Puran Associates Pvt. Ltd. Vs ACIT (ITAT Delhi)
The issue under consideration is whether the expense disallowed u/s 14A by A.O. is justified in law?
In the present case, the assessee is engaged in the business of sale and purchase of the shares in mutual funds. During the year, the assessee disclosed income of ₹ 3 crores and made disallowance of ₹ 10,82,334/-, under section 14A of the Act. The Assessing Officer, rejected the action of the assessee and disallowed ₹53,16,568/- u/s 14A claiming to be expense on account of the income on which no activity was done in the previous year. The assessee explained that, the investment in the shares of ‘Dabur India Ltd’ has been made as a promoter of the company and no expenditure was incurred for earning dividend income from the said investment. It is a a strategic investment.
ITAT relying on the Supreme Court judgement in the case of Maxopp Investment Ltd states that prior to the introduction of Section 14A of the Act, the law was that when an assessee had a composite and indivisible business which had elements of both taxable and non-taxable income, the entire expenditure in respect of said business was deductible and, in such a case, the principle of apportionment of the expenditure relating to the non-taxable income did not apply. According to the Court, the said reasoning would be applicable in cases where shares are held as an investment in the investee company, maybe for the purpose of having a controlling interest therein.
Hence, the contention of the assessee investment made for acquiring controlling interest in Dabur India Ltd should not be subject to disallowance under section 14A is rejected.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal by the assessee is directed against order dated 30/03/2017 passed by the Learned CIT(Appeals)-7, New Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2013-14 raising following grounds:
1. That both the Ld. CIT(A) and Ld. AO erred similarly in law and in facts that income from Capital Gains as declared by the assessee was taken as income from business as follows:
a. That the long-term capital gains on sale of fixed maturity plans of Rs.2,07,40,000/- where the assessee offered to tax at 20%, both the CIT(A) and AO failed to understand that the fixed maturity plans are not trading stock and hence cannot be taxed at 30%.
b. That both CIT(A) and AO failed to take into account the circulars No. 6 of 2015 dated 9 April 2015 on Capital Gains in respect of mutual fund under the fixed maturity plans;
c. That the Long Capital loss of Rs.55,64.762 should also been treated as capital loss entitled offset with the long-term income and that it cannot be treated as income from business.
2. That Both CIT(A) and AO has erred in notionally disallowing expenses u/s 14A read with Rule 8D of Rs.53,16,568 without appreciating that there is no further ground to disallow any further sum other than Rs.10,82,334 already disallowed by the assessee.
a. That the Ld. CIT(A) and AO failed to establish why the rule 8D should be invoked especially when the assessee himself has disallowed Rs.10,82,334 and which were the expenses that connection with tax free earnings.
3. That both the CIT(A) and AO erred in disallowing in ad-hoc and arbitrary manner business expenses of Rs.15,48,318 incurred for genuine business activities.
4. The Assessee prays to add, alter or modify any grounds of appeal which is necessary in the interest of justice.
2. Briefly stated facts of the case are that the assessee company is engaged in the business of sale and purchase of the shares in mutual funds. For the year under consideration, the assessee filed return of income on 29/09/2013, declaring total income of ₹13,15,55,690/-. The return of income filed by the assessee was selected for scrutiny assessment and notice under section 143(2) of the Income-tax Act, 1961 (in short ‘the Act’) was issued and complied with. In the scrutiny assessment completed under section 143(3) of the Act on 14/01/2016, the Assessing Officer made certain additions/disallowances and assessed the total income at ₹ 15,35,95,820/-. Aggrieved, the assessee filed appeal before the Ld. CIT(A), who dismissed the appeal of the assessee. Aggrieved with the finding of the Ld. CIT(A), the assessee is in appeal before the Tribunal raising the grounds as reproduced above.
3. The ground No.1 of the appeal relates to treating capital gain of ₹ 1,51,75,238/- as business income.
3.1 The facts qua the issue in dispute are that the assessee claimed long-term capital gain of ₹ 1,51,75,238/- having details as under:
