TMI Blog2020 (5) TMI 553X X X X Extracts X X X X X X X X Extracts X X X X ..... utation of disallowance under rule 8D(2) (ii) of the Rules for statistical purposes. Average value of stock-in-trade will not be taken in determining the disallowance under section 14A read with rule 8D - Counsel submits that the value of investment will not include the value of shares held as stock-in-trade, as the main object of the assessee is to purchase and sale of shares - HELD THAT:- In the light of the above stated judgment of the Hon`ble Supreme Court in the case of Maxopp Investment [ 2018 (3) TMI 805 - SUPREME COURT] it is abundantly clear that the expenditure incurred in acquiring those shares, which is held in stock-in-trade will have to be apportioned. Therefore, section 14A read with rule 8D will be applicable in a situation when the assessee keeps shares in stock-in-trade . Whether all shares held in stock-in-trade should be considered for disallowance under section 14A or only those shares which yielded the dividend income? - HELD THAT:- As respectfully following the judgment of Hon`ble Supreme Court, in the case of Maxopp Investment (supra) and respectfully following the judgment of the Coordinate Bench of Kolkata in the case of REI Agro Ltd [ 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany has traded on account of its client and also on its own account in shares, futures and options and has also done speculative trading through BSE/NSE. During the assessment year 2011-12, the assessee company has earned income from trading in shares and mutual fund leading to profits under the head business and profession and under the head income from capital gain and also earned interest on debentures.During the assessment proceedings, the Assessing Officer made addition u/s 14A read with Rule 8D holding as follows: 3.4.9 The decision in the case of Dhanuka Sons vs CIT, 339 ITR 319(CAL) is in the favour of revenue on the issue. The decision of Hon'ble Mumbai High Court in the case of Godrej Boyce Manufacturing Co. Ltd. Vs Dy. CIT [2010] 328 ITR 81(BOM.)has upheld the constitutional validity of section 14A. The recent decision of ITAT, Mumbai 'D' Bench in case of Dy. CIT vs Damani Estates Finance Pvt. Ltd.(ITA No. 3029/MUM/2012) delivered on 17/07/2013 has also held after referring to all the decisions listed by the assessee that the value of investment will include the value of shares held as stock-in-trade as well. In very recent decision delivered on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imarily liquidated the shares and has earned dividend income. In the case of Patni Computer the purchase was made on 26.08.2010 and on 08.10.2010 the shares have been sold i.e. after the time period mentioned in 94(7) and the assessee has earned the dividend of Rs. 83.79 lakhs. Clearly, the transaction was structured to earn some tax free dividend. It was not with the intention of trading in these shares. Similarly, in the case of Sundaram Balance Fund units have been purchased three months and two days prior to the record date to avoid the provisions of Section 94(7) and immediately after record date (within 3 days) the actual fund / sold enabling the assessee to a dividend of ₹ 5.19 crore and loss of ₹ 5.95 crore which can be set off against other business income of the assessee. While there is a case for disallowing the entire loss incurred in these transactions yet since the assessee has taken care to avoid being hit by 94(7) the entire transaction may be considered as probably permissible. Yet taking these venturesin stock-in-trade to avoid Rule 8D is another story. The assessee never intended to put money in these securit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue which needs to be addressed by us is that while determining the disallowance under rule 8D(2)(ii) of the I.T.Rules, the AO took the gross interest of ₹ 3,46,48,556/-, as against the net interest of ₹ 83,50,170/- ( gross interest ₹ 3,46,48,556 minus interest received ₹ 2,62,98,368). That is, AO ought to take net interest for the purpose of computation of disallowance under Rule 8D(2) (ii) of the Rules. We note that this issue is no longer res integra. There are plethora of precedents wherein it was held that only net interest should be taken for the purpose of computation of disallowance under Rule 8D(2) (ii) of the Rules. We note that Coordinate Bench of this Tribunal in the matter of DCIT vs. Universal Industrial Fund Ltd. in ITA No. 299/Kol/2016, order dated 15/12/2017, held as follows: 7. Having heard the rival submission and perused the material available on record, we note that the interest expense incurred in the business of money lending was ₹ 2,0276,317/-. In the course of its business of financing, the assessee borrows and lends monies. The assessee pays interest on the borrowed funds and earns interest on the loans advanced. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al P. Ltd. (Appeal No. 409 514 of 2017) and Hon'ble ITAT Delhi in case of ACIT Vs. Keshav Shares Stock Ltd. (ITA. No.4394/Del/2011 decided on 26.04.2013 Delhi Bench. However, on the other hand, the Ld. Representative of the Department has refuted the said contention. On appraisal of the order passed by the AO, we find that the AO did not consider the interest net off against the interest received while deciding the interest expenditure in view of the provisions ITA No. 1844/M/2018 A.Y.2012-13 u/s 14A of the Act r.w. Rule 8D(2)(ii) of the Rules while deciding the interest expenditure. Net off interest is required to be assessed or not has been decided by Hon'ble ITAT Mumbai Bench in case of DCIT Vs. M/s. Jubliant Enterprises P. Ltd. in ITA. No.6364/M/2012 dated 12.03.2014. The relevant finding has been given as under:- 7. We have carefully considered the rival submissions and perused the orders of the lower authorities. The impugned assessment is A.Y 2008-09 and therefore Rule 8D is very much applicable for computing the disallowance u/s. 14A of the Act. In so far as the interest element is concerned, facts on record show that the assessee has paid interest of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith rule 8D of the Rules. The ld Counsel submits that the value of investment will not include the value of shares held as stock-in-trade, as the main object of the assessee is to purchase and sale of shares, therefore, he objects the following directions given by the ld CIT(Appeals) to the assessing officer to include the investment made in these three instruments/shares viz: Indian Oil Corporation, Patni Computer and Sundaram Balance Fund units: In view of the above, the Assessing Officer is directed to include the investment made in these three instruments in the investment for the purpose of calculation of disallowance u/s 14A as the nature of these three ventures is clearly not to keep them in stock-in-trade but to do some tax planning through some smart investment / tax avoidance device. The ld Counsel submits that the assessee company is a share-broker and during the assessment year 2011-12, the assessee company has traded on account of its client and also on its own account in shares, futures and options and has also done speculative trading through BSE/NSE. During the assessment year 2011-12, the assessee company has earned income from trading in shares and mutua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the head 'profits and gains from business and profession'. What happens is that, in the process, when the shares are held as 'stock-in-trade', certain dividend is also earned, though incidentally, which is also an income. However, by virtue of Section 10 (34) of the Act, this dividend income is not to be included in the total income and is exempt from tax. This triggers the applicability of Section 14A of the Act which is based on the theory of apportionment of expenditure between taxable and non-taxable income as held in Walfort Share Stock Brokers (P.) Ltd. case. Therefore, to that extent, depending upon the facts of each case, the expenditure incurred in acquiring those shares will have to be apportioned. In the light of the above stated judgment of the Hon`ble Supreme Court in the case of Maxopp Investment (supra) it is abundantly clear that the expenditure incurred in acquiring those shares, which is held in stock-in-trade will have to be apportioned. Therefore, section 14A read with rule 8D will be applicable in a situation when the assessee keeps shares in stock-in-trade . 12. We note that ld Counsel for the assessee has also relied on the ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound by a previous High Court decision, though he will normally follow it on the principle of judicial comity, in order to avoid conflict of authority and to secure certainly and uniformity in the administration of justice. If he refuses to follow it, he cannot overrule it; both decision stand and the resulting antimony must wait for a higher court to settle. 36. The principles applicable to courts in India were laid down by Subba Rao J. (as he then was) in Dr. K. C. Nambiar v. State of Madras, , which were approved by a Full Bench of our High Court in Subbarayudu v. The State, [FB] : [1955] II ALT (Cri) 53. They are as follows (at page 94 of AIR 1955 AP) : A single judge is bound by a decision of a Division Bench exercising appellate jurisdiction. If there is a conflict of Bench decisions, he should refer the case to a Bench of two judges who may refer it to a Full Bench. A single judge cannot differ from a Division Bench unless a Full Bench or the Supreme Court overruled that decision specifically or laid down a different law on the same point. But he cannot ignore a Bench decision, as I am asked to do on the ground that some observations of the Supreme Court made in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cided which case to follow; or when it has acted in ignorance of a House of Lords decision, in which case it must follow that decision; or when the decision is given in ignorance of the terms of a statute or rule having statutory force. 40. In Punjab Land Development and Reclamation Corporation Ltd. v. Presiding Officer, Labour Court , the Supreme Court explained the expression per incuriam thus (at page 36 of 77 FJR) : The Latin expression per incuriam means through inadvertence. A decision can be said generally to be given per incuriam when the Supreme Court has acted in ignorance of a pervious decision of its own or when a High Court has acted in ignorance of a decision of the Supreme Court. 13. In sum and substance andat the cost of repetition, we would like to express our view in the light of the settled position that the effect of binding precedents in India is that the decisions of the Supreme Court are binding on all the courts. Indeed, article 141 of the Constitution embodies the rule of precedent. The judgment of Hon`ble Supreme Court of India is a law of land and it must be followed invariably. As we noticed that Hon`ble Supreme Court, in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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