Brief of the Case
ITAT Kolkata held In the case of DCIT vs. M/s G.K.K. Capital Markets (P) Limited that in case AO has not recorded satisfaction about the correctness of the claim of the assessee and straight away calculated the disallowance u/s 14A read with rule 8D, this disallowance is not maintainable.
Also it is clear that the AO could not find any fault in the computation of disallowance made by assessee and the assessee does not have any investment and all the shares are held as stock in trade, as is evident from the orders of the lower authorities. Once, the assessee has kept the shares as stock in trade, the rule 8D will not apply.
Facts of the Case
The assessee is in the business of share trading. The assessee declared short term capital gains arising from shares as business income but declared the profit arising from the transaction of shares as long term capital gains also. The assessee also declared dividend income. The AO assessed short term capital gain as well as long term capital gains as business income. To this, the assessee has not objected. The assessee objected only against disallowance of interest and disallowance of average value of investment made by AO by invoking the provisions of section 14A read with rule 8D of the I. T. Rules, 1962.
Contention of the Assessee
The ld counsel of the assessee submitted that there is no satisfaction recorded by the AO for invoking the provisions of section 14A read with Rule 8D of the Rules. Further he stated that this issue is now covered by the decision of Hon’ble jurisdictional High Court in the case of CIT Vs. R.E.I. Agro Ltd. in GA 3022 of 2013, ITAT 161 of 2013 dated 23.12.2013, wherein the order of Tribunal in DCIT Vs. R.E.I. Agro Ltd. of ITA No. 1811/Kol/2012 for AY 2009-10 dated 14.05.2013 was confirmed. It was held in this case that “ From the facts of the present case it is noticed that the AO has not considered the claim of the assessee and straight away embarked upon computing disallowance under Rule 8D of the Rules on presuming the average value of investment at ½% of the total value. In view of the above and respectfully following the coordinate bench decision in the case of JK Investors (Bombay) Ltd, New Vs. ACIT (ITAT Mumbai), we uphold the order of CIT (A). This ground of appeal of revenue is dismissed.”
Held by CIT (A)
The CIT (A) allows the assessee appeal and deletes the disallowance made by the AO. It was held that there are expenses incurred for earning dividend income as well as earning of the business income. The dividend income may not involve separate/direct expenses but indirect expenses are there in purchasing those shares and other administrative expenses in the earning of income. The section 14A does not take care of only direct expenses but indirect expenses are also to be allocated to the exempted income. There may not be any investments for making Rule 8D applicable in the facts of the appellant. Rule 8D is a method prescribed when the dividend income is earned from investments. The appellant has submitted that a proportionate amount of the assessee’s business expenditure may be held related to the earning of dividend income and we offer for disallowance the amount calculated in terms of clause (iii) of Rule 8D only amounting to Rs.37,28,966/-.The disallowance made by the appellant amounting to Rs.37,28,960/- is upheld to be fair and reasonable u/s. 14A. Therefore, this ground of appeal is partly allowed. The disallowance u/s. 14A is restricted to Rs.37,28,966/- and the addition of Rs.8,46,20,989/- made as per Rule 8D2(ii) and Rule 8D2(iii) is hereby deleted.
Held by ITAT
Apart from the contention of the assessee that no satisfaction has been recorded by the AO before making disallowance u/s 14A, it is clear that the assessee had made disallowance itself for an amount of Rs.37,28,966/- and filed computation of disallowance as per rule 8D of the Rules. The AO could not find any fault in the computation of disallowance made by assessee and secondly, the assessee does not have any investment and all the shares are held as stock in trade, as is evident from the orders of the lower authorities. Once, the assessee has kept the shares as stock in trade, the rule 8D will not apply. Hence, the assessee’s case is covered by jurisdictional High Court by the case law of R.E.I. Agro Ltd. GA 3022 of 2013, ITAT 161 of 2013 dated 23.12.2013, and also on merits.
Accordingly, appeal of the revenue dismissed.