Yesha Electricals Pvt. Ltd., Baroda V. The ACIT, Circle-4, Baroda

ITA 133/AHD/2014

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 3694 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-10-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 12-05-2020
• Assessment Year: 2010-2011
• Appeal Filed On: 13-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Rule 8D
• Section: 143(3); 14A; 43; 13

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD (THROUGH VIRTUAL COURT) BEFORESHRI MAHAVIR PRASAD, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER SL. NO(S) ITA NO(S) ASSET. YEAR(S) APPEAL(S) BY APPELLANT VS. RESPONDENT APPELLANT RESPONDENT 1. 2280/AHD/2013 2009-10 YESHA ELECTRICALS PVT. LTD., C-2/18, INDUSTRIAL ESTATE, GORWA, BARODA-390016 PAN NO. AAACY0661L ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE-4, BARODA 2. 133/AHD/2014 2010-11 YESHA ELECTRICALS PVT. LTD. C-2/18, INDUSTRIAL ESTATE, GORWA, BARODA-390016 PAN NO. AAACY0661L ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-4, BARODA 3. 271/AHD/2015 2011-12 YESHA ELECTRICALS PVT. LTD. C-2/18, INDUSTRIAL ESTATE, GORWA, BARODA-390016 PAN NO. AAACY0661L ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE-4, BARODA 4. 627/AHD/2016 2012-13 YESHA ELECTRICALS PVT. LTD. C-2/18, INDUSTRIAL ESTATE, GORWA, BARODA-390016 PAN NO. AAACY0661L DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2(1)(2), BARODA 5. 455/AHD/2017 2013-14 YESHA ELECTRICALS PVT. LTD. C-2/18, INDUSTRIAL ESTATE, GORWA, BARODA-390016 PAN NO. AAACY0661L DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2(1)(2), BARODA ASSESSEE BY : SHRI MANISH J. SHAH, AR REVENUE BY : SHRI DILEEP KUMAR, SR. DR / DATE OF HEARING : 25.09.2020 / DATE OF PRONOUNCEMENT : 26.10.2020 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: IN THIS BUNCH OF APPEALS ALL APPEALS HAVE BEEN FILE D BY THE ASSESSEE FOR A.YS. 2009-10 TO 2013-14 WHICH ARE ARISING FROM THE SEPARATE ORDERS OF THE CIT(A)-III BARODA, CIT(A)-2, VADODARA, CIT(A)-I, BAROD A, DATED 24.06.2013, 2 ITA NOS. 2280/AHD/2013 & 4 OTHERS AY: 2009-10 TO 2013-14 13.11.2013, 11.11.2014, 05.01.2016, 20.12.2016 IN T HE ASSESSMENT PROCEEDINGS UNDER SECTION143(3)OF THE INCOME TAX ACT, 1961 (IN S HORT THE ACT). FIRST, WE TAKE THE ITA NO. 2280/AHD/2013 FOR THE AY 2009-10 2. THE FIRST INTERCONNECTED ISSUE RAISED BY THE ASSE SSEE IS THAT THE LEARNED CIT-A ERRED IN CONFIRMING THE ORDER OF THE AO BY SU STAINING THE DISALLOWANCE OF RS.13,26,591/- UNDER THE PROVISIONS OF SECTION 14A READ WITH RULE 8D OF INCOME TAX RULE. 3. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IN THE P RESENT CASE IS A PRIVATE LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF MANU FACTURING OF ELECTRICAL ENGINEERING PRODUCTS. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAS SHOWN DIVIDEND INCOME OF RS.55,54,823/- AND SHARE OF PROF IT FROM THE FIRM RS.1,13,080/- WHICH WAS CLAIMED AS EXEMPTED INCOME. THE ASSESSEE AGAINST SUCH EXEMPTED INCOME HAS MADE SUO-MOTO DISALLOWANCE OF T HE EXPENSES AS DETAILED UNDER: I. DIRECT EXPENSES PAID AS PORTFOLIO MANAGEMENT FEES 3,68,510/- II. ADMINISTRATIVE EXPENSES .5% OF THE EXEMPTED INCOME 38,696/- (DIVIDEND INCOME+ SHARE OF PROFIT+ LONG-TERM CAPITA L GAIN) THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS CONTE NDED THAT IT HAD SURPLUS FUNDS AVAILABLE WITH IT, NOT REQUIRED FOR I MMEDIATE BUSINESS PURPOSES, WHICH WAS UTILIZED IN THE INVESTMENTS. ACCORDINGLY, THE ASSESSEE CONTENDED THAT IT HAS NOT INCURRED ANY EXPENDITURE IN THE EARNING OF SUCH EXEMPTED INCOME. 4. THE ASSESSEE ALSO SUBMITTED THAT THE ONUS LIES UP ON THE AO TO PROVE THAT THE ASSESSEE HAS INCURRED EXPENSES AGAINST THE EXEM PTED INCOME AFTER RECORDING THE DISSATISFACTION ABOUT THE CORRECTNESS OF THE CL AIM OF THE ASSESSEE. 3 ITA NOS. 2280/AHD/2013 & 4 OTHERS AY: 2009-10 TO 2013-14 4.1 HOWEVER, THE AO WAS NOT SATISFIED WITH THE METH OD ADOPTED BY THE ASSESSEE FOR WORKING OUT THE DISALLOWANCE UNDER SEC TION 14A OF THE ACT I.E. 0.5% OF THE EXEMPTED INCOME. AS PER THE AO, THERE IS NO BASIS FOR MAKING SUCH AD-HOC DISALLOWANCE I.E. 0.5% OF THE EXEMPTED INCOME, MORE PARTICULARLY IN A SITUATION WHERE THE ASSESSEE HAS ADMITTED FOR THE DISALLOWANC E BUT WITHOUT RESORTING TO THE METHOD PROVIDED UNDER RULE 8D OF INCOME TAX RULE. 5. THE AO WAS ALSO OF THE VIEW THAT HE IS NOT UNDER THE OBLIGATION TO PROVE THE NEXUS BETWEEN EXPENDITURE INCURRED VIZ A VIZ EX EMPTED INCOME BUT TO MAKE THE DISALLOWANCE AS PER THE PROVISIONS OF RULE 8D O F INCOME TAX RULES. ACCORDINGLY, THE AO INVOKED THE PROVISIONS OF SECTI ON 14A READ WITH RULE 8D AND MADE THE DISALLOWANCE AS UNDER: I. DIRECT EXPENSES 3,68,510/- II. INTEREST EXPENSES NIL III. ADMINISTRATIVE EXPENSES 13,65,287/- (.5% OF THE AVERAGE VALUE OF INVESTMENTS) TOTAL 17,33,797/- LESS AMOUNT ALREADY DISALLOWED 4,07,206/ - BALANCE AMOUNT OF DISALLOWANCE 13,26,591/- IN VIEW OF THE ABOVE, THE AO DISALLOWED THE SUM OF RS.13,26,591/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 6. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LEA RNED CIT (A). 7. THE ASSESSEE BEFORE THE LEARNED CIT (A) SUBMITTED T HAT THE AO WITHOUT POINTING OUT ANY DEFECT IN THE METHOD ADOPTED BY IT FOR MAKING DISALLOWANCE AGAINST THE EXEMPTED INCOME HAS INVOKED THE PROVISI ONS OF SECTION 14AR.W. RULE 8D OF INCOME TAX RULE. AS SUCH THE AO WAS UNDER THE OBLIGATION TO REJECT THE BASIS ADOPTED BY THE ASSESSEE FOR MAKING THE DISALL OWANCE AGAINST THE EXEMPTED INCOME BEFORE RESORTING TO THE PROVISIONS OF SECTIO N 14A READ WITH RULE 8D OF 4 ITA NOS. 2280/AHD/2013 & 4 OTHERS AY: 2009-10 TO 2013-14 INCOME TAX RULES. THE ASSESSEE ALSO CONTENDED THAT T HE METHOD ADOPTED FOR THE DISALLOWANCE OF THE ADMINISTRATIVE EXPENSES I.E. 0. 5% OF THE DIVIDEND INCOME WAS ALSO ACCEPTED BY THE REVENUE IN THE EARLIER ASSESSM ENT YEARS. 8. THE ASSESSEE FURTHER CONTENDED THAT IT HAS MADE M OST OF THE INVESTMENTS THROUGH THE INVOLVEMENT OF PORTFOLIO MANAGEMENT SER VICES PROVIDERS WHICH WERE ENTRUSTED WITH THE TASK OF DECISION-MAKING SUCH AS WHEN TO INVEST, WHERE TO INVEST, PRICE AT WHICH TO INVEST, WHEN SELL OFF AND AT WHAT PRICE TO SELL OFF. THE PMS FOR SUCH SERVICES WAS PAID THE FEES WHICH HAS A LREADY BEEN DISALLOWED BY THE ASSESSEE. IN OTHER WORDS, THERE WAS NO INVOLVEM ENT OF ANY MANPOWER, TIME DEVOTION OF THE DIRECTORS OR ANY OTHER RESOURCES OF THE COMPANY IN MAINTAINING OR MAKING SUCH INVESTMENTS. AS SUCH, ALL THE EXPENSES INCURRED BY ASSESSEE UNDER THE ADMINISTRATIVE HEAD WERE INCURRED FOR THE MANUF ACTURING ACTIVITY OF THE BUSINESS. BUT THE ASSESSEE AS A MATTER OF ABUNDANT PRECAUTION HAS MADE THE DISALLOWANCE OF RS.38,696/- BEING 0.5% OF THE EXEMP TED INCOME. WITHOUT PREJUDICE TO THE ABOVE, THE ASSESSEE ALSO CONTENDED THAT AT LEAST THE INVESTMENTS WHICH WERE MADE THROUGH THE INVOLVEMENT OF PMS SHOU LD BE IGNORED WHILE WORKING OUT THE DISALLOWANCE UNDER THE PROVISIONS O F RULE 8D OF INCOME TAX RULES. 9. THE ASSESSEE ALSO SUBMITTED THAT THERE WAS THE RE DUCTION IN THE VALUE OF INVESTMENTS SHOWN BY IT IN YEAR UNDER CONSIDERATION IN COMPARISON TO THE IMMEDIATE PRECEDING ASSESSMENT YEAR. WHEREVER THERE WAS ANY INCREASE IN THE VALUE OF INVESTMENTS, IT WAS THROUGH THE INVOLVEMEN T OF THE PMS. ACCORDINGLY, THERE WAS NO NEED TO MAKE ANY DISALLOWANCE BASED ON AVERAGE VALUE OF INVESTMENTS AS PROVIDED UNDER RULE 8D OF INCOME TAX RULE. 10. THE ASSESSEE ALSO CONTENDED THAT THE AO CANNOT R ESORT TO THE PROVISIONS OF SECTION 14AR.W. RULE 8D WITHOUT RECORDING THE DISSA TISFACTION ABOUT THE 5 ITA NOS. 2280/AHD/2013 & 4 OTHERS AY: 2009-10 TO 2013-14 CORRECTNESS OF THE CLAIM OF THE EXPENDITURE RECORDE D BY IT IN ITS BOOKS OF ACCOUNTS. AS SUCH THE AO WAS UNDER THE OBLIGATION TO PROVE TH E NEXUS OF THE EXPENDITURE INCURRED BY IT VIZ A VIZ EXEMPTED INCOME EARNED BY IT IN THE YEAR UNDER CONSIDERATION BEFORE MAKING THE DISALLOWANCE UNDER SECTION 14A R.W.R. 8D OF INCOME TAX RULES. 11. THE ASSESSEE ALSO CONTENDED THAT THERE WAS THE D IMINUTION IN THE VALUE OF QUOTED SHARES AND MUTUAL FUNDS WHICH HAS NOT BEEN C ONSIDERED BY THE AO WHILE MAKING THE DISALLOWANCE UNDER THE PROVISIONS OF SEC TION 14A READ WITH RULE 8D THOUGH SUCH DIMINUTION IN THE VALUE OF INVESTMENTS WAS CONSIDERED BY THE AO IN THE PRECEDING ASSESSMENT YEAR 2006-07 IN AN ASSESSM ENT FRAMED UNDER SECTION 143(3) OF THE ACT. 12. HOWEVER, THE LEARNED CIT-A AFTER CONSIDERING THE CONTENTION OF THE ASSESSEE CONFIRMED THE ORDER OF THE AO IN PART BY O BSERVING AS UNDER: 4.3. I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSION MADE BY THE AR OF THE APPELLANT. SIMILAR ISSUE WAS INVOLVED IN APPELL ANTS OWN CASE FOR A.Y. 2008-09 IN APPEAL NO.CAB/III-173/10-11. VIDE APPELLATE ORDE R DATED 12.09.2012, I HAVE REJECTED THE METHOD OF DISALLOWANCE AS 0.5% OF DIVI DEND EARNED AS MADE BY THE APPELLANT AND HELD THAT SUCH DISALLOWANCE HAS TO BE MADE AS PER RULE 8D. THIS YEAR 100, THE APPELLANT HAS ACCEPTED THAT A PART OF ADMINISTRATIVE EXPENSES ARE INCURRED FOR EARNING SUCH EXEMPT INCOME, BUT HAS ES TIMATED SUCH INCOME AT 0.5% OF EXEMPT INCOME EARNED. THERE IS NO BASIS FOR SUCH ES TIMATION. ONCE IT IS ACCEPTED BY AN ASSESSEE THAT EXPENSES HAVE BEEN INCURRED FOR CA RING INCOME, THEN EITHER IT HAS TO KEEP SEPARATE BOOKS OF ACCOUNTS FOR SUCH PURPOSE AND COMPUTE EXACT EXPENSES OR THE ESTIMATION HAS TO BE MADE AS PER RULE 8D. HENCE IT IS HELD THAT THE APPLICATION OF PROVISIONS OF RULE 8D BY THE AO IS CORRECT. BUT AT THE SAME TIME, WHILE COMPUTING THE AVERAGE INVESTMENTS, THE AO IS DIRECT ED TO EXCLUDE THE INVESTMENTS MADE IN FOREIGN SUBSIDIARY AND DEBENTURES AS INCOME FROM THESE ARE NOT EXEMPT FROM INCOME TAX. SO FAR AS INVESTMENT THOUGH PMS AR E CONCERNED, SINCE THE DIVIDEND INCOME EARNED ON THEM IS EXEMPT, HENCE APP ELLANTS CONTENTIONS ARE NOT ACCEPTED AND SUCH INVESTMENTS ARE TO BE CONSIDERED FOR THE PURPOSES OF RULE 8D. THE APPELLANT GETS PART RELIEF ACCORDINGLY. 13. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT ( A), THE ASSESSEE IS IN APPEAL BEFORE US. 6 ITA NOS. 2280/AHD/2013 & 4 OTHERS AY: 2009-10 TO 2013-14 14. THE LEARNED AR BEFORE US SUBMITTED THAT THE AO HA S INVOKED THE PROVISIONS OF SECTION 14A READ WITH RULE 8D OF INCO ME TAX RULE WITHOUT RECORDING THE SATISFACTION ABOUT THE INCORRECTNESS OF THE CLAIM OF THE ASSESSEE AS PROVIDED UNDER SECTION 14A OF THE ACT. ACCORDINGLY, THE LEARNED AR CONTENDED THAT NO DISALLOWANCE CAN BE MADE WITHOUT RECORDING SUCH SATISFACTION. THE LEARNED AR SUPPORT OF HIS CONTENTION HAS MADE REFERE NCE TO THE FOLLOWING JUDGMENTS: ITAT ORDER DATED 01.08.2018 IN ITA NO. 1403/A/2014 (BY. ASS.) AND ITA NO. 1413 & CO NO. 243/AHD/2014 FOR ASST. YEAR 2010-11 ORDER OF HIGH COURT OF GUJARAT DATED 18.06.2019 IN TAX APPEAL NO.99 OF 2019 ORDER OF HIGH COURT DATED 31.07.2018 IN TAX APPEAL NO.900 TO 902 OF 2018 (2018) 409 OTR 401 (GUJ.) ORDER OF HIGH COURT OF GUJARAT DATED 15.10.2018 IN TAX APPEAL NOS. 1252, 1253 AND 1255 OF 2018 ITAT ORDER DATED 15.10.2018 IN ITA NO. 3202/AHD/201 6 FOR ASST. YEAR 2013-14 (2017) 85 TAXMANN.COM 43 ITAT ORDER DATED 02.05.2016 IN ITA NO. 1040/AHD/201 3 FOR ASST. YEAR 2009-10 (2015) 372 ITR 97 (GUJ.) ITAT ORDER DATED 07.11.2019 IN ITA NO. 5673/MUM/201 8 FOR ASST. YEAR 2011-12 ITAT ORDER DATED 21.06.2013 IN ITA NO. 2785/AHD/201 2 FOR ASST. YEAR 2008-09 [2019] 112 TAXMANN.COM 117 (AHMEDABAD TRIB.) 15. THE LEARNED AR BEFORE US REITERATED THE CONTENTI ONS AS MADE BEFORE THE AUTHORITIES BELOW. 16. ON THE OTHER HAND, THE LEARNED DR SUBMITTED THAT THE TRIBUNAL IN THE OWN CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2008-0 9 INVOLVING IDENTICAL FACTS AND CIRCUMSTANCES HAS DECIDED THE ISSUE AGAINST THE ASSESSEE. ACCORDINGLY, THE LEARNED DR SUBMITTED THAT THE DISALLOWANCE MADE BY T HE AUTHORITIES BELOW UNDER 7 ITA NOS. 2280/AHD/2013 & 4 OTHERS AY: 2009-10 TO 2013-14 THE PROVISIONS OF SECTION 14A READ WITH RULE 8D IS WITHIN THE PROVISIONS OF LAW. THE LEARNED DR VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 17. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE FACTS OF THE CASE ARE NOT IN DISPUTE, THEREFORE, WE ARE NOT INCLINED TO REPEAT THE SAME FOR THE SAKE OF BREVITY AND CONVENIENCE. THE FIRST ISSUE ARISES FOR OUR CONSIDERATION WHETHER THE ASSESSING OFFICER WAS UNDER THE OBLIGATION TO REJECT THE BASIS ADOPTED BY THE ASSESSEE FOR DISALLOWANCE OF EXPENSES AGAINST THE EXEMPTED INCOME BEFORE RESO RTING TO THE PROVISIONS OF SECTION 14A R.W.R. 8D OF INCOME TAX RULE. IN THIS CO NNECTION WE NOTE THAT, THE AO HAS CLEARLY RECORDED IN HIS ORDER THAT HE WAS NO T SATISFIED WITH THE BASIS ADOPTED BY THE ASSESSEE FOR MAKING THE DISALLOWANCE UNDER THE PROVISIONS OF SECTION 14A READ WITH RULE 8D AS THE SAME WAS BASED ON THE ESTIMATION I.E. 0.5% OF THE DIVIDEND INCOME. IN OUR CONSIDERED VIEW, THE PRIMARY ONUS LIES UPON THE ASSESSEE TO JUSTIFY THE STAND TAKEN BASED ON THE MA TERIAL FACTS OR THE PROVISIONS OF LAW. ASSESSEE HAS NOWHERE MADE ANY RATIONAL SUBMISS ION FOR ADOPTING THE DISALLOWANCE ON ESTIMATION BASIS. THUS, IN ABSENCE OF ANY MATERIAL BY THE ASSESSEE, WE REJECT THE BASIS ADOPTED BY IT (THE AS SESSEE) IN MAKING THE DISALLOWANCE UNDER THE PROVISIONS OF SECTION READ W ITH RULE 8D OF INCOME TAX RULES. 18. THE SECOND QUESTION ARISES WHETHER THE AO IS UND ER THE OBLIGATION ESTABLISH THE NEXUS BETWEEN THE EXPENDITURE INCURRE D BY THE ASSESSEE VIZ A VIZ THE EXEMPTED INCOME EARNED BY IT. IN THIS CONNECTION, W E NOTE THAT, PRIMARY ONUS LIES UPON THE ASSESSEE TO JUSTIFY BASED ON THE DOCUMENTA RY EVIDENCE THAT THE EXPENDITURE CLAIMED BY IT WERE NOT INCURRED IN CONN ECTION WITH THE EXEMPTED INCOME. IN THE CASE ON HAND, THE ASSESSEE FAILED TO MAKE ANY SUBMISSION ABOUT THE SAME. AS SUCH THE ONUS SHIFTS FROM THE ASSESSEE UPON THE AO WHEN HE MAKES 8 ITA NOS. 2280/AHD/2013 & 4 OTHERS AY: 2009-10 TO 2013-14 THE SUBMISSION TO THE AO WITH THE DOCUMENTARY EVIDE NCE THAT IT HAS NOT INCURRED ANY EXPENDITURE IN CONNECTION WITH THE EXEMPTED INC OME. BUT, WE FIND THAT THE ASSESSEE HAS NOT MADE ANY SUBMISSION EXCEPT DISALLO WING THE EXPENSES ON ESTIMATION BASIS. AS SUCH WE FIND THAT THE AO HAS D ERIVED THE SATISFACTION BY RECORDING IN THE ASSESSMENT ORDER AS DETAILED UNDER : THIS SHOWS THAT THE ASSESSEE ITSELF HAS ADMITTED THAT SOME EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE, WHICH HAS BEEN DEBITED IN THE PROF IT AND LOSS ACCOUNT, FOR EARNING THE EXEMPTED INCOME. HOWEVER, THE WORKING OF DISALLOWAN CE MADE BY THE ASSESSEE IS NOT CORRECT. IN THIS CASE, THE ASSESSING OFFICER DOES N OT HAVE TO PROVE THE NEXUS OF SUCH EXPENDITURE WITH THE EXEMPT INCOME AS THE ASSESSEE ITSELF HAS ADMITTED OF HAVING SPENT SOME EXPENDITURE FOR EARNING OF EXEMPTED INCOME BY MAKIN G A LUMP SUM DISALLOWANCE, WHICH WAS DEBITED IN THE PROFIT AND LOSS ACCOUNT. 19. WE ALSO NOTE THAT, THE ITAT IN THE OWN CASE OF THE ASSESSEE INVOLVING IDENTICAL FACTS AND CIRCUMSTANCES HAS CONFIRMED THE DISALLOWANCE MADE BY THE AUTHORITIES BELOW IN ITA NO. 2785/AHD/2012 VIDE ORDE R DATED 21-06-2013. THE RELEVANT EXTRACT IS REPRODUCED AS UNDER: 6. WE FIND THAT IT IS HELD BY THE TRIBUNAL IN THE CASE CITED BY THE LEARNED AR AND AS PER THE PROVISIONS OF SUB-SECTION 2 OF SECTION 14A ALSO, IT IS REQUIRED THAT AO MUST RECORD THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDITURE INCURRED BY THE ASSESSEE IN EARNING EXEMPT INCOME. IN THE PRESENT CASE, THE AO HAS GIVEN A CLEAR FINDING IN PARA 3.5 OF THE ASSESSMENT ORDER T HAT THE WORKING OF DISALLOWANCE MADE BY THE ASSESSEE IS NOT CORRECT. HENCE, IT HAS TO BE AC CEPTED THAT IN THE PRESENT CASE, THE AO HAS RECORDED HIS SATISFACTION THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME. HENCE, THIS TRIBUNALS DECISION CITED BY THE LEARNED AR IS NOT APPLICABLE IN THE PRESENT CASE, BECAUSE THE FACTS ARE DIFFERENT. 7. WE ALSO FIND THAT THE WORKING OF THE ASSESSEE FO R COMPUTING EXPENSES INCURRED FOR EARNING EXEMPT INCOME ON THE BASIS OF 0.5% OF DIVID END INCOME IS NOT PROPER AND CORRECT BECAUSE THE EXPENSES INCURRED FOR EARNING DIVIDEND INCOME CANNOT BE DEPENDENT ON THE AMOUNT OF DIVIDEND INCOME. THE AMOUNT OF DIVIDEND I NCOME DEPENDS ON THE PROFITS OF THE COMPANY IN WHICH THE SHARES ARE HELD BY THE ASSESSE E AND THE DECISION IN ANNUAL GENERAL MEETING OF THAT COMPANY REGARDING QUANTUM OF DIVIDE ND TO BE DECLARED. THE DIVIDEND DECLARED BY THE CONCERNED COMPANY OR RECEIVED BY TH E ASSESSEE MAY VARY FROM YEAR TO YEAR. EVEN, THERE MAY BE CASES WHERE NO DIVIDEND INCOME H AS BEEN EARNED BY THE ASSESSEE AND THIS DOES NOT MEAN THAT IN A YEAR IN WHICH THERE IS NO DIVIDEND INCOME, THERE IS NO EXPENDITURE INCURRED IN THAT REGARD. HENCE, IN OUR CONSIDERED OPINION, THE VERY BASIS ADOPTED BY THE ASSESSEE IN ESTIMATING THE AMOUNT OF EXPENDITURE INCURRED FOR EARNING 9 ITA NOS. 2280/AHD/2013 & 4 OTHERS AY: 2009-10 TO 2013-14 EXEMPT INCOME IS FAULTY. HENCE, WE DO NOT FIND ANY MISTAKE IN THE SATISFACTION OF THE AO THAT THE WORKING OF DISALLOWANCE MADE BY THE ASSESSEE IS NOT CORRECT. 8. IN A SITUATION WHERE THE AO HAS RECORDED HIS SAT ISFACTION THAT THE WORKING OF THE ASSESSEE REGARDING EXPENDITURE INCURRED FOR EARNING EXEMPT I NCOME IS NOT CORRECT, THEN THE SAME HAS TO BE WORKED OUT AS PER RULE 8D OF THE IT RULES AND THE AO HAS WORKED OUT THE DISALLOWANCE ON THE BASIS OF RULE 8D ONLY. WE, THER EFORE, DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF THE LEARNED CIT(A). 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. 20. IT IS ALSO IMPORTANT TO NOTE THAT THE LD. AR AT THE TIME OF HEARING CITED VARIOUS ORDERS/JUDGMENTS AS MENTIONED ABOVE, BUT IN OUR CONSIDERED VIEW THESE ARE DISTINGUISHABLE FROM THE PRESENT FACTS OF THE C ASE, MORE PARTICULARLY, IN THE EXISTENT SITUATION WHEN THE ITAT IN THE OWN CASE OF ASSESSEE, AS DISCUSSED ABOVE, HAS DECIDED THE ISSUE AGAINST IT (THE ASSESSEE). TH EREFORE, WE ARE NOT INCLINE TO RECAPITULATE TO ALL SUCH CITATIONS REFERRED BY THE LD. AR FOR THE ASSESSEE. 21. HOWEVER, WE FIND FORCE IN THE ARGUMENT OF THE LE ARNED AR FOR THE ASSESSEE THAT INVESTMENTS WHICH HAVE BEEN MADE THRO UGH THE INVOLVEMENT OF THE PMS PROVIDERS SHOULD BE IGNORED WHILE WORKING OUT T HE DISALLOWANCE OF THE EXPENSES UNDER RULE 8D OF INCOME TAX RULE. IT IS BEC AUSE SUCH INVESTMENTS WERE MADE ON THE ADVICE OF THE PMS AND FOR THIS PURPOSE PMS WAS COMPENSATED BY THE ASSESSEE BY WAY OF FEES PAID TO THEM WHICH HAS ALREADY BEEN DISALLOWED BY THE ASSESSEE. THEREFORE, FURTHER CONSIDERATION OF S UCH INVESTMENTS FOR THE PURPOSE OF DISALLOWANCE OF EXPENSES UNDER SECTION 14A R.W.R . 8D WOULD LEAD TO DOUBLE DISALLOWANCE WHICH IS UNWANTED UNDER THE PROVISIONS OF LAW. 22. IT IS ALSO PERTINENT TO NOTE THAT THE DIMINUTIO N IN THE VALUE OF INVESTMENTS SHOULD ALSO BE CONSIDERED WHILE WORKING OUT THE DIS ALLOWANCE TO BE MADE UNDER THE PROVISIONS OF SECTION 14A READ WITH RULE 8D OF INCOME TAX RULES. IT IS BECAUSE SUCH BENEFIT WAS EXTENDED BY THE AO IN THE ASSESSMENT FRAMED UNDER SECTION 143(3) OF THE ACT FOR THE ASSESSMENT YEAR 2 007-08 VIDE ORDER DATED 10- 10 ITA NOS. 2280/AHD/2013 & 4 OTHERS AY: 2009-10 TO 2013-14 12-2009 WHICH WAS NOT DISPUTED BY THE LD. DR FOR TH E ASSESSEE. THERE BEING NO CHANGE IN THE FACTS AND CIRCUMSTANCES OR THE PROVIS IONS OF LAW, IN OUR CONSIDERED VIEW THE PRINCIPLES OF CONSISTENCY SHOULD BE FOLLOW ED BY THE REVENUE. ACCORDINGLY, WE DIRECT THE AUTHORITIES BELOW TO EXT END THE BENEFIT OF THE ASSESSEE ON ACCOUNT OF DIMINUTION IN THE VALUE OF INVESTMENT S WHILE WORKING OUT THE DISALLOWANCE TO BE MADE UNDER THE PROVISIONS OF SEC TION 14A READ WITH RULE 8D OF INCOME TAX RULES. 23. IN VIEW OF THE ABOVE AND AFTER CONSIDERING THE FACTS IN TOTALITY, THE GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 24. THE SECOND ISSUE RAISED BY THE ASSESSEE IN GROUN D NO. 3 IS THAT THE LEARNED CIT (A) ERRED IN CONFIRMING THE ADDITION MADE BY THE AO TO THE TUNE OF RS.3,79,633/- UNDER THE PROVISIONS OF SECTION 94(7) OF THE ACT. 25. THE AO DURING THE ASSESSMENT PROCEEDINGS FOUND T HAT THE ASSESSEE HAS EARNED SHORT-TERM CAPITAL GAIN AMOUNTING TO RS.48,9 56/- ONLY WHICH WAS NOT DISCLOSED IN THE INCOME TAX RETURN. ACCORDINGLY, THE AO MADE THE ADDITION TO THE TOTAL INCOME OF THE ASSESSEE. 26. THE AO BESIDES THE ABOVE ALSO FOUND THAT THE ASS ESSEE HAS INCURRED SHORT- TERM LOSSES ON THE SALE- PURCHASE OF CERTAIN INVEST MENTS AMOUNTING TO RS.3,79,633/- (RS.60,708/- + RS.1,79,932/- + RS.1,3 8,993/-) WHICH WAS ADJUSTED AGAINST THE SHORT-TERM CAPITAL GAIN. AS PER THE AO , SUCH SHORT-TERM CAPITAL LOSS WAS INCURRED WITH RESPECT TO THE UNITS WHICH WERE P URCHASED WITHIN A PERIOD OF THREE MONTHS PRIOR TO THE RECORD DATE AND SUCH UNIT S WERE SOLD WITHIN A PERIOD OF NINE MONTHS AFTER SUCH RECORD DATE. ACCORDINGLY, TH E AO WAS OF THE VIEW THAT SUCH LOSS CANNOT BE ADJUSTED AGAINST THE SHORT-TERM CAPITAL GAIN WITHIN THE 11 ITA NOS. 2280/AHD/2013 & 4 OTHERS AY: 2009-10 TO 2013-14 PROVISIONS OF SECTION 94(7) OF THE ACT. ACCORDINGLY , THE AO DISALLOWED THE SAME AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 27. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LE ARNED CIT (A) WHO CONFIRMED THE ORDER OF THE AO BY OBSERVING AS UNDER : 5.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND SU BMISSION MADE BY THE AR OF THE APPELLANT. THE A.O. HAS ANALYZED THESE TRANSACTIONS AS PER THE PROVISIONS OF SECTION 94(7) OF THE I.T. ACT, 1961 AND HAS GIVEN FULL PARTICULARS I N HIS ORDER. THESE FACTS HAVE NOT BEEN CLAIMED TO BE INCORRECT BY THE APPELLANT IN ITS SUB MISSION. THE ONLY SUBMISSION IS THAT IT HAS NOT INCURRED THESE LOSSES INTENTIONALLY. BUT SUCH C LAIM IS NOT RELEVANT FOR APPLICATION OF THE PROVISIONS OF SECTION 94(7). THE LANGUAGE OF THIS S ECTION IS UNAMBIGUOUS AND HENCE ITS PROVISIONS ARE APPLICABLE TO ALL TRANSACTIONS OF LO SS ON ACCOUNT OF SALE AND PURCHASE OF SHARES AND SECURITIES WHERE THE PURCHASE HAS TAKEN PLACE WITHIN 3 MONTHS OF THE RECORD DATE FOR DIVIDEND AND SALE HAS TAKEN PLACE WITHIN 9 MONTHS OF SUCH RECORD DATE. 5.3.1. ACCORDINGLY THE ADDITION MADE BY THE AO IS U PHELD AND THIS GROUND OF APPEAL IS DISMISSED. 28. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT ( A), THE ASSESSEE IS IN APPEAL BEFORE US. 29. THE LEARNED AR BEFORE US SUBMITTED THAT THE ASSE SSEE PURCHASED AND SOLD THESE UNITS IN THE NORMAL COURSE OF INVESTMENT ACTI VITIES AND WITHOUT HAVING ANY INFORMATION ABOUT THE RECORD DATE AS ALLEGED BY THE AUTHORITIES BELOW. THEREFORE, SUCH LOSS CANNOT BE DENIED FOR SET OFF AGAINST THE SHORT-TERM CAPITAL GAIN. 30. ON THE OTHER HAND, THE LEARNED DR VEHEMENTLY SUP PORTED THE ORDER OF THE AUTHORITIES BELOW. 31. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THERE IS NO DISPUTE TO THE FACT THAT THE LOSS CLAIMED BY THE ASSESSEE WITH RESPECT TO THE SALE PURCHASE O F THE UNITS WERE IN VIOLATION OF THE PROVISIONS OF SECTION 94(7) OF THE ACT. THIS FA CT HAS NOT BEEN DISPUTED BY THE LEARNED AR FOR THE ASSESSEE AT THE TIME OF HEARING. THUS, THE QUESTION WHETHER 12 ITA NOS. 2280/AHD/2013 & 4 OTHERS AY: 2009-10 TO 2013-14 THE ASSESSEE WAS IN POSSESSION OF INSIDER INFORMATI ON OR NOT AT THE TIME OF PURCHASE AND SALE OF SUCH UNITS IS OF NO CONSEQUENC E. IT IS BECAUSE THE PROVISIONS OF SECTION 94(7) OF THE ACT ARE UNAMBIGUOUS AND CLE AR WHICH ARE APPLICABLE TO THE FACTS OF CASE ON HAND. THE RELEVANT PROVISIONS OF SE CTION 94(7) OF THE ACT READS AS UNDER: (7) WHERE (A) ANY PERSON BUYS OR ACQUIRES ANY SECURITIES OR UNIT WITHIN A PERIOD OF THREE MONTHS PRIOR TO THE RECORD DATE; 83[(B) SUCH PERSON SELLS OR TRANSFERS (I) SUCH SECURITIES WITHIN A PERIOD OF T HREE MONTHS AFTER SUCH DATE; OR (II) SUCH UNIT WITHIN A PERIOD OF NINE MO NTHS 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 O F SUCH PURCHASE AND SALE OF SECURITIES OR UNIT, TO THE EXTENT SUCH LOSS DOES NO T 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. ] FROM THE ABOVE PROVISION, IT IS REVEALED THAT THE S HORT-TERM CAPITAL LOSS INCURRED WITH RESPECT TO THE UNITS WHICH WERE PURCH ASED WITHIN A PERIOD OF THREE MONTHS PRIOR TO THE RECORD DATE AND SOLD WITHIN A P ERIOD OF NINE MONTHS AFTER SUCH RECORD DATE, SHALL BE IGNORED TO THE EXTENT OF SUCH LOSS, NOT EXCEEDING THE AMOUNT OF DIVIDEND INCOME FOR COMPUTING THE INCOME CHARGEA BLE TO TAX. IN VIEW OF THE ABOVE WE FIND NO INFIRMITY IN THE ORDER OF THE AUTH ORITIES BELOW. HENCE, THE GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 32. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. COMING TO OTHER ITA NOS. 133/AHD/2014, 271/AHD/2015 , 627/AHD/2016 & 455/AHD/2017 (A.Y. 2010-11 TO 2013-14):- 33. THE ISSUES INVOLVED IN ALL THESE CASES ARE IDENT ICAL TO THAT OF THE ISSUE ALREADY DECIDED BY US AGAINST THE ASSESSEE IN PART IN ITA NO. 2280/AHD/2013 FOR 13 ITA NOS. 2280/AHD/2013 & 4 OTHERS AY: 2009-10 TO 2013-14 A.Y. 2009-10 AND IN THE ABSENCE OF ANY CHANGED CIRC UMSTANCES THE SAME SHALL APPLY MUTATIS MUTANDIS TO ALL THESE APPEALS. HENCE, ALL THESE APPEALS ARE PARTLY ALLOWED. 34. IN THE COMBINED RESULT, THE APPEALS FILED BY TH E ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON THE 26 TH OCTOBER,2020 AT AHMEDABAD. SD/- (MAHAVIR PRASAD) JUDICIAL MEMBER SD/- ( WASEEM AHMED ) ACCOUNTANT MEMBER (TRUE COPY) AHMEDABAD; DATED 26/10/2020 TANMAY, SR. PS