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Income Tax Appellate Tribunal, “D” BENCH : KOLKATA
Before: Hon’ble Shri M.Balaganesh, AM & Hon’ble Shri S.S.Viswanethra Ravi, JM]
ORDER Per M.Balaganesh, AM
This is an appeal of the assessee directed against the order passed by the Learned Commissioner of Income Tax (Appeals) – 10, Kolkata (in short the ld CITA) in Appeal No. 53/CIT(A)-10/Cir-35/14-15/Kol dated 02.09.2016 against the order of assessment framed by the Learned ACIT, Circle-35, Kolkata (in short the ld AO) u/s 143(3) of the Act dated 25.02.2015 for the Asst Year 2012- 13.
M/s Maruti Traders & Investors. A.Yr. 2012-13
The only issue to be decided in this appeal is as to whether the Ld. CIT(A) was justified in restricting the disallowance u/s 14A of the Act to the tune of Rs. 9,47,339/-, being 10% of dividend income, in the facts and circumstances of the case.
The brief facts of this issue is that the assessee is a partnership firm engaged in the business of trading and investments in shares, securities and derivatives. The assessee had not held any security as investment since the inception. All the scrips were held only as stock-in-trade. The assessee firm filed its return of income for the assessment year 2012-13 on 28.09.2012 showing total loss of Rs. 1,45,89,995/-. The ld. AO during the course of assessment proceedings directed the assessee to explain recording the applicability of disallowance u/s 14A of the Act read with rule 8D of the Rules vide notice u/s 142(1) of the Act dated 22.07.2014. In response the assessee filed its submissions on 23.02.2015 as under:
M/s Maruti Traders & Investors. A.Yr. 2012-13 The ld. AO however not being convinced with these arguments placed reliance on the decision of Hon’ble Jurisdictional High Court in the case of Dhanuka & Sons vs. CIT reported in 339 ITR 319 and proceeded to make disallowance u/s 14A read with Rule 8D of the Rules by applying the third limb of Rule 8D(2) and arrived at the disallowance figure of Rs. 38,93,332/- and added the same in the assessment.
4. The Ld. CIT(A) observed that the assessee firm is engaged only in the business of share trading, commodity derivatives, currency derivatives and has never held any investments as mentioned by the ld. AO in the assessment order in the relevant column under ‘nature of business’. He agreed to the contentions of the assessee that the provisions of section 14A of the Act read with Rule 8D of the Rules cannot be invoked when the shares were held as stock-in-trade. He placed reliance on the decision of Co-ordinate Bench of this Tribunal in the case of DCIT vs Gulshan Investment Co. Ltd. in for assessment year 2008-09. Having said so, he however proceeded to reasonably estimate the disallowance figure u/s 14A at Rs. 9,47,339/- being 10% of dividend earning of Rs. 94,73,390/- to be disallowed over and above suo-moto disallowance of Rs. 12,881/- made by the assessee. Aggrieved, the assessee is in appeal before us on the following grounds:
1. That the Ld. Commissioner of Income Tax (Appeal) was not justified in estimating disallowance u/s 14A, at 10% of total Dividend income i.e. Rs. 947339/- (total Dividend Rs. 9473390/-), whereas statutory provision of sec. 14A and Rule 8D is not applicable.
M/s Maruti Traders & Investors. A.Yr. 2012-13 2. That in the facts and circumstances of the case the ld. Commissioner of Income Tax (Appeals) has erred in law and in fact in confirming addition of Rs. 947339/- on estimated basis u/s 14A.
3. The estimate is excessive and without any basis.
The appellant craves leave to add, alter or modify any other grounds of appeal at the hearing stage.
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 4
M/s Maruti Traders & Investors. A.Yr. 2012-13 to the file of ld. AO for de novo adjudication. Accordingly, grounds raised by the assessee are allowed for statistical purposes.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the Court on 11.04.2018