2021 (11) TMI 562 - AT - Income Tax

Correct head of income - gain from listed securities - capital gain or business income - HELD THAT - In view of the consistent finding of the Tribunal since assessment year 2008-09 2018 (8) TMI 1961 - ITAT DELHI , respectfully following the finding of the Tribunal for assessment year 2008-09 to 2012-13, we set aside the order of the lower authorities and hold the activity of purchase and sale of shares in question as investment activity to be assessed under the head capital gain. - Decided in favour of assessee. Disallowance u/s 14A read with Rule 8D - Assessee stated that no expenses have been incurred in relation to the dividend income earned from Dabur India Ltd. - HELD THAT - In the year under consideration also, the assessee himself has computed the disallowance in terms of Rule 8D and thereafter reduced the disallowance corresponding to the dividend income earned from the shares of Dabur India Ltd. The issue in dispute is squarely covered against the assessee with the decision of the Tribunal in 2020 (6) TMI 75 - ITAT DELHI . Whether investment in Dabur India Ltd. being a strategic investment would not form part of the total income under the Act? - As in view of the decision of the Hon ble Supreme Court in the case Maxopp Investment Ltd 2018 (3) TMI 805 - SUPREME COURT the issue is covered against the assessee and, therefore, this grounds of appeal is dismissed. Disallowance of business expenses - assessee failed to justify the expenditure by way supporting evidences - HELD THAT - During the assessment proceedings, the Assessing Officer pointed out various instances of expenditure which were not incurred for the purposes of business and the assessee offered 10% of the total expenditure for taxation. CIT(A) also upheld the disallowance on the ground that the learned Authorized Representation admitted that it was not possible to filter out expenditure which may have been incurred for non-business promotion expenses as disallowance and the said disallowance was made on the agreed basis. Tribunal for assessment year 2013-14 has upheld the disallowance of 10% of the expenses as incurred for non-business purpose, we do not find any infirmity in the order of the Ld. CIT(A) on the issue in dispute and accordingly uphold the same - Decided in favour of revenue.

Summary

Issues Involved:
1. Classification of income from long term listed and unlisted equities as capital gains or business income.
2. Disallowance under Section 14A read with Rule 8D of the Income Tax Rules.
3. Inclusion of strategic investments in Dabur India Limited in disallowance under Section 14A.
4. Ad-hoc disallowance of business expenses.

Issue-wise Detailed Analysis:

1. Classification of Income from Long Term Listed and Unlisted Equities:
The primary issue was whether the income from long term listed equities (?3,19,01,839) and unlisted equities (?2,39,76,250) declared by the assessee as capital gains should be treated as business income. The assessee argued that the issue was covered in their favor by previous Tribunal orders for assessment years 2008-09 to 2013-14, where similar transactions were treated as capital gains. The Tribunal noted that in those years, the activity of purchase and sale of shares was considered under the head of 'capital gain' and not business income, following various decisions and CBDT circulars. Consequently, the Tribunal upheld the assessee's claim, allowing grounds 1 and 2 in favor of the assessee.

2. Disallowance under Section 14A read with Rule 8D:
The assessee computed the disallowance under Section 14A read with Rule 8D and reduced it by the proportion of dividend income from shares of Dabur India Ltd. The Assessing Officer and CIT(A) rejected this reduction, leading to an additional disallowance of ?77,82,133. The Tribunal, following its previous decision for assessment year 2013-14, upheld the disallowance, noting that the assessee's method of reducing the disallowance was not justified. Thus, ground 3 of the appeal was dismissed.

3. Inclusion of Strategic Investments in Dabur India Limited:
The assessee argued that strategic investments in Dabur India Limited should not form part of the disallowance under Section 14A. However, in light of the Supreme Court's decision in Maxopp Investment Ltd Vs CIT, the Tribunal found the issue to be covered against the assessee. Therefore, ground 4 was dismissed.

4. Ad-hoc Disallowance of Business Expenses:
The assessee contested the ad-hoc disallowance of ?9,44,390, which was 10% of the total business promotion expenses. The Tribunal noted that the assessee had agreed to this disallowance during the assessment proceedings. Following its decision for assessment year 2013-14, the Tribunal upheld the disallowance, dismissing ground 5 of the appeal.

Conclusion:
The Tribunal allowed the appeal partly, favoring the assessee on the classification of income from long term equities as capital gains but upholding the disallowances under Section 14A and the ad-hoc business expense disallowance. The order was pronounced in the open court on 14th October, 2021.