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@Probal bhai

Also please answer the question that should the Assessing Officer recored the reasons in writing in his order for the rejection of the claim of the assessee and the subsequent application of Rule 8D.

Bhavesh Savla
Keep Smiling.

If section 14A (2) is read carefully, then can we advance the arguments that Rule 8D is to be applied only if the A.O. is dissatisified as regards the claim of the assessee? Thus Rule 8D is not to be applied mechanically. It is a last option.
It is only after A.O. rejects the claim of the assessee.
Also while rejecting, should the A.O give reasons for his order?   
Has anyone else here taken a simliar position.


Bhavesh Savla
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@macmona

It covers only the investments earning tax-free income.
This is explained in the explanations given in Rule 8D


Bhavesh Savla
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If Rule 8D leads to an absurd result, then of course it can't be followed.
Can we apply B.C. Srinivasa Shetty 128 ITR which says that once the computational provision fails then the substantive procedure will not apply?
So once Rule 8D fails then 14A itself will not apply.


bhavesh savla
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Was the tribunal functioning on 27 and 28 Nov.
I could not attend a hearing on 27 nov because of the terrorists attack.
What is the status of cases on 27 and 28 nov?

Bhavesh savla
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You can take a stand that since the very purpose is portfolio investment it means that the shares were purchased with the intention of investments and not for trading.  You can take the help of Fidelity NorthStar 288 ITR 641. where it was held that when the shares were purchased under PMS then only Capital Gains is leviable irrespective of the number of transactions.

Is this the first year for investment? Was there scrutiny for earlier years also. What was the stand taken in earlier years?? You can also take the help of Janak Rangawalla 11 SOT 627 where it was held that if the department in earlier years had accepted the income as Capital gains then they could not take a different stand even if the transactions are numerous.

I find no merit in the argument that the expenses should be disallowed even if there may be no income.
If the source suddenly becomes taxable, then it will be a double blow to the assessee.
As regards the case law quoted by you in Rajendra Prasad 115 ITR 519 the SC has nowhere gone into the issue of the expenses and income being of different A.Ys .It has merely said that expenses should be allowed if any income-earning activity takes place during the year regardless of the fact that it yields profit or not.

Pls read the case quoted by me again i.e. Sir Kikabhai Premchand 24 ITR 506 which woud clearly support my case.
Also Shree Shyamkamal Finance 21 SOT 1 has directly dealt with the issue and  has given reasons for its judgment.

But the issue is not far from litigation. I think that Section 14A will become another 80HHC.

Keep Smiling.
 

YEs exactly,
That is why there can be no depreciation for Goodwill.


Bhavesh Savla

Keep Smiling.

Agricultural expenses are a seperate class of expenses by themselves The Govt is barred by the Constitution itself to tax Agri income. It can't be compared to any income.

You can also refer to Sir Kikabhai Premchand 24 ITR 506 which says:
"We are of opinion that the learned Attorney-General's second contention is unsound because, for income-tax purposes, each year is a self-contained accounting period and we can only take into consideration income, profits and gains made in that year and are not concerned with potential profits which may be made in another year any more than we are with losses which may occur in the future."


Bhavesh Savla
Keep Smiling.   

If the asset is not mentioned in the block of asset then no depreciation is allowed even though it is a Capital Expenditure.
See Hoogly Mills Co. Ltd.287 ITR 333

There is one more reason why the expenses of one year can't be disallowed for the expected income of future years.
Suppose the expenses in FY 2008-09 are disallowed for investments made. But neither any Long term Capital gains is earned nor dividend is earned.
Now suppose in FY 2009-10 both the STT and the DDT regime are discontinued. Both the LTCG and the Dividend income will be taxable in the hands of the shareholders.So will the assessee be allowed the expenses disallowed in FY 08-09??
If not then it will be very unfair to the assessee.
So I feel that the expenses should be disallowed for a particular year only if tax-free income is earned in the year.

Bhavesh Savla
Keep Smiling.

We have to see in what context that decision was rendered.
See Shree Shyamkamal Finance and Leasing Co, 21 SOT 1 where it was held that if no tax-free income is earned in the year, no disallowance in that year u/s 14A ca be made.


Bhavesh Savla
Keep Smiling.

One quesiton arises that if the assessee acquires shares in say FY 2007-08 but neither sells them in FY 2008-09 nor has earned dividend in FY 2007-08 then there is no exempt income in that year.
Can the officer still make disallowance saying that in the next year tax-free incomme may be earned.
Can the probable income in the next year be used to disallow this year's expense??


Bhavesh Savla
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Even Rule 8D only speaks on investments only.
It doesnt speak of the situation where the shares are held as Stock-in-trade.


Bhavesh Savla
Keep Smiling,

In ITR 6 The MAT Credit is taken before Surcharge and the Cess.