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TMI Blog2020 (4) TMI 255X X X X Extracts X X X X X X X X Extracts X X X X ..... ome - HELD THAT:- We notice that the Ld. CIT (A) has confirmed the disallowance amounting to ₹ 9,74,375/- computed by the AO against the exempt income of ₹ 4,21,042/-, which is contrary to the ratio laid down by the Hon ble Delhi High Court in the case of Joint Investments [ 2015 (3) TMI 155 - DELHI HIGH COURT ] as the disallowance confirmed by the Ld. CIT (A) is more than the exempt income earned by the assessee. The Hon ble Delhi High Court in the case of Joint Investments vs. CIT, has held that section 14A and Rule 8D cannot be interpreted to mean that the entire tax exempt income can be disallowed. In the present case, the assessee has earned exempt income of ₹ 4,21,042/- on which the AO made disallowance of ₹ 9,74,375/-. In view of the ratio laid down by the Hon ble Delhi High Court in the aforesaid case, the disallowance u/s 14A cannot exceed exempt income of the relevant year. Findings of the Ld.CIT (A) are contrary to the law laid down by the Hon ble Delhi High Court. Hence, following the ratio laid down by the Hon ble Delhi High Court in the aforesaid case, we set aside the findings of the Ld. CIT (A) and direct the AO to restrict the disallowance t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for the investments made and the business activities carried on of trading in shares. (d) As in the earlier years, the appellant continued to be an investor in shares. (e) The appellant was not a trader vis- -vis the shares, which have yielded income/Loss under the head Short Term Capital Gains/Loss , as disclosed in the return of income filed. 2. The learned Commissioner of Income (Appeal) Tax erred in disallowing ₹ 9,74,375/- u/s 14A of the Income Tax Act as expenditure incurred in relation to earning of exempt income and in computing the disallowance u/r 8D(2) of Income Tax Rules. 3. The learned Commissioner of Income (Appeal) erred in charging interest u/s 234A, 234B, 234C and 234D and having regard to the facts and circumstances of the case and in law the appellant denied its liability for payment of any interest under the aforesaid sections. 4. The learned commissioner of Income (Appeal) erred in initiating penalty proceedings u/s 271 (1) (c) in spite of the fact that the Pappellant had neither concealed his income nor had filed inaccurate particulars of income. 3. Vide ground No 1 the assessee has challenged the action of the Ld. CIT(A) in treating the amount of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions are frequent and voluminous then the claim of the assessee is not allowable as short term capital gain or long term capital gain as the case may be. The only question which is to be examined and seen by the AO as to what treatment has been given by the assessee in respect to purchase of shares. Whether the purchase of shares are shown under the head stock-in-trade or under the head investments. If purchases have been shown under the head stock-in-trade then the sale transactions has to be treated as business transactions and if the sales have been effected from investment account then the gain has to be treated as long term capital gain or short term capital gain, as the case may be. In the present case, the assessee has shown all the purchases under the head investment portfolio, therefore, in our considered view, the gain on account of sale of shares has to be treated as short term capital gain on the facts of the present case. Similar issue came before the E-Court of Nagpur Bench in the case of Shri Sanjay Ishwarlal Ranka, decided in ITA No.161/Nag/2012, vide order dated 8-2-2013. The final findings of the Tribunal has been recorded in paras 9 10, which are as under :- 9. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal, the inference reached by the Tribunal should not be interfered with. 13. In view of the aforesaid decisions, we are of the view that whether the profit from the shares is a capital gain or business income - Whether the shares are held by the assessee as investments or Whether the shares are purchased with an intention to keep them - Whether the shares purchased with an intention to sell; -Whether the shares were purchased with an intention to earn the profit in the Short Term; - Whether the shares are held to maximize the return; - Whether the shares have been purchased from the primary market; - Whether the shares have been purchased from the secondary market; - Whether the shares have been purchased by subscription to Public -Whether the shares have been held for fairly long period, and - Whether the shares once sold have never been re-purchased 14. We noted that in the case of CIT Vs V A Trivedi 172 ITR 95 (Born) Hon‟ble jurisdiction High Court has clearly laid down under para 12 of the order that the onus of establishing that a purchase is made with the intention to trade is on the Revenue. 15. We noted that the main contention of the revenue in treating the ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as investment and the gain arising on sale of those shares were allowable to be taxed as capital gain. It is not denied that in this case also, the assessee was holding the shares as investment. Holding of the shares as investment itself prove the intention of the assessee as regards to the nature of the transaction. Had the shares been the business assets, it would have shown by the assessee as a stock in trade. Apparent is real, if the revenue feels that the intention of the assessee was not to hold the shares as investment. The onus in our opinion is on the revenue to prove that apparent is not real. No evidence was being placed or brought to our knowledge by the Ld. D.R. which may prove that the intention of the assessee was not to hold the shares as investment. It is also a fact that the assessee derived the dividend income and has also made the investment in the shares not out of the borrowed funds, but out of its own surplus funds. The CIT(A) while allowing the appeal of the assessee has extensively dealt with the various factors as well as various case laws to arrive at a finding that the shares were held by the assessee as a capital investment and not as stock in trade. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm capital gain . 6. As pointed out by the Ld. counsel, the coordinate Bench has decided the identical issue in favour of the assessee. Since the department has not pointed out any material change in the facts of the present case, we have no reason to take a different view. Hence, respectfully following the decision of the coordinate Bench rendered in assessee s own case for the assessment year 2006-07, discussed above, set aside the findings of the Ld. CIT(A) and allow this ground of appeal of the assessee. Accordingly, we direct the AO to treat the income of the assessee amounting to ₹ 74,05,599/- under the head income from short term capital gains. 7. Ground No. 2 pertains to disallowance of ₹ 9,74,735/-u/s 14A read with rule 8D of the Income Tax Rules (Rules). During the previous year the assessee earned exempt income of ₹ 4,21,042/- and not made any suo moto disallowance stating that it had not incurred any expenditure in relation to the earning of the said exempt income. The AO rejecting the contention of the assessee computed the disallowance u/a 14A read with Rule 8D(2)(ii) and (iii) of the Rules and determined the disallowance at ₹ 9,74,375/-, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f that sum, i.e., ₹ 52,56,197. By no stretch of imagination can s. 14A or r. 8D be interpreted so as to mean that the entire tax exempt income is to be disallowed. The window for disallowance is indicated in s. 14A, and is only to the extent of disallowing expenditure incurred by the assessee in relation to the tax exempt income . This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case. 11. In the present case, the assessee has earned exempt income of ₹ 4,21,042/- on which the AO made disallowance of ₹ 9,74,375/-. In view of the ratio laid down by the Hon ble Delhi High Court in the aforesaid case, the disallowance u/s 14A cannot exceed exempt income of the relevant year. Therefore, in our considered view, the findings of the Ld.CIT (A) are contrary to the law laid down by the Hon ble Delhi High Court. Hence, following the ratio laid down by the Hon ble Delhi High Court in the aforesaid case, we set aside the findings of the Ld. CIT (A) and direct the AO to restrict the disallowance to the exempt income earned by the assessee during the relevant year. 12. Ground No. 3 pertains to charging of interest ..... X X X X Extracts X X X X X X X X Extracts X X X X
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