In Teja Construction vs. ACIT [39 SOT 13] the Hyderabad Tribunal has observed as under:
“Once the books of account are rejected, income is estimated, the Assessing Officer precluded from invoking any other provisions of the Income-tax Act to make further addition.
Yes, recently the Mumbai Tribunal in Jitendra Mansukhlal Shah Vs. DCIT [ITA Nos 2293 & 2294/Mum/2013 dated March 04,2015] has held that, the assessee having made the payment, section 40a(ia) cannot be attracted because it speaks of the amount “payable” and it does not cover the amount already paid. The ITAT Chennai Benches have taken into consideration the decision of the ITAT Special Bench in Merilyan Shipping & Transport (supra),
(i) In Shankar Chemicals Works vs. DCIT [47 SOT 121], the Ahmedabad Tribunal has held that, if any expenditure has been incurred for earning exempt income, same has to be disallowed even if there is no actual earning of any exempt income. If interest bearing borrowed funds are utilised for purpose of investment in shares and there is no receipt of dividend income or if there is only meagre dividend income, even then whole amount of interest expenditure incurred for this purpose will be subject to disallowance under section 14A because the same has been incurred for earning exempt income.
|Mr. S. is holding certain shares on investment account as well as stock-in-trade. For A.Y. 2013-14, he has not received any dividend income on the shares held as investment.
A. The Assessing Officer wants to invoke section 14A read with Rule 8D with respect to all the shares. Mr. S. wants to know:
(i) Whether section 14A applies when the shares are held as stock-in-trade?
(ii) Whether section 14A applies when no tax free dividend income is received during the year?
B. The Dept. now intend to apply/follow the Circular No. 5/2014 dated February 11, 2014 issued by the CBDT, as per which the disallowance u/s. 14A is required to be made even in absence of any exempt income received during the year.
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|CA. H. N. Motiwalla
|disallowance, dividend income, exempt income
• As per ITO v. Daga Capital Management Pvt. Ltd [312 ITR (AT) Mumbai (SB)], section 14A is applicable to both i.e. when the shares are held as stock-in-trade and investment.
• In Godrej and Boyce Mfg Co. Ltd. v. DCIT [328 ITR 81] the Bombay High Court has held that the expression
If the assessee has borrowed the amount and invested in the firm, where from he receives, remuneration and share of profit, then, the Assessing Officer is justified in making disallowance u/s. 14A proportionately.