2024 (2) TMI 1476 - AT - Income Tax

Addition u/s 14A r.w.r 8D - assessee earned dividend income from shares held by it as part of its business of trading in securities, which was claimed as exempt u/s 10(34) - shares held as stock in trade - Assessee made a suo motto disallowance - HELD THAT - Income has been earned from shares held as stock in trade. Detail of such shares is exhibited wherein shares purchased during the year were sold during the year itself, there being no opening and closing stock. Though the assessee has suo motto disallowed yet as per the ratio laid down in the case of Maxopp Investment Ltd 2018 (3) TMI 805 - SUPREME COURT assessee was not required to make any disallowance u/s 14A of the Act on shares held as stock in trade. Decided against revenue.

Summary

Issues:
- Appeal against deletion of addition under section 14A of the Income-tax Act, 1961.
- Whether disallowance under section 14A is applicable to dividend income earned from shares held as stock in trade.

Analysis:
The judgment pertains to an appeal by the Revenue against the deletion of an addition made by the Assessing Officer under section 14A of the Income-tax Act, 1961. The Revenue contended that the CIT (A) erred in deleting the addition of Rs. 1,94,35,008/- related to dividend income earned by the assessee from shares held as part of its trading business. The Assessing Officer had computed the disallowance under section 14A r.w.r 8D of the Act, which the CIT (A) deleted, following his own order for a previous assessment year.

The primary issue revolved around whether disallowance under section 14A was applicable to dividend income earned from shares held as stock in trade. The assessee argued that since the dividend income was earned from shares held as stock in trade, no disallowance under section 14A was necessary. The assessee had suo moto disallowed a certain amount, which it believed should suffice. The Tribunal considered the relevant documentary evidence and noted that the assessee had shown total income from shares held as stock in trade, without any opening or closing stock during the year.

The Tribunal referenced the judgment of the Hon'ble Supreme Court in the case of Maxopp Investment Ltd Vs. CIT, where it was clarified that when shares are held as stock-in-trade, the motive is to earn profits through trading activities, making the receipt of dividends immaterial. The Tribunal, in line with the Supreme Court's ruling, held that no disallowance under section 14A was required for dividend income earned from shares held as stock in trade. Therefore, the Tribunal declined to interfere with the CIT (A)'s findings and dismissed the Revenue's appeal.

In conclusion, the Tribunal upheld the deletion of the addition made by the Assessing Officer under section 14A of the Act concerning dividend income earned from shares held as stock in trade. The judgment provided clarity on the applicability of disallowance provisions under section 14A in cases where shares are held as part of trading activities, aligning with the principles laid down by the Hon'ble Supreme Court in the Maxopp Investment Ltd case.