M/S CROSSSEAS CAPITAL SERVICES PVT. LTD.,KOLKATA vs. DCIT, CIR-6(2), KOLKATA, KOLKATA

This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-16, Kolkata dated 09.03.2016. Assessment was framed by DCIT, Circle-6, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 04.03.2013 for assessment year 2011-12.

Solitary issue raised by assessee in this appeal is that Ld. CIT(A) erred in confirming the order of Assessing Officer by sustaining disallowance of ₹1,19,586/- under the provision of Section 14A of the Act.

Briefly stated facts are that assessee is a private limited company and engaged in business of share broking and trading activities. The assessee is a registered broker with the Bombay Stock Exchange and National Stock Exchange. The assessee, during the year has earned dividend income of ₹1,52,195/- only. But it has made no disallowance of the expense incurred in relation to such dividend income. Therefore, AO invoked the provision of Section 14A r.w.s. Rule 8D of the IT Rules, 1962 and made a disallowance of ₹1,19,586/- and added to the total income of assessee.

Aggrieved, assessee preferred an appeal before Ld. CIT(A) who confirmed the order of Assessing Officer. Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us.

Before us Ld. AR for the assessee submitted that it is engaged in share trading business and therefore investment made in share was held as stock- in-trade. The ld. AR for the assessee further submitted that it has not declared any income on account of sale-purchase of shares under the head “capital gains” as evident from the return of income. The assessee was maintaining single port-folio of shares as trader. None of the shares have been classified as investment in its books of account. Ld. AR in support of assessee’s claim has produced the copy of audited financial statements which are placed on record. A.Y. 2010-11 M/s Crossseas Capital Services Pvt. Ltd. Vs. DCIT, Cir-6(2) Kol. Page 3 In view of above the ld. AR prayed before the Bench that no disallowance under section 14A r.w.r. 8D is warranted. On the other hand, Ld. DR heavily relied on the order of Authorities Below.

We have heard the rival contentions of both the parties and perused the material available on record. The undisputed fact are detailed as under i) That assessee has earned dividend income on the shares which were held as stock-in-trade. ii) The main business of assessee is to trade in shares/ securities. These shares/ securities were classified in the books of account as stock-in-trade and no part of it was shown under the head of investment as evident from the financial statement produced before us. The Hon'ble jurisdictional High Court in the case of CIT vs. G.K.K. Capital Markets (P) Ltd. reported in 392 ITR 196 (Cal) has held that if the assessee is into the trading business of shares / securities then no disallowance can be made under the provision of Section 14A r.w.r. 8D of IT Rules. The relevant extract is reproduced below:- “9. In Dhanuka & Sons case (supra) it was found there was no dispute that part of the income of the assessee from its business was from dividend whereas the assessee was unable to produce any material before the authority below showing the source from which such shares were acquired. That decision is distinguishable on facts as not applicable to this case. We also do not find the Revenue had urged that the expenditure being disallowed was in relation to exempt income not arising in the previous year for application of the said circular to be considered. The Assessing Officer had accepted the correctness of the disallowable expenditure offered by the assessee on its claim of Rs.25,68,04,353/- as long term capital gain. He did not allow the claim itself treating the said amount as business income to thereafter disallow the offered expenditure. 10. In view of the clear finding of fact regarding the exempt income claimed treated to be business income and the shares held by the assessee having been treated as stock in trade, we do not find the case involves a substantial question of law. The application and appeal are thus dismissed.”