THE PRINCIPAL COMMISSIONER OF INCOME TAX4 vs. MAYUR MUKUNDBHAI DESAI

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TAXAP/502/2018HC GujaratGJHC24026511201811 May 2018Author: HONOURABLE MR. JUSTICE AKIL KURESHI,HONOURABLE MR. JUSTICE B.N. KARIA3 pages
AI SummaryDismissed

What did the High Court hold?

The High Court dismissed the Revenue's appeal. Regarding the first issue under Section 14A, the Tribunal had confirmed the disallowance of general expenses but deleted the disallowance of specific expenses not related to earning exempt income. The Court noted that the Tribunal had adopted the same principle in earlier years for the same assessee, and the Revenue had not pursued the matter further. For the second issue concerning the profit on sale of shares, the Tribunal had upheld the assessee's contention that it was long-term capital gain, considering that the shares were shown as investment, delivery was taken, and there were few transactions. The Court found no error in the Tribunal's view. Although the Revenue attempted to distinguish the Bombay High Court judgment in CIT V/s Gopal Purohit, the Court kept this specific question open as it confirmed the Tribunal's view on different grounds. The operative direction was the dismissal of the Tax Appeal.

What were the facts?

The Revenue is in appeal against an order of the Income Tax Appellate Tribunal (ITAT). The appeal concerns the assessment year(s) not explicitly stated but implied to be related to prior years due to the mention of previous Tribunal decisions. The ITAT's order upheld the Commissioner of Income Tax (Appeals) [CIT(A)] decision on two main issues. The first issue involved the deletion of a disallowance of Rs. 9,23,637 out of a total disallowance of Rs. 11,01,769 under Section 14A of the Income Tax Act, 1961. The second issue concerned the treatment of profits on the sale of shares, amounting to Rs. 78,21,689 and Rs. 6,61,000, as long-term capital gains instead of business income. The ITAT had previously adopted a similar principle for the assessee in earlier years.

What were the issues?

1. Whether the Tribunal is correct in law and on facts in upholding the decision of the CIT(A) in deleting the disallowance of Rs. 9,23,637 out of a total disallowance of Rs. 11,01,769 under Section 14A of the Act. The Revenue contends that the ITAT erred in deleting this portion of the disallowance. The assessee's contention, as reflected in the CIT(A)'s and ITAT's decision, is that expenses not related to earning exempt income should not be disallowed under Section 14A. The ITAT confirmed the disallowance of general expenses but deleted the disallowance related to specific expenses not linked to exempt income. 2. Whether the Tribunal is correct in law and on facts in upholding the decision of the CIT(A) in treating the profit on sale of shares of Rs. 78,21,689 and Rs. 6,61,000 as long-term capital gain instead of business income. The Assessing Officer treated this profit as business income, while the assessee contended it was capital gain. The Tribunal, relying on the assessee's treatment of shares as investment, delivery of shares, and few transactions, upheld the capital gains treatment. The Revenue sought to distinguish the Bombay High Court judgment in CIT V/s Gopal Purohit (336 ITR 287).

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
C/TAXAP/502/2018 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 502 of 2018 ========================================================== THE PRINCIPAL COMMISSIONER OF INCOME TAX4 Versus MAYUR MUKUNDBHAI DESAI ========================================================== Appearance: MR. KARAN SANGHANI for MRS MAUNA M BHATT(174) for the PETITIONER(s) No. 1 for the RESPONDENT(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE B.N. KARIA Date : 11/05/2018

ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI)

1.

Revenue is in appeal against the order of the Income Tax Appellate Tribunal raising following questions for our consideration: “(A). Whether the Tribunal is correct in law and on facts in upholding the decision of the CIT (A) in deleting the disallowance of Rs.9,23,637/­ out of total disallowance of Rs.11,01,769/­ u/s. 14A of the Act? (B). Whether the Tribunal is correct in law and on facts in upholding the decision of the CIT(A) in treating the profit on sale of shares

of RS.78,21,689/­

and Rs.6,61,000/­   as   long   term   capital   gain instead of business income?”

2.

The  first  issue  pertains  to restriction  of C/TAXAP/502/2018 ORDER disallowance made by the Tribunal under Section 14A of the Income Tax Act, 1961 ('The Act' for short).   In   this   respect,   we   notice   that   the Tribunal   confirmed   the   disallowance   of   the general expenses and deleted the disallowance in relation to the expenses of the specific nature which were not related to earning exempt income. We   also   notice   that   in   the   earlier   years concerning   the   same   assessee,   the   Tribunal   had adopted the same principle and the Revneue had not carried the issue further.

3.

The   second   issue   arises   out   of   the assessee's   sale   of   shares.   Assessing   Officer treated   as   a   business   income,   as   against, assessee's   contention   that   such   sale   of   shares give rise to long term /short term capital gain. From the record, we gather that the assessee had shown such shares as investment in the books of accounts, had taken delivery of the shares and there   were   few   transactions   during   the   entire year.   Under   the   circumstances,   the   Tribunal committed no error in its view. Counsel for the Revenue   further   desired   to   distinguish   the judgment of the Bombay High Court in the case of CIT V/s Gopal Purohit reported in 336 ITR 287, on which the Tribunal has placed reliance. Since we have   confirmed   the   view   of   the   Tribunal   on different grounds, this question is kept open. C/TAXAP/502/2018 ORDER

4.

In the result, Tax Appeal is dismissed. (AKIL KURESHI, J) (B.N. KARIA, J) pradhyuman

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