IN INCOME TAX APPELLATE TRIBUNAL BENCH, PUNE BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM ITA No. 1557/PN/2014 Assessment Year : 2008-09 AKP Associates, S. No. 1A, Irani Market Compound, Yerawada, Pune-411006 PAN : AAMFA2406N Appellant V/s. Addl. Commissioner of Income Tax, Range 2, Pune Respondent ITA Nos. 1558 & 1559/PN/2014 Assessment Years : 2009-10 & 2010-11 AKP Associates, S. No. 1A, Irani Market Compound, Yerawada, Pune-411006 PAN : AAMFA2406N Appellant V/s. Dy. Commissioner of Income Tax, Circle - 2, Pune Respondent Assessee by : Shri C.H. Naniwadekar Revenue by : Shri Rajeev Kumar Date of Hearing : 26-09-2016 Date of Pronouncement : 28-09-2016 2 ITA Nos. 1557, 1558 & 1559/PN/2014, A.Ys. 2008-09, 2009-10 & 2010-11 ORDER PER VIKAS AWASTHY, JM : These appeals by assessee are directed against order of Commissioner of Income Tax (Appeals)-II, Pune dated 30-04-2014 common for assessment years 2008-09, 2009-10 and 2010-11. solitary issue raised by assessee in all three appeals is against additional disallowance made u/s. 14A of Income Tax Act, 1961 (hereinafter referred to as Act ) r.w. Rule 8D in respect of dividend income earned by assessee on shares and mutual funds held as stock-in-trade. 2. brief facts of case as emanating from records are: assessee is engaged in business of trading and dealing of shares, mutual funds, bonds and derivatives. During impugned assessment years assessee received dividend income on shares held as stock-in-trade. Assessment Year Dividend Income 2008-09 `92,55,832/- 2009-10 `46,06,943/- 2010-11 `45,28,366/- assessee made disallowance u/s. 14A in three impugned assessment years as follows : 3 ITA Nos. 1557, 1558 & 1559/PN/2014, A.Ys. 2008-09, 2009-10 & 2010-11 Assessment Year Disallowance u/s. 14A 2008-09 `15,592/- 2009-10 `45,000/- 2010-11 `18,000 Assessing Officer during course of assessment proceedings made disallowance under provisions of section 14A r.w. Rule 8D as under : Assessment Year Disallowance u/s. 14A r.w. Rule 8D made by A.O. 2008-09 `8,61,690/- 2009-10 `7,69,897/- 2010-11 `8,60,942/- Aggrieved by additional disallowance made by Assessing Officer, assessee preferred appeals before Commissioner of Income Tax (Appeals) for respective assessment years. Commissioner of Income Tax (Appeals) upheld findings of Assessing Officer. Now, assessee is in second appeal before Tribunal. 3. Shri C.H. Naniwadekar appearing on behalf of assessee submitted that assessee is engaged in business of trading in shares, mutual funds, bonds and derivatives. assessee purchase and sell shares on delivery as well as non-delivery basis. During period relevant to assessment years under appeal, assessee received dividend income on shares held as stock-in-trade. 4 ITA Nos. 1557, 1558 & 1559/PN/2014, A.Ys. 2008-09, 2009-10 & 2010-11 dividend income received by assessee is incidental to business of trading in shares. Hon'ble Bombay High Court in case of CIT Vs. India Advantage Securities Ltd. reported as 380 ITR 471 has held that no disallowance u/s. 14A is to be made on shares held as stock-in- trade. ld. AR further submitted that Mumbai Bench of Tribunal in case of Fiduciary Shares & Stock (P.) Ltd. Vs. Assistant Commissioner of Income Tax reported as 159 ITD 554 has reiterated law laid down by Hon'ble Jurisdictional High Court. Commissioner of Income Tax (Appeals) has erred in upholding findings of Assessing Officer by placing reliance on decision in case of DCIT Vs. D.H. Securities (P.) Ltd. reported as 99 DTR (Mumbai) (TM) 298. Hon'ble Karnataka High Court in case of CCI Ltd. Vs. JCIT reported as 71 DTR 141 and Hon'ble Allahabad High Court in case of Additional Commissioner of Income Tax Vs. M/s. Dhampur Sugar Mill reported as 370 ITR 194 have held that no disallowance u/s. 14A is to be made where securities and shares are held as stock-in-trade or investment is made for business purpose. 4. On other hand Shri Rajeev Kumar representing Department vehemently supported findings of Commissioner of Income Tax (Appeals) and prayed for dismissing appeals of assessee. 5. We have heard submissions made by representatives of rival sides and have perused orders of authorities below. only issue raised in all three appeals is additional disallowance made u/s. 14A r.w. Rule 8D in respect of dividend income on shares 5 ITA Nos. 1557, 1558 & 1559/PN/2014, A.Ys. 2008-09, 2009-10 & 2010-11 and mutual funds held by assessee as stock-in-trade. It is undisputed fact that shares and mutual funds held by assessee are for trading purpose and are stock-in-trade of assessee. It is not case of Revenue that any part of shares, mutual funds etc. are held by assessee as investment. assessee has earned dividend income on shares and mutual funds held as stock-in-trade. 6. We find that issue raised in present set of appeals is identical to one adjudicated by Co-ordinate Bench of Tribunal in case of Kunal Polymers Pvt. Ltd. Vs. Dy. Commissioner of Income Tax in ITA No. 1859/PN/2012 for assessment year 2008-09 decided on 15-07-2015. relevant extract of findings of Tribunal are as under : 10. fifth ground raised in appeal by assessee is with respect to disallowance made u/s. 14A r.w. Rule 8D on shares held as stock-in-trade. assessee has offered dividend income from shares held as stock-in-trade as business income. treatment given by assessee to dividend income is against provisions of section 10(23F). dividend income has been specifically excluded in Act, thus, it does not form part of total income. question before us is : Whether disallowance u/s. 14A is to be made on dividend received on shares held as stock in trade ? It is undisputed fact that shares are held by assessee as stock-in-trade. assessee has earned dividend income on such shares. assessee has not held shares for earning dividend income. Dividend income is incidental to share trading business of assessee. Thus, no disallowance u/s. 14A is warranted on dividend earned on shares held as stock-in-trade. Our view is fortified by decision of Mumbai Bench of Tribunal in ITA No. 6711/Mum/2011 in case of DCIT Vs. M/s. India Advantage Securities Ltd. for assessment year 2008-09 decided on 14-09-2012. In said case, assessee had received dividend income of Rs.1,40,859/- on shares 6 ITA Nos. 1557, 1558 & 1559/PN/2014, A.Ys. 2008-09, 2009-10 & 2010-11 shown as stock-in-trade in books of account of assessee. assessee had not made any disallowance of expenses relating to exempt income. Assessing Officer made disallowance u/s. 14A r.w. Rule 8D. Commissioner of Income Tax (Appeals) held that disallowance under Rule 8D could be made only with respect to investment and not in stock-in-trade. Revenue preferred appeal before Tribunal against order of Commissioner of Income Tax (Appeals). Tribunal by placing reliance on judgment of Hon'ble Karnataka High Court in case of CCI Ltd. Vs. JCIT reported as 250 CTR 291 held that no disallowance u/s. 14A is to be made in relation to shares held as stock- in-trade. order of Tribunal was challenged by Department before Hon'ble Bombay High Court in Income Tax Appeal No. 1131 of 2013. Hon'ble High Court dismissed appeal of Revenue vide order dated April 13, 2015 thus, confirming findings of Tribunal. In view of fact that Hon'ble Jurisdictional High Court has upheld view taken by Tribunal that provisions of section 14A r.w. Rule 8D would not apply on shares held as stock-in-trade, disallowance u/s. 14A in present case would not sustain. Accordingly, we accept this ground of appeal of assessee and direct Assessing Officer to delete disallowance made u/s. 14A of Act. 7. Hon'ble Karnataka High Court in case of CCI Ltd. Vs. JCIT (supra) has held that when no expenditure has been incurred by assessee in earning dividend income no notional expenditure could be deducted from said income. Hon'ble High Court further held that when assessee has not retained shares with intention of earning dividend and dividend income is incidental to business of sale of shares no disallowance u/s. 14A of Act is to be made. 7 ITA Nos. 1557, 1558 & 1559/PN/2014, A.Ys. 2008-09, 2009-10 & 2010-11 8. Thus, in view of undisputed facts of case and law laid down by Hon'ble Jurisdictional High Court, impugned order is set aside and appeals of assessee are allowed. 9. In result, appeals of assessee are allowed. Order pronounced on Wednesday, 28th day of September, 2016. Sd/- Sd/- (R.K. Panda) (Vikas Awasthy) ACCOUNTANT MEMBER JUDICIAL MEMBER Pune; Dated : 28th September, 2016 RK Copy of Order forwarded to : 1. Appellant. 2. Respondent. 3. CIT(A)-II, Pune 4. CIT-II, Pune 5. DR, ITAT, Bench, Pune. 6. Guard File. // True Copy// BY ORDER, Private Secretary, ITAT, Pune AKP Associates v. Addl. Commissioner of Income-tax, Range 2, Pune