TaxTMI 
TaxTMI 
TaxTMI 
2016 (8) TMI 682
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....e exempt by the assessee and a disallowance of Rs. 1,20,000/- was offered under section 14A on account of expenditure incurred in relation to the said exempt income. The Assessing Officer having regard to the accounts of the assessee was not satisfied about the correctness of the disallowance offered by the assessee under section 14A on account of expenditure in relation to exempt income. He, therefore, invoked Rule 8D and computed the disallowance to be made under section 14A on account of expenditure incurred in relation to the exempt income at Rs. 2,43,90,464/-. Accordingly, the difference of Rs. 2,42,70,464/- (Rs.2,43,90,464/- minus Rs. 1,20,000/-) was added by the Assessing Officer to the total income of the assessee. 4. The disallowance made by the Assessing Officer under section 14A read with Rule 8D was challenged by the assessee in the appeal filed before the ld. CIT(Appeals) and after considering the submissions made by the assessee before him as well as the case laws cited in support, the ld. CIT (Appeals) deleted the said disallowance made by the Assessing Officer for the following reasons given in paragraph No. 2.3 of his impugned order:- "2.3. I have carefully consi....
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..... The decision of the Hon'ble Karnataka High Court in the case of CCI Ltd. (supra) and also the decision of the Hon'ble Kerala High Court in the case of Smt. Leena Ramchandran (supra) are squarely applicable to the facts of the case. The appellant company has already disallowed a sum of Rs. 1,20,000/- u/s 14A in relation to the dividend income which is exempt from tax. Considering the facts of the case, I am of the view that the appellant has held the shares as stock-in-trade and the AO has wrongly treated its stock-in-trade as investment in shares and computed the disallowance of Rs. 2,43,90,464/- u/s 14A read with Rule 8D. The appellant has already made a disallowance of Rs. 1,20,000/- u/s 14A. In view of it, the AO is directed to delete the disallowance of Rs. 2,42,70,464/- u/s 14A. This ground of appeal is allowed". 5. The ld. D.R., at the outset, submitted that the issue involved in Ground No. 1 of the Revenue's appeal relating to the disallowance under section 14A on account of expenditure in relation to the earning of exempt dividend income received on shares held as stock-in-trade is squarely covered in favour of the Revenue by the decision of the Hon'ble C....
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....of interest in relation to the dividend received from trading shares could not be made. He submitted that the appeal filed by the Revenue against the said order of the Tribunal passed in the case of India Advantage Securities Ltd. (supra) has been dismissed by the Hon'ble Bombay High Court vide its order dated April 13, 2015 passed in ITA No. 1131 of 2013 by holding that there was no substantial question of law involved. Relying on the decision of the Hon'ble Gujarat High Court in the case of Nirma Industries Limited reported in 283 ITR 402,he contended that the order of the Tribunal in the case of India Advantage Securities Limited (supra) thus has merged with the order of the Hon'ble Bombay High Court and the Third Member decision of the Tribunal in the case of DH Securities (P.) Ltd. (supra) relied upon by the ld. D.R. stands impliedly overruled. He also relied on the latest decision of the Hon'ble Bombay High Court dated 25.02.2016 rendered in the case of HDFC Bank -vs. - DCIT [67 taxmann.com 42], wherein the action of the Tribunal in not following the decision of its Coordinate Bench in the case of India Advantage Securities Ltd. (supra) was disapproved by the ....
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....hich shares are held as investments and this rule will not have any application when the shares are held as stock-in-trade. It was held that the application of Rule 8D(2)(i), however, is not excluded and in a case where shares are held as stock-in-trade and not as investments, the disallowance even under rule 8D is restricted to the expenditure directly relatable to earning of exempt income. It was held that section 14A thus will still apply in the cases where shares are held as stock-in-trade but the disallowance to be made under section 14A read with Rule 8D will be restricted to direct expenses incurred in relation to the earning of exempt dividend income. The ld. counsel for the assessee contended that even if section 14A and Rule 8D is held to be applicable in case of expenditure incurred in relation to the earning of exempt dividend income on shares held as stock-in-trade, the computation of such disallowance has to be made strictly as per the language employed in Rule 8D. 10. Without prejudice to his main argument and as an alternative, the ld. counsel for the assessee contended that the disallowance under section 14A has been wrongly worked out by the Assessing Officer und....
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....d on shares held as stock-in-trade, the very purpose of introducing the provisions of section 14A in the Statute needs to be taken into consideration. In this regard, he invited our attention to the Explanatory Notes given in the Finance Bill, 2001, wherein the purpose of inserting section 14A was clarified as under:- "Certain incomes are not includible while computing the total income as these are exempt under various provisions of the Act. There have been cases where deductions have been claimed in respect of such exempt income. This in effect means that the tax incentive given by way of exemptions to certain categories of income is being used to reduce also the tax payable on the non-exempt income by debiting the expenses incurred to earn the exempt income against taxable income. This is against the basic principles of taxation whereby only the net income, i.e., gross income minus the expenditure, is taxed. On the same analogy, the exemption is also in respect of the net income. Expenses incurred can be allowed only to the extent they are relatable to the earning of taxable income. It is proposed to insert a new section 14A so as to clarify the intention of the Legislature sinc....
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....the exempt dividend income is received from the shares held as stock-in-trade and the disallowance on account of expenditure incurred in relation to such exempt income can be made by applying the said provision. The ld. Judicial Member, however, did not agree with this view of the ld. Accountant Member and wrote a dissenting order taking a contrary view that disallowance under section 14A cannot be made where dividend income has been earned on the shares held as stock-in-trade by relying, inter alia, on the decision of the Hon'ble Karnataka High Court in the case of CCI Ltd. (supra), which has been relied upon by the ld. CIT(Appeals) in his impugned order while deciding the issue in favour of the assessee. When the matter was referred to a Third Member to resolve the point of difference, the decision of the Hon'ble Karnataka High Court in the case of CCI Ltd. (supra), as well as various other judicial pronouncements were cited on behalf of the assessee in support of its case. The ld. Third Member, however, held that the issue is squarely covered by the principles laid down by the Hon'ble Bombay High Court in the case of Godrej Boycee Manufacturing Company Limited (supra) as....
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....eld by the Hon'ble High Court after taking note of all these facts of the case, it follows that the principles laid down by the Hon'ble Jurisdictional High Court in the case of Dhanuka & Sons (supra) are squarely applicable to the issue under consideration as rightly held by the ld. Third Member in the case of DH Securities (P.) Ltd. (supra). 16. The ld. counsel for the assessee has contended that the Hon'ble Mumbai Bench of this Tribunal in the case of India Advantage Securities Ltd. (supra) has decided a similar view in favour of the assessee by following the decision of the Hon'ble Karnataka High Court in the case of CCI Ltd. (supra) and since the appeal filed by the Revenue against the order of the Tribunal passed in the said case has been dismissed by the Hon'ble Bombay High Court, the order of the Tribunal has merged with the order of the Hon'ble Bombay High Court thereby overruling impliedly the Third Member decision in the case of DH Securities (P.) Ltd. (supra). In this regard, even if the order of the Tribunal in the case of India Advantage Securities Ltd. (supra) is taken as merged with the order of the Hon'ble Bombay High Court passed in the....
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.... with Rule 8D is held to be applicable in the case of the assessee, the disallowance on account of expenditure incurred in relation to the earning of exempt dividend income on shares held as stock-in-trade can only be in respect of expenditure directly relatable to earning of exempt income by applying the Rule 8D(2)(i) and not in respect of indirect expenses as per Rule 8D(2)(i) and 8D(2)(ii), which are not applicable. It is observed that a similar contention was raised on behalf of the assessee before the Tribunal even in the case of DH Securities (P.) Ltd. (supra) by placing reliance on the decision in the case of Gulshan Investment Co. Ltd. (supra). The ld. Accountant Member, with whom the ld. Third Member finally concurred, however, did not accept the same by relying on the decision of Special Bench of the Tribunal in the case of Daga Capital Management Pvt. Limited (supra), wherein a similar contention was rejected by the Tribunal by observing that the reference in Rule 8D is to the "value of investment" and not to the "assets held as investment". It was held that a person may make investment in shares and the shares so purchased may be held either as stock-in-trade or investm....
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....rest income as business income of the assessee instead of income from other sources after discussing the submissions made by the assessee as well as the case laws relied upon by the assessee in support of paragraph No. 3.3 of his impugned order, which reads as under:- "3.3. I have carefully considered the observation of the Assessing Officer in the assessment order and also the submission of the ld. AR. It has been informed that the clients have to give upfront margin of average 15% to 35% of the exposure or outstanding position in the National Stock Exchange (NSE) in order to trade in Future & Options (F&O). The NSE does not accept Fixed Deposits as Margin Money from the clients directly. The client gives the cheque to the broker and the broker in turn take out the FDR and give to the Exchange as Margin Money for that particular client. As per the rules prescribed by the SEBI, the Broker can not utilize these FDRs for its own business purpose. In the present case, the broker is M/s. Anvil Share & Stock Broking Pvt. Ltd. and its client is the appellant i.e. M/ s. Teenlok Advisory Services Pvt. Ltd. It has been clarified that the appellant company had given the cheque to its broker....