No Disallowance with respect to Exempt Income can be made if the Securities are held as Stock-in-Trade: Calcutta HC [Read Order]


In CIT v. M/s. G K K Capital Markets (P) Limited, the division bench of the Calcutta High Court held that no disallowance under section 14A  r/w Rule 8D can be made with respect to exempt income if the securities are held as stock-in-trade. The decision was based on the CBDT Circular No. 5/2014 dated 11.02.2014.

The bench was hearing an appeal preferred by the Revenue challenging the order of the ITAT wherein the Tribunal allowed relief to the assessee on ground that the assessee does not have any investment and all the shares are held as stock in trade.

The Revenue submitted that in the computation of total income the assessee had claimed Rs.25,68,04,353/- as long term capital gain being exempt income. Applying Rule 8D the Assessing Officer had computed disallowance under Section 14A the Income Tax Act and the same was erroneously deleted by the Tribunal.

On behalf of the assessee, it was contended that the Assessing Officer had treated the claim of long term capital gain as business income. The assessee did not object to that. In such situation there could be no application of Section 14A  of the Income Tax Act for disallowance of expenditure incurred to earn exempt income.

The bench, while dismissing the appeal, held that “We also do not find the Revenue had urged that the expenditure being disallowed was in relation to exempt income not arising in the previous year for application of the said circular to be considered. The Assessing Officer had accepted the correctness of the disallowable expenditure offered by the assessee on its claim of Rs.25,68,04,353/- as long term capital gain. He did not allow the claim itself treating the said amount as business income to thereafter disallow the offered expenditure.”

Read the full text of the order below.