SHAILESH SHAH SECURITIES P.LTD,MUMBAI vs. ASST CIT CIR 4(2), MUMBAI

We heard the parties and perused the record. The assessee is a share broker. During the year, the assessee earned tax free income of ` 5,90,893/- and claimed the same as exempt. The assessee disallowed a sum of ` 1,77,051/- u/s. 14A of the Act while filing return of income. The Assessing Officer noticed that the assessee has computed the disallowance without any basis. Accordingly, he computed the disallowance u/s. 14A of the Act as per provisions of rule 8D(2) of the Income Tax Rules. The assessee challenged the addition made by the Assessing Officer before the learned CIT(A), but could not succeed. Hence, the assessee has filed this appeal before us.

Learned AR submitted that the assessee is holding part of shares as its stock in trade and has also made investment in group companies as strategic investment. Learned AR submitted that the Coordinate Bench of the Tribunal has held in the case of Garware Wall Ropes Ltd. Vs. Add.CIT (46 Taxmann.com 18) has held that strategic investment have to be excluded from the value of investment for the purpose of computing disallowance u/r. 8D(2) of the I.T. Rules. He further submitted that the Coordinate Bench has held in the case of DCIT Vs. India Advantage Securities Ltd. (ITA No. 6711/Mum/2011 dated 14.9.2012) that securities held as stock in trade cannot be considered for computing disallowance u/r. 8D. He submitted that the decision rendered by the Tribunal in the case of India Advantage Securities Ltd. (supra) has since been approved by Hon'ble Bombay High Court vide its order dated 13.4.2013 passed in of 2013. Learned AR further submitted that the assessee has made suo moto disallowance of ` 1.77 lakhs without properly understanding legal position of the provisions of section 14A and Rule 8D. Accordingly, he submitted that the matter may be restored to the file of the Assessing Officer for computing the disallowance afresh. He further submitted that Hon'ble Coordinate Bench has held in the case of Nirshilp Securities Ltd. (ITA No. 4297/Mum/2014 dated 25.8.2016) that if the disallowance computed u/r. 8D(iii) goes below the disallowance offered by the assessee in the set aside proceedings, the Assessing Officer should compute the disallowance as per law and facts because it is a trite law that income has to be computed in accordance with the statutory provisions and not merely by the acquiescence of the assessee.

On the contrary, learned Departmental Representative strongly supported the orders passed by the tax authorities.

We have heard the rival submissions. We are of the view that there is merit in the contention of the assessee. According to the learned AR, investment held by the assessee consists of stock in trade, strategic investment and other investment. With regard to the stock in trade as well as 3 M/s. Shailesh Shah Securities Pvt. Ltd.

In the result, appeal filed by the assessee is allowed for statistical purposes.