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TMI Blog2020 (12) TMI 396X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court [ 2010 (11) TMI 222 - SC ORDER ] - Decided in favour of assessee. Disallowance u/s 14A r.w.r 8D - HELD THAT:- Disallowance made by the AO is not maintainable but however, we restrict the addition to an extent of exempt income - See M/s. Nirved Traders Pvt. Ltd. [ 2019 (4) TMI 1738 - BOMBAY HIGH COURT ] - Shri Inturi Rama Rao, Accountant Member And Shri S.S. Viswanethra Ravi, Judicial Member For the Assessee : Shri Prateek Jha For the Revenue : Shri S.P. Walimbe ORDER PER S.S. VISWANETHRA RAVI, JM : This appeal by the assessee against the order dated 29-07-2016 passed by the Commissioner of Income Tax (Appeals)-2, Pune [ CIT(A) ] for assessment year 2010-11. 2. Ground No. 1 raised by the assessee challenging the action of CIT(A) in upholding the profit on sale of shares is business income as against the claim of income from Capital Gains. 3. The brief facts relating to the issue on hand are that the assessee is an individual and engaged in share trading and a sub-broker of M/s. Emkay Shares Stock Brokers Ltd., Mumbai. The assessee declared a capital gain of ₹ 90,47,345/-. The quantum of sale and purchase along with the transaction value of the various scrips is rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me from business. 6. Before us, Shri Prateek Jha, the ld. AR submits that the shares sold during the previous year relevant to year under consideration were purchased during the earlier years as well as in current year. The assessee maintained separate portfolios for investment and trading and referred to computation of total income at page 11 of paper book (Vol.-I). The short term capital gains on sale of shares are from the investment portfolios and income earned from under investment portfolios is to be assessed as income from capital gain and referred to page 14 of the paper book. The intention of assessee is clear to hold the shares as investment and held the same as in investment portfolio. The shares purchased in the investment portfolio are only those shares are on delivery based transaction. The investment and capital loss on delivery based transaction were held as on account of short term capital gain income or short term capital loss and referred to page 18 of the paper book. The major portion of gain pertains to transactions related to sale of shares of Nitta Gelatine and referred to page 52 of the paper book. The sale and purchase of Nitta Gelatine were held on an aver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsaction in shares is to be treated as business income in terms of decision of Hon ble Supreme Court in the case of Majoj Kumar Samdaria (supra) and prayed to dismiss the ground No. 1 raised by the assessee. 8. Heard both sides and perused the material available on the record. The AO held the assessee did not maintain two portfolios for investment and trading. But, however, at Page No.14 of the paper book which clearly shows the assessee has maintained two portfolios, one for investment and the other is for trading. Further, we note that at page No.11 of the paper book, the assessee computed the sale of shares as business income from trading portfolio and capital gain from investment portfolio. Therefore, in our opinion, the observations of both the authorities i.e., AO and ld.CIT(A) are incorrect to the extent that assessee does not have two portfolios. There is no dispute that all the shares which were sold are delivery based transactions. We find from Page No.18 of the paper book that the assessee has shown the gains from selling of shares as capital gain and the loss has been shown as capital loss. The subjected shares which were in dispute before us are related to the sale of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant portion of the decision of Hon'ble High Court of Bombay in the case of CIT Vs. Gopal Purohit cited supra is reproduced hereunder : The following questions of law have been formulated in the appeal filed by the Revenue against the judgment of the Tribunal, dt. 10th Feb., 2009 : (a) Whether, on the facts and circumstances of the case and in law, the Hon ble Tribunal was justified in treating the income from sale of 7,59,003 shares for ₹ 5,00,12,879 as an income from short-term capital gain and sale of 3,88,797 shares for ₹ 6,65,02,340 as long-term capital gain as against the income from business assessed by the AO ? (b) Whether, on the facts and circumstances of the case and in law, the Hon ble Tribunal was justified in holding that principle of consistency must be applied here as authorities did not treat the assessee as a share trader in preceding year, in spite of existence of similar transaction, which cannot in any way operate as res judicata to preclude the authorities from holding such transactions as business activities in current year ? (c) Whether, on the facts and circumstances of the case and in law, the Hon ble Tribunal was justified in holding t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opting a divergent approach for the assessment year in question. Question (b), therefore, does not also raise any substantial question. 4. Insofar as Question (c) is concerned, again there cannot be any dispute about the basic proposition that entries in the books of account alone are not conclusive in determining the nature of income. The Tribunal has applied the correct principle in arriving at the decision in the facts of the present case. The finding of fact does not call for interference in an appeal under s. 260A. No substantial question of law is raised. The appeal is accordingly dismissed. 10. We find in the light of the facts and circumstances of the above case before the Hon'ble High Court of Bombay are identical to the facts of the present case and the ratio laid down by the Hon'ble High Court of Bombay (supra) is applicable to the present case. Therefore, the order of ld.CIT(A) is not justified and it is set aside. The ground No.1 of the assessee is allowed. 11. Ground No.2 raised by the assessee challenging the action of ld.CIT(A) in confirming the disallowance under Sec.14A r.w.r 8D in the facts and circumstances of the case. 12. Heard both sides and perused t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der Section 14A read with 8D of the Rules would not be permissible. 6. Karnataka High Court, in the case of Pragati Krishna Gramin Bank Vs. Joint Commissioner of Income-tax2, has held that expenditure in relation to income not includable in the total income cannot exceed such income. It was observed as under. 14. We make it clear that the expenditure for earning exempted income has to have a reasonable proportion to the income, so earned, going by the common financial prudence. Therefore, even if the Assessing Authority has to make an estimate of such an expenditure incurred to earn exempted income, it has to have a rational nexus with the amount of income earned itself. Disallowance under Section 14A of ₹ 2,48,85,000/- as expenses to earn exempted Dividend income of ₹ 1,80,30,965/- is per se absurd and 1 378 ITR 33 2 [2018] 256 Taxman 349 (Karnatama) URS 3 of 7 4 3-ITXA 149-17.odt hypothetical. The disallowance under Section 8D cannot exceed the expenses claimed by assessee under the Proviso to Rule 8D. Therefore, where the assessee claimed that assessee did not incur any such expenditure during the year in question to earn Dividends of ₹ 1,80,30,965/-, the burde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s held that deduction for interest was permissible when loan was taken for business purpose and not for diverting the same to sister concern without having nexus with the business. The observations made therein have to be read in that context. In the present case, admittedly the assessee did not make any claim for exemption. In such a situation section 14A could have no application. 5. We do not find any question of law arising. Appeal is therefore dismissed. 8. Recently, this Court, in a decision dated 4th February, 2019, in the case of The Pr. Commissioner of Income Tax-10 Vs. HSBC Invest Direct (India) Ltd. had observed as under. 4. Having heard learned Counsel for the parties and perused documents on record, we notice that in Cheminvest Ltd. (supra) Delhi High Court had referred to and relied upon its earlier decision in the case of CIT Vs. Holcim India (P) Ltd. (I.T.A. No.486 of 2014, decided on 5 th September 2014). we further notice that this Court in Income Tax Appeal No.693 of 2015 by an order dated 21 st November, 2017 while dismissing the Revenue's appeal on similar issue had noted that the decision of Delhi High Court in case of Holcim India )P) Ltd. (supra) had ado ..... X X X X Extracts X X X X X X X X Extracts X X X X
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