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2015 (12) TMI 1456 - AT - Income TaxDisallowance u/s.14A - CIT(A) deleted the addition on the ground that provisions of section 14A r.w.Rule 8D are not applicable to dividend income on shares held as stock in trade - Held that - As decided in case of Kunal Polymers Pvt. Ltd. 2015 (10) TMI 2373 - ITAT PUNE it is an undisputed fact that the shares are held by the assessee as stock-in-trade. The assessee has earned dividend income on such shares. The assessee has not held the shares for earning dividend income. Dividend income is incidental to the share trading business of the assessee. Thus, no disallowance u/s. 14A is warranted on dividend earned on shares held as stock-in-trade. Our view is fortified by the decision of Mumbai Bench of the Tribunal in the case of DCIT Vs. M/s. India Advantage Securities Ltd. 2012 (11) TMI 458 - ITAT, MUMBAI . Also see CCI Ltd. Versus Joint Commissioner of Income-tax 2012 (4) TMI 282 - KARNATAKA HIGH COURT - Decided in favour of assessee.
Issues:
- Disallowance under section 14A of the Income Tax Act for exempt income earned from dividend - Applicability of Rule 8D for determining expenditure attributable to earning exempt income Analysis: 1. The appeal was filed by the Revenue against the order of the CIT(A) relating to the Assessment Year 2010-11. The Revenue raised grounds regarding the disallowance of &8377; 75,51,867, not maintaining separate books of account for exempt income, and invoking provisions of section 14A of the Income Tax Act. 2. The Assessing Officer (AO) noted that the assessee, engaged in share trading, claimed exempt income from dividends. The AO argued that since the assessee did not maintain separate books of account for exempt income and had a common pool of funds, Rule 8D should be invoked to determine expenditure attributable to earning exempt income. 3. The AO disallowed &8377; 75,51,867 under section 14A r.w. Rule 8D, considering the total expenditure and the assessee's financial position. However, the CIT(A) held that as the dividend income was incidental to the share trading business and no shares were purchased for earning dividends, no disallowance under section 14A was warranted. 4. The Revenue, aggrieved by the CIT(A) order, argued that disallowance under section 14A should apply even if dividend income is earned on shares held as stock in trade. The assessee, supported by the CIT(A) order and precedent cases, contended that no disallowance should be made on dividend income from shares held as stock in trade. 5. The Tribunal analyzed the case, considering the nature of the assessee's business and the treatment of dividend income. Referring to precedent cases, the Tribunal concluded that no disallowance under section 14A r.w. Rule 8D can be made on dividend income from shares held as stock in trade. 6. Citing a similar case precedent, the Tribunal upheld the CIT(A) order and dismissed the Revenue's appeal, directing the Assessing Officer to delete the disallowance made under section 14A. The decision was based on the principle that disallowance under section 14A does not apply to dividend income earned on shares held as stock in trade. 7. Consequently, the Tribunal's decision clarified that disallowance under section 14A r.w. Rule 8D is not applicable to dividend income from shares held as stock in trade, affirming the order of the CIT(A) and dismissing the Revenue's appeal.
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