TMI Blog2014 (12) TMI 1152X X X X Extracts X X X X X X X X Extracts X X X X ..... d against the taxable income of the assessee. Therefore, the disallowance computed under Rule 8D of the Income Tax Rules cannot be more than the actual expenditure incurred by the assessee for the dividend income excluding the activity of share trading which is the business activity of the assessee. Even the computation of disallowance arrived as per the Rule 8D should be restricted only to the extent of actual expenditure or to the extent of the expenditure which can be attributable to the activity of the dividend income excluding the business activity of share trading. Accordingly, we direct the Assessing Officer to re-compute the disallowance u/s 14A with the rider to the actual expenditure which can be attributable to the receipt or ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as trading in shares securities and commodities. The assessee filed its return of income declaring total income of ₹ 297.48 crores and claimed speculation loss on account of share trading and commodities trading at ₹ 28.80 crores to be carried forward for set off in the subsequent years. The assessee has also earned dividend income of ₹ 340,47310/- and claimed the same as exempt. The assessee itself has made a disallowance of ₹ 34,04,731/- u/s 14A. The Assessing Officer applied rule 8D and made a disallowance of ₹ 1,13,34,297/- u/s 14A. Since the assessee itself has made a disallowance of ₹ 34,04,731/-, therefore, the net disallowance was made by the Assessing Officer to the tune of ₹ 79,29,566/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... future option then the expenditure incurred by the assessee in the course of business activity of trading in shares would be considered exclusively for business activity and the same cannot be apportioned being an expenditure incurred for earning the dividend income. The Tribunal in the case of Ramkumar Venugopal Investments Pvt. Ltd. Vs. ACIT (supra) after considering the third member decision in the case of D.H. Securities Vs. DCIT (supra) as well as the decision of Hon ble Karnataka High Court in the case of CCL Ltd. Vs. JCIT held in para 3 to 5 as under:- 3. We may observe that the issue relating to the disallowance under section 14A in relation to shares held in stock in trade was discussed by the coordinate bench ofMumbai Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idend income, interest qua which is to be disallowed, when held as stock in trade, yield taxable income also. In fact, the shares are bought and held primarily for the purpose of earning income from trading in shares. Hence, while calculating the interest disallowance under Rule 8D(2)(ii), the disallowance of the entire amount is not justified. The Tribunal therefore held that the amount calculated as per Rule 8D(2)(ii) would need to be scaled down as the income earned from share trading is offered for taxation. The tribunal observed that while scaling down the said amount no hard and fast rule can be applied and the same can be determined only on adhoc basis. The Tribunal also observed that where the share trading is the dominant object of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under Rule 8D(2)(iii) is concerned, since in the sharetrading activity, investment is not made for the purpose of earning exempt income, hence, the managerial/administrative expenses in relation to dividend income calculated under Rule 8D(2)(iii) are also required to be scaled down which we think that should be restricted to 10% of the amount so calculated under Rule 8D(2)(iii). In view of our above observations, the disallowance u/s.14A read with Rule 8D is, accordingly, restricted to 5% of the amount arrived at under Rule 8D(2)(ii) and 10% of the amount calculated by the A.O. under Rule 8D(2)(iii). 7. As regards the view of the Tribunal that the expenditure attributable towards the earning of the exempt income directly related to th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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