Section 14A – Shares held as stock in trade – Disallowance cannot be made :

Commissioner of Income Tax 4 vs. Credit Suisse First Boston (India) Securities Pvt. Ltd. INCOME TAX APPEAL NO.2387 of 2013 dt : 21ST MAR CH, 2016 (Bom HC) (Affirmed Mumbai ITAT decision on the above issues DCIT, CIT – 4(1) vs. M/s Credit Suisse First Boston (India) Securities Ltd. ITA no : 7354/Mum/2004, AY : 2001- 02 dt: 06/03/ 2013)

The assessee had been reflecting in the service tax return, the brokerage on accrued basis but in profit and loss account the brokerage was been shown on actual basis on the basis of constant method adopted by the assessee. The AO made an addition on this account . The CIT (A) and Tribunal recorded a finding that sometime the assessee was required to reduce the brokerage at the request of the assessee during the final settlement of the bills and some time the assessee was also required to waive part of the brokerage disputed by the clients. Therefore, difference as per the service tax return and as per profit and loss account was found explainable. This was a minor difference, which had been reconciled by the assessee. In the above view, the Hon’ble Court held that question as formulated does not give rise to any substantial question of law.

As regards section 14 A, it was observed that the Assessing Officer had disallowed the expenditure, on the ground that the Assesee had earned dividend income in respect of the shares held by the assessee. There is no dispute between the parties that the shares held by the Assessee are stock in trade, as the assessee is a trader in shares and had in its books classified it under the head ‘Stock in Trade’. The Revenue conceeded that the issue stood concluded against the Revenue and in favour of the Assessee, by the decisions of this Court in HDFC Bank Ltd. vs. The Deputy Commissioner of Income Tax2(3) (Writ Petition No.1753 of 2016 rendered on 25th February, 2016). In view of the above, the Hon’ble Court held that question as formulated did not give rise to any substantial question of law.