IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH `G', NEW DELHI
Before Sh. G. C. Gupta, Hon'ble Vice President
And
Sh. O.P.Kant, Accountant Member
ITA No.196/Del./2009
Asstt. Year : 2005-06
Asstt. Commissioner Vs Shri Anil Dutt,
of Income Tax, Circle, C/o. M/s. Vogue Fabrics,
Panipat Opposite BBMB, Sewah,
G.T. Road, Panipat.
(APPELLANT) (RESPONDENT)
PAN No.
ITA No.197/Del./2009
Asstt. Year : 2005-06
Asstt. Commissioner Vs Shri Sunil Dutt,
of Income Tax, Circle, C/o. M/s. Vogue Fabrics,
Panipat Opposite BBMB, Sewah,
G.T. Road, Panipat.
(APPELLANT) (RESPONDENT)
PAN No.
ITA No.216/Del./2009
Asstt. Year : 2005-06
Shri Sunil Dutt, Vs Asstt. Commissioner of
C/o. M/s. Vogue Income Tax, Circle, Panipat
Fabrics, Opposite
BBMB, Sewah, G.T.
Road, Panipat.
(APPELLANT) (RESPONDENT)
PAN No.
Appellant by : Sh. Sujit Kumar, Sr. DR
Respondent by : Sh. Sandeep Supra, Adv
2 ITA No.196&197/Del/2009
Date of Hearing : 29.09.2015 Date of Pronouncement :08.10.2015
ORDER
PER O.P. Kant, AM
Out of these appeals, first appeal is of the Revenue, which is
directed against order dated 04.11.2008 of the learned Commissioner of
Income-tax (Appeals), Karnal. Second and third appeals are cross appeals
of the Revenue and the assessee, which are directed against another order
dated 04.11.2008 of the learned Commissioner of Income-tax (Appeals),
Karnal. Both impugned orders dated 04.11.2008 are in respect of
Assessment Year 2005-06. Facts and circumstances of both the
cases in appeal are similar. The grounds raised by the Revenue
in first and second appeals are also identical except amount
involved. In view of above, these appeals are decided by a
consolidated order for the sake of c onvenience.
2. The Revenue in ITA No. 196/Del/2009 has raised following
grounds:-
"1. On the facts and in the circumstances of the case, the
Commissioner of Income tax (Appeals) has erred in law in allowing
loss claimed as business loss on the sale of securities to the extent of
Rs.31,10,110/-.
2. On the facts and in the circumstances of the case, the
Commissioner of Income tax (Appeals) has erred in law in reducing
the disallowance of expenses from Rs.l,33,682/- to Rs.25,000/- in
view of the provisions of section 14A the Income tax Act, 1961."
3. The Revenue in ITA No. 197/Del/2009 has raised following
grounds:
3 ITA No.196&197/Del/2009
"1. On the facts and in the circumstances of the case, the
Commissioner of Income tax (Appeals) has erred in law in allowing
loss claimed as business loss on the sale of securities to the extent of
Rs.1,22,34,535/-.
2. On the facts and in the circumstances of the case, the
Commissioner of Income tax (Appeals) has erred in law in reducing
the disallowance of expenses from Rs.l,33,682/- to Rs.50,000/- in
view of the provisions of section 14A the Income tax Act, 1961."
4. The assessee in ITA No. 216/Del/2009 has raised following
grounds:-
"l. That the Assessing Officer has erred in law & facts in
disallowing business expenditure to the extent of Rs.3,99,492/- by
wrongly linking it with Tax free interest income of the assessee and
the Ld C.I.T (Appeals) has un-judiciously confirmed the same
to the extent of Rs.50,000/-.
2. That the Assessing officer has arbitrarily & without any basis
disallowed interest expenses of Rs.4,02,772/- and the Ld C.I.T
(Appeals) has failed to properly consider and adjudicate the same.
3. That the Assessing officer without properly appreciating the
factual position has arbitrarily increased the interest income of the
assessee by Rs.9,15,192/- and the Ld C.I.T (Appeals) has erred in
confirming the same."
5. Now, first we take up the Revenues appeal in ITA
No.196/Del/2009.
6. The facts in brief as culled out from the orders of the lower
authorities are that the assessee was engaged in sale and
purchase of securities including Government securities. In the
return of income filed for the previous year relevant to the
assessment year, the assessee has shown taxable income of
Rs.36,89,164/- along with exempted income of Rs.31,30,110/ -
from the dividend and Rs.38,38,304/ - from interest on tax free
4 ITA No.196&197/Del/2009
bonds. The case of the assessee was selected for scrutiny. In the
course of the scrutiny proceedings, the learned Assessing
Officer noticed that the assessee had sold units of SBI Mutual
Fund for Rs.79,10,623/- on 29.03.2005, which were purchased
for Rs.1,10,00,000/- on 27.12.2004 , resulting into a loss of
Rs.30,89,377/-. The assessee also earned a dividend income of
Rs.31,10,110/- on these units, which was claimed exempt
income u/s 10 of the Income Tax Act, 1961 (in short ,,the Act).
The learned Assessing Officer (in short ,, AO ) passed
assessment order u/s 143(3) of the Act on 31.12.2007. In view
of the provisions of section 94(7) of t he Act in his order, the
learned Assessing Officer disallowed loss to the extent of
dividend income of Rs.31,10,110/- out of loss from purchase
and sale of securities/ mutual fund and allowed the balance loss.
The ld.AO also made disallowance of Rs.1,33,682/ - in terms of
section 14A of the Act for expenditure incurred towards earning
tax-free income.
7. Aggrieved, the assessee filed an appeal before the learned
Commissioner of Income- tax (Appeals) [in short ,, CIT(A) ], who
allowed the loss of Rs.31,10,110/- and reduced the disallowance
u/s 14A of the Act from Rs.1,33,682/ - to Rs.25,000/-.
Aggrieved, with the above findings of the ld.CIT(A), the
Revenue has preferred this appeal before us.
8. The learned Senior Departmental Representative ( in short
,,Sr. DR) relying on the order of the ld.AO, narrated the facts
5 ITA No.196&197/Del/2009
of purchase and sale of mutual fund and submitted that the
intention of the assessee was to stay in said mutual fund for a
short period only. He further stated that activity of purchase and
sale of shares being already held as business activity, the loss
should not be allowed. On the other hand , the learned
A uthorised Representative (in short ,,AR) submitted that there
was no dispute as regards to activity of purchase and sale of
securities carried out by the assessee held as trading activity,
but he contended that loss has been disallowed invoking section
94(7) of the Act by the ld. AO, which is not applicable in the
case of the assessee, being purchase of mutual funds under
reference beyond three months from the record date of dividend,
and therefore the ld.CIT(A) has rightly allowed the loss as per
finding given at page 6 of his order . The ld.AR also relied on
the judicial pronouncement reported in 325 ITR 550 (Bombay),
310 ITR 421 (Bombay) and 325 ITR 535 (Del). .
9. We have heard the rival submissions and perused the
material on record including the orders of the lower authorities.
The issue which arises for our consideration in ground No.1 of
the Revenue, is whether the provisions of section 94(7) are
applicable in respect of loss claimed by the assessee . For the
sake of clarity, the provisions of section 94(7) of the Act are
reproduced as under:-
" Where --
(a) any person buys or acquires any securities or unit
within a period of three months prior to the record date;
6 ITA No.196&197/Del/2009
(b) such person sells or transfers --
(i) such securities within a period of three months after
such date; or
(ii) such unit within a period of nine months after such
date;
(c) the dividend or income on such securities or unit
received or receivable by such person is exempt,
then, the loss, if any, arising to him on account of such
purchase and sale of securities or unit, to the extent such
loss does not exceed the amount of dividend or income
received or receivable on such securities or unit, shall be
ignored for the purposes of computing his income
chargeable to tax. "
10. Perusal of above provisions makes it clear that for falling
any loss from purchase and sale of securities in the ambit of
section 94(7) of the Act, all the three conditions (a), (b) and (c)
must be fulfilled simultaneously. If any of the conditions is not
fulfilled, the loss will not be h it by the section.
11. Now, let us examine whether the assessee falls in net of all
the three conditions of the section 94(7) of the Act. In the
instant case, the assessee has purchased units of SBI Mutual
Fund on 27.12.2004 and the same were sold on 29.03.2 005. The
record date of dividend in the case of SBI Mutual fund for the
relevant year was 28.03.2005. Based on these dates, the ld. AR
submitted a chart of calculation of no. of days of purchase of
securities from the record date of dividend, according to which,
the purchase of securities is 91 days before the record date of
dividend. The Sr DR has also not disputed this calculation. In
background of these facts, it is evident that units have been
7 ITA No.196&197/Del/2009
purchased 91 days before the record date of dividend. As the
units have been acquired by the assessee beyond a period the
three months from the record date, the condition (a) of section
94(7) of the Act is not fulfilled. For disallowance of loss u/s
94(7) of the Act, all the three conditions have to be fulfilled
simultaneously. As all the three conditions of section 94(7) are
not fulfilled, we hold that loss of sale of securities to the extent
of dividend income of Rs.31,10,110/- cannot be disallowed or
ignored invoking provisions of section 94(7) of the Act in the
case of the assessee. Same view has also been upheld in the case
of CIT Vs. Alka Bhosle by the Honble Bombay High Court,
reported in 325 ITR 550. In other two cases relied upon by the
ld.AR also similar view has been expressed. In view the above ,
we are of opinion that there is no error in the finding s of the
CIT(A) on this issue. Accordingly, this ground of the Revenue
is dismissed.
12. In ground No.2, the Revenue has challenged the action of
the CIT(A) in reducing disallowance of expenses u/s 14A of the
Act from Rs.1,33,682/- to Rs.25,000/-. The facts in this regard
are that the assessee, alongwith taxable income of
Rs.36,89,164/- shown interest income of Rs.38,38,034/- on tax
free bond, which was claimed as exempted. The assessee also
claimed total expenditure of Rs.3,62,134/ - in profit and loss
account. The ld.AO disallowed expenditure of Rs.1,33,682/- in
terms of section 14A of the Act, out of the total expenses of
8 ITA No.196&197/Del/2009
Rs.3,62,134/- claimed by the assessee in profit and loss account,
in proportion of interest income from tax free bond to the total
income. Before the CIT(A) the assessee submitted that no
expenses were incurred in respect of earning tax free interest
income except expenses on receiving of cheques of tax free
income on half yearly or annual basis and deposit of the same
into the bank and also placed reliance on the cases of Jubilant
Enpro Ltd. Vs. CIT (2007) 12 SOT 194 (Delhi) and CIT Vs.
Eicher Ltd. (2007) 160 Taxmann 80 (Mad). After considering
submissions of the assessee, the CIT(A) reduced the
disallowance from Rs. 1,33,682/- to Rs.25,000/-.
13. At the time of hearing before us, the Sr. DR relied on the
order of the ld.AO, whereas, the ld. AR placed his reliance on
the order of the ld. CIT(A) and submitted that the assessment
year being prior to AY 2008-09, the Rule 8D of the Income-tax
Rules was not applicable in the case of the assessee. He further
submitted that the learned CIT(A) has al ready confirmed a
reasonable amount of expenses.
14. After considering the rival submissions , we are of the
opinion that the disallowance upheld by the ld . CIT(A) is
justified in view of the nominal expenses incurred by the
assessee towards earning of interest from tax free bond and
other exempted income. Therefore, no interference is required
in the findings of the CIT(A) on this issue. The ground of the
Revenue is accordingly dismissed.
9 ITA No.196&197/Del/2009
15. In the result, the appeal of the Revenue is dismissed.
16. Now, we take up the appeal of the Revenue in ITA
No.197/Del/2003.
17. The grounds No. 1 and 2 of appeal raised by the Revenue
are identical to the grounds of appeal raised by the Revenue in
ITA No.196/Del/2003. The facts of the case in hand are also
similar to the case in ITA No.196/Del/2003 Therefore,
following the findings given in appeal in ITA No.196/Del/2003,
both the grounds of the Revenue are dismissed.
18. Now, we take up the appeal of the assessee in ITA
No.216/Del/2003..
19. Ground No.1 of the appeal of the assessee is covered by
findings given in ground No.2 of the R evenues appeal in ITA
No.197/Del/2003. Since ground No. 2 of the Revenues appeal
has already been dismissed, therefore, ground No. 1 of the
assessee s appeal is hereby allowed.
20. The ld. AR did not press the Ground No.2 of the appeal, so
it is not required any adjudication, and therefore, this ground of
the appeal is dismissed.
21. In respect of ground No.3 of the assessee , the facts in brief
as culled out from the orders of lower authorities are that in the
return of income filed, the assessee claimed tax deducted at
source ( TDS) of Rs.10,64,364/- on interest income and
offered interest income of Rs.88,30,929/-. The ld.AO was of the
view that corresponding to the claim of the TDS of
10 ITA No.196&197/Del/2009
Rs.10,16,364/- at the prescribed rate of TDS , the assessees
income from interest should have been at Rs.97,46,121/- and
therefore he added balance interest of Rs.9 ,15,192/-. The claim
of the assessee that the TDS certificate issued by " Neelachal
Ispat Nigam Limited " , Bhubaneswar has been given in excess
by Rs.8,45,753/- was not accepted by the ld. AO. The ld.
CIT(A) confirmed the action of the ld.AO by holding that the
assessee has claimed excess TDS credit therefore, interest to the
extent of TDS claimed was taxable in the hands of the assessee.
22. At the time of hearing before us, t he ld. AR submitted that
matter may be restored back to the file of the ld. AO for
verification of TDS certificate issued by the ,, Neelachal Ispat
Nigam Limited . On the other hand, the Sr. DR supported the
order of the lower authorities.
23. We have heard the rival submission and perused the
material on record and we are of the view that it is a matter of
verification of the TDS certificate and if TDS has been deducted
in excess by a particular deductor and the same has been
deposited in the Government Account, the assessee cannot be
faulted for that. In view of the above, we remit this matter back
to the file of ld.AO and direct him to verify the facts of tax
deducted and interest recorded in the TDS certificate. The ld.
AO may also verify the TDS and corresponding interest income
from the records of the Income -tax Department. If he finds that
the submission of the assessee is correct, the assessee may be
11 ITA No.196&197/Del/2009
allowed relief accordingly. Accordingly, this ground of the
assessee is allowed for statistical purposes.
24. In the result the appeal of the assessee partly allowed for
statistical purposes.
Order Pronounced in the Court on 08/10/2015.
-Sd/- -Sd/-
(G.C. Gupta) (O.P.Kant)
VICE PRESIDENT ACCOUNTANT MEMBER
Dated:08/10/2015
*Ajay*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5.DR: ITAT
ASSISTANT REGISTRAR
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