TMI Blog2012 (2) TMI 688X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 36(1)(vii) and section 36(2)(i) of the act, covered in favour of assessee by Jurisdictional Delhi High Court order in case of Insilco Ltd. 3. That On the facts and in the circumstances of the case and in law, learned CIT(A) erred in confirming the order of Assessing Officer (AO) treating the subject loss amounting to ₹ 41,60,000/- as capital loss in nature ignoring the squarely applicable ruling of Bombay High Court in the case of Tainwala Trading ITA 490/2004 latest Gujarat High Court order in case of Vadilal Financial Services Ltd. Disallowance u/s 14A where exclusive use of borrowed funds for business/ trade purposes is there. 4. That On the facts and in the circumstances of the case and in law, learned CIT(A) erred in approving the disallowance made by Ld. AO u/s 14A of the Act to the extent of ₹ 9,88,191/- being dividend received where admittedly total borrowing is directly used for trade purposes. 2. Brief facts, as emerge, are: ( i) The assessee company, engaged in non banking financial business (NBFC), for A.Y. 2008-09, filed return declaring loss of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act, covers every possible transaction resulting in the destruction, annihilation, extinction, termination, cessation or cancellation, by satisfaction or otherwise of all or any of the bundle of rights whether qualitative or quantitative, which the assessee has in a capital asset whether or not such an asset is corporeal or incorporeal. 2.2. AO, however, rejected the assessee s claim and held it to be a capital loss, allowable under this head, by relying on following judgments: - CIT Vs. Mrs. Grace Collis (2001) 248 ITR 323 (SC) - DCIT v. BPL Sanyo Finance Ltd. (2009) 312 ITR 63 (Kar.) - CIT Vs. Chand Ratan Bagri (2010) 230 CTR 258 (Del.) - Vania Silk Mills (P) Ltd. Vs. CIT 98 CTR (SC) 153. 2.3. Aggrieved, assessee preferred appeal before the CIT(A), where it reiterated its stand and relied on the following judgments in support of its claim: - Bombay High Court judgment in the case of Tainwala Trading Investment Co. Ltd. (ITA no. 490/2004); - RBG Investment Finance 321 ITR 488 (Del.) - T. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... availed for acquisition of Reliance Power (IP0) shares is to be excluded from the total interest for the purpose of clause (ii) of sub-rule (2) of Rule 8D. While coming to the above conclusion, reliance has been placed on the judgment of Kerala High court in the case of CIT vs. Smt. Leena Ramachandra (2010) TIOL-541-HC-Kerala-IT wherein it was held that t he assessee is entitled to deduction of interest u/s 36(1)(iii) on borrowed funds utilized for the acquisition of shares only if shares are held as stock in trade which arises only if the assessee is engaged in trading in shares. However, it is observed that an amount of ₹ 9,88,191/- has been received by the appellant on account of dividend income which is exempt from tax. Therefore, the disallowance of interest under section 14A of the Act read with Rule 8D of the Income-tax Rules, 1961 is restricted to the said amount of ₹ 9,88,191/-. As a result, the disallowance is confirmed to the extent of ₹ 9,88,191/- and the appellant gets relief of ₹ 9,65,412/- (₹ 19,53,603/- minus ₹ 9,88,191/-). Hence ground of appeal no. 5 is partly allowed. Aggrieved, assessee is before us on both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cumstances, in the assessment year in question, in which the assessee had invested an amount of ₹ 72,99,996/- Tainwala Chemicals and Plastics (India ) Ltd. was a profit making company and there was no reason to believe that the said company would suffer losses in the near future. The market value of the shares on the date of investment were between ₹ 60/- to ₹ 80/- per share and on the date of conversion of naked convertible warrants, the share value had fallen to ₹ 14/- per share and as per the SEBI guidelines the shares were offered on the date of conversion at ₹ 72.70 per share. In these circumstances, the assessee took a commercial decision to forgo the amount invested in naked convertible warrants than to invest further amount by subscribing to the shares at a price offered by the company. Consequently, no fault can be found with the decision of the ITAT in allowing the loss incurred by the assessee on forfeiture of the amounts invested by the assessee in naked convertible warrants. Accordingly, the appeal is dismissed with no order as to costs. 3.2. In the cited case the assessee applied for shares of Tainwala Chemicals and Plas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has no nexus with the finance by India Bulls and there was no occasion to apply Rule 8D. Assessee s claim of deduction of interest u/s 36(1)(iii) has also not been examined properly, therefore, the part disallowance as retained by CIT(A) u/s 14A should also be deleted. 4. Learned DR supported the order of lower authorities. 5. We have heard rival contentions and gone through the entire material available on record. As the facts emerge, the lower authorities have not adverted to the crucial facts i.e. assessee s investment in Surya Roshni Ltd., a group company, by way of subscription to convertible debentures being held as stock in trade not only in this year but earlier year also. These facts have a material bearing on taking a proper decision as to whether assessee s investment was a business asset. Besides, the AO has heavily relied on the issue of lock in period as a determinate factor to hold the impugned investment as accrual of a right while denying the assessee s claim. In our considered view the contentions raised by the assessee have not been duly considered by AO. The observations about the assessee s convertible debentures/ warra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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