ASSOCIATE HOLDINGS PRIVATE LIMITED,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 8(2), MUMBAI

: Ms. Neha Paranjpe- Ld.AR अपीलाथ" क" ओर से/ Appellant by : Shri S. Michael Jerald - Ld. DR ""यथ"क"ओरसे/Respondent by सुनवाई क" तार"ख/ : 19/12/2019 Date of Hearing घोषणा क" तार"ख / : 19/12/2019 Date of Pronouncement आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member): - 1. Aforesaid appeal by assessee for Assessment Year [in short referred to as ‘AY’] 2015-16 contest the order of Ld. Commissioner of Income-Tax (Appeals)-50, Mumbai [in short referred to as ‘CIT(A)’], Appeal No.CIT(A)- 2 M/s. Associate Holdings Private Limited Assessment Year-2015-16 50/IT-10125/2017-18 Order dated 08/06/2018, on following grounds of appeal: - Being aggrieved by the Order of the Commissioner of Income Tax, (Appeals)-50 Mumbai upholding the addition of Rs.3,36,58,084/- under section 14A of the Act, the appellant prefers this appeal on the following amongst other grounds of appeal. On the facts and in circumstances of the case, and in law, the Learned Commissioner of Income tax (Appeals)-50, Mumbai, erred in upholding the addition of Rs.3,36,58,084/- under the provisions of section 14A of the Income Tax Act, 1961 by wrongly applying the decision of the Hon'ble Apex Court in the case of Maxopp Investment Ltd, without considering that although, i) The Supreme Court held that even though the Assessee may have acquired shares in order to gain control over the investee company, the portion of the expenditure that is attributable to the dividend income earned out of such investment should be disallowed under Section 14A, whereas in the case of the appellant, it has not earned dividend on such shares which have been acquired to gain control of the 2 companies in which investments have been made. ii) The Supreme Court agreed on the view taken by P&H HC in State Bank of Patiala case to the extent it relied on the CBDT Circular, dated 02.11.2015 (the "Circular") and stated that if the motive behind purchase and sale of shares is to earn profit, then the income earned would be treated as trading profit, however, if the object is to earn dividend income, then the taxpayer would be considered to have made an investment into the investee company whereas in the appellant's case investments are also made for trading purposes; iii) The Supreme Court ruled that where shares are held as stock-in-trade, it becomes a business activity of the taxpayer and receipt of any dividend income is immaterial. Hence, any expenditure incurred with respect to earning such business income shall be allowed for deduction, as in the appellant's case, the shares on which dividend of Rs.1500/- is received are held as stock in trade.

2. Hence, the addition of Rs.3,36,58,084/-under the provisions of section 14A of the Act, be deleted.

As evident from grounds of appeal

, the sole issue involved in the appeal is disallowance u/s14A.

2. The Ld. Authorized Representative for Assessee (AR), at the outset, relying upon the order of this Tribunal in assessee’s own case for AY 2011- 3 M/s. Associate Holdings Private Limited Assessment Year-2015-16 12, order dated 08/03/2019, pleaded that disallowance should be restricted to the extent of exempt income earned by the assessee during the year. The said order has been followed by coordinate bench of this Tribunal for AYs 2012-13 to 2014-15, ITA Nos. 7073/Mum/2017 & others, common order dated 08/05/2019 to take similar view. The copies of the orders have been placed on record. The Ld. DR submitted that the disallowance was to be computed in terms of Rule 8D, irrespective of the quantum of exempt income earned by the assessee. We have duly considered the rival submissions and the cited orders of Tribunal in assessee’s own case.

3. Facts on record would reveal that the assessee being resident corporate assessee stated to be engaged in trading of shares / securities, was assessed for year under consideration u/s 143(3) on 15/12/2017 wherein the assessee was saddled with disallowance u/s 14A for Rs.336.58 Lacs in view of the fact that it had closing investments of Rs.4770.16 Lacs and debited interest expenditure of Rs.484.98 Lacs in the Profit & Loss Account. The assessee, inter-alia, submitted that since the borrowing were in the course of share trading business, the interest was an allowable expenditure u/s 36(1)(iii). The attention was drawn to the fact that the quantum of exempt income earned by the assessee was merely Rs.1,500/- and therefore, the disallowance, at the most, could be restricted to that extent. However, not convinced, Ld.AO, invoking Rule 8D, computed aggregate disallowance of Rs.336.58 Lacs which comprised-off of interest disallowance u/r 8D(2)(ii) for Rs. 313.92 Lacs and expense disallowance u/r