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TMI Blog2014 (2) TMI 1067X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of Rs. 7,66,741, under section 14A of the Act. 2. Facts in brief:- The assessee is engaged in the business of trading of spices and general merchant and purchase and sale of shares. The assessee had earned dividend income on such stock of shares held as stock-in-trade, amounting to Rs. 4,25,044, which has been claimed as exempt in the computation of income. The Assessing Officer noted that the assessee has not attributed any expenses for earning of this exempt income. In response to the show cause notice as to why provisions of rule 8D should not be applied for the purpose of disallowance under section 14A, the assessee submitted that it dealt in trading of shares and has been purchasing and selling shares with a view to earn business i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llmark Corporation v/s ACIT, ITA no.1716/Mum./2012 order dated 20th November 2013 and the decision of the Tribunal, Mumbai Bench, in DCIT v/s India Advantage Securities Ltd., ITA no.671/Mum./2011 order dated 14th September 2012. Alternatively, he submitted that if rule 8D is applied for making disallowance under section 14A, then following the decision of the Tribunal, Mumbai Bench, in DCIT v/s Damani Estates & Finance Pvt. Ltd., ITA no.3029/Mum./2012, for the assessment year 2008-09, order dated 17th July 2013, only 20% of the expenditure, specifically the interest component should be apportioned for the purpose of disallowance under rule 8D. 5. The learned Departmental Representative, on the other hand, submitted that in the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 14A has to be worked out even when the dividend income has been accrued on the shares held as stock-in-trade. From the working of the disallowance as made by the Assessing Officer under rule 8D(2)(ii), it is seen that the major disallowance is on account of interest expenditure amounting to Rs. 7,02,382. Once the shares which yield tax exempt dividend income, then it cannot be held that under the formula, the entire interest expenditure is to be disallowed under the said formula as these shares are also held as stock-in-trade, which yields trading income which is taxable. The Tribunal, in the decision of Damani Estates & Finance Pvt. Ltd. (supra), after detail analysis, has held that the amount of disallowance of expenditure as per rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o of such scaling down, no hard and fast rule for the purpose would hold, each fact situation being different. However, considering that the dominant objective of the share holding, which in our view should be dispositive of the matter, is the share trading income, we propose a ratio of 20% toward the tax-exempt dividend income. One could argue that the percentage suggested by us is ad hoc or not scientific. We have already explained that an indirect expenditure, including by way of interest, has no direct relation with the income, much less its quantum, allocating it on the basis of the income generated or arising would not be appropriate, and neither does rule 8D support the same. Further, that in arriving at the suggested rate of 20%, we ..... X X X X Extracts X X X X X X X X Extracts X X X X
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