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2015 (2) TMI 358 - AT - Income TaxDisllowance u/s 14A 2) & (3) read with Rule 8D - assessee is engaged in the business of exporting goods and dealing in shares and securities - Held that - No dispute about the fact that assessee was dealing in shares and securities and shares were held by him in stock in trade and therefore in view of the decision of Karnataka High Court in the case CCI Ltd. vs. Jt. CIT (2012 (4) TMI 282 - KARNATAKA HIGH COURT) and Apoorva Patni vs. ACIT 2012 (9) TMI 828 - ITAT, PUNE wherein held that when the assessee has not retained shares with the intention of earning dividend income and the dividend income is incidental to his business of sale of shares, which remained unsold by the assessee, it cannot be said that the expenditure incurred in acquiring the shares has to be apportioned to the extent of dividend income and that should be disallowed from deductions. When no expenditure is incurred by the assessee in earning the dividend income, no notional expenditure could be deducted from the said income, thus no disallowance u/s 14A was called for - Following decision of assessee's own previous case 2013 (1) TMI 236 - ITAT AHMEDABAD - Decided in favour of assessee.
Issues:
1. Disallowance under Section 14A of the Income Tax Act. 2. Applicability of Section 14A read with Rule 8D to exempt dividend income. 3. Judicial interpretation of Section 14A in cases involving shares and securities. Issue 1: Disallowance under Section 14A of the Income Tax Act: The appeal was filed against the order of the Commissioner of Income Tax (Appeals) confirming the disallowance made by the Assessing Officer under Section 14A. The Assessing Officer disallowed a certain amount, which was later restricted by the CIT(A). The Tribunal noted that the assessee had shown exempt dividend income and had argued that the provisions of Section 14A read with Rule 8D should not be applicable as they were engaged in the business of derivatives and shares. The Tribunal, after considering the arguments, deleted the disallowance based on the facts of the case and previous judicial decisions. Issue 2: Applicability of Section 14A read with Rule 8D to exempt dividend income: The Assessing Officer had made a disallowance under Section 14A in relation to the exempt dividend income shown by the assessee. The assessee contended that since they were dealing in shares and securities as part of their business activities, the provisions of Section 14A read with Rule 8D should not apply to them. The Tribunal, in line with previous decisions and considering the nature of the assessee's business, agreed with the assessee's argument and deleted the disallowance made by the lower authorities. Issue 3: Judicial interpretation of Section 14A in cases involving shares and securities: The Tribunal referred to a previous decision involving the assessee in a different assessment year where a similar issue had been raised. In that case, the Tribunal had allowed the appeal of the assessee based on the nature of their business activities involving shares and securities. The Tribunal cited judicial decisions and held that when dividend income is incidental to the business of selling shares and no expenditure is incurred to earn such income, no notional expenditure should be deducted under Section 14A. Relying on this precedent, the Tribunal deleted the disallowance in the current appeal as well. In conclusion, the Tribunal allowed the appeal of the assessee, deleting the disallowance made under Section 14A of the Income Tax Act for the Assessment Year 2006-07. The decision was based on the nature of the assessee's business activities involving shares and securities, where dividend income was considered incidental and not subject to disallowance under Section 14A.
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