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2015 (10) TMI 2171 - AT - Income TaxDisallowance u/s 14A - Held that - Nothing contrary has been brought to the fact that assessee is a dealer in shares and profit in share business has been shown by the assessee under the head income from business . A.O. has not made any specific finding to support the disallowance made by him. As undoubted that assessee is a dealer in shares, trading of shares has been shown as income from business, stock in trade in shares is at ₹ 41,16,992 investment in shares not held for business are only ₹ 51,000, and dividend income earned during the year is ₹ 58,963. However, assessee has maintained same books of accounts for his business of trading in cloth, trading in shares, commission income, income from real estate and exempt income. There is no bifurcation available on record to segregate the entire expenses incurred on the type of business activities carried on and some element of cost for earning exempt income cannot be ignored in these circumstances. The assessee has demonstrated that it has carried out the business activity of sale and purchase of shares. The Revenue on the other hand could not place any contrary material on record. Therefore, in the light of decision of Jivraj Tea Ltd. vs. DCIT 2014 (9) TMI 131 - ITAT AHMEDABAD we are of the considered view that the AO was not justified in invoking the provisions of section 14A of the Act. The dividend so earned is incidental to normal business activities of the assessee. Moreover, the AO has made disallowance of ₹ 4,04,204/- whereas the assessee has earned exempt income in the form of dividend of ₹ 58,963/-. Even assuming that some expenditure is required to be disallowed but such disallowance should not exceed the quantum of exempt income. Therefore, we hereby hold that the addition under section 14A cannot be more than the exempt income and should therefore be restricted to ₹ 58,963/-. - Decided partly in favour of assessee.
Issues Involved:
1. Applicability of Section 14A and disallowance of Rs. 4,04,204 for earning non-taxable dividend income. 2. Confirmation of 50% disallowance out of Rs. 60,068 for various expenses on an ad hoc basis. Issue-wise Detailed Analysis: 1. Applicability of Section 14A and Disallowance of Rs. 4,04,204: - Facts and Arguments: The assessee, engaged in trading shares, cloth, commission, and real estate rent, declared a dividend income of Rs. 58,963. The AO disallowed Rs. 4,04,204 under Section 14A, invoking Rule 8D, due to the interest expenses and lack of bifurcation between trading and investment activities. - Assessee's Stand: The assessee argued that shares are held as stock in trade, not as investments, and the dividend income is incidental to the business. The interest expenses were incurred for the overall business, not specifically for earning dividend income. The assessee cited various judicial pronouncements, including the CBDT Circular No.4/2007, to support the claim that Section 14A is not applicable to shares held as stock in trade. - Tribunal's Findings: The Tribunal noted that the assessee is a dealer in shares, with trading income shown under "business and profession." It referenced the case of Zaveri Virjibhai Mandalia vs. ACIT, where it was held that Section 14A does not apply if shares are held as stock in trade. The Tribunal observed that the AO did not provide specific findings to support the disallowance and failed to establish a nexus between the expenses incurred and the exempt income. Furthermore, the Tribunal referred to the principle that disallowance under Section 14A cannot exceed the exempt income, as established in the case of Jivraj Tea Ltd. vs. DCIT. - Conclusion: The Tribunal concluded that the AO was not justified in invoking Section 14A, as the dividend income was incidental to the assessee's business activities. It held that any disallowance should not exceed the exempt income and restricted the disallowance to Rs. 58,963. 2. Confirmation of 50% Disallowance out of Rs. 60,068: - Facts and Arguments: The CIT(A) confirmed a 50% disallowance out of Rs. 60,068 for various expenses (shop, traveling, convergence, etc.) on an ad hoc basis, citing self-made/office vouchers. - Assessee's Stand: The assessee contended that all expenses amounting to Rs. 3,00,358 were duly supported by evidence and incurred during the course of business, not being of capital or personal nature. Therefore, the entire disallowance should be deleted. - Tribunal's Findings: The Tribunal noted that Ground No.2 was not pressed by the assessee during the hearing. - Conclusion: The Tribunal dismissed Ground No.2 as not pressed. Final Judgment: The appeal was partly allowed. The Tribunal restricted the disallowance under Section 14A to Rs. 58,963 and dismissed the second ground of appeal as not pressed. The order was pronounced in the open Court on 24/09/2015.
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