ITA-109-2025 (O&M) IN THE HIGH COURT OF PUNJAB AND HARYANA 1. ITA-109- M/s Panchsheel Textile Manufacturing Commissioner of Income Tax (Appeals) 2. ITA-110- M/s Panchsheel Textile Manufacturing Commissioner of Income Tax (Appeals) 3. ITA-111- M/s Panchsheel Textile Manufacturing Commissioner of Income Tax (Appe CORAM : HON'BLE MRS HON’BLE Present: Mr. Akshay Bhan, Sr. Advocate with Mr. Shantanu Bansal, Advocate for the appellant. Mr. Ranvijay Singh, Sr. Standing Counsel 2025 (O&M) and other connected cases IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Date of Decision -2007 (O&M) Panchsheel Textile Manufacturing and Trading Co. Pvt. Ltd. VERSUS Commissioner of Income Tax (Appeals)-1 Ludhiana and Another -2007 (O&M) Panchsheel Textile Manufacturing and Trading Co. Pvt. Ltd. VERSUS Commissioner of Income Tax (Appeals)-1 Ludhiana and Another -2007 (O&M) Panchsheel Textile Manufacturing and Trading Co. Pvt. Ltd. VERSUS Commissioner of Income Tax (Appeals)-1 Ludhiana and Another HON'BLE MRS. JUSTICE LISA GILL HON’BLE MRS. JUSTICE SUDEEPTI SHARMA Mr. Akshay Bhan, Sr. Advocate with Mr. Shantanu Bansal, Advocate for the appellant. Ranvijay Singh, Sr. Standing Counsel -.- and other connected cases -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Date of Decision:-13.05.2025 and Trading Co. Pvt. Ltd. ....Appellant 1 Ludhiana and Another ....Respondents and Trading Co. Pvt. Ltd. ....Appellant 1 Ludhiana and Another ....Respondents and Trading Co. Pvt. Ltd. ....Appellant 1 Ludhiana and Another ....Respondents LISA GILL SUDEEPTI SHARMA Mr. Akshay Bhan, Sr. Advocate with Mr. Shantanu Bansal, Advocate for the appellant. Ranvijay Singh, Sr. Standing Counsel for the respondents. TRIPTI SAINI 2025.05.19 14:25 I attest to the accuracy and integrity of this document ITA-109-2025 (O&M) SUDEEPTI SHARMA, J. 1. These and 2000-2001, have been learned Income Tax Appellate Tribunal, Chandiga 15/Chandi/2005 for the Assessment Years 1998 2. The following substantial questions of law are i appeals. (i) (ii) 3. Since Assessment Years 1998 impugned order dated 31.07.2006 dealing with all the above years is the same, therefore, and decision at request and with consent of learned counsel for the parties. BRIEF FACTS 4. The brief facts of the case are that appellant was engaged in the business of manufacture and trading of Yarn/Cloths. Upto the Assessme 1997-1998, the appellant was not doing any share trading 2025 (O&M) and other connected cases SUDEEPTI SHARMA, J. These appeals pertaining to Assessment Years 1998 , have been preferred against order dated 31.07.2006 passed by the learned Income Tax Appellate Tribunal, Chandiga /2005 for the Assessment Years 1998- The following substantial questions of law are i Whether in fact and circumstances of the case, the action of the authorities below not to consider that a single transaction of purchase and of sale outside activities of a business need not be simultaneous? (ii) Whether in fact and circumstances of the case, the action of the authorities below, the impugned orders Anneuxre A are legally sustainable in the eyes of law? Since substantial question of law involved in all three Assessment Years 1998-1999, 1999-2000, 2000 impugned order dated 31.07.2006 dealing with all the above is the same, therefore, all the appeals are taken up t and decision at request and with consent of learned counsel for the parties. BRIEF FACTS The brief facts of the case are that appellant was engaged in the business of manufacture and trading of Yarn/Cloths. Upto the Assessme 1998, the appellant was not doing any share trading and other connected cases -2- to Assessment Years 1998-1999, 1999-2000 preferred against order dated 31.07.2006 passed by the learned Income Tax Appellate Tribunal, Chandigarh in ITA No.171, 14 and -1999, 1999-2000 and 2000-2001. The following substantial questions of law are involved in the present Whether in fact and circumstances of the case, the action of the authorities below not to consider that a single transaction of purchase and of sale outside is a business and the various iness need not be simultaneous? Whether in fact and circumstances of the case, the action of the authorities below, the impugned orders Anneuxre A-1 and A are legally sustainable in the eyes of law? involved in all three appeals for the 2000, 2000-2001, is the same and even the impugned order dated 31.07.2006 dealing with all the above referred to assessment all the appeals are taken up together for adjudication and decision at request and with consent of learned counsel for the parties. The brief facts of the case are that appellant was engaged in the business of manufacture and trading of Yarn/Cloths. Upto the Assessment Year 1998, the appellant was not doing any share trading activity and as per the 2000 preferred against order dated 31.07.2006 passed by the ITA No.171, 14 and 2001. nvolved in the present Whether in fact and circumstances of the case, the action of the authorities below not to consider that a single transaction of is a business and the various Whether in fact and circumstances of the case, the action of the 1 and A-3 appeals for the is the same and even the referred to assessment ogether for adjudication The brief facts of the case are that appellant was engaged in the nt Year activity and as per the TRIPTI SAINI 2025.05.19 14:25 I attest to the accuracy and integrity of this document ITA-109-2025 (O&M) memorandum and articles of association also, the appellant was not entitled to carry on such activity. was amended. was amended. Object No.28 in the memorandum was amended as under: “To deal, invest in and acquire and hold, sell, buy or otherwise deal in shares, debentures, debenture securities issued or guaranteed by Indian or Foreign G State, Dominions, Sovereigns, Municipalities, or Public authorities or bodies and shares, stocks, debentures, debenture and securities issued and guaranteed by any company, corporation, firm or person whether incorporated or elsewhere. Board of Directors in the meeting held on 10.03.97 and shares holders in their annual general meeting on 13.03.97. On 13.03.97, the Board of Directors of the Compan shares. The relevant portion of the minutes is reproduced hereunder: amount of surplus funds and it was pro start trading activities in shares and other securities and finance activities.” 5. In view of the amendment as referred to above, the appellant started trading in shares. For the same, the appellant borrowed money for purchase 2025 (O&M) and other connected cases memorandum and articles of association also, the appellant was not entitled to carry on such activity. On 13.03.1997, the memorandum of articles of association ended. Object No.28 in the memorandum was amended as under: “To deal, invest in and acquire and hold, sell, buy or otherwise deal in shares, debentures, debenture-stock, bonds, units, obligations and securities issued or guaranteed by Indian or Foreign G State, Dominions, Sovereigns, Municipalities, or Public authorities or bodies and shares, stocks, debentures, debenture and securities issued and guaranteed by any company, corporation, firm or person whether incorporated or elsewhere. The amendments in the memorandum were approved by the Board of Directors in the meeting held on 10.03.97 and shares holders in their annual general meeting on 13.03.97. On 13.03.97, the Board of Directors of the Compan shares. The relevant portion of the minutes is reproduced hereunder: “To carry on the business of trading in shares/securities” The Board was informed that the company amount of surplus funds and it was pro start trading activities in shares and other securities and finance activities.” In view of the amendment as referred to above, the appellant started trading in shares. For the same, the appellant borrowed money for purchase and other connected cases -3- memorandum and articles of association also, the appellant was not entitled to memorandum of articles of association ended. Object No.28 in the memorandum was amended as under:- “To deal, invest in and acquire and hold, sell, buy or otherwise deal stock, bonds, units, obligations and securities issued or guaranteed by Indian or Foreign Governments, State, Dominions, Sovereigns, Municipalities, or Public authorities or bodies and shares, stocks, debentures, debenture stocks, obligations and securities issued and guaranteed by any company, corporation, firm or person whether incorporated or established in India or The amendments in the memorandum were approved by the Board of Directors in the meeting held on 10.03.97 and shares holders in their annual general meeting on 13.03.97. On 13.03.97, the Board of Directors of the Company decided to start trading in shares. The relevant portion of the minutes is reproduced hereunder: “To carry on the business of trading in shares/securities” that the company is having large amount of surplus funds and it was proposed that the company may start trading activities in shares and other securities and finance In view of the amendment as referred to above, the appellant started trading in shares. For the same, the appellant borrowed money for purchase memorandum and articles of association also, the appellant was not entitled to memorandum of articles of association “To deal, invest in and acquire and hold, sell, buy or otherwise deal stock, bonds, units, obligations and overnments, State, Dominions, Sovereigns, Municipalities, or Public authorities or tocks, obligations and securities issued and guaranteed by any company, corporation, established in India or The amendments in the memorandum were approved by the Board of Directors in the meeting held on 10.03.97 and shares holders in their annual general meeting on 13.03.97. On 13.03.97, y decided to start trading in shares. The relevant portion of the minutes is reproduced hereunder:- is having large posed that the company may start trading activities in shares and other securities and finance In view of the amendment as referred to above, the appellant started trading in shares. For the same, the appellant borrowed money for purchase of TRIPTI SAINI 2025.05.19 14:25 I attest to the accuracy and integrity of this document ITA-109-2025 (O&M) shares. The Assessing Officer while framing assessment 1998-1999, 1999 28.02.2002 and 28.02.2003 disallowed the entire business amount for investing in the shares ground that purchase purpose of trading but 6. The appellant challenged the same by filing Commissioner of Income Tax (Appeals) 05.10.2004 allowed the appeal for the Assessment Year 1998 order dated 17.09.2004 partly allowed the appeals pertaining to Assessment Years 1999-2000 and 2000 05.10.2004 and 17.09.2004 before the learned Income Tax Tribunal, Chandigarh, who vide its order dated 3 7. Hence the present appeals. SUBMISSIONS 8. Learned counsel appellant to carry on business of trading in shares/securities is clear from the amendment in the memorandum which was approved their meeting dated 10.03.1997. Further stock-in-trade and the balance sheet was duly audited by the auditors. Therefore, learned Assessing Officer as well as learned Tribunal totally ignored the fact that the appellant had duly reflected the shares as stock 2025 (O&M) and other connected cases shares. The Assessing Officer while framing assessment 1999, 1999-2000 and 2000-2001 vide his order and 28.02.2003 respectively, for the above referred to assessment the entire business loss on account of interest paid on borrowing of the amount for investing in the shares of M/s Vardhman Polytex Limited ground that purchase of shares of M/s Vardhman Polyte purpose of trading but is in the nature of an investment. The appellant challenged the same by filing Commissioner of Income Tax (Appeals) – 1, Ludhiana 05.10.2004 allowed the appeal for the Assessment Year 1998 r dated 17.09.2004 partly allowed the appeals pertaining to Assessment Years 2000 and 2000-2001. The respondent filed appeal against orders dated 05.10.2004 and 17.09.2004 before the learned Income Tax Tribunal, Chandigarh, vide its order dated 31.07.2006, allowed the appeals filed by the respondent Hence the present appeals. SUBMISSIONS Learned counsel for the appellant contended appellant to carry on business of trading in shares/securities is clear from the amendment in the memorandum which was approved their meeting dated 10.03.1997. Further, the appellant had duly reflected s trade and the balance sheet was duly audited by the auditors. Therefore, learned Assessing Officer as well as learned Tribunal totally ignored the fact that the appellant had duly reflected the shares as stock and other connected cases -4- shares. The Assessing Officer while framing assessment for the Assessment Year vide his orders dated 19.03.2001, for the above referred to assessment years on account of interest paid on borrowing of the of M/s Vardhman Polytex Limited on the of shares of M/s Vardhman Polytex Limited is not for the investment. The appellant challenged the same by filing an appeal before the 1, Ludhiana, who vide its order dated 05.10.2004 allowed the appeal for the Assessment Year 1998-1999 and vide its r dated 17.09.2004 partly allowed the appeals pertaining to Assessment Years 2001. The respondent filed appeal against orders dated 05.10.2004 and 17.09.2004 before the learned Income Tax Tribunal, Chandigarh, allowed the appeals filed by the respondent for the appellant contended that intention of the appellant to carry on business of trading in shares/securities is clear from the amendment in the memorandum which was approved by the Board of Directors in the appellant had duly reflected shares as trade and the balance sheet was duly audited by the auditors. Therefore, learned Assessing Officer as well as learned Tribunal totally ignored the fact that the appellant had duly reflected the shares as stock-in-trade and not as an asset and the Assessment Years dated 19.03.2001, years on account of interest paid on borrowing of the on the x Limited is not for the appeal before the , who vide its order dated 1999 and vide its r dated 17.09.2004 partly allowed the appeals pertaining to Assessment Years 2001. The respondent filed appeal against orders dated 05.10.2004 and 17.09.2004 before the learned Income Tax Tribunal, Chandigarh, allowed the appeals filed by the respondents. that intention of the appellant to carry on business of trading in shares/securities is clear from the by the Board of Directors in hares as trade and the balance sheet was duly audited by the auditors. Therefore, learned Assessing Officer as well as learned Tribunal totally ignored the fact that set and TRIPTI SAINI 2025.05.19 14:25 I attest to the accuracy and integrity of this document ITA-109-2025 (O&M) wrongly held that the appellant had purchased the share Ltd. not with the intention of trading in such shares therefore, is not entitled to deduction on borrowed for acquisition of such shares. He further contend treatment to the shares of other companies by holding that sale of shares of other companies are investment. Therefore, he pray 31.07.2006 passed by for Assessment Years 1998 9. Per contra, Tribunal has rightly allowed the appeal filed had purchased a inspite of the fact that the price of shares the same to earn purchased the said shar prays that present appeal 10. We have heard learned counsel for the parties and perused the these cases. 11. The question whether the shares purchased and held by the appellant of its group companies i.e. M/s Vardhman Polyt 2025 (O&M) and other connected cases held that the appellant had purchased the share with the intention of trading in such shares is not entitled to deduction on account of acquisition of such shares. He further contended that the Assessing Officer has given different treatment to the shares of other companies by holding that sale of shares of other meant for trading and of M/s Vard investment. Therefore, he prayed that present appeals be allowed and order dated passed by learned Tribunal, while deciding appeals of the respondent for Assessment Years 1998-1999, 1999-2000 and 2000 Per contra, learned counsel for the respondent Tribunal has rightly allowed the appeal filed by the respondent a large amount of shares and kept the same for a long duration and inspite of the fact that the price of shares arose upto Rs.48.25 but still did not sell earn huge profit, therefore, it clearly reveals that the said shares as long term investment prays that present appeals be dismissed. We have heard learned counsel for the parties and perused the The question involved for consideration in the present the shares purchased and held by the appellant of its group companies i.e. M/s Vardhman Polytex Ltd., constitute stock-in and other connected cases -5- held that the appellant had purchased the shares of M/s Vardhman Polyt with the intention of trading in such shares but purely as an investment account of the interest paid on money that the Assessing Officer has given different treatment to the shares of other companies by holding that sale of shares of other M/s Vardhman Polytex Ltd. as that present appeals be allowed and order dated while deciding appeals of the respondent 2000 and 2000-2001 be set aside. learned counsel for the respondents contends that learned by the respondents since the appellant large amount of shares and kept the same for a long duration and arose upto Rs.48.25 but still did not sell it clearly reveals that appellant had es as long term investment and not for trade. He, therefore, We have heard learned counsel for the parties and perused the files for consideration in the present appeals is as to the shares purchased and held by the appellant of its group companies i.e. in-trade and the appellant would be of M/s Vardhman Polytex but purely as an investment, paid on money that the Assessing Officer has given different treatment to the shares of other companies by holding that sale of shares of other an that present appeals be allowed and order dated while deciding appeals of the respondents contends that learned since the appellant large amount of shares and kept the same for a long duration and arose upto Rs.48.25 but still did not sell appellant had and not for trade. He, therefore, files of is as to the shares purchased and held by the appellant of its group companies i.e. and the appellant would be TRIPTI SAINI 2025.05.19 14:25 I attest to the accuracy and integrity of this document ITA-109-2025 (O&M) entitled to deduction respect of money borrowed for utilisation 12. Before proceeding further it would be relevant 36(1) (iii) of Income Tax Act, 1961 before amendment by Finance Act, 2003 and which was relevant and ap 2001 and to reproduce relevant portion of passed by the learned Income Tax Tribunal, Chandigarh. 13. Relevant portion of Section 36(1)(iii) is reproduced as under: “Other Section 36(1)(iii) of the Act, is “Section 36 (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in Secti xxxx (iii) for the purpose of the business or profession. Explanation : shareholders, or subscribers in Mutual Benefit Soc such conditions as may be prescribed, shall be deemed to be capital borrowed within the meaning of this clause;” 14. Relevant portion of order dated 31.07.2006 passed by learned Income Tax Appellate Tribunal, Chandigarh is reproduced 13. In the present case, the assessee was not earlier engaged in the purchase and sale of shares. However, from the previous year, relevant to assessment year 98 trading in shares. Some shares have been purchased and some s 2025 (O&M) and other connected cases to deduction under Section 36(1)(iii) on the amount of interest pai respect of money borrowed for utilisation in the purchase of said shares? Before proceeding further it would be relevant 36(1) (iii) of Income Tax Act, 1961 before amendment by Finance Act, 2003 and which was relevant and applicable in the years 1998 to reproduce relevant portion of the impugned order dated 31.07.2006 passed by the learned Income Tax Tribunal, Chandigarh. Relevant portion of Section 36(1)(iii) is reproduced as under: Other Deductions:- Section 36(1)(iii) of the Act, is reproduced as under: “Section 36 (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in Secti xxxx xxxx (iii) the amount of the interest paid in respect of capital borrowed for the purpose of the business or profession. Explanation :- Recurring subscriptions paid periodically by shareholders, or subscribers in Mutual Benefit Soc such conditions as may be prescribed, shall be deemed to be capital borrowed within the meaning of this clause;” Relevant portion of order dated 31.07.2006 passed by learned Income Tax Appellate Tribunal, Chandigarh is reproduced . In the present case, the assessee was not earlier engaged in the purchase and sale of shares. However, from the previous year, relevant to assessment year 98-99, it has started the business of trading in shares. Some shares have been purchased and some s and other connected cases -6- (iii) on the amount of interest paid in in the purchase of said shares? Before proceeding further it would be relevant to reproduce Section 36(1) (iii) of Income Tax Act, 1961 before amendment by Finance Act, 2003 and plicable in the years 1998-1999, 1999-2000 and 2000 the impugned order dated 31.07.2006 passed by the learned Income Tax Tribunal, Chandigarh. Relevant portion of Section 36(1)(iii) is reproduced as under:- reproduced as under:- “Section 36 (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in Section 28:- xxxx the amount of the interest paid in respect of capital borrowed for the purpose of the business or profession. Recurring subscriptions paid periodically by shareholders, or subscribers in Mutual Benefit Societies which fulfil such conditions as may be prescribed, shall be deemed to be capital borrowed within the meaning of this clause;” Relevant portion of order dated 31.07.2006 passed by learned Income Tax Appellate Tribunal, Chandigarh is reproduced as under:- . In the present case, the assessee was not earlier engaged in the purchase and sale of shares. However, from the previous year, 99, it has started the business of trading in shares. Some shares have been purchased and some s d in Section 36(1) (iii) of Income Tax Act, 1961 before amendment by Finance Act, 2003 and 2000 and 2000- the impugned order dated 31.07.2006 “Section 36 (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in the amount of the interest paid in respect of capital borrowed Recurring subscriptions paid periodically by ieties which fulfil such conditions as may be prescribed, shall be deemed to be capital Relevant portion of order dated 31.07.2006 passed by learned Income . In the present case, the assessee was not earlier engaged in the purchase and sale of shares. However, from the previous year, 99, it has started the business of trading in shares. Some shares have been purchased and some sold TRIPTI SAINI 2025.05.19 14:25 I attest to the accuracy and integrity of this document ITA-109-2025 (O&M) and, therefore, the activity of the assessee being engaged in the trading of shares has been accepted in assessment year 1999 and 2000 treating the assessee as a trader even for assessment So, however, as pointed out earlier, it is not necessary that all the shares purchased by the assessee are for the purpose of trading. It is, therefore, necessary to consider the facts and circumstances of this case to record a finding reg of specified shares. 14. shares of M/S Vardhman Polytex Ltd. We have reproduced the findings of the Assessing Officer relating to the shareholdings of th assessee group of companies. The holdings of the assessee company in M/S Vardhman Polytex Ltd is about 25% and when the share of other group companies are included, it becomes abundantly clear that shareholdings of the assessee group companies is more th virtue of which the control of M/S Vardhman Polytex Ltd. vests with the assessee group of companies. The Assessee having purchased the shares of M/S Vardhman Polytex Ltd. has retained the shares till date as confirmed by the Id. Counsel during th appeals barring sale of shares to own associates. Though, admittedly, holding the shares for some years for the purpose of earning more profit may not necessarily lead to the conclusive that assessee had no intention of trading case clearly demonstrate that the intention of the assessee at the time of acquisition of the shares was for the purpose of long term investment as also having controlling interest over the company, name 15. consideration, we are of the view that the CIT(A) was not justified in holding that assessee had purchased the shares of M/S Vardhman 2025 (O&M) and other connected cases and, therefore, the activity of the assessee being engaged in the trading of shares has been accepted in assessment year 1999 and 2000-2001. We therefore, do not find any justification for not treating the assessee as a trader even for assessment So, however, as pointed out earlier, it is not necessary that all the shares purchased by the assessee are for the purpose of trading. It is, therefore, necessary to consider the facts and circumstances of this case to record a finding regarding the nature of purchases in respect of specified shares. 14. Assessee has made substantial investment in the purchase of shares of M/S Vardhman Polytex Ltd. We have reproduced the findings of the Assessing Officer relating to the shareholdings of th assessee group of companies. The holdings of the assessee company in M/S Vardhman Polytex Ltd is about 25% and when the share of other group companies are included, it becomes abundantly clear that shareholdings of the assessee group companies is more th virtue of which the control of M/S Vardhman Polytex Ltd. vests with the assessee group of companies. The Assessee having purchased the shares of M/S Vardhman Polytex Ltd. has retained the shares till date as confirmed by the Id. Counsel during th appeals barring sale of shares to own associates. Though, admittedly, holding the shares for some years for the purpose of earning more profit may not necessarily lead to the conclusive that assessee had no intention of trading in such shares, yet facts and circumstances of this case clearly demonstrate that the intention of the assessee at the time of acquisition of the shares was for the purpose of long term investment as also having controlling interest over the company, namely M/S Vardhman Polytex Ltd. 15. Taking the totality of facts and circumstances of this case into consideration, we are of the view that the CIT(A) was not justified in holding that assessee had purchased the shares of M/S Vardhman and other connected cases -7- and, therefore, the activity of the assessee being engaged in the trading of shares has been accepted in assessment year 1999-2000 2001. We therefore, do not find any justification for not treating the assessee as a trader even for assessment year 98-99 also, So, however, as pointed out earlier, it is not necessary that all the shares purchased by the assessee are for the purpose of trading. It is, therefore, necessary to consider the facts and circumstances of this arding the nature of purchases in respect Assessee has made substantial investment in the purchase of shares of M/S Vardhman Polytex Ltd. We have reproduced the findings of the Assessing Officer relating to the shareholdings of th assessee group of companies. The holdings of the assessee company in M/S Vardhman Polytex Ltd is about 25% and when the share of other group companies are included, it becomes abundantly clear that shareholdings of the assessee group companies is more than 50% by virtue of which the control of M/S Vardhman Polytex Ltd. vests with the assessee group of companies. The Assessee having purchased the shares of M/S Vardhman Polytex Ltd. has retained the shares till date as confirmed by the Id. Counsel during the course of hearing of these appeals barring sale of shares to own associates. Though, admittedly, holding the shares for some years for the purpose of earning more profit may not necessarily lead to the conclusive that assessee had no in such shares, yet facts and circumstances of this case clearly demonstrate that the intention of the assessee at the time of acquisition of the shares was for the purpose of long term investment as also having controlling interest over the company, ly M/S Vardhman Polytex Ltd. Taking the totality of facts and circumstances of this case into consideration, we are of the view that the CIT(A) was not justified in holding that assessee had purchased the shares of M/S Vardhman and, therefore, the activity of the assessee being engaged in the 2000 2001. We therefore, do not find any justification for not 99 also, So, however, as pointed out earlier, it is not necessary that all the shares purchased by the assessee are for the purpose of trading. It is, therefore, necessary to consider the facts and circumstances of this arding the nature of purchases in respect Assessee has made substantial investment in the purchase of shares of M/S Vardhman Polytex Ltd. We have reproduced the findings of the Assessing Officer relating to the shareholdings of the assessee group of companies. The holdings of the assessee company in M/S Vardhman Polytex Ltd is about 25% and when the share of other group companies are included, it becomes abundantly clear that an 50% by virtue of which the control of M/S Vardhman Polytex Ltd. vests with the assessee group of companies. The Assessee having purchased the shares of M/S Vardhman Polytex Ltd. has retained the shares till date e course of hearing of these appeals barring sale of shares to own associates. Though, admittedly, holding the shares for some years for the purpose of earning more profit may not necessarily lead to the conclusive that assessee had no in such shares, yet facts and circumstances of this case clearly demonstrate that the intention of the assessee at the time of acquisition of the shares was for the purpose of long term investment as also having controlling interest over the company, Taking the totality of facts and circumstances of this case into consideration, we are of the view that the CIT(A) was not justified in holding that assessee had purchased the shares of M/S Vardhman TRIPTI SAINI 2025.05.19 14:25 I attest to the accuracy and integrity of this document ITA-109-2025 (O&M) Polytex Ltd., with the of the said finding we proceed to consider as to whether the assessee was entitled to deduction on account of interest paid on money borrowed for the acquisition of such shares. Since the purchase of shares course of business of trading in shares, no deduction of interest paid on borrowed money for the purchase of such shares is deductible as expenditure incurred for the purpose of business. The Hon Supreme Court in the case of Rajasthan State Warehousing Corpon. V.CIT, 242 ITR 450(SC) laid down the principle that if the assessee carriers on different ventures, the expenditure of one venture, cannot be allowed as a deduction against the income of the business of different venture is indivisible. In the said case, their lordships laid down the following principles of law: i) if the income of an assessee is derived from various heads of income, he is entitled to claim deductio respective head whether or not computation under each head results in taxable income; ii) if the income of an assessee arises under any of the heads of income but from different items, and income from one or more items alone is taxa the Act, the entire permissible expenditure in earning the income from the head is deductible; and iii) in computing 'profits and gains of business or profession', when an assessee is carrying on busin them yield taxable income and the others do not, the expenditure will be deductible under section 37 if all the ventures carried on by him constituted one indivisible business; but if they do not, the principle of app Supreme Court that if the income of the assessee is derived from 2025 (O&M) and other connected cases Polytex Ltd., with the intention of trading in such shares. In the light of the said finding we proceed to consider as to whether the assessee was entitled to deduction on account of interest paid on money borrowed for the acquisition of such shares. Since the purchase of shares by the assessee of M/S Vardhman Polytex Ltd., is not in the course of business of trading in shares, no deduction of interest paid on borrowed money for the purchase of such shares is deductible as expenditure incurred for the purpose of business. The Hon Supreme Court in the case of Rajasthan State Warehousing Corpon. V.CIT, 242 ITR 450(SC) laid down the principle that if the assessee carriers on different ventures, the expenditure of one venture, cannot be allowed as a deduction against the income of the business of different venture is indivisible. In the said case, their lordships laid down the following principles of law: i) if the income of an assessee is derived from various heads of income, he is entitled to claim deductio respective head whether or not computation under each head results in taxable income; ii) if the income of an assessee arises under any of the heads of income but from different items, and income from one or more items alone is taxable whereas income from the other item is exempt under the Act, the entire permissible expenditure in earning the income from the head is deductible; and iii) in computing 'profits and gains of business or profession', when an assessee is carrying on business in various ventures and some among them yield taxable income and the others do not, the expenditure will be deductible under section 37 if all the ventures carried on by him constituted one indivisible business; but if they do not, the principle of apportionment of the expenditure will apply. It is evident from the principle laid down by the Hon'ble Supreme Court that if the income of the assessee is derived from and other connected cases -8- intention of trading in such shares. In the light of the said finding we proceed to consider as to whether the assessee was entitled to deduction on account of interest paid on money borrowed for the acquisition of such shares. Since the purchase of by the assessee of M/S Vardhman Polytex Ltd., is not in the course of business of trading in shares, no deduction of interest paid on borrowed money for the purchase of such shares is deductible as expenditure incurred for the purpose of business. The Hon'ble Supreme Court in the case of Rajasthan State Warehousing Corpon. V.CIT, 242 ITR 450(SC) laid down the principle that if the assessee carriers on different ventures, the expenditure of one venture, cannot be allowed as a deduction against the income of other venture, unless the business of different venture is indivisible. In the said case, their lordships laid down the following principles of law:- i) if the income of an assessee is derived from various heads of income, he is entitled to claim deduction permissible under the respective head whether or not computation under each head results ii) if the income of an assessee arises under any of the heads of income but from different items, and income from one or more items ble whereas income from the other item is exempt under the Act, the entire permissible expenditure in earning the income from iii) in computing 'profits and gains of business or profession', when an ess in various ventures and some among them yield taxable income and the others do not, the expenditure will be deductible under section 37 if all the ventures carried on by him constituted one indivisible business; but if they do not, the principle of ortionment of the expenditure will apply. It is evident from the principle laid down by the Hon'ble Supreme Court that if the income of the assessee is derived from intention of trading in such shares. In the light of the said finding we proceed to consider as to whether the assessee was entitled to deduction on account of interest paid on money borrowed for the acquisition of such shares. Since the purchase of by the assessee of M/S Vardhman Polytex Ltd., is not in the course of business of trading in shares, no deduction of interest paid on borrowed money for the purchase of such shares is deductible as 'ble Supreme Court in the case of Rajasthan State Warehousing Corpon. V.CIT, 242 ITR 450(SC) laid down the principle that if the assessee carriers on different ventures, the expenditure of one venture, cannot other venture, unless the business of different venture is indivisible. In the said case, their i) if the income of an assessee is derived from various heads of n permissible under the respective head whether or not computation under each head results ii) if the income of an assessee arises under any of the heads of income but from different items, and income from one or more items ble whereas income from the other item is exempt under the Act, the entire permissible expenditure in earning the income from iii) in computing 'profits and gains of business or profession', when an ess in various ventures and some among them yield taxable income and the others do not, the expenditure will be deductible under section 37 if all the ventures carried on by him constituted one indivisible business; but if they do not, the principle of It is evident from the principle laid down by the Hon'ble Supreme Court that if the income of the assessee is derived from TRIPTI SAINI 2025.05.19 14:25 I attest to the accuracy and integrity of this document ITA-109-2025 (O&M) various heads of income, he is entitled to claim deduction permissible under the respecti cannot be claimed under a different head. It is only if the income of an assessee arises under the head profits and gains of business from different ventures and income from one or more ventures is taxable whe entire permissible expenditure in earning the income from the head was held to be deductible. by the assessee of M/S Vardhman its activity of trading in shares, any income derived from the said shares is not assessable under the head 'profits and gains of business'. Therefore, the interest which is paid by the assessee on the borrowing utilized Polytex Ltd. would not be admissible as a deduction under the head 'profits and gains of business'. 16. whether the assessee would be ent interest on borrowed money utilized for the purchase of shares of M/S Vardhman Polytex Ltd. under the head 'Income from other sources.' We are conscious of the decision of Supreme Court in the case of CIT V. Rajendra Prasad lordships of the Supreme Court held that deduction on account of interest would be permissible under the head income from other sources' even if no dividend is received in the particular year. In the said case, their investment in shares which had not yielded any dividend was admissible as deduc computing its income from however, dedu assessable u/s 56 under the head 'income from other sources.' From 2025 (O&M) and other connected cases various heads of income, he is entitled to claim deduction permissible under the respective heads, Deduction permissible under one head cannot be claimed under a different head. It is only if the income of an assessee arises under the head profits and gains of business from different ventures and income from one or more ventures is taxable whereas income from the other venture is exempt under the Act, the entire permissible expenditure in earning the income from the head was held to be deductible. In the present case, once it is held that the purchase of shares by the assessee of M/S Vardhman its activity of trading in shares, any income derived from the said shares is not assessable under the head 'profits and gains of business'. Therefore, the interest which is paid by the assessee on the borrowing utilized for the purpose of acquisition of shares of M/S Vardhman Polytex Ltd. would not be admissible as a deduction under the head 'profits and gains of business'. 16. The next question that arises for our consideration is as to whether the assessee would be ent interest on borrowed money utilized for the purchase of shares of M/S Vardhman Polytex Ltd. under the head 'Income from other sources.' We are conscious of the decision of Supreme Court in the case of CIT V. Rajendra Prasad Moody, 115 ITR 519 (SC), wherein their lordships of the Supreme Court held that deduction on account of interest would be permissible under the head income from other sources' even if no dividend is received in the particular year. In the said case, their lordships held that interest on moneys borrowed for investment in shares which had not yielded any dividend was admissible as deduction u/s 57(iii) of the Income T computing its income from head 'Income from other sources. So, however, deduction u/s 57(iii) is permissible only out of the income assessable u/s 56 under the head 'income from other sources.' From and other connected cases -9- various heads of income, he is entitled to claim deduction permissible ve heads, Deduction permissible under one head cannot be claimed under a different head. It is only if the income of an assessee arises under the head profits and gains of business from different ventures and income from one or more ventures is taxable reas income from the other venture is exempt under the Act, the entire permissible expenditure in earning the income from the head In the present case, once it is held that the purchase of shares by the assessee of M/S Vardhman Polytex Ltd is not in the course of its activity of trading in shares, any income derived from the said shares is not assessable under the head 'profits and gains of business'. Therefore, the interest which is paid by the assessee on the borrowing for the purpose of acquisition of shares of M/S Vardhman Polytex Ltd. would not be admissible as a deduction under the head The next question that arises for our consideration is as to whether the assessee would be entitled to deduction on account of interest on borrowed money utilized for the purchase of shares of M/S Vardhman Polytex Ltd. under the head 'Income from other sources.' We are conscious of the decision of Supreme Court in the case of CIT Moody, 115 ITR 519 (SC), wherein their lordships of the Supreme Court held that deduction on account of interest would be permissible under the head income from other sources' even if no dividend is received in the particular year. In the lordships held that interest on moneys borrowed for investment in shares which had not yielded any dividend was tion u/s 57(iii) of the Income Tax Act, 1961 in ead 'Income from other sources. So, ) is permissible only out of the income assessable u/s 56 under the head 'income from other sources.' From various heads of income, he is entitled to claim deduction permissible ve heads, Deduction permissible under one head cannot be claimed under a different head. It is only if the income of an assessee arises under the head profits and gains of business from different ventures and income from one or more ventures is taxable reas income from the other venture is exempt under the Act, the entire permissible expenditure in earning the income from the head In the present case, once it is held that the purchase of shares Polytex Ltd is not in the course of its activity of trading in shares, any income derived from the said shares is not assessable under the head 'profits and gains of business'. Therefore, the interest which is paid by the assessee on the borrowing for the purpose of acquisition of shares of M/S Vardhman Polytex Ltd. would not be admissible as a deduction under the head The next question that arises for our consideration is as to itled to deduction on account of interest on borrowed money utilized for the purchase of shares of M/S Vardhman Polytex Ltd. under the head 'Income from other sources.' We are conscious of the decision of Supreme Court in the case of CIT Moody, 115 ITR 519 (SC), wherein their lordships of the Supreme Court held that deduction on account of interest would be permissible under the head income from other sources' even if no dividend is received in the particular year. In the lordships held that interest on moneys borrowed for investment in shares which had not yielded any dividend was ax Act, 1961 in ead 'Income from other sources. So, ) is permissible only out of the income assessable u/s 56 under the head 'income from other sources.' From TRIPTI SAINI 2025.05.19 14:25 I attest to the accuracy and integrity of this document ITA-109-2025 (O&M) Assessment year 98 the Income Tax Act, 1961. The said sub section was inserted by the Finance Act, 1997 w.e.f. 1.4.98. Therefore, computation of dividend income does not fall within the ambit of u/s 56. Consequently, no deduction u/s 57 would be permissible. We are, therefore, of the considered view that the AO was justified in making the of interest on money borrowed for the purchase of shares of M/S Vardhman Polytex Ltd. 17. However, since a doubt has been expressed in regard to computation of interest attributable to the borrowing for the purpose of purchase of such shares d file of the Assessing Officer for calculation of actual interest paid by the assessee on such borrowings. The interest utilized for purchase of other shares which are for the purpose of trading is allowable as a deduction as business expenditure u/s 36(1)(iii). We direct the AO to make the disallowance of actual expenditure incurred by the assessee by way of interest on the borrowings utilized or the purpose of shares. The estimation made by the CIT (A) of 15% is which is being discussed hereafter. 18. As a consequence of our decision it would be unnecessary to take aid of section 14A for making the disallowance. However, sin Assessing Officer has referred to the section to support the disal parties, we consider it appropriate to deal with the issue without prejudice to our earlier view. 19. It is also pertinent to mention that in the event of our order getting reversed by any relevant. We accordingly proceed to consider the applicability of section 14A in this case. Section 14A which has been inserted by the Finance Act, 2001, w.e.f. 2025 (O&M) and other connected cases Assessment year 98-99, the dividend income is exempt u/s 10(33) of the Income Tax Act, 1961. The said sub section was inserted by the Finance Act, 1997 w.e.f. 1.4.98. Therefore, computation of dividend income does not fall within the ambit of u/s 56. Consequently, no deduction u/s 57 would be permissible. We are, therefore, of the considered view that the AO was justified in making the of interest on money borrowed for the purchase of shares of M/S Vardhman Polytex Ltd. . However, since a doubt has been expressed in regard to computation of interest attributable to the borrowing for the purpose of purchase of such shares done by the AO, the issue is remitted to the file of the Assessing Officer for calculation of actual interest paid by the assessee on such borrowings. The interest utilized for purchase of other shares which are for the purpose of trading is allowable as a deduction as business expenditure u/s 36(1)(iii). We direct the AO to make the disallowance of actual expenditure incurred by the assessee by way of interest on the borrowings utilized or the purpose of shares. The estimation made by the CIT (A) of 15% is which is being discussed hereafter. . As a consequence of our decision it would be unnecessary to take aid of section 14A for making the disallowance. However, sin Assessing Officer has referred to the section to support the disallowance and the issue has also been argued before us by the parties, we consider it appropriate to deal with the issue without prejudice to our earlier view. . It is also pertinent to mention that in the event of our order getting reversed by any superior court, application of section 14A would be relevant. We accordingly proceed to consider the applicability of section 14A in this case. Section 14A which has been inserted by the Finance Act, 2001, w.e.f. 1.4.1962, reads as under: and other connected cases -10- 99, the dividend income is exempt u/s 10(33) of the Income Tax Act, 1961. The said sub section was inserted by the Finance Act, 1997 w.e.f. 1.4.98. Therefore, computation of dividend income does not fall within the ambit of u/s 56. Consequently, no deduction u/s 57 would be permissible. We are, therefore, of the considered view that the AO was justified in making the disallowance of interest on money borrowed for the purchase of shares of M/S . However, since a doubt has been expressed in regard to computation of interest attributable to the borrowing for the purpose one by the AO, the issue is remitted to the file of the Assessing Officer for calculation of actual interest paid by the assessee on such borrowings. The interest utilized for purchase of other shares which are for the purpose of trading is allowable as a deduction as business expenditure u/s 36(1)(iii). We direct the AO to make the disallowance of actual expenditure incurred by the assessee by way of interest on the borrowings utilized or the purpose of shares. The estimation made by the CIT (A) of 15% is without any basis . As a consequence of our decision it would be unnecessary to take aid of section 14A for making the disallowance. However, since the Assessing Officer has referred to the section to support the lowance and the issue has also been argued before us by the parties, we consider it appropriate to deal with the issue without . It is also pertinent to mention that in the event of our order getting superior court, application of section 14A would be relevant. We accordingly proceed to consider the applicability of section 14A in this case. Section 14A which has been inserted by the 1.4.1962, reads as under:- 99, the dividend income is exempt u/s 10(33) of the Income Tax Act, 1961. The said sub section was inserted by the Finance Act, 1997 w.e.f. 1.4.98. Therefore, computation of dividend income does not fall within the ambit of u/s 56. Consequently, no deduction u/s 57 would be permissible. We are, therefore, of the disallowance of interest on money borrowed for the purchase of shares of M/S . However, since a doubt has been expressed in regard to computation of interest attributable to the borrowing for the purpose one by the AO, the issue is remitted to the file of the Assessing Officer for calculation of actual interest paid by the assessee on such borrowings. The interest utilized for purchase of other shares which are for the purpose of trading is allowable as a deduction as business expenditure u/s 36(1)(iii). We direct the AO to make the disallowance of actual expenditure incurred by the assessee by way of interest on the borrowings utilized or the purpose of shares. without any basis . As a consequence of our decision it would be unnecessary to take e the Assessing Officer has referred to the section to support the lowance and the issue has also been argued before us by the parties, we consider it appropriate to deal with the issue without . It is also pertinent to mention that in the event of our order getting superior court, application of section 14A would be relevant. We accordingly proceed to consider the applicability of section 14A in this case. Section 14A which has been inserted by the TRIPTI SAINI 2025.05.19 14:25 I attest to the accuracy and integrity of this document ITA-109-2025 (O&M) Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. Provided that nothing contained in reassess under Section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under Section 154, for any assessment ye It is evident from a plain reading of the said section that it refers to the computation of total income under Chapter IV. be applicable in such cases where the assessee has Income under Chapter IV has been computed in this case. We have held that the activity of purchase of share of M/S Vardhman Polytex Ltd., is a separate activity and, therefore, interest on borrowed money utilized for such activity is no We have also held that no deduction even on the basis of the Rajsthan State earlier, Court, application of section 14A would come into play. It pertinent to mention that the necessity for 14A had arisen as a result of the of Rajasthan State 20. Polytex Ltd. which would fall for computation under the head income from other sources. There is a direct nexus between t shares of M/S Vardhman Polytex Ltd. with the borrowings made by the assessee. The said nexus is not disputed. Therefore, interest paid on such borrowings shall have to be deducted from the gross dividend 2025 (O&M) and other connected cases "14A. For the purpose of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under Section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under Section 154, for any assessment year beginning on or before the 1st day of April, 2001. It is evident from a plain reading of the said section that it refers to the computation of total income under Chapter IV. be applicable in such cases where the assessee has Income under Chapter IV has been computed in this case. We have held that the activity of purchase of share of M/S Vardhman Polytex Ltd., is a separate activity and, therefore, interest on borrowed money utilized for such activity is not allowable as a deduction u/s 36(1)(iii). We have also held that no deduction even on the basis of the decision of the Supreme Court in the case of Rajsthan State Warehousing Corpn (supra). However, as pointed out earlier, in the event of our decision getting reversed by any superior ourt, application of section 14A would come into play. It pertinent to mention that the necessity for 14A had arisen as a result of the Supreme Court decision in of Rajasthan State Warehousing Corpn. V.CIT, 242 ITR 450 SC). 20. The assessee has derived dividend income from M/S Vardhman Polytex Ltd. which would fall for computation under the head income from other sources. There is a direct nexus between t shares of M/S Vardhman Polytex Ltd. with the borrowings made by the assessee. The said nexus is not disputed. Therefore, interest paid on such borrowings shall have to be deducted from the gross dividend and other connected cases -11- urpose of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. Provided that nothing this section shall empower the Assessing Officer either to reassess under Section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under Section 154, for any ar beginning on or before the 1st day of April, 2001. It is evident from a plain reading of the said section that it refers to the computation of total income under Chapter IV. Section 14A would be applicable in such cases where the assessee has indivisible income. Income under Chapter IV has been computed in this case. We have held that the activity of purchase of share of M/S Vardhman Polytex Ltd., is a separate activity and, therefore, interest on borrowed money t allowable as a deduction u/s 36(1)(iii). We have also held that no deduction is permissible to the assessee decision of the Supreme Court in the case of Warehousing Corpn (supra). However, as pointed out in the event of our decision getting reversed by any superior ourt, application of section 14A would come into play. It maybe pertinent to mention that the necessity for incorporation of section Supreme Court decision in the case Warehousing Corpn. V.CIT, 242 ITR 450 SC). The assessee has derived dividend income from M/S Vardhman Polytex Ltd. which would fall for computation under the head income from other sources. There is a direct nexus between the investments in shares of M/S Vardhman Polytex Ltd. with the borrowings made by the assessee. The said nexus is not disputed. Therefore, interest paid on such borrowings shall have to be deducted from the gross dividend urpose of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. Provided that nothing this section shall empower the Assessing Officer either to reassess under Section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under Section 154, for any It is evident from a plain reading of the said section that it refers to Section 14A would indivisible income. Income under Chapter IV has been computed in this case. We have held that the activity of purchase of share of M/S Vardhman Polytex Ltd., is a separate activity and, therefore, interest on borrowed money t allowable as a deduction u/s 36(1)(iii). is permissible to the assessee decision of the Supreme Court in the case of Warehousing Corpn (supra). However, as pointed out in the event of our decision getting reversed by any superior maybe incorporation of section the case The assessee has derived dividend income from M/S Vardhman Polytex Ltd. which would fall for computation under the head income he investments in shares of M/S Vardhman Polytex Ltd. with the borrowings made by the assessee. The said nexus is not disputed. Therefore, interest paid on such borrowings shall have to be deducted from the gross dividend TRIPTI SAINI 2025.05.19 14:25 I attest to the accuracy and integrity of this document ITA-109-2025 (O&M) from the said company. However, si under section 10(33), the resultant figure, positive or negative, will not fall in the computation of gross total income. Assuming for the sake of arguments that deduction of interest on borrowings utilized for purchase of sha of the decision of the Supreme Court in the case of Rajasthan Warehousing Corporation (supra), Section 14A would come into play to bar the deduction. We hold accordingly. were to be made only with reference to section 14A, the said disallowance shall not be warranted for the assessment year 1998 in view of the proviso to section 14A which debars the AO from invoking section 14A by resorting to se any assessment year beginning or before Ist day of April, 2001. In this case, assessment for assessment year 98 and, therefore, section 14A, if at all applicable, could not be invoked for this assess not entitled to deduction out of the exempted dividend income under the head 'income from other sources.' As such, the aid of section 14A for making the disallowance, in our view is unnecessary. 21. derived income from interest as well as dividend income. The AO has repeated his findings as recorded in assessment year 98 to shares purchased by the assessee of M/S Vardhman Polytex The CIT (A) has followed his order for assessment year 98 however, he has upheld the applicability of provisions of section 14A and has restricted the disallowance to 15% of the disallowance made by the AO. Proceeding on the basis on which th with the issue. We have arbitrary yardstick applied by him. No basis has been given as to why in this case disallowance of interest could be made to the extent of 2025 (O&M) and other connected cases from the said company. However, si under section 10(33), the resultant figure, positive or negative, will not fall in the computation of gross total income. Assuming for the sake of arguments that deduction of interest on borrowings utilized for purchase of shares was allowable as a deduction on the authority of the decision of the Supreme Court in the case of Rajasthan Warehousing Corporation (supra), Section 14A would come into play to bar the deduction. We hold accordingly. We may, however, place on record were to be made only with reference to section 14A, the said disallowance shall not be warranted for the assessment year 1998 in view of the proviso to section 14A which debars the AO from invoking section 14A by resorting to se any assessment year beginning or before Ist day of April, 2001. In this case, assessment for assessment year 98 and, therefore, section 14A, if at all applicable, could not be invoked for this assessment year. So, however, as held earlier, the assessee is not entitled to deduction out of the exempted dividend income under the head 'income from other sources.' As such, the aid of section 14A for making the disallowance, in our view is unnecessary. . For assessment year 1999-2000 and 2000 derived income from interest as well as dividend income. The AO has repeated his findings as recorded in assessment year 98 to shares purchased by the assessee of M/S Vardhman Polytex The CIT (A) has followed his order for assessment year 98 however, he has upheld the applicability of provisions of section 14A and has restricted the disallowance to 15% of the disallowance made by the AO. Proceeding on the basis on which th with the issue. We have no hesitation in expressing our surprise by the arbitrary yardstick applied by him. No basis has been given as to why in this case disallowance of interest could be made to the extent of and other connected cases -12- from the said company. However, since dividend income is exempt under section 10(33), the resultant figure, positive or negative, will not fall in the computation of gross total income. Assuming for the sake of arguments that deduction of interest on borrowings utilized res was allowable as a deduction on the authority of the decision of the Supreme Court in the case of Rajasthan Warehousing Corporation (supra), Section 14A would come into play to bar the deduction. We hold accordingly. We may, however, place on record that if the disallowance were to be made only with reference to section 14A, the said disallowance shall not be warranted for the assessment year 1998 in view of the proviso to section 14A which debars the AO from invoking section 14A by resorting to section 154 or section 147 for any assessment year beginning or before Ist day of April, 2001. In this case, assessment for assessment year 98-99 was completed on 19.3.01 and, therefore, section 14A, if at all applicable, could not be invoked ment year. So, however, as held earlier, the assessee is not entitled to deduction out of the exempted dividend income under the head 'income from other sources.' As such, the aid of section 14A for making the disallowance, in our view is unnecessary. 2000 and 2000-01, the assessee has derived income from interest as well as dividend income. The AO has repeated his findings as recorded in assessment year 98-99 in regard to shares purchased by the assessee of M/S Vardhman Polytex Ltd. The CIT (A) has followed his order for assessment year 98-99. So, however, he has upheld the applicability of provisions of section 14A and has restricted the disallowance to 15% of the disallowance made by the AO. Proceeding on the basis on which the CIT (A) has dealt no hesitation in expressing our surprise by the arbitrary yardstick applied by him. No basis has been given as to why in this case disallowance of interest could be made to the extent of nce dividend income is exempt under section 10(33), the resultant figure, positive or negative, will not fall in the computation of gross total income. Assuming for the sake of arguments that deduction of interest on borrowings utilized res was allowable as a deduction on the authority of the decision of the Supreme Court in the case of Rajasthan Warehousing Corporation (supra), Section 14A would come into play that if the disallowance were to be made only with reference to section 14A, the said disallowance shall not be warranted for the assessment year 1998-99 in view of the proviso to section 14A which debars the AO from ction 154 or section 147 for any assessment year beginning or before Ist day of April, 2001. In this 99 was completed on 19.3.01 and, therefore, section 14A, if at all applicable, could not be invoked ment year. So, however, as held earlier, the assessee is not entitled to deduction out of the exempted dividend income under the head 'income from other sources.' As such, the aid of section 14A 01, the assessee has derived income from interest as well as dividend income. The AO has 99 in regard Ltd. 99. So, however, he has upheld the applicability of provisions of section 14A and has restricted the disallowance to 15% of the disallowance made e CIT (A) has dealt no hesitation in expressing our surprise by the arbitrary yardstick applied by him. No basis has been given as to why in this case disallowance of interest could be made to the extent of TRIPTI SAINI 2025.05.19 14:25 I attest to the accuracy and integrity of this document ITA-109-2025 (O&M) 15% only of the disallowa given any reasons much less valid reasons for restricting the disallowance to 15% of the disallowance made by the AO. In the case of CIT V. Palwal Co operative Sugar Mills Ltd., 197 CTGR 230 (P&H), their Lordships of every judicial and quasi judicial body/authority must pass a reasoned order which should reflect application of mind by the concerned authority to the issues/points raised before it. It was further held that require integral part of the concept of fair procedure. Their Lordships further held that superior courts can effectively exercise their power only if the order under challenge contains reasons. Any orde cryptic grossly violates natural justice. In this case, the CIT (A) not having given any reasons for restricting the disallowance to 15% of the disallowance made by the AO, we cannot but set aside this order being contrary to law. In our conside interest paid by the assessee on the borrowings utilized for the purchase of shares of M/S Vardhman Polytex Ltd. is workable. Therefore, there is no reason for resorting to estimate. We therefore, remit the issue to the f purpose of computation of disallowance on account of interest paid on borrowings utilized for the purchase of shares of M/S Vardhman Polytex Ltd. 22. To wind up, we may clarify that whereas we have held that in case it is not necessary to take recourse to the provisions of section 14A for the purpose of disallowance of interest on borrowings made for the purchase of shares of M/S Vardhman Polytex Ltd. in so far as there is direct nexus between the investment borrowings made by the assessee, the disallowance in any case would be warranted with reference to section 14A for assessment years 1999 2025 (O&M) and other connected cases 15% only of the disallowance made by the AO. The CIT (A) has not given any reasons much less valid reasons for restricting the disallowance to 15% of the disallowance made by the AO. In the case of CIT V. Palwal Co operative Sugar Mills Ltd., 197 CTGR 230 (P&H), their Lordships of Punjab and Haryana high Court held that every judicial and quasi judicial body/authority must pass a reasoned order which should reflect application of mind by the concerned authority to the issues/points raised before it. It was further held that requirement of recording of reasons and communication thereof is an integral part of the concept of fair procedure. Their Lordships further held that superior courts can effectively exercise their power only if the order under challenge contains reasons. Any orde cryptic grossly violates natural justice. In this case, the CIT (A) not having given any reasons for restricting the disallowance to 15% of the disallowance made by the AO, we cannot but set aside this order being contrary to law. In our conside interest paid by the assessee on the borrowings utilized for the purchase of shares of M/S Vardhman Polytex Ltd. is workable. Therefore, there is no reason for resorting to estimate. We therefore, remit the issue to the file of the Assessing Officer for the limited purpose of computation of disallowance on account of interest paid on borrowings utilized for the purchase of shares of M/S Vardhman Polytex Ltd. . To wind up, we may clarify that whereas we have held that in case it is not necessary to take recourse to the provisions of section 14A for the purpose of disallowance of interest on borrowings made for the purchase of shares of M/S Vardhman Polytex Ltd. in so far as there is direct nexus between the investment borrowings made by the assessee, the disallowance in any case would be warranted with reference to section 14A for assessment years 1999-2000 and 2000-01. However, we having held that in this case and other connected cases -13- nce made by the AO. The CIT (A) has not given any reasons much less valid reasons for restricting the disallowance to 15% of the disallowance made by the AO. In the case of CIT V. Palwal Co operative Sugar Mills Ltd., 197 CTGR 230 Punjab and Haryana high Court held that every judicial and quasi judicial body/authority must pass a reasoned order which should reflect application of mind by the concerned authority to the issues/points raised before it. It was further held that ment of recording of reasons and communication thereof is an integral part of the concept of fair procedure. Their Lordships further held that superior courts can effectively exercise their power only if the order under challenge contains reasons. Any order which is cryptic grossly violates natural justice. In this case, the CIT (A) not having given any reasons for restricting the disallowance to 15% of the disallowance made by the AO, we cannot but set aside this order being contrary to law. In our considered view, in this case, the actual interest paid by the assessee on the borrowings utilized for the purchase of shares of M/S Vardhman Polytex Ltd. is workable. Therefore, there is no reason for resorting to estimate. We therefore, ile of the Assessing Officer for the limited purpose of computation of disallowance on account of interest paid on borrowings utilized for the purchase of shares of M/S Vardhman . To wind up, we may clarify that whereas we have held that in this case it is not necessary to take recourse to the provisions of section 14A for the purpose of disallowance of interest on borrowings made for the purchase of shares of M/S Vardhman Polytex Ltd. in so far as there is direct nexus between the investments in such shares and the borrowings made by the assessee, the disallowance in any case would be warranted with reference to section 14A for assessment years 01. However, we having held that in this case nce made by the AO. The CIT (A) has not given any reasons much less valid reasons for restricting the disallowance to 15% of the disallowance made by the AO. In the case of CIT V. Palwal Co operative Sugar Mills Ltd., 197 CTGR 230 Punjab and Haryana high Court held that every judicial and quasi judicial body/authority must pass a reasoned order which should reflect application of mind by the concerned authority to the issues/points raised before it. It was further held that ment of recording of reasons and communication thereof is an integral part of the concept of fair procedure. Their Lordships further held that superior courts can effectively exercise their power only if r which is cryptic grossly violates natural justice. In this case, the CIT (A) not having given any reasons for restricting the disallowance to 15% of the disallowance made by the AO, we cannot but set aside this order red view, in this case, the actual interest paid by the assessee on the borrowings utilized for the purchase of shares of M/S Vardhman Polytex Ltd. is workable. Therefore, there is no reason for resorting to estimate. We therefore, ile of the Assessing Officer for the limited purpose of computation of disallowance on account of interest paid on borrowings utilized for the purchase of shares of M/S Vardhman this case it is not necessary to take recourse to the provisions of section 14A for the purpose of disallowance of interest on borrowings made for the purchase of shares of M/S Vardhman Polytex Ltd. in so far as s in such shares and the borrowings made by the assessee, the disallowance in any case would be warranted with reference to section 14A for assessment years 01. However, we having held that in this case TRIPTI SAINI 2025.05.19 14:25 I attest to the accuracy and integrity of this document ITA-109-2025 (O&M) the aid of section 14A is unnecess all the three assessment years subject to recalculation of actual disallowance as directed earlier. 23. purposes. ANALYSIS OF THE RECORD 15. A bare the amount of inter business or profession shall be allowed. Meaning thereby, if any amount in respect of capital is borrowed for the respect of the same shall be deducted while computing the income as referred to in Section 28 of the Act. Section 28 of the Act deals with the profits and gains of business or profession 16. Admittedly, appellant was doing the business of manufacture and trading of yarn/cloths upto the Assessment Year 1997 share trading activity. With the intention to carry on shares/securities certain amendments approved by the Board of Directors in their meeting held on 10.03.1997. 17. Thereafter, the appellant started trading in shares reflected shares as stock auditor. The appellant purchased/sold shares of about 24 various companies during the relevant assessment years. 18. It is not the case of the respondent that all the shares of M/s Vardhman Polytex Ltd. were ple shares were free between 01.04.1997 to 12.05.1997, 26,02,700 shares were free 2025 (O&M) and other connected cases the aid of section 14A is unnecessary, we restore the disallowance for all the three assessment years subject to recalculation of actual disallowance as directed earlier. 23. In the result, appeals of the Revenue are allowed for statistical purposes.” ANALYSIS OF THE RECORD A bare reading of Section 36(1)(iii) of the Act shows that deduction of the amount of interest paid in respect of capital business or profession shall be allowed. Meaning thereby, if any amount in respect of capital is borrowed for the purpose of business respect of the same shall be deducted while computing the income as referred to in Section 28 of the Act. Section 28 of the Act deals with the profits and gains of business or profession which are chargeable to income tax. Admittedly, appellant was doing the business of manufacture and trading of yarn/cloths upto the Assessment Year 1997 share trading activity. With the intention to carry on ares/securities certain amendments were made in the memorandum which was approved by the Board of Directors in their meeting held on 10.03.1997. Thereafter, the appellant started trading in shares reflected shares as stock-in-trade. The balance sheet he appellant purchased/sold shares of about 24 various companies during the relevant assessment years. It is not the case of the respondent that all the shares of M/s Vardhman Polytex Ltd. were pledged, a perusal of the record shows that 2700 shares were free between 01.04.1997 to 12.05.1997, 26,02,700 shares were free and other connected cases -14- ary, we restore the disallowance for all the three assessment years subject to recalculation of actual In the result, appeals of the Revenue are allowed for statistical reading of Section 36(1)(iii) of the Act shows that deduction of st paid in respect of capital borrowed for the purpose of business or profession shall be allowed. Meaning thereby, if any amount in respect purpose of business, the amount of interest paid respect of the same shall be deducted while computing the income as referred to in Section 28 of the Act. Section 28 of the Act deals with the profits and gains of eable to income tax. Admittedly, appellant was doing the business of manufacture and trading of yarn/cloths upto the Assessment Year 1997-1998 and was not into any share trading activity. With the intention to carry on the business of trading in were made in the memorandum which was approved by the Board of Directors in their meeting held on 10.03.1997. Thereafter, the appellant started trading in shares. Appellant duly balance sheet was duly audited by the he appellant purchased/sold shares of about 24 various companies during It is not the case of the respondent that all the shares of M/s a perusal of the record shows that 2700 shares were free between 01.04.1997 to 12.05.1997, 26,02,700 shares were free ary, we restore the disallowance for all the three assessment years subject to recalculation of actual In the result, appeals of the Revenue are allowed for statistical reading of Section 36(1)(iii) of the Act shows that deduction of for the purpose of business or profession shall be allowed. Meaning thereby, if any amount in respect amount of interest paid in respect of the same shall be deducted while computing the income as referred to in Section 28 of the Act. Section 28 of the Act deals with the profits and gains of Admittedly, appellant was doing the business of manufacture and 1998 and was not into any the business of trading in were made in the memorandum which was ppellant duly was duly audited by the he appellant purchased/sold shares of about 24 various companies during It is not the case of the respondent that all the shares of M/s a perusal of the record shows that 2700 shares were free between 01.04.1997 to 12.05.1997, 26,02,700 shares were free TRIPTI SAINI 2025.05.19 14:25 I attest to the accuracy and integrity of this document ITA-109-2025 (O&M) between 13.05.1997 to 26.10.1997 and then from 27.10.1997 to 10.11.1997. Similarly 17,40,755 shares were free between 11.11.1997 to 1,60,000 shares were free between 19.07.1999 to 25.07.1999 and 1,93,400 shares were free between 13.12.1999 to 31.03.2000. The appellant business sense did not sell the shares because of depressed share market. 19. A perusal of the record further shows that the appellant purchased 26 lakhs shares of M/s Vardhman Polytex Ltd. on 30.06.1997, 3500 shares on 27.10.1997 and 1,93,400 shares on 27.09.1999, but since the appellant did not get the rate as per its off during that year. However, when the appellant found it appropriate to sell as per the price of its expectation it sold shares worth Rs.1.66 crore during immediate succeeding Assessment Year 1999 Assessment Year 2000 20. A perusal of the whole record further shows that intention of the appellant was to trade in shares of M/s Vardhman Polytex Ltd. since these shares were held as stock hold the shares as stock Vardhman Polytex Ltd worth crores of rupees at later point of time, as referred to above. ANALYSIS OF THE ASSESSMENT 21. The Assessing Officer has treated the shares of other companies which were sold Vardhman Polyt 2025 (O&M) and other connected cases between 13.05.1997 to 26.10.1997 and then from 27.10.1997 to 10.11.1997. Similarly 17,40,755 shares were free between 11.11.1997 to 1,60,000 shares were free between 19.07.1999 to 25.07.1999 and 1,93,400 shares were free between 13.12.1999 to 31.03.2000. The appellant did not sell the shares because of depressed share market. A perusal of the record further shows that the appellant purchased 26 lakhs shares of M/s Vardhman Polytex Ltd. on 30.06.1997, 3500 shares on 27.10.1997 and 1,93,400 shares on 27.09.1999, but since the appellant did not get its expectation, therefore it did not consider it prudent to sell them off during that year. However, when the appellant found it appropriate to sell as per the price of its expectation it sold shares worth Rs.1.66 crore during immediate succeeding Assessment Year 1999-2000 and shares worth Rs.1.64 crores in the Assessment Year 2000-2001. A perusal of the whole record further shows that intention of the appellant was to trade in shares of M/s Vardhman Polytex Ltd. since these shares were held as stock-in-trade and not as an investment. hold the shares as stock-in-trade is clear and corroborated by sale of shares of M/s Vardhman Polytex Ltd worth crores of rupees at later point of time, as referred to ANALYSIS OF THE ASSESSMENT ORDERS The Assessing Officer has treated the shares of other companies which were sold by the appellant as meant for trading Vardhman Polytex Ltd. as investment. Whereas the admitted fact as per record is and other connected cases -15- between 13.05.1997 to 26.10.1997 and then from 27.10.1997 to 10.11.1997. Similarly 17,40,755 shares were free between 11.11.1997 to 12.12.1998. Another 1,60,000 shares were free between 19.07.1999 to 25.07.1999 and 1,93,400 shares were free between 13.12.1999 to 31.03.2000. The appellant in its wisdom and did not sell the shares because of depressed share market. A perusal of the record further shows that the appellant purchased 26 lakhs shares of M/s Vardhman Polytex Ltd. on 30.06.1997, 3500 shares on 27.10.1997 and 1,93,400 shares on 27.09.1999, but since the appellant did not get , therefore it did not consider it prudent to sell them off during that year. However, when the appellant found it appropriate to sell as per the price of its expectation it sold shares worth Rs.1.66 crore during immediate 2000 and shares worth Rs.1.64 crores in the A perusal of the whole record further shows that intention of the appellant was to trade in shares of M/s Vardhman Polytex Ltd. since these shares not as an investment. Intention of the appellant to trade is clear and corroborated by sale of shares of M/s Vardhman Polytex Ltd worth crores of rupees at later point of time, as referred to ORDERS The Assessing Officer has treated the shares of other companies as meant for trading whereas shares of M/s Whereas the admitted fact as per record is between 13.05.1997 to 26.10.1997 and then from 27.10.1997 to 10.11.1997. 12.12.1998. Another 1,60,000 shares were free between 19.07.1999 to 25.07.1999 and 1,93,400 shares in its wisdom and A perusal of the record further shows that the appellant purchased 26 lakhs shares of M/s Vardhman Polytex Ltd. on 30.06.1997, 3500 shares on 27.10.1997 and 1,93,400 shares on 27.09.1999, but since the appellant did not get , therefore it did not consider it prudent to sell them off during that year. However, when the appellant found it appropriate to sell as per the price of its expectation it sold shares worth Rs.1.66 crore during immediate 2000 and shares worth Rs.1.64 crores in the A perusal of the whole record further shows that intention of the appellant was to trade in shares of M/s Vardhman Polytex Ltd. since these shares ntention of the appellant to trade is clear and corroborated by sale of shares of M/s Vardhman Polytex Ltd worth crores of rupees at later point of time, as referred to The Assessing Officer has treated the shares of other companies of M/s Whereas the admitted fact as per record is TRIPTI SAINI 2025.05.19 14:25 I attest to the accuracy and integrity of this document ITA-109-2025 (O&M) that shares of M/s Vard intention to sell. for purchase of shares of M/s Vardhman Polytex Ltd. in the ground that all shares appellant company sold, therefore these shares were purchased as an asset and not stock 22. Further, engaged in trading of shares and derived from trading of shares Vardhman Polyte asset and not stock 23. Therefore, action of the Assessing Officer in treating the sale of shares of other companies as trading and of M/s Vardhman Polytex Ltd. as investment shows to 24. Further, perusal of record shows that the appellant sold shares of different companies in all these years and Assessing Officer accepted the appellant to be trading in shares and allowed the amount of interest paid in respect of capital borrowed for the purpose of purchase of such shares whereas so far as the amount of interest paid in respect of the capital borrowed for the purpose of purchase of shar concerned, the deduction under Section 36(1)(iii) was disallowed on the ground that shares of M/s Vardhman Polytex Ltd. were not sold for long time some of the shares of M/s Vardhman Polytex Ltd were pledged with 2025 (O&M) and other connected cases that shares of M/s Vardhman Polytex Ltd. were held as stock intention to sell. Assessing Officer disallowed the interest paid for purchase of shares of M/s Vardhman Polytex Ltd. in the ground that all shares of M/s Vardhman Polytex Ltd. appellant company belong to its group companies and no pa therefore these shares were purchased as an asset and not stock Further, Assessing Officer accepted engaged in trading of shares and on that premise trading of shares of other companies Polytex Ltd. a separate treatment is given by treating these shares as an asset and not stock-in-trade. Therefore, action of the Assessing Officer in treating the sale of shares of other companies as trading and of M/s Vardhman Polytex Ltd. as investment shows total non-application of mind while framing the assessment. Further, perusal of record shows that the appellant sold shares of different companies in all these years and Assessing Officer accepted the appellant to be trading in shares and allowed the deduction under Section 36(1)(iii) on the amount of interest paid in respect of capital borrowed for the purpose of purchase of such shares whereas so far as the amount of interest paid in respect of the capital borrowed for the purpose of purchase of shares of M/s Vardhman Polytex Ltd. is the deduction under Section 36(1)(iii) was disallowed on the ground that shares of M/s Vardhman Polytex Ltd. were not sold for long time some of the shares of M/s Vardhman Polytex Ltd were pledged with and other connected cases -16- hman Polytex Ltd. were held as stock-in-trade, with an Assessing Officer disallowed the interest paid on money borrowed for purchase of shares of M/s Vardhman Polytex Ltd. in his assessment orders of M/s Vardhman Polytex Ltd. purchased by the to its group companies and no part of these shares were therefore these shares were purchased as an asset and not stock-in-trade. Assessing Officer accepted the fact that appellant was that premise computed the profit and gains of other companies but in the case of shares of M/s a separate treatment is given by treating these shares as an Therefore, action of the Assessing Officer in treating the sale of shares of other companies as trading and of M/s Vardhman Polytex Ltd. as application of mind while framing the assessment. Further, perusal of record shows that the appellant sold shares of different companies in all these years and Assessing Officer accepted the appellant deduction under Section 36(1)(iii) on the amount of interest paid in respect of capital borrowed for the purpose of purchase of such shares whereas so far as the amount of interest paid in respect of the capital es of M/s Vardhman Polytex Ltd. is the deduction under Section 36(1)(iii) was disallowed on the ground that shares of M/s Vardhman Polytex Ltd. were not sold for long time and that some of the shares of M/s Vardhman Polytex Ltd were pledged with trade, with an on money borrowed s on purchased by the rt of these shares were that appellant was computed the profit and gains case of shares of M/s a separate treatment is given by treating these shares as an Therefore, action of the Assessing Officer in treating the sale of shares of other companies as trading and of M/s Vardhman Polytex Ltd. as Further, perusal of record shows that the appellant sold shares of different companies in all these years and Assessing Officer accepted the appellant deduction under Section 36(1)(iii) on the amount of interest paid in respect of capital borrowed for the purpose of purchase of such shares whereas so far as the amount of interest paid in respect of the capital es of M/s Vardhman Polytex Ltd. is the deduction under Section 36(1)(iii) was disallowed on the ground that some of the shares of M/s Vardhman Polytex Ltd were pledged without TRIPTI SAINI 2025.05.19 14:25 I attest to the accuracy and integrity of this document ITA-109-2025 (O&M) appreciating the fact that even the shares of M/s Vardhman Polytex Ltd which were free from any pledge were not sold during the relevant years only to gain more profit out of it. 25. Reasoning given by the Assessing Officer while disallowing the deduction under Section 36(1)(iii) on the amount of interest paid in respect of money borrowed for utilisation in purchase of shares of M/s Vardhman Polytex Ltd in his assessment order Assessment Years 199 since it is based on assumptions and presumptions. 26. Therefore, argument raised by learned counsel for the appellant that the Assessing Officer has given different treatment to the shares of other companies by allowing the deduction of amount of interest paid in respect of capital borrowed for the purpose of weight. 27. In view of the above capital borrowed for the purpose of purchase of Ltd by the Assessing Officer, be set aside being unacceptable. ANALYSIS OF THE 28. A perusal of the that the learned Tribunal has specifically stated in para 13 appellant was not earlier engaged in the purchase and sale of shares, however from the previous year 2025 (O&M) and other connected cases appreciating the fact that even the shares of M/s Vardhman Polytex Ltd which were free from any pledge were not sold during the relevant years only to gain more profit out of it. easoning given by the Assessing Officer while disallowing the uction under Section 36(1)(iii) on the amount of interest paid in respect of money borrowed for utilisation in purchase of shares of M/s Vardhman Polytex Ltd in his assessment orders dated 19.03.2001, 28.02.2002 and 28.02.2003 Assessment Years 1998-99, 1999-2000 and 2000 based on assumptions and presumptions. Therefore, argument raised by learned counsel for the appellant that the Assessing Officer has given different treatment to the shares of other companies by allowing the deduction of amount of interest paid in respect of capital borrowed for the purpose of trading in shares is reasonable In view of the above, the reasoning given to disallow the interest on capital borrowed for the purpose of purchase of by the Assessing Officer, which is accepted be set aside being unacceptable. ANALYSIS OF THE ORDERS PASSED BY THE LEARNED TRIBUNAL A perusal of the order dated 31.07.2006 of learned Tribunal shows that the learned Tribunal has specifically stated in para 13 appellant was not earlier engaged in the purchase and sale of shares, however from year relevant to Assessment Year 1998 and other connected cases -17- appreciating the fact that even the shares of M/s Vardhman Polytex Ltd which were free from any pledge were not sold during the relevant years only to gain easoning given by the Assessing Officer while disallowing the uction under Section 36(1)(iii) on the amount of interest paid in respect of money borrowed for utilisation in purchase of shares of M/s Vardhman Polytex dated 19.03.2001, 28.02.2002 and 28.02.2003, for the 2000 and 2000-2001 respectively, is not justified based on assumptions and presumptions. Therefore, argument raised by learned counsel for the appellant that the Assessing Officer has given different treatment to the shares of other companies by allowing the deduction of amount of interest paid in respect of trading in shares is reasonable and carries , the reasoning given to disallow the interest on capital borrowed for the purpose of purchase of shares of M/s Vardhman Polytex which is accepted by the learned Tribunal, is liable to ORDERS PASSED BY THE LEARNED TRIBUNAL order dated 31.07.2006 of learned Tribunal shows that the learned Tribunal has specifically stated in para 13 of its order that the appellant was not earlier engaged in the purchase and sale of shares, however from Assessment Year 1998-1999, it started the business of appreciating the fact that even the shares of M/s Vardhman Polytex Ltd which were free from any pledge were not sold during the relevant years only to gain easoning given by the Assessing Officer while disallowing the uction under Section 36(1)(iii) on the amount of interest paid in respect of money borrowed for utilisation in purchase of shares of M/s Vardhman Polytex , for the justified Therefore, argument raised by learned counsel for the appellant that the Assessing Officer has given different treatment to the shares of other companies by allowing the deduction of amount of interest paid in respect of and carries , the reasoning given to disallow the interest on M/s Vardhman Polytex is liable to ORDERS PASSED BY THE LEARNED TRIBUNAL order dated 31.07.2006 of learned Tribunal shows of its order that the appellant was not earlier engaged in the purchase and sale of shares, however from 1999, it started the business of TRIPTI SAINI 2025.05.19 14:25 I attest to the accuracy and integrity of this document ITA-109-2025 (O&M) trading in shares. therefore, the activity of the appellant being engaged accepted in Assessmen Tribunal did not find any justification for not treating the appellant as a for the Assessment Year 1998 Tribunal has observed appellant are for the purpose of trading. 29. Learned Tribunal without appreciating the record contradictory stands since on the one hand it is in trading of shares purchased the shares of M/s Var investment and not for trading Vardhman Polytex Ltd were not stock lying unsold for many years in their appellant over M/s Vardhman Polytex Ltd, solidify the conclusion that the said shares were purchased for investment and not for trading purpose. 30. The reasoning given by learned Tribunal is not can hold the purchased escalation in prices of shares shares would wait for the best price by itself cannot be presumed to be an intention to retain investment and not for trading (selling). 2025 (O&M) and other connected cases trading in shares. Further that, some shares have been purchased therefore, the activity of the appellant being engaged accepted in Assessment Years 1999-2000 and 2000 Tribunal did not find any justification for not treating the appellant as a r the Assessment Year 1998-1999 also, whereas Tribunal has observed that it is not necessary that all the shares purchased by the appellant are for the purpose of trading. Learned Tribunal without appreciating the record stands since on the one hand it is in trading of shares whereas on the other hand purchased the shares of M/s Vardhman Polytex Limited mainly for the purpose of and not for trading and, therefore, Vardhman Polytex Ltd were not stock-in-trade, only on the ground that same were lying unsold for many years in their stock. Furthe appellant over M/s Vardhman Polytex Ltd, solidify the conclusion that the said shares were purchased for investment and not for trading purpose. The reasoning given by learned Tribunal is not purchased shares over a long time to earn more profit escalation in prices of shares. Any prudent person shares would wait for the best price before selling in order to by itself cannot be presumed to be an intention to retain investment and not for trading (selling). and other connected cases -18- ome shares have been purchased and sold and therefore, the activity of the appellant being engaged in trading of shares has been 2000 and 2000-2001. Therefore, the learned Tribunal did not find any justification for not treating the appellant as a trader even whereas on the other hand the learned not necessary that all the shares purchased by the Learned Tribunal without appreciating the record has taken stands since on the one hand it is accepted that appellant is involved on the other hand it is observed that appellant had dhman Polytex Limited mainly for the purpose of , therefore, it is held that shares of M/s trade, only on the ground that same were stock. Further, that controlling interest of the appellant over M/s Vardhman Polytex Ltd, solidify the conclusion that the said shares were purchased for investment and not for trading purpose. The reasoning given by learned Tribunal is not sustainable since one long time to earn more profit because of the prudent person in the business of trading in before selling in order to gain more profit. This by itself cannot be presumed to be an intention to retain the shares as an and sold and trading of shares has been herefore, the learned trader even the learned not necessary that all the shares purchased by the has taken that appellant is involved that appellant had dhman Polytex Limited mainly for the purpose of held that shares of M/s trade, only on the ground that same were controlling interest of the appellant over M/s Vardhman Polytex Ltd, solidify the conclusion that the said since one ecause of the business of trading in This the shares as an TRIPTI SAINI 2025.05.19 14:25 I attest to the accuracy and integrity of this document ITA-109-2025 (O&M) 31. Vide impugned order dated 31.07.2006 matter to the Assessing Officer for the limited purpose of disallowance on account of interest paid on borrowing utilised shares of M/s Vardhman Polytex Ltd. D counsel for the parties were asked about the status of the same for appellant has produced before us the assessment order dated 20.12.2007 incompliance of the order dated 31.07.2006 of learned Tribunal whereby the matter was remitted to the Assessing Officer for limited purpose of computation of disallowance on account of interest paid on borrowings utilised for the purchase of shares of M/s Vardhman Polyt reply filed by the appellant to under Section 1 under Section 142(1) of the Income Tax Act, 1961, whereby the appellant was asked under Section 142(1) of the Income Tax Act, 1961 to re disallowance on account o purchase of shares of M/s Vardhman Polyte sold 32,650 shares of M/s V 2006 as well. CONCLUSION 32. CONCLUSION 32. In view of the discussion herein appellant had intention to do business of trading even in case Vardhman Polyte Vardhman Polyte 2025 (O&M) and other connected cases ide impugned order dated 31.07.2006 matter to the Assessing Officer for the limited purpose of disallowance on account of interest paid on borrowing utilised s of M/s Vardhman Polytex Ltd. During the course of arguments counsel for the parties were asked about the status of the same for appellant has produced before us the assessment order dated 20.12.2007 incompliance of the order dated 31.07.2006 of learned Tribunal whereby the matter was remitted to the Assessing Officer for limited purpose of computation of isallowance on account of interest paid on borrowings utilised for the purchase of shares of M/s Vardhman Polytex Ltd. In assessment order dated 20.12.2007, the reply filed by the appellant to the notices dated 27.11.2006, 28.09.2007 issued under Section 143(2) of the Income Tax Act, 1961 and notice under Section 142(1) of the Income Tax Act, 1961, whereby the appellant was asked under Section 142(1) of the Income Tax Act, 1961 to re disallowance on account of interest paid on borro of shares of M/s Vardhman Polytex Ltd sold 32,650 shares of M/s Vardhman Polytex Ltd., during the financial year 2005 CONCLUSION In view of the discussion herein intention to do business of trading even in case Vardhman Polytex Ltd. and does not show its intention to keep t Vardhman Polytex Ltd. as an asset, which is a and other connected cases -19- ide impugned order dated 31.07.2006, learned Tribunal remitted matter to the Assessing Officer for the limited purpose of computation disallowance on account of interest paid on borrowing utilised for the purchase of uring the course of arguments, learned counsel for the parties were asked about the status of the same. Learned counsel for appellant has produced before us the assessment order dated 20.12.2007 passed incompliance of the order dated 31.07.2006 of learned Tribunal whereby the matter was remitted to the Assessing Officer for limited purpose of computation of isallowance on account of interest paid on borrowings utilised for the purchase of In assessment order dated 20.12.2007, the dated 27.11.2006, 28.09.2007 issued 43(2) of the Income Tax Act, 1961 and notice dated 05.10.2007 under Section 142(1) of the Income Tax Act, 1961, whereby the appellant was asked under Section 142(1) of the Income Tax Act, 1961 to re-compute f interest paid on borrowings utilised for the purpose of x Ltd, the appellant stated that it had x Ltd., during the financial year 2005 In view of the discussion herein-above, this Court concludes that intention to do business of trading even in case of shares of M/s intention to keep the shares of M/s which is apparent from the record as well. learned Tribunal remitted the of for the purchase of learned earned counsel passed incompliance of the order dated 31.07.2006 of learned Tribunal whereby the matter was remitted to the Assessing Officer for limited purpose of computation of isallowance on account of interest paid on borrowings utilised for the purchase of In assessment order dated 20.12.2007, the dated 27.11.2006, 28.09.2007 issued dated 05.10.2007 under Section 142(1) of the Income Tax Act, 1961, whereby the appellant was compute tilised for the purpose of stated that it had x Ltd., during the financial year 2005- above, this Court concludes that of shares of M/s he shares of M/s pparent from the record as well. TRIPTI SAINI 2025.05.19 14:25 I attest to the accuracy and integrity of this document ITA-109-2025 (O&M) Since appellant had been selling t different intervals of time, therefore Vardhman Polytex Ltd in-trade just like an investment. 33. Therefore, the substantial questions of law are answered in favour of the appellant-assessee and against the resp 34. In view of the above, Order dated 31.07.2006 passed by the learned Income Tax Appellate Tribunal, Chandigarh is set aside. 35. Pending applications, if any, also stand disposed of. (LISA GILL JUDGE May 13, 2025 tripti Whether speaking/non Whether reportable 2025 (O&M) and other connected cases ince appellant had been selling the shares of M/s Vardhman Polyte different intervals of time, therefore, it can safely Vardhman Polytex Ltd purchased by the appellant should also be treated as stock trade just like shares of other companies purchased by the appellant Therefore, the substantial questions of law are answered in favour of assessee and against the respondent In view of the above, all the three 31.07.2006 passed by the learned Income Tax Appellate Tribunal, set aside. Pending applications, if any, also stand disposed of. LISA GILL) Whether speaking/non-speaking : Speaking Whether reportable : Y and other connected cases -20- he shares of M/s Vardhman Polytex Ltd also, at , it can safely be concluded that shares of M/s ellant should also be treated as stock other companies purchased by the appellant, and not Therefore, the substantial questions of law are answered in favour of ondent-revenue. three aforesaid appeals are allowed 31.07.2006 passed by the learned Income Tax Appellate Tribunal, Pending applications, if any, also stand disposed of. (SUDEEPTI SHARMA) JUDGE speaking : Speaking : Yes also, at of M/s ellant should also be treated as stock- and not as Therefore, the substantial questions of law are answered in favour of appeals are allowed. 31.07.2006 passed by the learned Income Tax Appellate Tribunal, TRIPTI SAINI 2025.05.19 14:25 I attest to the accuracy and integrity of this document