2014 (4) TMI 1104 - AT - Income Tax

Treating gains from sale of shares as Income From Business instead on Capital Gains - Held that - The purchase of IPO is mostly done by the investors as there is less risk of loss. Further, the other attendant facts like; the assessee has utilized its own funds and has shown the shares under the head investment and most important that exactly similar nature of transactions have been held by the Department to be capital gain not only in the earlier assessment years but also in the subsequent assessment year. Thus, there has been consistency which has been accepted. This goes to show that the intention of the assessee was only for the purpose of making investment and not for entering into any venture of trade. Under these facts and circumstances, we hold that the gain arising out of sale of shares should be assessed as capital gain and not as a business income. The fundings of the Assessing Officer and the learned Commissioner (Appeals) are based on various decisions which cannot be held to be applicable universally in all the cases, because in such kind of transaction, each fact of the case has to be analysed, depending upon the intention of the assessee and also the other attendant circumstances. - Decided in favour of assessee Disallowance u/s 14A - Held that - on a perusal of the relevant material on record, it is seen that the assessee has only debited sum of ₹ 2,170 as expenditure which is on account of bank charges and accountant fees. These expenditures cannot be, in any manner, said to be attributable for earning of the exempt income. Thus, when there is not much expenditure claimed in the Profit & Loss account, then there is no question of disallowance under section 14A. - Decided in favour of assessee

Summary

Issues:
1. Treatment of gains from sale of shares as 'Income From Business' instead of 'Capital Gains'.
2. Disallowance under section 14A of the Act.

Issue 1: Treatment of gains from sale of shares as 'Income From Business' instead of 'Capital Gains'

The appellant challenged the order passed by the Commissioner (Appeals) upholding the Assistant Commissioner's decision to treat gains from the sale of shares as 'Income From Business' instead of 'Capital Gains'. The appellant argued that the shares were mostly acquired through IPO and held as capital assets, not for trading purposes. The Assessing Officer noted the high frequency of transactions and low holding period, concluding that the intention was for business profit. However, the appellant contended that the consistent practice of investing in IPO shares, absence of borrowed funds, minimal expenses, and no repetitive transactions indicated an investment intention. The Tribunal agreed with the appellant, emphasizing the nature of IPO investments, use of own funds, and past assessments treating similar transactions as capital gains. The Tribunal held that the gains should be assessed as capital gains, overturning the Commissioner (Appeals) decision.

Issue 2: Disallowance under section 14A of the Act

The Assessing Officer disallowed an amount under section 14A due to exempt dividend income without corresponding expenditure allocation. The appellant argued that only nominal expenses were debited, such as accountant fees and bank charges, which were not related to earning exempt income. The Commissioner (Appeals) upheld the disallowance, but the Tribunal sided with the appellant, stating that the minimal expenses incurred could not be attributed to earning exempt income. Therefore, as there was no significant expenditure claimed in the Profit & Loss account, the Tribunal ruled that there was no basis for disallowance under section 14A.

This judgment by the ITAT Mumbai addressed the issues of categorizing gains from share sales and disallowance under section 14A. The Tribunal emphasized factors like investment intent, nature of transactions, and expenditure relevance in determining the tax treatment.