ANVIL FINTRADE P. LTD,MUMBAI vs. ASST CIT CIR 2(1), MUMBAI

In brief, the relevant facts are that the assessee is a company incorporated under the provisions of the Companies Act, 1956 and is engaged in the business of dealing in shares and securities. In the course of assessment proceedings, the Assessing Officer noted that assessee had earned dividend income of Rs.15,33,691/-, which was exempt. The Assessing Officer show caused the assessee as to why disallowance under section 14A of the Act should not be made in respect of the expenditure relatable to the earning of exempt dividend income. The Assessing Officer notes in the assessment order that it was submitted by the assessee that no expenses were incurred in order to earned the aforesaid exempt income. The Assessing Officer, accordingly, computed the disallowance by applying the formula contained in Rule 8D(2)(iii) of the Income Tax Rules, 1962( in short ‘the Rules’) at Rs.4,31,250/-. In appeal before the CIT(A), assessee raised various grounds challenging the order of the Assessing Officer and one of the points raised was that the suo-moto disallowance made by the assessee in its return of income of Rs.76,685/- be reduced from the disallowance computed by the Assessing Officer. The CIT(A) has upheld the stand of the Assessing Officer in principle but directed that the disallowance be reduced by a sum of Rs.76,685/-,which was suo-moto disallowed by the assessee in the return of income. Not being satisfied with the order of the CIT(A), assessee is in further appeal before us.

Before us, the solitary plea of the assessee is that the disallowance determined by the Assessing Officer under section 14A of the Act is erroneous,

On the other hand, Ld. Departmental Representative pointed out that CIT(A) has upheld the disallowance in terms of the decision of his predecessor in the assessee’s own case for assessment year 2009-10 dated 28/12/2012. On this aspect of the matter, Ld. Representative for the assessee pointed out that the purported order of the CIT(A) for assessment year 2009-10 dated 28/12/2012 has not been received by the assessee company. In this context, he has furnished a communication dated 27/05/2015 addressed to the Office of the CIT(A) -4, wherein it is pointed out that the said order has since not been received. Be that as it may, we proceed to adjudicate the controversy in this year independently, on the basis of the rival stands as emerging from the orders of the authorities below.

We have carefully considered the rival submissions. Ostensibly, the dispute in the instant appeal lies in a narrow compass, inasmuch as, the pertinent grievance of the assessee is that for the purposes of working out the 4 (Assessment Year 2010-11) disallowance under section 14A of the Act by applying the formula contained in Rule 8D of the Rules, the shares and securities held as stock-in-trade are liable to be excluded. On this aspect, we find that the CIT(A) in para 5.2.6 of his order held that even the shares considered as stock-in-trade are liable to be considered for the purpose of disallowance following the decision of the Special Bench of the Tribunal in the case of Daga Capital Management (Pvt.) Ltd., 117 ITD 169(SB). In our considered opinion, the stand of the CIT(A) on this aspect is not tenable in view of the subsequent decision of the Mumbai Tribunal in the case of DCIT vs. India Advantage Securities Ltd. dated 14/09/2011 for assessment year 2008-09. In the case of India Advantage Securities Ltd. (supra), the Tribunal, after relying on the judgment of the Hon'ble Karnataka High Court in the case of CCI Ltd. vs. JCIT, 250 CTR 291 (Kar) held that the disallowance under section 14A of the Act could not be made in respect of exempt income received on shares held as stock-in-trade. The Tribunal also considered the decision of the Special Bench of the Tribunal in the case of Daga Capital Management (Pvt.) Ltd.,(supra) and since it was contrary to the judgment of the Hon’ble Karnataka High Court in the case of CCI Ltd. (surpa), the decision of the Hon’ble Karnataka High Court was followed and the stand of the assessee was upheld. It is also notable that the decision of the Tribunal dated 14/09/2011(supra) has since been affirmed by the Hon'ble Bombay High Court in the case reported at CIT v. Advantage Securities Ltd ,380 ITR 471(Bom). Subsequently, the Mumbai Tribunal in the case of R.R.Chokhani Stock Brokers Pvt. Ltd. (supra) has also a taken a similar view. Following the affirmation by the Hon'ble Bombay High Court of the decision of the Tribunal in the case of India Advantage Securities Ltd.(supra), we hold that the shares and securities held as stock-in-trade cannot be considered for the purposes of working out the disallowance under section 14A of the Act r.w.s. Rule 8D of the Rules. As a consequence, the disallowance under section 14A of the Act quantified by the Assessing Officer at Rs.4,31,250/- is untenable and the matter is restored back to the file of Assessing Officer who shall rework the disallowance, if any, after considering our aforesaid decision. Needless to say, the Assessing Officer shall allow the assessee a reasonable opportunity of being heard before passing an order afresh on this limited aspect as per law.

In the result, appeal of the assessee is allowed as above. Order pronounced in the open court on 09/11/2016