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2020 (12) TMI 774 - AT - Income TaxDisallowance u/s 14A - Apportionment of the expenditure qua strategic and non-strategic investment in shares - As no dividend income was earned on shares held as investment, the action of the Ld. CIT (A) in upholding the disallowance u/s 14A is squarely against the order of Jurisdictional HC in Cheminvest Ltd. 2015 (9) TMI 238 - DELHI HIGH COURT - HELD THAT - As relying on MAXOPP INVESTMENT LTD. 2018 (3) TMI 805 - SUPREME COURT when assessee company has admittedly earned the dividend income of ₹ 1,79,87,005/- and has incurred administrative and operative expenses and share trading expenses to the tune of ₹ 3,14,48,275/- as against the total trading of shares carried out during the year from which profits have been earned to the tune of ₹ 2,39,19,454/-, apportionment of the expenditure qua strategic and non-strategic investment in shares has to be made and disallowance by way of applying Rule 8D (2)(iii) on the average value of stock-in-trade is not applicable. So, appeal filed by the assessee is partly allowed and AO is directed to compute the disallowance by way of apportionment of expenditure incurred by the assessee in relation to exempt income by segregating the expenditure qua strategic and non-strategic investment in shares.
Issues Involved:
1. Legality of the order passed by the CIT (A). 2. Partial upholding of disallowance under Section 14A. 3. Applicability of the Cheminvest Ltd. case decision. 4. Request for relief or modification of grounds of appeal. Detailed Analysis: 1. Legality of the Order Passed by the CIT (A): The appellant, M/s. Jalco Financial Services (P) Ltd., challenged the impugned order dated 23.09.2016 passed by the Commissioner of Income-tax (Appeals)-5, Delhi, arguing that the order is "bad in law and is against the facts and circumstances of the case." The Tribunal examined the facts and circumstances, including the dividend income earned and the expenditure incurred by the assessee, to determine whether the order was legally sound. 2. Partial Upholding of Disallowance Under Section 14A: The assessee contended that the CIT (A) erred in partially upholding the disallowance under Section 14A of the Income-tax Act, 1961. The Assessing Officer (AO) had made a disallowance of ?88,28,814/- under Section 14A read with Rule 8D(2)(iii), which was later restricted to ?74,57,347/- by the CIT (A). The Tribunal noted that the assessee had earned ?1,79,87,005/- by way of dividend and claimed it as exempt income, arguing that no expenditure was incurred to earn this income from shares held as stock-in-trade. The Tribunal referred to the decision of the Hon'ble Supreme Court in Maxopp Investment Ltd. vs. CIT, which held that disallowance under Section 14A is applicable to expenditure related to exempt income from strategic investment/stock-in-trade. 3. Applicability of the Cheminvest Ltd. Case Decision: The assessee relied on the Cheminvest Ltd. vs. CIT decision, arguing that no disallowance under Section 14A was warranted since no dividend income was earned on shares held as investment. The Tribunal, however, referred to the Supreme Court's decision in Maxopp Investment Ltd., which clarified that the dominant purpose of investment is not relevant and that any expenditure incurred for earning exempt income must be disallowed. The Tribunal emphasized the principle of apportionment of expenses between taxable and non-taxable income, as outlined in the Maxopp Investment Ltd. case. 4. Request for Relief or Modification of Grounds of Appeal: The assessee sought the leave to add, modify, amend, or delete any grounds of the appeal at the time of hearing. The Tribunal proceeded to decide the appeal based on the documents available and the assistance of the Departmental Representative, without any further modifications to the grounds of appeal. Conclusion: The Tribunal, following the judgment of the Supreme Court in Maxopp Investment Ltd., concluded that the assessee had indeed earned dividend income and incurred administrative and operational expenses. It directed the AO to compute the disallowance by apportioning the expenditure incurred in relation to exempt income, segregating the expenditure between strategic and non-strategic investments in shares. The appeal was partly allowed, and the order was pronounced in open court on December 18, 2020.
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