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2016 (6) TMI 879 - ITAT MUMBAI

2016 (6) TMI 879 - ITAT MUMBAI - TMI - Disallowance under section 14A - quantification of disallowance under section 14A of the Act on account of expenditure incurred by the assessee in relation to income in the form of dividends, which is exempt from tax - Held that:- the shares and securities treated as stock-in-trade cannot be considered for the purposes of working of disallowance under section 14A of the Act r.w. Rule 8D of the Rules. Accordingly, the disallowance under section 14A of the Ac .....

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eal is preferred by the assessee and is directed against the impugned order dated 28/08/2014 of CIT(A)-8, Mumbai, pertaining to the assessment year 2010-11, which in turn has arisen from an order passed by the Assessing Officer dated 01/03/2013 under section 143(3) of the Income Tax Act, 1961( in short the Act ). 2. In this appeal, although assessee has raised multiple grounds of appeal, but the solitary dispute is with regard to an addition of ₹ 17,45,347/- made by the Assessing Officer b .....

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scrutiny assessment, whereby the total income has been assessed at ₹ 14,72,950/-. The Assessing Officer had noticed that during the year under consideration, assessee has earned tax free dividend income of ₹ 1,11,16,796/-. Section 14A of the Act prescribes that no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. On the strength of the aforesaid, the assessee was show-caused .....

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ule- 8D of Rules 1962, which amounted to ₹ 2,80,797/-. The Assessing Officer was not satisfied with the stand of the assessee in as much as according to him determination of disallowance by application of Rule-8D of the Rules was wrongly done by the assessee in as much as assessee did not consider the investment in stock-in-trade of shares and securities. In forming such an opinion, the Assessing Officer relied upon the decision of the Special Bench of the Tribunal in the case of Daga Capi .....

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ed in holding that the disallowance under section 14A of the Act has also to be made in relation to income received from shares held as stock-in-trade. In this context, Ld. Representative for the assessee contended that said issue has been considered by the Mumbai Bench of the Tribunal in the case of DCIT vs. M/s. India Advantage Securities Ltd.,ITA No.6711/Mum/2011 dated 14/09/2011 for assessment year 2008-09 and after relying on the judgment of the Hon ble Karnataka High Court in the case of C .....

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the issue was decided in favour of the assessee. It is also pointed out that the said decision of the Tribunal dated 14/9/2012 (supra) has since been affirmed by the Hon ble Bombay High Court vide its order in Income Tax Appeal No. 1131 of 2013 dated 13/4/2015, a copy of which was placed on record. 5. As the aforesaid discussion shows, the short point in this appeal relates to the quantification of disallowance under section 14A of the Act on account of expenditure incurred by the assessee in r .....

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efully. The dispute is regarding the disallowance of expenses u/s.14A in relation to the exempt dividend income 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 .....

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296) to argue that the disallowance could not be made in relation to the dividend received from trading shares. 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 th .....

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Court of Kerala in the case of Smt. Leena Ramachandran (supra) which was not directly on the issue of disallowance 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 share .....

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relatable to earning of dividend income as the loan had been utilised for the purchase of shares and the profit 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 re .....

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