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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAMIT KOCHAR
Instant appeal by the assessee is directed against the order dated 28th August 2014, passed by the learned Commissioner (Appeals)–8, Mumbai, for the assessment year 2010–011.
The only issue in dispute in the present appeal relates to disallowance made under section 14A of the Income Tax Act, 1961 r/w rule 8D of the Income Tax Rules, 1962.
2 Shri Ramakant Ruliram Chokhani 3. Brief facts are, the assessee an individual filed his return of income for the impugned assessment year on 21st September 2010, declaring total income of ` 67,90,750. As stated by the Assessing Officer, assessee is engaged in the business of share trading and stock broker. In the course of assessment proceedings, the Assessing Officer noticed that during the relevant previous year, assessee had earned exempt income by way of dividend amounting to ` 20,66,938. Further, assessee has allocated expenditure of ` 30,000 under section 14A towards earning of such exempt income. As observed by the Assessing Officer, disallowance of expenditure of ` 30,000 made by the assessee for earning of exempt income was not found to be on the basis of rule 8D. Accordingly, the Assessing Officer rejecting the claim of the assessee proceeded to compute the disallowance under section 14A r/w rule 8D at ` 9,87,346. Being aggrieved of such disallowance, assessee preferred appeal before the learned Commissioner (Appeals).
Before the first appellate authority, it was submitted by the assessee that while computing disallowance under section 14A r/w rule 8D, the Assessing Officer has also included the shares held as stock–in–trade, the income from which is taxable as business income. He submitted, as stock–in–trade is not an exempt income yielding investment, it cannot be considered as part of average
3 Shri Ramakant Ruliram Chokhani value of investment in terms of rule 8D(2)(iii). The learned Commissioner (Appeals), however, did not find merit in the submissions of the assessee. Relying upon the Special Bench decision of the Tribunal, Mumbai, in ITO v/s Daga Capital Management Pvt. Ltd., 117 ITD 169, the learned Commissioner (Appeals) held that even shares held as stock–in–trade can be considered for the purpose of disallowance under section 14A r/w rule 8D.
We have considered the submissions of the parties and perused the material available on record. At the outset, the learned Counsels appearing for both the parties agreed before us that the issue in dispute is squarely covered by the decision of the Tribunal, Mumbai Bench, in R.R. Chokhani Stock Broker Pvt. Ltd. ITA no.6826/Mum./ 2014 dated 30th October 2015, wherein while deciding similar issue, the Tribunal has held that shares and securities held as stock–in–trade cannot be considered for the purpose of disallowance under section 14A r/w rule 8D. On a perusal of the order of the Tribunal referred to the above, it is noticed, while deciding identical issue, the Tribunal following the decision of the Tribunal, Mumbai Bench, in DCIT v/s India Advantage Securities Ltd., ITA no.6711/Mum./2011, dated 14th September 2011, has held as under:–
4 Shri Ramakant Ruliram Chokhani
5.1 Following the aforesaid decision of the Tribunal, which has since been affirmed by the Hon'ble High Court vide its order dated 13/4/2015(supra), the shares and securities treated as stock-in-trade cannot be considered for the purposes of working of disallowance under section 14A of the Act r.w. Rule 8D of the Rules. Accordingly, the disallowance under section 14A of the Act quantified by the income tax authorities at Rs.17,45,347/- is untenable and the working of the disallowance furnished by the assessee during the assessment proceedings at Rs.2,80,797/- is hereby affirmed. As a consiquence, I set-aside the order of the CIT(A) and direct the Assessing Officer to restrict the disallowance under section 14A of the Act to Rs.2,80,797/and delete the balance.
In our view, the ratio laid down in the aforesaid decision squarely applies to the facts of the present case. Therefore, following the said ratio, we hold that no disallowance under section 14A r/w rule 8D, can be made on the shares and securities held as stock–in–trade of business. Accordingly, we delete the addition made by the Assessing Officer and sustained by the learned Commissioner (Appeals).
In the result, assessee’s appeal stands allowed. Order pronounced in the open Court on 15.06.2016