2012 (10) TMI 1272 - AT - Income Tax

Summary

Issues Involved:
The appeal concerns the disallowance of expenses u/s 14A of the Income Tax Act, 1961 related to dividend income earned by the assessee during assessment year 2008-09.

Issue 1: Disallowance of Expenses u/s 14A
The Revenue challenged the order of the Commissioner of Income-tax (Appeals)-II, Ludhiana, which deleted the disallowance of Rs.12,79,001/- made by the Assessing Officer u/s 14A of the Act. The Revenue contended that expenses like Management Fee and other charges directly related to earning of dividend income should be disallowed. The Revenue argued that even if the assessee carries on the business of Sale & Purchase of shares and earns dividend income as business income, expenses attributable to such income are liable to be disallowed u/s 14A of the Act.

Issue 2: Assessment of Income
The assessee declared total income of Rs.36,56,846/- for the year, including income from Salary, House Property, Business, and Other Sources. The income from business was detailed, showing profits accrued on Portfolio Management Service (PMS) transactions with specific amounts from Kotak Securities and ICICI Prudential. The assessee claimed total expenditure of Rs.12,79,001/- on management fee/NSDL charges from the profits on PMS transactions.

Judgment:
After considering the contentions and perusing the record, it was noted that the assessee declared profits from PMS transactions as business income and claimed expenditure related to such earnings. The only expenditure claimed was the management fee and NSDL charges paid to the portfolio management service. The Revenue conceded that the assessee is entitled to expenditure related to earning business income. However, the Assessing Officer disallowed the expenditure as income of the assessee, which was later deleted by the CIT (Appeals).

In compliance with section 14A read with Rule 8D of the Act, it was directed to disallow Rs.5000/- as expenditure related to earning dividend income. This decision was specific to the facts of the case and not a precedent. Therefore, the appeal of the Revenue was partly allowed, and the order was pronounced on October 31, 2012.