2013 (8) TMI 401 - AT - Income Tax

Sale of shares - short term capital gain v/s income from business - Held that - Both the authorities below have themselves drawn support from the assessment for the earlier years, implying the facts to be the same. No separate case, by analyzing the facts for this year has been made out by the authorities below - Following decisions of ASSTT COMMISSIONER OF INCOME TAX VERSUS HITESH S BHAGAT 2013 (7) TMI 474 - ITAT MUMBAI and New Jehangir Vakil Mills Co. Ltd. vs. CIT 1963 (4) TMI 60 - SUPREME COURT - Decided in favour of assessee. Disallowance u/s 14A - CIT upheld disallowance order following Rule 8D - Held that - total expenditure incurred by the assessee during the relevant year, as per its profit and loss account, forming part of its return of income for the year is less than the sum of disallowance - no disallowance qua the interest expenditure stood made by the A.O.; the assessee having not incurred any interest expenditure; rather returned a positive interest income of ₹ 1,22,380/-, and which, as apparent from the computation of the income, is the gross and not the net interest earned by her - Rule 8D is toward estimating the expenditure that can be attributed to the tax exempt income and, thus, could not, in any case, exceed the actual expenditure incurred and claimed by the assessee - Decided in favour of assessee.

Summary

Issues Involved:
1. Assessment of income from the sale of shares as 'business income' versus 'Short Term Capital Gain' (STCG).
2. Disallowance under Section 14A of the Income Tax Act, 1961.
3. Treatment of Long Term Capital Gain (LTCG) as business income.

Issue-wise Detailed Analysis:

1. Assessment of Income from Sale of Shares:
The first issue concerns whether the income from the sale of shares should be treated as 'business income' or 'Short Term Capital Gain' (STCG). The assessee argued that the assessment should be consistent with previous years (A.Ys. 2004-05 to 2007-08), where the Assessing Officer (A.O.) accepted the assessee's claim of STCG. The Departmental Representative (DR) contended that each year's facts and circumstances should be considered independently, and res judicata does not apply to income tax proceedings. The tribunal endorsed the view that an investor could become a trader in subsequent years and vice-versa, and each year should be assessed based on its facts. However, the tribunal found substance in the assessee's argument that the authorities below relied on earlier assessments without analyzing the current year's facts separately. Consequently, the tribunal set aside the issue to the A.O. for a de novo adjudication, emphasizing the need for specific findings of fact.

2. Disallowance under Section 14A:
The second issue pertains to the disallowance of Rs. 6,52,086/- under Section 14A of the Income Tax Act, following Rule 8D, due to the assessee earning dividend income. The CIT(A) upheld the disallowance, noting the assessee's failure to provide a cash flow statement or evidence to establish that borrowed funds were not used for investing in shares. The tribunal observed that the total expenditure incurred by the assessee during the year was Rs. 5,79,692/-, which is less than the disallowance amount, and included direct expenses like Demat charges. The tribunal emphasized that the A.O. must be satisfied with the assessee's claim regarding the expenditure related to tax-exempt income before making a disallowance. The matter was restored to the A.O. for fresh consideration, aligning with the tribunal's decision to re-adjudicate the issue of income from the sale of shares.

3. Treatment of Long Term Capital Gain (LTCG) as Business Income:
The third issue involves the confirmation of treating LTCG as business income. This issue was also set aside for a de novo adjudication, consistent with the tribunal's order in the Revenue's appeal for the current year. The tribunal reiterated the need for the A.O. to issue definite findings of fact and decide the matter on merits in accordance with the law.

Conclusion:
The tribunal allowed the assessee's appeal for statistical purposes, setting aside all three issues to the A.O. for fresh adjudication, ensuring that the matters are decided based on specific findings of fact and in accordance with the law. The order was pronounced in the open court on July 24, 2013.