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2015 (12) TMI 894 - ITAT MUMBAI

2015 (12) TMI 894 - ITAT MUMBAI - TMI - Disallowance u/s 14A r.w.r 8D - Held that:- The assessee is a stock trader and not holding any investment in shares and securities then so far as interest expenditure is concerned, the same cannot be attributable or allocable for earning the dividend income which is only an incidental income and not intended income of the activity of the assessee being trading in shares and securities. We find that in a series of decisions, this Tribunal has decided this i .....

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nds of the assessee. As regards the other expenses, we find that the Assessing Officer has not pointed out any expenditure debited to the P&L Account which has any proximate nexus with the dividend income. The entire expenditure debited to the P&L account has a direct nexus with the trading activity of the assessee, therefore, the disallowance made by the assessee on its own is proper and just and no further disallowance on account of administrative expenses is justified. In view of the above di .....

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tances of the case, and in law, learned Commissioner of Income-tax (Appeal) erred in upholding action of the Assessing Officer in traveling through sub-Rule 80 (2) without appreciating that, he had no jurisdiction to do so when the Appellant had voluntarily disallowed ₹ 53,518, being 5% of exempt income; and the case was covered by Rule 8D (1). 2. On the facts, and in circumstances of the case, and in law, learned Commissioner of Income-tax (Appeal) erred in upholding action of the Assessi .....

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nd ignoring interest out go that had direct nexus with interest receipt; and thereby exposing entire interest out go of RS.1 ,489,851 to the rigor of section 14A read with Rule 80. 4. On the facts, and in circumstances of the case, and in law, learned Commissioner of Income-tax (Appeal) erred in upholding action of the Assessing Officer in considering shares and securities held as stock in trade for the purpose of 1/2 % of Average Investments and numerator for interest disallowance for computati .....

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- during the year which was claimed as exempt u/s 10(34) and 10(35) of Income Tax Act. The assessee itself has disallowed a sum of ₹ 53,518/- being 5% of the dividend income in the computation of total income. The Assessing Officer has made the disallowance u/s 14A r.w.r 8D amounting to ₹ 9,71,849/- comprising of the disallowance of interest of ₹ 8,03,696/- and disallowance on account of other expenses of ₹ 1,68,153/-. The assessee challenged the action of Assessing Offic .....

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by the assessee for the purpose of trading activity. Whatever direct expenses incurred for earning the dividend income has already been disallowed by the assessee. He has further submitted that the assessee has received the interest of about ₹ 20,00,000 as against the interest payment of ₹ 14,89,850/-, therefore, the net interest is an income and not an expenditure. Since the assessee s own fund is more than the borrowed fund and interest income is more than the interest payment, the .....

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Pinnacle Brocom Private Ltd. Vs. ACIT [In ITA No. 6247/Mum/2012 (iv) ACIT Vs. Dhampur Sugar Mills Pvt. Ltd. (All.)(HC) ( ITA NO. 220 of 2014 dated 5.11.2014. (v) CIT Vs. Consolidated Photo & Finvest Ltd. [It Appeal No. 1290 of 2011] (vi) Sharekhan Financial Services (P) Ltd. Vs. ACIT [ITA No. 5861/Mum/2011 dated 20.08.2014. (vii) Esquire Pvt. Ltd. Vs. DCIT [ ITA No. 5688/Mum/2011 (viii) DCIT Vs. India Advantage Securities Ltd [ITA No. 6711/Mum/2011 (ix) Yatish Trading Co. (P) Ltd. Vs. Assist .....

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ntions on this issue, however, we find that the assessee is a stock trader and not holding any investment in shares and securities then so far as interest expenditure is concerned, the same cannot be attributable or allocable for earning the dividend income which is only an incidental income and not intended income of the activity of the assessee being trading in shares and securities. We find that in a series of decisions, this Tribunal has decided this issue by holding that no disallowance u/s .....

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e received from shares held on trading account. The A.O. disallowed the expenses holding that the provisions of section 14A were applicable even in relation to the dividend received from the trading shares. The Ld.CIT(A) has however held that the provisions of section 14A will not apply to the shares held on trading account. The Revenue has placed reliance on the decision of Mumbai Bench of the Tribunal in the case of M/s. American Express Bank Limited (supra) in which the Tribunal has held that .....

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. The Tribunal had however, distinguished the said judgment of Hon ble High Court of Kerala on the ground that in that case the acquisition of shares with the borrowed funds was for the purpose of controlling the company. Therefore, even though the purpose for acquiring the shares was business, the High Court had upheld the disallowance u/s.14A of the I.T. Act. The Tribunal also noted that the High Court in that case had only observed that the interest paid on borrowed funds utilised for acquiri .....

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ance of expenses in relation to the dividend income received from trading in shares. 6. However, the Hon ble High Court of Karnataka have recently considered the disallowance of expenses incurred on borrowings made for purchase of trading shares u/s.14A of the I.T. Act in case of CCL Ltd. vs. JCIT (supra). The assessee in that case was distributor of state lotteries and a dealer in shares and securities. The assessee had taken loans for the purchase of certain shares and it had incurred expendit .....

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t shown from the sale of shares had been offered as business income. The Tribunal, therefore, directed the A.O. to bifurcate the expenditure proportionately. The order of the Tribunal was however, not upheld by the Tribunal. The High Court noted that 63% of shares which were purchased were sold and income derived was offered to tax as business income. The remaining 30% of shares which remained unsold had reverted to dividend income for which the assessee had not incurred any expenditure at all. .....

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