2021 (5) TMI 776 - AT - Income Tax

Correct head of income - Income from transaction of shares - CIT(A) in treating income under the head Income from Business or Profession as against Income from Short Term Capital Gains disclosed by the assessee - contention of the assessee is that the assessee is maintaining two separate portfolios i.e. investment portfolios and business portfolio - HELD THAT - The income from transaction of shares held under investment portfolio has been returned under the head capital gains . The total number of transactions carried out by the assessee under investment portfolio during the period under appeal is 238. In assessee s own case for assessment year 2006-07, the Tribunal accepted assessee s ground on similar set of facts where the frequency of transactions were more than 360. Thereafter, in assessment years 2008-09, 2012-13 and 2014-15 similar issue had come up before the Tribunal where the Assessing Officer had changed the head of income in respect of income earned by the assessee from sale of shares. The assessee offered the income as short term capital gains and the Assessing Officer treated the same as business income . The Tribunal decided the issue in each of the aforesaid assessment years by following the order of Tribunal in assessee s own case in ITA No.2285/Mum/2010 for assessment year 2006-07 2014 (1) TMI 1599 - ITAT MUMBAI The Tribunal accepted assessee s plea that the income from sale of shares has rightly been disclosed under the head short term capital gains and rejected Revenue s view of holding the income as business income. Disallowance u/s 14A r.w.r. 8D(2) - short contention of the assessee is that the disallowance may be restricted to exempt income earned - HELD THAT - This issue is no more res-integra that disallowance under section 14A of the Act cannot exceed exempt income earned. Re. PCIT v. State Bank of Patiala 2018 (4) TMI 23 - PUNJAB HARYANA HIGH COURT The Hon ble Supreme Court of India 2018 (11) TMI 1565 - SC ORDER dismissed the SLP of revenue against the judgement of Hon ble High Court . The Assessing Officer is directed to restrict the disallowance under section 14A of the Act to the extent exempt income earned by the assessee during the period relevant to the assessment year under appeal. The ground No.2 is partly allowed in the terms aforesaid. Charging of interest under section 234A, 234B and 234C and 234D - HELD THAT - Charging of interest under aforesaid sections is mandatory and consequential, hence, the ground No.3 raised by the assessee is without any merit, hence, dismissed.

Summary

Issues:
1. Classification of income from sale of shares as 'Business Income' or 'Short Term Capital Gains'
2. Disallowance made under section 14A of the Income Tax Act, 1961
3. Charging of interest under section 234A, 234B, 234C, and 234D of the Act
4. Initiation of penalty proceedings under section 271(1)(c) of the Act

Analysis:

Issue 1: Classification of Income from Sale of Shares
The appellant challenged the Commissioner of Income Tax (Appeals)'s decision to treat the income from the sale of shares as 'Business Income' instead of 'Short Term Capital Gains.' The appellant maintained separate portfolios for shares held as investments and for trading. The Tribunal had previously ruled in favor of the appellant in similar cases, directing the income from the sale of shares to be treated as short term capital gains. The Tribunal noted the similarity of facts in the impugned assessment year to previous cases and reversed the CIT(A)'s findings, allowing the appeal on this issue.

Issue 2: Disallowance under Section 14A
The appellant contested the disallowance made under section 14A of the Act regarding dividend income earned. The appellant argued that the disallowance should be restricted to the exempt income earned, citing relevant Tribunal decisions. The Tribunal directed the Assessing Officer to limit the disallowance under section 14A to the extent of exempt income earned, partially allowing the appeal on this ground.

Issue 3: Charging of Interest
The appellant disputed the charging of interest under sections 234A, 234B, 234C, and 234D of the Act. The Tribunal held that charging interest under these sections is mandatory and consequential, dismissing the appellant's challenge on this ground.

Issue 4: Penalty Proceedings
The appellant challenged the initiation of penalty proceedings under section 271(1)(c) of the Act. The Tribunal deemed the challenge premature at this stage and dismissed the appellant's ground regarding penalty proceedings.

In summary, the Tribunal partly allowed the appeals of the assessee for the assessment years 2011-12 and 2015-16, addressing issues related to the classification of income from the sale of shares, disallowance under section 14A, charging of interest, and penalty proceedings. The Tribunal's decisions were based on the specific facts and legal principles applicable to each issue raised by the appellant.