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TMI Blog2015 (1) TMI 777X X X X Extracts X X X X X X X X Extracts X X X X ..... g. - Decided in favour of assessee for statistical purposes. - ITA No.3101/MUM/2012 - - - Dated:- 1-1-2015 - SHRI JOGINDER SINGH AND SHRI RAJENDRA, JJ. For The Revenue : Shri Akhilendra Yadav For The Respondent : Shri Behari lal ORDER PER JOGINDER SINGH, JM: The Revenue is aggrieved by the impugned order dated 29/02/2012 of the ld. First Appellate Authority, Mumbai. The assessee has raised the following grounds: i. On the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income tax (Appeals) has appreciate that the disallowance u/s. 14A, Rule 8D(2)(ii) in respect of speculation business has been separately identified and excluded, and the remaining interest expenses have to be allocated in proportional basis. The Ld. Commissioner of Income tax (Appeals) has failed to appreciate that the interest costs for earning dividends, be it incidental or not, have to be disallowed, and the same has been computed at ₹ 8,82,64,345/- as against Rs. Nil computed by the assessee. ii. On the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income tax (Appeals) has failed to appreciate that the disallowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must be disallowed U/s 14A is not acceptable, Reliance in support on the same is placed on the following decisions: i) CIT vs. Hero Cycle 3231TR 518 (P H) ii) CIT vs Metal Man Auto P. Ltd. 336 ITR 434 (P H) (ii) It is further submitted that Appellant company is engaged in the business of dealing in Future and Option and trading shares and, commodities. The shares were held as 'Stock in trade' not as an 'Investment'. The details of share trading account are given In Schedule G of Profit Loss account, On perusal of the same your honour would appreciate that Appellant's only business in trading large scale and all expense incurred during the course of business and therefore no expenditure was incurred in relation to earning the exempted Income. The dividend Income is only incidental to the trading activity. A dealer in shares does not acquire a share to earn dividend income, the dominant and immediate object being acquisition of shares is to earn profit on sale of shares at the earliest point which is chargeable to tax and hence there was no question of making any disallowance u/s.14A of the I. T. Act. The Learned AO however rejected the contentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a view to earn taxable income and there is apparent dominant and immediate connection between the expenditure incurred and taxable income then as such no disallowance can be made u/s. 14A merely because some tax exempt income is received incidentally. In case of dealer in shares and, securities the primary object and intention for acquisition of the shares is to earn profit on trading of shares. The income on sale and purchase of the shares of a dealer is chargeable to tax. Therefore, if the said activity of purchase and sale also incidentally yields some dividend income on the shares held by him as stock-in-trade such dividend income is not intended at the time of purchase of such shares and accordingly there is no live connection between the expenditure incurred and dividend income. Relinace in support of the same is placed on the following decision: a) Kerla High Court in case of CIT Vs. Leela Ramchandran, ITA NO.1784 of 2009. b) Yatish Trading Co. (P) ltd. Vs. ACIT 50 DTR (Mumbai)(Trib)158: (2011) 1291TD 237. The Learned AO a/so accepted the above fact. In this context his following finding given in para 5.4 of the assessment order is very relevant: This shows ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the coordinate bench of Mumbai Tribunal in the case of D.H. Securities (P) Ltd. vs. DCIT (2014) 41 taxmann.com 352 and the matter was referred to the Third Member. The decision of the Hon ble Karnataka High Court in the case of CCI Ltd. vs. JCIT (2012) 250 CTR (Kar) 291 was referred to and discussed before the Tribunal and it has been held that in view of the decision of the Hon ble jurisdictional High Court of Bombay in the case of Godrej Boyce Mfg. Co. Ltd. vs. DCIT [2010] 328 ITR 81 (Bom) and the Hon ble Kolkata High Court in the case of Dhanuka sons vs. CIT [2011] 339 ITR 319, section 14A is attracted even in the case of dividend income from shares held as stock in trade. While holding so, it has been observed by the Tribunal that the investment component or element is in built in the expenditure incurred for purchase and sale of shares even held as stock in trade for business purposes. The expenditure attributable towards earning of exempt income, immaterial of the fact whether such exempt income was actually earned or not, is embedded in the expenditure incurred for share trading activity and is liable to be apportioned in the light of the provisions of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t calculated under Rule 8D(2)(ii) will be on higher side. We feel that it will be appropriate if the said disallowance is restricted to 5% of the amount so arrived. 5. So far the disallowance under Rule 8D(2)(iii) is concerned, since in the share trading activity, investment is not made for the purpose of earning exempt income, hence, the managerial/administrative expenses in relation to dividend income calculated under Rule 8D(2)(iii) are also required to be scaled down which we think that should be restricted to 10% of the amount so calculated under Rule 8D(2)(iii). In view of our above observations, the disallowance u/s.14A read with Rule 8D is, accordingly, restricted to 5% of the amount arrived at under Rule 8D(2)(ii) and 10% of the amount calculated by the A.O. under Rule 8D(2)(iii). 7. As regards the view of the Tribunal that the expenditure attributable towards the earning of the exempt income directly related to the dividend income has to be disallowed as the same cannot be claimed against the taxable income of the assessee. We do agree and concur with the said view. Therefore, the disallowance computed under Rule 8D of the Income Tax Rules cannot be more than the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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