2017 (5) TMI 1644 - AT - Income Tax

Classification of income - Income from share transactions - business income OR capital gain - Period of holding - Held that - Assessee has chosen to treat the shares held for more than 30 days under the head investment . The assessee has sufficient owned capital to make these investments. The dealings are primarily in listed securities and the assessee has undertaken delivery based transactions, albeit for shorter period of time, average holding period being 72 days. Although, we are conscious of the fact that the principal of res judicata do not apply to Income Tax proceedings, yet we are of the view that there ought to be uniformity in treatment and consistency when the facts and circumstances are identical. Moreover, latest CBDT Circular No.6/2016 which is clarificatory in nature applies to listed securities and directs AO not to disturb the stand taken by assessee provided the same is applied consistently - their cannot be any straight jacket formula to distinguish the same and further there cannot be any single decisive factor to determine the same but an overall view has to be taken keeping in mind peculiar facts and circumstances of the case. We find ourselves in agreement with the view taken by CIT(A) that Appellant has carried out trading in shares as well as earned capital gains income on sale of shares which were held as investment. Accordingly, the treatment of gains as business income. Disallowance u/s 14A - Held that - Upon perusal of financial statement of the assessee, we find that the assessee has debited administrative expenditure of ₹ 3,45,491/- which is the maximum disallowance which the assessee can suffer. However, Ld. AO has made disallowance of ₹ 6,25,414/- towards the same which is not justified. Therefore, we delete disallowance of ₹ 3,45,391/- made u/r 8D(2)(i) while confirm the addition of ₹ 2,79,923/- made u/r 8D(2)(iii). This ground of revenue s appeal partly succeeds.

Summary

Issues:
1. Classification of income from share trading as business income or capital gains.
2. Deletion of disallowance u/s 14A by Ld. CIT(A).

Issue 1: Classification of Income from Share Trading
The appeal by the revenue for Assessment Year 2010-11 questioned the treatment of business income as capital gain despite numerous share transactions. The assessee reported Short Term Capital Gains of ?2,62,28,530/- from certain scrips held for more than 30 days, while gains from shares held for less than 30 days were considered Business Income. The Ld. AO, considering the volume of shares traded, deemed the activities as share trading in a business-like manner, taxing it as Business Income. The Ld. CIT(A) reversed this decision, supporting the assessee's classification. The revenue contended that the assessee's extensive share transactions warranted business income treatment. The AR argued for maintaining the consistent classification accepted by the revenue and highlighted the absence of borrowed funds in investments and the average holding period of 72 days.

Issue 2: Deletion of Disallowance u/s 14A
The Ld. CIT(A) also deleted the disallowance u/s 14A of ?6,25,414/-, as the assessee used own funds for investments, negating the need for disallowance. The revenue challenged this deletion, stating that the disallowance was not for interest expenditure but for administrative expenses, as per Rule 8D. The AR emphasized the maximum disallowance limit based on administrative expenses and opposed the excessive disallowance made by the Ld. AO. The Tribunal partly allowed the revenue's appeal, deleting ?3,45,391/- u/r 8D(2)(i) while confirming the addition of ?2,79,923/- u/r 8D(2)(iii).

In conclusion, the Tribunal upheld the Ld. CIT(A)'s decision on the classification of income from share trading and the deletion of disallowance u/s 14A, emphasizing the assessee's consistent approach, lack of borrowed funds, and average holding period. The judgment highlighted the importance of maintaining uniformity in treatment and considering all relevant factors in determining the nature of income from share transactions.