan cannot be established. However, as almost 99.46% of funds are interest free funds, considering loan is advanced not out of 99.46% of funds but out of 0.32% of funds is devoid of rationality. Reliance was placed by him on the judgement of the Hon'ble Bombay High Court in CIT vs. Reliance Utilities Power Ltd. (2009) 313 ITR 340. On the other hand, the learned DR relies on the order passed by the learned CIT(A). 6.2 Having heard the rival submissions and perused the relevant material on record, we find that (i) 99.46% of funds is interest free funds (ii) 0.32% of funds is interest free borrowed funds and (iii) 0.22% is interest bearing funds bearing in a common pool of funds. In the case of Reliance Utilities Power Ltd. (supra), it is held that if there be interest-free funds available to an assessee to meet its investments and at the same time the assessee has raised a loan, it ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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