2013 (8) TMI 136 - AT - Income Tax

Sale and purchase of shares - capital gain v/s business income - Held that - Total number of transaction is 68 out of which 40 transactions relate to LTCG. 15 transactions relate to STCG and 30 transactions relate to close out transaction of STCG. The total number of scrips dealt by the assessee is 26. Further average holding period for capital gains is 37 days or 1.75 years. The average holding period for STCG is 217 days. These facts speak for themselves. The past history of the assessee also shows that right from assessment years 2001-02 to 2006-07, when the assessments has been made after thorough scrutiny u/s 143(3) the Department has accepted the profit under the head capital gain. Thus following rule of consistency no reason to take a different view as from the past assessment of the assessee. Against revenue. Disallowance u/s 14A - CIT(A) restricted the disallowance u/s 14A to Rs. 18,65,942/- whereas the disallowance as per Rule 8D worked out to Rs. 2,96,23,551/- - Held that - As it is settled that Rule 8D is prospective as held in Godrej and Boyce Mfg. Co. Ltd. vs. DCIT (2010 (8) TMI 77 - BOMBAY HIGH COURT), . However , at the same time a reasonable disallowance accepted to be made so far as earning of exempt income is concerned CIT(A) has restricted the disallowance to the extent of expenditure claimed. Thus no reason to interfere with the finding of CIT(A). Against revenue.

Summary

Issues:
1. Nature of income from sale and purchase of shares - Capital gain or business income.
2. Disallowance under section 14A of the Income Tax Act.

Issue 1: Nature of income from sale and purchase of shares - Capital gain or business income:

The case involved appeals by the Revenue against the order of the ld. CIT(A)-39, Mumbai for assessment years 2007-08 and 2008-09. The primary issue was whether the income of Rs. 13,40,75,773/- from the sale of investments should be treated as capital gain or business income. The Assessing Officer (A.O.) contended that the gains should be taxed as business income due to the frequency and nature of transactions. The assessee argued that they were investors, not traders, supported by the holding periods and past assessments. The ld. CIT(A) analyzed the transactions, holding periods, and the CBDT Circular, concluding that the income should be taxed under the head capital gain. The Tribunal upheld the ld. CIT(A)'s decision, citing past consistency and the factual situation of the case.

Issue 2: Disallowance under section 14A of the Income Tax Act:

The second issue pertained to the disallowance under section 14A of the Act. The A.O. made the disallowance based on Rule 8D, but the ld. CIT(A) restricted it to Rs. 18,65,942/- considering the expenses debited to the P&L account. The Revenue contended that Rule 8D should apply, while the assessee argued against its application. The Tribunal noted that Rule 8D is prospective and upheld the ld. CIT(A)'s decision to restrict the disallowance to the extent of expenses claimed. The Tribunal dismissed the Revenue's appeal on this issue as well.

In conclusion, the Tribunal dismissed the appeals filed by the Revenue for both assessment years, upholding the decisions of the ld. CIT(A) on both issues. The judgment highlighted the importance of factual analysis and past consistency in determining the nature of income and the appropriate disallowances under the Income Tax Act.