TaxTMI 
TaxTMI 
TaxTMI 
2024 (10) TMI 1682
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.... financial company engaged mainly in business of investing in shares and securities, financing and granting loans and advances against the shares. At the concession of the representatives for our convenience, we consider the facts of AY 2016-17 wherein the assessee filed return of income electronically on 29/09/2017 declaring total income at Rs.2,37,73,76,630/- which was assessed at Rs.2,60,88,12,310/- after making addition on account of disallowance u/s 14A of Rs.23,12,35,679/- which was later on rectified at Rs.3,91,21,320/-. Since the assessee had already made disallowance of Rs. 26,85,250/- a further disallowance of Rs.3,64,36,069/- was made u/s 14A r.w.r. 8D. 4.1. The addition was challenged before the ld. CIT(A) but without any success. 5. Before us, the ld. Counsel for the assessee vehemently contended that assessee was holding shares as stock-in-trade, therefore, no disallowance has to be made u/s 14A r.w.r. 8D. The ld. Counsel for the assessee further stated that the disallowance, if any, has to be made only in respect of those investment which yielded exempt income. Strong reliance was placed on the decision of the Special Bench of the Delhi Tribunal in the case of ACIT....
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....nd Haryana High Court pointed out that this circular carves out a distinction between 'stock-in-trade' and 'investment' and provides that if the motive behind purchase and sale of shares is to earn profit, then the same would be treated as trading profit and if the object is to derive income by way of dividend then the profit would be said to have accrued from investment. To this extent, the High Court may be correct. At the same time, we do not agree with the test of dominant intention applied by the Punjab and Haryana High Court, which we have already discarded. In that event, the question is as to on what basis those cases are to be decided where the shares of other companies are purchased by the assessee's as 'stock- in-trade' and not as 'investment'. We proceed to discuss this aspect hereinafter. 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 t....
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....ontrast, where the shares are held as stock-in-trade, this may not be necessarily a situation. The main purpose is to liquidate those shares whenever the share price goes up in order to earn profits. In the result, the appeals filed by the Revenue challenging the judgment of the Punjab and Haryana High Court in State Bank of Patiala also fail, though law in this respect has been clarified hereinabove." 7. The same view was followed by the Hon'ble Supreme Court in the case of South Indian Bank Ltd. vs. CIT [2021] 438 ITR 1 (SC). The relevant findings read as follows :- "23. It would now be appropriate to advert in some detail to Maxopp Investment Ltd. v. CIT10. This case interestingly is relied by both sides' counsel. Writing for the Bench, Justice Dr. A.K. Sikri noted the objective for incorporation of Section 14A in the Act in the following words: - "3. The purpose behind Section 14-A of the Act, by not permitting deduction of the expenditure incurred in relation to income, which does not form part of total income, is to ensure that the assessee does not get double benefit. Once a particular income itself is not to be included in the total income and is exempted from ....
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....se shares, the assessee knows that it may generate dividend income as well and as and when such dividend income is generated that would be earned by the assessee. In contrast, where the shares are held as stock- in-trade, this may not be necessarily a situation. The main purpose is to liquidate those shares whenever the share price goes up in order to earn profits ....................." The learned Judge then considered the implication of Rule 8D of the Rules in the context of Section 14-A(2) of the Act and clarified that before applying the theory of apportionment, the Assessing Officer must record satisfaction on Suo Moto disallowance only in those cases where, the apportionment was done by the assessee. The following is relevant for the purpose of this judgment: 51. It will be in those cases where the assessee in his return has himself apportioned but the AO was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. 24. Another important judgment dealing with Section 14A disallowance which merits consideration is Godrej and Boyce Manufacturing Company Ltd. V. DCIT11. Here the assessee had access to adequate intere....