ACIT vs. Af-taab Investment Company Limited (ITAT Mumbai)

DATE: November 16, 2017 (Date of pronouncement)
DATE: November 30, 2017 (Date of publication)
AY: 2010-11
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S. 14A/ Rule 8D: Imp principles law down reg (i) disallowance for single segment companies being investors and dealers in shares and having to incur all business expenses under normal circumstances, (ii) strategic investments, (iii) securities held as stock-in-trade, (iv) inclusion of securities which have not yielded any exempt income and (v) whether diminution in value of securities constitutes "expenditure" for disallowance

(i) Strategic investments/stock in trade have to be excluded for computing disallowance under 14A;

(ii) The AO should keep in mind that the assessee is a single segment company being an investor and dealer in shares & securities and consequently all the business expenses ought to have been incurred towards this segment under normal circumstances unless otherwise shown;

(iii) Only those investments which have yielded exempt income shall be considered for computing average value of investment for the purposes of Rule 8D(2)(iii) keeping in view ratio of decision of Special Bench of the tribunal in the case of ACIT v. Vireet Investment P Ltd. reported in (2017) 82 415 (Delhi-trib.)(SB);

(iv) Shares and securities held as stock-in-trade cannot be included for the purposes of disallowance u/s. 14A as the same are held as business asset for trading purposes and not for earning of exempt income (Pr. CIT v. State Bank of Patiala (2017) 78 3 (P&H HC) followed)

(v) Diminution in the value of investments is not expenditure incurred for earning of exempt income for the purposes of disallowance under Section 14A.

Cases referred

United Breweries Ltd. v DCIT (2016) 72 Taxmann.com102(Kar HC)

Godrej and Boyce Manufacturing Company Limited v. DCIT reported in (2017) 81 111(SC)

CIT v. Reliance Capital Asset Management Ltd. in ITA no. 487 of 2015

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