2015 (8) TMI 1202 - AT - Income Tax

Sale of shares - assessment as Capital Gains or Business income - AY 2007-08 - Held that - The gains arising on its sale should be assessed as Short term capital gains only. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the assessing officer to assess the gains arising on sale of shares of M/s Adani Enterprises Limited under the head Income from Capital gains .- Decided in favour of assessee. Disallowance of foreign travel expenses - Held that - It is well settled that the expenditure need not produce revenue immediately, since it is usual that these expenditure may bear fruits in future. The assessee has also submitted that these expenses have not been incurred by the directors, but the representatives of the assessee company who hold high educational qualification, meaning thereby the element of personal expenditure is also ruled out. Hence, we are of the view that the tax authorities are not right in law in holding that the travelling expenses are capital/pre-operative in nature. Accordingly we set aside the order of Ld CIT(A) on this issue and direct the AO to allow the deduction towards foreign travel expenses.- Decided in favour of assessee. Assessment of Short term capital gain arising on sale of shares as business income - AY 2008-09 - Held that - The assessee has accumulated the shares initially in instalments and later sold them in instalments. As in last year, no interest bearing funds have been used and average holding period is about 180 days. The assessee has held the same as its investment. The assessee has declared the gains under the head business in respect of shares held as trading asset. All these factors support the contention of the assessee that the shares of M/s Balaji Telefilm Ltd were held as investment. Accordingly, we hold that the tax authorities are not justified in assessing the profit generated on sale of shares of M/s Balaji Telefilm Ltd as business income, that too, without bringing any other material on record. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to assess the same under the head Short term Capital Gain .- Decided in favour of assessee. Disallowance made u/s 14A - Held that - The provisions of Rule 8D should not applied in the instant case, since the disallowance computed under Rule 8D works out to disproportionately higher figure of ₹ 13,57,011/-. Hence, considering the facts discussed above, we are of the view that the disallowance of ₹ 2,07,022/- made by the assessee does not call for any interference. In view of the above, we set aside the order of Ld CIT(A) on this issue and direct the AO to restrict the disallowance u/s 14A of the Act to the amount disallowed by the assessee. - Decided in favour of assessee.

Summary

Issues:
- Assessment year 2007-08: Disallowance of Foreign Travelling expenses; Assessment of Short Term Capital Gains (STCG) as business income.
- Assessment year 2008-09: Assessment of Short Term Capital Gains (STCG) as business income; Disallowances made under section 14A of the Act.

Assessment Year 2007-08:
1. Short Term Capital Gains (STCG) Assessment: The appellant initially declared STCG but later reduced the claim and declared a balance as business income. The AO assessed the entire amount as business income based on dealings with a single scrip. The appellant maintained separate portfolios for investment and trading assets. The Tribunal found that the AO failed to disprove the appellant's claim of maintaining two portfolios. Referring to CBDT Circular No.4/2007 and a Bombay High Court decision, the Tribunal concluded that gains from the sale of shares should be assessed as STCG, not business income.

2. Disallowance of Foreign Travel Expenses: The AO disallowed foreign travel expenses as capital/pre-operative expenses. The Tribunal noted the appellant's business activities and the purpose of the expenses was to expand operations and increase the customer base. It held that such expenses for expanding existing business activities are revenue in nature. The Tribunal directed the AO to allow the deduction for foreign travel expenses.

Assessment Year 2008-09:
1. STCG Assessment: The appellant maintained separate portfolios for share investment and trading activities. The Tribunal found no justification for assessing profits from the sale of shares as business income without additional evidence. It directed the AO to assess the profits under "Short term Capital Gain."

2. Disallowance under Section 14A: The AO computed disallowance under Rule 8D, resulting in a significantly higher figure. The Tribunal analyzed major administrative expenses and found that the disallowance made by the appellant was reasonable. It directed the AO to restrict the disallowance under section 14A to the amount initially disallowed by the appellant.

In conclusion, the Tribunal allowed both appeals, setting aside the orders of the CIT(A) on various issues and providing directions to the AO for proper assessments.