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TMI Blog2018 (8) TMI 913X X X X Extracts X X X X X X X X Extracts X X X X ..... as required by section 14A of the Act. According to the AO, the investment decision was very complex in nature which are required substantial market research and day to day analyse of market trends so as to take the decisions with regard to acquisition, retention and sale of shares and other securities at the most appropriate times. He held that the claim of the assessee of having earned the substantial income by way of dividend by incurring a nominal expenditure thus was not correct. He also observed that when section 14A read with rule 8D prescribed computation of such disallowance, approximation as done by the assessee was not acceptable. He, therefore, applied rule 8D to compute the expenditure incurred by the assessee in relation to earning dividend income at Rs. 1, 27, 34, 577/- and made a disallowance to that extent in the assessment completed u/s 143(3) vide an order dated 30.12.2011. 4. Against the order passed by the AO under section 143(3), an appeal was preferred by the assessee before the Ld. CIT(A) challenging inter alia the disallowance of Rs. 1, 27, 34, 577/- made by the AO under section 14A and after considering the submissions made by the assessee as well as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) would be reduced to Rs. 36, 39, 744/-. Thus total disallowance under Rule 8D(2) would be of Rs. 4, 91, 16/- under clause (i) + nil under clause (ii) + Rs. 36, 39, 744/- under clause (iii) totalling to Rs. 41, 30, 880/-. The assessing officer shall, verify various figures taken in the working prepared by the appellant. Subject to this, the assessing officer is directed to reduce the disallowance accordingly." 5. The learned DR mainly raised one contention in support of the revenue's case on this issue by submitting that the disallowance made by the AO on account of interest under section 14A as computed by applying rule 8D(2)(ii) is deleted by the Ld. CIT(A) on the ground that the interest income earned by the assessee being more than the interest expenditure incurred, there was no net expenditure incurred by the assessee on account of interest. He contended that such netting of interest can be allowed only if there is inextricable link between the interest earned and interest paid. He contended that there being no such inextricable link between the interest earned and interest paid established by the assessee in the present case, the deletion by the Ld. CIT(A) of the disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Tribunal in the case of Cranes Software International Ltd. (supra) and also that of Mumbai Bench of this Tribunal in the case of Sitsons India (P) Ltd. (supra). It is however observed that the Coordinate Bench of this Tribunal in assessee's own case has allowed the benefit of netting of interest in the similar facts and circumstances of the case. Moreover, Hon'ble Gujarat High Court in its recent judgement delivered on 31.08.2017 in the case of Nirma Credit & Capital Pvt. Ltd. (supra) cited by the learned counsel for the assessee has held that for the purpose of applying Rule 8D(2)(ii) prior to its amendment with effect from 02.06.2016, what would be considered as amount of expenditure by way of interest would be the interest paid by the assessee on the borrowings minus the interest income earned during the financial year. The benefit of netting of interest thus has been allowed by the Hon'ble Gujarat High Court without emphasising on the need of having any inextricable link between the interest earned and interest paid. Keeping in view the said decision of the Hon'ble Gujarat High Court as well as the decision of Coordinate Bench of this Tribunal in assessee's own case for A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the said transactions as colourable devise by relying on the decision of Hon'ble Supreme Court in the case of Mc. Dowell & Co. Ltd. 154 ITR 148 and disallowed the claim of the assessee for long term capital loss of Rs. 800, 31, 083/- (9, 83, 92, 268/- - 1, 83, 61, 185/-). 10. The disallowance made by the AO on account of its claim for long term capital loss was challenged by the assessee in the appeal filed before the Ld. CIT(A) and after considering the submissions made by the assessee as well as the material available on record, the Ld. CIT(A) deleted the said disallowance made by the AO on account of long term loss for the following reasons given in paragraph no 5.2 of his impugned order: "I have carefully considered the facts of the case. The Assessing Officer has made the disallowance on the ground that the off market sale of equity shares of group companies to other group companies was nothing but a colourable device to reduce the tax liability. However, apart from the fact that the transactions were with group companies, he has not brought any material on record to support his view that this was a colourable device. The transactions in shares are duly supported by docu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO therefore was not justified in treating the said transactions as a colorable devise merely because the same were entered into with the group companies. He invited our attention to the various judicial pronouncements cited on behalf of the assessee before the Ld. CIT(A) and contended that the same directly applicable to the facts of the assessee's case were rightly relied upon by the Ld. CIT(A) to allow the claim of the assessee for long term capital loss. He also relied on the CBDT Circular No. 704 of 28.04.1995 to contend that the transactions of shares taking place off market have any recognised even by the CBDT. 13. In rejoinder, the learned DR contended that the relevant transactions of shares may be legal and genuine but the purpose of the same being to reduce the tax liability, the AO was fully justified in treating the said transactions as a colorable devise by relying on the decision of Hon'ble Supreme Court in the case of Mc. Dowell & Co. Ltd. He contended that the intention beyond entering into the said transactions was very clear to reduce the tax burden by claiming the loss and it was thus a clear case of reduction of tax liability through a colorable devise. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ructions were also issued by the assessee company to the depository participant on the date of sale itself clearly shows that the same were followed by actual delivery of shares. Moreover, the relevant share transactions were affected at the same price as was quoted on the stock exchange on the same date. 16. As regards, the reliance placed by the Assessing Officer on the decision of Hon'ble Supreme Court in the case of Mc. Dowell & Co. Ltd. to treat the said transactions as a colorable devise, it is observed the assessee in the case of CIT vs Pivete Finance Ltd. 192 taxman 21 cited on behalf of the assessee before the Ld. CIT(A) had continuously resorted to sale of shares to another group company to reduce the tax burden and the revenue disallowed the resultant losses claimed by the assessee by treating the relevant transactions as a colourable devise to reduce the tax burden by relying on the decision of Hon'ble Supreme Court in the case of Mc. Dowell & Co. Ltd. (supra) Hon'ble Punjab & Haryana High Court however did not accept the stand of the revenue and allowed the claim of the assessee for loss by holding that once it was found that the transactions were genuine, then it cou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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