2015 (11) TMI 7 - AT - Income Tax

Addition u/s. 14A - CIT(A) deleted the addition - Held that - It is now settled that Rule 8D is applicable from A.Y. 2008-09 by the decision of the Hon ble High Court of Bombay in the case of M/s. Godrej & Boyce Manufacturing Co. Ltd. 2010 (8) TMI 77 - BOMBAY HIGH COURT . However, at the same time, the Hon ble High Court has held that there should be reasonable disallowance. In our considered view, disallowance @5% of the dividend income should meet the ends of justice. We, accordingly direct the AO to restrict the disallowance to 5% of the dividend income. Decided partly in favour of assessee. Disallowance made u/s. 40(a)(ia) - VSAT charges and Leaseline charges paid to stock exchange - Failure to deduct TDS - Held that - This issue is squarely covered in favour of the assessee and against the Revenue by the decision of the Hon ble Bombay High Court in the case of CIT Vs Angel Capital and Debit Market Ltd. 2014 (5) TMI 584 - BOMBAY HIGH COURT which has been followed by the Tribunal in assessee s own case in A.Y. 2005-06 held VSAT and Lease Line charges paid by the assessee to Stock Exchange were merely reimbursement of the charges paid/payable by the Stock Exchange to the Department of Telecommunication - the VSAT and Lease Line charges paid by the assessee do not have any element of income, deducting tax while making such payments do not arise Decided against Revenue. Treatment of Short Term Capital Gain as business income - Held that - This issue arose in A.Y. 2006-07 and the Tribunal following the earlier order of the Tribunal in A.Y. 2005-06 directed the AO to treat the capital gains under the head Capital Gains Decided against Revenue.

Summary

Issues:
1. Disallowance of expenses under Sec. 14A of the Act.
2. Deletion of disallowance under Sec. 40(a)(ia) for VSAT and Leaseline charges.
3. Treatment of Short Term Capital Gain as business income.

Issue 1: Disallowance of expenses under Sec. 14A of the Act:
The Revenue appealed against the deletion of an addition made under Sec. 14A of the Act. The Assessing Officer computed a disallowance of &8377; 9,58,760 due to tax-free dividend income and Long Term Capital Gain. The assessee argued that Rule 8D was not applicable for the year in question, and the Ld. CIT(A) agreed, directing the AO to compute the disallowance differently. The Tribunal, considering the applicability of Rule 8D from A.Y. 2008-09, directed a 5% disallowance of dividend income, citing a decision by the Hon'ble High Court of Bombay. Thus, the appeals were partly allowed concerning this issue.

Issue 2: Deletion of disallowance under Sec. 40(a)(ia) for VSAT and Leaseline charges:
The second issue involved the deletion of disallowance under Sec. 40(a)(ia) for charges paid to stock exchanges. The Ld. Counsel for the assessee contended that relevant decisions favored the assessee, which the Tribunal had followed previously. The Tribunal dismissed the Revenue's appeal, relying on the decisions of the Hon'ble Bombay High Court and the Tribunal in the assessee's previous cases. Consequently, the appeal filed by the Revenue was partly allowed.

Issue 3: Treatment of Short Term Capital Gain as business income:
The third issue revolved around treating Short Term Capital Gain as business income. The AO treated the gain as business income based on the assessee's trading history, despite the assessee's claim of being an investor. The Ld. CIT(A) upheld this treatment. However, the Tribunal, following its previous decisions in the assessee's favor, directed the AO to treat the Short Term Capital Gain as such. As no distinguishing decision was presented by the DR, the Tribunal allowed the assessee's appeal on this issue. Overall, the appeals by both the Revenue and the assessee were partly allowed.

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