The Income Tax Appellate Tribunal (ITAT) in the case of Gajanan Enterprises vs. ACIT held that the dividend which is derived from the Shares which are ‘stock in shares’ will not be computed in the total income and disallowance under Section 14A of Income Tax is sustainable.
The facts of the case is that the Gajanan Enterprises is a firm that is engaged in the trading of shares and security filed its return of income under income tax. Further on conducting an assessment the Assessing Officer got to know that the assessee firm has earned exempt dividend income. On finding this the Assessing Officer called the assessee and asked for an explanation, the assessee in reply stated that as the assessee was engaged in the business of trading of shares and security the provisions of disallowance i.e Section 14A is not applicable on it.
The issue raised was whether the income earned in the form of dividends out of the investment on Stock-in-trade should be considered for the purpose of computing the disallowance under Section 14A or not?
The ITAT bench comprising of Judicial Member Ravish Sood and Accountant Member S. Rifaur Rahman, in the light of the decisions given by the Supreme Court in the case of Maxopp Investment Ltd. vs. CIT, dismissed the appeal saying that the exempted income in the form of dividend of shares were held by the assessee as a ‘stock-in-trade’ and further the stock of shares held by the assessee were in the form of liquid and it was not reflected in ‘closing stock’ too. Therefore, keeping in mind all the facts on record held that the provision i.e. Section 14A of Income Tax relating to the disallowance is not sustainable.
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