2016 (8) TMI 1538 - AT - Income Tax

Disallowance u/s 14A on account of business portfolio - HELD THAT - The situation that has emerged before us is that in view of the decision of the Tribunal of earlier years as well as judgments of Hon ble Bombay High Court in the case of India Advantage Securities Ltd. 2015 (6) TMI 140 - BOMBAY HIGH COURT and HDFC Bank Ltd. v. DCIT 2016 (3) TMI 755 - BOMBAY HIGH COURT and judgment of CCI Limited 2012 (4) TMI 282 - KARNATAKA HIGH COURT the disallowance u/s 14A should be deleted for both the portfolios i.e. investment as well as business . The only hitch with regard to disallowance made under business portfolio is that assessee had himself made a voluntary disallowance. It is well settled position of law that taxable income of an assessee has to be computed strictly in accordance with the provisions of Income Tax Act 1961 as explained by the courts from time to time. Thus disallowance/additions if any can be made only in accordance with law. Neither any item of receipts can be brought to tax nor can any expenditure be allowed/disallowed merely on the basis of consent or acquiescence or waiver of any party or otherwise. It could be done only in accordance with the provisions of law. The circular has been taken note of by many courts in their judgments while deciding the identical issues wherein taxpayers have paid more tax than actually due as per law. In this regard we shall also like to make a mention of Article 265 of Constitution of India which says that no tax can be collected except by the authority of law . Thus in the given facts of the case before us and the aforesaid legal position and we find that the disallowance made by the AO u/s 14A on account of business portfolio deserves to be deleted in total and therefore we direct the AO to give relief accordingly. Grounds raised by the assessee are allowed.

Summary

Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act concerning shares held as stock-in-trade.
2. Applicability of Rule 8D for disallowance calculations.
3. Previous Tribunal decisions and their relevance.
4. Voluntary disallowance by the assessee.
5. Revenue's appeal against the deletion of disallowance for the investment portfolio.

Detailed Analysis:

1. Disallowance under Section 14A of the Income Tax Act concerning shares held as stock-in-trade:
The assessee argued that the provisions of Section 14A read with Rule 8D were not applicable to shares held as stock-in-trade since the gain from trading in these shares was taxable as business income, and the dividend income received was incidental. The Ld. CIT(A) upheld the addition made by the AO under Section 14A for shares held as stock-in-trade.

2. Applicability of Rule 8D for disallowance calculations:
The AO observed that the assessee's claim of ?25,11,095 as the expense incurred to earn exempt income was incorrect. The AO computed the disallowance under Rule 8D(2)(iii), resulting in an additional disallowance of ?44,32,307. The Ld. CIT(A) provided partial relief by holding that no further disallowance was required for the investment portfolio but upheld the disallowance for the business portfolio.

3. Previous Tribunal decisions and their relevance:
The Tribunal noted that in the assessee's own cases for A.Ys. 2008-09 and 2009-10, disallowance under Section 14A was deleted. The Tribunal's decisions were based on the findings that the assessee maintained separate accounts for investment and business portfolios, and investments were made from own funds without incurring any expenses for personal investments. The Tribunal also referenced judgments from the Hon’ble Bombay High Court and Karnataka High Court supporting the non-applicability of Section 14A for shares held as stock-in-trade.

4. Voluntary disallowance by the assessee:
The Tribunal considered the assessee's voluntary disallowance of ?25,11,095 and emphasized that disallowance/additions must be made strictly in accordance with the provisions of the Income Tax Act. The Tribunal reiterated that taxable income must be computed based on the law, and any disallowance should align with judicial precedents and legal provisions.

5. Revenue's appeal against the deletion of disallowance for the investment portfolio:
The revenue contested the deletion of disallowance for the investment portfolio by the Ld. CIT(A). The Tribunal found that the issue was already covered by earlier decisions, which held that no disallowance was required for personal investments. The Tribunal upheld the Ld. CIT(A)'s decision, which was consistent with previous Tribunal decisions and judicial precedents.

Conclusion:
The Tribunal allowed the assessee's appeal, directing the AO to delete the disallowance under Section 14A for both the investment and business portfolios. The revenue's appeal was dismissed, affirming that no further disallowance was required for the investment portfolio. The judgment emphasized adherence to legal provisions and judicial precedents in computing taxable income and disallowances.