2014 (2) TMI 607 - AT - Income Tax

Nature of profits STCG or LTCG - Whether the profit arisen out of sale of shares is to be assessed as short term capital gain or long term capital gain Held that - The CIT(A) treated the profit arising from sale of shares as Long Term Capital Gain - the period of holding must necessarily include the date of purchase of the capital asset as well - the appellant held the Units for period of 12 months and 1 day thus, capital assets in question were long term capital assets and consequently the gain was long term capital gains - The same therefore qualified for exemption u/s 10(38) of the Income Tax act - The assessee has held the assets i.e. shares for more than twelve months, may be even for one day thus, there is no need to interfere in the order of CIT(A) Decided against Revenue. Disallowance of expenses u/s 14A of the Act Held that - CIT(A) restricted the disallowance - As the issue is covered u/s 14A of the Act only 1% disallowance is to be restricted but here, the assessee itself has disallowed a sum which is more than 1% - The entire addition made by AO is deleted Decided in favour of Assessee.

Summary

Issues:
1. Classification of profit from sale of shares as short term or long term capital gain.
2. Disallowance of expenses under section 14A of the Income Tax Act.

Issue 1: Classification of profit from sale of shares

The appeal by the revenue and Cross Objection by the assessee revolve around the classification of profit from the sale of shares as short term or long term capital gain. The AO initially assessed the income under Short Term Capital Gains, while the assessee claimed it to be Long Term Capital Gains. The revenue contended that the assets were held for less than twelve months, thus should be considered short term gains. The CIT(A) disagreed, noting that the period of holding should include the date of purchase, making the assets long term. The CIT(A) relied on the provisions of Sec. 2(42A) and 2(29A) to support this decision. The CIT(A) directed the AO to assess the income as long term capital gains, qualifying for exemption under Sec. 10(38) of the Income Tax Act. The Tribunal upheld the CIT(A)'s decision, as it was evident that the assets were held for more than twelve months, even if for just one day, dismissing the revenue's appeal.

Issue 2: Disallowance of expenses under section 14A

The Cross Objection by the assessee concerns the disallowance of expenses under section 14A of the Income Tax Act. The assessee had earned tax-free income in the form of dividends and LTCG. The AO disallowed expenses of Rs. 9,09,010 attributing them entirely to the exempted income, despite the assessee having already disallowed Rs. 6,76,683 while computing income under section 14A. The CIT(A) restricted the disallowance to Rs. 6,76,683, as the issue was covered under section 14A, which mandates only a 1% disallowance. Since the assessee had already disallowed an amount exceeding 1%, the Tribunal directed the AO not to disallow any further amount beyond what the assessee had already disallowed. Consequently, the entire addition made by the AO was deleted, and the assessee's Cross Objection was allowed.

In conclusion, the Tribunal dismissed the revenue's appeal regarding the classification of profit from the sale of shares and allowed the assessee's Cross Objection regarding the disallowance of expenses under section 14A of the Income Tax Act.