TaxTMI 
TaxTMI 
TaxTMI 
2016 (8) TMI 1538
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....s stock in trade as the gain from trading in the said shares was taxable as business income and the dividend income, received in respect of some shares was only incidental in nature. 3. The Ld. CIT(A) erred in law as well as on facts in upholding the addition in respect of shares held as stock in trade without appreciating the fact that the provisions of section 14A r.w. Rule 8D apply in case of 'investments' yielding exempt income and the said Rule does not cover 'stock in trade' which yields taxable as well as tax free income. 4.The Ld. CIT(A) erred in law as well as on facts in not appreciating that the entire interest expense incurred by the appellant had a direct nexus with the sale and purchase activity of shares and securities and no part of the same was attributable towards earning of exempt dividend income. 5. The Ld. CIT(A) erred in law in not talking cognizance of the fact that the Hon'ble ITAT, Mumbai, in the appellant's own case for A.Y.2008-09 has deleted addition made u/s 14A in respect of shares held as stock in trade on similar facts." 2. During the course of hearing, arguments were made by Shri Nitesh Joshi & Shri Rajiv Mehrotra, Authorised....
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....ed out the disallowance as under: Total interest paid Rs. 5,35,93,045/- A Opening Investment Rs. 34,38,86,800 Closing Investment Rs. 23,13,46,966 Total Rs. 57,52,33,766 Average Investment= 57,52,33,766/2 Rs. 28,76, 16,883 - B Opening Assets Rs. 215,62,68,663 Closing Assets Rs. 344,35,03,488 Total Rs. 559,97,72,151 Average Assets = 559,97,72,151/2 = Rs. 279,98,86,075 C Working of disallowance u/s. 14A of the Income Tax Act, 1961 A x B/C 5,35,93,045 x 28,76,16,883 / 279,98,86,075 = 55,05,318 Direct Expenditure NIL Interest x Average Investment/ Average total assets Rs. 55,05,318 0.5% of Average Investment of Rs. 28,76, 16,883 Rs. 14,38,084 Total Disallowance u/s. 14A as per I.T. Act Rs. 69,43,402 Accordingly, the AO further added an amount of Rs. 44,32,307/- . (69,43,402 - 25,11,095) u/s 14A of the Act. 3.2. Being aggrieved, the assessee filed an appeal before the Ld. CIT(A) and contested the disallowance u/s 14A. The assessee made detailed submissions before Ld. CIT(A) in support of his claim and also relied upon the decisions of the Tribunal in assessee's own case for A.Ys.2008-09 and 2009-10 wherein the disallowance 14A was deleted in total by the Tr....
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....for A.Ys.2008-09 & 2009-10. It is noted that in A.Y. 2008-09 the Tribunal vide its order dated 11.01.2013, in ITA Nos. 6332 & 6563/Mum/2011 held that no disallowance would be made in the case of the assessee on 'investment portfolio' as well as 'business portfolio'. The relevant observations given in the order are reproduced below: "We have perused the records and considered the rival contentions carefully. The dispute raised in these appeals is regarding disallowance of expenses under section 14A in relation to exempt income. The assessee has received exempt income in the form of dividend from personal investment as well as dividend income from trading in shares. It also received tax free interest from relief bonds. The assessee has claimed that it had made separate accounts including separate bank accounts and balance sheets for personal investments and trading activities in which expenses relating to these two activities have been shown separately. CIT(A) has given a clear finding that the assessee had made separate accounts and balance sheets for the two activities. Nothing has been produced before us to controvert the finding of the CIT(A). Therefore, the claim of the assesse....
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....ividend received from trading shares. In view of this position the order of CIT(A) in relation to disallowance in respect of trading shares cannot be upheld. We, therefore, set aside the order of CIT(A) and deleted the disallowance upheld by him in relation to trading in shares. 6. In the result, the appeal of the assessee is allowed and that by the revenue is dismissed." 3.6. It is further noted that identical issue came up before the Tribunal in A.Y. 2009-10. The AO did not make any disallowance on account of 'investment portfolio'. The disallowance was made by the AO u/s 14A on account of 'business portfolio' for shares held in stock-in-trade which was deleted by the Ld. CIT(A). The Revenue carried the matter before the Tribunal and Tribunal upheld the order of Ld. CIT(A) and dismissed the appeal of the revenue by following order of A.Y. 2008-09 and also the judgment of Hon'ble Bombay High Court in the case of India Advantage Securities Ltd. 380 ITR 471 (Bom); relevant part of the order is reproduced below for ready reference: "10. We have heard the ld. D.R. We have observed that the Mumbai Tribunal in assessee's own case for the assessment year 2008-09 in ITA No. 6332/Mum/2....
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....se of India Advantage Securities Ltd. (supra) and HDFC Bank Ltd. v. DCIT and judgment of Hon'ble Karnataka High Court in the case of CCI Limited (supra), the disallowance u/s 14A should be deleted for both the portfolios i.e. 'investment' as well as 'business'. The only hitch with regard to disallowance made under 'business portfolio' is that assessee had himself made a voluntary disallowance. 3.10. We have considered this aspect in the given facts carefully. It is well settled position of law that taxable income of an assessee has to be computed strictly in accordance with the provisions of Income Tax Act, 1961 as explained by the courts from time to time. Thus, disallowance/additions if any can be made only in accordance with law. Neither any item of receipts can be brought to tax nor can any expenditure be allowed/disallowed, merely on the basis of consent or acquiescence or waiver of any party or otherwise. It could be done only in accordance with the provisions of law. In this regard, we can also take support from the judgment of Hon'ble Delhi High Court in the case of CIT vs. Bharat General Reinsurance Co. Ltd. 81 ITR 303 wherein it was held that merely because an assessee h....