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2017 (9) TMI 1395 - AT - Income TaxIncome from sale of shares - LTCG or STCG - period of holding - Held that - We find that the issue involved in the present appeal is squarely covered by the aforesaid order of the Tribunal, dated 04.11.2015, passed in the case of the assessee for the aforementioned preceding years, viz. A.Ys. 2005-06, 2006-07, 2007- 08 and 2008-09 . We further find that the CIT(A) on the basis of a well reasoned order had rightly concluded that in the backdrop of the facts involved in the case of the assessee for the year under consideration, the profit on the sale of the shares had rightly been reflected by the assessee under the head STCG. We further find ourselves to be in agreement with the view taken by the coordinate bench of the Tribunal in the case of the assessee, and in the absence of any perversity or distinguishable fact having been brought to our notice in respect of the order of the CIT(A) for the year under consideration, therein find no reason to take a different view. Disallowance u/s 14A r.w. Rule 8D(ii) - computation of claim - AO s satisfaction before makin disallowance - Held that - We find ourselves to be in agreement with the contention of the assessee that the very process of determination of the amount of expenditure incurred in relation to exempt income would be triggered, only if the A.O. returns a finding that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. It is only if the A.O. is not satisfied with the correctness of the claim of the assessee that no expenditure had been incurred in relation to the exempt income, therein only after recording cogent reasons as regards the same, that the A.O. can therein embark upon the determination of the amount of expenditure in accordance with the method prescribed in Section 14A r.w. Rule 8D. See Godrej & Boyce Manufacturing Company Limited (2017 (5) TMI 403 - SUPREME COURT OF INDIA ) As in the present case it can safely be concluded that the A.O had failed to arrive at a satisfaction that having regard to the accounts of the assessee, as placed before him, it was not possible for him generate the requisite satisfaction with regard to the correctness of the claim of the assessee that no expenditure had been incurred by her in respect of the exempt income - Decided in favour of assessee.
Issues Involved:
1. Classification of income from sale of shares as either 'business income' or 'capital gains'. 2. Disallowance under Section 14A read with Rule 8D regarding expenses incurred in earning exempt income. Detailed Analysis: 1. Classification of Income from Sale of Shares: The primary issue was whether the income from the sale of shares should be classified as 'business income' or 'capital gains'. The assessee, a dermatologist by profession, declared a long-term capital loss and short-term capital gain in her return of income. The Assessing Officer (A.O.) contended that the assessee was a trader in shares and not an investor, thus proposing to assess the income from share transactions as business income. The assessee argued that her activities were consistent with those of an investor, citing her professional background, the nature of her transactions, and reliance on CBDT Circular No. 4/2017 and the judgment in CIT Vs. Gopal Purohit. The A.O. rejected the assessee's contentions, pointing to previous assessments where similar transactions were treated as business income. However, the CIT(A) found that the facts for the current assessment year were distinguishable from previous years, noting longer holding periods and substantial dividend income, thus ruling in favor of classifying the income as capital gains. The Tribunal upheld the CIT(A)'s decision, emphasizing that the issue was covered by a previous order of the Tribunal for the assessee’s earlier assessment years. The Tribunal noted that the CIT(A) had correctly applied the principles from the Gopal Purohit case and found no reason to deviate from the established view that the income should be assessed as capital gains. 2. Disallowance Under Section 14A Read with Rule 8D: The second issue involved the disallowance of ?8,76,258 under Section 14A read with Rule 8D for expenses purportedly incurred in earning exempt income. The assessee contended that no expenses were incurred for earning the exempt income. The A.O. made the disallowance without providing a detailed explanation or justification for rejecting the assessee's claim. The Tribunal agreed with the assessee, citing the necessity for the A.O. to record satisfaction regarding the correctness of the assessee’s claim before invoking Rule 8D. The Tribunal referenced the judgment in Godrej & Boyce Manufacturing Co. Ltd. Vs. DCIT, which mandates that the A.O. must be satisfied that the assessee's claim is incorrect based on the accounts presented before determining the expenditure under Rule 8D. The Tribunal found that the A.O. had failed to record such satisfaction and thus set aside the disallowance made under Section 14A read with Rule 8D, directing the deletion of the addition of ?8,76,258. Conclusion: The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decision to classify the income from the sale of shares as capital gains. The Tribunal allowed the assessee's appeal, setting aside the disallowance under Section 14A read with Rule 8D. The overall judgment was pronounced in favor of the assessee.
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