IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH "J", MUMBAI
BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND
SHRI SANJAY GARG, JUDICIAL MEMBER
Assessment Year: 2007-08
Asstt. Commissioner of Shri Gajendrakumar T.
Income-tax 11(2), Agrawal,
Room No.479, 4th Floor, 325, 3rd Floor,
Aayakar Bhavan, Madhu Mansion,
M.K. Road, Kalbadevi Rd.,
Mumbai - 400020 Mumbai 400 002.
PAN: AABPA 7286R
Assessee by : Shri S.L. Jain, A.R.
Revenue by : Shri Mohammed Rizwan, JCIT-DR
Date of Hearing : 21.08.2014
Date of Pronouncement : 31.10.2014
Per Sanjay Garg, Judicial Member:
The present appeal has been filed by the Revenue against the order dated
14.12.2010 of the Commissioner of Income Tax (Appeals) [(hereinafter
referred to as CIT(A)] relevant to assessment year 2007-08.
The sole issue taken in this appeal is regarding the disallowance of
interest expenses under section 14A of the Income Tax Act.
2. The brief facts are that the assessee had declared dividend income of
Rs.20,65,969/-. The Assessing Officer (hereinafter referred to as the AO)
observed that assessee had claimed interest expenditure of Rs.42,64,854/- in
respect of investments made in purchase of shares and also for transactions
carried out in derivatives. Assessee was asked to furnish computation of
2 ITA No.1985/M/2011
Shri Gajendrakumar T. Agrawal
disallowance u/s.14A as per Rule 8D. Assessee remained silent on the issue
and also not denied that provisions of section 14A would apply. AO,
therefore, computed disallowance u/s.14A as per Rule 8D on interest and
expenses which worked out to Rs.14,36,032/-.
3. In appeal before the ld. CIT(A), the assessee submitted that the assessee
had not incurred any interest expenditure in relation to investments made.
From the profit and loss account it was shown that the assessee had paid
interest by way of bank interest of Rs.6,76,050/- and further to Kotak
Mahindra Investment Ltd. of Rs.35,88,804/-. The assessee had also received
income of Rs.5,79,419/- during the year. The interest paid to Kotak Mahindra
Investment Ltd. was related to assessee's transactions in derivatives and not to
the investment in questions from which the dividend income was received.
The submissions of the assessee has have been reproduced by the ld. CIT(A) in
his order are for the sake of convenience are extracted as under:
"Appellant has inter alia submitted that he was holding investment of
Rs.20363151/- as on 31-3-06. Out of such investments, investments were
sold for Rs.13686045/- in the months of May, August and December 06 as
well as in the months of January & March 07. Cost of shares sold out of
opening stock is Rs.39757291- (page 9-11). Appellant purchased fresh shares
in the months of April and May 06 of Rs.4628555/- (page 12). No other
investment has been made in the current year. It is submitted that
investment in shares of Viceroy Hotels on 25-4-06 of Rs.2383540/- has been
made out of amount received of Rs.18.00 lakhs and Rs.11,20,0001on 3-5-06
from G. T. Agarwal HUF to whom the loan was advanced by the appellant
(page 13). Shares of Rs.7,10,000/- were purchased on 4-5-2005 for which the
payment has been made on 15-5-06 out of the amount received from share
broker on 11-5-06. On 9-5-06 payment has been made of Rs.7,35,883/- for
acquisition of Viceroy Hotel out of amount of Rs.16.00 lakhs received from
share broker (page 14). Copies of statement of HOFC Bank as well as Bank of
India are enclosed herewith. Appellant has acquired shares of Rs.7,50, 000/-
of Anemos Lifestyles Pvt. Ltd. on 28-11-06. There was a loan advanced to the
said company as on 1-4-06 of Rs.10.00 lakhs. A copy of account is enclosed
herewith (page 15). Other shares of Rs.50,000/- has been acquired in the
company G.T. Stock Vision Pvt. Ltd. which are also acquired out of appellant's
3 ITA No.1985/M/2011
Shri Gajendrakumar T. Agrawal
own funds. The overdraft account in the Bank Statement of HDFC Bank is on
account of the share dealing and not due to utilization of investments in
shares. Thus, all shares have been acquired out of appellant's own funds.
A reference to the P& L Account as on 31-3-06 will show that total
interest claimed was of Rs.496385/- and interest received was Rs.1745960-.
Thus, no interest was paid on shares invested till 31-3-06. In the current year
fresh purchase of shares is of Rs.4628555/- as against sale realized of
Rs.13716670/-. The interest paid of Rs.35,88,804/- is directly related to
derivative transactions of the appellant. Interest paid to the Bank is
Rs.6,76,050/-and interest received by the assessee is of Rs.579419/-, leaving
the net debit at Rs.96631-. It clearly shows that no borrowed funds has been
utilized in purchase of shares by the appellant and hence no part of the
interest is disallowable.
With reference to disallowance out of the expenses of Rs.103448/-, we
draw your kind attention towards P&L Account, as placed at page 2. A
reference to the same will show that total expenses claimed, other than
interest, are of Rs.137173/-. The main activity of the appellant has been
derivative trading. In view of the total expenses incurred of Rs.137173/-,
there is no justification for disallowing expense of Rs.103448/-, which is on
the higher side. Your honour will appreciate that for earning of the dividend,
no expense is required to be incurred."
4. The ld. CIT(A), after going through the submissions of the assessee and
the evidence on record, held that the assessee had successfully explained that
the investments in question were made by the assessee from his own funds and
sale proceeds and that interest bearing funds were not used in purchasing the
shares. He therefore held that disallowance of interest was not attracted in this
5. Since the ld. CIT(A) has given a categorical finding that no borrowed
funds were used for the purpose of investment, hence under such
circumstances he rightly held that the disallowance of interest expenditure
under section 14A in relation to dividend income was not warranted in this
4 ITA No.1985/M/2011
Shri Gajendrakumar T. Agrawal
The ld. D.R. could not point out from the facts on the file that the
assessee had used interest bearing funds in this case for the purpose of earning
of dividend income.
5.1 We do not find any infirmity in the order of the ld. CIT(A) in this regard
and the same is accordingly upheld.
6. In the result, the appeal of the Revenue is therefore dismissed.
Order pronounced in the open court on 31.10.2014.
(R.C. Sharma) (Sanjay Garg)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 31.10.2014.
* Kishore, Sr. P.S.
Copy to: The Appellant
The CIT, Concerned, Mumbai
The CIT (A) Concerned, Mumbai
The DR Concerned Bench
//True Copy// [
Dy/Asstt. Registrar, ITAT, Mumbai.