TMI Blog2014 (8) TMI 1014X X X X Extracts X X X X X X X X Extracts X X X X ..... restricted to 5% of the amount so arrived. So far the disallowance under Rule 8D(2)(iii) is concerned, since in the share trading 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). - Decided partly in favour of assessee - I.T.A. No. 6324/Mum/2012 - - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh its grounds of appeal is relating to disallowance u/s.14A in relation to dividend income on shares held as stock-in-trade. It has been contended by the ld. Authorized Representative (AR) that since the shares were held as stock-in-trade hence, there was no intention of the assessee to make the investments for the purpose of earning of dividend income. The dividend income was incidental to the business of the assessee. Hence, the provisions of section 14A were not attracted. In support of his contention he has relied upon the decision of the Hon ble Karnataka High Court in the case of CCI Ltd. vs. JCIT (2012) 250 CTR (Kar) 291 wherein the Hon ble Karnataka High Court has held that in a case where the assessee has not retained shares wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the light of the provisions of section 14A of the Act. The decision of the Hon ble Karnataka High Court relied upon by the assessee has been duly discussed and distinguished in the Third Member Case of D.H. Securities (P) Ltd. vs. DCIT (supra). However, it has been further observed in the said Third Member decision of the Tribunal that the shares which yield tax exempt dividend 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 there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res, the annual turnover would be much higher in case of share trading as compared to the investments made for the purpose of earning of exempt income, even the disallowance @ 20% of the amount calculated under Rule 8D(2)(ii) will be on higher side. We feel that it will be appropriate if the said disallowance is restricted to 5% of the amount so arrived. 5. So far the disallowance under Rule 8D(2)(iii) is concerned, since in the share trading 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 und ..... X X X X Extracts X X X X X X X X Extracts X X X X
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