TaxTMI 
TaxTMI 
2013 (3) TMI 393
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....g ground: 1.That on the facts and circumstances of the case, learned CIT(A) erred in law in holding that the disallowance under section 14 A of the Income Tax Act, read with rule 8D of the Income Tax Rules, is not applicable in the case of the assessee since the shares were kept as stock in trade. The CIT(A) should have upheld the disallowance made by the AO. 2. The appeal is time barred by 10 days, but the Assessing Officer has moved a condonation petition, duly supported by an affidavit. Learned counsel for the assessee does not object to the prayer for consolidation. In this view of the matter, and having regard to the material on record, we condone the delay and proceed to take up the matter on merits. 3. The issue in appeal lies in ....
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....n-trade : Rs. 13,47,552 Total addition under section. 14A :Rs. 21,45,314 (i.e. Rs.13,47,552 + Rs.7,97,762) 3.1 Aggrieved by the stand so taken by the Assessing Officer, assessee carried the matter in appeal before the CIT(A). Learned CIT(A), after elaborately reproducing the written submissions of the assessee, concluded as follows: I have duly considered the observations of the Assessing Officer and submissions of the assessee. The assessee did not show any expenditure on the exempted income or disallowance under section 94(7) in the return of income. There cannot be any income without any kind of expenses or labour howsoever, small it may be. Therefore, the Assessing Officer was justified in calculating th....
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....enses are there in purchasing those shares and other administrative expenses in the earning of income. The section 14A does not take care of only direct expenses but indirect expenses are also to be allocated to the exempted income. There may not be any investments for making Rule 8D applicable in the facts of the appellant. Rule 8D is a method prescribed when the dividend income is earned from investments. Therefore, in the facts and circumstances of the case of the assessee the expenditure is estimated to be @10% of the dividend earned, as fair and reasonable estimation. Therefore, an expenditure of Rs.1,89,155/- is disallowed in addition to an amount of Rs.1,57,227/- as disallowance under section 94(7) in relation of earning of dividend ....
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....formula, namely:- A x B C Where A = amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year; B = the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; C = the average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; (iii) an amount equal to one-half per cent of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the fir....
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....relating to income which does not form part of total income". In other words, in a case where shares are held as stock in trade and not as investments, the disallowance even under rule 8 D is restricted to the expenditure directly relatable to earning of exempt income. Consequently, while Section 14 A will still apply in the cases whether shares are held as stock in trade or as investments, and that is precisely what a Special Bench of this Tribunal has held in the case of ITO v. Daga Capital Management Pvt Ltd (117 ITD SB 169), the disallowance to be made under section 14 A read with rule 8 D will be restricted to direct expenses incurred in the earning of dividend income. 8. It is also important to bear in mind the fact that, in the case....
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....section 14 A in respect of even indirect expenditure, but he has merely held that the provisions of rule 8 D donot come into play in this case as the shares are not held as 'investments'. As learned counsel rightly contends the provisions of rule 8 D can never be applied in a case where exempt income yield assets are not held as investments, and that the related assets, i.e. shares, having been held as stock in trade all along, there is no occasion to invoke rule 8 D. There is no infirmity in this approach, nor do revenue authorities stand to lose anything by this approach canvassed by the assessee. Quite to the contrary of what learned Departmental Representative perceives to be advantageous to the Assessing Officer, in case the applicatio....