TaxTMI 
TaxTMI 
2012 (11) TMI 458
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.... noted that the assessee had received dividend income of Rs.1,40,859/- which was exempt from tax. The assessee had however, not made any disallowance of expenses relating to exempt income. The A.O., therefore, computed the disallowance u/s.14A as per Rule 8D which come to Rs.48,73,483/- consisting of interest expenditure of Rs.39,00,174/- and other expenses of Rs.9,73,309/-. The A.O. thus disallowed a sum of Rs.48,73,483/- and added to the total income. 3. The assessee disputed the decision of the A.O. and submitted before the Ld. CIT(A) that the disallowance u/s.14A could be made only if the A.O. was satisfied that the assessee had incurred any expenditure in relation to the exempt income. It was pointed out that the interest expenditure ....
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....e latest decision of the Tribunal dated 08.08.2012 in ITA No.5904 & 6022/Mum/2000 in the case of M/s. American Express Bank Limited. The ld. AR for the assessee, on the other hand, submitted that issue was covered in favour of the assessee by the latest judgment of the Hon'ble High Court of Karnataka in the case of CCL Ltd. Vs. JCIT (250 CTR 291) in which it has been held that no disallowance could be made u/s.14A in respect of dividend income received from the shares held as trading stock. It was pointed out that following the said judgment, the Mumbai Bench of the Tribunal in the case of Ganjam Treading Co. P. Ltd. in the order dated 20.07.2012 in ITA No.3724/Mum/2005 have held that the decision of the Special Bench of the Tribunal in the....
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....ation to the dividend received from trading shares. The Tribunal had however, distinguished the said judgment of Hon'ble High Court of Kerala on the ground that in that case the acquisition of shares with the borrowed funds was for the purpose of controlling the company. Therefore, even though the purpose for acquiring the shares was business, the High Court had upheld the disallowance u/s.14A of the I.T. Act. The Tribunal also noted that the High Court in that case had only observed that the interest paid on borrowed funds utilised for acquiring shares could be allowed as deduction u/s.36(1)(iii) only if shares were held as stock-in-trade. These observations were only obiter dicta and not the ratio decidendi of the judgment. The ratio dec....
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....not upheld by the Tribunal. The High Court noted that 63% of shares which were purchased were sold and income derived was offered to tax as business income. The remaining 30% of shares which remained unsold had reverted to dividend income for which the assessee had not incurred any expenditure at all. The High Court also observed that the assessee had not retained the shares with the intention of earning dividend income which was incidental due to his sale of shares which remained unsold by the assessee. The High Court, therefore, did not uphold the order of the Tribunal disallowing the expenditure in relation to the dividend from shares. Thus there being a direct judgment of a Hon'ble High Court on this issue, the same has to be followed i....