TMI Blog2022 (1) TMI 226X X X X Extracts X X X X X X X X Extracts X X X X ..... e as there were certain expenses in the nature of rent or its remuneration etc which was assessee was required to incur whether it had earned any income from dividend or not. Before us, no fallacy has been pointed out by the Learned DR in the aforesaid findings of CIT(A). In such a situation, we find no reason to interfere with the order of CIT(A) and thus the ground of Revenue is dismissed. Correct head of income - sale consideration received by the assessee from redemption of preference shares including the premium- capital income or income from other sources - CIT-A deleted the addition - HELD THAT:- CIT(A) has given a finding that the investment in redemption of preference shares was clearly based on the condition that the assessee was entitled to receive redemption fair market value of shares apart from premium amount and therefore the receipt of premium was part of full value of consideration received on redemption of shares. Before us, no fallacy in the findings of CIT(A) has been pointed by the Revenue. We further find that Hon ble Apex Court in the case of Anarkali Sarabhai [ 1997 (1) TMI 5 - SUPREME COURT] after considering and distinguishing the decision of Vania S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces. 3. The appellant craves leave for reserving the right to amend, modify alter add or forego any ground(s) of appeal at any time before or during the hering of this appeal. 4. Ground No.1 is with respect to disallowance u/s 14A of the Act. 5. During the course of assessment proceedings, AO noticed that assessee had received exempt dividend income of ₹ 11,97,18,527/- but had not disallowed any expenditure u/s 14A of the Act though the disallowance u/s 14A r.w.r 8D of the Act was worked out at ₹ 1,26,05,150/- in the Tax Audit Report. Assessee was asked to show-cause as to why no disallowance be made u/s 14A of the Act to which assessee inter alia submitted that no disallowance was attracted as the entire investment was made out of internal accruals and no expenses have been incurred to earn income from such investments. The submissions of the assessee was not found acceptable to AO, as AO was of the view that the earning of exempt income was not in the nature of a passive activity have not been inbuilt but there were incidental expenditure which are embedded in indirect expenses to earn the income. Thereafter, he by following the methodology prescribed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore he held such expenses could not be attributed towards earning of dividend income. He therefore held that AO should have restricted the disallowance to the extent of personnel expenses (₹ 17.50 lakhs), legal expenses (9.43 lakhs) and communication expenses (₹ 24.93 lakh) only towards earning of taxed income to taxable income. He also noted that if the provision of Rule 8D were to be applied the results would turn out to be impractical. He therefore held that disallowance be restricted only to the extent of proportionate personnel, communication and legal professional expenses in the ratio of total exempt income to total receipts. Aggrieved by the order of CIT(A), Revenue is now before us. 7. Before us, Learned DR took us through the order of AO and supported his order. She further submitted that there was no evidence placed by the assessee to demonstrate that the income earned from Mutual Funds was not exempt and that there was nothing in law to exclude the Mutual Funds while computing the disallowance. 8. Learned AR on the other hand reiterated submissions made before the lower authorities and further submitted that as per formula prescribed under Rule 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment in Mutual Fund growth option for the reason that it does not result in generation of tax exempt dividend income but results into taxable capital gain on its redemption. No fallacy in the aforesaid findings of CIT(A) has been pointed out by Revenue. We find that Hon ble Delhi High Court in the case of Joint Investments Pvt. Ltd. (supra) has held that Section 14A r.w. Rule 8D of the IT Rules 1962 cannot be interpreted so as to mean that the entire tax exempt income is to be disallowed. It is further held that the window for disallowance is indicated in Section 14A, and was only to the extent of disallowing expenditure incurred by the assessee in relation to the tax exempt income . The portion of the tax exempt income cannot swallow the entire amount considering the facts of the present case in line with the aforesaid decision of Hon ble Delhi High Court. We are of the view that no interference with the order of CIT(A) is called on this aspect. As far as the disallowance of indirect expenses is concerned, we find that CIT(A) after considering the details of the expense has come to a finding that the entire operating expenses of ₹ 87,51,000/- shown by the assessee cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares apart from premium amount and therefore the receipt of premium was part of full value of consideration received on redemption of shares and it could not be treated as independent of redemption. He thereafter held the action AO in considering the redemption premium to be taxable income from other sources to be without any basis. He thus decided the issue in favour of the assessee. Aggrieved by the order of CIT(A), Revenue is now in appeal before us. 13. Before us, Learned DR took us to the findings of AO and CIT(A) and supported the observations of AO. 14. Learned AR on the other hand reiterated the submissions made before the lower authorities and further submitted that in terms of the investment terms and conditions, the preference shares were to be redeemed at a premium of ₹ 295/- per share payable at the time of redemption and thus premium payable on redemption was inextricably linked with the redemption of preference shares. He submitted that the total sale consideration received by the assessee from redemption of preference shares including the premium was therefore rightly considered as capital gains in its return of income. He submitted that the case of V ..... X X X X Extracts X X X X X X X X Extracts X X X X
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