While hearing the case of M/s Safe Enterprises, Mumbai bench of Income Tax Appellate Tribunal ( ITAT ) recently ruled that the Shares are held as stock-in-trade do not attract disallowance under section 14A of Income Tax Act 1961.
The assessee in the instant case engaged in the business of purchase and sale of shares. The Assessee debited expenses amounting to Rs. 44,00,677 on account of income earned from shares which are generated from shares in its returns and also claimed exemption on the same.
During the assessment period, the Assessing Officer (AO) disallowed the claim of the Assessee on expenses incurred on account of dividend income earned from shares under section 14A of the Act read with Rule 8D(2)(iii) by holding that the expenses debited to Profit & Loss account does not have any direct nexus with the earning of exempted income.
On appeal, the CIT(A) granted partial relief to the Assessee by restricting the disallowance to Rs.2,05,975. Aggrieved by the order of the first appellate authority, the Assessee approached the Tribunal on the second appeal.
Before the Tribunal bench, the counsel for the Assessee Advocate M.M. Golvala submitted that the expenses incurred by the Assessee have a direct nexus with the earning of dividend income which was actually generated from shares held as stock-in-trade. Further, he submitted that no disallowance is warranted, in case shares were held as stock-in-trade with the support of the order of Bombay High Court in a similar issue.
After considering the rival submissions of both the parties, the Tribunal bench comprising of Judicial Member Mahavir Singh and Accountant Member N.K.Pradhan observed that “disallowance cannot be made under section 14A of the Act where the shares are held as stock-in-trade. Therefore the bench directed the AO to exclude stock-in-trade by way of shares and then compute the disallowance under Rule 8D(2)(iii).”
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