RATILAL VERSHI SHAH,MUMBAI vs. ITO 12(1)(4), MUMBAI

Brief facts are, the assessee an individual is engaged in the business of trading in shares. During the assessment proceedings, the Assessing Officer noticed that in the relevant previous year, assessee derived exempt income by way of dividend from mutual fund and equity shares amounting to ` 1,78,145, whereas, it has not shown any expenditure for earning such exempt income. Being of the view that assessee must have incurred some expenditure for earning exempt income, the Assessing Officer by applying the provisions of rule 8D, disallowed an amount of ` 7,47,169 under section 14A towards expenditure attributable towards earning of exempt income. Being aggrieved, assessee preferred appeal before the learned Commissioner (Appeals). However, the learned Commissioner (Appeals) sustaining the disallowance. Of–course, the learned Commissioner (Appeals) restricted the disallowance to ` 1,77,104.

The learned Authorised Representative submitted before us, the assessee is a trader in shares and the shares are held as stock–in– trade, therefore, no disallowance under section 14A can be made. He submitted, in assessee’s own case, the Tribunal has decided the issue in favour of the assessee for assessment year 2008–09. He, therefore, submitted, disallowance made should be deleted.

We have considered the submissions of the parties and perused the material available on record. Undisputedly, the assessee is involved in trading in shares and shares are held as stock–in–trade. In fact, the Assessing Officer himself accepted this factual position. That being the case, no disallowance under section 14A can be made in respect of the exempt income earned by way of dividend from mutual funds and shares. In fact, the co–ordinate bench of the Tribunal in assessee’s own case for assessment year 2008–09 in ITA no.336/Mum./2012 dated 23rd January 2013, has expressed same view. In view of the aforesaid, we delete the addition of ` 1,77,104.

In ground no.2, relates to ad–hoc disallowance made out of car insurance and telephone expenditure towards personal use.

In the course of assessment proceedings, the Assessing Officer observing that the assessee must have used the car and telephone for personal use, disallowed 20% out of the depreciation claimed on car, car insurance and telephone expenses.

The learned Commissioner (Appeals) while allowing depreciation claimed on car, sustained the disallowance @ 20% out of car insurance and telephone expenditure for personal use.

In the result, appeal is partly allowed. Order pronounced in the open Court on 28.10.2016