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2016 (10) TMI 988 - ITAT DELHI

2016 (10) TMI 988 - ITAT DELHI - TMI - Disallowance u/s. 14A read with Rule 8D - AO has invoked the provisions of rule 8D holding that the implication of the said rule is automatic and has nothing to do with the earning of income during the year under consideration - CIT(A) has upheld the addition made by the AO by holding that the provisions of section 14A are also applicable in case of stock-in-trade - Held that:- As during the year under consideration, assessee had a long term capital gain of .....

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inanciers who have funded the IPOs as is evident from the records, and there is no dividend income from transaction. Since the business of the assessee is sale and purchase of shares, all the interest has been paid in relation to normal business income, and cannot be allocated for the purpose of disallowance u/s. 14A read with Rule 8D. Find considerable cogency in the contention of the Ld. Counsel of the assessee that it is a settled law that the disallowance u/s. 14A read with Rule 8D should on .....

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hander Dubey, Sr. DR ORDER Per H. S. Sidhu, JM Assessee has filed the Appeal against the Order dated 16.9.2015 passed by the Ld. Commissioner of Income Tax (Appeals)-18, New Delhi pertaining to assessment year 2008-09. 2. The grounds raised by the assessee read as under:- 1. That the Ld. CIT(A) erred in sustaining the order passed u/s. 143(3)/263 of the Income Tax Act, by AO, which is bad in law and on the facts of the case. 2. That the Ld. CIT(A) erred in sustaining the disallowance u/s. 14A r. .....

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143(2) of the I.T. Act, 1961 was issued on 8.9.2009 and assessment u/s. 143(3) was completed on 3.12.2010 on the assessed income of ₹ 34,76,550/-. Subsequently, the Ld. CIT, Delhi-XI, New Delhi vide his order dated 7.3.2013 after examining the facts of the case observed that the order dated 3.12.2010 of the AO is erroneous and prejudicial to the interest of revenue and set aside the same for making afresh assessment. Consequent to the order passed by the Ld. CIT, the AO passed a fresh asse .....

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he assessee has stated that the interest has been paid by the assessee to the financiers who have funded the IPOs as is evident from Page No. 54 & 65 of the Paper Book and there is no dividend income from transaction. He further stated that since the business of the assessee is sale and purchase of shares, all the interest has been paid in relation to normal business income, and cannot be allocated for the purpose of disallowance u/s. 14A read with Rule 8D. He further stated that it is a set .....

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e case of Vidyut Investment Ltd. vs. ITO (2006) 10 SOT 284 (Delhi). - ITAT, Mumbai decision in the case of Yatish Trading Co. (P) Ltd. vs. ACIT (2011) 129 ITD 237 (Mumbai). - ITAT, Mumbai in the case of Fiduciary Shares & Stock (P) Ltd. vs. ACIT (2016) 159 ITD 554 (Mumbai) - Dy. DIT (OSD) vs. Shree Durga Capital Ltd., Mumbai ITA No. 7405/Mum/2011 dated 3.8.2015 - ITAT, Mumbai - ITAT, Mumbai in the case of Devkant Synthetics (India) Ltd. vs. ITO in ITA No. 2663-2665/Mum/2015 dated 28.10.2015) .....

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as not incurred any expenditure in order to earn any exempt income. The AO has further ignored the explanation offered by the assessee that the interest expenditure incurred by the assessee is in respect of the funds borrowed for the IPOs. I note that the AO has invoked the provisions of rule 8D holding that the implication of the said rule is automatic and has nothing to do with the earning of income during the year under consideration. Thereafter, the Ld. CIT(A) has further sustained the addit .....

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onsideration, assessee had a long term capital gain of ₹ 54,74,924/- alongwith dividend income on mutual funds and shares for ₹ 46,55,903. I further note that the assessee has incurred bank charges and interest expense amounting to ₹ 19,42,045.95 during the year under consideration, complete details were filed by the assessee before the AO as well as Ld. CIT(A) and no loan has been taken by the assessee during the year as is evident from the balance sheet of the assessee. The s .....

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the disallowance u/s. 14A read with Rule 8D should only be made with regard to investments and not with the regard to share held as stock-in-trade. I am in further agreement with the contention of the Ld. Counsel of the assessee that the assesse is in the business of sale and purchase of shares and mutual funds and the shares were held as stock in trade, therefore, provisions of section 14A read with Rule 8D are not applicable. My aforesaid view is fully supported by the following decisions:- a) .....

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were incurred or the depository/custodial charges were incurred merely to earn dividend income. The intention was to earn the profit on share trading and not to earn dividend income. Thus, the provisions of section 14A could not be invoked to hold that the expenses by way of interest and depository/custodial charges were incurred in relation to dividend income which did not form part of the total income. [Para 2.5]' b) ITAT, Mumbai in the case of Yatish Trading Co. (P.) Ltd. v. ACIT [2011] 1 .....

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ased for trading, then the same would not change the purpose, nature or character of the expenditure. Thus, when the said expenditure (interest) was incurred for trading activity then the same could not be said to have been incurred for earning the dividend income. As per the basic principle of taxation only the net income, i.e., gross income minus expenditure incurred is taxed. Accordingly, the expenditure which was incurred for earning the taxable business income had to be allowed against the .....

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presumption and estimation of the Assessing Officer. No notional expenditure can be apportioned for the purpose of earning income, unless there is an actual expenditure 'in relation to' earning the income not forming the part of the total income. If the expenditure is incurred with a view to earn taxable income and there is apparent dominant and immediate connection between the expenditure incurred and taxable income then no disallowance can be made under section 14A merely because some .....

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ordingly, there is no live connection between the expenditure incurred and the dividend income. [Para 35]' c) ITAT Mumbai in the case of Fiduciary Shares & Stock (P.) Ltd. v. ACIT [2016] 159 ITD 554 (Mumbai - Trib.), has held as under: "The issue for adjudication is as to whether the shares held by the assessee-company under the head 'stock-in-trade' are to be considered for making disallowance under section 14A, read with rule 8D. The Jurisdictional Court in the case of CIT .....

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