AI Drafter 
TaxTMI 
TaxTMI 
2019 (1) TMI 580
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.... Ld.CIT(A) has conveniently misrepresented the fact in his order that no bifurcation with regards to stock in trade and investments is given even though separate figures were given during appellate proceedings. The addition sustained by the Ld. CIT(A) suffers from legal infirmity. The same may kindly be deleted. 3. The appellant humbly requests that cost be awarded in this appeal on account of arbitrary manner in which the order is passed by the department. 4. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of appeal." 3. The only grievance of the assessee is that ld CIT(A) erred in confirming the disallowance made by the AO for Rs. 5,73,918/- under the provision of Section 14A r.w.r. 8D. 4. Briefly stated facts are that the assessee is an individual and engaged in the trading and investment in shares and mutual funds. The assessee during the year has earned dividend income of Rs. 21,47,943/- which was claimed as exempted u/s 10(34) of the Act. The assessee during the assessment proceedings claimed that no administrative expense has been incurred for the ....
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....except interest. It is further contended that the appellant also trades in shares and securities and as such Section 14A doesn't apply to stock-in-trade. The appellant has relied upon certain decision as cited supra. The facts of the case and submissions are considered. The appellant has mainly contended that he has interest free funds more than enough for making investments in the long term securities. A perusal of order shows that the AO has not made any disallowance with regard to interest expenditure. The only disallowance made by the AO as per Rule-8D is in respect of, administrative expenditure. The view of the AO that for such a huge investment, it cannot be accepted that no administrative expenses have been incurred is found to be; correct. Further, the: contention of the appellant that Section 14A does not applied to stock in trade cannot be accepted as no details was furnished by the appellant and no bifurcation is with regard to the stock in trade and investments. Considering the above, the disallowance made by the AO is justified and the same is confirmed." Being aggrieved by the order of ld. CIT(A) assessee is in appeal before us. 6. The ld. AR before us file....
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....liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001.]" "8D. Method for determining amount of expenditure in relation to income not includible in total income.-(1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with- (a) the correctness of the claim of expenditure made by the assessee ; or (b) the claim made by the assessee that no expenditure has been incurred, in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). (2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely :- (i) the amount of expenditure directly relating to income which does not form part of total income ; (ii) in a case where the assessee has incurred expenditure by way of interest during the previous year is not directly attributable to any particular income or receipt, an amount ....
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....e AO finding on the basis of which the disallowance was made by him u/s 14A r.w.r. 8D which is extracted as under: "It is beyond imagination to consider that for making such a huge investment, no administrative expenses have been spent by the assessee. In light of these facts, I am not satisfied with the reply of the assessee and therefore, cannot accept the same. Accordingly, provisions of Section 14A r.w. Rule 8D are applied in the following manner" 8.4 Thus, in our view, the jurisdiction to apply the provision of Section 14A of the Act contemplates satisfaction of the AO after having regard to the books of accounts of the assessee. In the case before us, the AO has exercised his jurisdiction against the provision of law i.e. without referring to the books of accounts. Therefore, in our considered view, the disallowance of the expenses cannot be made. 8.5 In holding so, we find support and guidance from the judgment of Hon'ble Allahabad High Court in the case of CIT vs. UP Electronics Corporation Ltd. reported in 397 ITR 113, wherein, it was held as under: "24. This exposition of law prior to introduction of section 14A of the Act, 1961 was when an assesse....