INCOME TAX ACT, 1961

Section 14A Section 8D

Disallowance under section 14A - Expenditure against exempt income - Shares held as stock-in-trade -

AO made a disallowance of 2% of exempt income invoking the provisions of section 14A read with rule 8D of the IT Rules rejecting the contention of the assessee that no expenditure was incurred to earn the exempt income as the employees, who were employed to carry out banking activity were used in the activities related to the earning of the exempt income. Even on appeal before CIT(A), the same came to be confirmed. Assessee contended that the provisions of section 14A had no application to the shares and stock held as stock-in-trade. It is further contended that in the absence of finding by the AO as to how the contention of the assessee that no expenditure was incurred is incorrect, no disallowance should be made. Held: It cannot be said that the AO had not recorded finding as to the satisfaction reached by him about the contention of the assessee that the assessee had not incurred any expenditure. In the light of this finding by the AO, the contentions urged by the assessee-bank that resort cannot be made to the provisions of section 14A cannot be accepted. The Supreme Court in the case of Maxopp Investment Ltd. v. CIT (2018) 402 ITR 640 (SC) : 2018 TaxPub(DT) 1403 (SC) had clearly held that whether the shares were held as stock-in-trade or to maintain a controlling interest in the company was irrelevant for disallowance under section 14A. The contention of the assessee that the resort to provisions of section 14A cannot be made when the shares were held as stock-in-trade was rejected. The approach of the AO in making a disallowance @ 2% of exempt income was also approved by the jurisdictional High Court in the case of Simpson & Co. Ltd. T/C. No. 2621 of 2006, dated 15-10-2012.

Followed:Maxoop Investment Ltd. (2018) 402 ITR 640 (SC) : 2018 TaxPubn(DT) 1403 (SC). Distinguished:CCI Ltd. v. CIT (2012) 206 Taxman 563 (Karn) : 2012 TaxPub(DT) 1786 (Karn-HC), ITA Nos. 1523 & 1524 Order, dated 17-10-2012 and Karur Vysya Bank Ltd. [ITA Nos. 2325 & 2326/Mds/2016, ITA Nos. 2433 & 2649/Mds/2016, dt. 29-3-2017] & Vijaya Bank in [ITA No. 578/Bang/2012, ITA No. 653/Bang/2012, dt. 27-2-2015]. Relied:Simpson & Co. Ltd. T/C. No. 2621 of 2006, dated 15-10-2012.

REFERRED :

FAVOUR : Against the assessee.

A.Y. : 2007-08

INCOME TAX ACT, 1961

Section 36(1)(ii) Section 37(1)

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