2016 (7) TMI 5 - AT - Income Tax

Assessability of the profit on sale and purchase of shares and securities - business income u/s capital gain - Held that - In view of the above precedent, the stand of the lower authorities in treating the assessee as a trader in shares is unsustainable. Pertinently, in the instant assessment order, the Assessing Officer has considered the assessment records for the earlier years as well to say that the assessee is not an investor in shares. Now, if in the earlier period, the assessee has been held by the Tribunal to be an investor in shares, consequently, in the instant year also such a finding is inevitable. The Tribunal in its order has noticed that in assessment year 2004-05 the department has itself treated the assessee as an investor in shares while making the assessment under section 143(3) of the Act. Thus, having regard to the history of the case, the action of the income-tax authorities in assessing the gain on sale and purchase of shares and mutual funds as business income is untenable - Decided in favour of assessee Disallowance u/s 14A - Held that - Quite clearly, the provisions of Rule 8D of the Rules are not applicable for the assessment year under consideration following the ratio of the judgment of Hon ble Bombay High Court in the case of Godrej & Boyce Mfg. Company Ltd.(2010 (8) TMI 77 - BOMBAY HIGH COURT ). Therefore, the disallowance of ₹ 6,24,577/- worked out by the Assessing Officer is not appropriate. So however, it also emerges from the record that apart from asserting that no amount debited to the P&L Account pertains to the exempt income, assessee has not lead any further material or evidence thereof. Be that as it may, in our view, it would be appropriate that disallowance of 5% of the exempt income i.e. 5% of ₹ 7,33,030/- be considered as a reasonable disallowance under section 14A of the Act in the present case. Therefore, we set-aside the order of the CIT(Appeals) and direct the Assessing Officer to restrict the disallowance under section 14A at 5% of the exempt income.- Decided in favour of assessee

Summary

Issues involved:
1. Treatment of income from sale and purchase of shares and securities.
2. Disallowance under section 14A of the Income Tax Act.
3. Charging of interest under section 234B & 234C.
4. Invocation of Section 271(1)(c) of the Income Tax Act.

Issue 1: Treatment of income from sale and purchase of shares and securities
The appeal pertains to the assessability of profit earned by the assessee on shares and securities. The Assessing Officer treated gains as business income, contrary to the assessee's claim of short and long term capital gains. The Tribunal noted the regularity in the activity and upheld the assessee's investor status based on separate portfolio maintenance. Precedent from a previous case supported the assessee's position, leading to a ruling in favor of the assessee.

Issue 2: Disallowance under section 14A of the Income Tax Act
The dispute revolved around disallowance of expenses under section 14A related to tax-exempt income. The Assessing Officer applied Rule 8D to compute the disallowance, which was contested by the assessee citing a Bombay High Court judgment. The Tribunal held Rule 8D inapplicable for the year under consideration and directed a reasonable disallowance of 5% of the exempt income, overturning the CIT(A)'s decision.

Issue 3: Charging of interest under section 234B & 234C
The final ground of appeal concerned the charging of interest under sections 234B & 234C, deemed consequential in nature. No specific arguments or details were provided regarding this issue, and the Tribunal's decision on this matter was not elaborated upon in the summary.

Issue 4: Invocation of Section 271(1)(c) of the Income Tax Act
The invocation of Section 271(1)(c) was raised as a ground of appeal, but no detailed analysis or outcome of this issue was provided in the summary. The judgment's conclusion mentioned that the appeal of the assessee was partly allowed, indicating a favorable outcome on some grounds while potentially not fully successful on all issues raised.