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TMI Blog2019 (1) TMI 1625X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Rs. 3,67,157/- on the grounds that the expenditure is of penal nature. The expenditure is a business expenditure. It is prayed that the additions being unwarranted be deleted. 4. That on the facts and circumstances of the case and provisions of the law, the Ld.CIT(A) was not justified in sustaining the action of A.O. in not allowing the deduction towards leave encashment of Rs. 141,60,00,000/- claimed during the course of assessment proceedings. It is prayed to allow the deduction towards leave encashment. 5. That the above grounds of appeal are independent and without prejudice to one another. Your appellant craves leave to add, alter, amend or delete any of grounds of appeal at the time of hearing." 2. Brief facts of the case: Assessee filed its return of income on 30/09/11 declaring total income of Rs. 57,96,13,45,146/-. Return was processed under section 143(1) of the Act and, case was selected for scrutiny. Accordingly notice under section 143(2) of the Act, along with a notice under section 142 (1) of the Act along with questionnaire was issued to assessee. In response to statutory notices, representative of assessee appeared before Ld.AO and filed necessary details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... looked into. What happens when the shares are held as 'stock-in-trade' and not as ' investment, particularly, by the banks? On this specific aspect, CBDT has issued circular No. 18/2015 dated November 02, 2015. 37. This Circular has already been reproduced in Para 19 above. This Circular takes note of the judgment of this Court in Nawanshahar case wherein it is held that investment made by a banking concern are part of the business or banking. Therefore, the income arises from such investment is attributable to business of banking falling under the head 'profits and gains of business and profession'. On that basis, the Circular contains the decision of the Board that no appeal would be filed on this ground by the officers of the Department and if the appeals are already filed, they should be withdrawn. A reading of this circular would make it clear that the issue was as to whether income by way of interest on securities shall be chargeable to income tax under the head 'income from other sources' or it is to fall under the head 'profits and gains of business and profession'. The Board, going by the decision of this Court in Nawanshahar case, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount which was claimed as exempt income by applying the formula contained in Rule 8D of the Rules and holding that section 14A of the Act would be applicable. In spite of this exercise of apportionment of expenditure carried out by the AO, CIT A) disallowed the entire deduction of expenditure. That view of the CIT A) was clearly untenable and rightly set aside by the ITAT. Therefore, on facts, the Punjab and Haryana High Court has arrived at a correct conclusion by affirming the view of the ITAT, though we are not subscribing to the theory of dominant intention applied by the High Court. It is to be kept in mind that in those cases where shares are held as 'stock-in-trade', it becomes a business activity of the assessee to deal in those shares as a business proposition. Whether dividend is earned or not becomes immaterial. In fact, it would be a quirk of fate that when the investee company declared dividend, those shares are held by the assessee, though the assessee has to ultimately trade those shares by selling them to earn profits. The situation here is, therefore, different from the case like Maxopp investment Ltd. where the assessee would continue to hold thos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enal in nature. 9.1. Ld.Counsel submitted that Clause 17(e)(ii) of the Tax Audit Report read with Schedule IX indicates expenditure amounting to Rs. 3,67,157/- is debited in P&L account, which is of penal nature. Vide notice u/s 142(1) of the I.T. Act, 1961 dated 26.09.2013, assessee was called upon to justify why expenditure of penal nature debited to P&L account should not be disallowed and added to total income. Admittedly the assessee did not submit any answer in this regard. Ld. A.O. thus disallowed the expenditure. 9.2. On appeal Ld.CIT(A) held as under. " 11. AO stated that as per the audit report the expenditure of Rs. 3,67,157/- was of penal nature. No reply was submitted by the assessee to explain this expenditure which was disallowed by the AO. In my view, the payments are of penal nature and cannot be allowed as a deduction. The addition of Rs. 3,67,157/- is sustained. The ground of appeal is ruled against the assessee." 10. Before us Ld.AR could not establish by way of evidence anything contrary to the view taken by authorities below. Further, Ld.AR is also not refuting the fact that the payment is not an expenditure which was penal in nature. Under such cir ..... X X X X Extracts X X X X X X X X Extracts X X X X
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