SEC 14A APPLICABLE ON DIVIDENDS FROM SHARES HELD AS STOCK-IN-TRADE.

ITAT Mumbai in the case of ITO vs. Daga Capital (I) has ruled that sec 14A of IT Act, which says that no deduction shall be allowed for expenditure incurred in relation to any tax free income, will apply in respect of tax free dividend income earned from shares held as stock in trade. The assessee had agrued that as income by way of profit from trading in shares is taxable, sec 14A should not be applicable on the dividend earned in the process of trading. The bench turned down the contention of the assessee and further held the fact that the dividend income is “incidental” to the purchase of
shares is irrelevant. The question as to whether the onus is on the assessee or the AO for bringing an
item of expenditure within sec14A is also irrelevant in view of Rule 8D.