Shares held as stock-in-trade needs to be considered for Section 14A disallowance

Gajanan Enterprises Vs ACIT (ITAT Mumbai)

Admittedly, the exempt income yielding shares were held by the assessee as stock-in-trade. Although, the opening stock of inventories as on 01.04.2013 was reflected at Rs. 21,46,64,955/-, however, the same as on 31.03.2014 stood reduced to nil. In sum and substance, the stock of shares which were held by the assessee as on 01.04.2013 were liquidated during the year under consideration, and no part of the same was reflected in its closing stock as on 31.03.2014. However, in our considered view, the aforesaid factual position would principally have no bearing on the computing of the disallowance under Sec. 14A r.w. Rule 8D. We find that it is the claim of the Ld. A.R that as the exempt dividend income yielding shares were held by the assessee company as ^„stock-in-trade‟, therefore, no disallowance under Sec. 14A r.w. Rule 8D was called for in its case. In our considered view, the aforesaid contention of the Ld. A.R is absolutely misconceived and cannot be accepted. On a perusal of judgment of the Hon’ble Supreme Court in the case of Maxopp Investment Ltd. Vs. CIT, New Delhi, we find, that the Hon‟ble Apex Court had disapproved the dominant purpose test that was pressed into service by the assessee for the purpose of interpreting the scope and gamut of Sec. 14A of the Act. Infact, the Hon‟ble Court had subscribed to the theory of the apportionment which was made available by the legislature by inserting Sec. 14A vide the Finance (Amendment) Act, 2001 with retrospective affect from 01.04.1962. In the aforesaid judgment, the Hon‟ble Apex Court had inter alia observed that where shares are held by an assessee as stock-in-trade, the earning of exempt dividend income on the same would trigger the applicability of Sec. 14A of the Act.

Aoordingly shares which were held by the assessee as stock-in-trade were to be considered for the purpose of computing the disallowance under Sec. 14A of the Act.

FULL TEXT OF THE ITAT JUDGMENT

The present appeal filed by the assessee is directed against the order passed by the CIT(A)-56, Mumbai, dated 29.08.2018, which in turn arises from the order passed by the A.O under Sec. 143(3) of the Income Tax Act, 1961 (for short ^„Act’), dated 15.12.2016 for A.Y. 2014­15. The assessee has assailed the impugned order on the following grounds of appeal before us :-

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