ITO, WARD-3(3), KOLKATA, KOLKATA vs. M/S BEEJAY INVESTMENT & FINANCIAL CONSULTANTS PVT. LTD., KOLKATA

ORDER Per Shri A.T.Varkey, JM This is an appeal filed by the revenue against the order of Ld. CIT(A)-1, Kolkata dated 09.05.2017 for AY 2009-10. 2. At the outset, we find that the revenue has filed this appeal on the following sole ground:

1. That on the facts and circumstances of the case the Ld. CIT(A) is not justified in deleting disallowance of Rs.62,27,815/- u/s. 14A of the I. T. Act, 1961, read with Rule 8D, observing that the disallowance u/s. 14A is to be computed only on shares and securities held as investment and not applicable on the same being held in the form of stock in trade. The Ld. CIT(A) has not considered the fact that the AO had recorded reasons for dissatisfaction after verification of the accounts produced by the assessee before applying Rule 8D of the I. T. Rules for disallowance u/s. 14A of the I. T. Act, 1961.

“3.2. The submissions of the appellant have been considered. The submissions of the appellant as above have been considered. It is seen that the appellant has received dividend income during the year Rs.24,10,211/-. However it has been claimed in appeal that the dividend received had entirely accrued as a result of trading done in the various shares and securities. It has further been explained that the investment in shares of Rs.17,18,648/- made during the year had been made out of non-interest bearing fund. In view of the decisions in CCI Ltd. vs. JCIT 206 Taxman 563 (Kar) CIT vs, Smt. Leena Ramachandran 339 ITR 296 (Ker) it is seen that the stock in trade is not to be considered for the disallowance under Rule 8D(2)(ii) & (iii).This view has been clearly expressed by the jurisdictional Tribunal in Deputy Commissioner of Income-tax, Circle 6, Kolkata vs Gulshan Investment Co. Ltd [2013] 31 taxmann.com 113 (Kolkata - Trib.) and it has been held by the Hon Tribunal as under- "6. A plain look at the above rule shows that 8D(2)(ii) and (iii) can only be applied in the situations in which shares are held as investments, and that this rule will not have any application when the shares are held as stock in trade. It is so for the elementary reason that the one of the variables on the basis of which disallowance under rules 8D(2)(ii) and (iii) is to be computed is the value of "investments, income from which does not or shall not form part of total income", and, when there are no such investments, the rule cannot have any application. When no all amount can be computed in the light of the formula given in rule 8D(ii) and (iii), no disallowance can be made under rule 8D(2)(ii) and (iii) either. As held by Hon'ble Supreme Court in the case of CIT v. B C Srinivasa Setty [1981] 128 ITR 294/5 Taxman 1, when computation provisions fail, the charging provisions cannot be applied, and by the same logic, when the computation provisions under rule 8D(2) (ii) and (iii) fail, disallowance under the said provisions cannot be made either as the said provision is rendered unworkable." Therefore, respectfully following the above decisions it is held that the provisions of Sec 14A are not applicable on exempt income arising from Shares and Securities held in the form of stock-in-trade, but only on the same being held as an investment. It is held that the disallowance under Rule 8D(2)(ii) and (iii) is to be considered only on investment on which exempt income has been earned. Furthermore, no disallowance in this respect can be made on stock-in-trade or advances and the disallowance is to be restricted on investments from which exempt income has been earned. The Appellant has provided the details of dividend received and it has been claimed that the entire dividend is on Shares held as stock-in-trade.

Even otherwise, the Appellant has already made disallowance of Rs.30,199/- u/s 14A which has not been considered by the AO. It is therefore held that the disallowance made by the AO was not justified and the same is deleted.” We note that the Ld. CIT(A) has given relief to the assessee by following the decision of Tribunal in Gulshan Investment Co. Ltd. (supra) which view has been followed by the Tribunal in DCIT Vs. M/s. G. K. K. Capital Markets (P) Ltd. in for AY 2008-09 dated 14.10.2014 wherein the Tribunal held in para 6 that “secondly, the assessee does not have any investment and all the shares are held as stock-in-trade, as is evident from the orders of the lower authorities. Once the assessee has kept the shares as stock-in-trade, the rule 8D of the Rules will not apply”. This view of the Tribunal has been upheld by the Hon’ble Calcutta High Court in CIT Vs. G. K. K. Capital Markets (P) Ltd. in GA No. 1150 of 2015, ITAT No.52 of 2015 dated 10.02.2017. Therefore, this issue is no longer res integra and so the Ld. CIT(A) has rightly decided the issue by following the order of the Tribunal. The Ld. DR at the time of hearing could not controvert the aforesaid finding of the Ld. CIT(A) that the dividend income was not from investment but from the stock-in- trade of shares held by the assessee and hence, we are of the view that the CIT(A) has rightly deleted the addition and we confirm the same. Therefore, the appeal of revenue is dismissed.

1. 1. Appellant ITO, Ward-3(3), Kolkata. Respondent – M/s. Beejay Investment & Financial Consultants Pvt. Ltd., 2 13 No., B. B. Ganguly Street, Kolkata-700 012. The CIT(A), Kolkata 3.