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2017 (1) TMI 808 - AT - Income TaxDisallowance u/s 14A - application of rule 8D - Held that - It is observed that assessee had earned exempt income during the year under consideration and assessing officer has added 0.5% of such investment as expenses relating to administration as provided by rule 8D (2) (iii) of the rules 1962. Considering the assessment year involved we agree with the plea advanced by the Ld. DR that the assessing officer was duty bound to calculate the disallowance by applying rule 8D. We do not agree with the arguments advanced by the assessee that no expenditure can be attributed to the earning of the tax free income. - Decided against assessee
Issues Involved:
1. Appeal against the order passed by Ld. CIT (A) for assessment year 2009-10. 2. Treatment of investment in shares as stock-in-trade. 3. Assessment of short term and long term capital losses. 4. Disallowance under Section 14A of the Income Tax Act, 1961. 5. Levying of interest under Section 234B of the Income Tax Act, 1961. 6. Initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961. Analysis: Issue 1: Appeal against Ld. CIT (A) Order The appellant challenged the order passed by Ld. CIT (A) for the assessment year 2009-10 on several grounds, including the treatment of investment in shares, assessment of capital losses, disallowance under Section 14A, interest under Section 234B, and initiation of penalty proceedings under Section 271(1)(c). Issue 2: Treatment of Investment in Shares The appellant contested the Ld. CIT (A)'s decision to treat the investment in shares as stock-in-trade. The Tribunal referred to a previous order for the assessment year 2008-09 where a similar issue was addressed. The Tribunal upheld the appellant's contention that the shares should be treated as investments, not stock-in-trade, based on the nature of the appellant's business activities. Issue 3: Assessment of Capital Losses The Ld. AO observed that the appellant declared short term and long term capital losses due to transactions in shares, which were treated as trading activities. The Tribunal, considering the facts and arguments presented, agreed with the appellant's position that the gains from share transactions should be assessed under the head of capital gains, not as business income. Issue 4: Disallowance under Section 14A The appellant challenged the disallowance made under Section 14A of the Income Tax Act, 1961. The Tribunal noted that the assessing officer calculated the disallowance based on rule 8D, attributing expenses to earning exempt income. The Tribunal upheld the assessing officer's decision, stating that expenses related to the earning of tax-free income should be considered for disallowance. Issue 5: Levying of Interest under Section 234B The Tribunal deemed the interest chargeable under Section 234B as consequential and chose not to adjudicate on this issue, as it was considered premature. Issue 6: Initiation of Penalty Proceedings Regarding the initiation of penalty proceedings under Section 271(1)(c), the Tribunal dismissed this ground as premature, resulting in the appeal being partly allowed. In conclusion, the Tribunal addressed each issue raised by the appellant, providing detailed reasoning and analysis for each ground of appeal, ultimately allowing the appeal in part based on the merits of the arguments presented.
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