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2019 (4) TMI 42 - AT - Income TaxDisallowance u/s 14A - Expenditure incurred by way of payment of interest having direct link with the dividend income - Assessee company has purchased units from the mutual funds under the Dividend Reinvestment Plan and earned day to day dividend in the shape of units and value of the purchase account had increased by such units and the motive of the assessee company is clear to earn the dividend income - shares held as stock in trade - HELD THAT - As relying on MAXOPP INVESTMENT LTD.case 2018 (3) TMI 805 - SUPREME COURT OF INDIA the expenditure incurred in acquiring the shares will have to be apportioned. Also setting aside the disallowance under section 14 A of the Act in respect of the dividend earned on the shares held as stock in trade, because such shares were held during the business activity of the assessee and it is only by a quirk of fate that when the investee company declared dividend, those shares were held by the assessee, though the assessee has to ultimately trade those shares by selling them to earn profits. Though not the dominant purpose of acquiring the shares is a relevant for the purpose of invoking the provisions under section 14A of the Act, the shares held as stock in trade stand on a different pedestal in relation to the shares that were acquired with an intention to acquire and retain the controlling interest in the investee company. In the circumstances we are of the considered opinion that Application of Rule 8D to the facts of the case is not correct, hence, the addition on this account is hereby directed to be deleted. MAT tax credit u/s 115JAA - Disallowance of the MAT credit in respect of surcharge and cess - Held that - We set aside the impugned order and remit the matter to the file of the Ld. AO for ascertaining the correct amount of MAT tax credit available to the assessee including of surcharge / cess and then allow tax credit as indicated in the decision of the Consolidated Securities Ltd. 2018 (7) TMI 1722 - ITAT DELHI
Issues Involved:
1. Disallowance of expenses under Section 14A of the Income Tax Act, 1961. 2. Disallowance of credit of Minimum Alternate Tax (MAT) under Section 115JA of the Income Tax Act, 1961. Issue-Wise Detailed Analysis: 1. Disallowance of Expenses under Section 14A of the Income Tax Act, 1961: The assessee, engaged in the business of trading shares and units of mutual funds, filed a return of income for the assessment year 2008-09. The Assessing Officer (AO) added ?17,65,795 to the total income under Section 14A of the Income Tax Act, 1961, which pertains to disallowance of expenses incurred in relation to income not includible in total income. The assessee contended that the shares were held as stock-in-trade and not as investments, as evidenced by the balance sheet. The primary objective was to sell shares at a profit, and dividend income was incidental. The funds were borrowed for acquiring stock-in-trade, not for earning dividend income, and no direct expenses were incurred for earning the dividend income. The AO, however, treated the stock-in-trade as an investment and computed the disallowance under Section 14A unjustly. The AO argued that the investment and dividend are integral parts of financial transactions, inseparable, and the expenditure incurred by way of interest on loans for investment/purchase of shares has a direct link with the dividend income. Hence, the disallowance under Section 14A was justified. The assessee relied on several judicial precedents, including the ITAT Mumbai Bench decision in Vora Financial Services (P). Ltd. vs. ACIT and the Kerala High Court decision in CIT vs. Smt. Leena Ramachandran, arguing that expenses related to shares held as stock-in-trade should not attract disallowance under Section 14A. The Hon’ble Supreme Court in Maxopp Investment Ltd. vs. CIT clarified that shares held as stock-in-trade and investments for controlling interest are distinct. For shares held as stock-in-trade, the primary purpose is to trade and earn profits, and dividend income is incidental. The expenditure incurred in acquiring such shares must be apportioned. Following the Supreme Court's judgment, the Tribunal concluded that the application of Rule 8D was incorrect in this case. The addition on this account was directed to be deleted. 2. Disallowance of Credit of Minimum Alternate Tax (MAT) under Section 115JA of the Income Tax Act, 1961: The AO disallowed a sum of ?10,98,399 as excess MAT credit after excluding surcharge and cess. The assessee relied on the Tribunal’s decision in Consolidated Securities Ltd. vs. ACIT, which held that MAT credit, inclusive of surcharge and education cess, should be reduced from the tax determined on total income after adding surcharge and education cess. The resultant amount payable will suffer interest under the relevant provisions of the Act. The Tribunal followed this precedent, setting aside the impugned order and remitting the matter to the AO to ascertain the correct amount of MAT tax credit available to the assessee, including surcharge and cess, and allow tax credit accordingly. Conclusion: The appeal was partly allowed for statistical purposes. The disallowance under Section 14A was deleted, and the matter regarding MAT credit was remitted to the AO for recalculation, following the principles laid down in the Consolidated Securities Ltd. case.
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