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2015 (10) TMI 65 - AT - Income TaxDisallowance made u/s. 14A - CIT(A) deleted the disallowance - Held that - This issue is now covered by the decision of Hon ble jurisdictional High Court in the case of CIT Vs. R.E.I. Agro Ltd. 2013 (12) TMI 1517 - CALCUTTA HIGH COURT wherein the order of Tribunal in DCIT Vs. R.E.I. Agro Ltd. 2013 (5) TMI 582 - ITAT KOLKATA was confirmed to held that AO has not examined the accounts of the assessee and there is no satisfaction recorded by the AO about the correctness of the claim of the assessee and without the same he invoked Rule 8D of the Rules. AO has not considered the claim of the assessee and straight away embarked upon computing disallowance under Rule 8D of the Rules on presuming the average value of investment at 1/2% of the total value. Respectfully following the decision in the case of J. K. Investors (Bombay) Ltd. 2013 (5) TMI 580 - ITAT MUMBAI ground of appeal of revenue is dismissed. Even otherwise, on merits also the assessee had made disallowance itself and filed computation of disallowance as per rule 8D of the Rules. The AO could not find any fault in the computation of disallowance made by assessee and secondly, the assessee does not have any investment and all the shares are held as stock in trade, as is evident from the orders of the lower authorities. Once, the assessee has kept the shares as stock in trade, the rule 8D of the Rules will not apply. Hence, the assessee s case is covered by jurisdictional High Court by the case law of R.E.I. Agro Ltd., supra and also on merits. - Decided in favour of assessee.
Issues:
1. Disallowance made under section 14A of the Income-tax Act, 1961. Analysis: The appeal by the revenue concerns the disallowance made under section 14A of the Income-tax Act, 1961. The primary issue revolves around the deletion of the disallowance by the CIT(A) and the subsequent appeal before the Tribunal. The disallowance pertained to the computation of disallowance under Rule 8D of the Income Tax Rules, 1962. The AO had disallowed a specific amount based on the provisions of section 14A, which was contested by the assessee. The crux of the matter was whether the disallowance was correctly made and whether Rule 8D was applicable in the given circumstances. The AO had initially disallowed a substantial amount under section 14A, which was contested by the assessee before the CIT(A). The CIT(A) examined the case and concluded that Rule 8D was not applicable as the assessee did not have any investments and treated all shares as stock in trade. The CIT(A) upheld a reduced disallowance amount, considering indirect expenses related to earning dividend income. The decision was based on the principle that section 14A disallows expenditure related to exempted income, even if no direct expenses are involved. The CIT(A) found the disallowance amount of the assessee to be fair and reasonable under section 14A. The Tribunal, after hearing both parties, upheld the CIT(A)'s decision. The Tribunal noted that the AO had not recorded satisfaction for invoking section 14A read with Rule 8D, which was a legal requirement. Additionally, on merits, the Tribunal found that the assessee had already made a disallowance and the AO did not find any fault in the computation. Moreover, since the shares were held as stock in trade, Rule 8D was deemed inapplicable. The Tribunal dismissed the revenue's appeal, citing the jurisdictional High Court's decision and the lack of merit in the revenue's arguments. In conclusion, the Tribunal upheld the CIT(A)'s decision to restrict the disallowance amount under section 14A and dismissed the revenue's appeal. The judgment highlighted the importance of satisfying legal requirements for invoking specific provisions and the significance of factual circumstances in determining the applicability of rules and regulations in tax matters.
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