2016 (12) TMI 242 - AT - Income Tax

Income from share transactions - Nature of income - Short Term Capital Gains or income from business - Held that - As decided in assessee s own case for AY 2007-08 the issue has been decided against the assessee. We, therefore , respectfully following the decision of the coordinate bench uphold the orders of authorities below in treating the STCG as income from business. Disallowance u/s 14A read with Rule 8D - Held that - We find that in the case of assessee the exempt income from dividend was ₹ 40,000/- during the year. We are in agreement with the arguments advanced by the ld.AR that the disallowance u/s 14A r.w.r 8D should not exceed the exempt income earned during the year. The case of the assessee is also supported by the decisions referred and relied to by the ld AR in which it has been held that disallowance cannot be exceed the amount of exempt income. We set aside the order of the ld. CIT(A) and direct the AO to delete the addition of ₹ 18,51,670/- by sustaining the disallowance to the extent of ₹ 40,000/- only. Confirmation of disallowance on account of car expenses, depreciation of motor car, telephone expenses, conveyance allowance and travelling expenses - Held that - We find that the adhoc disallowances has been made by the AO at the rate of 20% of the total expenses in respect of car expense, depreciation , telephone, office expenses, conveyance, miscellaneous expense, foreigen travel and other travelling. The ld CIT(A) reduced qua car , depreciation and telephone to 1/6th whereas the disallowance in respect of office expense, conveyance and miscellaneous was retained at 10% and the disallowance on account of foreign travel and other travel was confirmed. . Having seen the nature of expenses incurred , we find that the basis of confirmation is tribunal decision and CIT(A) decisions in the case of the assessee himself. Further we find that disallowances were purely on adhoc basis. We are therefore of the considered opinion that it would be justified and reasonable if the disallowances is restricted to 10% of the total expenses Addition on account of commission income on the basis of AIR information available with the department - Held that - We find from the reconciliation statement that most of the entries attributing to the difference between the books of the assessee and Form 26A were duly recorded by the assessee either in the preceding or succeeding year. We, therefore, consider it fit and proper to restore the mater to the file of the AO to verify the facts and decide the matter on the basis of reconciliation statement filed by the assessee as per fact and law. This ground is allowed for statistical purposes. Disallowance on account of foreign travel expenses - Held that - As find from the record that the ld.CIT(A) while confirming the action of AO observed that the assessee failed to demonstrate that the expenses of ₹ 2000/- were incurred wholly and exclusively for the purpose of business. We do not find any infirmity in the findings of the ld.CIT(A) and accordingly same is confirmed on this issue Disallowance of travelling expenses - Held that - CIT(A) upheld the action of the AO on the ground that the assessee failed to prove that one of his employees visited Shirdi for cracking the business deal with one of the client but relevant documents have not been submitted as to which employee was sent to Shirdi, to whom did he meet and what business purpose was served. Since, the assessee failed to controvert the findings of the AO before the ld.CIT(A) and here also no contrary documents were submitted by the ld.AR to disprove the finding of the ld.CIT(A), we confirm the findings of the lower authorities

Issues Involved:
1. Treatment of Short Term Capital Gains (STCG) as business income.
2. Disallowance under Section 14A read with Rule 8D.
3. Adhoc disallowance of various business expenses.
4. Addition of commission income based on AIR information.
5. Disallowance of foreign travel expenses.
6. Disallowance of other travel expenses.
7. Disallowance of presentation articles expenses.

Detailed Analysis:

1. Treatment of Short Term Capital Gains (STCG) as business income:
The assessee declared STCG of ?13,77,568/- on the sale of investments, which the Assessing Officer (AO) treated as income from business due to frequent trading activities. The assessee conceded that the issue was covered against them by a previous Tribunal decision in their own case (ITA No. 7881/Mum/2010). The Tribunal upheld the AO's treatment of STCG as business income, following the precedent set in the earlier case.

2. Disallowance under Section 14A read with Rule 8D:
The AO disallowed ?18,91,670/- under Section 14A read with Rule 8D, as the assessee did not apportion any expenses towards earning exempt dividend income. The Tribunal agreed with the assessee's argument that the disallowance should not exceed the exempt income earned during the year, which was ?40,000/-. Citing several decisions, the Tribunal directed the AO to restrict the disallowance to ?40,000/-.

3. Adhoc disallowance of various business expenses:
The AO made adhoc disallowances of car expenses, depreciation, telephone expenses, office expenses, conveyance, miscellaneous expenses, foreign travel, and other travel expenses, totaling ?7,64,255/-. The CIT(A) confirmed part of these disallowances. The Tribunal found the disallowances to be on an adhoc basis and directed the AO to restrict the disallowance to 10% of the total expenses, considering it reasonable.

4. Addition of commission income based on AIR information:
The AO added ?27,49,671/- to the assessee's income based on AIR information, which showed higher commission income than reported. The assessee argued that they followed the cash system of accounting, while the AIR information was on an accrual basis. The CIT(A) upheld the AO's addition. The Tribunal restored the matter to the AO for verification based on the reconciliation statement provided by the assessee.

5. Disallowance of foreign travel expenses:
The AO disallowed ?2,000/- of foreign travel expenses, which the CIT(A) confirmed, as the assessee failed to prove the expenses were wholly and exclusively for business purposes. The Tribunal upheld this disallowance.

6. Disallowance of other travel expenses:
The AO disallowed ?4,969/- of travel expenses related to a trip to Shirdi. The CIT(A) confirmed the disallowance as the assessee could not substantiate the business purpose of the trip. The Tribunal upheld this disallowance as well.

7. Disallowance of presentation articles expenses:
The AO disallowed 10% of the expenses on presentation articles, totaling ?23,033/-, based on a previous ITAT order. The CIT(A) confirmed the disallowance. The Tribunal found the 10% disallowance to be fair and reasonable and upheld the lower authorities' decisions.

Conclusion:
The appeals were partly allowed, with specific directions to the AO to adjust the disallowances and additions as per the Tribunal's findings. The Tribunal's decisions were based on precedents, reasonable assessments of the facts, and adherence to legal principles.

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