2016 (4) TMI 657 - AT - Income Tax

Disallowance u/s u/s 14A r.w. Rule 8D(2)(iii) - Held that - The facts as emanate from the record are that the assessee earned dividend income of ₹ 75,150/- which was exempt u/s 10(34) of the Act. As can be seen from the impugned order, the assessee had in fact submitted before the Ld.CIT(A) that she credited the exempt dividend income to her capital account for the relevant period and had claimed expenditure therein on account of delivery charges (Rs.1,519/-) , demat charges (Rs.10,621/-) , Stamp charges (Rs. 7,577/-) and Securities transaction (Rs. 72,415/-) charges and it was in these circumstances that no separate claim was put forth in the profit and loss account which reflected the derivative transactions of the assessee. In the factual matrix of the case, as laid out above, we concur with the averments of the AO without examination of the assessee s accounts and recording that he is not satisfied with the assessee s claim, proceeded on the factually erroneous conclusion that no expenditure was debited in respect of the earning of the assessee s exempt dividend income, to make the disallowance u/s 14A r.w. Rule 8D; which was not warranted. We agree with the plea of the assessee that since it had already claimed expenditure incurred (supra) for earning the exempt dividend income of ₹ 75,150/-, the further disallowance of ₹ 34,292/- made by the Assessing Officer u/s 14A r.w. Rule 8D was not called for - Decided in favour of assessee Sale of short term capital assets - capital gains OR business income - Held that - Following the aforesaid decision of the co-ordinate bench in the assesses own case for Asst. year 2006-07, since the facts of the matter are similar in this year also, we set aside the order of the Ld. CIT(A) and direct the Assessing Officer to assess the capital gains arising from sale of shares (i.e. Short term capital assets) as STCG. only and not as business income

Summary

Issues involved:
1. Disallowance u/s 14A of the Income Tax Act.
2. Treatment of short-term gains as business income.
3. Admission of an additional ground of appeal.

Issue 1: Disallowance u/s 14A of the Income Tax Act:
The appellant contested the disallowance of expenses incurred for earning dividend income under section 14A. The Assessing Officer disallowed a sum of &8377; 34,292, alleging no expenditure was shown for earning the dividend income. However, the appellant argued that expenses were debited to the capital account, not the profit and loss account, and provided evidence supporting the claim. The tribunal agreed with the appellant, stating that the disallowance was unwarranted as the appellant had already claimed the expenditure related to earning the exempt dividend income. Consequently, the disallowance of &8377; 34,292 was deleted.

Issue 2: Treatment of short-term gains as business income:
The appellant challenged the Assessing Officer's decision to treat short-term gains of &8377; 3,41,303 as business income from share trading activity. The tribunal noted that a similar issue had been decided in the appellant's favor for a previous assessment year. The tribunal directed the Assessing Officer to assess the capital gains from the sale of shares as short-term capital gains only, not as business income, based on the previous decision and the facts of the current case. The tribunal set aside the CIT(A)'s order and ruled in favor of the appellant.

Issue 3: Admission of an additional ground of appeal:
The appellant raised an additional ground of appeal regarding the Assessing Officer's observation that long-term gains were business income. The CIT(A) did not admit this ground, leading to the appellant's contention that the observation was not legally tenable. However, the appellant later decided not to press this ground during the appeal. Consequently, the tribunal dismissed this ground as infructuous.

In conclusion, the tribunal partially allowed the appellant's appeal for the assessment year 2008-09. The disallowance under section 14A was overturned, and the treatment of short-term gains as business income was reversed based on previous decisions. The additional ground of appeal regarding long-term gains was dismissed as it was not pressed during the hearing.