Case Law Details
Wealth First Portfolio Managers Pvt. Ltd. Vs DCIT (ITAT Ahmedabad)
ITAT Ahmedabad held that the applicability of Section 14A is triggered when the shares are held as ‘stock-in-trade’ and by virtue of section 10(34) dividend income is not to be included in total income and is exempt from tax.
Facts- The assessee is engaged in the business of trading in shares and bonds, earning brokerage income, other stock broker services etc. and is a Member of the Bombay Stock Exchange. During the course of assessment, AO observed that assessee has earned exempt income of Rs. 1,77,00,024/-. The assessee, in the return of income, made a suo moto disallowance of Rs. 75,488/- u/s. 14A of the Act. AO observed that the assessee had claimed total interest expenditure of Rs. 2,53,72,667/-, which is not attributable to any particular of income of the assessee. AO observed that in the instant case the assessee has not maintained any separate account and nor furnished any documentary evidence of expenses towards earning exempt income. Accordingly, AO made a disallowance of Rs. 2,04,57,396/- u/s. 14A of the Act r.w.s. 8D.
CIT(A) restricted the disallowance u/s. 14A of the Act to the amount of extent of exempt income earned by the assessee.
Conclusion- Hon’ble Supreme Court in the case of Maxopp Investment Ltd. has held that when the shares are held as ‘stock-in-trade’, by virtue of Section 10 (34) of the Act, this dividend income is not to be included in the total income and is exempt from tax, which triggers the applicability of Section 14A of the Act which is based on the theory of apportionment of expenditure between taxable and non-taxable income as held in Walfort Share & Stock Brokers (P.) Ltd. case.
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