TMI Blog2014 (12) TMI 1384X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld.Counsel is dismissed as devoid of merit. CIT(A) has restricted the net disallowance u/s 14A. We are of the view that the disallowance has to be recomputed under Rule 8D (2)(ii). Thus for this limited purpose we set aside the matter to the file of the AO for computing the disallowance. Disallowance of claim of short term capital loss - assessee has submitted that right to obtain shares is an asset and forfeiture of the same is, extinguishing of a right and hence covered u/s 2(47)(ii) of the Act - HELD THAT:- As decided in SHRI CHAND RATAN BAGRI [ 2010 (1) TMI 123 - DELHI HIGH COURT] held that forfeiture of the convertible warrant amounted to a transfer within the meaning of s.2(47) - A share in a company is nothing but a share in the ownership of the company. While the right of the assessee to share in the ownership of the company Stands extinguished on account of the forfeiture, the company, with all its assets, continues to exist. The forfeiture only results in one less shareholder. It is not as if the asset in which a share was being claimed was also extinguished - Decided against revenue. - ITA No. 5389/Del/2012 - - - Dated:- 10-12-2014 - SHRI H.S.SIDHU, JM AND S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed short term capital loss. He rejected the claim of the assessee. 3. Aggrieved the assessee carried the matter before the First Appellate Authority who granted part relief. 3.1. Further aggrieved the assessee is before us on the following grounds. 1). The order of the Ld. Commissioner of Income Tax - (Appeals) -XXXI, New Delhi is bad in law, wrong on the facts and against the principles of natural justice. 2). a) The Ld CIT-(A) has erred in confirming the disallowance of expenditure u/s 14A of the Income Tax act at ₹ 54,48,957/- (i.e. 62,33,963 - 7,84,976) by applying Rule 8D by concluding that the expenditure is incurred for earning tax free income. b) The Ld CIT (A) while confirming the disallowance u/s 14A of the Income tax Act, 1961 at ₹ 54,48,957/- has failed to appreciate that the appellant company in the return of income had already disallowed a sum of ₹ 7,84,976/- u/s 14A by proportionately dividing the total expenses claimed in the ratio of turnover of exempt income to turnover of total income which is a scientific and logical method for computing disallowance u/s 14A However, the Ld. AO has made the disallowance u/s 14A by applying the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n another group company. The Ld CIT(A) has grossly erred in making the aforesaid conclusion as the forfeiture of share warrant is a genuine and bonafide transaction. d) The Ld. CIT-(A) has erred in concluding that the subscription to the convertible share warrants is not a capital asset as defined in section 2(14) of the Act, which is against the principles laid down by the Hon'ble Delhi High Court in the case of CIT vs Chand Ratan Bagri 329 ITR 356 wherein it has been held that Forfeiture of convertible warrants amounts to transfer within meaning of section 2(47) of the Act, as there is extinguishment of rights and loss on their forfeiture is allowable as capital loss and similar decision by Hon'ble Karnataka High Court in the case of CIT v BPL Sanyo Finance Ltd 323 ITR 63 and Hon'ble Punjab and Haryana High Court in the case of CIT v Grewal Bros 199 Taxman 201. The Ld. CIT(A) has grossly erred in concluding that the aforesaid case law does not resemble the facts of the case of the appellant company whereas the facts in all the cases are absolutely identical. The appellant craves leave to add, alter amend, modify or forego any of the grounds of appeal before o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar item of expenditure was incurred for earning taxable income and hence should not be disallowed u/s 14A. He pointed out that the assessee has failed in doing so. He referred to the order of the Ld.CIT(A) and pointed out that there is a clear finding that the assessee failed to mention explicitly as to which interest was paid to earn interest income and to prove as to which expenditure is not incurred for the purpose of earning income. He submits that there is no evidence lead by the assessee in support of the manner in which the assessee has determined disallowances u/s 14A. He pointed out that out of total income of ₹ 3.32 crores, dividend income constituted ₹ 2.6 crores and interest income ₹ 43.5 lakhs. Hence he submitted that the major portion of the expenditure was incurred for earning dividend income. 6.4. On a careful consideration of the submissions we find that the composition of the income of the assessee demonstrates that it earned ₹ 2.76 crores dividend income, which is claimed as exempt out of total income of ₹ 3.32 crores. The expenditure incurred is ₹ 62,33,964/-. The assessee claims that the expenditure on interest, is incurre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led by the larger Bench of the Supreme Court in the case of Mrs.Grace Collis (2001) 248 ITR 323. In the present case, we find that the forfeiture of the convertible warrant has resulted in extinguishment of the right of the assessee to obtain a share in BLB Ltd. It is not a case where the asset itself has been extinguished or destroyed. A share in a company is nothing but a share in the ownership of the company. While the right of the assessee to share in the ownership of the company BLB Ltd. Stands extinguished on account of the forfeiture, the company, with all its assets, continues to exist. The forfeiture only results in one less shareholder. It is not as if the asset in which a share was being claimed was also extinguished. Thus, the second point urged by the ld.counsel for the Revenue is also not tenable. In view of the foregoing reasons no substantial question of law arises for our consideration. The appeal is dismissed. 7.4. Respectfully following the judgement of the Jurisdictional High Court, we allow the claim of the assessee. Ground no.2(e) is allowed. 8. In the result assessee s appeal is allowed in part. Order pronounced in the Open Court on 10th Decem ..... X X X X Extracts X X X X X X X X Extracts X X X X
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