In DCIT v. M/s. Kredent Brokerage Services Pvt Ltd, the division bench of the Kolkata ITAT held that disallowance under section 14A of the Income Tax Act cannot be made in case of dividend income accrued from shares kept as stock in trade and not from shares kept as investment.
Assessee, a Stock Broker earned dividend income of Rs.5,99,321/- which does not form part of the total income under the IT Act. The AO disallowed expenses incurred by assessee by invoking section 14A of the Income Tax Act.
On appeal, the first appellate authority allowed assessees’ contentions that the entire dividend income has been earned by the appellant from shares held as stock-in-trade. No dividend has been earned on the share held as investment.
The division bench of the Tribunal noticed that in the case of CIT vs GKK Capital Markets (P)Ltd, the Calcutta High court held that the shares held as stock in trade and the expenses in relation to shares so held cannot be disallowed u/s 14A of the Act.
Dismissing the departmental appea, the bench said that “in view of the aforesaid decision and the decision of the ITAT in assessee’s own case, we are of the view that order of CIT(A) on this issue does not call for any interference. We also notice that disallowance of interest expenses under Rule 8D (2)(ii) cannot be sustained for the reason that the assessee had enough own funds which can be attributable to the investments in shares which are likely to yield tax free income. In such a scenario interest expenses have to be considered as not attributable to earn exempt dividend income.”
Read the full text of the Order below.
