2015 (4) TMI 5 - AT - Income Tax

Tribunal rules Assessing Officer's disallowance under Section 14A not justified

The tribunal allowed the appeal, ruling that the Assessing Officer's disallowance under Section 14A was not justified due to the lack of recorded ... Disallowance u/s 14A r.w. rule-8D - dividend income claimed exempt u/s 10(34) - Held that:- No effort has been made by A.O. to record his findings as to why the claim of assessee that no expenditure was incurred was not correct. He has made disallowance just by holding that some expenditure must have been incurred. Therefore, case of CIT Vs Taikisha Engineering India Ltd. [2014 (12) TMI 482 - DELHI HIGH COURT] is applicable to the assessee and no disallowance u/s 14A was warranted. Moreover, we find that the assessee was holding shares as stock in trade and not as investments as is apparent from balance sheet of assessee and, therefore, also disallowance u/s 14A was not warranted as held in the case of DCIT Vs Baljit Securities Pvt. Ltd. (2014 (10) TMI 659 - ITAT KOLKATA). - Decided in favour of assessee. Issues Involved:1. Legality of the CIT(A) order dated 19.12.2012.2. Disallowance of Rs. 60,09,848 under Section 14A read with Rule 8D of the Income-tax Rules, 1962, on dividend income of Rs. 9,12,563 claimed exempt under Section 10(34) of the Income-tax Act, 1961.Issue-wise Detailed Analysis:1. Legality of the CIT(A) Order:The appellant challenged the legality of the CIT(A) order dated 19.12.2012, asserting it was 'bad in law and on facts.' The tribunal did not specifically address the legality of the CIT(A) order independently but focused on the substantive issue of disallowance under Section 14A read with Rule 8D.2. Disallowance under Section 14A read with Rule 8D:The core issue was the disallowance of Rs. 60,09,848 by the Assessing Officer (A.O.) against the dividend income of Rs. 9,12,563, claimed exempt under Section 10(34). The appellant argued that the A.O. made this disallowance without recording any objective satisfaction, a requirement under Section 14A(2) of the Income-tax Act and Rule 8D(1) of the Income-tax Rules.The appellant cited the Delhi High Court decision in CIT Vs Taikisha Engineering India Ltd., which mandates that the A.O. must first be dissatisfied with the correctness of the assessee's claim regarding expenditure related to exempt income before invoking Rule 8D. The tribunal noted that the A.O. failed to record such dissatisfaction and proceeded directly to disallowance under Rule 8D.The appellant also argued that the shares were held as stock in trade, not as investments, and thus no disallowance under Section 14A should be made. The tribunal agreed, referencing the ITAT Kolkata Bench decision in DCIT Vs Baljit Securities Pvt. Ltd., which supports the non-applicability of Section 14A disallowance for shares held as stock in trade.The tribunal examined the A.O.'s findings and noted that the A.O. merely assumed some expenditure must have been incurred without providing specific reasons for rejecting the assessee's claim. This approach was contrary to the legal requirement that the A.O. must objectively assess and record dissatisfaction with the assessee's claim before applying Rule 8D.The tribunal concluded that the A.O.'s failure to record such satisfaction invalidated the disallowance under Section 14A. Additionally, since the shares were held as stock in trade, disallowance under Section 14A was further unwarranted.Conclusion:The tribunal allowed the appeal, ruling that the A.O.'s disallowance under Section 14A was not justified due to the lack of recorded dissatisfaction and the nature of the shares as stock in trade. The order was pronounced in the open court on 25th March, 2015.