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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI MAHAVIR SINGH, JM & SHRI RAJESH KUMAR, AM
आयकर अपीऱीय अधिकरण, म ुंबई न्यायपीठ “फी” म ुंबई IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI BEFORE SHRI MAHAVIR SINGH, JM AND SHRI RAJESH KUMAR, AM आमकय अऩीर सं./I.T.A. No.6802/Mum/2014 (ननधधारण वषा / Assessment Year : 2011-12) BP Equities Private Limited, बनधम/ The Dy. Commissioner of 24/26, Cama Bldg, 1st floor, Income Tax Range 4(1), Vs. Dalal Street, Fort, Mumbai. Mumbai-400001 स्थधयी ऱेखध सं./ PAN : AAACB4602L अपीऱार्थी ओर से / Assessee by Shri Prakash K Jotwani प्रत्यर्थी की ओर से/ Revenue by Shri Sanjeev Jain सुनवाई की तायीख / Date of Hearing :02.06.2016 घोषणा की तायीख /Date of Pronouncement :02.06.2016 आदेश / O R D E R PER BENCH:
This appeal of the assessee is directed against the order of CIT(A) dated 26.8.2014 for the assessment years 2010-11. 2. The only issue in this appeal of assessee is against the order of CIT(A) confirming the action of the AO in disallowing the claim of expenses treating the same as against exempt income by invoking the provisions of section 14A r.w.rule 8D of the Income tax Rules, 1962 (the Rules) amounting to Rs.9,68,111/-. In this appeal, the assessee has raised the following grounds:
2 6802/M/14 “1) (a) On the facts and circumstances of the case and in law the learned CIT(Appeal) erred in confirming the disallowance made by the Learned AO u/s 14A'. amounting to Rs.9,68,111/- as against Rs.1,00,042/- already disallowed by the assessee u/s 14A and adding it to the total income of the assessee . b) The learned CIT (Appeal) has erred in confirming the shares which are held as stock in trade as investment for the purpose of disallowance u/s 14A. The' Ld. CIT (Appeal) ought to have appreciated the fact that shares which are held as stock- in-trade are not to be treated as investment as per section 14A r.w.r 8D."
Brief facts relating to the issue are that the assessee is a Member of Bombay Stock Exchange, National Stock Exchange and MCX and engaged in the business of broking and sub-broking activities. During the year the assessee has claimed dividend income as exempt income amounting to Rs.1,20,841/-. The AO during the course of assessment proceedings following the decision of the Special Bench of the Tribunal rendered in the case of Daga Capital Management Pvt. Ltd. (2008) (26 SOT 603) (Mum)(SB) disallowed the expenses by invoking the provisions of section 14A r.w.rule 8D of the Income tax Rules, 1962 (the Rules) and amount of Rs.9,68,111/- over and above the expenses considered by the assessee at Rs.1,00,042/- vide para 4.5 of the order which reads as under (para 4.5 of AO): “4.5. It is pertinent to mention here that if quantum of disallowance u/s 14A r.w.8D works out to be more, it does not make such disallowance as unreliable or inconsequential. The method as prescribed by rule 8D works out disallowance not on basis of income earned which does not form part of total income, but on the basis of corresponding expenses and quantum 3 6802/M/14 of investments and also vis-à-vis quantum of investments as ratio of average assets.” Accordingly, he treated the interest expenditure as relatable to exempt income amounting to Rs.7,26,053/- an amount equal to one half per cent of the average of the value of investment, amounting to Rs.2,42,058/-. Thereby, the AO made further disallowance of Rs.8,68,069/-. Aggrieved by the order of the AO, the assessee preferred an appeal before the CIT(A). The CIT(A) simply by following the decision in the case of Daga Capital Management Pvt. Ltd. (supra) confirmed the action of the AO. Aggrieved by the order of CIT(A), the assessee is in second appeal before the Tribunal.
We have considered the rival contentions and perused the record placed before us. The ld. Counsel for the assessee filed complete working of disallowance considered by the assessee while filing the return of income of Rs.1,00,042. According to the ld. counsel, there is no finding given by the AO regarding incorrectness for the claim of the assessee. According to him this means that there is no satisfaction recorded by the AO for making disallowance under rule 8D. Furthermore the ld. Counsel for the assessee filed complete balance sheet and took us through Schedule-IX of the balance sheet wherein the income from operating activities is disclosed in respect of dividend income on equity shares amounting to Rs.1,20,841/-. According to it, this dividend income is a part of operating activities of the assessee. Further, according to the ld. 4 6802/M/14 Counsel these shares held as stock-in-trade on which dividend income is earned. Once the sharers are part of stock-in-trade and to prove this the assessee has filed balance sheet and profit and loss account which clearly proves that the dividend income is declared as part of operating activities of the assessee, in that eventuality, no disallowance can be made on account of the expenses relatable to exempt income by invoking the provisions of section 14A r.w.r.8D. When these facts were confronted to the ld. DR, he only relied on the orders of authorities below. We find from the above facts and from the accounts filed before us particularly Schedule–IX that gives details of income from operative activities wherein income from dividend on equity shares is disclosed. It means that the shares are held by the assessee as stock-in-trade and once the shares are held as stock-in-trade, there is no application of provisions section 14A r.w.r.8D. Accordingly, we delete the disallowance made by the AO and confirmed by the CIT(A). This issue of assessee’s appeal is allowed.
In the result, all the appeal of the assessee is allowed. Order pronounced in the open court on 2nd June, 2016 sd (RAJESH KUMAR) (MAHAVIR SINGH ) रेखा सदस्म / Accountant Member न्मायमक सदस्म / Judicial Member भुंफई Mumbai; ददनांक Dated : 02.06.2016 Sr.PS:SRL: