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2014 (5) TMI 358 - AT - Income TaxDisallowance u/s 14A of the Act r.w. rule 8D of the Rules Computation of Disallowance Held that - Following Maxopp Investment Ltd. Vs. CIT - 2011 (11) TMI 267 - Delhi High Court the AO cannot embark upon a determination of the amount of expenditure for the purposes of section14A(1) - the order of the is set aside and the matter is remitted back to the AO for fresh adjcudication Decided in favour of Assessee. STCG treated as Business income Held that - Following Commissioner of Income Tax (Central) Versus M/s Express Securities Pvt. Ltd. 2013 (10) TMI 1182 - DELHI HIGH COURT - merely because due to amendment under the Income Tax Act by which long term capital gain is exempt and short term capital gain is chargeable at a lesser rate of tax, then business income does not mean that the conversion of stock-in-trade to the investment is improper or illegal - The assessee was entitled to convert the holding from stock-in-trade to investment on noticing the tax benefit - on the sale of shares during the year which were converted into stock-in-trade last year, the gain arising was partly long term capital gain and partly short term capital gain in view of the period of holding of such shares thus, the AO was not justified in treating the short term capital gain as income from business or profession Decided in favvour of Assessee.
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act. 2. Assessment of short-term capital gains as business income. Detailed Analysis: 1. Disallowance under Section 14A: Ground Nos. 1 & 2: The appellant challenged the disallowance of Rs. 5,90,029 under Section 14A of the Income Tax Act, arguing that the provisions of Section 14A were not applicable, and even if they were, the disallowance was not correctly computed as per Rule 8D of the Income Tax Rules. Tribunal's Decision: The Tribunal noted that this issue is covered by the decision of the Hon'ble Jurisdictional High Court in the case of Maxopp Investment Ltd. Vs. CIT - [2012] 347 ITR 272 (Delhi). Respectfully following the same, the Tribunal set aside the orders of the lower authorities on this point and restored the matter to the file of the Assessing Officer for readjudication in accordance with the directions of the Hon'ble Jurisdictional High Court in the case of Maxopp Investment Ltd. The Assessing Officer was directed to allow adequate opportunity of being heard to the assessee. 2. Assessment of Short-Term Capital Gains as Business Income:Ground No. 3: The appellant contested the action of the Assessing Officer in assessing short-term capital gains of Rs. 47,11,569 as business income, arguing that the frequency and volume of transactions were not indicative of business activity and that the long-term capital gains were accepted as investments. Tribunal's Decision: The Tribunal considered the arguments from both sides and referenced the Hon'ble Jurisdictional High Court's decision in the case of M/s Express Securities Pvt. Ltd., which upheld the conversion of stock-in-trade to investment. The Tribunal noted that the conversion of stock-in-trade to investment on 30th September 2004 was accepted by the Revenue under Section 143(1). The Tribunal found that the Assessing Officer's objection to the conversion, based on the differential tax rates, was not justified as the conversion was a legitimate tax planning strategy. The Tribunal also referenced the decision in Gopal Purohit, where similar transactions were treated as capital gains and not business income. The Tribunal observed that the volume and frequency of transactions were not high enough to be considered trading activity. The Tribunal concluded that the intention of the assessee was to hold the shares as investments, not for trading, as evidenced by the conversion of stock-in-trade to investment and the recording of shares as investments in the books of account. The Tribunal directed the Assessing Officer to assess the short-term capital gains under the head 'capital gains' and not under 'profits and gains from business or profession'. Alternative Ground:Ground No. 4: The appellant raised an alternative ground for allowing securities transaction tax paid on shares as business expenditure if the income was assessed as business income. However, since ground No. 3 was allowed in favor of the assessee, ground No. 4 was treated as not pressed and was rejected. Appeal for AY 2007-08:Ground Nos. 1 & 2: These grounds were identical to those in the appeal for AY 2006-07. The Tribunal set aside and restored these issues to the file of the Assessing Officer for readjudication as per the decision of the Hon'ble Jurisdictional High Court in Maxopp Investment Ltd. Ground No. 3: The Tribunal allowed this ground and directed the Assessing Officer to assess the short-term capital gains under the head 'capital gains'. Ground No. 4: As with the previous year, this ground was treated as not pressed and rejected. Conclusion: The appeals of the assessee were partly allowed. Decision pronounced in the open Court on 2nd May, 2014.
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