2019 (1) TMI 1902 - AT - Income Tax

Tribunal directs reassessment of disallowance under Income Tax Act, stresses document submission

The Tribunal allowed the appeal for statistical purposes, directing the AO to re-examine the disallowance under section 14A r.w. Rule 8D of the Income Tax ... Disallowance u/s 14A - suo motu disallowance made by the assessee - HELD THAT:- In the case of Maxopp Investment Ltd. [2018 (3) TMI 805 - SUPREME COURT], it has been held that “in those cases, where shares are held as stock-in-trade, main purpose is to trade in those shares and earn profits there from, in the process, certain dividend is also earned, though incidentally, which is also an income. This triggers applicability of section 14A which is based on theory of apportionment of expenditure between taxable and nontaxable income. Therefore, to that extent, expenditure incurred in acquiring those shares will have to be apportioned.” We observe that the assessee has filed a computation with net disallowance u/s 14A, having considered the total value of non-taxable investments as on 31.03.2011 and 01.04.2010. It is supported by the closing stock as on 31.03.2011 on which dividend was earned in FY 2010-11 and opening stock as on 01.04.2010 on which dividend was earned in FY 2010-11. In the case of ACIT v. Vireet Investment (P) Ltd. [2017 (6) TMI 1124 - ITAT DELHI] it has been held by the Special Bench that only those investments are to be considered for computing average value of investment which yielded exempt income during the year. The latest computation sheet filed by the counsel, wherein net addition also has been arrived at by the assessee, was not submitted either before the AO or the Ld. CIT(A) - the present matter may be examined by the AO. We set aside the order of the Ld. CIT(A) and restore the matter to the file of the AO to make a de novo order in the light of the discussion above, after giving reasonable opportunity of being heard to the assessee. We direct the assessee to file the relevant documents/evidence before the AO. - Appeal is allowed for statistical purposes. Issues:Disallowance under section 14A r.w. Rule 8D of the Income Tax Act 1961.Analysis:Issue 1: Disallowance under section 14A r.w. Rule 8DThe appeal pertains to the assessment year 2011-12 and concerns the disallowance of Rs. 2,81,54,633 under section 14A r.w. Rule 8D of the Income Tax Act. The assessee, engaged in trading of shares and securities, earned dividend income of Rs. 3,54,15,176 on shares claimed as exempt u/s 10(34) of the Act. The Assessing Officer (AO) questioned the disallowance made by the assessee and computed it at Rs. 2,94,76,927 as per Rule 8D. However, the AO restricted the disallowance to Rs. 2,81,54,633 considering the assessee's suo motu disallowance of Rs. 13,22,294. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the disallowance, citing precedents and decisions in favor of the assessee for previous assessment years. The CIT(A) held that section 14A is not applicable to dividend income from shares held as stock-in-trade, relying on various judgments. The Revenue contended that disallowance can be made even for shares held as stock-in-trade, referencing a Supreme Court judgment. The Tribunal observed that the assessee filed a computation showing a net disallowance of Rs. 94,28,114 under section 14A, considering non-taxable investments. As this computation was not presented before the AO or CIT(A), the Tribunal set aside the CIT(A)'s order and directed the AO to re-examine the matter, allowing the assessee to submit relevant documents for a fresh decision.In conclusion, the Tribunal allowed the appeal for statistical purposes, emphasizing a re-examination by the AO in light of the discussion and directing the assessee to provide necessary evidence.