NIRUPAMA P. SHAH,MUMBAI vs. ACIT 21(1), MUMBAI

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ITA 4544/MUM/2014Status: DisposedITAT Mumbai29 July 2016AY 2010-113 pages
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What did the Tribunal hold?

The Tribunal held that while the AO's satisfaction was recorded, the disallowance under Section 14A should be restricted to the actual dividend income earned. Therefore, the disallowance was limited to Rs. 2000/-.

What were the facts?

The assessee claimed dividend income as exempt without making any disallowance under Section 14A. The Assessing Officer (AO) disallowed Rs. 6,96,586/- as per Rule 8D, which was confirmed by the CIT(A). The assessee argued that most investments were strategic and part of stock-in-trade.

What were the issues?

Whether disallowance under Section 14A read with Rule 8D is justified when investments are strategic and part of stock-in-trade, and if so, to what extent.

Which sections of the Income-tax Act were involved?

Section 14A

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Income Tax Appellate Tribunal, “B”, BENCH MUMBAI

Before: SHRI R.C.SHARMA, AM & SHRI SANDEEP GOSAIN, JM

Hearing: 28/07/2016Pronounced: 29/07/2016

O R D E R

PER R.C.SHARMA (A.M): This is an appeal filed by the assessee against the order of CIT(A)- Mumbai, for the assessment year 2010-2011. 2. In this appeal, the assessee is aggrieved for disallowance made u/s.14A read with rule 8D. 3. At the outset, ld. AR placed on record order of the Tribunal in case of Shri Harendra D Shah, order dated 7-1-2016, another family member for the A.Y.2010-2011, wherein exactly similar issue has been decided by the Tribunal after having following observations :- “2. We heard the parties and perused the record. The facts relating to the issue are that the assessee is engaged in the business of trading in derivatives, equity and commodities besides derives income from salary received from Dolat Investment Ltd and rental 2 income. The assessee disclosed a dividend income of Rs.2000/- during the year under consideration and claimed the same as exempt. However, the assessee did not make any disallowance u/s 14A of the Act. The assessee also declared Short Term Capital Gains (STCG) of Rs.12.10 lakhs. During the course of assessment proceedings, he agreed with the AO that the STCG may also be assessed as business income, meaning thereby the assessee accepted that he is a trader in shares and securities.

3.

Before the AO, the assessee submitted that no disallowance u/s 14A is required to be made, since average value of investment is ZERO. However, the AO noticed that the assessee has computed the average value of investment by considering only those investments on which the assessee had received dividend. Further, the Balance sheet filed by the assessee disclosed that the assessee is holding investments to the tune of Rs.7.20 crores. Accordingly, the AO held that the disallowance u/s 14A is required to be computed as per Rule 8D of the IT Rules. Accordingly, the AO computed the disallowance as per Rule 8D at Rs.6,96,586/- and assessed the same. The ld. CIT(A) confirmed the addition made by the AO and hence, the assessee has filed this appeal before us.

4.

The ld. AR submitted that the AO has not recorded the satisfaction required u/s 14A before rejecting the claim made by the assessee. However, on a perusal of the assessment order, we notice that the AO has recorded his satisfaction in para 5.4 of the assessment order. Accordingly, we reject the above said contention of the assessee.

5.

The ld. AR further submitted that the assessee has made 99.35% of investment only in group companies and hence they fall in the category of strategic investment. By drawing support from the decision rendered by the Co-ordinate Bench of the Mumbai Bench of the Tribunal in the case of J M Financial Limited V/s ACIT in ITA No.4521/Mum/2012, the ld AR submitted that no disallowance is called for u/s 14A, in the case of strategic investment since the purpose of investment is to hold controlling stake in the group concerns and not for earning any dividend income. The ld. AR submitted that an identical issue was expressed by the Co-ordinate Bench of Tribunal in the case of Garware Wall Ropes Ltd V/s CIT (2014) 65 SOT 86(Mumbai). The ld. AR further submitted that the assessee is dealing in trading in derivatives, equity and commodities and hence the investment held by the assessee forms part of his stock-in-trade. Accordingly, by placing the reliance on the decision of Hon’ble jurisdictional Bombay High Court in the case of CIT vs. India Advantage Securities Ltd, the ld.AR submitted that no disallowance u/s 14A of the Act is called for. The ld.AR further submitted that the assessee has received dividend of Rs.2000/- only and accordingly, the disallowance u/s 14A, if any, should not exceed the amount of Rs.2000/-.

6.

On the contrary, the ld. DR placed strong reliance on the order of ld.CIT(A).

7.

The assessee has furnished the statement of investment made in shares of various companies. We notice that the total investment

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