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TMI Blog2017 (9) TMI 562X X X X Extracts X X X X X X X X Extracts X X X X ..... urther notice that the total dividend income earned during the year is out of mutual funds. Therefore, we are of the view that there is no merit in the claim of the assessee that it has earned dividend income from the shares held as stock in trade. We further notice that the assessee has made a turnover of ₹ 1.75 crores from share trading; however, there is no corresponding purchases appeared in the schedule of purchases. We further observe that the assessee has disclosed inventory of closing stock held at the end of the financial year which mainly consists of stock held from its manufacturing activity, but there is no stock of shares and securities, therefore, we are of the view that the assessee has failed to prove that it is involv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 14 A read with Rule 8 D, as expenditure incurred to earn exempt Dividend income u/s. 10(34). 2. The brief facts of the case are that the assessee company engaged in the business of manufacturing potassium permanganate Para Anisic Aldehyde chemicals an trading of chemicals, filed its return of income for the assessment year 2007-08 on 30-09-2008 declaring total income of ₹ 39,68,480. The case was selected for scrutiny and notices u/s 143(2) and 142(1) were issued calling for various details. In response to notices, authorized representative of the assessee attended and filed the details, as called for. During the course of assessment proceedings, the AO noticed that the assessee has earned dividend income of ₹ 24,1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovember 4, 2009. 3. The AO, after considering the explanations of the assessee observed that the provisions of section 14A of the Act are clear and there is no scope for any quantification or otherwise, for invoking provisions of section 14A of the Act. The AO further observed that as per sub section (2) of section 14A, disallowance has to be computed in accordance with such method as may be prescribed and accordingly, Rule 8D provides a mechanism for computing disallowance of specific expenditure incurred in relation to exempt income; interest, if any, paid on borrowed funds used for investments as also towards other expenses. Since the assessee has failed to disallow any expenditure in relation to exempt income, he invoked the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utual funds. Therefore, he set aside the issue to the file of the AO and directed the AO to verify whether on the date of investment the assessee was having interest free funds or not. In case it is found correct then, the addition made as per section 14A(2) towards interest stood deleted. However, if it is not so, then the addition made by the AO would stand confirmed in view of the decision of the Hon ble Bombay High Court in the case of Godrej Boyce Mfg Co Ltd (supra). The CIT(A) further observed that as regards disallowance of 0.5% of average value of investment, the AO was justified in invoking Rule 8D(2)(iii) as the assessee has failed to prove its claim that it has earned dividend income from shares held as stock in trade. Accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held as stock in trade, failed to furnish any evidence to prove that the assessee is involved in the business of trading in shares and stocks. The assessee s main activity is manufacturing and trading in chemicals. Therefore, there is no merit in the contention of the assessee that its main activity is trading in shares and securities. The AO has considered necessary facts and also analaysed the provisions of section 14A before disallowing interest and other expenditure and his order should be upheld. 7. We have heard both the parties and perused the material available on record. There is no dispute with regard to the earning of exempt income. The assessee has earned dividend income from mutual funds and claimed it as exempt u/s 10(34) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k in trade with any evidence. We observe that the assessee has filed its financial statements for the assessment year 2008-09. On perusal of the financial statement we find that the assessee s main activity is to manufacture and trading in chemicals. We further observe that the assessee has made substantial investments in mutual funds. We further notice that the total dividend income earned during the year is out of mutual funds. Therefore, we are of the view that there is no merit in the claim of the assessee that it has earned dividend income from the shares held as stock in trade. We further notice that the assessee has made a turnover of ₹ 1.75 crores from share trading; however, there is no corresponding purchases appeared in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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