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2016 (5) TMI 531 - ITAT AHMEDABAD

2016 (5) TMI 531 - ITAT AHMEDABAD - TMI - Disallowance u/s 14A - Held that:- Assessee has earned dividend income at ₹ 2,07,300/- and it is also undisputed fact that assessee is engaged in the business of trading of shares and securities. From going through the decision of the co-ordinate bench referred and relied on by ld. AR in the case of M/s K. Ratanchand & Co. vs. ITO [2015 (10) TMI 2171 - ITAT AHMEDABAD ] wherein held that in such cases disallowance u/s 14A should not exceed exempt in .....

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M. For The Appellant : Shri M. K. Patel, AR For The Respondent : Shri Dinesh Singh, Sr.DR ORDER PER Manish Borad, Accountant Member. This appeal of assessee is directed against the order of ld. CIT(A) 6, Ahmedabad in appeal no.CIT(A)-VI/ITO/Wd-1(3)/160/10-11. Assessment u/s 143(3) of the IT Act, 1961 (in short the Act) was framed on 14.12.2010 for Asst. Year 2008-09 by ITO, Wd-1(3), Ahmedabad. Grounds of appeal raised by assessee are as under :- 1. That on facts and in law the ld. CIT(A) has gri .....

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mily problems. Last date for filing the appeal was 29.11.2012 whereas assessee returned from his native place on 3rd week of January, 2012 due to which this delay occurred and ld. AR also placed on record an affidavit signed by the person on behalf of the assessee. 3. After considering the submissions of ld. AR and going through the affidavit placed on record, we are of the view that assessee was prevented by sufficient reason from filing the appeal in the statutory time limit and, therefore, we .....

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ails was discussed before ld. Assessing Officer. During the year under appeal assessee had derived dividend income of ₹ 2,07,300/- from various mutual funds and shares and securities. Ld. Assessing Officer was of the view that assessee has not made any disallowance of expenditure u/s 14A of the Act for earning exempt income and went ahead to apply rule 8D of the IT Rules, 1962 and worked out disallowance of ₹ 79,67,261/- and assessed the income at ₹ 86,75,993/-. 5. Aggrieved, a .....

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s held to be applicable with effect from assessment year 2008-09 by Bombay High Court, the disallowance of expenses relating to exempt income are to be made by the method prescribed in the said rule. It is not in dispute that appellant earned exempt income in the form of dividend on investment "and trading stock of more than R$ 290 Lacs. Appellant paid interest of RS 80.88 Lacs on borrowed funds used for business purposes as well as making investments. Appellant incurred substantial employe .....

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from assessment year 2008-09. For interest, proportionate expense is disallowable whereas for other expenses ,5% of average investment value is disallowable. Considering the foci that appellant claimed huge .administrative and other expenses, the disallowance of administrative expenses made by the assessing officer @.5% of investment resulting in exempt income is as per .the formula given in rule 8D which is mandatory for making disallowance. In view of this the addition @ .5% of investment resu .....

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ds were not used in making investment.' Therefore In the absence of clear cut details of utilization of funds, the formula given in rule 8D which is mandatory from this year onward is to be applied. The decisions relied upon by the appellant are not applicable in view of the fact that dividend receivable on even trading stock is exempt and disallowance of expenses are to be made. Since assessing officer worked out interest disallowance as per rule 8D, the interest disallowance is confirmed. .....

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s incidental in nature. Ld. AR also referred and relied to the decision of co-ordinate bench in the case of M/s K. Ratanchand & Co. vs. ITO in ITA No.2660/Ahd/2011 for Asst. Year 2008-09 wherein on similar facts wherein assessee was carrying on business of trading in shares and securities and earned dividend income of ₹ 58,963/- and disallowance was made u/s 14A of the Act and in these given facts co-ordinate bench decided the issue by restricting the disallowance u/s 14A of the Act on .....

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action of ld. CIT(A) confirming the addition of ₹ 19,67,261/- on account of disallowance u/s 14A of the Act r.w.rule 8D of the IT Rules. From going through the assessment order we observe that assessee has earned dividend income at ₹ 2,07,300/- and it is also undisputed fact that assessee is engaged in the business of trading of shares and securities. From going through the decision of the co-ordinate bench referred and relied on by ld. AR in the case of M/s K. Ratanchand & Co. v .....

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ook and case laws relied by the ld. AR. Addition of ₹ 4,04,204/- has been made by the AO against dividend income of ₹ 58,963/-. Nothing contrary has been brought to the fact that assessee is a dealer in shares and profit in share business has been shown by the assessee under the head income from business . A.O. has not made any specific finding to support the disallowance made by him. Further in case of Zaveri Virjibhai Mandalia vs. ACIT in ITA No.469/Ahd/2007 for AY 2004-05, the co- .....

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pose of purchase of units and shares which in fact have been utilized for purchase of units and shares. The assessee has paid interest on the amount borrowed from Kotak Mahindra Investment Ltd. These facts have not been controverted by Revenue. The assessee has incurred interest expenses for purchase of shares and units of mutual fund and the borrowed funds have been used for acquisition of units are in dispute. The AO also held that assessee is in the business of purchase/sale of shares and whi .....

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llowing the decision of the Co-ordinate Bench and the Hon ble High Court, we are of the view that in the present facts of the case, the interest expenses incurred by the assessee have to be treated as business expenses and no disallowance can be made under sec.14A. We accordingly direct the deletion of the disallowance made by AO. Thus this ground of assessee is allowed. 13. In the result, appeal of the assessee is allowed. 7. Further in the case of Jivraj Tea Ltd. vs. DCIT, Circle-1, Surat in I .....

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ome was not allowable to the assessee and the assessee has not disallowed any expenditure towards the earning of the exempted dividend income, he by invoking the provisions of Section 14A computed expenditure attributable to the earning of exempt dividend income under Rule 8D of the Income-tax Rules and made disallowance for interest expenditure of ₹ 1,49,710/- and administrative expenses of ₹ 12,750/-. The assessee unsuccessfully appealed before the CIT(A). The contention of the ass .....

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made. Regarding the disallowance of administrative expenses of ₹ 12,750/-, we find that the Chandigarh Bench of the Tribunal in the case of A.C.I.T. Vs. Punjab State Coop & Marketing Fed. Ltd. in ITA No. ITA No.548/Chd/2011 for AY 2007- 08 has held that disallowance u/s. 14A read with Rule 8D cannot exceed the exempt dividend income. Therefore, we restrict the disallowance of administrative expenses to ₹ 900/- only, being the exempt dividend income earned by the assessee. Thus, .....

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