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2015 (12) TMI 386 - ITAT DELHI

2015 (12) TMI 386 - ITAT DELHI - TMI - Addition u/s 14A - CIT(A) deleted the addition - AO submitted that the assessee made the investment and had not bifurcated the investment and stock-in-trade. Therefore, the addition was rightly made by the AO by making the disallowance u/s 14A - Held that:- In the present case, it is an admitted fact that the provisions of Rule 8D of the IT Rules, 1962 are not applicable for the year under consideration because those rules are applicable for the assessment .....

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ed by the assessee in acquiring the shares to the expenditure of dividend income and making the disallowance u/s 14A of the Act. In the present case, the assessee did not make the fresh investment and even out of the stock-in-trade 75% of the shares were sold during the year which clearly shows that bulk of the shares which were purchased earlier, were sold and the income derived from those shares was offered to tax as ‘Business income’, the shares which could not be sold remained with the asses .....

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AM: This is an appeal by the Department against the order dated 31.12.2014 passed by the CIT(A)-V, New Delhi. 2. The only grievance of the Department in this appeal relates to the deletion of addition of ₹ 13,63,477/- made by the AO u/s 14A of the Income Tax Act, 1961 (hereinafter referred to as the Act ). 3. Facts of the case in brief are that the assessee filed the return of income on 30.10.2007 showing an income of ₹ 2,40,000/- and business loss of ₹ 1,24,48,564/-. The asses .....

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Against the said order of the ld.CIT(A), the assessee preferred an appeal to the ITAT Delhi Bench D in ITA No.5197/Del/2011, wherein, vide order dated 23.3.2012, the order of the ld.CIT(A) was set aside and the matter was restored to the file of AO. Thereafter, the AO framed the assessment at an income of ₹ 2,40,000/- by observing as under:- During the assessment proceedings, assessee has submitted that the provisions of Rule 8D is not applicable for Asst. Year 2007-2008 and applicable fr .....

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,132/-, assessee had an investment of ₹ 75,39,025/- in equity shares of companies as on 31.03.2007. That the claim by the assessee during the present assessment proceedings that the assessee was not engaged in the investment activity and engaged only in trading activities are incorrect. However assessee has also not filed any evidence that the investment/purchase of shares held as stock or investment were from his own funds nor from the borrowed funds. It is also important to note that Sec .....

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nsidering the Balance Sheet of the assessee, I hereby disallow a sum of ₹ 13,63,477/- being 50% of the Interest on Loans claimed by the assessee as disallowance u/s 14A of the Income Tax Act,1961. Since the assessee has furnished inaccurate particulars of income on this ground, penalty proceedings u/s 271(1)(c) of the Income Tax Act, 1961 are being initiated separately. In view of above, income of the assessee is recomputed as under:- Income from Salaries Rs,2,40,000/- Add: Disallowance U/ .....

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ttracted. The ld.CIT(A), after considering the submissions of the assessee, deleted the addition by observing in para 11.1 and 11.2 of the impugned order which read as under:- 11.1 I have considered the submissions made by the appellant and the case law cited by him. I have also examined the facts and circumstances of the case. It is true that assessee was holding shares as stock-in-trade as well as investment. It is also true that the dividend has been earned by the assessee on shares held as s .....

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which was decreased from ₹ 2.12 crore to ₹ 51.53 lac. Thus this is not a case where assessee had borrowed money for purchasing shares and paid interest thereon. However, Assessing Officer has made disallowance of 50% of the interest paid by the assessee which is unjustified. 11.2 I have also considered the case law cited by the assessee particularly the judgement of Jurisdictional High Court in the case of Maxopp Investment Ltd. & Ors vs CIT (2012) 347 ITR 272 (Del) and Karnataka .....

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e assessee, it is clearly discernible that the dividend of ₹ 1,35,460/- earned by him is very meagre. The Assessing Officer has not given any reasoning for disallowing a sum of ₹ 13,63,477/- being 50% of the total interest paid by the assessee, u/s 14A. Even out of stock-in-trade, 75% of the shares were sold by the assessee during the year and only 25% of the stock-in-trade was retained. It is not the case of assessee that shares were retained for earning the dividend income. Bulk of .....

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t retained the shares with the intention of earning dividend income and the dividend was incidental to the business of sale of shares, it would be unjustified to apportion the expenditure incurred by the assessee in acquiring the shares, to the extent of dividend income and disallow the same u/s 14A. Hence the disallowance made by the Assessing Officer is not sustainable and therefore, is deleted. Accordingly, a relief of ₹ 13,63,477/- is allowed to the assessee. 5. Now, the Department is .....

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or making the disallowance @ 50% of the interest paid by the assessee. It was further stated that during the year under consideration no investment was made by the assessee and the provision of Rule 8D were not applicable for the year under consideration. It was accordingly submitted that the ld.CIT(A) was fully justified in deleting the arbitrary addition made by the AO. 7. I have considered the submissions of both the parties and carefully gone through the material available on the record. In .....

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