Search Results For: 14A


QUERY: The assessee filed his return of income for A.Y. 2008-09 returning profit on sale of shares/units of mutual funds under the head ‘Income from Business’. The Assessing Officer completed the assessment u/s. 143(3) by reclassifying transactions of purchase and sale during the same day as Speculative Transactions. He did not allow interest claimed which was debited to P & L Account. Subsequently, he issued a notice u/s. 154 of the Act proposing to disallow interest claimed u/s. 14A on the ground that assessee has also earned dividend income. The assessee responded to the show cause by stating that this is not mistake apparent on the record but without prejudice also enclosed with the letter a working amount disallowable under Rule 8D. Subsequently, on the oral request of the AO, a further letter was filed giving consent to the AO to pass an order u/s. 154 and disallow amount u/s. 14A. The AO instead of disallowing the amount as per working filed, disallowed the entire amount debited to P & L Account. Can the assessee now file an appeal on the ground that the consent cannot confer jurisdiction on the AO when there is none under the statute? Kindly explain the principle that there is no estoppels against law.
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Yes, the right of appeal has been specially conferred on the assessee by the statute and it is unfettered right which cannot be taken away by any understanding.

QUERY: What is the implication of section 14A vis-a vis holding of shares, if

(i) No tax free dividend is received at all during the year.

(ii) Shares are held as stock-in-trade

(iii) Shares are held solely and exclusively as a promoter and for controlling interest.

(iv) The assessee had obtained loan but the funds are mixed.
ANSWER: Click here to read the full answer of the expert
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(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.

QUERY: 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.
ANSWER: Click here to read the full answer of the expert
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• 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

QUERY: An assessee is in receipt of interest & Remuneration income from various partnership firms and claims interest & Depreciation as expenditure from such income. Can a disallowance u/s. 14A be made by AO?
ANSWER: Click here to read the full answer of the expert
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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.

QUERY: An assessee is in receipt of interest & remuneration income from various partnership firms and claims interest & depreciation as expenditure from such income. Can a disallowance u/s. 14A be made by A.O.?
ANSWER: Click here to read the full answer of the expert
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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.