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TMI Blog2015 (12) TMI 894X X X X Extracts X X X X X X X X Extracts X X X X ..... The interest expenditure is exclusively incurred for trading activity and, therefore, cannot be said to be an expenditure incurred for composite activity yielding taxable and non taxable income and accordingly, the same cannot be attributed /allocated in respect of dividend income in the hands of the assessee. As regards the other expenses, we find that the Assessing Officer has not pointed out any expenditure debited to the P&L Account which has any proximate nexus with the dividend income. The entire expenditure debited to the P&L account has a direct nexus with the trading activity of the assessee, therefore, the disallowance made by the assessee on its own is proper and just and no further disallowance on account of administrative ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action of the Assessing Officer in treating interest receipt as income from other sources and ignoring interest out go that had direct nexus with interest receipt; and thereby exposing entire interest out go of RS.1 ,489,851 to the rigor of section 14A read with Rule 80. 4. On the facts, and in circumstances of the case, and in law, learned Commissioner of Income-tax (Appeal) erred in upholding action of the Assessing Officer in considering shares and securities held as stock in trade for the purpose of 1/2 % of Average Investments and numerator for interest disallowance for computation of disallowance under Rule 80 by not adjudicating this ground. 2. The only issue arises from the grounds raised by the assessee is whether in the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. He has further submitted that the assessee has received the interest of about ₹ 20,00,000 as against the interest payment of ₹ 14,89,850/-, therefore, the net interest is an income and not an expenditure. Since the assessee s own fund is more than the borrowed fund and interest income is more than the interest payment, therefore, no disallowance on account of interest expenditure u/s 14A is called for. The second argument advanced by the assessee is the jurisdiction of the Assessing Officer to invoke rule 8D(2) without recording the satisfaction of not accepting the disallowance made by the assessee on its own. In support of his contention he has relied upon the following decisions:- (i) CIT Vs. UTI Bank Ltd. [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and securities. We find that in a series of decisions, this Tribunal has decided this issue by holding that no disallowance u/s 14A can be made on account of the expenditure incurred for trading in shares securities merely because the assessee earned the incidental dividend income. The Tribunal in the case of DCIT Vs. M/s India Advantage Securities Ltd vide order dated 14.09.2012 in ITA No. 6711/Mum/2011 held in para 5 and 6 as under:- 5. We have perused the records and considered the rival contentions carefully. The dispute is regarding the disallowance of expenses u/s.14A in relation to the exempt dividend income received from shares held on trading account. The A.O. disallowed the expenses holding that the provisions of section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e only obiter dicta and not the ratio decidendi of the judgment. The ratio decidendi of the judgment was disallowance of interest u/s.14A which had been upheld by the Tribunal. The Tribunal, therefore, did not accept the arguments based on the judgment of Hon ble High Court of Kerala in the case of Smt. Leena Ramachandran (supra) which was not directly on the issue of disallowance of expenses in relation to the dividend income received from trading in shares. 6. However, the Hon ble High Court of Karnataka have recently considered the disallowance of expenses incurred on borrowings made for purchase of trading shares u/s.14A of the I.T. Act in case of CCL Ltd. vs. JCIT (supra). The assessee in that case was distributor of state lotteries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t judgment of a Hon ble High Court on this issue, the same has to be followed in preference to the decision of the Special Bench of the Tribunal in the case of M/s. Daga Capital Management P. Ltd. (supra). Infact, we note that the Tribunal in the case of Ganjam Treading Co. Ltd. (supra) has already considered this situation and held that in view of the judgment of Hon ble High Court of Karnataka in the case of CCL Ltd. Vs. JCIT (supra) the disallowance of interest in relation to the dividend received from trading shares cannot be made. We, therefore, see no infirmity in the order of the Ld. CIT(A) in deleting the disallowance u/s.14A computed by the A.O. in relation to the stock-in-trade. The order of the Ld.CIT(A) is accordingly upheld. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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