2016 (8) TMI 1538 - AT - Income Tax

Tribunal Orders Deletion of Disallowance u/s 14A for Investment and Business Portfolios, Dismissing Revenue's Appeal.

Vivek Mehrotra Versus JT CIT 21 (2), Mumbai And Vice-Versa

Vivek Mehrotra Versus JT CIT 21 (2), Mumbai And Vice-Versa - TMI Issues Involved:1. Disallowance under Section 14A of the Income Tax Act concerning shares held as stock-in-trade.2. Applicability of Rule 8D for disallowance calculations.3. Previous Tribunal decisions and their relevance.4. Voluntary disallowance by the assessee.5. Revenue's appeal against the deletion of disallowance for the investment portfolio.Detailed Analysis:1. Disallowance under Section 14A of the Income Tax Act concerning shares held as stock-in-trade:The assessee argued that the provisions of Section 14A read with Rule 8D were not applicable to shares held as stock-in-trade since the gain from trading in these shares was taxable as business income, and the dividend income received was incidental. The Ld. CIT(A) upheld the addition made by the AO under Section 14A for shares held as stock-in-trade.2. Applicability of Rule 8D for disallowance calculations:The AO observed that the assessee's claim of Rs. 25,11,095 as the expense incurred to earn exempt income was incorrect. The AO computed the disallowance under Rule 8D(2)(iii), resulting in an additional disallowance of Rs. 44,32,307. The Ld. CIT(A) provided partial relief by holding that no further disallowance was required for the investment portfolio but upheld the disallowance for the business portfolio.3. Previous Tribunal decisions and their relevance:The Tribunal noted that in the assessee's own cases for A.Ys. 2008-09 and 2009-10, disallowance under Section 14A was deleted. The Tribunal's decisions were based on the findings that the assessee maintained separate accounts for investment and business portfolios, and investments were made from own funds without incurring any expenses for personal investments. The Tribunal also referenced judgments from the Hon’ble Bombay High Court and Karnataka High Court supporting the non-applicability of Section 14A for shares held as stock-in-trade.4. Voluntary disallowance by the assessee:The Tribunal considered the assessee's voluntary disallowance of Rs. 25,11,095 and emphasized that disallowance/additions must be made strictly in accordance with the provisions of the Income Tax Act. The Tribunal reiterated that taxable income must be computed based on the law, and any disallowance should align with judicial precedents and legal provisions.5. Revenue's appeal against the deletion of disallowance for the investment portfolio:The revenue contested the deletion of disallowance for the investment portfolio by the Ld. CIT(A). The Tribunal found that the issue was already covered by earlier decisions, which held that no disallowance was required for personal investments. The Tribunal upheld the Ld. CIT(A)'s decision, which was consistent with previous Tribunal decisions and judicial precedents.Conclusion:The Tribunal allowed the assessee's appeal, directing the AO to delete the disallowance under Section 14A for both the investment and business portfolios. The revenue's appeal was dismissed, affirming that no further disallowance was required for the investment portfolio. The judgment emphasized adherence to legal provisions and judicial precedents in computing taxable income and disallowances.