2016 (9) TMI 1541 - AT - Income Tax

Correct head of Income - Income from purchase/ sale of shares - income from capital gains OR Business income - HELD THAT - As decided in own case 2013 (4) TMI 940 - ITAT KOLKATA the crux of the finding that the assets which have been held as investments have been sold on account of capital and not for business. We are inclined to hold the issue as covered in favour of the assessee, in so far as, the Revenue has not been able to bring out any controverting material which the assessee has submitted that the case laws cited fairly cover the facts which the ld. CIT(A) accepted and allowed the assessee s appeal who confirmed the returned income on sale of shares as for capital gains. The appeal of the revenue stands dismissed Addition u/s 14A r.w.s. Rule 8D - HELD THAT - In the instant case the ld. CIT(A) has calculated the disallowance under section 14A r.w.r. 8D of Income Tax Rules after taking the net interest expenditure. We find that the view taken by the ld. CIT(A) is supported with the order of Trade Apartments Limited 2012 (3) TMI 421 - ITAT KOLKATA . In view of the above proposition of law, we find no reason to interfere in the order of ld. CIT(A). Hence this ground of appeal of the revenue is dismissed.

Summary

Issues:
1. Treatment of gains from shares as capital gains or business income
2. Deletion of addition made under section 14A read with Rule 8D

Analysis:

Issue 1: Treatment of gains from shares
The appeal by the Revenue challenged the Commissioner of Income Tax (Appeals)'s order treating gains from share transactions as capital gains instead of business income. The Revenue argued that the frequency of share transactions by the assessee should have led to treating the gains as business income. The Assessing Officer observed that the assessee's systematic and volume-based share trading activities, along with the company's object clause, indicated business income. However, the Commissioner of Income Tax (Appeals) reversed the AO's decision, citing precedents and the ITAT order for a previous assessment year in favor of the assessee. The ITAT upheld the Commissioner's decision, stating that the issue was already settled in favor of the assessee, and dismissed the Revenue's appeal.

Issue 2: Deletion of addition under section 14A read with Rule 8D
The second issue involved the deletion of an addition made by the AO under section 14A read with Rule 8D concerning exempted income from dividends. The AO disallowed a significant amount under Rule 8D, which was challenged by the assessee before the CIT(A). The CIT(A) partly allowed the appeal, modifying the disallowance related to interest expenses. The Revenue appealed this decision, arguing that the AO had not recorded satisfaction before invoking section 14A. The ITAT found that the investment was made from owned funds, not loans, and that the AO failed to establish the utilization of borrowed funds for shares. Citing precedent, the ITAT upheld the CIT(A)'s decision, emphasizing the net interest amount for disallowance under section 14A. Consequently, the ITAT dismissed the Revenue's appeal, affirming the CIT(A)'s order.

In conclusion, the ITAT upheld the decisions of the CIT(A) in both issues, emphasizing precedents and legal provisions to support the assessee's position. The Revenue's appeals were dismissed, and the orders were pronounced in favor of the assessee on both issues.