The ITO, Ward-4(1), Ahmedabad V. Echolac Finvest Pvt.Ltd., Ahmedabad

ITA 4234/AHD/2007

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6794 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 30-03-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 30-11-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K TOPIWALA
• Assessee Lawyers: S N SOPARKAR SRAR
• Keywords: Proportionate interest; Cost of acquisition
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE SHRI D.K.TYAGI, HONBLE JUDICIAL MEMBER, AND SHRI D. C. AGRAWAL, HONBLE ACCOUNTANT MEMBER ITA NO.4234/AHD/2007 ASSESSMENT YEAR:2004-05 DATE OF HEARING:30.3.11 DRAFTED:7.4.11 INCOME TAX OFFICER, WARD-4(1), ROOM NO.104, 1 ST FLOOR, NAVJIVAN TRUST BUILDING, NAVJIVAN P.O. AHMEDABAD V/S . ECHOLAC FINVEST PVT. LTD., A-23, SHILPALAYA APARTMENT, VASNA, AHMEDABAD PAN NO.AAACE3446R (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI R.K.TOPIWALA, DR RESPONDENT BY:- SHRI S.N.SOPARKAR, SR-AR O R D E R PER D.K.TYAGI, JUDICIAL MEMBER:- THIS IS REVENUES APPEAL AGAINST THE ORDER OF COMM ISSIONER OF INCOME- TAX(APPEALS)-VIII, AHMEDABAD IN APPEAL NO. CIT(A)-V III/ITO/4(1)/22/06-07 DATED 14-09-2007 FOR THE ASSESSMENT YEAR 2004-05. 2. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS:- 1. THE CIT(A) HAS ERRED IN LAW AND OF THE FACTS OF THE CASE IN REDUCING THE DISALLOWANCE OF RS.58,57,035/- ON ACCOUNT OF IN TEREST PAID BY THE ASSESSEE ON OPTIONALLY FULLY CONVERTIBLE PREMIUM NO TES (OFCPN) TO RS.9,85,000/-. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN RESTRICTING THE DISALLOWANCE OF RS.12,23,969/- U/S 14A TO RS.23,517/- AND DELETING THE BALANCE DISALLOWANCE. 3. THE FIRST GROUND RELATES TO DISALLOWANCE OF RS.5 8,37,035/- ON ACCOUNT OF INTEREST PAID BY ASSESSEE ON OPTIONALLY FULLY CONVE RTIBLE PREMIUM NOTES (OFCPN FOR SHORT) WHICH HAS BEEN REDUCED BY LD. CIT (A) TO RS.9.85 LAKH. ITA NO.4234/AHD/2007 A.Y. 2004-05 ITO WD-4(1), ABD V. ECHOLAC FINVEST P. LTD. PAGE 2 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF TRADING AND INVESTMENT IN SHARES AND SE CURITIES, PROVIDING LOANS ETC. AND FINANCIAL SERVICES. THE ASSESSEE DEBITED F INANCIAL EXPENSES OF RS.58,57,035/- WHICH IS PREMIUM ON OFCPN. THE ASSES SEE SUBMITTED BEFORE ASSESSING OFFICER THAT OFCPN MONEY HAD BEEN UTILIZE D IN PURCHASING NIRMA SHARES TO THE TUNE OF RS.245.81 LAKH. THE AO CALCUL ATED THE INTEREST ON OFCPN MONEY AT RS.19,42,624/- AS PREMIUM PROPORTION ATE TO INVESTMENT IN NIRMA SHARES AND PROPOSED TO INCLUDE THE SAME IN TH E COST OF ACQUISITION OF NIRMA SHARES AND RECALCULATE THE CAPITAL GAINS. ACC ORDING TO AO FIGURE OF RS.245.81 LAKH WAS INCORRECT AND THE SAME SHOULD HA VE BEEN RS.217.62 LAKH. DURING THE YEAR TOTAL AMOUNT REALIZED ON SALE OF NI RMA SHARES WAS OF RS.2,18,90,461/-. THE AO HOWEVER OBSERVED THAT ASSE SSEE HAD HELD THE SHARES AS INVESTMENT AND THEREFORE THE INTEREST PAI D BY THE ASSESSEE ON OFCPN WAS THE COST OF SHARES AND WAS REQUIRED TO BE ADDED TO THE COST OF INVESTMENT AND THEREFORE COULD NOT BE ALLOWED AS B USINESS EXPENDITURE. ACCORDINGLY, SAME WAS DISALLOWED BY AO AND ADDED TO THE INCOME OF THE ASSESSEE. 5. BEFORE LD. CIT(APPEALS) ASSESSEE MADE DETAILS SU BMISSION, WHICH HAS BEEN REPRODUCED BY LD. CIT(A) IN HIS ORDER AT PARA-3.1 AS UNDER:- 3.1 BEFORE ME, THE LD. COUNSEL SUBMITTED AS UNDER, THE APPELLANT HAS INCURRED FOLLOWING EXPENDITURE DURING THE YEAR. SR.NO PARTICULARS AMOUNT RS. 1 INTEREST TO BANK AND OTHERS 13,19,305/- 2 PREMIUM ON OFCPN (DEBENTURE INTEREST) 58,57,035/- 3 ADMN. & OTHER EXPENSES 2,35,172/- DURING THE YEAR UNDER REFERENCE YOUR ASSESSEE HAS S OLD 81,242 SHARES OF NIRMA LIMITED OUT OF ITS HOLDING OF 265,636 HAVI NG COST OF RS.2,18,90,461/- AND REALIZED SUM OF RS.2,98,57,358 RESULTING INTO NET LONG TERM CAPITAL GAIN AS PER BOOKS OF ACCOUNTS AT RS.79,66,897/-. YOUR APPELLANT HAD RAISED THE FUNDS RESOURCES BY WA Y OF ISSUANCE OF DEBENTURES, WHICH ARE SAID AS OPTIONALLY FULLY CONV ERTIBLE PREMIUM ITA NO.4234/AHD/2007 A.Y. 2004-05 ITO WD-4(1), ABD V. ECHOLAC FINVEST P. LTD. PAGE 3 NOTES (OFCPN) IN THE YEAR 2002-03. IN THE COURSE OF ASSESSMENT PROCEEDINGS THE LD. AO HAD DESIRED FOR THE DETAILS OF THE UTILIZATION OF THE SAID MOBILIZED FUNDS, WITH EXACT NEXUS, WHICH H AS BEEN PROVIDED, WHICH IS SUMMARIZED AND REPRODUCED AS UNDER:- OFCPN SHARE APPLICATION MONEY RECEIVED PAYMENT MADE DATE PARTICULARS AMOUN T (RS. IN LACS) OFC PN ALLOTT ED PARTICULARS AMOUNT (RS. IN LACS) REMARKS (1) (2) (3) (4) (5) (6) (7) 3.9.01 CHQ. NO.620406 RECD. FROM KETAN M PATEL 26.39 26 ISHANA CONSULTANCY SERVICES CHQ. NO.66852 26.39 AGAINST PURCHASE OF SHARES OF NIRMA LTD. 4.9.01 27.8.01 CHQ. NO.122870 RECD. FROM DILIP V PATEL ALLOTMENT MONEY FROM DILIP V PATEL 52.83 0.17 53 ISHAN CONSULTANCY SERVICES CHQ. NO. 66853 52.83 AS ABOVE 5.9.01 CHQ. NO.171809 RECD. FROM KALIDAS S PATEL 13.68 13 ISHAN CONSULTANCY SERVICES CHQ. NO.66854 10.00 AS ABOVE 5.9.01 27.3.01 CHQ. NO.77850 RECD. FROM MADHUBEN K PATEL` ALLOTMENT MONEY RECD. 17.91 0.09 18 ISHAN CONSULTANCY SERVICES CHQ. NO.66855 21.59 AS ABOVE 21.9.01 CHQ. NO.838565 RECD. FROM NIYA FINSTOCK 50.00 50 ISHAN CONSULTANCY CHQ. NO.66861 50.00 AGAINST PURCHASE OF SHARES OF NIRMA MADE ON 11.9.01 & 18.9.01 RS.54.34 LACS. 25.9.01 CHQ. NO.4767739 RECD. FROM NIYOGI FINSTOCK 50.00 50 ISHAN CONSULTANCY CHQ. NO.66862 50.00 LOAN GIVEN FOR BUSINESS PURPOSES 5.2.02 ALLOTMENT MONEY RECD. ON 5.2.02 FROM NIYA FINSTOCK 50.00 50 CHQ. NO.190388 FD WITH KCCB 50.00 FIXED DEPOSIT PLACED WITH KCCB 2.9.02 CHQ. NO.871128 RECD. FROM 150.00 150 CHQ. NO.76981 ISHAN CONSULTANCY SERVICES CHQ. 21.00 85.00 LOAN GIVEN FOR BUSINESS PURPOSE ITA NO.4234/AHD/2007 A.Y. 2004-05 ITO WD-4(1), ABD V. ECHOLAC FINVEST P. LTD. PAGE 4 NIYA FINSTOCK PVT. LTD. NO.76982 KAUTILYA FINSECURITIES CHQ. NO.76983 KAUSHIK N PATEL HUF OVERDRAFT LIMIT OF FDOD-229 (ECHOLAC) 7.00 37.00 RS.56.81 LACS ADJUSTED TOWARDS OUTSTANDING LOAN & RS.28.19 LACS NEW INTER CORPORATE DEPOSIT GIVEN TO KFSL ORIGINAL LOAN TAKEN IN AUG02 TO MAKE PAYMENT TO ICS AGAINST PURCHASE OF NIRMAS SHARE LOAN REPAYMENT. ITS A RUNNING LOAN A/C USED TO FINANCE BUSINESS ACTIVITIES LIQUIDATING BANK OVERDRAFT 4.9.02 CHQ. RECD. FROM NIYOGI FINSTOCK PVT. LTD. 100.00 100 CHQ. NO.76985 NIYOGI FINSTOCK 100.00 LOAN REPAYMENT, TAKEN IN MAR- 02 TO MAKE REPAYMENT OF ICD TAKEN FROM RIN FINANCE TO GIVE UNSECURED LOAN TO ICS IN AUG-01 ITA NO.4234/AHD/2007 A.Y. 2004-05 ITO WD-4(1), ABD V. ECHOLAC FINVEST P. LTD. PAGE 5 29.10.02 CHQ. NO.871304 RECD. FROM NIYA FINSTOCK PVT. LTD. 150.00 150 CHQ. NO.79617 ISHAN CONSULTANCY CHQ. NO.79619 KAUTILYA FINSECURITIES CHQ. NO.79620 ISHAN CONSULTANCY CHQ. NO.79621 ISHAN CONSULTANCY CHQ. NO. 79621 ISHAN CONSULTANCY CHQ. NO.79622 KAUSHIK N PATEL HUF OVERDRAFT LIMIT OF FDOD-229 (ECHOLAC) 5.00 42.00 27.82 10.00 32.00 33.00 LOAN FOR BUSINESS PURPOSES ICD GIVEN TO KAUTILYA FINSECURITIS LTD. LOAN GIVEN FOR BUSINESS PURPOSE. LOAN GIVEN FOR BUSINESS PURPOSE. LOAN REPAYMENT LIQUIDATING BANK OVERDRAFT TOTAL 661.07 660 660.63 BOLD TOTAL 217.62 NOTE :- BOLD TOTAL REPRESENTS DIRECT NEXUS OF INVESTMENT IN SHARES OF NIRMA LIMITED. BASED ON ABOVE FACTS, LD. ASSESSING OFFICER HAS MAD E HUGE ADDITION TO THE INCOME FOR WHICH OUR SUBMISSIONS ARE AS UNDER:- ADDITION OF RS.58,57,035/- LD. AO HAS MADE ADDITION, ON THE GROUND THAT FUNDS MOBILIZED BY WAY OF OFCPN (DEBENTURE) HAS BEEN USED FOR THE ACQUISIT ION OF SHARES OF NIRMA LTD, AND THEREFORE INTEREST ON THAT RS.58.57 LACS SHOULD BE ADDED TO COST OF INTEREST U/S.48, AND SO THE SAME IS NOT ALLOWABLE AS EXPENDITURE AS CLAIMED. LET US EXAMINE EACH, ONE BY ONE. (A) OUT OF OFCPN PROCEEDS NEXUS OF AMOUNT INVESTED FOR ACQUISITION OF EQUITY SHARES OF NIRMA LIMITED. AS YOUR HONOUR WOULD APPRECIATE THAT THE BUSINESS O F YOUR APPELLANT IS TO DEAL IN FINANCE BY PROVIDING LOANS, DEALING IN S HARES AND SECURITIES ETC. FUND FOR EACH DAY IS EXPECTED TO GENERATE INCO ME. LD. AO DECIDED TO LOOK INTO THE EXACT NEXUS OF THE AMOUNT MOBILIZE D BY WAY OF DEBENTURES AND ITS UTILIZATION LD. AO HAS CALLED FO R VARIOUS DETAILS AND ITA NO.4234/AHD/2007 A.Y. 2004-05 ITO WD-4(1), ABD V. ECHOLAC FINVEST P. LTD. PAGE 6 AFTER LOOKING INTO THE DETAILS LD. AO FINALIZED THE AMOUNT INVESTED IN SHARES OF NIRMA LTD. OUT OF OFCPN PROCEEDS AT RS.24 5.81 LACS. THE AMOUNT WORKED OUT AT RS.245.81 LACS WAS ERRONEO US TO THE EXTENT OF RS.85 LACS. THE DIFFERENCE HAS ARISEN BECAUSE TH E PAYMENT OF RS.85 LACS WAS MADE TO M/S. KAUTILYA FINSECURITIES PVT. L TD TOWARDS OUTSTANDING AMOUNT WHICH CONSTITUTE OF AN AMOUNT OF RS.56.81 LACS, WHICH IS OUTSTANDING ON THAT DATE, WHICH HAS BEEN E ARLIER USED, FOR THE PURPOSE OF ACQUISITION OF EQUITY SHARES OF NIRMA LI MITED AND BALANCE RS.28.19 LACS HAS BEEN GIVEN TO KFSL AS ICD. THIS I S THE REASON WHY IT WAS STATED THAT STRICTLY THE ENTIRE RS.85 LACS SHOU LD BE EXCLUDED, HOWEVER, RS.56.81 LACS HAS BEEN CONSIDERED EVEN CON SIDERING ULTIMATE UTILIZATION, THOUGH THERE WAS NO DIRECT NEXUS. THUS , BECAUSE ULTIMATE UTILIZATION WAS CONSIDERED, THE WORD INDIRECTLY WAS USED. THE SUM TOTAL OF THE AMOUNTS TABULATED BY LD. AO HA S BEEN DETERMINED AND STATED SO FAR AT RS.245.81 LACS. SURPRISINGLY, LD. AO HAS COME TO THE CONCLUSION THAT THE ENTIRE AMOUNT MOBLISED THRO UGH OFCN I.E RS.660 LACS HAS BEEN UTILIZED FOR ACQUISITION OF SH ARES OF NIRMA LIMITED BY MAKING OBSERVATIONS ON PAGE 7 OF THE ASSESSMENT ORDER. FROM ALL ABOVE, YOUR HONOUR WOULD OBSERVE THAT EVEN AS PER LD. AO THE AMOUNT FOR ACQUISITION OF SHARES OF NIRMA LIMITED I S RS.245.81 LACS OUT OF TOTAL OFCPN MOBLISED AT RS.660 LACS. THIS HAS BE EN DETERMINED BY LD. AO AFTER VERY DETAILED CHECKING AND VERIFICATIO N OF BOOKS OF ACCOUNTS, EVEN BANK STATEMENT, WHICH HAS TAKEN MORE THAN THREE TO FOUR SITTINGS AND THEN STRAIGHT HAS COME TO CONCLUS ION FOR ENTIRE AMOUNT. THE CORRECT AMOUNT SHOULD BE 217.62 LAC I.E. AFTER REDUCING ICB GIVEN TO KFSL AT RS.28.19 LACS AS STATED HEREINABOVE. SO AT BEST PROPORTIONATE DISALLOWANCE, EVEN AS PER SEC. 48 AND TO THE EXTENT FUNDS USED FOR ACQUISITION OF SHARES W.E.F 1.4.2003, I.E. BEGINNIN G OF THE YEAR, SHOULD HAVE BEEN TAKEN. B) REALIZATION OF THE PROCEEDS ON SALE OF SHARES OF NIRMA LIMITED. DURING THE YEAR UNDER REFERENCE, YOUR APPELLANT HAS SOLD SHARES HAVING COST OF RS.2,18,90,461/- AND HAS REALIZED RS.2,98,5 7,358/-, RESULTING INTO CAPITAL GAIN, WHICH HAS BEEN OFFERED FOR TAXES IN RETURN OF INCOME. THE SAID SHARES HAVE BEEN SOLD AND THE MAJORITY OF AMOUNT HAS BEEN REALIZED BY YOUR APPELLANT RIGHT FROM MAY TO SEPTEM BER, 03 I.E. DURING THE PERIOD OF FIRST SIX MONTHS OF THE YEAR AT RS.2, 66,01,295/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, YOUR APPELLANT HA S REQUESTED LD AO THAT THE AMOUNT OF RS.245 LACS, WHICH THE CORREC T NUMBER IS RS.217 LACS IS CONSIDERED TO BE UTILIZED FOR THE PURPOSE O F ACQUISITION OF SHARES OF NIRMA LIMITED, EVEN THEN DURING THE FIRST HALF T HE AMOUNT WHICH HAS BEEN REALIZED AND THEREFORE DISALLOWANCE OF INTERES T NOT TO BE MADE. ITA NO.4234/AHD/2007 A.Y. 2004-05 ITO WD-4(1), ABD V. ECHOLAC FINVEST P. LTD. PAGE 7 EVEN IF IT IS TO BE MADE, THEN IT IS TO BE PROPORTI ONATE ONLY. THE SAID PROPORTION MEANS, FROM OPENING OF THE YEAR, TILL EA CH TIME THE AMOUNT REALIZED, TILL ENTIRE INVESTMENT FROM OFCPN GETS EX HAUSTED. THE LD AO SHOULD TAKE RS.217 LACS, OR IF ON FACTS FIND RS.245 LACS, THEN TO THAT EXTENT HE CAN NOT DISALLOW ENTIRE INTEREST, WHICH H E HAS DONE IN THE ASSESSMENT ORDER. SO THE LD. AO HAS GROSSLY MISUNDE RSTOOD THE CONTENTION AND IS LOOKING FOR THE EVIDENCE AND THE SUPPORTING FOR REALISATION OF THE PROCEEDS, WHICH IS BEING PART OF THE COMPUTATION OF INCOME ITSELF AND THE SAID SALE OF INVESTMENT IN SH ARES OF NIRMA LIMITED IS UN-DISPUTED FACT. CONSIDERING FACTS AND CIRCUMSTANCES OF THE CASE, AD DITION MADE MAY KINDLY BE DELETED. IN ALTERNATE SUBMISSION, IT IS P RAYED THAT CORRECT DISALLOWABLE WORKS OUT TO AS UNDER: SR.NO. PARTICULARS RECEIPT IN RS. LACS (A) TOTAL AMOUNT RAISED BY OFCPN 647.00 (B) PREMIUM CHARGED FOR F.Y.2003- 04(FULLY DISALLOWED) 58.57 AMOUNT MOBILIZED AND USED FOR THE ACQUISITION OF SHARES OF NIRMA LTD. RS. IN LACS AMOUNT OF PROPORTIONATE INTEREST (I) AS PER CONTENTION OF THE ASSESSEE RS.217.62 RS. 19.70 (II) AS PER CONTENTION OF THE ASSESSING OFFICER RS.245.81 RS. 22.25 (D) AMOUNT REALIZED ON SALE OF SHARES FROM MAY, 03 TO BEFORE SEPT.03. THEREFORE AT THE MOST FOR HALF OF THE YEAR AMOUNT CAN BE CONSIDERED AS USED TOWARDS ACQUISITION SHARES CONSIDERED WHICH AGAIN REDUCE THE ABOVE AMOUNT BY 50% I.E. AS PER ASSESSEE AS PER ASSESSING OFFICER. RS. 9.85 RS. 11.12 THUS MAXIMUM AMOUNT EVEN IF DISALLOWABLE AS PER THE CONTENTION OF THE ASSESSING OFFICER AND ADDED TO THE COST OF INVESTME NT WORKS OUT TO RS.11.12 LACS ONLY AND THEREFORE IT MAY KINDLY BE D IRECTED TO GIVE APPROPRIATE RELIEF. 6. AFTER TAKING INTO CONSIDERATION THE SUBMISSION O F ASSESSEE LD. CIT(A) RESTRICTED THE ADDITION OF DISALLOWANCE TO RS.9.85 LAKH BY OBSERVING AS UNDER:- SUBMISSIONS OF THE LD. COUNSEL HAVE BEEN CONSIDERE D. THE APPELLANT HAD RAISED RS.6,60,00,000/- BY ISSUE OF OFCPN. THE ASSESSING OFFICER HAS CONCLUDED THAT THE ENTIRE AMOUNT MOBILIZED THRO UGH OFCPN OF RS.660 LACS HAS BEEN UTILIZED FOR ACQUISITION OF SH ARES OF NIRMA LTD. HOWEVER, AS CONTENDED BY THE APPELLANT THE CORRECT AMOUNT OF COST OF ACQUISITION OF SHARES OF NIRMA LTD. SOLD DURING THE YEAR IS RS.218,90,461/- WHICH HAS RESULTED IN SALE PROCEEDS OF ITA NO.4234/AHD/2007 A.Y. 2004-05 ITO WD-4(1), ABD V. ECHOLAC FINVEST P. LTD. PAGE 8 RS.2,98,57,358/- RESULTING INTO CAPITAL GAINS WHICH HAS BEEN OFFERED BY THE APPELLANT. IT IS FOUND THAT THE SHARES HAVE BEE N SOLD AND MAJOR AMOUNT OF SALE PROCEEDS HAS BEEN REALIZED BY THE AP PELLANT FROM MAY,2003 TO SEPTEMBER, 2003 I.E. DURING FIRST HALF OF F.Y 2003-04. THEREFORE, THE APPELLANT HAS GIVEN A WORKING SAYING THAT ONLY 50% OF THE INTEREST PAID PROPORTIONATE TO THE INVESTMENT I N SHARES OF RS.217.62 LACS OUT OF OFCPN MONEY RAISED OF RS.647 LACS ONLY BE HELD AS INTEREST RELATING TO SHARES OF NIRMA LTD. WHICH ACCORDING TO THE APPELLANT COMES TO RS.9..85 LACS. THIS WORKING IS FOUND TO BE IN OR DER AS THIS IS THE AMOUNT OF INTEREST RELATING TO INVESTMENT IN NIRMA SHARES FROM WHICH DIVIDEND HAS BEEN RECEIVED AND ALSO LONG TERM CAPIT AL GAIN HAS BEEN REALIZED BY THE APPELLANT. OUT OF THE TOTAL INTERES T OF RS.58,57,035/- ONLY DISALLOWANCE HAS TO BE MADE TO THE EXTENT OF RS.9.8 5 LAKHS AS AGAINST THE DISALLOWANCE OF RS.58,57,035/-. ACCORDINGLY THE ASSESSING OFFICER IS DIRECTED TO REDUCE THE DISALLOWANCE TO RS.9.85,000/ -. THIS AMOUNT OF INTEREST OF RS.9.85 LACS IS DIRECTED TO BE ADDED TO THE COST OF NIRMA SHARES SOLD DURING THE YEAR FOR COMPUTATION OF LONG TERM CAPITAL GAINS. THIS IS ALSO THE FINDING OF THE A.O. THUS THIS GROU ND IS PARTLY ALLOWED AS ABOVE. 7. THE ABOVE FINDING OF LD. CIT(A) REMAINED UN-CONT ROVERTED BY LD. DR AT THE TIME OF HEARING BEFORE US THEREFORE THE ORDER P ASSED BY LD. CIT(A) IS HEREBY UPHELD. THIS GROUND OF REVENUES APPEAL IS D ISMISSED. 8. THE SECOND GROUND RELATES TO DISALLOWANCE OF RS. 12,23,769/- U/S 14A, WHICH HAS BEEN RESTRICTED BY LD. CIT(A) TO RS.23,50 7/-. 9. THE ASSESSING OFFICER OBSERVED THAT ASSESSEE HAD EARNED DIVIDEND OF RS.10,82,869/- AND INTEREST OTHER THAN OFCPN PREMIU M WAS OF RS.12,32,715/-. THE MAJOR AMOUNT OF DIVIDEND OF RS. 10,50,544/- WAS RECEIVED FROM NIRMA SHARES FOR WHICH THE OFCPN MONEY RAISED WAS INVESTED. ACCORDINGLY, HE DISALLOWED THE INTEREST PROPORTIONA TE TO THE EXTENT OF DIVIDEND INCOME AND AS NO NEXUS WAS ESTABLISHED BY ASSESSEE, HE MADE DISALLOWANCE TO THE EXTENT DIVIDEND INCOME I.E. RS.10,82,869/-. SIMILARLY, OUT OF ADMINISTRATIVE AND OTHER EXPENSES OF RS.2,35,172/- HE DISALLOWED 60% OF THE EXPENSES WHICH CAME TO RS1,41,100/-. ITA NO.4234/AHD/2007 A.Y. 2004-05 ITO WD-4(1), ABD V. ECHOLAC FINVEST P. LTD. PAGE 9 10. AFTER TAKING INTO CONSIDERATION THE SUBMISSION OF THE ASSESSEE LD. CIT(A) RESTRICTED THIS ADDITION TO RS.23,517/- BY O BSERVING AS UNDER:- SUBMISSIONS OF THE LD. COUNSEL HAVE BEEN CONSIDERE D. AS HELD IN THE EARLIER PARAGRAPH THE INTEREST RELATING TO OFCPN MO NEY UTILIZED FOR INVESTMENT IN SHARES OF NIRMA LTD. IS ONLY RS.9.85 LACS WHICH IS ALSO INTEREST EXPENDITURE INCURRED BY THE APPELLANT RELA TING TO DIVIDEND RECEIVED FROM NIRMA SHARES. THEREFORE, THE DISALLOW ANCE IF ANY TO BE MADE ON THIS ACCOUNT U/S.14A IS ONLY RS.9.85 LAKHS. BUT IN THE PREVIOUS GROUND, DISALLOWANCE OF THIS AMOUNT OF INTEREST IN THIS GROUND. THE ONLY DISALLOWANCE THAT IS REQUIRED TO BE MADE IS RELATIN G TO ADMINISTRATIVE EXPENSES. THE A.R HAS GIVEN BREAK UP OF ADMINISTRAT IVE EXPENSES OF RS.2,35,172/-. IT IS FOUND THAT THE MAJOR EXPENDITU RES ARE OF SALARY/PERSONAL EXPENSES OF RS.1,38,000/-, PRELIMIN ARY EXPENSES WRITTEN OFF OF RS.45,620/- AND LEGAL FEES AND AUDIT FEES OF RS.12,360/-. IT IS CONTENDED BY THE AUTHORIZED REPRESENTATIVE THAT THESE EXPENSES CAN NOT BE DIRECTLY RELATED TO EARNING OF DIVIDEND INCO ME. HOWEVER, IT IS FOUND THAT THE DIVIDEND RECEIVED IS RS.10,82,869/- WHICH COMES TO AROUND 7% OF THE TOTAL RECEIPTS OF RS.1,60,22,311/- . IN VIEW OF THE ABOVE FACTS AS THE APPELLANT NO DOUBT HAS INCURRED CERTAI N EXPENDITURE RELATING TO THE DIVIDEND INCOME, IN ABSENCE OF EXACT DETAILS , IN MY VIEW DISALLOWANCE OF 10% OF THE ADMINISTRATIVE EXPENSES OF RS.2,35,172/- I.E. RS.23,517/- WOULD BE PROPER IN THE FACTS OF THE CAS E AS RELATING TO EARNING OF DIVIDEND INCOME. ACCORDINGLY THE DISALLO WANCE IS DIRECTED TO BE REDUCED TO RS.23,517/- AS AGAINST RS.1,41,100/- OUT OF ADMINISTRATIVE EXPENSES. THUS DISALLOWANCE UNDER THIS HEAD IS REDU CED TO RS.23,517/- AS AGAINST RS.12,23,969/-. THUS THIS GROUND IS PART LY ALLOWED. THIS FINDING OF LD. CIT(A) ALSO REMAINED UN-CONTROV ERTED BY LD. DR. AT THE TIME OF HEARING BEFORE US. THEREFORE, WE FIND NO IN FIRMITY IN THE ORDER PASSED BY LD. CIT(A) IS HEREBY UPHELD. THIS GROUND OF REVE NUES APPEAL IS DISMISSED. 11. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 21/04/2011 SD/- SD/- (D.C.AGRAWAL) (D.K. TYA GI) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, DATED : 21/04/2011 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. ITA NO.4234/AHD/2007 A.Y. 2004-05 ITO WD-4(1), ABD V. ECHOLAC FINVEST P. LTD. PAGE 10 2. THE REVENUE. 3. THE CIT(APPEALS)-VIII, AHMEDABAD 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD