2017 (10) TMI 377 - AT - Income Tax

Foreign Travel Expenses - allowable business deduction - Held that - We are of the opinion that each Assessment Year is a unique unit of assessment and principle of resjudicata do not apply to Income Tax Proceedings. The primary conditions of claiming the expenses, in terms of Section 37, is that the expenses have been incurred wholly and exclusively for the purpose of Business or profession. Although, the assessee has placed relevant invoices and relevant ledger extracts, however, no details of any conferences / seminars are available on record. Therefore, on the basis of material available on record, the primary condition of claiming the same, in our opinion, has remained unfulfilled. As contended that the assessee could not establish / demonstrate the same for want of time. Therefore, without delving much deeper in the issue, on the facts of the case, we restore the matter back to the file of Ld. AO to re-appreciate the evidences submitted by the assessee. The assessee, in turn, is directed to substantiate his claim in this regard failing which Ld. AO shall be at liberty to adjudicate the same on the basis of material available on record. Resultantly, this ground of revenue s appeal stands allowed for statistical purposes. Income from sale of shares - business or capital gains - Held that - Assessee is a lawyer by profession and major portion of total income consist of professional income. A perusal of Balance Sheet reveals that the assessee reflects investment in securities under the head Investments and closing investment at year end is ₹ 51.61 Lacs against which the assessee s personal capital & unsecured loans stood at ₹ 21.12 crores & ₹ 31.80 Lacs. The other loans are car loans and loans against Fixed Deposits. A perusal of Share Income Chart placed in the paper book reveals that the assessee has transacted mostly in listed securities and the transactions are mostly delivery based transactions. The total holding period of all the scrips is 6601 days and average holding period comes to 57 Days and total number of unique trade days is 64 days. This data is nowhere controverted by the revenue before us. Moreover, latest CBDT Circular No.6/2016 which is clarificatory in nature applies to listed securities and directs AO not to disturb the stand taken by assessee provided the same is applied consistently. Hence, we find that their cannot be any straight jacket formula to distinguish the same and further there cannot be any single decisive factor to determine the same but an overall view has to be taken keeping in mind peculiar facts and circumstances of the case.

Summary

Issues:
1. Disallowance of Foreign Travel Expenses
2. Classification of Share Income as Business Income or Short Term Capital Gain

Analysis:

Issue 1: Disallowance of Foreign Travel Expenses
The appeal by the revenue challenged the deletion of an addition of ?23,28,423 on account of Foreign Travel Expenses by the Ld. CIT(A). The assessee, a resident individual and lawyer, was assessed for AY 2008-09 with total expenses of ?23,79,927 towards foreign travel. The AO disallowed the entire amount due to lack of sufficient documentary evidence and unclear professional purpose of the visit. However, the Ld. CIT(A) found that the expenses were justifiable as they were incurred for professional purposes like attending seminars and conferences. The ITAT, after reviewing the evidence, directed the matter back to the AO for reevaluation, emphasizing the need for substantiation by the assessee to support the claim.

Issue 2: Classification of Share Income
The second issue revolved around the classification of Share Income as Business Income or Short Term Capital Gain. The assessee reflected Short Term Capital Gain of ?1,21,01,161 on the sale of shares, which the AO treated as business income due to the volume, frequency, and regularity of transactions. The AO denied the set-off of Short Term Capital Loss and applied a higher tax rate. However, the Ld. CIT(A) disagreed, noting that the transactions were not repetitive and the assessee acted as an investor. The ITAT upheld the CIT(A)'s decision, considering various factors such as the nature of transactions, holding periods, and the CBDT guidelines. The ITAT concluded that the income should be treated as Short Term Capital Gain, rejecting the revenue's appeal.

In conclusion, the ITAT partly allowed the revenue's appeal for statistical purposes regarding the disallowance of foreign travel expenses but confirmed the CIT(A)'s order on the classification of Share Income. The judgment highlighted the importance of substantiating expenses for business purposes and considering various factors to determine the nature of income from share transactions.