TaxTMI 
TaxTMI 
2013 (2) TMI 758
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....no direct or indirect expenditure was attributable to earning of exempt income as the assessee was carrying on business of trading in shares and securities. 2. The learned CIT(A) erred in not appreciating that Rule 8D cannot be invoked facts of present case as the shares are held as stock in trade, secondly the investment in shares of subsidiary company of Rs. 70,000/- was made out of own funds of Rs. 24.61 Crores and no interest expenditure was incurred, however without prejudice the assessee had offered Rs. 1,20,000/- in Tax Audit Report / Return of Income being expenditure incurred for earning exempted income, therefore there cannot be any notional disallowance. 3. The learned CIT(A) failed to appreciate that the borrow....
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....issue had come up for consideration before the Tribunal in assessee's own case for the preceding assessment year viz;2008-09 in I.T.A. No.5281/MN/2011 and the Tribunal vide order dt.21.11.2012 after following the decision of Hon'ble Karnataka High Court in the case of CCL Ltd vs JCIT, 250 CTR (Kar) 291 has confirmed the order of ld CIT(A) to delete the disallowance made by the AO u/s.14A of the Act. He submitted that the issue is now fully covered in favour of the assessee by the said order of the Tribunal dt.21.11.2012 (supra). Ld D.R. did not dispute above contention of ld A.R. save and except relying on orders of authorities below. 4. We have considered submissions of ld representatives of parties and orders of authorities bel....
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....erused para 5 and 6 of the decision of the Tribunal in the case of M/s. India Advantage Securities Ltd (supra) which considered the said judgment of Honble High Court of Karnataka for deciding the issue in favour of the assessee. Considering the settled nature of the issue and the importance of the said decision of the Tribunal, relevant paragraphs are reproduced as under: "5. We have perused the records and considered the rival contentions carefully. The dispute is regarding the disallowance of expenses u/s 14A in relation to the exempt dividend income received from shares held on trading account. The AO disallowed the expenses holding that the provisions of section 14A were applicable even in relation to the dividend rec....
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....e judgment. The ratio decidendi of the judgment was disallowance of interest u/s 14A which had been upheld by the Tribunal. The Tribunal, therefore, did not accept the arguments based on the judgment of Hon'ble High Court of Kerala in the case of Smt. Leena Ramachandran (supra) which was not directly on the issue of disallowance of expenses in relation to the dividend income received from trading in shares." 6. However, the Hon'ble High Court of Karnataka have recently considered the disallowance of expenses incurred on borrowings made for purchase of trading shares u/s 14A of the IT Act in the case of CCL Ltd. vs. JCIT (supra). The assessee in that case was distributor of state lotteries and dealer in shares and securities....
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....s issue, the same has to be followed in preference to the decision of the Special Bench of the Tribunal in the case of M/s. Daga Capital Management Pvt. Ltd. (supra). In fact, we note that the Tribunal in the case of Ganjam Treading Co. Ltd. (surpa) has already considered this situation and held that in view of the judgment of Hon'ble High Court of Karnataka in the case of CCL Ltd. vs. JCIT (supra) the disallowance of interest in relation to the dividend received from trading shares cannot be made. We, therefore, see no infirmity in the order of the ld CIT (A) in deleting the disallowance u/s 14A computed by the AO in relation to the stock-in-trade. The order of the Ld CIT (A) is accordingly upheld." 7. Further, it is a fact th....
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.... for working the disallowance. The appellant's average value of investment during the year was only at Rs. 35,000/- only, the indirect expenditure disallowance as per clause (ii) of Rule 8D(2) was working out at Rs. 3240/- only. Consequently, the O.5% of average value of investment of Rs. 35,000/- was working out to Rs. 2000/- only. In the facts and circumstances, the disallowance as per formula provided in Rule 8D was required to be worked out as under:- (i) Direct interest expenditure Rs. Nil (ii) Indirect interest expenditure Rs. 340/- (iii) 0.5% of average investment Rs. 2000/- Rs. 2,340/- The Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co.Ltd. 234 CTR 1 has held that prov....