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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
These two appeals by the Assessee are arising out of the different order of Commissioner of Income Tax (Appeals)-9, Mumbai, [in short CIT(A)] in appeal No. CIT(A)-9/Cir.4/64&367/2013-14 dated 30-03-2016. The Assessments were framed by the Asst. Commissioner of Income Tax, Circle.4(2), Mumbai (in short ACIT or AO) for the assessment year 2010- 11 & 2011-12 vide order dated 12-03-2013 & 12-02-2014 under section 143(3) of the Income Tax Act, 1961(hereinafter ‘the Act’).
& 3885/Mum/2016 Padmakshi Financial Services Ltd. (AY: 10-11 & 11-12) 2. The first common issue in this appeal of the assessee is as regards to the order of CIT(A) confirming the disallowance of expenses relatable to exempt income by invoking the provisions of section 14A of the Act read with rule 8D of the rules, 1962 (hereinafter the Rules). In both the years, the CIT(A) has confirming the disallowance made by AO of ₹ 7,76,186/- in AY 2010-11 and a sum of ₹ 6,73,665/- in AY 2011-12. The facts and circumstances are exactly identical and even the investments are the same in both the years and no new investment has been introduced. Accordingly, we will take the facts from AY 2010-11 and will decide the issue. The ground has raised in AY 2010-11 reads as under: -
“(a) The Commissioner of Income Tax (Appeals) -9 Mumbai thereinafter referred as CIT (A)] erred in confirming disallowance of Rs. 7,76,186 u/s 14 A of the I. T. Act r.w. Rule SD of the I. T. Rules.
(b) The CIT (A) erred in holding that the Appellant could not demonstrate that the securities were held as stock-in-trade.
The Appellant submits that it has filed the audited financial statement before AO as well as before Hon'ble CIT(A) wherein securities held as stock-in-trade has been shown separately which has been considered by the AO for making the disallowance u/s 14A r.w. Rule SD of the I.T. Rules.
(c) The CIT (A) erred in not adjudicating the ground that investments in subsidiary companies shall not be considered for & 3885/Mum/2016 Padmakshi Financial Services Ltd. (AY: 10-11 & 11-12) disallowance under Rule 8D(7)(ii) & (iii) of the I.T. Rules.
(d) The CIT (A) erred in not adjudicating the ground that investments in Non-convertible Debentures shall not be considered for making the disallowance under Rule 8D(ii) & (iii) of the I.T. Rules. "
Briefly stated facts are that in AY 2010-11, the assessee has earned dividend income of ₹ 42,16,739/- and in AY 2011-12 the assessee is earned dividend income of ₹ 21,60,621/-. The assessee has made a suo moto disallowance of ₹ 2,26,259/- and ₹ 2,65,028/- in AY 2010-11 and 2011-12 respectively. The AO during the course of assessment proceedings noticed that the assessee has earned dividend income of ₹ 42,16,739/- and he has disallowed a sum of ₹ 2,26,259/- under section 14A of the Act read with Rule 8D of the Rules. Hence, he disallowed under Rule 8D of the Rules at ₹ 5,49,927/-.
We have heard the rival contentions and gone through the facts and circumstances of the case. Before us, the learned Counsel for the assessee stated that the assessee has kept these investments as stock in trade and earned dividend income and it was also claimed by the assessee that the disallowance is not called off on the shares and securities on which dividend income is earned and held as stock-in-trade. The learned Counsel for the assessee took us through the plea taken before AO and before CIT(A) that the dividend income on share held as stock-in-trade that assessable under section 56 of the Act and did not lose its character of business income. He also pleaded that shares held as stock-in-trade, deduction on account of interest is allowable under section 36(1)(iii) of the Act and expenditure incurred in relation to such shares is allowable under section 37 of the Act. The learned Counsel for ITA No. 3884 & 3885/Mum/2016 Padmakshi Financial Services Ltd. (AY: 10-11 & 11-12) the assessee relied on the decision of this co-ordinate Bench in the case of DCIT vs. India Advantage Securities Ltd. in for AY 2008-09 vide order dated 14.09.2012 and which was affirmed by Hon’ble Bombay High Court in ITA No. 1131 of 2013 vide order dated 17- 03-2015, when this was pointed out to the learned Counsel for the assessee, the investments which are held as stock-in-trade and given exempt income, he fairly conceded that the issue can be remitted back to the file of the AO for verification that whatever income earned on investments which are kept as stock-in-trade and no disallowance can be made by invoking the provisions of section 14A of the Act read with Rule 8D of the Rules’. On this proposition, the learned Senior Departmental Representative could not controvert. After going through the facts and circumstances, we are of the view that no disallowance under section 14A read with Rule 8D of the Rules can be made wherein, investments on which income earned is exempted, but the investment held as stock- in-trade. However, the AO will verify that the investment is made in stock- in-trade and will, accordingly decide the claim. This issue in both the appeals of the assessee is allowed for statistical purposes and remanded the matter back to the file of AO for verification.
The next issue in AY 2010-11 is as regards to the order of CIT(A) restricting the adhoc disallowances to the extent of 50% of expenses on computer software, conveyance expense and diwali expenses at ₹ 75,000/-. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the assessee has incurred following expenses: -
Sl. No. Particulars Amount (in ₹) 1. Computer Software Expenses 1,82,633 2. Conveyance 1,41,270 3. Diwali Expenses 4,27,783 Total 7,51,686 & 3885/Mum/2016 Padmakshi Financial Services Ltd. (AY: 10-11 & 11-12) According to AO, the expenses are not fully vouched and hence, he disallowed by estimating at the rate of 10% and accordingly, he disallowed ₹ 75,000. Aggrieved, assessee preferred the appeal before CIT(A). The CIT(A) also confirmed the action of the AO. As the assessee is unable to controvert the findings of the Assessing Officer even now before us, the assessee could not substantiate the disallowance made by the AO, hence, we confirmed the disallowance.