2013 (6) TMI 806 - AT - Income Tax

Disallowance of expenses u/s 14A and Rule 8D - Assessee was engaged in the business of broking in shares and securities, trading in shares and securities as well as making investments. He received dividend income which was exempted from tax. The AO made disallowance of expenses u/s 14 A consisting of interest disallowance as per Rule 8D. Assessee claimed that he had not incurred any expenses for earning the dividend income and therefore, no disallowance should be made. HELD THAT - While computing the disallowance of interest under Rule 8D, if the expenses are incurred in relation to the dividend received from trading shares, have to be excluded. Decision in the case of - CCI LTD. VERSUS JOINT COMMISSIONER OF INCOME-TAX 2012 (4) TMI 282 - KARNATAKA HIGH COURT , relied upon. Minimum Alternate Tax - Al lowability of rebate u/s 88E while computing the book profit u/s 115JB - The claim of the assessee regarding allowability of rebate u/s 88E while computing the book profit u/s 115JB was rejected by AO who observed that the provisions of section 88E applied only to the case where total income of the assessee includes income chargeable under the head profit and gains of business and profession arising from taxable securities and not to the deeming provisions of section 115JB - HELD THAT - Rebate u/s 88E in respect of payment of Securities Transaction Tax (STT) has to be allowed even if total income is assessed u/s 115JB. Decision in the case of M/S. HORIZON CAPITAL LIMITED, VERSUS. INCOME TAX OFFICER, WARD 11 (2), 2010 (7) TMI 991 - ITAT BANGALORE , relied upon.

Summary

Issues: Disallowance of expenses u/s 14A of the IT Act and allowability of rebate u/s 88E while computing the book profit u/s 115 JB.

Dispute 1: Disallowance of expenses u/s 14A:
The dispute revolves around the disallowance of expenses under section 14A of the IT Act for the assessment year 2008-09. The Assessing Officer (AO) disallowed expenses amounting to Rs. 57,81,298/-, including interest and other expenses, as per Rule 8D, due to the assessee's receipt of tax-exempt dividend income. The assessee contended that no expenses were incurred for earning the dividend income, especially from trading shares. Despite the assessee's arguments, the CIT (A) upheld the disallowance, stating that expenses needed to be disallowed under section 14A regardless of the source of dividend income. The assessee, citing judgments, argued against the disallowance related to dividend income from trading shares. The Tribunal, considering relevant judgments, held that disallowance of expenses in relation to trading shares could not be made. Furthermore, it was decided that only the net interest income should be considered for disallowance under Rule 8D, excluding expenses related to dividend income from trading shares. The issue was remanded to the AO for fresh computation after due examination.

Dispute 2: Allowability of rebate u/s 88E:
The revenue's appeal contested the allowability of rebate under section 88E while computing the book profit under section 115 JB. The AO rejected the claim, stating that section 88E applied only to income from taxable securities under the head "profit and gains of business and profession," not under the deeming provisions of section 115 JB. The assessee referred to a Tribunal decision in a similar case, arguing for the allowance of the rebate. The CIT (A) agreed with the assessee, allowing the claim. The Tribunal, following the precedent set by the Bangalore bench in a specific case, upheld by the High Court of Karnataka, confirmed the allowance of the rebate under section 88E even when the total income was assessed under section 115 JB. No contradictory judgments were presented, leading to the confirmation of the CIT (A)'s decision to allow the claim.

In conclusion, the Tribunal allowed the assessee's appeal for statistical purposes and dismissed the revenue's appeal, based on the detailed analysis and application of relevant legal precedents and provisions in both disputes.