2022 (8) TMI 1376 - AT - Income Tax

Disallowance u/s 14A - assessee has earned dividend income which has been reflected under the head other income in the P L account - CIT(A) determined the disallowance @ 0.5% of the average investment - HELD THAT - As gone through the submissions of the ld. DR and find that the amendment has been brought by the Finance Bill 2022 which is prospective in nature. Hence we hold that the amount of disallowance u/s 14A of the I.T. Act needs to be restricted to the extent of exempted income earned (Rs. 50, 000/-) during the relevant assessment year. The appeal of the Revenue on this ground is dismissed and the appeal of the assessee is allowed. Conversion of investment - Capital gain of sale of shares etc. - appellant company has transferred the entire investment to Stock-in-Trade - to be considered as business income or capital gain - HELD THAT - As we find that the ld. CIT(A) has affirmed the action of the AO in treating the amount as income from capital gains. Since the arguments put forward before us are similar to the arguments before the ld. CIT(A) after going through the entire issue we hereby confirm the action of the ld. CIT(A). However we find that the revenue has taken up a ground with regard to the applicability of Section 45(2) which do not emanate either from the order of the ld. CIT(A) or from the Assessment Order. Since we have confirmed the orders of the revenue no adjudication on the ground no. 4 is called for.

Summary

Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act, 1961.
2. Conversion of investments into stock-in-trade.
3. Addition on account of surrendered income during search proceedings.

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A of the Income Tax Act, 1961:
- Revenue Appeal (ITA No. 5310/Del/2015) and Assessee Appeal (ITA No. 4971/Del/2015) for A.Y. 2011-12:
- The Assessing Officer (AO) disallowed Rs. 14,12,51,908/- under Section 14A, while the CIT(A) reduced this to 0.5% of the average investment, resulting in a disallowance of Rs. 89,32,232/-.
- The Tribunal held that disallowance under Section 14A cannot exceed the exempt income earned, which was Rs. 50,000/- in this case. This decision was supported by various judicial precedents, including Joint Investments Pvt. Ltd. vs. CIT and Daga Global Chemicals Pvt. Ltd. vs. ACIT.
- The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal, restricting the disallowance to Rs. 50,000/-.

- Revenue Appeal (ITA No. 5311/Del/2015) and Assessee Appeal (ITA No. 4972/Del/2015) for A.Y. 2012-13:
- The AO disallowed Rs. 15,74,16,144/- under Section 14A. The Tribunal applied the same rationale as in the previous year, restricting the disallowance to the exempt income earned, which was Rs. 1,00,000/-.
- The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal on this ground.

2. Conversion of Investments into Stock-in-Trade:
- Assessee Appeal (ITA No. 4971/Del/2015) and Revenue Appeal (ITA No. 5310/Del/2015) for A.Y. 2011-12:
- The assessee converted investments worth Rs. 179,14,46,369/- into stock-in-trade on 01.04.2010 and reported profits from the sale of these shares as business income.
- The AO treated the proceeds from the sale of unquoted shares as capital gains, not business income, resulting in an addition of Rs. 18,85,98,890/-.
- The CIT(A) upheld the AO's decision, stating that the conversion was not genuine and was merely a book entry.
- The Tribunal confirmed the CIT(A)'s decision, treating the amount as capital gains, and dismissed the assessee's appeal on this ground.

- Assessee Appeal (ITA No. 4972/Del/2015) for A.Y. 2012-13:
- The Tribunal applied the same rationale as in the previous year, dismissing the assessee's appeal on this ground.

3. Addition on Account of Surrendered Income During Search Proceedings:
- Assessee Appeal (ITA No. 4972/Del/2015) for A.Y. 2012-13:
- The AO made an addition of Rs. 10,00,00,000/- based on the assessee's surrender during search proceedings but later revised it to Rs. 1,75,66,829/-.
- The CIT(A) upheld the addition of Rs. 8,24,33,171/-, citing the principle of estoppel, as the assessee had initially surrendered this amount.
- The Tribunal found that the addition was not backed by any material evidence found during the search and referred to CBDT instructions and the Supreme Court's decision in CIT vs. Mantri Share Brokers (P.) Ltd.
- The Tribunal allowed the assessee's appeal on this ground, deleting the addition of Rs. 8,24,33,171/-.

Conclusion:
- The appeals of the assessee were partly allowed, and those of the Revenue were partly dismissed. The Tribunal restricted the disallowance under Section 14A to the exempt income earned and upheld the treatment of proceeds from the sale of unquoted shares as capital gains. The addition based on the surrendered income during search proceedings was deleted due to lack of supporting evidence.