DCIT 7(2), MUMBAI vs. SRK BUSINESS VENTURE P.LTD, MUMBAI

The Revenue, in this appeal, is aggrieved by the action of the CIT(A) in restricting the disallowance u/s.14A r.w.Rule 8D(2)(i) at Rs.69,063/- as against disallowance of Rs.30,57,179/- made by the AO.

The facts in brief are that during the relevant previous year, the assessee received exempt income being dividend of Rs.37,942/-. During the course of assessment proceedings, the AO asked the assessee as to why the disallowance of interest and other expenditure should not be made u/s.14A. In response to this, the assessee filed his reply, however, the AO was not satisfied with the explanation of the assessee in this regard and disallowed Rs.30,57,179/-. In appeal, the CIT(A) restricted the disallowance to Rs.69,063/- observing as under :-

“ 6. The appellant has submitted that details were given to the AO in the form of Annexure-3 which shows that the shares were stock-in-trade which are mostly derivatives. However, a copy of annexure-3 was not filed by the appellant. In view of this, I have gone through the assessment folder and noted that AO vide order sheet notice dated 24.11.2011 given the opportunity to the assessee for substantiating the claim that shares were stock in trade. The assessee vide letter dated 25.11.2011 has furnished the same by giving details of stock statement. However, there is no bifurcation of the same as investment and stock-in-trade. In view of this, it cannot be derived that appellant has not incurred expenses towards earning of dividend on its investments. The appellant fails on this count. 6.1 Now coming to the alternative submissions of that out of total Securities Transaction Tax (STT) of Rs.30,17,923/- paid for derivatives itself is Rs.29,47,477/- and it is only STT of Rs.69,063/- which pertains the transactions of sale or purchase of shares and which have not been treated as stock-in-trade by the appellant also. In view of this, I am in agreement with the appellant in principle that STT relating to share transaction only at the most can be disallowed u/r 8D r.w.s14A. Accordingly, AO directed to reworkout disallowance u/r.8D by taking STT of Rs.69,063/- which is directly related to share transaction on which dividend has been earned. In the result, ground No.3 is partly allowed.”

We have considered the rival submissions of both the parties and carefully gone through the orders of revenue authorities. The Ld. A.R. has relied upon the decision of the Hon’ble Bombay High Court in the case of “CIT vs. India Advantage Securities Ltd.” in of 2013 vide order dated 17.03.2015 wherein the Hon’ble Bombay High Court has upheld the finding of the Tribunal holding that while making the disallowance under rule 8D, the shares held as stock in trade should not be considered, only the shares taken as investment in the account be considered for computation of disallowance of expenditure under rule 8D.

In view of the above, it cannot be said that the STT paid by the assessee for shares held in stock in trade is liable to be considered for disallowance of direct expenditure under rule 8D2(1) of the Act. The said STT paid by the assessee was in relation to the share trading business of the assessee. We, therefore, do not find any infirmity in the order of the Ld. CIT(A) in restricting the disallowance of direct expenditure to the extent of STT paid in relation to the shares held as investment.