TaxTMI 
TaxTMI 
TaxTMI 
2017 (3) TMI 261
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....assessee neither showed dividend income as income from other sources nor claimed any exemption on such income under section 10(34) of the Act. However the AO was of the view that the assessee should have claimed exemption on such income and accordingly should have disallowed the expenses in pursuance to the provisions of section 14A of the Act. Therefore the AO called upon the assessee to explain/ clarify the facts as discussed above. However the reply made by the assessee was not satisfactory to the AO and therefore he invoked the provisions of rule 8D read with section 14A of the Act for the purpose of disallowance as detailed below : i. Direct expenses Rs. 3,07,891.00 ii. Interest expenses Rs. 34,42,257.00 iii. Administrative expenses Rs. 4,79,724.00 However the disallowance of administrative expenses were limited to Rs. 2,40,279.00 by the AO as these are the actual expenses. As per the AO the disallowance of administrative expenses cannot exceed the actual expenses claimed by the assessee. At the end the AO disallowed a sum of Rs. 42,29,872.00 under the provisions of section 14A read with rule 8D of income tax rules and added to the total income of the assesse....
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.... 113(Kol) has held as under :- "6. A plain look at the above rule shows that 8 D(2)(ii) and (iii) can only be applied in the situations in which shares are held as investments, and that this rule will not have any application when the shares are held as stock in trade. It is so for the elementary reason that the one of the variables on the basis of which disallowance under rules 8D(2)(il) and (iii) is to he computed is the value o] "investments, income from which does not or shall not form part of total income", and. when there are no such investments, the rule cannot have any application. When no amount can be computed in the light of the formula given in rule 8 D(2)(ii) and (iii) , no disallowance can be made under rule 8D (2)(ii) and (iii) either. As held by Hon'ble Supreme Court in the case of CIT v. B C Srinivasa Setty [1981] 128 ITR 294/5 Taxman 1 when computation provisions fail, the charging provisions cannot he applied. and by the same logic, when the computation provisions under rule 8 D (2) (ii) and (iii) fail, disallowance under the said provisions cannot be mode either as the said provision is rendered unworkable. 7. However, that does not exclude the application 4....
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....law as well as on facts of the case in confirming the dividend income of Rs. 41,375.00 as exempt income instead of income from business on the grounds which are not correct. 3. For that the appellant craves leave to adduce, modify and/or alter the grounds at or before hearing." Revenue in its appeal No. 824/Kol/2015 has raised following grounds of appeal : "1.That on the facts and circumstances of the case, the Ld. CIT(A)-l,Kolkata had erred in allowing relief against the disallowance of Rs. 39,90,427/- made u/s. 14A of the Income Tax Act 1961. 2. That tax effect in the instant case is also much above the monetary limit as prescribed vide CBDT's instruction No.3/2011 & instruction NO.5/2014 for filing of appeal before Ld.ITAT, Kolkata. 3. That the appellant craves leave to amend, modify or alter any grounds of appeal during the course of hearing of this case." 5. First we take up assessee's appeal No. 681/kol/2015 for adjudication. At the outset ld. AR before us fairly agreed for the disallowances made by the lower authorities under the provisions of rule 8D(i) of Income Tax Rules. Therefore the ground of appeal filed by the assessee is hereby dismissed. Now we take....
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....the disallowance as per Rule 8D by taking into consideration only those shares, which have yielded dividend income in the year under consideration. 8. We have considered the rival submissions and also perused the relevant material available on record. The issue that arises for our consideration in the present context is whether the provisions of section 14A can be invoked to make a disallowance on account of expenditure incurred in relation to the exempt income in the form of dividend received by the assessee on the shares held as stock-in-trade. Admittedly the assessee is into the business of share trading predominantly and all the shares have been classified as stock in trade. All the expenses either directly or indirectly have been incurred for the business of the assessee including the finance charges on the borrowed fund. The dividend income earned on the shares held as stock in trade is incidental income of the assessee. The predominant income of the assessee is from the trading of shares which has already been offered to tax. Indeed the assessee while carrying out its activities has earned income in the form of dividend which is exempted from tax under section 10(34) of th....
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....n to income which does not form part of the total income. There is no dispute that part of the income of the assessee from its business is from dividend which is exempt from tax whereas the assessee was unable to produce any material before the authorities below showing the source from which shares were acquired. The mere fact that those shares were old ones and not acquired recently is immaterial. It is for the assessee to show the source of acquisition of those shares by production of materials that those were acquired from the funds available in the hands of the assessee at the relevant point of time without taking benefit of any loan. If those shares were purchased from the amount taken in loan, even for instance, five or ten years ago, it is for the assessee to show by the production of documentary evidence that such loaned amount had already been paid back and for the relevant assessment year, no interest is payable by the assessee for acquiring those old shares. In the absence of any such materials placed by the assessee, the authorities below rightly held that proportionate amount should be disallowed having regard to the total income and the income from the exempt source. ....