Case Law Details
Case Name : Multiplex Capital Ltd. Vs. ITO, (ITAT Delhi)
Appeal Number : ITA No. 571/D/2013
Date of Judgement/Order : 25/03/2015
Related Assessment Year :
Issue before tribunal:
Whether disallowance can be made under provision of Section 14 A read with Rule 8D on dividend income claimed under section 10 (34) of the Income-tax Act.
- Assessee was engaged in the business of share broking and filed its return of income declaring an income of Rs.5,48,588/-. During assessment proceedings, the A.O. observed that the assessee had earned exempt income.
- Assessee was explained to show cause and being satisfied with the reply of the assessee AO made disallowance u/s 14A.
Contention of the revenue:
- Non recording of satisfaction by A.O. cannot nullify the addition u/s 14A as the addition u/s 14A is a mandatory disallowance which has to be made in a case where the assessee had earned exempt income.
Contention of the assessee:
- No satisfaction recorded by A.O. and in this respect, the provisions of Section 14A were read. The case of the assessee is fully covered by the order of Hon’ble Delhi High Court in the case of CIT Vs Taikisha Engineering India Ltd. 54 Taxman.com 109 on this issue.
- Hon’ble Delhi High Court was followed by another order of Hon’ble Delhi High Court in the case of Joint Investments Pvt. Ltd. Vs CIT vide order dated 25.02.2015 in I.T.A. No. 117/2015.
- Assessee was engaged as registered broker and was registered with SEBI and was dealing in equity and F & O Market on behalf of the clients and on its own and the investment in shares has been declared as stock in trade. where the shares are held in stock in trade, no disallowance can be made u/s 14A and in this respect, our attention was invited to the decision of ITAT Kolkata Bench in the case of DCIT Vs. Baljit Securities Pvt. Ltd.T.A No.1183/Kol/2012.
Held by the Court:
- No effort has been made by AO to record his findings as to why the claim of assessee that no expenditure was incurred was not correct. He has made disallowance just by holding that some expenditure must have been incurred.
- Hon’ble Delhi High Court order (Supra), is applicable to the assessee and no disallowance u/s 14A was warranted.
- Moreover, we find that the assessee was holding shares as stock in trade and not as investments as is apparent from balance sheet of assessee and, therefore, also disallowance u/s 14A was not warranted as held in the case of DCIT Vs. Baljit Securities Pvt. Ltd.
The language of section 14A includes that AO must record a satisfaction if he was unsatisfied with any incorrect claim of the assessee. If he failed to record such a finding then it cannot be said that he rightly invoked provision of section 14A.