No disallowance u/s. 14A on shares held as stock-in-trade

Brief of the Case

The assessee is engaged in the business of trading in shares. dividend income was earned by the assessee on the shares held as stock-in-trade. Assessing Officer made disallowance u/s. 14A r.w. Rule 8D of the Income Tax Rules, on the tax free income earned by the assessee. Thus ITAT pronounced its ruling over with refence to various case law that No disallowance u/s. 14A r.w. Rule 8D can be made on shares held as stock-in-trade.

Facts of the Case

The brief facts of the case as emanating from the records are: The assessee is engaged in the business of trading in shares. The assessee filed his return of income for the assessment year2012-13 on 28-09-20 12 declaring total income at 1,73,590/-. Thereafter, the assessee filed revised return of income on 06-02-20 13. However, there was no change in the total income declared. The case of the assessee was selected for scrutiny and accordingly notice u/s. 143(2) was issued to the assessee on 06-08-20 13. During the period relevant to the assessment year 2012-13, the assessee had earned dividend income of 12,04,572/-. The said dividend income was earned by the assessee on the shares held as stock-in-trade. During the course of scrutiny assessment proceedings, the Assessing Officer made disallowance of 46,89,748.83/- u/s. 14A r.w. Rule 8D of the Income Tax Rules, on the tax free income earned by the assessee. Aggrieved by the assessment order dated 23-01-2015, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). Before the Commissioner of Income Tax (Appeals) the assessee stated that the Tribunal in ITA No. 1903/PN/2013 in assessee’s own case for assessment year 2010-11 decided on 04-09-2015 has held that no disallowance u/s. 14A r.w. Rule 8D can be made on dividend income from shares held as stock-in-trade. However, the Commissioner of Income Tax (Appeals) disregarding the order of Tribunal passed in assessee’s own case, followed the decision of Mumbai Bench of the Tribunal in the case of HDFC Bank Ltd. Vs. DCIT in ITA No. 374/Mum/2012 decided on 23-09-2015 and rejected the claim of the assessee. Against the findings of the Commissioner of Income Tax (Appeals), the assessee is in appeal before the Tribunal.

Contentions of the Assessee

Shri S.K. Tyagi appearing on behalf of the assessee submitted that the Commissioner of Income Tax (Appeals) has committed an error in not following the judicial discipline by ignoring the order of Tribunal in assessee’s own case on identical issue in the earlier assessment year. The ld. AR submitted that the Tribunal in assessee’s own case for assessment year 2010-11 had upheld the order of Commissioner of Income Tax (Appeals) in deleting the addition made u/s. 14A r.w. Rule 8D on the dividend income from shares held as stock-in-trade. The ld. AR further submitted that the order of Mumbai Bench of the Tribunal in the case of HDFC Bank Ltd. Vs. DCIT (supra) on which the Commissioner of Income Tax (Appeals) has placed reliance has been reversed by the Hon’ble Bombay High Court in Writ Petition No. 1753 of 2016 title HDFC Bank Ltd. Vs. DCIT decided on 25-02-2016. The ld. AR submitted that the Commissioner of Income Tax (Appeals) should have followed the order of Tribunal passed under identical set of facts rather than distinguishing the same. The ld. AR on the issue of judicial proprietary placed reliance on the following decisions:

1. Bhopal Sugar Industries Ltd. Vs. ITO, 40 ITR 618 (SC);
2. Union of India and Others Vs. Kamalakshmi Finance, AIR 1992 SC 711;
3. Eagle Flask Industries Ltd. Vs. Dy. CIT, 72 ITD 455 (Pune);
4. ICICI Prudential Life Insurance Co. Ltd. Vs. CIT, 110 DTR 315 (Bom).

Contentions of the Revenue

On the other hand Shri Pankaj Garg representing the Department fairly admitted that the issue raised in the present appeal is identical to the issue adjudicated by the Tribunal in assessee’s own case in ITA No. 1903/PN/2013 for assessment year 2010-11.

Held by Hon’ble ITAT

It was observe that the Commissioner of Income Tax (Appeals) has erred in not following the order of Tribunal in asessee’s own case. The Co-ordinate Bench of the Tribunal had rejected the appeal of Department for assessment year 2010-11 on identical set of facts. The Commissioner of Income Tax (Appeals) should have maintained ‘Judicial Propriety’ in following the order of Appellate Authority. As of now we restrain ourselves from commenting on the judicial indiscipline committed by the Commissioner of Income Tax (Appeals) and expect that he shall be more careful in future in honouring the orders of the higher Appellate Authorities.

In view of the facts of the case and documents on record the impugned order is set aside disallowance of Rs. 46,89,749/- u/s. 14A r.w. Rule 8D is deleted and the appeal of the assessee is allowed.