TMI Blog2014 (2) TMI 1067X X X X Extracts X X X X X X X X Extracts X X X X ..... - the disallowance under section 14A has to be worked out even when the dividend income has been accrued on the shares held as stock-in-trade - Once the shares which yield tax exempt dividend income, then it cannot be held that under the formula, the entire interest expenditure is to be disallowed under the said formula as these shares are also held as stock-in-trade, which yields trading income which is taxable - while arriving at the disallowance of rule 8D, disallowance of interest expenditure should be restricted to 20% of the exempt income i.e., dividend income – thus, the order of the CIT(A) set aside – Decided partly in favour of Assessee. - ITA No. 949/Mum./2012 - - - Dated:- 14-2-2014 - Shri B. R. Baskaran And Shri Amit Shukla, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure including interest has to be allowed. Reliance was placed on the decision of the Hon'ble Jurisdictional High Court in Valfort Shares and Stock Brokers Pvt. Ltd., [2008] 219 CTR (Bom.) 409. The Assessing Officer rejected the assessee s contention on the ground that whether the assessee is earning dividend income as its main activity or subsidiary activity, the provisions of section 14A has to be invoked as the expenditure also attributes to the earning of exempt income. Accordingly, he calculated the disallowance after applying the provisions of rule 8D at Rs. 7,66,741 as per the working given at Page-3 and 4 of the assessment year. 3. This disallowance has also been confirmed by the learned Commissioner (Appeals) after followi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the disallowance under section 14A r/w rule 8D can be made in the case where the dividend income has been earned on the shares held as stock-in-trade. Thus, the disallowance has to be made under section 14A after applying the provisions of rule 8D. 6. We have heard the rival contentions and perused the findings of the authorities below. In the present case, the issue is, whether the disallowance under section 14A r/w rule 8D can be with regard to the dividend earned on the shares held as stock-in-trade. The assessee s case is that dealing in shares is the core business of the assessee and any expenditure incurred thereon, is wholly for the purpose of the business and earning of dividend income is merely incidental to such business. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purpose of tax exempt dividend income. The relevant observation of the Tribunal in this regard are as under:- The second component, qua interest expenditure in r. 8D(2)(ii), however, presents a problem in a case as the instant case. This is as the sub-rule, as would be readily seen, seeks to quantify the interest on the investments, income from which is not taxable, on a proportionate basis, and which though is not only understandable, but is as appropriate and justifiable as a general formula could be. However, in the instant case, shares, which yield the tax exempt dividend income, interest qua which is to be disallowed, being held as stock-in-trade, also yield share trading income, which is taxable. Therefore, to say that the entir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the share trading activity, would vary continuously; the turnover for a year being easily in the range of 4 to 5 times the average share-holding. Accordingly, in arriving at the disallowance u/r. 8D, the amount as per r. 8D(2)(ii) qua shares held as stock-in-trade would stand to be restricted to 20% thereof. 7. Thus, in the present case also, we are of the opinion that while arriving at the disallowance of rule 8D, disallowance of interest expenditure should be restricted to 20% of the exempt income i.e., dividend income. Consequently, we set aside the impugned order passed by the learned Commissioner (Appeals) and partly allow the ground raised by the assessee. 8. In the result, assessee s appeal is partly allowed. Order pronounced ..... X X X X Extracts X X X X X X X X Extracts X X X X
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