2020 (1) TMI 290 - AT - Income Tax

Disallowance u/s 14A - HELD THAT - Provisions of Rule 8D were not applicable to the year under consideration. Therefore the disallowance was to be computed on some reasonable estimated basis keeping in view the assessee s financials. The estimation of 10% as made by learned first appellate authority could not be said to be unfair or unreasonable in any manner. From perusal of financial statements it is observed that the assessee has debited administration and other charges for 7.93 Lacs which would include routine expenditure viz. salary telephone conveyance directors remuneration demat charges service tax etc. Most of the expenditure would be statutory in nature and would be necessary to maintain corporate personality of the assessee. Therefore the estimation as made by Ld. CIT(A) in our considered opinion was quite fair and the same would not require any interference on our part. Long-Term capital gains to be exempt u/s 10(38) - HELD THAT - Undisputed position that emerges is the fact that the stated investments were held by assessee since past many years. The investments were long term investments and reflected as such in the financial statements which is further evident from the fact that the assessee never made provision for diminution in value thereof on the Balance Sheet date. In fact similar gains were accepted by department as Long-Term Capital gains in AYs 2005-06 2008-09 in scrutiny assessments u/s 143(3). Therefore rule of consistency favored assessee s stand. It is also the factual findings of Ld. CIT(A) that the stated investments were not out of borrowed funds which fact remain undisputed before us also. The factual findings of Ld. CIT(A) at para 10.24 lead us to inevitable conclusion that the stated gains were rightly held to be assessable as Long-Term Capital gains rather than as business income. Therefore we concur with the stand of learned first appellate authority in this respect. Resultantly the grounds raised by revenue stand dismissed. The revenue s appeal stands dismissed. Short-term capital gains OR business income - HELD THAT - CIT(A) has clinched this issue also in the right perspective. The average holding period of most of the scrips was found to be below 45 days. The assessee carried out multiple transactions with short selling which would be the attributes of a trader and not of an investor. AR in the course of hearing has relied upon the decision of Hon ble Bombay High Court rendered in Jaya Chheda V/s ACIT 2017 (12) TMI 1357 - BOMBAY HIGH COURT to submit that the formula of holding period as adopted by Ld. first appellate authority would not be conclusive. However we find that learned first appellate authority in the present case has elaborately examined the nature of the stated transactions and on the basis of assessee s conduct formed an opinion that the assessee acted as trader and not as an investor. We also find that Ld. AR is unable to controvert the factual findings of Ld. CIT(A). Therefore we see no reason to interfere with the impugned order in this regard. Hence concurring with the same we dismiss the ground raised by the assessee. Ground No. 3 of assessee s appeal is related with interest u/s 234 which would not require our indulgence.

Summary

Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act.
2. Treatment of Short-Term Capital Gains as Business Income.
3. Charging of Interest under Sections 234B and 234C of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A:
During the assessment proceedings, the Assessing Officer (AO) disallowed ?7.93 Lacs under Section 14A, which was later restricted to ?1.53 Lacs by the Commissioner of Income-Tax (Appeals) [CIT(A)]. The Tribunal noted that Rule 8D was not applicable for the year under consideration, and the disallowance should be computed on a reasonable basis. The CIT(A)'s estimation of 10% of exempt income was deemed fair and reasonable, thus requiring no interference. Consequently, the grounds raised by both the assessee and the revenue on this issue were dismissed.

2. Treatment of Short-Term Capital Gains as Business Income:
The AO treated the short-term capital gains of ?53.27 Lacs as business income, which was upheld by CIT(A). The Tribunal observed that the assessee frequently engaged in trading shares with short holding periods, indicating a trader's behavior rather than an investor. The CIT(A) found that the average holding period of most scrips was below 45 days, and the assessee carried out multiple transactions with short selling. The Tribunal concurred with CIT(A)'s findings and dismissed the assessee's appeal on this issue.

3. Charging of Interest under Sections 234B and 234C:
The assessee contested the charging of interest under Sections 234B and 234C, arguing that they were not liable to pay advance tax. However, the Tribunal did not find it necessary to indulge in this ground, as it was related to interest calculations.

Separate Judgments:
The judgment was delivered collectively without separate judgments from individual judges.

Conclusion:
Both the appeals by the assessee and the revenue were dismissed. The Tribunal upheld the CIT(A)'s decision on disallowance under Section 14A, treatment of short-term capital gains as business income, and did not find it necessary to address the issue of charging interest under Sections 234B and 234C. The order was pronounced in the open court on 17th December 2019.