SREE MAHABAL INVESTMENT (BOMBAY ) P.LTD,MUMBAI vs. ITO 10(3)(3), MUMBAI

We heard the parties and perused the record. Ld. AR submitted that the assessee is engaged in the business of trading in shares and securities. He submitted that the assessee has received dividend income of `2,36,677/- Inviting our attention to the Balance sheet filed in the paper book, the learned AR submitted that the assessee has held the shares as stock in trade only, i.e., the assessee did not hold any shares as investment. He submitted that the assessee did not make any disallowance u/s. 14A of the Act as the shares were held as stock in trade. However, the Assessing Officer computed the disallowance as per provisions of Rule 8D of the I.T. Rules at ` 8,48,314/- and added the same for computing total income as well as for computing book profit u/s 115JB of the Act. The same was also confirmed by the learned CIT(A).

Learned AR submitted that the Coordinate Benches of the Tribunal in the case of India Advantage Securities Ltd. (ITA No. 6711/Mum/2011) and also in the case of Devkant Synthetics (India) Pvt. Ltd. (ITA Nos. 2663 to 2665/Mum/2015 dated 28.10.2015) have taken the view that the shares held as stock in trade should be excluded from the “Investments” while computing disallowance u/r. 8D of the I.T. Rules. Accordingly the Learned AR submitted that there will be no requirement to make any disallowance u/r. 8D of the IT Rules, as value of Investment is nil for this year. He submitted that, under similar circumstances, the Tribunal has estimated the disallowance at 5% of dividend income in the case of Devkant Synthetics (India) Pvt. Ltd. (supra). Accordingly he submitted that the disallowance u/s. 14A may be computed on a reasonable basis.

On the contrary, learned Departmental Representative placed reliance on the orders passed by the learned CIT(A).

We noticed that that the case of the assessee is covered by the decision rendered by the Coordinate Bench in the case of India Advantage Securities Ltd. (supra), wherein it has been held that the shares held as stock in trade should be excluded for the purpose of computing the disallowance u/r. 8D. Since the assessee has not held the shares as investments, the disallowance computed u/r. 8D would work out at Nil figure, if shares held as stock in trade is excluded. In the case of Devkant Synthetics (India) Pvt. Ltd. (supra), under similar set of facts, the Coordinate Bench has computed the disallowance u/r. 14A of the Act at 5% of the dividend income. In the instant case, we have noticed that the assessee earned dividend income of ` 2,36,677/-. We noticed that the major expenditure of the assessee is interest expenditure of ` 26.38 lakhs and salary expenditure of ` 1.22 lakhs, which are predominantly incurred in connection with the share trading operations. We notice that the assessee has earned net profit of ` 24.75 lakhs. Considering these factual aspects, we are of the view that the disallowance u/s. 14A of the Act may be restricted to 10% of the dividend income and the same would meet requirement of law. Accordingly, we set aside the order passed by the learned CIT(A) on this issue and direct the Assessing Officer to restrict the disallowance made u/s. 14A of the Act to 10% of the dividend income. The disallowance so computed shall also be adopted for computing book profit u/s 115JB of the Act.

Learned AR submitted that the assessee has inadvertently omitted to claim exemption in respect of dividend income u/s. 10(34) of the Act. Accordingly, he prayed that the Assessing Officer may be directed to exclude dividend income while computing income of the assessee. It is well settled proposition of law that there is no estoppel against the law. An income which is otherwise not taxable cannot be taxed in the hands of the assessee even if it is offered for taxation. In the instant case, the assessee has inadvertently failed to claim exemption of dividend income u/s. 10(34) of the Act. In view of the above said principle, we direct the Assessing Officer to exclude dividend income while computing total income of the assessee as the same is exempt u/s. 10(34) of the Act.

In the result, the appeal filed by the assessee is partly allowed.