M/S KANODIA STOCK BROKING PVT. LTD.,KOLKATA vs. ACIT, CC-1(2), KOLKATA, KOLKATA

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ITA 509/KOL/2015Status: DisposedITAT Kolkata23 August 2017AY 2007-20082 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that disallowance under Section 14A cannot exceed the exempt income. It further directed that 10% of the dividend income be disallowed in the interest of justice, considering the assessee's nature of business.

What were the facts?

The assessee, a share trader, earned dividend income and incurred expenses related to its trading business. The Assessing Officer disallowed Rs. 19,50,471/- under Section 14A, considering stock-in-trade as investment. The CIT(A) confirmed this disallowance.

What were the issues?

Whether disallowance under Section 14A can exceed exempt income and what is the appropriate disallowance for a share trader.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, BENCH ‘C’ KOLKATA

Before: Hon’ble Shri J.Sudhakar Reddy, AM & Shri S.S.Viswanethra Ravi, JM ]

ORDER PER J.SUDHAKAR REDDY, AM:

This is an appeal by the Assessee directed against the order of the Commissioner of Income Tax-(A)- 20, Kolkata relating to A.Y. 2007-08 on the following grounds : “1.That the Ld. CIT(A) erred in confirming disallowance of expenditure of Rs.19,50,471/- made by the AO under sec.14A of the Income Tax Act, 1961. The AO admitted that the assessee has been a trader in shares and all the expenses are relating to the trading business of shares but disallowed the pro rata interest under sec.14A considering the 'stock in-trade' to be the 'investment'. The disallowance is wrong and need to be deleted.

2.

That the assessee craves leave to add, alter, amend or withdraw any ground or grounds of appeal before or at the time of hearing.”

2. The Assessee is admittedly a trader in shares. The total purchase of shares during the financial year 2006-07 was Rs.87.6 crores and corresponding sales was Rs.86.53 crores. The investments in shares as on 31.03.2006 as well as on 31.03.2007 was Rs.10,15,477/-. The assessee earned dividend income of Rs.4,95,262/- during the year. The AO disallowed an amount of Rs.19,50,471/- u/s 14A of the Income Tax Act, 1961 (Act). The Hon’ble Delhi Court in the case Joint Investments Pvt. Ltd. Vs CIT in ITA No.509/Kol/2015-M/s. Kanodia Stock Broking A.Y.2007-08 2 Judgment dated 25/02/2015 held that disallowance under section 14A of the Income Tax Act, 1961 (The Act) cannot exceed the tax exempt income.

3. Thus the disallowance u/s 14A cannot exceed Rs.4,95,262/- in this case. Hence the disallowance sustained by the ld. CIT(A) has to be reversed. . In any event in the facts and circumstances of the case, keeping in view of the fact that the assessee is a trader in shares and stocks and also the fact that the assessee would have incurred some expenses for earning the dividend income, interest of justice would be met if 10% of the dividend income is disallowed u/s 14A of the Act. We order accordingly.

4.

In the result the appeal of the assessee is partly allowed.

Order pronounced in the Court on 23.08.2017.

Sd/- Sd/- [S.S.Viswanethra Ravi] [ J.Sudhakar Reddy ] Judicial Member Accountant Member Dated : 23.08.2017. [RG PS] Copy of the order forwarded to: 1.M/s. Kanodia Stock Broking Pvt. Ltd., 1, R.N.Mukherjee Road, 4th Floor, Room NO.5 & 6, Kolkata-700001. 2. A.C.I.T., Central Circle-1(2), Kolkata. 3. C.I.T.(A)-20, Kolkata. 4. C.I.T., Central -1, Kolkata. 3. CIT(DR), Kolkata Benches, Kolkata. True Copy By order,

Senior Private Secretary Head of Office/D.D.O, ITAT Kolkata Benches

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