Section 14A, Rule 8D – While computing amount of
average investment as per rule 8D, strategic investment is not to be
taken into account.
Section 48 – Interest on borrowings
utilized for application of shares is allowable as deduction while
computing capital gains if the same has not been claimed as revenue
expenditure.
FACTS I
The assessee in its return
of income had offered a sum of Rs. 40,000 as disallowance in respect of
expenditure incurred for earning tax free income. In the course of
assessment proceedings, on being asked by the Assessing Officer (AO) to
furnish a computation, the assessee furnished working of disallowance as
per rule 8D. The AO did not reject the amount of disallowance offered
by the assessee. The AO while computing the amount of disallowance under
section 14A did not exclude investment of Rs. 46,86,46,983 in the group
concerns being strategic investments since the said concerns were
subsidiaries or group concerns of the assessee.
Aggrieved, the assessee preferred an appeal to the CIT(A) who confirmed the action of the AO.
Aggrieved, the assessee preferred an appeal to the Tribunal.
HELD I
The
Tribunal noted that while computing the disallowance under Rule 8D, the
AO has not excluded amount of strategic investment while computing
average investment as per Rule 8D. It observed that as per the ratio of
the decision of Delhi Bench of ITAT in the case of Interglobe
Enterprises Ltd. (ITA NO. 1362 & 1032/Del/2013, order dated
4.4.2014) and the decision of Mumbai Bench of the Tribunal in the case
of Garware Wall Ropes Ltd., strategic investment is not to be taken into
account. Following the ratio of these decisions, the Tribunal restored
the matter to the file of the AO and directed the AO to recompute the
disallowance under rule 8D after excluding strategic investment out of
average investment so made by the assessee.
The Tribunal allowed this ground of appeal filed by the assessee.
FACTS II
The
assessee applied for allotment of shares of Cairn India Ltd by
utilizing monies raised by way of borrowings from DSP Mutual Fund. It
paid interest of Rs. 2,57,97,463 on the borrowings utilized for the
purpose of allotment of shares of Cairn India Ltd. Upon allotment, the
shares were sold and short term capital gain was computed. While
computing the short term capital gain the assessee claimed interest as
part of cost of shares sold and therefore, reduced it from sale
consideration to arrive at capital gains. In the tax audit report, the
auditor had classified this expenditure as capital expenditure. This
expenditure was not claimed by the assessee either as business
expenditure or u/s. 57 but was added to the cost of shares allotted.
The
AO rejected the claim of the assessee by holding that the said
expenditure can be claimed only u/s. 57 but it is disallowable since
dividend income is exempt. He held that the said expenditure is not
allowable while computing short term capital gain.
Aggrieved, the assessee preferred an appeal to the CIT(A) who confirmed the action of the AO.
Aggrieved,
the assessee preferred an appeal to the Tribunal. Before the Tribunal,
the assessee relied upon the ratio of the following decisions –
a) DCIT vs. Finav Securities Pvt. Ltd. (ITA No. 1010/ Mum/2011; Bench `F’, Order dated 3rd April, 2013);
b) ITO vs. Global Assets Holding Corporation Ltd. (ITA No. 4738/Mum/2010; Bench `G’, order dated 27th July, 2011);
c) Pratibha Paliwal vs. ACIT 11 ITR (Trib) 586 (Del);
d) S. Balan alias Shanmugam vs. DCIT (2009) 120 ITD 469 (Pune);
e)
DCIT vs. KRA Holding & Trading (P.) Ltd. 54 SOT 493 (Pune) –
Portfolio management fees paid by the assessee was to be allowed as
deduction while computing capital gains arising from sale of shares;
f) CIT vs. Sri Hariram Hotels P. Ltd. (2010) 325 ITR 136 (Karn);
g) Smt. Neera Jain vs. ACIT (ITA No. 1861/Mum/2009; decided on 22.2.2010).
HELD II
The
Tribunal upon consideration of the facts and having deliberated on the
judicial pronouncements relied upon by the assessee found that the
assessee has not claimed interest as revenue expenditure but the same
has been capitalized. It held that in view of the judicial
pronouncements relied upon by the assessee, interest expenditure is to
be considered as cost of acquisition of shares / cost of improvement,
therefore, allowable while computing capital gain under section 48 of
the Act. The Tribunal directed the AO to allow assessee’s claim of
interest u/s. 48 of the Act.
The Tribunal allowed this ground of appeal filed by the assessee.
