By Jagdish D. Shah
Jagdish T. Punjabi
Chartered Accountants
fiogf49gjkf0d
New Page 1Part B :
UNREPORTED DECISIONS
(Full texts of the following Tribunal decisions are available at
the Society’s office on written request. For members desiring that the Society
mails a copy to them, Rs.30 per decision will be charged for photocopying and
postage.)
16 Pawan Kumar Parmeshwarlal
v. ACIT
ITAT ‘C’ Bench, Mumbai
Before D. Manmohan (VP) and
B. Ramakotaiah (AM)
ITA No. 530/Mum./2009
A.Y. : 2005-06. Decided on :
11-1-2011
Counsel for assessee/revenue
: Assessee in person /P. N. Devdasan
(A)
S. 14A of the Income tax Act, 1961 —
Disallowance of expenditure to earn exempt income — Assessee maintaining
separate books of account for the purpose of business and the investments,
from which the exempt income was earned — No disallowance made on the ground
of personal expenditure while assessing business income — Held that no
disallowance can be made u/s.14A.
(B)
S. 36(2) of the Income-tax Act, 1961 — Bad
debts in the business of vyaj badla — Whether allowable — Held, Yes.
Per B. Ramakotaiah :
Facts :
The assessee was an
individual, the proprietor of M/s. Pawankumar Parmeshwarlal, dealing in shares
and securities. During the year under appeal, the assessee had claimed as exempt
the income earned by way of dividend Rs.3.19 lacs, interest on RBI bonds Rs.1.11
lacs and PPF interest of Rs.0.07 lac. According to the assessee, none of these
activities required any expenditure and as such no amount was disallowable
u/s.14A. However, the AO was of the view that assessee would have spent some
amount for earning the tax-free incomes and disallowed an amount of Rs.0.2 lac
u/s.14A.
The assessee had claimed the
sum of Rs.13.16 lacs as bad debts in the business of vyaj badla and the same was
disallowed by the AO.
On appeal before the CIT(A),
in respect of claim re : disallowance u/s.14A, the CIT(A) directed the AO to
compute deduction as per Rule 8D. In respect of the claim for bad debts, he
relied on the decision in the case of Arshad J. Choksi v. ACIT, (51 ITD 511),
and held that the conditions u/s.36(2) were not satisfied in the badla
transactions.
Held :
(A) In respect of
disallowance u/s.14A :
The Tribunal noted that the
assessee was maintaining separate books of account for the purpose of business
and the investments, from which the exempt income was earned, were made in his
personal capacity. Further, while assessing the business income, no part of
expenditure claimed by the assessee was treated or disallowed by the AO on the
ground of being of personal in nature. In view of this, it held that the
expenditure claimed in the business of share dealings cannot be correlated to
the incomes earned in personal capacity. Further, it noted that the Bombay High
Court in the case of Godrej & Boyce Mfg. Co. Ltd. v. DCIT, (328 ITR 81) has
considered Rule 8D to be applicable prospective and since the assessment year
involved was before the introduction of Ss.(2) and Ss.(3) of S. 14A, it held
that there was no question of disallowing the amounts invoking Rule 8D.
(B) In respect of bad debts
:
According to the Tribunal,
the lower authorities were not correct in disallowing the claim of bad debts. It
noted that the assessee, being a stock-broker, had advanced money as part of his
business activity. Therefore, relying on the decision of the Special Bench
Mumbai Tribunal in the case of DCIT v. Shreyas S. Morakhia, (5 ITR TRIB.1), it
held that the amounts advanced by the assessee in the course of business
activity were to be treated as an allowable amount u/s.36(2).
