2015 (3) TMI 47 - AT - Income Tax

Income from sale of investment - business income v/s capital gain - Held that - So far as sale of shares/investment and the income arising from such sales have been treated as business income by the department which has been upheld by the Tribunal right from the A.Ys. 2001-02 to 2006-07. Thus consistent with the view taken in the earlier years, we hold that Ld.CIT(A) justified in treating the income from purchase and sale of shares/mutual funds as income from business. - Decided against assessee. Disallowance u/s 14A r.w.r 8D - Held that - Admittedly in the impugned assessment year, Rule 8D is not applicable. The assessee has already allocated expenditure of ₹ 13,90,651/- on a pro-rata basis, which can be said to be reasonable allocation of expenses for the purpose of earning of the exempt income. The assessing officer without finding any defect in such an attribution of expenses has blindly applied Rule 8D. Such an application of Rule 8D in the present assessment year is not applicable and therefore, disallowance made by the AO and confirmed by the Ld.CIT(A) over and above the amount disallowed by the assessee is deleted. - Decided against revenue. Computation of capital gain - assessee challenged the addition in respect of sale of office premises, amounting to ₹ 36,29,494/-, by taking a different value other than sale consideration shown by the assessee - AO rejected the assessee s contention and held that the rate of ₹ 11,099.37 per sq.ft should be applied and accordingly he treated the balance amount as deemed capital gains - Held that - From the order of the Ld.CIT(A) and the submissions made by the assessee, it is seen that the area of 327 sq.ft relate to set back area which was not part of the sale agreement registered for the office premises admeasuring 946 sq.ft which was sold @ 11099.37. If the assessee had shown the sale of 327 sq.ft, area which was a set back area @ ₹ 6,500/- then the assessing officer should have made some kind of inquiry for ascertaining the correct sale value. Simply because the covered office premises in the main office area has been sold at a higher rate, then the same rate cannot be imputed for the set back area also. The assessing officer cannot enhance the sale value, unless there is some kind of inquiry or material on record to show that even the set back area will fetch the same market price. It is only u/s 50C, that the statute has given power to the assessing officer to enhance the sale value to be in consonance with the sale rate determined by the stamp valuation authority. Thus under the facts and circumstances, when there is no contrary material on record or any inquiry by the AO, the sale consideration shown by the assessee is liable to be accepted. Accordingly the sale value shown by the assessee with regard to the area of 327 sq.ft is accepted. - Decided in favour of assessee.

Summary

Issues:
1. Tax treatment of income from sale of investment as business income vs. capital gain
2. Treatment of investment as stock and trade
3. Disallowance under section 14A of the Income-tax Act
4. Addition in respect of sale of office premises

Issue 1: Tax Treatment of Income from Sale of Investment
The appeal was filed against the order taxing income from the sale of investment under business income instead of capital gain for the assessment year 2007-08. The Tribunal noted that similar issues were decided against the assessee in earlier years. Considering the facts and past decisions, the Tribunal upheld the treatment of income from purchase and sale of shares/mutual funds as income from business, dismissing the appeal on this ground.

Issue 2: Treatment of Investment as Stock and Trade
The assessee raised an alternative ground arguing that if the profit from the sale of investment/shares is taxed as business income, then the investment should have been considered as stock and trade from the year of purchase. The Tribunal found this ground devoid of merit and dismissed it, stating that once the income from the sale of shares is treated as business income, it must be considered in trade without being treated as an investment.

Issue 3: Disallowance under Section 14A
The assessee challenged the disallowance made under section 14A concerning dividend income claimed as exempt. The assessing officer applied Rule 8D for disallowance, but the Tribunal found Rule 8D inapplicable for that assessment year. As the assessee had already allocated expenses for disallowance on a pro-rata basis, the additional disallowance made by the AO was deleted, allowing the appeal on this ground.

Issue 4: Addition in Respect of Sale of Office Premises
The addition in respect of the sale of office premises was contested, as the assessing officer changed the sale value based on a comparison with a different sale in the same building. The Tribunal noted that the area sold at a lower price was a set back area, not part of the main office premises. Without any inquiry or material to support the enhanced sale value, the Tribunal accepted the sale consideration shown by the assessee for the set back area, allowing the appeal on this ground.

In conclusion, the appeal was partly allowed, with different grounds being dismissed or allowed based on the Tribunal's analysis of each issue involved.