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TMI Blog2017 (3) TMI 261X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome in the year under consideration. Since this issue raised by the ld. counsel for the assessee as an alternative contention is squarely covered in favour of the assessee by the decision of the Coordinate Bench of this Tribunal in the case of REI Agro Ltd. (2013 (9) TMI 156 - ITAT KOLKATA), we direct the Assessing Officer to compute the disallowance as per Rule 8D by taking into consideration only those shares, which have yielded dividend income in the year under consideration. The alternative contention of the ld. counsel for the assessee is accordingly accepted. - I .T.A. No.681/Kol /2015, I .T.A. No.824/Kol /2015 - - - Dated:- 3-3-2017 - Shri Waseem Ahmed, Accountant Member and Shri S.S.Viswanethra Ravi, Judicial Member For The Assessee : Shri Subash Agarwal, Advocate For The Department : Shri Tanuj Neogi, JCIT ORDER Per Waseem Ahmed, AM This appeal by the assessee is against the order of Commissioner of Income Tax (Appeals)-1, Kolkata dated 17.02.2015. Assessment was framed by I.T.O., Ward-2(3), Kolkata u/s 143(3) of the Income tax Act, 1961 (hereinafter referred to as the Act ) vide his order dated 18.03.2013 for assessment year 2010-11. 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the AO under the provisions of rule 8D2(ii) and (iii) of Income Tax Rules by observing that the assessee is engaged in the business of shares trading and the shares were classified as stock in trade in its books of accounts. Therefore the assessee is entitled for the deduction of interest expenses and administrative expenses. While holding so the learned CIT-A relied in the order of Hon ble ITAT in the case of DCIT Vs. Gulshan Investment Company Ltd reported in 31 taxman.com 113. However the learned CIT-A observed that the direct expenses incurred on the earning of dividend income even held as stock-in-trade by the assessee as per rule 8D2(i) of Income Tax Rules are not eligible for deduction. As such the learned CIT A has given relief to the assessee in part by observing as under : 5... The submissions of the Appellant and the case laws relied upon by it have been considered. It is seen that the issue is in respect of disallowance u/s.14A by applying Rule 80 In respect of proportionate expenses for earning of exempt Income I.e. dividend income of [3.5.41,375/-. The Appellant's contention in brief is that since it was engaged in trading of Shares, the provisions of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent (P.) Ltd. [2009] 117 ITD 169 (Mum) the disallowance to be made under section 14 A read with rule 8 D will be restricted to direct expenses incurred in the earning of dividend income. Therefore, considering the above decisions and the fact that the Appellant was trading in Shares, the same were being held as stock-in-trade which is apparent from the Balance Sheet i.e. the Shares on which exempt income had been earned were part of its stock-intrade and not investment. Therefore, following the above decision it is held that while the indirect expenses covered under Rule 8D (ii) and (iii) were not disallowable in view of the Shares being stock-in-trade. However, regarding applicability of Rule 8D(i) following the above cited decision of Hon'ble I.T.A.T., Kolkata, it is held that the disallowance is to be restricted to direct expenses incurred in earning of dividend income i.e. disallowance of direct expenses is to be made even when Shares are held as stock-in-trade. The A.O. is accordingly directed to re-compute the disallowance u/s.14A and restrict the same to the disallowance of direct expenses incurred by the Appellant for earning of the exempt income. Being a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act even in relation to the investment held as stock in trade. The ld. AR vehemently supported the order of AO. 7. The ld. counsel for the assessee, on the other hand, strongly supported the impugned order of the ld. CIT (Appeals) holding that section 14A and Rule 8D have no application to make a disallowance on account of expenditure in relation to the exempt dividend income which is earned on shares held as stock-in-trade and not investment. The ld. counsel for the assessee also cited the decision of the Hon ble Punjab Haryana High Court in the case of CIT v. Winsom Textile Industries Ltd. reported in 319 ITR 204 wherein it was held that section 14A of the Act could not apply when the assessee had not made any claim for exemption of divided income in its income tax return. Without prejudice to his main argument and as an alternative, the ld. counsel for the assessee contended that the disallowance under section 14A has been wrongly worked out by the Assessing Officer under Rule 8D by taking the entire value of stock-in-trade instead of taking the value of shares, which actually yielded dividend income during the year under consideration. In this regard, he relied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot claimed any exemption of dividend income under section 10(34) of the Act rather the dividend income was offered to tax. Therefore the ld. AR argued that no disallowance under section 14A of the Act is warranted. However we disagree with the contention of the learned AR on the ground that the intention of the legislature is to collect tax on the income which is chargeable to tax. The revenue is not authorized to collect the tax on those activities which are not chargeable to tax under the Act. It is the duty of the Revenue to exclude those items of income from the taxable income which are not chargeable to tax in spite of the fact that the assessee has offered the same to tax. In this connection we rely in the judgment of the Hon ble Supreme Court of India in the case of The relevant extract of the case UNITED COMMERCIAL BANK vs. COMMISSIONER OF INCOME TAX (1999) 156 CTR 0380 : (1999) 240 ITR 0355 (1999) 106 TAXMAN 0601 whereby Hon ble SUPREME COURT OF INDIA held as under : for the purpose of income-tax whichever method is adopted by the assessee a true picture of the profits and gains, that is to say, the real income is to be disclosed. For determining the real income, the ..... 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