AI Drafter 
TaxTMI 
TaxTMI 
2020 (5) TMI 553
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....f Rs. 3,46,48,556/-, as against the net interest of Rs. 83,50,170/- ( gross interest Rs. 3,46,48,556 minus interest received Rs. 2,62,98,368). That is, AO ought to take net interest for the purpose of computation of disallowance under Rule 8D(2) (ii). (ii).The Average value of stock-in-trade will not be taken in determining the disallowance under section 14A read with rule 8D of the Rules.That is, the value of investment will not include the value of shares held as stock-in-trade. 3. Facts of the case which can be stated quite shortly are as follows: The assessee company is a share-broker. During the assessment year 2011-12, the assessee company has traded on account of its client and also on its own account in shares, futures and options and has also done speculative trading through BSE/NSE. During the assessment year 2011-12, the assessee company has earned income from trading in shares and mutual fund leading to profits under the head business and profession and under the head income from capital gain and also earned interest on debentures.During the assessment proceedings, the Assessing Officer made addition u/s 14A read with Rule 8D holding as follows: "3.....
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....has been received on following shares: It is seen that investment in these three instruments have been made mainly for the purpose of dividend striping although, the transactions have been structured in such a way that the same do not get hit by provision of section 94(7). In the case of Indian Oil Corporation the shares of Rs. 22.30 crore (Exceptional amount considering assessee's stock-in-holding of other share) were purchased on 26.01.2010 and the assessee sold it within twelve days on 08.09.2010 after receiving a dividend of Rs. 72.99 lakhs. It is apparent that primary purpose of this transaction was to earn dividend and use provision of 94(7). Had there been a loss, the assessee would have sold the shares after primarily liquidated the shares and has earned dividend income. In the case of Patni Computer the purchase was made on 26.08.2010 and on 08.10.2010 the shares have been sold i.e. after the time period mentioned in 94(7) and the assessee has earned the dividend of Rs. 83.79 lakhs. Clearly, the transaction was structured to earn some tax free dividend. It was not with the in....
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....s of the assessee is to purchase and sale of shares therefore the value of investment will not include the value of shares held as stock-in-trade, that is, shares held as stock-in-trade should not be taken to compute disallowance u/s 14A, therefore necessary direction may be given to the assessing officer to exclude stock-in-trade in the value of investment. 7. On the other hand, the ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and the same is not being repeated for the sake of brevity. 8. We heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. The first issue which needs to be addressed by us is that while determining the disallowance under rule 8D(2)(ii) of the I.T.Rules, the AO took the gross interest of Rs. 3,46,48,556/-, as against the net interest of Rs. 83,50,170/- ( gross interest Rs. 3,46,48,556 minus interest received Rs. 2,62,98,368). ....
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....ate Bench of ITAT-Mumbai, in the matter of M/s Suhami Power & Finance Corporation vs. ACIT under ITA No. 1844/Mum/2018 dated 24/07/2019 wherein it was held as follows: "5. Under this issue the assessee has challenged the confirmation of the disallowance made by the AO of Rs. 5,72,805/- u/s 14A of the Act r.w. Rule 8D (2)(ii) of the Rules. The Ld. Representative of the assessee has argued that the assessee received the interest income to the tune of Rs. 2,114,950/- which was credit to the profit and loss account as against the interest expenses of Rs. 1,332,797/-. It is also argued that while computing the disallowance of interest expenses, the interest should be net off from the interest received. In this regard, the Ld. Representative of the assessee has placed reliance upon the decision of Hon'ble Gujarat High Court in case of PCIT Vs. Nirma Credit & Capital P. Ltd. (Appeal No. 409 & 514 of 2017) and Hon'ble ITAT Delhi in case of ACIT Vs. Keshav Shares & Stock Ltd. (ITA. No.4394/Del/2011 decided on 26.04.2013 Delhi Bench. However, on the other hand, the Ld. Representative of the Department has refuted the said contention. On appraisal of the order passed by the A....
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....the view that the disallowance of interest expenses should be made after the net off interest only. Accordingly, this issue is decided in favour of the assessee against the revenue in the manner as indicative above. We order accordingly. Considering the above settled position of law, we direct the assessing officer to compute the disallowance under rule 8D(2) (ii) only after taking net interest ( that is , interest received minus interest paid). The assessee is also directed to furnish the details of interest received/paid, before the assessing officer along with documentary evidence, if any. Therefore, we allow the issue of computation of disallowance under rule 8D(2) (ii) of the Rules for statistical purposes. 10. Coming to the second issue that the Average value of stock-in-trade will not be taken in determining the disallowance under section 14A read with rule 8D of the Rules. The ld Counsel submits that the value of investment will not include the value of shares held as stock-in-trade, as the main object of the assessee is to purchase and sale of shares, therefore, he objects the following directions given by the ld CIT(Appeals) to the assessing officer to include the i....
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....n-trade', certain dividend is also earned, though incidentally, which is also exempt income. However, by virtue of section 10(34), this dividend income is not to be included in the total income and is exempt from tax. This triggers the applicability of section 14A which is based on the theory of apportionment of expenditure between taxable and non-taxable income.Therefore, to that extent, depending upon the facts of each case, the expenditure incurred in acquiring those shares will have to be apportioned.The findings of theHon`ble Supreme Court, which is applicable to the assessee`s case under consideration, is given below: "39. In those cases, where shares are held as stock-in-trade, the main purpose is to trade in those shares and earn profits therefrom. However, we are not concerned with those profits which would naturally be treated as 'income' under the head 'profits and gains from business and profession'. What happens is that, in the process, when the shares are held as 'stock-in-trade', certain dividend is also earned, though incidentally, which is also an income. However, by virtue of Section 10 (34) of the Act, this dividend income is ....
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....sessee`s favour. At this juncture, we deem it appropriate to quote the Judgment of Hon`ble High Court of Andhra Pradesh in the case of Commissioner of Income-Tax vs. B.R. Constructions (1993) 202 ITR 222 (AP-HC), wherein the Hon`ble Court held as follows: "35. The ratio decidendi of a judgment is a binding precedent. The hierarchy of authority with regard to binding precedent is summed up in paragraph 28 at page 158 of "Salmond on Jurisprudence", Twelfth Edition, as follows : "The general rule is that a court is bound by the decision of all courts higher than itself. A High Court Judge cannot question a decision of the Court of Appeal, nor can the Court of Appeal refuse to follow judgments of the House of Lords. A corollary of the rule is that the courts are bound only by decisions of higher courts and not by those of lower or equal rank. A High Court judge is not bound by a previous High Court decision, though he will normally follow it on the principle of judicial comity, in order to avoid conflict of authority and to secure certainly and uniformity in the administration of justice. If he refuses to follow it, he cannot overrule it; both decision stand and the r....
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....sion or a judgment relied upon in that decision is overruled by a Full Bench or the Supreme Court, or when the law laid down by a Full Bench or the Supreme Court is inconsistent with the decision. 38. It may be noticed that precedent ceases to be a binding precedent - (i) if it is reversed or overruled by a higher court, (ii) when it is affirmed or reversed on a different ground, (iii) when it is inconsistent with the earlier decisions of the same rank, (iv) when it is sub silentio, and (v) when it is rendered per incuriam. 39. In paragraph 578 at page 297 of Halsbury's Laws of England, Fourth Edition, the rule of per incuriam is stated as follows : "A decision is given per incuriam when the court has acted in ignorance of a previous decision of its own or of a court of co-ordinate jurisdiction which covered the case before it, in which case it must decided which case to follow; or when it has acted in ignorance of a House of Lords decision, in which case it must follow that decision; or when the decision is given in ignorance of the terms of a statute or rule having statutory force." 40. In Punjab....
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....owance under section 14A read with rule 8D in respect of shares held in 'stock-in -trade' by applying the theory of apportionment of expenditure and taking into account only those shares which yielded dividend income.For statistical purposes, the second issue raised by the assessee is allowed. 14. Before parting, it is noted that the order is being pronounced after the 90 days of hearing. However, taking note of the extraordinary situation in the light of the Covid-19 pandemic and lockdown, the period of lockdown days need to be excluded. For coming to such a conclusion, we rely upon the decision of the Co- ordinate Bench of the Mumbai Tribunal in the case of DCIT vs. JCB Limited in ITA No. 6264/Mum/2018 and ITA No. 6103/Mum/2018 for A.Y. 2013-14 order dated 14.05.2020. 15. In the result, the appeal of the assessee is allowed for statistical purposes in above terms. Order pronounced in the Court on 22.05.2020 ============= Document 1 Disallowance u/s 14A read with Rule 8D:- 8D(2)(ii) Less:- (A) Total Interest paid (a) Interest on term loan taken for making FD deposited as Margin Money (b) Interest paid to Clients on margin money for FD made by ....