Mandara Ventures, CHENNAI V. ITO Non Corporate Ward 3(4), CHENNAI

ITA 2698/CHNY/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5236 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-04-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2014-2015
• Appeal Filed On: 09-11-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: G BASKAR
• Keywords: Business expenditure; Earning of tax free income
• Section: 14A; 10

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI . , ! BEFORE SHRI ABRAHAM P GEORGE, ACCOUNTANT MEMBER ./ I.T.A.NOS.2131 & 2698/CHNY/2017 / ASSESSMENT YEARS :2013-14 & 2014-15 M/S.MADAN VENTURES , NO.5,2 ND MAIN ROAD, SEETHAMMAL COLONY, ALWARPET,CHENNAI 600 018. VS. THE INCOME TAX OFFICER, NON-CORPORATE WARD-3(4), CHENNAI. [PAN AASFM 1047 P ] ( '# / APPELLANT) ( $%'# /RESPONDENT) / APPELLANT BY : MR.G.BASKAR,ADVOCATE /RESPONDENT BY : MR.B.SAGADEVAN,JCIT,D.R / DATE OF HEARING : 05 - 0 4 - 201 8 / DATE OF PRONOUNCEMENT : 09 - 0 4 - 201 8 & / O R D E R PER ABRAHAM P GEORGE, ACCOUNTANT MEMBER THESE ARE APPEALS FILED BY THE ASSESSEE FOR ASSE SSMENT YEARS 2013-14 & 2014-15 DIRECTED AGAINST ORDERS DAT ED 29.06.2017 & 29.09.2017 OF THE COMMISSIONER OF INCOME-TAX (APPE ALS)-4, CHENNAI. 2. SOLE ISSUE RAISED BYTHE ASSESSEE IS ON A DISALL OWANCE MADE BY THE LD. ASSESSING OFFICER U/S.14A OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT), WHICH WAS CONFIRMED BY THE LD.CIT (A). SUCH ITA NOS.2131 & 2698/CHNY/2017 :- 2 -: DISALLOWANCE FOR ASSESSMENT YEAR 2013-14 CAME TO ` 53,14,774/- AND FOR ASSESSMENT YEAR 2014-15 CAME TO ` 45,69,872/-. 3. LD.A.R SUBMITTED THAT ASSESSEE WAS A FASHION DE SIGNER AND TRADER IN GARMENTS. AS PER THE LD.A.R, ASSESSEE H AD TAKEN SUBSTANTIAL TERM LOANS FROM INDIAN OVERSEAS BANK, WHICH WAS INV ESTED FOR ACQUIRING SHARES OF A PRIVATE LIMITED COMPANY CALLE D M/S.SHILPI SARANYA APPARELS AND M/S.HOME LINEN PVT LTD. AS PER THE LD. A.R, THE SAID COMPANY WAS SELLING DESIGNER SAREES THROUGH ITS OUT LET CALLED SHILPI. CONTENTION OF LD.A.R WAS THAT THE INVEST MENT MADE BY THE ASSESSEE IN THE EQUITY SHARES OF THE ABOVE COMPANY WAS A PART OF ITS BUSINESS STRATEGY AND DONE ESSENTIALLY FOR FURTHERI NG ITS BUSINESS. ACCORDING TO HIM, DISALLOWANCE U/S.14A COULD NOT BE MADE ON DIVIDEND EARNED FROM INVESTMENTS IN THE SAID COMPAN Y. CONTENTION OF LD.A.R WAS THAT INVESTMENTS IN SHARES OF M/S.SHILPI SARANYA APPARELS AND M/S.HOME LINEN PVT LTD., WAS NOT DONE BY THE AS SESSEE WITH ANY INTENTION OF EARNING DIVIDENDS, BUT WAS ONLY FOR TH E PURPOSE OF FURTHERING ITS BUSINESS OF TRADING IN DESIGNER GARM ENTS/SAREES, WHICH COULD BE FACILITATED THROUGH OUTLETS RUN BY THE SAI D COMPANY. THUS, ACCORDING TO HIM, DISALLOWANCE U/S.14A FOR THE INTE REST PAID BY THE ASSESSEE ON TERM LOANS, APPLYING RULE-8D(2)(I) OF T HE INCOME TAX RULES HAD TO BE DELETED. ITA NOS.2131 & 2698/CHNY/2017 :- 3 -: 4. PER CONTRA, LD.D.R SUBMITTED THAT HONBLE APEX C OURT IN THE CASE OF MAXOPP INVESTMENTS LTD., VS. CIT (CIVIL AP PEAL NO.104 TO 109 OF 2015) DATED 12.02.2018 HAD HELD THAT THE REASON WHY AN ASSESSEE INVESTED IN EQUITY SHARES OF A COMPANY WAS IRRELEVA NT FOR APPLICATION OF SECTION 14A OF THE ACT. ACCORDING TO HIM, IRRESPECT IVE OF WHETHER THE EQUITY SHARES WERE HELD BY THE ASSESSEE AS STOCK I N TRADE OR WAS ACQUIRED WITH AN OBJECT OF GETTING CONTROLLING INTE REST, SEC.14A HAD TO BE APPLIED. 5. AD LIBITUM REPLY OF THE LD.A.R WAS THAT IN THE VERY SAME JUDGEMENT OF HONBLE APEX COURT, RELIED ON BY THE LD.D.R, IT WAS CLEARLY MENTIONED THAT THE AO HAD TO RECORD A SATIS FACTION THAT THE CLAIM OF THE ASSESSEE ON EXPENDITURE RELATABLE TO E XEMPT INCOME WAS INCORRECT, BEFORE PROCEEDING WITH A DISALLOWANCE U/ S.14A OF THE ACT. CONTENTION OF LD.A.R WAS THAT INVESTMENTS MADE BY T HE ASSESSEE IN M/S.SHILPI SARANYA APPARELS AND M/S.HOME LINEN PVT LTD., WAS A PART OF ITS BUSINESS STRATEGY FOR MARKETING ITS DESIGNER GARMENTS. AS PER LD.A.R, SEC.14A COULD NOT BE APPLIED WHERE INVESTME NTS WERE MADE FOR THE PURPOSE OF FURTHERING BUSINESS INTEREST AND NOT FOR EARNING ANY DIVIDEND INCOME. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WHAT WE FIND IS THAT AUTHORISE D REPRESENTATIVE OF ASSESSEE HAD STATED BEFORE THE LD. ASSESSING OFFICE R THAT THE INTEREST ITA NOS.2131 & 2698/CHNY/2017 :- 4 -: PAID ON THE TERM LOANS DEBITED IN ITS P & L A/C WAS ONLY TOWARDS INVESTMENTS MADE IN ACQUIRING SHARES OF M/S.SHILPI SARANYA APPARELS AND M/S.HOME LINEN PVT LTD. BE THAT AS IT MAY, THE JUDGEMENT OF HONBLE APEX COURT IN THE CASE OF M/S.MAXOPP INVEST MENTS LTD. (SUPRA) WAS NOT AVAILABLE WITH THE LD. ASSESSING OF FICER OR WITH THE LD.CIT(A), WHEN THEY WERE SEIZED OF THE ISSUE OF DI SALLOWANCE U/S.14A OF THE ACT. WHAT WAS HELD BY THE HONBLE APEX COUR T IN THE SAID JUDGEMENT IS REPRODUCED HEREUNDER:- 31. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THE ARGUMENT OF COUNSEL FOR THE PARTIES ON BOTH SIDES, IN THE LI GHT OF VARIOUS JUDGMENTS WHICH HAVE BEEN CITED BEFORE US, SOME OF WHICH HAVE ALREADY BEEN TAKEN NOTE OF ABOVE. 32. IN THE FIRST INSTANCE, IT NEEDS TO BE RECOGNISE D THAT AS PER SECTION 14A(1) OF THE ACT, DEDUCTION OF THAT EXPEND ITURE IS NOT TO BE ALLOWED WHICH HAS BEEN INCURRED BY THE ASSESSEE 'IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT'. AXIOMATICALLY, IT IS THAT EXPENDITURE ALONE W HICH HAS BEEN INCURRED IN RELATION TO THE INCOME WHICH IS INCLUDI BLE IN TOTAL INCOME THAT HAS TO BE DISALLOWED. IF AN EXPENDITURE INCURR ED HAS NO CAUSAL CONNECTION WITH THE EXEMPTED INCOME, THEN SUCH AN E XPENDITURE WOULD OBVIOUSLY BE TREATED AS NOT RELATED TO THE IN COME THAT IS EXEMPTED FROM TAX, AND SUCH EXPENDITURE WOULD BE AL LOWED AS BUSINESS EXPENDITURE. TO PUT IT DIFFERENTLY, SUCH E XPENDITURE WOULD THEN BE CONSIDERED AS INCURRED IN RESPECT OF OTHER INCOME WHICH IS TO BE TREATED AS PART OF THE TOTAL INCOME. ITA NOS.2131 & 2698/CHNY/2017 :- 5 -: 33. THERE IS NO QUARREL IN ASSIGNING THIS MEANING T O SECTION 14A OF THE ACT. IN FACT, ALL THE HIGH COURTS, WHETHER IT I S THE DELHI HIGH COURT ON THE ONE HAND OR THE PUNJAB AND HARYANA HIG H COURT ON THE OTHER HAND, HAVE AGREED IN PROVIDING THIS INTER PRETATION TO SECTION 14A OF THE ACT. THE ENTIRE DISPUTE IS AS TO WHAT INTERPRETATION IS TO BE GIVEN TO THE WORDS 'IN RELA TION TO' IN THE GIVEN SCENARIO, VIZ. WHERE THE DIVIDEND INCOME ON THE SHA RES IS EARNED, THOUGH THE DOMINANT PURPOSE FOR SUBSCRIBING IN THOS E SHARES OF THE INVESTEE COMPANY WAS NOT TO EARN DIVIDEND. WE HAVE TWO SCENARIOS IN THESE SETS OF APPEALS. IN ONE GROUP OF CASES THE MAIN PURPOSE FOR INVESTING IN SHARES WAS TO GAIN CONTROL OVER THE INVESTEE COMPANY. OTHER CASES ARE THOSE WH ERE THE SHARES OF INVESTEE COMPANY WERE HELD BY THE ASSESSE ES AS STOCK- IN-TRADE (I.E. AS A BUSINESS ACTIVITY) AND NOT AS I NVESTMENT TO EARN DIVIDENDS. IN THIS CONTEXT, IT IS TO BE EXAMINED AS TO WHETHER THE EXPENDITURE WAS INCURRED, IN RESPECTIVE SCENARIOS, IN RELATION TO THE DIVIDEND INCOME OR NOT. 34. HAVING CLARIFIED THE AFORESAID POSITION, THE FI RST AND FOREMOST ISSUE THAT FALLS FOR CONSIDERATION IS AS TO WHETHER THE DOMINANT PURPOSE TEST, WHICH IS PRESSED INTO SERVICE BY THE ASSESSEES WOULD APPLY WHILE INTERPRETING SECTION 14A OF THE ACT OR WE HAVE TO GO BY THE THEORY OF APPORTIONMENT. WE ARE OF THE OPINION THAT THE DOMINANT PURPOSE FOR WHICH THE INVESTMENT INTO SHAR ES IS MADE BY AN ASSESSEE MAY NOT BE RELEVANT. NO DOUBT, THE ASSE SSEE LIKE MAXOPP INVESTMENT LIMITED MAY HAVE MADE THE INVESTM ENT IN ORDER TO GAIN CONTROL OF THE INVESTEE COMPANY. HOWE VER, THAT DOES NOT APPEAR TO BE A RELEVANT FACTOR IN DETERMINING T HE ISSUE AT HAND. FACT REMAINS THAT SUCH DIVIDEND INCOME IS NON-TAXAB LE. IN THIS SCENARIO, IF EXPENDITURE IS INCURRED ON EAR NING THE DIVIDEND INCOME THAT MUCH OF THE EXPENDITURE WHICH IS ATTRIB UTABLE TO THE ITA NOS.2131 & 2698/CHNY/2017 :- 6 -: DIVIDEND INCOME HAS TO BE DISALLOWED AND CANNOT BE TREATED AS BUSINESS EXPENDITURE. KEEPING THIS OBJECTIVE BEHIND SECTION14A OF THE ACT IN MIND, THE SAID PROVISION HAS TO BE INTER PRETED, PARTICULARLY, THE WORD 'IN RELATION TO THE INCOME' THAT DOES NOT FORM PART OF TOTAL INCOME. CONSIDERED IN THIS HUE, THE P RINCIPLE OF APPORTIONMENT OF EXPENSES COMES INTO PLAY AS THAT I S THE PRINCIPLE WHICH IS ENGRAINED IN SECTION 14A OF THE ACT. THIS IS SO HELD IN WALFORT SHARE AND STOCK BROKERS P LTD., RELEVANT PA SSAGE WHEREOF IS ALREADY REPRODUCED ABOVE, FOR THE SAKE OF CONTIN UITY OF DISCUSSION, WE WOULD LIKE TO QUOTE THE FOLLOWING FE W LINES THEREFROM. ' THE NEXT PHRASE IS, 'IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THE ACT'. IT MEANS THAT IF AN INCOME DOES NOT FORM PART OF TOTAL INCOME, THEN THE RELATE D EXPENDITURE IS OUTSIDE THE AMBIT OF THE APPLICABILITY OF SECTION 1 4A.. XXX XXX XXX THE THEORY OF APPORTIONMENT OF EXPENDITURE BETWEEN TAXABLE AND NON-TAXABLE HAS, IN PRINCIPLE, BEEN NOW WIDENED UND ER SECTION 14 A.' 35. THE DELHI HIGH COURT, THEREFORE, CORRECTLY OBSE RVED THAT PRIOR TO INTRODUCTION OF SECTION 14A OF THE ACT, THE LAW WAS THAT WHEN AN ASSESSEE HAD A COMPOSITE AND INDIVISIBLE BUSINESS W HICH HAD ELEMENTS OF BOTH TAXABLE AND NON-TAXABLE INCOME, TH E ENTIRE EXPENDITURE IN RESPECT OF SAID BUSINESS WAS DEDUCTI BLE AND, IN SUCH A CASE, THE PRINCIPLE OF APPORTIONMENT OF THE EXPEN DITURE RELATING TO THE NON-TAXABLE INCOME DID NOT APPLY. THE PRINCI PLE OF APPORTIONMENT WAS MADE AVAILABLE ONLY WHERE THE BUS INESS WAS DIVISIBLE. IT IS TO FIND A CURE TO THE AFORESAID PR OBLEM THAT THE LEGISLATURE HAS NOT ONLY INSERTED SECTION 14A BY TH E FINANCE ITA NOS.2131 & 2698/CHNY/2017 :- 7 -: (AMENDMENT) ACT, 2001 BUT ALSO MADE IT RETROSPECTIV E, I.E., 1962 WHEN THE INCOME TAX ACT ITSELF CAME INTO FORCE. THE AFORESAID INTENT WAS EXPRESSED LOUDLY AND CLEAR LY IN THE MEMORANDUM EXPLAINING THE PROVISIONS OF THE FINANCE BILL, 2001. WE, THUS, AGREE WITH THE VIEW TAKEN BY THE DELHI HI GH COURT, AND ARE NOT INCLINED TO ACCEPT THE OPINION OF PUNJAB & HARYANA HIGH COURT WHICH WENT BY DOMINANT PURPOSE THEORY. THE AF ORESAID REASONING WOULD BE APPLICABLE IN CASES WHERE SHARES ARE HELD AS INVESTMENT IN THE INVESTEE COMPANY, MAY BE FOR THE PURPOSE OF HAVING CONTROLLING INTEREST THEREIN. ON THAT REASON ING, APPEALS OF MAXOPP INVESTMENT LIMITED AS WELL AS SIMILAR CASES WHERE SHARES WERE PURCHASED BY THE ASSESSEES TO HAVE CONTROLLING INTEREST IN THE INVESTEE COMPANIES HAVE TO FAIL AND ARE, THEREFORE, DISMISSED. 36. THERE IS YET ANOTHER ASPECT WHICH STILL NEEDS T O BE LOOKED INTO. WHAT HAPPENS WHEN THE SHARES ARE HELD AS 'STOCK-IN- TRADE' AND NOT AS 'INVESTMENT', PARTICULARLY, BY THE BANKS? ON THI S SPECIFIC ASPECT, CBDT HAS ISSUED CIRCULAR NO. 18/2015 DATED NOVEMBER 02, 2015. 37. THIS CIRCULAR HAS ALREADY BEEN REPRODUCED IN PA RA 19 ABOVE. THIS CIRCULAR TAKES NOTE OF THE JUDGMENT OF THIS CO URT IN NAWANSHAHAR CASE WHEREIN IT IS HELD THAT INVESTMENT S MADE BY A BANKING CONCERN ARE PART OF THE BUSINESS OR BANKING . THEREFORE, THE INCOME ARISES FROM SUCH INVESTMENTS IS ATTRIBUTABLE TO BUSINESS OF BANKING FALLING UNDER THE HEAD 'PROFITS AND GAINS O F BUSINESS AND PROFESSION'. ON THAT BASIS, THE CIRCULAR CONTAINS T HE DECISION OF THE BOARD THAT NO APPEAL WOULD BE FILED ON THIS GROUND BY THE OFFICERS OF THE DEPARTMENT AND IF THE APPEALS ARE ALREADY FI LED, THEY SHOULD BE WITHDRAWN. A READING OF THIS CIRCULAR WOULD MAKE IT CLEAR THAT THE ISSUE WAS AS TO WHETHER INCOME BY WAY OF INTEREST ON SECURITIES SHALL BE ITA NOS.2131 & 2698/CHNY/2017 :- 8 -: CHARGEABLE TO INCOME TAX UNDER THE HEAD 'INCOME FRO M OTHER SOURCES' OR IT IS TO FALL UNDER THE HEAD 'PROFITS A ND GAINS OF BUSINESS AND PROFESSION'. THE BOARD, GOING BY THE DECISION O F THIS COURT IN NAWANSHAHAR CASE, CLARIFIED THAT IT HAS TO BE TREAT ED AS INCOME FALLING UNDER THE HEAD 'PROFITS AND GAINS OF BUSINE SS AND PROFESSION'. THE BOARD ALSO WENT TO THE EXTENT OF S AYING THAT THIS WOULD NOT BE LIMITED ONLY TO CO-OPERATIVE SOCIETIES /BANKS CLAIMING DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT BUT WOULD ALSO BE APPLICABLE TO ALL BANKS/COMMERCIAL BANKS, TO WHICH BANKING REGULATION ACT, 1949 APPLIES. 38. FROM THIS, PUNJAB AND HARYANA HIGH COURT POINTE D OUT THAT THIS CIRCULAR CARVES OUT A DISTINCTION BETWEEN 'STOCK-IN -TRADE' AND 'INVESTMENT' AND PROVIDES THAT IF THE MOTIVE BEHIND PURCHASE AND SALE OF SHARES IS TO EARN PROFIT, THEN THE SAME WOU LD BE TREATED AS TRADING PROFIT AND IF THE OBJECT IS TO DERIVE INCOM E BY WAY OF DIVIDEND THEN THE PROFIT WOULD BE SAID TO HAVE ACCR UED FROM INVESTMENT. TO THIS EXTENT, THE HIGH COURT MAY BE C ORRECT. AT THE SAME TIME, WE DO NOT AGREE WITH THE TEST OF DOMINAN T INTENTION APPLIED BY THE PUNJAB AND HARYANA HIGH COURT, WHICH WE HAVE ALREADY DISCARDED. IN THAT EVENT, THE QUESTION IS A S TO ON WHAT BASIS THOSE CASES ARE TO BE DECIDED WHERE THE SHARE S OF OTHER COMPANIES ARE PURCHASED BY THE ASSESSEES AS 'STOCK- IN-TRADE' AND NOT AS 'INVESTMENT'. WE PROCEED TO DISCUSS THIS ASP ECT HEREINAFTER. 39. IN THOSE CASES, WHERE SHARES ARE HELD AS STOCK- IN-TRADE, THE MAIN 38 PURPOSE IS TO TRADE IN THOSE SHARES AND EAR N PROFITS THEREFROM. HOWEVER, WE ARE NOT CONCERNED WITH THOSE PROFITS WHICH WOULD NATURALLY BE TREATED AS 'INCOME' UNDER THE HE AD 'PROFITS AND GAINS FROM BUSINESS AND PROFESSION'. WHAT HAPPENS I S THAT, IN THE PROCESS, WHEN THE SHARES ARE HELD AS 'STOCK-IN-TRAD E', CERTAIN DIVIDEND IS ALSO EARNED, THOUGH INCIDENTALLY, WHICH IS ALSO AN ITA NOS.2131 & 2698/CHNY/2017 :- 9 -: INCOME. HOWEVER, BY VIRTUE OF SECTION 10 (34) OF TH E ACT, THIS DIVIDEND INCOME IS NOT TO BE INCLUDED IN THE TOTAL INCOME AND IS EXEMPT FROM TAX. THIS TRIGGERS THE APPLICABILITY OF SECTION 14A OF THE ACT WHICH IS BASED ON THE THEORY OF APPORTIONME NT OF EXPENDITURE BETWEEN TAXABLE AND NON-TAXABLE INCOME AS HELD IN WALFORT SHARE AND STOCK BROKERS P LTD. CASE. THEREF ORE, TO THAT EXTENT, DEPENDING UPON THE FACTS OF EACH CASE, THE EXPENDITURE INCURRED IN ACQUIRING THOSE SHARES WILL HAVE TO BE APPORTIONED. 40. WE NOTE FROM THE FACTS IN THE STATE BANK OF PAT IALA CASES THAT THE AO, WHILE PASSING THE ASSESSMENT ORDER, HAD ALR EADY RESTRICTED THE DISALLOWANCE TO THE AMOUNT WHICH WAS CLAIMED AS EXEMPT INCOME BY APPLYING THE FORMULA CONTAINED IN RULE 8D OF THE RULES AND HOLDING THAT SECTION 14A OF THE ACT WOULD BE AP PLICABLE. IN SPITE OF THIS EXERCISE OF APPORTIONMENT OF EXPENDIT URE CARRIED OUT BY THE AO, CIT(A) DISALLOWED THE ENTIRE DEDUCTION O F EXPENDITURE. THAT VIEW OF THE CIT(A) WAS CLEARLY UNTENABLE AND R IGHTLY SET ASIDE BY THE ITAT. THEREFORE, ON FACTS, THE PUNJAB AND HA RYANA HIGH COURT HAS ARRIVED AT A CORRECT CONCLUSION BY AFFIRM ING THE VIEW OF THE ITAT, THOUGH WE ARE NOT SUBSCRIBING TO THE THEO RY OF DOMINANT INTENTION APPLIED BY THE HIGH COURT. IT IS TO BE KEPT IN MIND THAT IN THOSE CASES WHERE SHARES ARE HELD AS 'STOCK-IN-TRADE', IT BECOMES A BUSINESS ACTIVITY OF THE ASSESSEE TO DEAL IN THOSE SHARES AS A BUSINESS PROPOSITION. WHE THER DIVIDEND IS EARNED OR NOT BECOMES IMMATERIAL. IN FACT, IT WOULD BE A QUIRK OF FATE THAT WHEN THE INVESTEE COMPANY DECLARED DIVIDE ND, THOSE SHARES ARE HELD BY THE ASSESSEE, THOUGH THE ASSESSE E HAS TO ULTIMATELY TRADE THOSE SHARES BY SELLING THEM TO EA RN PROFITS. THE SITUATION HERE IS, THEREFORE, DIFFERENT FROM TH E CASE LIKE MAXOPP INVESTMENT LTD. WHERE THE ASSESSEE WOULD CONTINUE T O HOLD THOSE SHARES AS IT WANTS TO RETAIN CONTROL OVER THE INVES TEE COMPANY. IN ITA NOS.2131 & 2698/CHNY/2017 :- 10 - : THAT CASE, WHENEVER DIVIDEND IS DECLARED BY THE INV ESTEE COMPANY THAT WOULD NECESSARILY BE EARNED BY THE ASSESSEE AN D THE ASSESSEE ALONE. THEREFORE, EVEN AT THE TIME OF INVESTING INT O THOSE SHARES, THE ASSESSEE KNOWS THAT IT MAY GENERATE DIVIDEND IN COME AS WELL AND AS AND WHEN SUCH DIVIDEND INCOME IS GENERATED T HAT WOULD BE EARNED BY THE ASSESSEE. IN CONTRAST, WHERE THE SHARES ARE HELD AS STOCK-IN- TRADE, THIS MAY NOT BE NECESSARILY A SITUATION. THE MAIN PURPOSE IS TO LIQUIDATE THOSE SHARES WHENEVER THE SHARE PRICE GOES UP IN OR DER TO EARN PROFITS. IN THE RESULT, THE APPEALS FILED BY THE RE VENUE CHALLENGING THE JUDGMENT OF THE PUNJAB AND HARYANA HIGH COURT I N STATE BANK OF PATIALA ALSO FAIL, THOUGH LAW IN THIS RESPECT HA S BEEN CLARIFIED 40 HEREINABOVE. 41. HAVING REGARD TO THE LANGUAGE OF SECTION 14A(2) OF THE ACT, READ WITH RULE 8D OF THE RULES, WE ALSO MAKE IT CLE AR THAT BEFORE APPLYING THE THEORY OF APPORTIONMENT, THE AO NEEDS TO RECORD SATISFACTION THAT HAVING REGARD TO THE KIND OF THE ASSESSEE, SUO MOTO DISALLOWANCE UNDER SECTION 14A WAS NOT CORRECT . IT WILL BE IN THOSE CASES WHERE THE ASSESSEE IN HIS RETURN HAS HI MSELF APPORTIONED BUT THE AO WAS NOT ACCEPTING THE SAID A PPORTIONMENT. IN THAT EVENTUALITY, IT WILL HAVE TO RECORD ITS SAT ISFACTION TO THIS EFFECT. FURTHER, WHILE RECORDING SUCH A SATISFACTIO N, NATURE OF LOAN TAKEN BY THE ASSESSEE FOR PURCHASING THE SHARES/MAK ING THE INVESTMENT IN SHARES IS TO BE EXAMINED BY THE AO. 7. CONSIDERING THE EXPOSITION MADE BY THE APEX COU RT, I AM OF THE OPINION THAT THE QUESTION REGARDING DISALLOWANC E U/S.14A OF THE ACT REQUIRES A RE-VISIT BY THE LD. ASSESSING OFFICER. I SET ASIDE THE ORDERS OF ITA NOS.2131 & 2698/CHNY/2017 :- 11 - : AUTHORITIES BELOW AND REMIT THE ISSUE BACK TO THE F ILE OF LD. ASSESSING OFFICER FOR CONSIDERATION AFRESH IN ACCORDANCE WITH LAW. 8. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES ORDER PRONOUNCED ON 09 TH APRIL, 2018, AT CHENNAI. SD/- ( !'# $ %&% ' ( ABRAHAM P GEORGE) ! / ACCOUNTANT MEMBER () / CHENNAI *+ / DATED: 09 TH APRIL, 2018. K S SUNDARAM +,-- ./-0/ / COPY TO: - 1 . / APPELLANT 3. - 1-2' / CIT(A) 5. /34- 5 / DR 2. / RESPONDENT 4. - 1 / CIT 6. 46-7 / GF