2018 (3) TMI 210 - AT - Income Tax

Treatment of STCG on sale of shares / mutual fund - rebate u/s 88E for STT paid by the assessee - Held that - AR fairly conceded that the amount of STCG earned by the assessee included certain intra-day gains / losses which were in the nature of speculation and hence were required to be excluded while arriving at figures of STCG. Therefore, at the outset, we direct Ld. AO to exclude the same from the figures of STCG and treat the same as speculation in nature. We concur with the stand of Ld. AR that the short term capital gains earned by the assessee was assessable under the head Capital Gains only subject to adjustment as envisaged above. Resultantly, Ground No. 1 of assessee s appeal stands partly allowed which makes Ground No. 8 infructuous Disallowance u/s 14A - adjustment of 14A disallowance against Book Profits for the purpose of computation of Minimum Alternative Tax MAT u/s 115JB - Held that - Adjustment of disallowance u/s 14A was not required to be made in Book Profits for the purpose of Section 115JB So far as the quantum disallowance u/s 14A following the Tribunal s order for earlier years, since aggregate interest free owned funds far exceeded aggregate investment, drawing the presumption in assessee s favor, we delete the impugned addition. Resultantly, this ground of assessee s appeal succeeds. Disallowance u/s 40(a)(ia) on account of delayed payment of TDS - Held that - the matter stood covered in assessee s favour by the judgment of Hon ble Delhi High Court rendered in CIT Vs. Naresh Kumar 2013 (9) TMI 275 - DELHI HIGH COURT . Although the TDS has been deposited by the assessee beyond due date but it is well before the due date of filing of return of income by the assessee. The facts of the issue are squarely covered by the ratio of cited decision of Hon ble Delhi High Court where it has been held that the provisions of Section 40(a)(ia) were to be interpreted liberally and equitably keeping in mind the object and purpose behind the same so that the assessee do not suffer unintended and deleterious consequences and therefore the amendment to Section 40(a)(ia) as made by Finance Act, 2010 was retrospective in nature and therefore the amount of TDS which is deposited late but before due date of filing of return of income enables the assessee to claim the deduction of the expenditure in the concerned year itself. Respectfully following the same, by deleting the impugned addition, we allow this ground of assessee s appeal. Depreciation on motors cars given on finance lease basis - Held that - Upon perusal of sample agreements and other documents produced before us, we, prima-facie agrees with the stand of the revenue that the transactions were primarily in the nature of finance lease. However, be that as the case may be, the issue has consistently been decided by the Tribunal right from AYs 1995-06 onwards in assessee s favor and depreciation has been allowed to the assessee. The said orders have mainly relied upon the cited judgment of Hon ble Apex Court. The revenue is not able to point out any differentiating facts in the impugned AY vis- -vis facts of the earlier years.Therefore, we see no reason to deviate from the stand taken by several coordinate bench of this Tribunal and accordingly, adjudicate the matter in assessee s favour. The benefit of capital recovery or any other corresponding benefit granted by Ld. AO to the assessee shall stand withdrawn - Decided in favour of assessee. Disallowance u/s 14A - Held that - we concur with the stand of Ld. AR that Rule 8D was not applicable during the impugned AY and therefore, disallowance, if any, was required to be made only on an estimated basis. We find that the assessee has earned exempt income of ₹ 281.06 Lacs in the impugned AY and therefore, upon factual matrix, we estimate the same @2% of the exempt income which comes to ₹ 5.62 Lacs. The assessee gets partial relief for the balance addition. Accordingly, these grounds stands partly allowed. Long Term Capital Loss on sale of certain shares - AR contended that, in all fairness, the legitimate claims were allowed to the assessee - Held that - After hearing, we concur with the proposition that legitimate claims could not be denied to the assessee and further, there was no bar on appellate authorities to entertain new claims which were not made in the return of income in terms of decision of Hon ble Bombay High Court rendered in CIT Vs. Pruthvi Brokers and Shareholders Private Ltd. 2012 (7) TMI 158 - BOMBAY HIGH COURT . However, it appears from the order of Ld. first appellate authority that the factual matrix has not been verified by the lower authorities. Therefore, we concur with the stand of Ld. CIT(A) subject to verification of factual matrix by Ld. AO. Therefore, the matter is remitted back to the file of Ld. AO for verification of factual matrix

Summary

Issues Involved:
1. Treatment of gains on sale of equity shares and mutual funds.
2. Double taxation of gain on securitization.
3. Disallowance of interest expenditure under section 14A.
4. Disallowance of expenditure for computing book profit under section 115JB.
5. Disallowance under section 40(a)(ia).
6. Allowance of depreciation on motor cars given under finance lease.

Detailed Analysis:

1. Treatment of Gains on Sale of Equity Shares and Mutual Funds:
The primary issue was whether the gains on sale of equity shares and mutual funds should be treated as business income or short-term capital gains (STCG). The Assessing Officer (AO) treated the gains as business income due to the frequency and volume of transactions, which was confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)]. The Tribunal, however, directed the AO to exclude intra-day gains/losses from the STCG figures and treat them as speculation. The Tribunal emphasized the principle of consistency, noting that the assessee had been treated as an investor in previous years. Consequently, the gains were to be assessed under the head 'Capital Gains' only, subject to adjustments for intra-day transactions.

2. Double Taxation of Gain on Securitization:
The assessee contested the double taxation of gains on securitization, arguing that the income had already been offered on a spread-over basis in earlier years. The AO added the net amount of ?6,07,74,768/- to the income, which was partially upheld by the CIT(A). The Tribunal remanded the issue back to the AO to verify the assessee's claims of double taxation, directing relief to be granted in respective assessment years to avoid double taxation.

3. Disallowance of Interest Expenditure under Section 14A:
The assessee argued that investments were made from its own interest-free funds, hence no disallowance under section 14A was warranted. The AO computed disallowance based on the proportion of loan funds, which was confirmed by the CIT(A). The Tribunal, however, noted that the assessee's own funds exceeded the investments and deleted the disallowance, following the principle established in CIT Vs. HDFC Ltd. The Tribunal also allowed the appeal regarding the adjustment of disallowance under section 14A for computing book profits under section 115JB, citing the decision in ACIT Vs. Vireet Investment (P.) Ltd.

4. Disallowance of Expenditure for Computing Book Profit under Section 115JB:
The Tribunal held that adjustments for disallowance under section 14A should not be made while computing book profits under section 115JB, following various judicial precedents, including the decision in CIT Vs. JSW Energy Limited.

5. Disallowance under Section 40(a)(ia):
The AO disallowed ?11,24,935/- under section 40(a)(ia) for delayed TDS payments, which was reduced to ?8,50,107/- by the CIT(A). The Tribunal deleted the disallowance, referencing the amendment to Section 40(a)(ia) by the Finance Act, 2010, which was held to be retrospective by the Delhi High Court in CIT Vs. Naresh Kumar.

6. Allowance of Depreciation on Motor Cars Given under Finance Lease:
The AO denied depreciation on motor cars given under finance lease, treating them as loans. The CIT(A) upheld this view. However, the Tribunal allowed the depreciation claim, following the Supreme Court's decision in I.C.D.S. Ltd. Vs. CIT and consistent Tribunal decisions in earlier years.

Conclusion:
The appeals by the assessee for AY 2005-06 to 2007-08 were partly allowed, with specific directions for adjustments and remand for verification of certain claims. The revenue's appeal for AY 2006-07 was allowed for statistical purposes, with directions for factual verification by the AO. The Tribunal emphasized consistency and fairness in tax treatment across different assessment years.