2018 (3) TMI 1409 - AT - Income Tax

Income arising from sale of securities - capital gain or busniss income - Held that - The assessee is Non Banking Financial Company and income from capital gains where investment made in equities are sold. The assessee treated long term capital gain from sale of equities held for more than 12 months exempt u/s 10 (38) of the Act. AO treated it as business income. Now the above issue is squarely covered in favour of the assessee by Circular No. 6 dated 29.02.2016 issued by CBDT. The above circular speaks that if shares are held for more than 12 months if assessee shows it as LTCG same should be accepted. We are of the opinion that when the assessee himself has treated the income arising from sale of securities held for more than 12 months as capital gains there is no reason to dispute it by Assessing Officer. Disallowance u/s 14A - Held that - AO has not recorded satisfaction that how the claim of the assessee is incorrect. He also did not comment upon the argument of the assessee that on the dividend received from Dabur Limited no expenditure is incurred. The provisions of section 14 A (2) mandatorily provides that AO should record satisfaction about the correctness of the claim of the assessee. There is no such satisfaction recorded by the Assessing Officer. Addition made by the Assessing Officer and confirmed by the Ld. CIT (A) cannot be sustained. Accordingly ground No.3 of the appeal of the assessee is allowed and AO is directed to delete the disallowance. Disallowance on ad-hoc basis - Held that - Assessee has incurred 13, 93, 000/- under the head business promotion expenses of 16, 01, 689/- under travelling expenses. The assessee could not produce bills and vouchers of the above business expenses and therefore disallowance of 15, 68000/- was made u/s 37.

Summary

Issues:
1. Appeal against CIT (Appeals) order for assessment year 2012-13.
2. Treatment of long term capital gain as business income.
3. Disallowance u/s 14A.
4. Disallowance of business expenses on an ad-hoc basis.

Issue 1:
The appeal was filed against the CIT (Appeals) order for the assessment year 2012-13. Grounds 1 and 5 were dismissed as they were general in nature. Ground 2 challenged the treatment of long term capital gain from listed securities as business income. The appellant argued that a circular by the CBDT supported their claim. The tribunal found in favor of the appellant, citing the CBDT circular that allowed treating such gains as capital gains if shares were held for more than 12 months.

Issue 2:
Regarding the disallowance u/s 14A, the appellant had earned exempt income, and the Assessing Officer disallowed a specific amount under Rule 8D. The appellant contended that there was no recorded satisfaction by the Assessing Officer on the correctness of the disallowance made by the appellant. The tribunal agreed, stating that the Assessing Officer must record satisfaction about the correctness of the claim, which was absent in this case. Hence, the disallowance was directed to be deleted.

Issue 3:
The last issue concerned the ad-hoc disallowance of business expenses. The appellant failed to produce bills and vouchers for certain expenses, resulting in a disallowance of a specific amount. The tribunal upheld this disallowance, emphasizing that verification of expenses through bills and vouchers is crucial to determine if they were incurred exclusively for business purposes.

In conclusion, the tribunal partly allowed the appeal, ruling in favor of the appellant on issues related to the treatment of long term capital gain and disallowance u/s 14A, while dismissing the appeal on the ad-hoc disallowance of business expenses.