The ITO, Ward-1(1)(1), Ahmedabad V. M/s. Adroit Tradelink Pvt. Ltd., Gandhinagar

MA 29/AHD/2020

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 3750 (ITAT-AHMEDABAD)
• Duration Of Justice: 8 month(s) 25 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 26-10-2020
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 31-01-2020
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: LALIT P JAIN
• Assessee Lawyers: S N DIVETIA
• Keywords: Business expenditure; Earning of tax free income; Rule 8D; Set aside
• Section: 14A; 43; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH (VIRTUAL COURT) BEFORE: SHRI MAHAVIR PRASAD, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEM BER THE ITO, WARD-1(1)(1), AHMEDABAD (APPELLANT) VS M/S. ADROIT TRADELINK PVT. LTD. 145-1, SAMRAJYA APPARTMENT, SECTOR-14, GANDHINAGAR PAN: AAACJ3868J (RESPONDENT) REVENUE BY: SHRI LALIT P. JAIN, SR. D.R. ASSESSEE BY: SHRI S.N. DIVETIA, A.R . DATE OF HEARING : 16-10-2020 DATE OF PRONOUNCEMENT : 26-10-20 20 /ORDER PER : AMARJIT SINGH, ACCOUNTANT MEMBER:- IN THE MISCELLANEOUS APPLICATION, THE REVENUE HAS SUBMITTED THAT THE ITAT HAS ADJUDICATED THE APPEAL OF THE REVENUE VIDE ITA NO. 2289/AHD/2017 ON 1ST OCT, 2019 AND HELD THAT DISALL OWANCE U/S. 14A CANNOT EXCEED THE ACTUAL EXEMPT INCOME IN THE CASE OF THE ASSESSEE. THE TOTAL EXEMPT INCOME EARNED DURING THE YEAR WAS RS. 22,01, 928/- HOWEVER BY TYPOGRAPHICAL ERROR THE DISALLOWANCE WAS RESTRICTED TO RS. 2,21,928/- M.A. NO. 29/AHD/2020 (IN ITA NO. 2289/AHD/2017) ASSESSMENT YEAR 2014-15 M.A. NO. 29/AHD/2020 (IN I.T.A NO. 2289/AHD/2017) A.Y. 2014-15 PAGE NO ITO VS. M/S. ADROIT TRADELINK PVT. LTD. 2 2. HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. WITH THE ASSISTANCE OF LD. REPRESENTATIVES, WE HAVE GONE THR OUGH THE ABOVE REFERRED ORDER DATED 1 ST OCTOBER, 2019. THE RELEVANT FINDING OF THE ITAT A S ELABORATED ON PARA 5 OF THE ORDER IS REPRODUCED AS UNDER:- 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE ASSESSING OFFICER HAS MADE DISALLOWANCE U/S. 14A OF RS. 2,93,06,231/-. THE AS SESSING OFFICER HAS MADE AFORESAID DISALLOWANCE AFT ER APPLYING SECTION 14A R.W. RULE 8D OF IT RULE, 1962. THE ASSESSEE HA S CLAIMED BEFORE THE LD. CIT(A) THAT HE WAS ENGAG ED IN THE BUSINESS OF TRADING IN SHARES AND SECURITIES AND THE PROVISIONS OF THE SECTION 14A WERE NOT APPLICABLE TO IT. IT WAS ALSO SUBMITTED THAT AS THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF TRAD ING IN SHARES AND SECURITIES AND THE BORROWED FUNDS HAD BEEN UTILIZED FOR PURCHASE OF SHARES, THEREFORE, INTEREST PAID ON SUCH BORROWED FUND WAS TREATED AS BUSINESS EXPENSE S U/S. 36(1)(III) OF THE ACT AND ACCORDINGLY, NO DISALLOWANCE U/S. 14A C OULD BE MADE IN RELATION TO INTEREST EXPENDITURE. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE US, THE LD. COUNSEL HA S REFERRED THE DECISION OF ITAT (DELHI) IN THE CASE OF ACIT VS. PUNJAB NATIONAL BANK VIDE ITA NO. 1810/DEL/2016 DATED 08-0 4-2019. AFTER REFERRING THE AFORESAID DECISION, TH E LD. COUNSEL HAS SUBMITTED THAT NO ADDITION IN THE CASE OF THE ASSES SEE U/S. 14A IS SUSTAINABLE STATING THAT THE ASSESS EE COMPANY HAS ACQUIRED SHARES FOR THE PURPOSE OF LIQUIDATING THOS E SHARES WHENEVER THE SHARE PRICE GOES UP IN ORDER TO EARN PROFIT. THE LD. AUTHORIZED REPRESENTATIVE HAS ALSO PLACED RELIA NCE ON THE DECISION OF HONBLE HIGH COURT OF PUNJAB & HARYANA IN THE CASE OF PRINCIPAL COMMISSIONER OF INCOME TAX VS. ST ATE BANK OF PATIALA AND DECISION OF HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD. WE HAVE ALSO GONE THROUGH PAPER BOOK FILED BY THE LD. COUNSEL COMPRIS ING SUBMISSION MADE BEFORE THE LD. CIT(A) AND COPIES OF AUDITED A CCOUNTS OF THE ASSESSEE COMPANY. IT IS UNDISPUTED F ACT THAT ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF TRADING IN S HARES AND SECURITIES AS DEMONSTRATED FROM THE SCHED ULE 9 TO THE PROFIT AND LOSS ACCOUNT STATEMENT FOR THE YEAR ENDED 31 ST MARCH, 2014 PLACED IN THE PAPER BOOK. AT PAGE 43 OF THE PAPER BOOK, THE ASSESSEE HAS ALSO PLACED COPY OF DECISION OF TH E HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CC I LTD. 20 TAXMANN.COM 196 (KARNATAKA). WE HAVE PERUSED THE D ECISION OF HONBLE HIGH COURT OF KARNATAKA IN CCI L TD. VS. JT.CIT 20 TAXMANN.COM 196 (KAR) WHEREIN IT IS HELD THAT WH EN ASSESSEE HAD NOT RETAINED SHARES WITH INTENTION OF EARNING DIVIDEND INCOME AND DIVIDEND INCOME WAS INCIDENTAL TO HIS BU SINESS OF SALE OF SHARES, WHICH REMAINED UNSOLD BY ASSESSEEE, IT COULD NOT BE SAID THAT EXPENDITURE INCURRING IN ACQUIRING SHARES HAD TO BE APPORTIONED TO EXTENT OF DIVIDEND INCOME AND THAT SHOULD BE DISALLOWED UNDER SECTION 14. WE HAVE ALS O PERUSED THE DECISION OF THE HONBLE HIGH COURT OF PUNJAB & HARYANA IN THE CASE OF PR. CIT VS. STATE BANK OF PA TIALA (2017) 78 TAXMANN.COM AND THE PUNJAB AND HARY ANA HIGH COURT HAS FOLLOWED THE JUDGMENT OF THE HONBLE HIGH COURT OF KARNATAKA IN CCI LTD. VS. JT. CIT (2012) 20 TAX MANN.COM 196. WE CONSIDER THAT HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS. CIT (2018) 91 TAXMANN.CO M 154 HAS CONSIDERED THE JUDGMENT IN THE CASE OF PR. CIT VS. STATE BANK OF PATIALA AND IN THE CASE OF CCI LTD. V S. JT. CIT FOR APPLICABILITY OF SECTION 14A OF THE ACT WHERE THE S HARES/STOCKS WERE PURCHASED OF A COMPANY FOR THE PU RPOSE OF GAINING CONTROL OVER THE SAID COMPANY OR AS STOCK IN TRADE . THE HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS. CIT HAS HELD THAT WHERE THE SHARES ARE HELD AS STOCK IN TRADE THE MAIN PURPOSE IS TO TRADE IN TH OSE SHARES AND EARN PROFITS THEREFROM, IN SUCH CASES AS WELL, IF DIVIDE ND IS ALSO EARNED THOUGH INCIDENTALLY AND IT WILL T RIGGER THE APPLICABILITY OF SECTION 14A OF THE ACT AND THE EXPENDITURE IN ACQUI RING THESE SHARES WILL HAVE TO BE APPORTIONED. THE RELEVANT OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F MAXOPP INVESTMENT LTD. VS. CIT. (2018) 91 TAXMANN .COM 154 IS REPRODUCED AS UNDER:- 31. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THE ARGUMENT OF COUNSEL FOR THE PARTIES ON BOTH SID ES, IN THE LIGHT OF VARIOUS JUDGMENTS WHICH HAVE BEEN CITED BE FORE US, SOME OF WHICH HAVE ALREADY BEEN TAKEN NOTE OF ABOVE. 32. IN THE FIRST INSTANCE, IT NEEDS TO BE RECOGNISE D THAT AS PER SECTION 14A(1) OF THE ACT, DEDUCTION OF THAT EXPENDITURE IS NOT TO BE ALLOWED WHICH HAS BEEN INC URRED BY THE ASSESSEE 'IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT'. AXIO MATICALLY, IT IS THAT EXPENDITURE ALONE WHICH HAS B EEN INCURRED IN RELATION TO THE INCOME WHICH IS INCLUDI BLE IN TOTAL INCOME THAT HAS TO BE DISALLOWED. IF A N EXPENDITURE INCURRED HAS NO CAUSAL CONNECTION WITH THE EXEMPTED INCOME, THEN SUCH AN EXPENDITURE WOULD OBVIOUSLY BE TREATED AS NOT RELATED TO THE INCOME T HAT IS EXEMPTED FROM TAX, AND SUCH EXPENDITURE WOUL D BE ALLOWED AS BUSINESS EXPENDITURE. TO PUT IT DIFFEREN TLY, SUCH EXPENDITURE WOULD THEN BE CONSIDERED AS I NCURRED IN RESPECT OF OTHER INCOME WHICH IS TO BE TREATED AS P ART OF THE TOTAL INCOME. 33. THERE IS NO QUARREL IN ASSIGNING THIS MEANING T O SECTION 14A OF THE ACT. IN FACT, ALL THE HIGH COU RTS, WHETHER IT IS THE DELHI HIGH COURT ON THE ONE HAND OR THE P UNJAB AND HARYANA HIGH COURT ON THE OTHER HAND, HAV E AGREED IN PROVIDING THIS INTERPRETATION TO SECTION 14A OF THE ACT. THE ENTIRE DISPUTE IS AS TO WHAT IN TERPRETATION IS TO BE GIVEN TO THE WORDS 'IN RELATION TO' IN THE GIVEN SCENARIO, VIZ. WHERE THE DIVIDEND INCOME ON THE SHARES IS EARNED, THOUGH THE DOMINANT PURPOSE FOR SUBSCRIBING IN THOSE SHARES OF THE INVESTEE COMPANY WAS NOT TO EARN DIVIDEND. WE HAVE TWO SCENARIOS IN THESE SETS OF AP PEALS. IN ONE GROUP OF CASES THE MAIN PURPOSE FOR I NVESTING IN SHARES WAS TO GAIN CONTROL OVER THE INVESTEE COM PANY. OTHER CASES ARE THOSE WHERE THE SHARES OF INV ESTEE COMPANY WERE HELD BY THE ASSESSEES AS STOCK-IN-TRAD E (I.E. AS A BUSINESS ACTIVITY) AND NOT AS INVESTME NT TO EARN DIVIDENDS. IN THIS CONTEXT, IT IS TO BE EXAMINED AS TO WHETHER THE EXPENDITURE WAS INCURRED, IN RESPEC TIVE SCENARIOS, IN RELATION TO THE DIVIDEND INCOME OR NO T. 34. HAVING CLARIFIED THE AFORESAID POSITION, THE FI RST AND FOREMOST ISSUE THAT FALLS FOR CONSIDERATION IS AS TO WHETHER THE DOMINANT PURPOSE TEST, WHICH IS PRESSED INTO SERVICE BY THE ASSESSEES WOULD APPLY WHILE M.A. NO. 29/AHD/2020 (IN I.T.A NO. 2289/AHD/2017) A.Y. 2014-15 PAGE NO ITO VS. M/S. ADROIT TRADELINK PVT. LTD. 3 INTERPRETING SECTION 14A OF THE ACT OR WE HAVE TO G O BY THE THEORY OF APPORTIONMENT. WE ARE OF THE OPI NION THAT THE DOMINANT PURPOSE FOR WHICH THE INVESTMENT INTO SHARES IS MADE BY AN ASSESSEE MAY NOT BE RELEVANT. NO DOUBT, THE ASSESSEE LIKE MAXOPP INVESTMENT LIMITED MAY HAVE MADE THE INVESTMENT IN ORDER TO GAIN CONTR OL OF THE INVESTEE COMPANY. HOWEVER, THAT DOES NOT APPEAR TO BE A RELEVANT FACTOR IN DETERMINING THE ISSUE A T HAND. FACT REMAINS THAT SUCH DIVIDEND INCOME IS NON-TAXAB LE. IN THIS SCENARIO, IF EXPENDITURE IS INCURRED ON EARNING THE DIVIDEND INCOME, THAT MUCH OF THE EXPENDITURE W HICH IS ATTRIBUTABLE TO THE DIVIDEND INCOME HAS TO BE DISALLOWED AND CANNOT BE TREATED AS BUSINESS EXPEND ITURE. KEEPING THIS OBJECTIVE BEHIND SECTION 14A OF THE ACT IN MIND, THE SAID PROVISION HAS TO BE INTERPRETED, PARTICULARLY, THE WORD 'IN RELATION TO THE INCOME 1 THAT DOES NOT FORM PART OF TOTAL INCOME. CONSIDERED IN THIS HUE, THE PRINCIPLE OF APPORTIONMENT OF EXPENSES COMES IN TO PLAY AS THAT IS THE PRINCIPLE WHICH IS ENGRAINED IN SECTION 14A OF THE ACT. THIS IS SO HELD IN WALFORT SHARE & STOCK BROKERS (P.) LTD., RELEVANT PASSAGE WHEREOF IS ALRE ADY REPRODUCED ABOVE, FOR THE SAKE OF CONTINUITY OF DISCUSSION, WE WOULD LIKE TO QUOTE THE FOLLOWING FE W LINES THEREFROM. 'THE NEXT PHRASE IS, 'IN RELATION TO INCOME WHICH D OES NOT FORM PART OF TOTAL INCOME UNDER THE ACT'. I T MEANS THAT IF AN INCOME DOES NOT FORM PART OF TOTAL INCOM E, THEN THE RELATED EXPENDITURE IS OUTSIDE THE AMBI T OF THE APPLICABILITY OF SECTION 14A.. ** THE THEORY OF APPORTIONMENT OF EXPENDITURE BETWEEN TAXABLE AND NON-TAXABLE HAS, IN PRINCIPLE, BEEN NOW WIDENED UNDER SECTION 14A. ' 35. THE DELHI HIGH COURT, THEREFORE, CORRECTLY OBSE RVED THAT PRIOR TO INTRODUCTION OF SECTION 14A OF T HE ACT, THE JAW WAS THAT WHEN AN ASSESSEE HAD A COMPOSITE AND I NDIVISIBLE BUSINESS WHICH HAD ELEMENTS OF BOTH TAXA BLE AND NON-TAXABLE INCOME, THE ENTIRE EXPENDITURE IN R ESPECT OF SAID BUSINESS WAS DEDUCTIBLE AND, IN SUCH A CASE, THE PRINCIPLE OF APPORTIONMENT OF THE EXPENDITURE R ELATING TO THE NON-TAXABLE INCOME DID NOT APPLY. TH E PRINCIPLE OF APPORTIONMENT WAS MADE AVAILABLE ONLY WHERE THE BUSINESS WAS DIVISIBLE. IT IS TO FIND A C URE TO THE AFORESAID PROBLEM THAT THE LEGISLATURE HAS NOT ONLY INSERTED SECTION 14A BY THE FINANCE (AMENDMENT) AC T, 2001 BUT ALSO MADE IT RETROSPECTIVE, I.E., 1962 WHE N THE INCOME TAX ACT ITSELF CAME INTO FORCE. THE AF ORESAID INTENT WAS EXPRESSED LOUDLY AND CLEARLY IN THE MEMO RANDUM EXPLAINING THE PROVISIONS OF THE FINANCE BIL L, 2001. WE, THUS, AGREE WITH THE VIEW TAKEN BY THE DELHI HI GH COURT, AND ARE NOT INCLINED TO ACCEPT THE OPINIO N OF PUNJAB & HARYANA HIGH COURT WHICH WENT BY DOMINANT PURPOSE THEORY. THE AFORESAID REASONING WOULD BE APPLICABLE IN CASES WHERE SHARES ARE HELD AS INVEST MENT IN THE INVESTEE COMPANY, MAY BE FOR THE PURPOS E OF HAVING CONTROLLING INTEREST THEREIN. ON THAT REASON ING, APPEALS OF MAXOPP INVESTMENT LIMITED AS WELL A S SIMILAR CASES WHERE SHARES WERE PURCHASED BY THE ASSESSEES TO HAVE CONTROLLING INTEREST IN THE INVESTEE COMPAN IES HAVE TO FAIL AND ARE, THEREFORE, DISMISSED. 36. THERE IS YET ANOTHER ASPECT WHICH STILL NEEDS T O BE LOOKED INTO. WHAT HAPPENS WHEN THE SHARES ARE HELD AS 'STOCK-IN-TRADE' AND NOT AS 'INVESTMENT', PARTICULA RLY, BY THE BANKS? ON THIS SPECIFIC ASPECT, CBDT HA S ISSUED CIRCULAR NO. 18/2015 DATED NOVEMBER 02, 2015. 37. THIS CIRCULAR HAS ALREADY BEEN REPRODUCED IN PA RA 19 ABOVE. THIS CIRCULAR TAKES NOTE OF THE JUDGME NT OF THIS COURT IN NAWANSHAHAR CASE WHEREIN IT IS HELD T HAT INVESTMENTS MADE BY A BANKING CONCERN ARE PART OF THE BUSINESS OR BANKING. THEREFORE, THE INCOME ARISES F ROM SUCH INVESTMENTS IS ATTRIBUTABLE TO BUSINESS OF BANKING FALLING UNDER THE HEAD 'PROFITS AND GAINS OF BUSINE SS AND PROFESSION'. ON THAT BASIS, THE CIRCULAR CON TAINS THE DECISION OF THE BOARD THAT NO APPEAL WOULD BE FILED ON THIS GROUND BY THE OFFICERS OF THE DEPARTMENT A ND IF THE APPEALS ARE ALREADY FILED, THEY SHOULD BE WITHDRAWN . A READING OF THIS CIRCULAR WOULD MAKE IT CLEAR TH AT THE ISSUE WAS AS TO WHETHER INCOME BY WAY OF INTEREST O N SECURITIES SHALL BE CHARGEABLE TO INCOME TAX UNDE R THE HEAD 'INCOME FROM OTHER SOURCES' OR IT IS TO FALL U NDER THE HEAD 'PROFITS AND GAINS OF BUSINESS AND PR OFESSION'. THE BOARD, GOING BY THE DECISION OF THIS COURT IN N AWANSHAHAR CASE, CLARIFIED THAT IT HAS TO BE TREATE D AS INCOME FALLING UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS AND PROFESSION'. THE BOARD ALSO WENT TO T HE EXTENT OF SAYING THAT THIS WOULD NOT BE LIMITED ONLY TO C O-OPERATIVE SOCIETIES/BANKS CLAIMING DEDUCTION UNDE R SECTION 80P(2)(A)(I) OF THE ACT BUT WOULD ALSO BE APPLICABL E TO ALL BANKS/COMMERCIAL BANKS, TO WHICH BANKING REGULATION ACT, 1949 APPLIES. 38. FROM THIS, PUNJAB AND HARYANA HIGH COURT POINTED OU T THAT THIS CIRCULAR CARVES OUT A DISTINCTION BETWE EN 'STOCK-IN-TRADE' AND 'INVESTMENT' AND PROVIDES THAT IF THE MOTIVE BEHIND PURCHASE AND SALE OF SHARES I S TO EARN PROFIT, THEN THE SAME WOULD BE TREATED AS TRADING P ROFIT AND IF THE OBJECT IS TO DERIVE INCOME BY WAY OF DIVIDEND INCOME THE PROFIT WOULD BE SAID TO HAVE ACCRUED FRO M INVESTMENT. TO THIS EXTENT, THE HIGH COURT MAY BE CORRECT. AT THE SAME TIME, WE DO NOT AGREE WITH THE TEST OF DOMINANT INTENTION APPLIED BY THE PUNJAB AND HARYAN A HIGH COURT, WHICH WE HAVE ALREADY DISCARDED. IN THAT EVE NT, THE QUESTION IS AS TO ON WHAT BASIS THOSE CASES ARE TO BE DECIDED WHERE THE SHARES OF OTHER COMPANIES ARE PUR CHASED BY THE ASSESSEES AS 'STOCK-IN-TRADE AND NOT AS 'INVESTMENT'. WE PROCEED TO DISCUSS THIS ASPECT HER EINAFTER. 39 IN THOSE CASES, WHERE SHARES ARE HELD AS STOCK-I N-TRADE, THE MAIN PURPOSE IS TO TRADE IN THOSE SHAR ES AND EARN PROFITS THEREFROM. HOWEVER, WE ARE NOT CONCERN ED WITH THOSE PROFITS WHICH WOULD NATURALLY BE TREA TED AS 'INCOME' UNDER THE HEAD 'PROFITS AND GAINS FROM BUS INESS AND PROFESSION'. WHAT HAPPENS IS THAT, IN THE PROCESS, WHEN THE SHARES ARE HELD AS 'STOCK-IN-TRADE', CERTA IN DIVIDEND IS ALSO EARNED, THOUGH INCIDENTALLY, WH ICH IS ALSO AN INCOME. HOWEVER, BY VIRTUE OF SECTION 10 (34) OF THE ACT, THIS DIVIDEND INCOME IS NOT TO BE INCLUDE D IN THE TOTAL INCOME AND IS EXEMPT FROM TAX. THIS TRIGGERS THE APPLICABILITY OF SECTION 14A OF THE ACT WHICH I S BASED ON THE THEORY OF APPORTIONMENT OF EXPENDITURE BETWEEN TAXABLE AND NON-TAXABLE INCOME AS HELD IN WALFORT S HARE & STOCK BROKERS (P.) LTD. CASE. THEREFORE, TO THAT EX TENT, DEPENDING UPON THE FACTS OF EACH CASE, THE EX PENDITURE INCURRED IN ACQUIRING THOSE SHARES WILL HAVE TO BE APPORTIONED. 40. WE NOTE FROM THE FACTS IN THE STATE BANK OF PAT IALA CASES THAT THE AO, WHILE PASSING THE ASSESSMEN T ORDER, HAD ALREADY RESTRICTED THE DISALLOWANCE TO T HE FOUNT WHICH WAS CLAIMED AS EXEMPT INCOME BY APP LYING THE FORMULA CONTAINED IN RULE 8D OF THE RULES AND H OLDING THAT SECTION 14A OF THE ACT WOULD BE APPLICA BLE. IN M.A. NO. 29/AHD/2020 (IN I.T.A NO. 2289/AHD/2017) A.Y. 2014-15 PAGE NO ITO VS. M/S. ADROIT TRADELINK PVT. LTD. 4 SPITE OF THIS EXERCISE OF APPORTIONMENT OF EXPENDIT URE CARRIED OUT BY THE AO, CIT(A) DISALLOWED THE EN TIRE DEDUCTION OF EXPENDITURE. THAT VIEW OF THE CIT(A) W AS CLEARLY UNTENABLE AND RIGHTLY SET ASIDE BY THE I TAT. THEREFORE, ON FACTS, THE PUNJAB AND HARYANA HIGH CO URT HAS ARRIVED AT A CORRECT CONCLUSION BY AFFIRMIN G THE VIEW OF THE ITAT, THOUGH WE ARE NOT SUBSCRIBING TO THE THEORY OF DOMINANT INTENTION APPLIED BY THE HIG H COURT. IT IS TO BE KEPT IN MIND THAT IN THOSE CASES WHERE SHARES ARE HELD AS 'STOCK-IN-TRADE', IT BECOMES A B USINESS ACTIVITY OF THE ASSESSEE TO DEAL IN THOSE SHARES AS A BUSINESS PROPOSITION. WHETHER DIVIDEND IS EARNED OR NOT BECOMES IMMATERIAL. IN FACT, IT WOULD BE A QUIRK OF FATE THAT WHEN THE INVESTEE COMPANY DECLARED DIVID END, THOSE SHARES ARE HELD BY THE ASSESSEE, THOUGH THE A SSESSEE HAS TO ULTIMATELY TRADE THOSE SHARES BY SEL LING THEM TO EARN PROFITS. THE SITUATION HERE IS, THEREFORE, DIFFERENT FROM THE CASE LIKE MAXOPP INVESTMENT LTD. WHERE THE ASSESSEE WOULD CONTINUE TO HOLD THOSE SHARES AS IT WANTS TO RETAIN CONTROL OVER THE INVESTEE COMPANY. IN THAT CASE, WHENEVER DIVIDEND IS DECLARED BY THE INVESTEE COMPANY THAT WOULD NECESSARILY BE EARNED BY THE AS SESSEE AND THE ASSESSEE ALONE. THEREFORE, EVEN AT THE TIME OF INVESTING INTO THOSE SHARES, THE ASSESSEE KNOWS THAT IT MAY GENERATE DIVIDEND INCOME AS WELL AND AS AND WHEN SU CH DIVIDEND INCOME IS GENERATED THAT WOULD BE EARNE D BY THE ASSESSEE. IN CONTRAST, WHERE THE SHARES ARE HEL D AS STOCK-IN-TRADE, THIS MAY NOT BE NECESSARILY A SITUATION. THE MAIN PURPOSE IS TO LIQUIDATE THOSE SHARES WHENE VER THE SHARE PRICE GOES UP IN ORDER TO EARN PROFIT S. IN THE RESULT, THE APPEALS FILED BY THE REVENUE CHALLENGIN G THE JUDGMENT OF THE PUNJAB AND-HARYANA HIGH COURT IN STATE BANK OF PATIALA ALSO FAIL, THOUGH LAW IN THIS RESPECT HAS BEEN CLARIFIED HEREINABOVE 41. HAVING REGARD TO THE LANGUAGE OF SECTION 14A(2) OF THE ACT, READ WITH RULE 8D OF THE RULES, WE ALSO MA KE IT CLEAR THAT BEFORE APPLYING THE THEORY OF APPORTIONM ENT, THE AO NEEDS TO RECORD SATISFACTION THAT HAVIN G REGARD TO THE KIND OF THE ASSESSEE, SUO MOTO DISALLOWANCE UNDER SECTION 14A WAS NOT CORRECT. IT WILL BE IN TH OSE CASES WHERE THE ASSESSEE IN HIS RETURN HAS HIMSELF APPORT IONED BUT THE AO WAS NOT ACCEPTING THE SAID APPORTI ONMENT. IN THAT EVENTUALITY, IT WILL HAVE TO RECORD ITS SAT ISFACTION TO THIS EFFECT. FURTHER, WHILE RECORDING SUCH A SATISFACTION, NATURE OF LOAN TAKEN BY THE ASSESSEE FOR PURCHASING THE SHARES/MAKING THE INVESTMENT IN SHARES IS TO BE EXAMINED BY THE AO. 42. CIVIL APPEAL NO. 1423 OF 2015 IS FILED BY M/S. AVON CYCLES LIMITED, LUDHIANA, WHEREIN THE AO HAD INVOK ED SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RUL ES AND APPORTIONED THE EXPENDITURE. THE CIT(A) HAD SET ASIDE THE DISALLOWANCE, WHICH VIEW WAS UPTURNED BY THE ITAT IN THE FOLLOWING WORDS: AFTER CONSIDERING THE DECISION OF THE HONBLE SUPRE ME COURT IN THE MAXOPP CASE AS CITED ABOVE, IT IS C LEAR THAT THE PRINCIPLE OF APPORTIONMENT OF THE EXPENDITURE W AS APPLICABLE AND THE EXPENDITURE APPORTIONED TO TH E EXEMPT INCOME OR INCOME NOT ELIGIBLE TO TAX WAS NOT ALLOWABLE AS A D EDUCTION. IN VIEW OF THE DECISION OF THE HONBLE S UPREME COURT AS SUPRA, THE PROVISION OF SECTION 14A IS APPLICABLE E VEN WHEN THE SHARES ARE HELD STOCK IN TRADE THOUG H INCIDENTALLY CERTAIN DIVIDEND INCOME IS EARNED, THEREFORE, THE CONTENTIO N OF THE LD. COUNSEL ABOUT THE APPLICABILITY OF THE DECISION OF THE CO- ORDINATE BENCH OF THE ITAT IN THE CASE OF ACIT VS. PUNJAB NATIONAL BANK ITA NO. 1810/DEL/2016 IS NOT A CCEPTABLE. WE CONSIDER THAT THE DECISION OF THE HONBLE SUPREME C OURT IN MAXOPP INVESTMENT LTD. VS. CIT HAS SETTLED THE LAW THAT RELEVANT EXPENDITURE IN CASE OF EXEMPT INCOME HAS T O BE APPORTIONED BETWEEN TAXABLE AND NON-TAXABLE IN COME. IN THE CASE OF THE ASSESSEE, THE TOTAL EXEMPT INCOME EARNED DUR ING THE YEAR IS RS. 22,01,928/- AS PER NOTE 10 ATTA CHED TO THE PROFIT AND LOSS STATEMENT FOR THE YEAR ENDED 31 ST MARCH, 2014 AND SHARE DIVIDEND ACCOUNT PLACED AT P AGE 42 OF THE PAPER BOOK. WE CONSIDER THAT HONBLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENT PVT. LTD. VS. CIT (2015) 59 TAX MANN.COM 295 HELD THAT DISALLOWANCE U/S. 14A CANNOT EXCEED THE ACTUA L EXEMPT INCOME. THE ITAT AHMEDABAD IN THE CASES O F K. RATANCHAND & CO. VS. ITO (2017) 83 TAXMANN.COM 242 AND JIVRAJ TEA LTD. VS. DCIT ITA NO. 886/AHD/2012 HAVE ALSO H ELD THAT ADDITION UNDER SECTION 14A CANNOT BE MORE THAN EXEM PT INCOME. IN THE LIGHT OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD. AND DECISION OF HONBLE DELHI HIGH COURT AND ITAT AHMEDABAD AS CITE D ABOVE, WE RESTRICT THE IMPUGNED DISALLOWANCE TO THE EXTENT OF INCOME OF RS. 2,21,928/- , THEREFORE, APPEAL OF TH E REVENUE IS PARTLY ALLOWED. AFTER CONSIDERING THE JUDICIAL FINDINGS AS ELABORAT ED SUPRA IT IS CATEGORICALLY HELD THAT THE DISALLOWANCE U/S. 14A I S TO BE RESTRICTED TO THE TOTAL EXEMPT INCOME OF THE ASSESSEE WHICH WAS RS. 2 2,01,928/- DURING THE YEAR UNDER CONSIDERATION, HOWEVER, INADVERTENTLY BY TYPOGRAPHICAL ERROR THE DISALLOWANCE WAS RESTRICTED TO THE EXTENT OF RS. 2, 21,928/- AS AGAINST THE AMOUNT TO BE DISALLOWED OF RS. 22,01,928/-. IN THE LIGHT OF THE ABOVE FACTS AND CIRCUMSTANCES, WE CONSIDER THAT THERE IS APPARE NT ERROR IN THE ORDER OF THE ITAT AS REFERRED ABOVE THEREFORE THE MISCELLANE OUS APPLICATION OF THE M.A. NO. 29/AHD/2020 (IN I.T.A NO. 2289/AHD/2017) A.Y. 2014-15 PAGE NO ITO VS. M/S. ADROIT TRADELINK PVT. LTD. 5 REVENUE IS ALLOWED. THE DISALLOWANCE U/S. 14A IS RESTRICTED TO RS. 22,01,928/- AS AGAINST RS. 2,21,928/- MENTIONED IN THE ORDER BECAUSE OF TYPOGRAPHICAL ERROR. 3. IN THE RESULT, THE MISCELLANEOUS APPLICATION OF THE REVENUE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26-10-2020 SD/- SD/- (MAHAVIR PRASAD) (AMARJIT SINGH) JUDICIAL MEMBER A CCOUNTANT MEMBER AHMEDABAD : DATED 26/10/2020 / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,