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2019 (1) TMI 1782 - AT - Income TaxDisallowance of expenses u/s.14A r.w.r. 8D(2)(i)(ii) (ii ) - assessee alleged disallowance under section 14A read with Rule 8D on account of expenses incurred in relation to the said exempt income cannot exceed the amount of dividend income actually earned. - HELD THAT - Since this issue is squarely covered by the decision in the case of Joint Investments Pvt. Limited vs.- CIT 2015 (3) TMI 155 - DELHI HIGH COURT wherein it was held that the disallowance under section 14A cannot exceed the actual amount of exempt income earned by the assessee we allow the limited relief claimed on behalf of the assessee and restrict the disallowance made under section 14A read with Rule 8D to amount being the amount of dividend income actually earned. - Decided partly in favour of assessee.
Issues: Disallowance of expenses under section 14A read with Rule 8D, Application of Explanation to Section 73 for speculation loss
Issue 1: Disallowance of expenses under section 14A read with Rule 8D The appellant challenged the disallowance of expenses of ?8,81,839 under section 14A of the Income Tax Act in relation to a small dividend income of ?72,000 earned on shares held as stock-in-trade. The appellant argued that Rule 8D(2) should not apply as the shares were not held as investments. The Commissioner of Income Tax (Appeals) upheld the disallowance, prompting the appeal. The Tribunal noted that the disallowance cannot exceed the actual exempt income earned, citing a decision of the Delhi High Court. Consequently, the disallowance was restricted to ?72,000, the amount of dividend income earned. Issue 2: Application of Explanation to Section 73 for speculation loss The appellant contested the characterization of a loss of ?19,02,678 in share trading as a deemed speculation loss under the Explanation to Section 73. The appellant, being a registered NBFC engaged in granting loans and advances, argued that the Explanation to Section 73 was inapplicable. The appellant relied on the amendment to the Explanation brought by the Finance Act, 2014, excluding its application in cases where the principal business is trading in shares. The Tribunal agreed with the appellant, considering the amendment curative and classificatory, and applied it retrospectively from the original insertion date of the Explanation in 1977. The appellant's appeal was partly allowed, dismissing some grounds not pressed during the hearing. This judgment by the Appellate Tribunal ITAT Kolkata addressed the issues of disallowance of expenses under section 14A read with Rule 8D and the application of the Explanation to Section 73 for speculation loss. The Tribunal limited the disallowance of expenses to the actual exempt income earned and recognized the curative nature of the amendment to the Explanation to Section 73, allowing the appellant's appeal in part.
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