Yatish Trading Co.P ltd. Vs ACIT (ITAT Mumbai), ITA No. 456 /Mum/2009, (Assessment Year: 2004 -05)
Summary of Findings:-
In the case of a trader where shares are held as stock-in-trade no part of interest on borrowed funds can be disallowed u/s 14A as incurred in relation to Dividend income. The interest on borrowed funds used for trading activity is an allowable expenditure under section 36(1)(iii) and the same cannot be treated as the expenditure for earning the dividend income which is incidental to the trading activity.
If the real purpose was to use borrowed funds for trading purposes and incidentally there is tax-free dividend, it cannot be said that the interest has been incurred for earning the dividend income.
When it is possible to determine the actual expenditure “in relation to” the exempt income or where no expenditure is incurred “in relation to” the exempt income, the principle of apportionment embedded in Section 14A has no application;
In case of transaction of purchase and sale of shares, the reasonable basis for apportionment of administrative expenditure should be the volume and nature of the transaction under different activities.
In order to disallow expenditure u/s 14A, there must be a live nexus between the expenditure incurred and the tax-free income. Disallowance cannot be made on presumptions and estimation by the AO.
O R D E R
PER VIJAY PAL RAO,JM
1. This appeal by the assessee is directed against the order dated 23.1.2007 of the learned CIT(A)-XXI for the assessment year 2004-05.
2. The assessee has raised various grounds in this appeal, however, the only issue arises for our consideration and adjudication is whether the learned CIT(A) is justified in directing the AO to re-compute the dis allowance u/s 14A by applying the provisions of Rule 8D of Income Tax Rules, 1962.
3. There is a delay of 67 days in filing the appeal. The assessee has filed a petition for condonation of delay in the shape of affidavit .
4. We have heard both the parties and considered the relevant record. The assessee has explained the reasons for not filing the appeal within the time period of limitation that one of the directors Mr. Nakul Jagjivan who is key managerial person. Being NRI, his presence in the country is occasional based on work priorities. Before filing the appeal, the impugned order of the CIT(A) was to be examined, analyzed and required to be discussed with the said Director Mr. Nakul Jaggin who is staying abroad. Thus, the delay has been occurred due to the reason of non availability of one of the directors which is a bonafide, non intentional or not deliberate. It has been prayed that the delay of 67 days in filing the appeal may be condoned.
5. On the other hand, the learned DR has vehemently opposed the condonation of delay.
6. After considering the relevant record, facts and circumstance of the case as well as the reasons explained by the assessee, we find that the assessee has explained the sufficient reasons for non-filing of the appeal within time.
7. It is settled law that while condoning the delay, the court should take a lenient view. It is always a question whether the explanation and reasons for delay was bonafide or was merely devise to cover an ulterior purpose such as laches on the part of the litigant or an attempt to save limitation in an underhand way. When it is found on record that the party has not acted in malafide but the reasons explained are factually correct then Court should be liberal in construing the sufficient cause and should lean in favour of such party. Whenever substantial justice and technical consideration are opposed to each other, cause of substantial justice has to be preferred. Justice oriented approach has to be taken by a court while deciding the matter for con donation of delay. However, this does not mean that a litigant gets free license to approach the court at it’s will. In view of this legal and factual position, we condone the delay of 67 days in filing the appeal before the Tribunal and take up the matter for adjudication on merits.
Dis allowance u/s 14A of the IT Act.
8. The brief facts of the case are that the assessee company is engaged in the business of trading in shares and securities as well as in private projects and investment in shares and securities. During the previous year relevant to the assessment year under consideration the assessee earned dividend income of Rs. 2,98,92,569/- ;and claimed exemption under section 10(33) of the IT Act. During the relevant period the total income credited by the assessee to the profit and loss account amounting to Rs..39,03,43,325/- which includes dividend income of Rs.2,98,92,569/-. The assessee also debited an amount of Rs.10,68,26,946/- to the profit and loss account which includes administrative and other expenses of Rs.1,53,19,834/- and financial expenses of RS.`.6,36,05,264. The details of financial expenses are as under :
