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2016 (7) TMI 663 - AT - Income TaxProfit from transaction of units and shares - STCG on transaction of purchase and sale of units of mutual funds and shares - Capital Gain or Business income - Held that - It is not in dispute that the Assessee had treated the shares and units as investments in its books of accounts. Similar transactions have been accepted by the revenue in assessments for AY 2001-02 to 2003-04 as giving raise to capital gains and not as business income. In fact the assessment in AY 2003-04 was completed u/s.143(3) of the Act after scrutiny. In the light of the above circumstances prevailing in the case of the assessee, we are of the view that the conclusion of the CIT(A) that the income from sale of shares and units declared by the assessee as capital gain has to be accepted is correct and calls for no interference. As we have already seen that the AO in AY 03-04 accepted similar income as capital gain. It is not disputed by the revenue that the facts and circumstances in the AY 03-04 & 04-05 are identical. Though the rule of res judicata is not applicable but the principle of consistency will definitely apply and on that basis the claim of the Assessee should be held to be proper. - Decided against revenue Denial of the claim of the assessee for deduction u/s 80HHC - Held that - The prayer of the learned counsel for the assessee that the decision on this issue was rendered by the Hon ble Supreme Court in the case of Topman Exports (2012 (2) TMI 100 - SUPREME COURT OF INDIA ) which was after passing the of the impugned order of the CIT(A) and therefore the issue should be directed to examined by the AO in the light of the decision rendered above is acceptable. Accordingly the issue is remanded to the AO for fresh consideration in the light of the decision cited above. Disallowance u/s 14A - Held that - The Hon ble Calcutta High Court in the case of CIT Vs. M/S.R.R.Sen & Brothers Pvt.Ltd. 2013 (7) TMI 260 - Calcutta High Court held that computation of 1% of exempt income as disallowance u/s.14A of the Act was proper. In view of the aforesaid decisions, we are of the view that the request made by the learned counsel is acceptable. The disallowance u/s.14A is accordingly directed to be restricted to 1% of the exempt income.
Issues Involved:
1. Classification of income from the sale of shares and units as either 'Capital Gain' or 'Business Income'. 2. Denial of deduction under Section 80HHC of the Income Tax Act. 3. Disallowance under Section 14A of the Income Tax Act. Issue-wise Detailed Analysis: 1. Classification of Income from Sale of Shares and Units: The primary issue was whether the income from the sale of shares and units should be classified as 'Capital Gain' or 'Business Income'. The Revenue contended that due to the frequency and volume of transactions, the income should be considered as 'Business Income'. The Assessee argued that the shares and units were held as investments and not as stock-in-trade, and similar income had been accepted as 'Capital Gain' in previous years. The CIT(A) observed that the shares/units were classified as 'Investment' in the Assessee's books and carried at 'cost price', not as stock-in-trade. The CIT(A) concluded that the volume and frequency of transactions alone could not alter their status from investment to trading. Hence, the income was to be assessed under the head 'Capital Gain'. The Tribunal upheld the CIT(A)'s decision, emphasizing the principles laid down in various judicial pronouncements and CBDT Circulars, which state that the treatment in the books of accounts is a significant factor. The Tribunal also noted that similar transactions had been accepted as 'Capital Gain' in previous years, invoking the principle of consistency as highlighted in the case of CIT Vs. Gopal Purohit. 2. Denial of Deduction under Section 80HHC: The Assessee's claim for deduction under Section 80HHC was denied by the AO on the ground that there was no profit from the export activity. The Assessee requested that the issue be re-examined in light of the Supreme Court's decision in Topman Exports. The Tribunal accepted this request and remanded the issue to the AO for fresh consideration based on the Supreme Court's ruling. 3. Disallowance under Section 14A: The AO made a disallowance of ?1,20,981/- under Section 14A, approximately 2.5% of the dividend income, towards administrative expenses. The Assessee argued that the disallowance should be restricted to 1% of the exempt income, in line with the consistent view taken by the ITAT, Kolkata Bench, and the Hon'ble Calcutta High Court in similar cases. The Tribunal accepted the Assessee's contention and directed that the disallowance under Section 14A be restricted to 1% of the exempt income. Conclusion: The appeal by the Revenue was dismissed, and the cross-objection by the Assessee was partly allowed. The Tribunal upheld the CIT(A)'s decision to classify the income from the sale of shares and units as 'Capital Gain', remanded the issue of deduction under Section 80HHC to the AO for reconsideration, and restricted the disallowance under Section 14A to 1% of the exempt income.
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