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TMI Blog2015 (10) TMI 2171X X X X Extracts X X X X X X X X Extracts X X X X ..... tivity of sale and purchase of shares. The Revenue on the other hand could not place any contrary material on record. Therefore, in the light of decision of Jivraj Tea Ltd. vs. DCIT [2014 (9) TMI 131 - ITAT AHMEDABAD] we are of the considered view that the AO was not justified in invoking the provisions of section 14A of the Act. The dividend so earned is incidental to normal business activities of the assessee. Moreover, the AO has made disallowance of ₹ 4,04,204/- whereas the assessee has earned exempt income in the form of dividend of ₹ 58,963/-. Even assuming that some expenditure is required to be disallowed but such disallowance should not exceed the quantum of exempt income. Therefore, we hereby hold that the addition under section 14A cannot be more than the exempt income and should therefore be restricted to ₹ 58,963/-. - Decided partly in favour of assessee. - ITA No.2660/Ahd/2011 - - - Dated:- 24-9-2015 - Shri Kul Bharat, JM, Manish Borad, AM For The Appellant : Shri Anil R. Shah, AR For The Respondent : Shri R. P. Maurya, Sr. DR ORDER PER Manish Borad, Accountant Member. This appeal of assessee is directed against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of the case gathered from the records are that the assessee is in the business of trading of shares, cloth, commission and real estate rent. The assessee filed its return of income on 22.9.2008 and further revised on 23.9.2008 at a total income of ₹ 39,421/-. Scrutiny assessment as per CASS was framed by AO under section 143(3) of the Act making addition of ₹ 4,04,204/- by invoking section 14A of the Act and disallowance of expenses of ₹ 60,068/- being 20% of 3,00,338/- for various expenses incurred. Aggrieved, assessee went in appeal before CIT(A) who upheld the addition made by AO. Aggrieved, the assessee is now in further appeal before the Tribunal. 3. Ground No.1 relates to confirmation of applicability of section 14A and disallowance of ₹ 4,04,204/- stating that the same is incurred for earning non-taxable dividend of ₹ 58,960/-. During the course of assessment proceedings the AO noticed that assessee earned dividend income of ₹ 58,963/- which is claimed exempt by the assessee and long term investment of ₹ 51,000/- was appearing in the balance sheet. The AO further noticed that interest expenses of ₹ 14,78,043/- and bank in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at provisions of Sec.14A/Rule 8D are wrongly applied on the facts our case which are wrongly applied by the AO. 4. Alternatively, we state that if intention of the AO is to correlate provisions of sec.14A/Rule 8D vis- -vis dividend income of ₹ 58,963/- we may state that the AO has once again made a factually incorrect observation as, same is not by way of dividends received on shares held as investments. We are engaged in the business of trading of cloth, shares, securities, real estate and financing as supported by the relevant business close in our Partnership Deed and also, in Form 3CD forming part of Tax Audit Report u/s 44AB. 5. We therefore hold shares as stock in trade and not as investments as may be verified from our balance sheet and profit loss account where, closing stock of shares as on 31.3.2008 is verifiable at ₹ 41,16,992/-. 6. We further invite your Honour s kind attention our share trading account wherein, we have opening stock of shares at ₹ 40,02,123/- purchase of shares at ₹ 11,31,654 and sale of shares at ₹ 16,86,500 yielding profit from share trading activity at ₹ 6,69,715. Since we are engaged in the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o earn dividend income. Thus, the provisions of section 14A could not-be invoked to hold that the expenses by way of interest and depository/custodial charges were incurred in relation to dividend income which did not form part of the total income. Therefore, no part of the interest expenses and depository/custodial charges could be disallowed by holding the same as incurred in relation to earning an exempt income [Para 2.8] Vidyut Investment Ltd. vs. ITO [2006] 10 SOT 284 (Delhi) 9. In the light of the above circumstances, the additions of ₹ 4,04,204 made u/s. 14A/Rule 8D be deleted. 10. Without prejudice to above, we submit that as laid down by Hon. Courts in the following judgements, the AO is required to corelate incurring of the expenses with earning of non-taxable income. (i) Disallowance under section 14A requires finding of incurring of expenditure and where it is found that for earning exempted income no expenditure has been incurred, disallowance under section 14A cannot stand - CIT v. Hero Cycles Ltd. [2010] 323ITR 518 (Punj. Har.) (ii) Words 'expenditure incurred' in section 14A refer to expenditure on rent, taxes, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an absurd situation even to image that a prudent business man would incure expenditure of ₹ 4,04,204 for earning non taxable income of ₹ 58,963 ! 12. Looking at the disallowance from all or any of the above aspects, it would establish without doubt that the disallowance of ₹ 4,04,204 is wrongly made u/s.14A/Rule 8D and hence, the same is required to be deleted. 13. Alternatively and without prejudice to above submissions and assuming without admitting that the stand of the AO is correct to the effect that the shares are held by us as investment and not as stock in trade so as to attract provisions of Sec. 14A/Rule 80, we state that as a matter of pure consequence of the AO's, stand as above, the income earned on transfer of capital assets viz: shares held as investments amounting to ₹ 6,69,77 5 results into Capital Gain either short term or long term as the case may be. The AO therefore be directed to rework taxable income and tax payable by treating ₹ 6,69,715 as short term/long term capital gains and issue refund of additional Tax paid on the above amount at flat rate of 30% applicable to business Income. The ld. AR has relied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch held where the assessee is a dealer in share and profit in share business is taxed as business income section 14A of the Act does not apply. The relevant portion of the decision is reproduced below - 12. In the present case before us it is seen that the assessee is in the business of purchase and sale of shares, the income from which is also assessed under the head income from business and profession . The assessee had borrowed funds from Kotak Mahindra Investment Ltd. for the purpose of purchase of units and shares which in fact have been utilized for purchase of units and shares. The assessee has paid interest on the amount borrowed from Kotak Mahindra Investment Ltd. These facts have not been controverted by Revenue. The assessee has incurred interest expenses for purchase of shares and units of mutual fund and the borrowed funds have been used for acquisition of units are in dispute. The AO also held that assessee is in the business of purchase/sale of shares and while framing assessment under section 143(3) the loss of ₹ 1,51,21196 incurred on the sale/purchase of units has been treated as business loss. In view of the aforesaid facts, it can be stated that asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Chandigarh Bench of the Tribunal in the case of A.C.I.T. Vs. Punjab State Coop Marketing Fed. Ltd. in ITA No. ITA No.548/Chd/2011 for AY 2007- 08 has held that disallowance u/s. 14A read with Rule 8D cannot exceed the exempt dividend income. Therefore, we restrict the disallowance of administrative expenses to ₹ 900/- only, being the exempt dividend income earned by the assessee. Thus, this ground of appeal of the assessee is partly allowed. 8. The facts of the case of assessee are well covered by the above referred judicial pronouncements of the Co-ordinate Benches. So much so that it is undoubted that assessee is a dealer in shares, trading of shares has been shown as income from business, stock in trade in shares is at ₹ 41,16,992 investment in shares not held for business are only ₹ 51,000, and dividend income earned during the year is ₹ 58,963. However, assessee has maintained same books of accounts for his business of trading in cloth, trading in shares, commission income, income from real estate and exempt income. There is no bifurcation available on record to segregate the entire expenses incurred on the type of business activities c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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