MR. RAJESH DAMANI,KOLKATA vs. ITO, WARD 35(4), KOLKATA, KOLKATA

The contention of the Ld. AR is that assessee is engaged in the business of trading in shares and all the shares are held as stock-in- trade. It is also contended by him that the the assessee did not receive any exempt income and as such disallowance made by the AO on this count by invoking the provisions of Rule 8D(2) of the IT Rules, 1962 is bad in law.

The contention of the ld. DR is that the Hon’ble Supreme Court in the case of Maxopp Investment Ltd vs. CIT [2018] 91 taxmann.com 154 (SC) held that the provisions of section 14A of the Act would be applicable even the shares are held as stock-in-trade and accordingly sought to remand the issue to the file of AO for his fresh consideration.

We find that the Co-ordinate Bench, Kolkata ITAT in the case of M/s. Maruiti Traders & Investors vide its order dt. 11-04-2018 remanded the issue to the file of AO for de novo adjudication to ascertain the amount of disallowance from the accounts relating to shares held as stock-in-trade for the purpose of section 14A of the Act. Relevant portion of the said order is reproduced herein below for better understanding:- “5. We have heard the rival submissions. We find that the Hon'ble Supreme Court in its recent decision in the case of Maxopp Investment Ltd. vs. CIT reported in [2018] 91 Taxmann 154 (S C) dated 12.02.2018 had held that the provision of section 14A would be applicable even when the shares are held as stock-in-trade in view of the fact that the resultant dividend income earned would be exempt in any case. Hence, we hold that the applicability of provision of section 14A in respect of shares held as stock-in- trade has been settled by the aforesaid Hon'ble Supreme Court’s decision. Now, the short point that arises for our consideration is as to what amount could be disallowed by the ld. AO. The ld. AO in the instant case, had applied the third limb of Rule 8D(2) of the Rules and made disallowance of Rs. 38,93,332/-. The assessee has made suo- moto disallowance in its return of income in the sum of Rs. 12,881/- towards demat charges. The ld. CITA had restricted the total disallowance of Rs. 9,47,339/- being 10% of dividend income over and above the figure of Rs. 12881/- suo-moto disallowed by the assessee. We find that the ld. AO cannot directly resort to the computation mechanism provided in Rule 8D(2) of the Rules for the purpose of making disallowance u/s 14A of the Act. It is incumbent on the part of the ld AO to verify the accounts of the assessee and ascertain the amount of disallowance from the said accounts u/s 14A of the Act. Accordingly, we deem it fit and appropriate in the interest of justice and fair play, to remand this issue to the file of ld. AO for de novo adjudication. Accordingly, grounds raised by the assessee are allowed for statistical purposes.”