TURAKHIA OVERSEAS PVT.LTD.,,AHMEDABAD vs. THE DCIT. CIRCLE 4(1)(3),, AHMEDABAD

In the instant appeal, the assessee has filed two grounds of appeal on the issue in confirming the disallowance on account of short term capital gain treated as business income to the amount of Rs. 6,67,260/- and disallowance u/s. 14A r.w. Rule 8D of Rs. 43,300/-.

The fact in brief is that the assessment order u/s. 143(3) of the act was passed on 7th December, 2015. At the time of assessment, the assessing officer noticed that assessee has shown short term capital gain of Rs. 6,67,260/- and assessee was engaged in the business of manufacturing and dealing in wood related products. The assessee was show caused to explain why the short term capital gain should not be considered as business income. The assessee clarified that it has also been dealing in business of share and securities and the same was not its main activity. The assessee has stated that it has also made investment in Mutual Fund as shown in the balance sheet. The assessing officer has not agreed with the submission of the assessee and has stated that it has always been within the hands of the assessee to treat the transaction to his benefit after transactions are done. He was of the view that assessee has sold/purchased shares/securities throughout the year and assessee was engaged in the organized activity with the purpose of earning profit. Therefore, the assessing officer has treated short term capital gain of Rs. 6,67,260/- as business income of the assessee.

During the course of assessment, the assessing officer has also noticed that assessee has claimed Rs. 2,68,491/- as exempt income earned as dividend and the assessee was asked to explain why not expenses incurred on earing exempt income should not be disallowed u/s. 14A r.w. Rule 8D of the Act. The assessee explained that it has made investment of Rs. 1.18 crores whereas the assessee company was having its own funds of Rs. 20.78 crores, therefore, no disallowance is called for. However, the assessing officer has stated that all the direct and indirect expenses were disallowable u/s. 14A which have any relation with the income not chargeable to tax under the act. Accordingly, the assessing officer has made disallowance of Rs. 43,300/- u/s. 14A r.w. Rule 8D as expenses incurred towards earning exempt income.

Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee.

We have heard the rival contentions and perused the material on record. During the course of appellate proceedings before us, the ld. counsel has filed paper book comprising information and copies of document furnished at the time of assessment and appellate proceedings before the lower authorities. With the assistance of ld. representatives, we have gone through the records i.e. audit report and annual account of the assessee company placed in the paper book. It is noticed that during the year under consideration, there was nil investment in the mutual fund and in the preceding assessment year, the assessee has made investment in the Reliance Mutual Fund to the amount of Rs. 10 lacs only. At page no. 66 of the paper book in its submission before the ld. CIT(A), the assessee has submitted that shares and securities were held as stock in trade in assessment year 2012-13 and loss on sale of shares was shown at Rs. 68,79,522/-. Similarly in assessment year 2011-12, there was gain of Rs. 15,09,882/- as business income. On perusal of the copy of the balance sheet placed at page 39 of the paper book, it is noticed that asssessee has shown shares/securities at Rs. 57,56,189/- and Rs. 65,07,320/- during the year under consideration and in the preceding year under the head trade inventories. The assessee has placed reliance on the decision of Hon’ble High Court of Gujarat Pr. CI Vs. Bhanuprasasd D. Trivedi (HUF) (2017) taxman.com 137 (Guj). In the above cited case relied upon by the counsel, it is held that the intention of the assessee at the time of purchase of shares is paramount. If assessee has clear intention of being an investor held shares by way of investment, assessee was investor and any gain arising out of transfer of shares should be treated as capital gain and not business income. However, the facts of the case of the assessee are distinguishable from the fact of the above cited judicial pronouncement as in the case of the assessee it has failed to demonstrate that it has shown investment in the mutual fund and shares during the year under consideration as it is noticed that no such investment was reflected in the balance sheet, therefore, we do not find any infirmity in the decision of ld. CIT(A) in assessing the short term capital gain as business income of the assessee. Therefore, this ground of the appeal of the assessee is rejected.

The assessee has claimed exempt income of Rs. 2,68,491/- earned as dividend. The assessee has explained that it was having own fund of Rs. 20.78 crores whereas investment in the shares was made only to the amount of Rs. 1.18 crores. In this regard, we have noticed that ld. CIT(A) has sustained the addition stating that disallowance out of administrative expenditure is required to be made on the fact of the case since substantial exempt income has been earned by the assessee. The assessee could not substantiate that no administrative expenses are incurred for earning exempt income. Considering these facts, we do not find any infirmity in the decision of the ld. CIT(A), therefore, this ground of appeal of the assessee is also rejected.

In the result, the appeal of the assessee is dismissed.