2020 (2) TMI 17 - AT - Income Tax

Addition u/s 14A - HELD THAT - Maxopp Investment Ltd. Vs. CIT, New Delhi 2018 (3) TMI 805 - SUPREME COURT had rightly concluded that the shares which were held by the assessee as stock-in-trade were to be considered for the purpose of computing the disallowance under Sec. 14A Adhoc disallowance had been preferred as against that worked out under Sec. 14A r.w. Rule 8D(2), having been rendered without considering the aforesaid judgment of the Hon ble Apex Court in the case of Maxopp Investment Ltd. 2018 (3) TMI 805 - SUPREME COURT would also not be binding. We thus finding no infirmity in the order of the CIT(A) who had rightly sustained the disallowance computed by the A.O under Sec. 14A r.w. Rule 8D(2)(iii), therein uphold the same. Appeal filed by the assessee is dismissed.

Summary

Issues:
- Disallowance under Sec. 14A for exempt dividend income earned by the assessee.
- Applicability of Rule 8D when shares are held as stock-in-trade.
- Interpretation of Sec. 14A in cases of shares held as stock-in-trade.

Analysis:
1. The appeal challenged the addition made under Sec. 14A for disallowance of ?5,36,662 on exempt dividend income. The assessee contended that as a trading firm, shares were held as stock in trade, not investments, and Sec. 14A did not apply. However, the AO disallowed the amount, leading to an appeal before CIT(A) and subsequently before ITAT.

2. The CIT(A) upheld the AO's decision, citing the Supreme Court's judgment in Maxopp Investments Ltd. v. CIT, stating that disallowance under Sec. 14A applied even for shares held as stock-in-trade. The assessee then appealed to ITAT, relying on judgments from other benches to support their claim that Rule 8D did not apply when shares were held as stock-in-trade.

3. ITAT analyzed the factual position where shares held as stock-in-trade were liquidated during the year, emphasizing that the purpose of earning exempt dividend income triggered Sec. 14A, as per the Supreme Court's interpretation. The tribunal dismissed the appeal, upholding the CIT(A)'s decision based on the Maxopp Investments Ltd. judgment and disregarding the contrary views from other benches and high courts.

4. The ITAT rejected the argument that Rule 8D did not apply when shares were held as stock-in-trade, emphasizing the apportionment theory under Sec. 14A. The tribunal held that the assessee's claim was misconceived and affirmed the disallowance under Sec. 14A r.w. Rule 8D(2)(iii) as computed by the AO. The reliance on other judgments and precedents was deemed inconsistent with the Supreme Court's decision in Maxopp Investments Ltd.

5. Ultimately, ITAT dismissed the assessee's appeal, affirming the disallowance made under Sec. 14A for the exempt dividend income earned, in line with the interpretation of Sec. 14A as per the Supreme Court's ruling. The decision was pronounced on 11.12.2019, upholding the disallowance and rejecting the assessee's contentions.