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2019 (11) TMI 745 - AT - Income TaxDisallowance u/s. 14A r.w. Rule 8D - assessee has claimed before the ld. CIT(A) that he was engaged in the business of trading in shares and securities and the provisions of the section 14A were not applicable to it - HELD THAT - After considering the decision of the Hon ble Supreme Court in the Maxopp case 2018 (3) TMI 805 - SUPREME COURT , it is clear that the principle of apportionment of the expenditure was applicable and the expenditure apportioned to the exempt income or income not eligible to tax was not allowable as a deduction. Provision of section 14A is applicable even when the shares are held stock in trade though incidentally certain dividend income is earned, therefore, the contention of the ld. counsel about the applicability of ACIT Vs. Punjab National Bank 1764562 is not acceptable. We consider that the decision of the Hon ble Supreme Court in Maxopp Investment Ltd. vs. CIT has settled the law that relevant expenditure in case of exempt income has to be apportioned between taxable and non-taxable income. In the case of the assessee, the total exempt income earned during the year is ₹ 22,01,928/- as per note 10 attached to the profit and loss statement for the year ended 31st March, 2014 and share dividend account placed at page 42 of the paper book. We consider that Hon ble Delhi High Court in the case of Joint Investment Pvt. Ltd. Vs. CIT 2015 (3) TMI 155 - DELHI HIGH COURT held that disallowance u/s. 14A cannot exceed the actual exempt income - we restrict the impugned disallowance to the extent of income of ₹ 2,21,928/- , therefore, appeal of the Revenue is partly allowed.
Issues Involved:
1. Deletion of disallowance under Section 14A read with Rule 8D of the Income Tax Act, 1961. Issue-Wise Detailed Analysis: 1. Deletion of Disallowance under Section 14A read with Rule 8D: The solitary ground of appeal by the revenue was against the decision of the CIT(A) in deleting the disallowance of ?2,93,06,231/- made under Section 14A read with Rule 8D of the Income Tax Act, 1961. The assessee had filed a return of income on 26th September 2014, and the case was selected for scrutiny. During the assessment, the assessing officer noticed that the assessee had made investments in shares and computed the disallowance under Section 14A read with Rule 8D, adding ?2,93,06,231/- to the total income of the assessee. The assessee explained that it was engaged in the business of trading in shares and securities, and the main motive was not to earn exempt income, which was incidental to the main income. The CIT(A) deleted the addition, stating that the dividend on shares was held as stock-in-trade and not as an investment. During the appellate proceedings, the assessee's counsel referred to several judicial decisions, including ITAT (Delhi) in ACIT vs. Punjab National Bank, Principal Commissioner of Income Tax vs. State Bank of Patiala, and Maxopp Investment Ltd. vs. CIT by the Hon’ble Supreme Court. The counsel argued that the shares were acquired for trading purposes, and any incidental dividend income should not trigger disallowance under Section 14A. The Tribunal noted that the assessee was engaged in the business of trading in shares and securities, as demonstrated by the profit and loss account statement. The Tribunal referred to the decision of the Hon’ble Supreme Court in Maxopp Investment Ltd. vs. CIT, which held that if shares are held as stock-in-trade, the main purpose is to trade and earn profits, and incidental dividend income would trigger the applicability of Section 14A. The Tribunal also considered the decision of the Hon’ble High Court of Karnataka in CCI Ltd. vs. Jt. CIT, which held that if shares are not retained with the intention of earning dividend income, the expenditure incurred in acquiring shares should not be apportioned to the extent of dividend income for disallowance under Section 14A. Further, the Tribunal noted that the Hon’ble Delhi High Court in Joint Investment Pvt. Ltd. vs. CIT held that disallowance under Section 14A cannot exceed the actual exempt income. The ITAT Ahmedabad in K. Ratanchand & CO. vs. ITO and Jivraj Tea Ltd. vs. DCIT also held that addition under Section 14A cannot be more than the exempt income. Based on the above judicial precedents and the facts of the case, the Tribunal restricted the disallowance to the extent of the actual exempt income of ?22,01,928/- and partly allowed the revenue’s appeal. Conclusion: The Tribunal concluded that the disallowance under Section 14A read with Rule 8D should be restricted to the actual exempt income earned by the assessee. The appeal of the revenue was partly allowed, limiting the disallowance to ?22,01,928/-. The order was pronounced in the open court on 01-10-2019.
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