2015 (7) TMI 798 - AT - Income Tax

Computation of income from House property - whether on the basis of standard rent / municipal value where as both the properties at Ghatkopar, Mumbai and Deolali, Nasik are not governed by Rent Control Act and no standard rent has been fixed for these properties by any Controller as directed by CIT(A) - Held that - AO had determined the ALV without any basis.The FAA has given a categorical finding in that regard and has held that no investigation had been done to ascertain the actual fair rent of the property.The FAA has relied upon the judgment of Hon ble Apex Court delivered in the case of Sheila Kaushik (1981 (8) TMI 1 - SUPREME Court).She has also referred to the decisions of the Tribunal in the cases of Ashwin Adekar 2008 (7) TMI 616 - ITAT MUMBAI and Park Paper Industries Ltd.(2008 (8) TMI 599 - ITAT MUMBAI ).We find that in the case of Sheila Kaushik the issue has been decided in favour of the assessee and it has been held that in case of the properties not let out ALV had to be based on standard rent.The decisions of the Tribunal relied upon by the FAA support the decision of the FAA.Therefore,we are of the opinion that her order does not suffer from any legal infirmity.Upholding her order, - Decided against revenue. Share transactions - CIT(A) giving direction that wherever assessee has held shares for more than one month that may be treated as short term capital gain and if the holding period is less than one month then it should be treated as business income - Held that - As decided in assess s own case 2011 (11) TMI 452 - ITAT MUMBAI if the Department has accepted that some of the shares were purchased and held by the assessee as investment allowing the claim of the assessee for long term capital gain arising from sale thereof, there is no justification for them to contend that the assessee had purchased and held other shares as stock in trade merely because they were sold within a period of one year especially when other facts relevant thereto are almost similar. Further, intention of the assessee at the time of purchase of shares is relevant. See Gopal Purohit (2010 (1) TMI 7 - BOMBAY HIGH COURT ). - Decided in favour of assessee. Deletion of proportionate expenses - assessee has claimed all expenses against short term capital gain only and not a single rupee was attributed to Long Term Capital Gain which is claimed exempt U/s.10(38) of the Act. - Held that - AO had made proportionate disallowance assuming that the expenses claimed to have been incurred against the SRCG were indirectly attributable to LTCG also. But he has not explained as to what was the basis for arriving at the above conclusions. The AO had without making any enquiry about the nature of expenses and the number of transactions of LTCG made an addition of ₹ 8,61,667/- . We find that the FAA had deleted the disallowance as she was of the opinion that adhoc disallowance should not be made.In our opinion, considering the facts and circumstances of the case the order of the FAA does not suffer from any legal infirmity.- Decided in favour of assessee. Disallowance u/s 14A - CIT(A) giving direction to re-examine and compute 14A disallowance - Held that - AO had invoked the provisions of Rule 8D, the AY under appeal is 2007-08, that as per Hon ble Jurisdictional High Court in Godrej & Boyce Manufacturing Company Ltd. Vs. DCIT (2010 (8) TMI 77 - BOMBAY HIGH COURT) Rule 8D was not applicable for the year under consideration. Therefore,in our opinion the AO was not correct in applying Rule 8D. Secondly, the FAA has restored back the matter to the file of the AO to re-examine the issue. In our opinion the interest of Revenue was not adversely affected by the direction of the FAA. In our opinion there is no need to interfere with her order- Decided in favour of assessee.

Issues Involved:
1. Computation of income from house property.
2. Treatment of share transactions as short-term capital gains or business income.
3. Deletion of proportionate expenses attributed to long-term capital gains.
4. Re-computation of disallowance under Section 14A.
5. Treatment of share transactions held for up to one month.

Detailed Analysis:

1. Computation of Income from House Property:
The first issue pertains to the computation of income from house property. The Assessing Officer (AO) estimated the rent from two properties at Rs. 10,000 per month without any basis or investigation into the actual fair rent. The Commissioner of Income Tax (Appeals) [CIT(A)] directed the AO to re-calculate the income based on the standard rent/municipal value, as the properties were not let out. The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s decision, citing the Supreme Court's judgment in Sheila Kaushik and other Tribunal decisions, confirming that the Annual Letting Value (ALV) should be based on standard rent for properties not let out.

2. Treatment of Share Transactions:
The second issue involves the treatment of share transactions. The AO treated the transactions as business income due to the frequency and volume of transactions. The CIT(A) directed that shares held for more than one month should be treated as short-term capital gains (STCG), while those held for less than one month should be treated as business income. The ITAT upheld the CIT(A)'s decision, referencing the Tribunal's previous decision in the assessee's own case for AY 06-07 and the principle of consistency as established in the case of Gopal Purohit.

3. Deletion of Proportionate Expenses:
The third issue concerns the deletion of proportionate expenses. The AO made an ad-hoc disallowance of Rs. 8.16 lakhs, assuming the expenses claimed against STCG were indirectly attributable to LTCG. The CIT(A) deleted the disallowance, noting that the AO had not provided any basis for his conclusion. The ITAT upheld the CIT(A)'s decision, agreeing that the ad-hoc disallowance lacked a factual basis.

4. Re-computation of Disallowance under Section 14A:
The fourth issue is the re-computation of disallowance under Section 14A. The AO applied Rule 8D to compute a disallowance of Rs. 4.39 lakhs. However, the CIT(A) directed the AO to re-examine the issue as Rule 8D was not applicable for AY 2007-08, per the jurisdictional High Court's ruling. The ITAT upheld the CIT(A)'s direction, noting that the AO's application of Rule 8D was incorrect for the year under consideration.

5. Treatment of Share Transactions Held for Up to One Month:
The fifth issue is the treatment of share transactions held for up to one month. The CIT(A) treated these transactions as business income, which the assessee contested. The ITAT decided in favor of the assessee, following its earlier decision for AY 06-07, and ruled that the transactions should be treated as STCG, maintaining consistency with the earlier years.

Conclusion:
The ITAT dismissed the appeal filed by the AO and allowed the appeal of the assessee, upholding the CIT(A)'s decisions on all issues. The judgment emphasizes the importance of consistency in tax treatment and the necessity of a factual basis for any disallowances or estimations made by the AO.

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