TaxTMI 
TaxTMI 
2015 (10) TMI 2171
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.... and shares are held as stock in trade and the appellant has also earned share trading profit of Rs. 6,69,715/- as its business income. All expenses including interest paid are wholly and exclusively incurred for the purpose of the business and hence, provisions of section 14A/Rule 8D are not applicable. (b) Alternatively it is further submitted that the CIT(A) has erred in confirming the quantification of disallowance under Rule 8D at Rs. 4,04,204/-. It is submitted that if at all there is a disallowance to be made, it should be done in accordance with the provisions of Rule -8D. (c) Alternatively and without prejudice the CIT(A) ought to held that Rs. 6,09,715/- being surplus in sale of shares should have been taken as capital gain since the AO has treated purchase & sale of shares as investment of your appellant while arriving disallowance u/s 14A of the Act. II. The CIT(A) has erred in confirming 50% out of the disallowance Rs. 60,068/- being 20% expenses out of shop, traveling convergence etc. on ad hoc basis stating that some of the vouchers are self made/office vouchers. It is submitted that since the entire expenses under various heads amounting to Rs. 3,00,358/....
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....- and only Rs. 51,000/- was shown under the head investment in the balance sheet. The dividend income earned by the assessee during the FY 2007-08 was Rs. 58,963/- which was earned from the equity shares held in stock in trade. Ld. AR further submitted that total turnover of cloth and shares for the FY 2007-08 was Rs. 1,05,49,908/- out of which sales of cloth was at Rs. 88,63,407/- and sale of shares at Rs. 16,86,501/- and the interest expenses of Rs. 16,57,043/- (1478,043 + 1,79,000) has been incurred for the total business of the assessee and not specifically for trading in shares. The ld. AR in support of his ground further submitted as under :- "2. For making this disallowance, the AO has observed that we have dividend income of Rs. 58,963/-, there is a Long term investment of Rs. 51,000/- yielding non-taxable income by way of dividend, we have incurred interest expenses of Rs. 14,78,043/- and interest paid to Bank is Rs. 1,79,000/- which is not bifurcated into expenses in relation to trading activity or investment activity and therefore disallowance u/s 14A is worked out as per Rule 8D which is quantified at Rs. 4,04,204/-. 3. We firstly state that the AO has proceeded o....
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....ec.14A/Rule 80 are of applicable to the facts of our case as held by Hon. Courts in the following judgements which are strongly relied upon by us. (a) "The assessee had not made any investment in shares for the purpose of earning dividend. No doubt, the assessee had received dividends but these were incidental receipts, as the assessee purchased shares for the purpose of selling the same and during that process the assessee received some dividend. Therefore, it could not be said that the assessee was dealing in the transactions which were exempt from tax. Therefore, on the facts of the instant case, the provisions of section 14A were not applicable, if the assessing officer was of the view that the assessee had made investment for the purpose of earning dividend, then onus was on him to prove the same, which the Assessing Officer had failed to discharge. Therefore, the addition made was to be deleted." Leo Industries Ltd. vs. ITO 143 Taxman page 92 & 93 (Delhi) (b) "The dividend earned by the assessee was merely incidental to the holding of shares for a particular period when the dividend was declared. As per the accounts, the stock of shares held as stock-in-trade was mer....
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.... or a correlation between expenses incurred for earning non taxable income and hence, provisions of sec.14A/RSD are wrongly applied. As a matter of fact, we have not incurred any expenditure to earn income from dividends. We get dividend under ECS and the dividend is directly credited to our bank account. We therefore do not have even the administrative expenses by way of salary, conveyance, telephone, travelling, postage, interest or any expenses close to the above list that can be correlated as having been incurred for earning dividend income of Rs. 58,963. 11. Without prejudice to above and assuming and without admitting that even if disallowance is required to be worked out as per the formula laid down in Rule-8D, we submit that the AO has wrongly quantified the disallowance at Rs. 4,04,204 treating interest paid Rs. 16,57,043 (14,78,043 + 1,79,000) as if it is for investment of shares of Rs. 51.000/-. It is submitted that interest is paid on funds which are utilized in our composite business activities of trading in both, shares and securities, real-estate and financing, and the same is not on investment in shares of Rs. 51,000/-. Therefore, the interest is allowable as a d....
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....owing judgments: 1. Chart showing Share Business -Dividend Income 2. Zaveri Virjibhai Mandalia vs. ACIT 152 TTJ P.20 (Ahd.ITAT) 3. Vidyut Investment Ltd. vs. ITO Ward 17(3), New Delhi, 10 SOT page 284 (Delhi ITAT) 4. CCI Ltd. vs. JCIT 250 CTR p.291 (Kar H.C.) III. Disallowance u/s 14A cannot be more than exempt income 1. Chudgar Ranchodlal Jethalal vs. DCIT (OSD) Range-1, Ahmedabad ITA No.245/Ahd/2013 AY 2008-09 -ITAT "B" Bench, Ahd. 2. Jivraj Tea Ltd., Surat vs. DCIT, Circle-1, Surat. ITA No.866/Ahd/2012 -AY 2008-09, Ahmedabad. 3. M/s Daga Global Chemicals Mumbai vs. ACIT-9(1), Mumbi ITA No.5592/Mum/2012 AY 2009-10 ITAT "D" Bench Mumbai. 5. On the other hand, ld. DR relied on the orders of lower authorities and did not produce any new material on record. 6. We have heard rival contentions and gone through the facts and circumstances of the case as well as available records including Paper Book and case laws relied by the ld. AR. Addition of Rs. 4,04,204/- has been made by the AO against dividend income of Rs. 58,963/-. Nothing contrary has been brought to the fact that assessee is a dealer in shares and profit in share business has been shown by the a....
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....ion is reproduced below "20. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. In the instant case, the assessee received exempt dividend income of Rs. 900/-. The Assessing Officer was of the opinion that expenditure incurred for earning the exempt dividend income was not allowable to the assessee and the assessee has not disallowed any expenditure towards the earning of the exempted dividend income, he by invoking the provisions of Section 14A computed expenditure attributable to the earning of exempt dividend income under Rule 8D of the Income-tax Rules and made disallowance for interest expenditure of Rs. 1,49,710/- and administrative expenses of Rs. 12,750/-. The assessee unsuccessfully appealed before the CIT(A). The contention of the assessee is that the interest free funds available with the assessee in the form of share capital and free reserves as on the date of balancesheet was Rs. 17,86,69,501/- and the investments at the end of the year was at Rs. 1,26,00,538/- only. Therefore, in view of the decision of the Hon'ble Gujarat High Court in the case of Hitachi Home and Life Solutions (I) Ltd. (su....