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2013 (2) TMI 758 - AT - Income TaxAddition made u/s.14A - Held that - The Hon ble Bombay High Court in the case of Godrej & Boyce Mfg. Co.Ltd. 2010 (8) TMI 77 - BOMBAY HIGH COURT has held that provisions of Rule 8D are applicable from AY 2008-2009 onwards. The provisions of Rule 8D are statutorily mandatory and any working of disallowance u/s 14A is required to be worked out as per formula provided in Rule 8D(2) only. As the appellant itself had offered disallowance u/s 14A more than the disallowance worked out under 14A AO was not justified in disallowing further expenditure u/s 14A.
Issues:
Disallowance of expenses under section 14A, applicability of Rule 8D, treatment of dividend income from shares held as stock-in-trade, consideration of borrowings for trading shares, interpretation of Rule 8D provisions. Issue 1: Disallowance of Expenses under Section 14A The appellant appealed against the disallowance of Rs. 75,92,735 under section 14A r.w. Rule 8D, contending that no direct or indirect expenditure was attributable to earning exempt income as they were engaged in trading shares and securities. The Assessing Officer (AO) rejected the appellant's claim and applied Rule 8D to calculate the disallowance. The CIT(A) upheld the AO's decision. The appellant argued that a similar issue was decided in their favor by the Tribunal for the preceding assessment year. The Tribunal, in the appellant's case for the year 2008-09, held that the provisions of section 14A do not apply to dividend income from shares held as stock-in-trade. The Tribunal relied on the decision of the Hon'ble Karnataka High Court in the case of CCL Ltd vs JCIT. Following this precedent, the Tribunal reversed the lower authorities' orders and allowed the appeal, stating that the disallowance under section 14A was not justified. Issue 2: Applicability of Rule 8D and Treatment of Dividend Income The Tribunal considered the applicability of Rule 8D and the treatment of dividend income from shares held as stock-in-trade. The appellant argued that Rule 8D cannot be invoked as the shares were held as stock in trade, and any disallowance was not warranted. The Tribunal referred to the decision of the Hon'ble Karnataka High Court and held that the provisions of section 14A do not apply to dividend income from trading shares. The Tribunal emphasized that the purpose of acquiring shares for trading was business-related, and any incidental dividend income did not warrant disallowance under section 14A. The Tribunal also noted that the appellant had offered a disallowance under section 14A, which was considered reasonable based on the average investment value during the year. The Tribunal upheld the CIT(A)'s decision to delete the disallowance made by the AO under section 14A, emphasizing the statutory mandatory nature of Rule 8D from AY 2008-2009 onwards. Issue 3: Consideration of Borrowings for Trading Shares The Tribunal examined the borrowings made for trading shares and the treatment of expenses incurred in relation to dividend income. The Tribunal referred to the case of CCL Ltd. vs. JCIT, where the High Court held that expenses incurred on borrowings for trading shares were not to be disallowed under section 14A. The Tribunal emphasized that the disallowance under section 14A did not apply to dividend income from trading shares, especially when the shares were held for business purposes. The Tribunal rejected the AO's disallowance of further expenditure under section 14A, stating that the disallowance made was not justified. The Tribunal upheld the CIT(A)'s decision to delete the disallowance, considering the specific circumstances of the case and the intention behind holding the shares. In conclusion, the Tribunal allowed the appeal filed by the assessee, reversing the orders of the authorities below and dismissing the grounds raised by the Revenue. The Tribunal upheld the decisions based on the precedents set by the Hon'ble Karnataka High Court and the statutory provisions of Rule 8D, emphasizing the business nature of holding shares for trading purposes and the inapplicability of section 14A to dividend income from trading shares.
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