J.G.A SHAH SHARE BROKERS P.LTD, MUMBAI V. DCIT CIR 4(3), MUMBAI

ITA 4053/MUM/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3334 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2016
• Appeal Filed By: Assessee
• Bench Allotted: J
• Assessment Year: 2009-2010
• Appeal Filed On: 20-05-2013
• Court: TRIBUNAL
• Department Lawyers: AJAY
• Assessee Lawyers: SANJAY SHAH
• Keywords: Business income; Earning of tax free income; Speculation loss
• Section: 143(3); 14A; 43(5)

Judgement Text

, , J, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES J, MUMBAI BEFORE SHRI C.N. PRASAD, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.4053/MUM/2013 ASSESSMENT YEAR: 2009-10 J.G.A SHAH SHARE BROKERS P. LTD. 24B, 3 RD FLOOR, RAJABAHADUR MANISON, HAMAM STREET, FORT MUMBAI- 400001 / VS. DCIT CIR 4(3) AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020 (ASSESSEE ) (REVENUE) P.A. NO. AAACJ3477H / ASSESSEE BY SHRI SA NJAY SHAH (AR) / REVENUE BY SHRI AJAY , (DR) / DATE OF HEARING : 22/02/2016 / DATE OF ORDER: 16/03/2016 / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS), MUMBAI-8 {(IN SHORT CIT(A)}, ORDER DATED 18.03.2013 PASSED AGAINST ASSESSMENT ORDER U/S. 143(3) OF THE ACT, DATED 23.1 2.2011 FOR THE ASSESSMENT YEAR 2009-10 ON THE FOLLOWING GROUND S: J.G.A. SHAH SHARE BROKER P. L. 2 1. LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ERRED IN CONFIRMING THE ORDER OF LEARNED ASSESSING OFFICER OF APPLYING THE PROVISIONS OF EXPLANATION T O SECTION 73 TO ALLEGED SHARE TRADING ACTIVITY ,THEREBY TREAT ING LOSS ON ALLEGED SHARE TRADING ACTIVITY TO THE TUNE OF RS.5694166/- AS SPECULATION LOSS WHICH IS NOT ALLOW ED TO BE SET OFF AGAINST BUSINESS INCOME OF THE APPELL ANT. APPELLANT SUBMITS THAT IN VIEW OF FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW THE SAI D TREATMENT OF LOSS OF RS.5694166/- AS LOSS FROM SPECULATION BUSINESS ,BY INVOKING EXPLANATION TO SECTION 73, IS BAD IN LAW AND THE SAID LOSS OUGHT T O BE TREATED AS NORMAL BUSINESS LOSS OTHER THAN LOSS FRO M SPECULATION BUSINESS OF THE APPELLANT. 2. WITHOUT PREJUDICE TO THE ABOVE, LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ERRED IN CONFIRMING THE ORDER OF THE LEARNED ASSESSING OFFIC ER IN RESPECT OF SEGREGATING RESULTS OF COMPOSITE ARBITRADGE BUSINESS OF THE APPELLANT INTO 2 SEGMENT S ,NAMELY, CAPITAL MARKET SEGMENT AND FUTURES AND OPTIONS SEGMENT , SO AS TO DERIVE LOSS IN CAPITAL S EGMENT TO THE TUNE OF RS. 5694166/-SEPARATELY THEREBY APPL YING PROVISIONS OF EXPLANATION TO SECTION 73 OF INCOME T AX ACT,1961 ONLY ON LOSS ON CAPITAL MARKET SEGMENT IGNORING PROFIT FROM FUTURE AND OPTION SEGMENT FOR THE PURPOSE OF APPLYING EXPLANATION TO SECTION 73 OF IN COME TAX ACT,1961 IN AN ARBITRARY MANNER. J.G.A. SHAH SHARE BROKER P. L. 3 APPELLANT SUBMITS IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW NET RES ULT OF CAPITA! MARKET SEGMENT AND FUTURE & OPTION SEGMENT SPRANG OUT OF COMPOSITE SINGLE BUSINESS CALLED 'ARBITRAGE BUSINESS' AND THUS, IF AT ALL EXPLANATIO N TO SECTION 73 HAS TO BE APPLIED, THE SAME OUGHT TO HAV E BEEN APPLIED ON RESULTS OF ENTIRE COMPOSITE SINGLE BUSINESS CALLED 'ARBITRAGE BUSINESS' INSTEAD OF RES ULTS OF ONLY CAPITAL MARKET SEGMENT AS CARRIED OUT BY LEARN ED ASSESSING OFFICER AND CONFIRMED BY LEARNED CIT(APPE ALS). 3. LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERR ED IN CONFIRMING THE ORDER OF THE LEARNED ASSESSING OFFIC ER IN APPORTIONING A SUM OF RS.12 LAKHS AS DIRECT EXPENSE S AND A SUM OF RS. 2 LAKHS AS INDIRECT EXPENSES FOR T HE PURPOSE OF COMPUTING LOSS IN CAPITAL SEGMENT. APPELLANT SUBMITS THAT IN VIEW OF FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW THE SAI D APPORTIONMENT OF 12 LAKHS AS DIRECT EXPENSES AND AS SUM OF RS.2 LAKHS AS INDIRECT EXPENSES TO CAPITAL M ARKET SEGMENT THEREBY ENHANCING LOSS FROM CAPITAL MARKET SEGMENT IS BAD IN LAW AND DESERVES TO BE QUASHED. APPELLANT ACCORDINGLY SUBMITS THAT IN VIEW OF THE F ACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW NO PART OF DIRECT EXPENSES OR INDIRECT EXPENSES OUGHT TO HA VE BEEN APPORTIONED TO CAPITAL MARKET SEGMENT FOR THE PURPOSE OF COMPUTING LOSS FROM CAPITAL MARKET SEGME NT. 4. LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERR ED IN CONFIRMING THE ORDER OF LEARNED ASSESSING OFFICE R J.G.A. SHAH SHARE BROKER P. L. 4 HOLDING THAT DISALLOWANCE U/S 14A HAS TO BE MADE IN THE ASSESSMENT OF THE APPELLANT. APPELLANT SUBMITS THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW NO DISALLOWANCE U/S 14A OF THE ACT OUGHT TO HAVE BEEN MADE AND ACCORDINGLY ENTIRE DISALLOWANCE U/S 1 4A MAY PLEASE BE DELETED. 5. LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ERRE D IN CONFIRMING THE ORDER OF THE LEARNED ASSESSING OFFIC ER IN APPLYING RULE 8D OF INCOME TAX RULES,1962 FOR THE PURPOSE OF COMPUTING DISALLOWANCE U/S 14A OF THE IN COME TAX ACT, 1961. APPELLANT SUBMITS THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW , DISALLOWANCE U/S 14A / IF AT ALL APPLICABLE, HAS TO BE MADE IN A REASONABLE MANNER AND IT IS NOT MANDATORY TO APPLY RULE 8D FOR THE PURPOSE OF COMPUTING DISALLOWANCE U/S 14A OF THE ACT. 2. DURING THE COURSE OF HEARING, ARGUMENTS WERE MADE B Y SHRI SANJAY SHAH, AUTHORISED REPRESENTATIVE (AR) ON BEHALF OF THE ASSESSEE AND BY SHRI AJAY, DEPARTMENTAL REPRESE NTATIVE (DR) ON BEHALF OF THE REVENUE. 3. GROUND NOS. 1 & 2: IN THESE GROUNDS THE ISSUE RAISED BY THE ASSESSEE IS WITH REGARD TO ACTION OF LD. CIT(A) IN TREATING PART OF THE TRANSACTIONS OF THE BUSINESS OF THE ASS ESSEE AS J.G.A. SHAH SHARE BROKER P. L. 5 SPECULATIVE IN VIEW OF EXPLANATION TO SECTION 73 OF THE ACT, AND THE OTHER PART AS NON-SPECULATIVE, IN VIEW OF U/S 4 3(5)(C). 3.1. THE BRIEF FACTS AS BORNE OUT FROM THE ORDERS OF TH E LOWER AUTHORITIES ARE THAT DURING THE YEAR UNDER CONSIDER ATION. THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF STO CK BROKING, BORROWING MONEYS, DEPOSITORY PARTICIPANTS AND INVESTMENT IN SHARES AND SECURITIES. THE ASSESSEE W AS A MEMBER OF TWO RECOGNIZED STOCK EXCHANGE BSE & NSE. BOTH EXCHANGES HAD TWO SEPARATE SEGMENTS I.E. CAPITAL MA RKET SEGMENT AND DERIVATIVE SEGMENT. IN CAPITAL MARKET S EGMENT, ASSESSEE MADE TRADING OF EQUITY SHARES WHEREAS IN D ERIVATIVE SEGMENT, FUTURE AND OPTIONS. IT WAS NOTED BY THE AO THAT A FUTURE CONTRACT DOES NOT RESULT IN ACTUAL DELIVERY. THE AO INVOKED EXPLANATION TO SECTION 73 OF THE ACT AND GA VE SHOW CAUSE TO THE ASSESSEE WHY LOSS IN SHARE TRADING SHO ULD NOT BE TREATED AS SPECULATIVE LOSS. IN REPLY, THE ASSESSE E RESPONDED THAT THE ASSESSEE HAD CARRIED OUT ARBITRAGE/JOBBING ACTIVITIES AND THE INCOME OF THE ASSESSEE WAS NOT COVERED UNDE R EXPLANATION TO SECTION 73 BUT IT WAS COVERED U/S 43 (5)(C) OF THE ACT AND THEREFORE, IT WAS NON-SPECULATIVE. THE AO D ID NOT ACCEPT THE REPLY OF THE ASSESSEE AND HELD THAT THE TRANSACTIONS DONE BY THE ASSESSEE WHICH WERE NOT COVERED U/S 43( 5) SHALL BE HIT BY EXPLANATION TO SECTION 73 AND SHALL BE TR EATED AS SPECULATIVE IN NATURE AND ACCORDINGLY HE DISALLOWED A SUM OF RS.56,94,166/- AS DEEMED SPECULATIVE LOSS, APPLYING EXPLANATION TO SECTION 73. J.G.A. SHAH SHARE BROKER P. L. 6 3.2. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFO RE THE LD. CIT(A) WHEREIN DETAILED SUBMISSION WERE FILED. IT WAS INTER- ALIA SUBMITTED THAT TRANSACTIONS OF THE ASSESSEE CANNOT BE BROKEN INTO TWO PARTS. IT WAS SUBMITTED THAT FUTUR E & OPTION SEGMENT AND SHARE TRADING IN CAPITAL SEGMENT (I.E. POSITION IN CASH) ARE ONE LEG OF HIS SHARE TRANSACTIONS AND THE REFORE THESE CANNOT BE BROKEN INTO DIFFERENT PARTS SO AS TO GIVE DIFFERENT TREATMENT U/S 43(5) AND SECTION 73. IT WAS FURTHER SUBMITTED THAT DERIVATIVE TRANSACTIONS CANNOT BE COVERED UNDE R THE EXPLANATION TO SECTION 73 AS THERE WERE SPECIFIC PR OVISIONS U/S 43(5) AND ON THE OTHER HAND, ARBITRAGE TRANSACTIONS DONE BY THE ASSESSEE SHOULD ALSO BE CONSIDERED AS NON-SPECU LATIVE WHICH HAVE BEEN ASSESSED AS BUSINESS INCOME. IT WAS SUBMITTED BY THE ASSESSEE THAT PURCHASE IN CASH MAR KET IS ACCOMPANIED BY SIMULTANEOUS SALE IN F & O MARKET OR VICE VERSA. BUT LD. CIT(A) DID NOT ACCEPT THE SUBMISSION OF THE ASSESSEE AND UPHELD THE ACTION OF THE AO. IT WAS HE LD BY HIM THAT SECTION 43(5)(D) AND DEEMING FICTION CREATED B Y EXPLANATION TO SECTION 73 OPERATE INTO TWO DIFFEREN T DIRECTIONS. BOTH HAVE TO PLAY THEIR RESPECTIVE ROLES. ACCORDING LY DERIVATIVE TRANSACTIONS WERE COVERED BY 43(5)(D) AND THEREFORE , COULD NOT BE HELD AS SPECULATIVE TRANSACTIONS. ON THE OTHER H AND, SHARE TRADING DONE IN THE CASH MARKET IS HIT BY EXPLANATI ON TO SECTION 73, AND THEREFORE, ANY LOSS/PROFIT ARISING THERE FROM SHALL BE DEEMED TO BE SPECULATIVE, AND COULD ONLY B E SET OFF AGAINST INCOME OF SUBSEQUENT YEARS. THUS, HE DISMIS SED THE APPEAL OF THE ASSESSEE UPHOLDING THE ACTION OF THE AO. J.G.A. SHAH SHARE BROKER P. L. 7 3.3. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFO RE THE TRIBUNAL. LD. COUNSEL OF THE ASSESSEE REITERATED TH E ARGUMENTS MADE BEFORE LD. CIT(A) AND FAIRLY SUBMITTED THAT EI THER ENTIRE TRANSACTIONS OF THE COMPANY WILL BE SPECULATIVE OR ENTIRE TRANSACTIONS SHOULD BE HELD TO BE NON-SPECULATIVE. LATER ON, IT WAS SUBMITTED THAT SINCE CASE OF THE ASSESSEE IS HI T BY EXPLANATION TO SECTION 73, THEREFORE, ENTIRE TRANSA CTIONS OF THE ASSESSEE SHOULD BE TREATED AS SPECULATIVE TRANSACTI ONS. IN SUPPORT OF HIS PROPOSITION, HE RELIED UPON VARIOUS JUDGMENTS. HE SUBMITTED THAT CASE OF THE ASSESSEE WAS COVERED WITH THE JUDGMENT OF THE COORDINATE BENCH IN THE CASE OF ITO V. SNOWTEX INVESTMENT LTD. 129 DTR 203 (ITAT KOLKATA). HE FURTHER RELIED UPON FOLLOWING JUDGMENT IN SUPPORT O F HIS PROPOSITION THAT ALL THE TRANSACTIONS HAVE TO BE CL UBBED TOGETHER BEFORE APPLYING EXPLANATION TO SECTION 73: 1. CIT V. DLF COMMERCIAL DEVELOPERS LTD. 261 CTR 127(C AL) 2. CIT V. BALJIT SECURITIES P. LTD. 275 CTR 335 (CAL) 3. ACIT V. CONCORD COMMERCIALS (P) LTD. 95 ITD 117 4. MAJESTIC EXPORTS V. JCIT, ITAT CHENNAI 172 TTJ 504 3.4. HE ALSO DREW OUR ATTENTION ON PAGE NO. 72 OF THE P APER BOOK CONTAINING BRIEF HISTORY OF THE ASSESSEE, SHO WING THAT NEITHER IN THE PRECEDING YEARS NOR IN SUBSEQUENT YE ARS, BUSINESS TRANSACTIONS OF THE ASSESSEE WERE BROKEN I NTO TWO PARTS AND INCOME HAS ALWAYS BEEN ASSESSED AS NORMAL BUSINESS INCOME. J.G.A. SHAH SHARE BROKER P. L. 8 3.5. ON THE OTHER HAND, LD. DR VEHEMENTLY SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES AND SUBMITTED THAT THE ASSESSEE CANNOT HAVE BENEFITS OF THE BOTH SET OF TH E PROVISIONS. IF THE ASSESSEE IS ACCEPTING THAT PART OF THE TRANS ACTIONS ARE SPECULATIVE BECAUSE OF EXPLANATION TO SECTION 73, T HEN WHOLE INCOME SHOULD BE TREATED AS INCOME FROM SPECULATIVE BUSINESS. 3.6. WE HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHO RITIES AS WELL AS JUDGMENTS SUBMITTED BEFORE US. WE FIND T HAT ISSUE BEFORE US IS NO MORE RES-INTEGRA . IN THE CASE OF ITO V. SNOWTEX INVESTMENT LTD. (SUPRA), HONBLE KOLKATA BENCH HAS DISCUSSED THE LAW IN DETAIL AND HELD THAT IN SUCH KIND OF CAS ES, AGGREGATION OF SHARE TRADING TRANSACTIONS AND DERIV ATIVE TRANSACTIONS SHOULD BE DONE BEFORE APPLYING EXPLANA TION TO SECTION 73. WHERE THE ASSESSEE IS A DEALER IN SHARE S, THE ENTIRE BUSINESS CONSISTS IN SALE PURCHASE OF SHARES, THEN, IT SHOULD BE TREATED AS COMPOSITE BUSINESS. SIMILAR VIEW HAS BEEN TAKEN BY HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. DLF COMMERCIAL DEVELOPERS LTD. (SUPRA). IN THE CASE OF CIT VS. BALJIT SECURITIES P. LTD. (SUPRA), IT WAS HELD THAT IN THE CASE OF AN ASSESSEE WHO WAS A SHARE BROKER DEALING AND BUYI NG SHARES FOR HIMSELF AND ALSO DEALING IN DERIVATIVES, THE ASSESSEE SHALL BE DEEMED TO BE CARRYING ON SPECULATIVE BUSIN ESS AND THEREFORE, ENTIRE TRANSACTIONS CARRIED OUT BY THE S AID ASSESSEE WERE WITHIN THE UMBRELLA OF SPECULATION TRANSACTION S, AND THERE WAS NO BAR IN SETTING OFF THE LOSSES ARISING OUT OF DERIVATIVES FROM THE INCOME ARISING OUT OF BUYING A ND SELLING OF J.G.A. SHAH SHARE BROKER P. L. 9 SHARES. SIMILAR VIEW HAS BEEN TAKEN BY ANOTHER COOR DINATE BENCH OF THE TRIBUNAL IN THE CASE OF MAJESTIC EXPOR TS (SUPRA). IT IS FURTHER NOTED BY US THAT THE ASSESSEES STAND OF TREATING THE WHOLE BUSINESS AS COMPOSITE BUSINESS HAS ALWAYS BEEN ACCEPTED BY THE REVENUE IN EARLIER AS WELL AS SUBSE QUENT YEARS. THUS, KEEPING IN VIEW CLEAR POSITION OF LAW AS DISC USSED ABOVE AND HISTORY OF THE CASE, WE FIND THAT FOR THE PURPO SE OF SETTING OFF OF LOSSES, THE WHOLE BUSINESS SHOULD BE TREATED AS ONE BUSINESS. BOTH THE PARTIES AGREED BEFORE US THAT TH E PROVISIONS OF EXPLANATION TO SECTION 73 ARE APPLICABLE AND THE REFORE, IT IS DIRECTED THAT AO SHALL TREAT THE ENTIRE BUSINESS AS SPECULATIVE AND SHALL ASSESS THE INCOME AS INCOME FROM SPECULAT IVE BUSINESS AND SHALL GRANT THE BENEFIT OF SET OFF AND CARRY FORWARD OF LOSSES ACCORDINGLY. 4. GROUND NO.3: THIS GROUND IS NOT PRESSED BY THE LD. COUNSEL AND THEREFORE, DISMISSED. 5. GROUND NOS. 4 & 5: IN THESE GROUNDS THE ASSESSEE HAS RAISED GRIEVANCE WITH RESPECT TO DISALLOWANCE MADE U/S 14A. 5.1. DURING THE COURSE OF HEARING IT WAS SUBMITTED BY T HE LD. COUNSEL THAT SIMILAR ISSUE CAME UP IN APPEAL BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2007-08 WH EREIN HONBLE TRIBUNAL VIDE ITS ORDER DATED 26 TH SEPTEMBER, 2012 IN ITA NO.7874/M/2010, DECIDED THE ISSUE IN ITS FAVOUR . J.G.A. SHAH SHARE BROKER P. L. 10 5.2. HE FURTHER SUBMITTED THAT FACTS ARE SAME IN THIS Y EAR ALSO THEREFORE, IN VIEW OF JUDGMENT OF THE TRIBUNAL IN A SSESSEES OWN CASE, THE DISALLOWANCE MADE BY THE AO IS TO BE DELETED. ON THE OTHER HAND LD. DR RELIED UPON THE ORDERS OF LOWER AUTHORITIES. 5.3. WE HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHO RITIES AND JUDGMENT OF THE TRIBUNAL OF EARLIER YEARS. THE RELEVANT PORTION OF THE TRIBUNAL IS REPRODUCED HEREIN: 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUT E THAT THE DIVIDEND INCOME DERIVED BY THE ASSESSEE ON THE SHARES WHICH WERE HELD BY THE ASSESSEE IN ITS SHARE ARBITRAGE BUSINESS ACTIVITY. THERE IS NO ALLEGATION OR INDICATION IN THE ASSESSMENT ORDER AS WELL AS IN TH E ORDER OF THE CIT(A) THAT THE ASSESSEE HAS SPECIFICALLY IN CURRED ANY EXPENDITURE FOR EARNING THE DIVIDEND INCOME. 4.1 SECTION 14A CONTEMPLATES AN IMPLICITLY NOTION O F APPORTIONMENT IN THE CASES WHERE THE EXPENDITURE IS INCURRED FOR A COMPOSITE ACTIVITY FOR WHICH TAXABLE AND NON-TAXABLE INCOME IS RECEIVED. BUT, WHEN IT IS POS SIBLE TO DETERMINE THE ACTUAL EXPENDITURE IN RELATION TO THE EXEMPT INCOME OR WHEN NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO THE EXEMPT INCOME, THEN THE PRINCIPLE O F APPORTIONMENT AS EMBEDDED IN SECTION 14A HAS NO APPLICATION. THE OBJECT OF SECTION 14A IS NOT TO AL LOW TO REDUCE THE TAXABLE INCOME BY DEBITING THE EXPENDITU RE INCURRED TO EARN THE EXEMPT INCOME. THE LOGIC AND S CHEME J.G.A. SHAH SHARE BROKER P. L. 11 OF THE PROVISIONS OF SECTION 14A IS NOT TO ALLOW TH E EXPENDITURE INCURRED TO EARN THE EXEMPT INCOME AND THE EXPENSES SHALL BE ALLOWED ONLY TO THE EXTENT THEY A RE RELATED TO EARN THE TAXABLE INCOME. THERE SHOULD BE PROXIMITY BETWEEN THE EXPENDITURE AND THE INCOME WH ICH IS NOT FORM PART OF THE TOTAL INCOME FOR APPLYING T HE PROVISIONS OF SECTION 14A. ONCE SUCH PROXIMITY OF R ELATION IS ACCEPTED, THE DISALLOWANCE HAS TO BE AFFECTED. THEREFORE, IN ORDER TO DISALLOW THE EXPENDITURE U/S 14A, THERE MUST BE A LIVE NEXUS BETWEEN THE EXPENDITURE INCURRED AND THE INCOME NOT FORMING PART OF THE TOT AL INCOME. 4.2 WHEN THE EXPENDITURE, WHICH IS CLAIMED BY THE ASSESSEE IS INCURRED WHOLLY AND EXCLUSIVELY FOR EAR NING TAXABLE INCOME ARISING FROM THE BUSINESS ACTIVITY O F THE ASSESSEE IN THE ARBITRAGE TRADING, THEN IN THE ABSE NCE OF ANY ACTUAL EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO EARNING OF DIVIDEND INCOME, NO EXPENDIT URE CAN BE APPORTIONED FOR THE PURPOSE OF EARNING EXEMPT IN COME. THE SHARES ARE HELD BY THE ASSESSEE IN THE COURSE O F ITS BUSINESS ACTIVITY AND NOT AS INVESTMENT; THEREFORE, THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CCI LTD (SUPRA) IS APPLICABLE WHEREIN THE HONBL E HIGH COURT HAS HELD IN PARA 5 AS UNDER: 5. WHEN NO EXPENDITURE IS INCURRED BY THE ASSESSEE M EARNING THE DIVIDEND INCOME, NO NOTIONAL EXPENDITURE COULD BE DEDUCTED FROM THE SAID INCOME. IT IS NOT THE CASE OF THE ASSESSEE RETAINING ANY SHARES SO AS TO HAVE THE BENEFIT OF DIVIDEND. 63% O F THE SHARES, WHICH WERE PURCHASED, ARE SOLD AND THE J.G.A. SHAH SHARE BROKER P. L. 12 INCOME DERIVED THERE FROM IS OFFERED TO TAX AS BUSINESS INCOME. THE REMAINING 37% OF THE SHARES ARE RETAINED. IT HAS REMAINED UNSOLD WITH THE ASSESSEE. IT IS THOSE UNSOLD SHARES HAVE YIELDED DIVIDEND, FOR WHICH, THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE AT ALL. THOUGH THE DIVIDEND INCOME IS EXEMPTED FROM PAYMENT OF TAX, IF ANY EXPENDITURE IS INCURRED IN EARNING THE SAID INCOME, THE SAID EXPENDITURE ALSO CANNOT BE DEDUCTED. BUT IN THIS CASE, WHEN THE ASSESSEE HAS NOT RETAINED SHARES WITH THE INTENTION OF EARNING DIVIDEND INCOME AND T HE DIVIDEND INCOME IS INCIDENTAL TO HIS BUSINESS OF SA LE OF SHARES, WHICH REMAINED UNSOLD BY THE ASSESSEE, I T CANNOT BE SAID THAT THE EXPENDITURE INCURRED IN ACQUIRING THE SHARES HAS TO BE APPORTIONED TO THE EXTENT OF DIVIDEND INCOME AND THAT SHOULD BE DISALLOWED FROM DEDUCTIONS. IN THAT VIEW OF THE MATTER, THE APPROACH OF THE AUTHORITIES IS NOT IN CONFORMITY WITH THE STATUTORY PROVISIONS CONTAINED UNDER THE ACT. THEREFORE, THE IMPUGNED ORDERS ARE N OT SUSTAINABLE AND REQUIRE TO BE SET ASIDE. ACCORDINGL Y, WE PASS THE FOLLOWING. 5. RESPECTFULLY FOLLOWING THE DECISION OF THE HON BLE KARNATAKA HIGH COURT (SUPRA), NO DISALLOWANCE IS CA LLED FOR WHEN NO ACTUAL EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE FOR EARNING DIVIDEND INCOME. 5.4. BOTH THE PARTIES AGREED DURING THE COURSE OF HEARI NG THAT FACTS IN THIS YEAR ARE SAME AND THERE IS NO CHANGE EITHER IN FACTS OR IN LAW AND THEREFORE, RESPECTFULLY FOLLOWI NG THE JUDGMENT OF THE TRIBUNAL, DISALLOWANCE MADE BY THE AO U/S 14A IS DIRECTED TO BE DELETED. THUS, GROUND NOS. 4 & 5 ARE ALLOWED. J.G.A. SHAH SHARE BROKER P. L. 13 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH MARCH , 2016. SD/- (C.N. PRASAD) SD/- (ASHWANI TANEJA) ! / JUDICIAL MEMBER '! / ACCOUNTANT MEMBER MUMBAI; DATED : 16/03 /2016 CTX? P.S/. .. # $%&'&($ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !'# / THE RESPONDENT. 3. $# $# % ( ) / THE CIT, MUMBAI. 4. $# $# % / CIT(A)- , MUMBAI 5. ()* # !+ , $# # +- , / DR, ITAT, MUMBAI 6. *. / / GUARD FILE. / BY ORDER, '#( ! //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI