TaxTMI 
TaxTMI 
2013 (8) TMI 323
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....the Ld. CIT(Appeals) has erred in deleting the restricting the addition u/s 14A of the I.T. Act to Rs. 74,57,347/- as against Rs. 1,48,07,132/- made by AO. 2.1. The Ld. CIT(A) ignored the finding recorded by the AO and the fact that the addition was correctly made by the AO in accordance with the provisions of Rule 8D of the I.T. Rules, 1962." Assessee's cross objections: That having regards to the facts and circumstances of the case, the Ld. CIT(A) has erred in confirming the addition of Rs. 74,57,347/- out of addition of Rs. 148,07,132/- made by Ld. AO u/s 14A read with Rule 8D." 2. Assessee filed its return of income which was taken up for scrutiny u/s 143(3). The assessee is claimed to be engaged in the business of share trading and....
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....Unless the assessee's activities are properly verified and examined as to the nature of expenditure and the nature of activities, rule 8D cannot be applied automatically. Reliance is placed on following judgments: (i) CIT vs Hero Cycles 323 ITR 158 (P & H) - the Hon'ble HC has held that disallowance under section 14A could not stand where it was found that for earning exempted income no expenditure has been incurred. (ii) CIT vs Walfort Stock & Share Brokers [2,010] 326 ITR 1 (SC) - the Hon'ble Apex Court in this case has held that for attracting s. 14A, there has to be a proximate cause for disallowance, which is its relationship with the tax exempt income. (iii) DCIT vs Jindal Photo Ltd. (ITA No. 4539IDe1.l2010) - in this case it has b....
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....t to note that the interest on borrowed funds used for trading activity is an allowable expenditure under section 36(1)(iii) and the same cannot be treated as expenditure for earning the dividend income. Further there is nothing on record to indicate whether the dividend income is incidental to the trading activity or investment activity. If the dividend income is incidental to trading activity, following the principles laid down by the Hon'ble Karnataka High Court in the case of CCI Ltd vs. JCIT 206 Taxman 563, the expenditure incurred in acquiring shares cannot be apportioned to' the dividend for making disallowance under section 14A. As held by the Hon'ble High Court of Kerala in the case of CIT vs. Smt. Leena Chandran 339 ITR 296 (Ker.)....
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....AT in the case of DCIT Vs. Gulshan Investment Co. Ltd. (2013) 142 ITR 89 (Kol.), wherein the ITAT after considering the facts and circumstances of the case upheld the similar view by following observations: "9. So far as the case before us is concerned, as will be clearly discernible from the observations of the learned CIT(A) extracted earlier in this order, learned CIT(A) has upheld disallowance under section 14A in respect of even indirect expenditure, but he has merely held that the provisions of rule 8D do not come into play in this case as the shares are not held as 'investment'. As learned counsel rightly contends the provisions of rule 8D can never be applied in a case where exempt income yield assets are not held as investments, a....
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....cope of Section 14A simplicitor, with these observations, we confirm the conclusions of the learned CIT(A) and decline to interfere in the matter." 3.4. Ld. Counsel for the assessee concedes that the ITAT judgment in the case of American Express Bank is against assessee but the same has been distinguished subsequently. In other words, judgment is favourable to assessee Further, there is no voluntary disallowance u/s 14A offered by the assessee in the return of income as it believed that being in share trading business exclusively, the entire expenditure is relatable to share trading business i.e. earning profit or loss there from. Dividend is only an incidental activity, by which it may be received or not and on this proposition no part of....