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Income Tax Appellate Tribunal, DELHI BENCH: ‘F’ NEW DELHI
Before: SHRI KUL BHARAT & SHRI O.P. KANT
IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: ‘F’ NEW DELHI
BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER [Through Video Conferencing]
ITA No.2087/Del/2018 Assessment Year: 2014-15
M/s. Puran Associates Pvt. Vs. DCIT, Ltd., Circle-20(1), 4th Floor, Punjabi Bhawan, New Delhi 10, Rouse Avenue, New Delhi PAN :AAACP0458J (Appellant) (Respondent)
Appellant by Sh. M.P. Rastogi, Adv. Respondent by Sh. Rohit Anand, Sr.DR
Date of hearing 06.10.2021 Date of pronouncement 14.10.2021 ORDER PER O.P. KANT, AM:
This appeal by the assessee is directed against the order dated 23rd January, 2018, passed by the learned Commissioner of Income Tax (Appeals)-7, New Delhi, [in short ‘the learned CIT(A)’] for assessment year 2014-15, raising the following grounds: 1) That the CIT (Appeals)/ AO has erred on facts and in law in taxing the income from long term listed equities of Rs 3,19,01,839 declared by the assessee as capital gains as business income, without going into the facts of the relevant year and ignoring the CBDT’s circular.
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2) That the CIT (Appeals)/ AO has erred on facts and in law in taxing the income from long term unlisted equities of Rs 2,39,76,250 declared by the, assessee as capital gains as business income, without going into the facts of the relevant year and ignoring the CBDT’s circular. 3) That the CIT (Appeals)/AO has erred on facts and in law in increasing the disallowance u/s 14A by Rs 77,82,133, without factoring the assessee himself had disallowed Rs 24,38,508. 4) That both the Ld. CIT(A) and Ld. AO erred in law and in facts in appreciating that strategic investments in Dabur India Limited as the promoter shareholder, would not form part of disallowance u/s 14A. 5) That the CIT (Appeals)/ AO has erred on facts and in law in disallowing the business expenses of Rs 9,44,390 on adhoc basis @ 10%. 6) That the above grounds of appeal are independent and without prejudice to one another.
Briefly stated facts of the case are that the assessee is engaged in the business of sale and purchase of shares and mutual funds. The assessee filed return of income for the year under consideration on 28.11.2014, declaring income of Rs.9,49,46,119/-. The return filed by the assessee was selected for scrutiny assessment and statutory notices under the Income- tax Act, 1961 (in short ‘the Act’) were issued and complied with. In the assessment completed under section 143(3) of the Act on 23.12.2016, the Assessing Officer made certain additions/disallowances. The assessee filed appeal before the learned CIT(A) but did not find any favour. The appeal was dismissed. Aggrieved with the findings of the learned CIT(A), the assessee is before the Tribunal raising the grounds as reproduced above. 3. Before us, learned Representative of both the parties appeared through Video conferencing facility. The assessee filed a paper-book through email, containing pages 1 to 159.
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The grounds no. 1 & 2 of the appeal relate to treating income from long term capital gain declared by the assessee as business income by the Assessing Officer. 4.1 The learned counsel for the assessee before us submitted that the issue in dispute is covered in favour of the assessee by the order of the Tribunal dated 20th August, 2018 for AY 2008-09 to 2011-12; order of Tribunal dated 26th March, 2018 for AY 2012-13; order of the Tribunal dated 29th May, 2020 for AY 2013- 14. 4.2 On the contrary, the learned DR relied on the order of the lower authorities. 4.3 We find that the learned CIT(A) upheld the finding of the Assessing Officer following the decision of the Tribunal in ITA No. 118, 942 & 943/Del/2010, dated 31.01.2012. However, in subsequent assessment year 2008-09 to 2013-14, the Tribunal has treated the activity of purchase and sale of the mutual funds under the head of ‘capital gain’. The relevant finding of the Tribunal for assessment year 2013-14 in ITA No. 3785/Del/2017 is reproduced as under: “3.6 We have heard rival submission of the parties on the issue in dispute. The issue in dispute of treating long-term capital gain shown by the assessee as business income has been raised in the case of the assessee for last so many years. The Tribunal in assessee’s own case for assessment years 2005-06 to 2007-08 (ITA No.1118, 942 and 943/Del./2010 order dated 31/03/2012) held the activity of purchase and sale of the shares as business income. The relevant finding of the Tribunal is reproduced as under: “8. We are of the opinion that the character of a transaction cannot be determined solely on the application of any abstract test or rule and the cumulative factors affecting the transactions have to be seen. Habitual dealing in a particular item and that too since inception is indicative of the assessee's intention of trading. Merely for taking benefit of provisions of sec. 111A of the Act applicable
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from the AY 2005-06, the assessee cannot be categorized as an investor, especially when the aforesaid facts speak otherwise and the ld. AR did not place any material, other than resolution dated 22.4.2005, before us while the auditor reports and facts for the years under consideration ,reflecting intention of the assessee, lead us to the conclusion that the assessee is continuing its activities as in earlier years of a trader in shares. .As observed in Sutlej Cotton Mills Supply Agency Ltd. (supra), it is a matter of first impression with the Court whether a particular transaction is in the nature of trade or not. , it is not even the assessee's case that they had held all the shares for a long duration. The facts and circumstances of the case before us, when viewed in the light of principles laid down in the various decisions referred to above, lead us to the conclusion that the voluminous share transactions were in the ordinary line of 24 ITA nos.1118,942&943/Del./2010 the assessee's business; purchase of shares by them was not for the purpose of earning dividend, but with the dominant intention of resale in order to earn profits; the profit made by them is not of mere enhancement of value of the shares, but is a profit made in the carrying on of a business scheme of profit making; huge volume of share transactions, the repetition and continuity of the transactions, give them a flavour of "trade"; the magnitude, frequency and the ratio of sales to purchases on the total holdings is evidence that the assessee had not purchased the shares as an investment, but with the intention to trade in such scrips. In the light of view taken in the aforesaid decisions, including in Wallfort Financial Services Ltd.(supra) relied upon by the ld. DR, we are of the opinion that the ld. CIT(A) was not justified in accepting the claim of the assessee as investor in shares ,especially when the nature of transactions in the years under consideration was similar to what the assessee had undertaken hither to and turnover of the assessee continually increased in the years under consideration. Accordingly, we vacate the findings of the ld. CIT(A) and restore the order of the AO. Therefore, ground no.1 in these appeals is allowed.”
3.7 Subsequently, the Tribunal in assessment year 2008-09, 2009- 10 and 2011-12 (ITA No.3078/2011, 820/2013 and 5054/2015 in order dated 20/08/2018) analysis of various decisions and the circulars issued by the Central Board of the Direct Taxes (CBDT) held the activity of purchase on sale of the shares as assessable under long-term capital gain and not business income. The detailed finding of the Tribunal is reproduced as under:
“14. We have heard the rival submission and also perused the relevant findings given in the impugned orders as well as matter referred to before us. The core issue before us is, whether the amount of Rs.15,41,96,869/- which has been classified as business income by the Assessing Officer which income has been offered to
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tax by the assessee under the head ‘capital gain’ is to be assessed as business income or capital gain. The Assessing Officer has summarized the following income shown under the head ‘Capital Gain’ as business income:
Long Term Capital gain Rs. 32,39,427 (Except Dabur India Ltd.) Long Term Capital Gain Rs.10,13,29,232 (without indexation) Long Term Capital Gain Rs. 2,93,99,990 (with indexation after removing Indexation) Short Term Capital Gain Rs. 1,85,41,338 Short Term Capital Gain With PMS (Net) Rs. 16,86,882 Total Rs. 15,41,96,869/-
The assessee company is a NBFC, which was also in the business of sale and purchase of shares and mutual fund. In so far as transactions in mutual funds are concerned, the same has been offered under the head ‘Profits and Gains of Business and Profession’. However, various shares which has been held under the investment portfolio on which assessee has been shown under the head Long-Term Capital Gain and Short-Term Capital Gain as per the details incorporated above. The income earned by the assessee from various sources was as under: -
Particulars Asset Type Amount Income from a)Trading in units of Mutual 360,77,965 Business (A) Funds; b) Income from Interest; c)Incentive and Miscellaneous Income Income from Income from Capital Assets - 13,51,06,960 Capital Investment in Gains (B) EquitiesLTCG11,48,78,740 (85%) STCG2,02,28,220 (15%) Income from Dividend earned from 8,19,14,172 other investment in equities Sources (C)
One of the main contentions of the Revenue which has been strongly harped by the Tribunal in the earlier years is that, assessee prior to 31st March, 2004 was holding shares as ‘stock in trade’, hence intention was to do business only and mere classification in books as investment by making entries is not decisive factor. It was
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on 01.04.2004 the shares were converted into investment portfolio and since A.Y. 2005-06; assessee has segregated the income under the head ‘Capital Gains’ and ‘Business Income’. Apart from that, Assessing Officer has noted that magnitude of the transaction and the volume shows that assessee was into sale and purchase of share for the intention of business only and has also referred to the huge turnover and also highlighted various facts it has been discussed and incorporated in detail in the earlier part of the order. Now from the perusal of the schedule of investments especially investment made in the shares under the head ‘Long-Term Capital Gain’, we find that the major amount on amount of Long-Term Capital Gain is arising on account of sale of shares of Punjab Tractors Ltd. which is at Rs.10,13,29,232/-, out of total Long-Term Capital Gain of Rs. 15,41,96,869/-, which has been treated as business income by the Assessing Officer. Shares of Punjab Tractors were acquired in the years 2005 and 2006 and since the date of purchase it was shown under the head ‘investment’, because these shares were acquired by the assessee for having controlling stake/interest in the said company. Later on, these shares were sold to Mahindra & Mahindra as a part of takeover deal which is evident from sale purchase agreement dated 08.05.2007. Thereafter Mahindra & Mahindra has given a letter of offer for purchase of equity shares from public at large after the acquisition of the shares of Punjab Tractors from the assessee in accordance with SEBI rules. In so far as Long-Term Capital Gain shown on the sale of the Punjab Tractors Ltd., it cannot be disputed that it was never a part of stock- in-trade, prior to 1.4.2004, because, firstly, they were acquired much later to this date; and secondly, it was acquired for the purpose of acquiring controlling stake/interest. Hence such an acquisition cannot be held to be for trading purpose. The transfer of such shares on a takeover of Punjab Tractors Ltd. by Mahindra & Mahindra also goes to prove that this was an investment held by the assessee. Similarly, in the case of ABN Amro Bank they were always held as investment and since the stock was not a tradeable in the stock market, therefore it could have been held as stock for the purpose of trade. Thus, the shares of ABN Amro Bank can never be treated as acquired for trading purpose. Hence any gain arising from sake of these two shares has to be assessed as ‘capital gain’. 16. Further, from the perusal of details shown under LTCG of other scrips also, we find that the same have been acquired in the years 2005, 2006 and 2007 and were treated as part of investment and the holding days of these shares are ranging from 372 days to 828 days. These shares were not converted from stock as on 01.04.2004, because they have been acquired in the later years and from the date of acquisition, always been kept as investment in the books and later on sold after more than a year on which gain has been shown under the head ‘Long Term Capital Gain’. Nowhere it has been laid down that the assessee who is dealing in shares
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cannot maintain two separate portfolios, one for the trading purpose and other for the investment purpose and there is no provision that shares held in investment portfolio have to be treated as part of stock. The most paramount factor which needs to be examined in such cases is, whether the intention of the assessee while acquiring shares was for investment purpose or for trading in future for profit. However, we find that in the earlier years the Tribunal has taken a different view and held that even if the shares have been held under investment portfolio also, it can be taxed as business income. One of the core reasoning for arriving to this conclusion was that the assessee has been trading in shares and the audit report also suggest that the assessee is dealer in shares and prior to 31st March, 2004 assessee was a full-fledged trader of share. Thus, the intention of the assessee at the time of purchase became the decisive factor to hold that it was only for the business purpose. The conclusion of the Tribunal in this regard reads as under:
We are of the opinion that the character of a transaction cannot be determined solely on the application of any abstract test or rule and the cumulative factors affecting the transactions have to be seen. Habitual dealing in a particular item and that too since inception is indicative of the assessee’s intention of trading. Merely for taking benefit of provisions of sec. 111A of the Act applicable from the AY 2005-06, the assessee cannot be categorized as an investor, especially when the aforesaid facts speak otherwise and the Id. AR did not place any material, other than resolution dated 22.4.2005, before us while the auditor reports and facts for the years under consideration reflecting intention of the assessee, lead us to the conclusion that the assessee is continuing its activities as in earlier years of a trader in shares. As observed in Sutlej Cotton Mills Supply Agency Ltd’ (supra), it is a matter of first impression with the Court whether a particular transaction is in the nature of trade or not., it is not even the assessee’s case that they had held all the shares for a long duration. The facts and circumstances of the case before us, when viewed in the light of principles laid down in the various decisions referred to above, lead us to the conclusion that the voluminous share transactions were in the ordinary line of the assessee’s business; purchase of shares by them was not for the purpose of earning dividend, but with the dominant intention of resale in order to earn profits; the profit made by them is not of mere enhancement of value of the shares, but is a profit made in the carrying on of a business scheme of profit making; huge volume of share transactions, the repetition and continuity of the transactions, give them a flavour of “trade”; the magnitude, frequency and the ratio of sales to purchases on the total holdings is evidence that the assessee had not purchased the shares as an investment, but with the
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intention to trade in such scrips. In the light of view taken in the aforesaid decisions, including in Wallfort Financial Services Ltd.(supra) relied upon by the Id. DR, we are of the opinion that the Id. CIT(A) was not justified in accepting the claim of the assessee as investor in shares especially when the nature of transactions in the years under consideration was similar to what the assessee had undertaken hither to and turnover of the assessee continually increased in the years under consideration. Accordingly, we vacate the findings of the Ld. CIT (A) and restore the order of the AO. Therefore, ground no.1 in these appeals is allowed.”
If the aforesaid ratio and principle of the Tribunal is to be followed as it is, then as observed in the earlier part of the order, in so far as the transaction of shares of Punjab Tractors Ltd. and ABN Amro are concerned, right from day one it was acquired as a part of investment only and was classified as such in books right from the day of acquisition and it is not the case that these shares were earlier part of stock-in-trade which has been converted into investment after 01.04.2004. We have already held that the shares of Punjab Tractors Ltd. were acquired for controlling interest and ABN Amro shares are not tradeable in stock market and if one goes by the intention part, then these two scrips could never be held to be intended for trading purposes. Thus, the aforesaid decision will not be binding at least for these two scrips. For the other scrips also, if we see the volume of transaction and the period of holding, then we find that the transaction in the shares which was held for more than a year constitute 98.38%. For the sake of ready reference, the period of holding, volume of shares dealt, percentage of shares held in LTCG and other percentage of gain in shares are incorporated hereunder:-
Period of More than 365 81 to 364 91 to 180 60 to 90 30 to 59 Less than Holding days days days days days 30 days Quantity of 1,33,65,009 53,003 1,01,571 43,971 78,813 67,802 shares Percentage 97.48% 03.8% 0.74% 0.32% 0.57% 0.49% to Total Quality Gain or 1,19,85,50,369 86,05,051 20,57,841 21,45,605 22,70,962 19,21,580 loss Percentage 98.34% 0.70% 0.16% 017% 0.18% 0.15% of Capital gain to Total capital gain *inclusive of shares of Dabur India Ltd., Punjab Tractors Ltd. and ABN Amro Securities Pvt. Ltd. Total Capital Rs. Long Term Capital Gain claimed exempt u/s. 10(38) 1,06,78,21,147 Long Term Capital Gain on sale of shares of Punjab Tractors Ltd. 10,13,29,232 Long Term Capital Gain on sale of shares of ABN Amro Securities 2,93,99,990 Pvt. Ltd. Short Term Capital Gain 2,02,28,140
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Total 1,21,87,78,509
Now, it has been well settled that if the shares which has been acquired and treated as investment from day one and held for more than a year, then sale of such shares has to be taxed under the head ‘Long Term Capital Gain’. This has been clarified by the CBDT in its following two circulars: -
“Circular No.6/2016; dated 29/02/2016 Sub: Issue of taxability of surplus on sale of shares and securities — Capital Gains or Business Income — Instructions in order to reduce litigation - reg.-
Sub-section (14) of Section 2 of the Income-tax Act, 1961 (Act') defines the term "capital asset" to include property of any kind held by an assessee, whether or not connected with his business or profession, but does not include any stock-in-trade or personal assets subject to certain exceptions. As regards shares and other securities, the same can be held either as capital assets or stock-in-trade/ trading assets or both. Determination of the character of a particular investment in shares or other securities, whether the same is in the nature of a capital asset or stock-in- trade, is essentially a fact-specific determination and has led to a lot of uncertainty and litigation in the past.
Over the years, the courts have laid down different parameters to distinguish the shares held as investments from the shares held as stock- in-trade. The Central Board of Direct Taxes ('CBDT') has also, through Instruction No. 1827, dated August 31, 1989 and Circular No. 4 of 2007 dated June 15, 2007, summarized the said principles for guidance of the field formations.
Disputes, however, continue to exist on the application of these principles to the facts of an individual case since the taxpayers find it difficult to prove the intention in acquiring such shares/securities. In this background, while recognizing that no universal principal in absolute terms can be laid down to decide the character of income from sale of shares and securities (i.e. whether the same is in the nature of capital gain or business income), CBDT realizing that major part of shares/securities transactions takes place in respect of the listed ones and with a view to reduce litigation and uncertainty in the matter, in partial modification to the aforesaid Circulars, further instructs that the Assessing Officers in holding whether the surplus generated
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from sale of listed shares or other securities would be treated as Capital Gain or Business Income, shall take into account the following-
a) Where the assessee itself, irrespective of the period of holding the listed shares and securities, opts to treat them as stock-in-trade, the income arising from transfer of such shares/securities would be treated as its business income, b) In respect of listed shares and securities held for a period of more than 12 months immediately preceding the date of its transfer, if the assessee desires to treat the income arising from the transfer thereof as Capital Gain, the same shall not be put to dispute by the Assessing Officer. However, this stand, once taken by the assessee in a particular Assessment Year, shall remain applicable in subsequent Assessment Years also and the taxpayers shall not be allowed to adopt a different/contrary stand in this regard in subsequent years; c) In all other cases, the nature of transaction (i.e. whether the same is in the nature of capital gain or business income) shall continue to be decided keeping in view the aforesaid Circulars issued by the CBDT.
It is, however, clarified that the above shall not apply in respect of such transactions in shares/securities where the genuineness of the transaction itself is questionable, such as bogus claims of Long Term Capital Gain / Short Term Capital Loss or any other sham transactions.
It is reiterated that the above principles have been formulated with the sole objective of reducing litigation and maintaining consistency in approach on the issue of treatment of income derived from transfer of shares and securities. All the relevant provisions of the Act shall continue to apply on the transactions involving transfer of shares and securities.”
17.1 Later on CBDT again clarified in the following manner:-
F. No. 225/12/2016/ITA.II Government of India Ministry of Finance Department of Revenue (CBDT)
North Block, New Delhi, dated the 2nd of May, 2016
To Principal Chief-Commissioners of Income-tax/ Principal Directors General of Income-tax
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Subject: - Consistency in taxability of income/loss arising from transfer of unlisted shares under Income-tax Act, 1961-regd
Regarding characterization of income from transactions in listed shares and securities, Central Board of Direct Taxes (‘CBDT) had issued a clarificatory Circular no. 6/2016 dated 29th February, 2016, wherein with a view to reduce litigation and maintain consistency in approach in assessments, it was instructed that income arising from transfer of listed shares and securities, which are held for more than twelve months would be taxed under the head 'Capital Gain' unless the tax-payer itself treats these as its stock- in-trade and transfer thereof as its business income. It was further stated that in other situations, the issue was to be decided on the basis of existing Circulars issued by the CBDT on this subject. 2. Similarly, for determining the tax-treatment of income arising from transfer of unlisted shares for which no formal market exists for trading, a need has been felt to have a consistent view in assessments pertaining to such income. It has, accordingly, been decided that the income arising from transfer of unlisted shares would be considered under the head ‘Capital Gain', irrespective of period of holding, with a view to avoid disputes/litigation and to maintain uniform approach.
It is, however, clarified that the above would not be necessarily applied in the situations where: i. the genuineness of transactions in unlisted shares itself is questionable; or ii. the transfer of unlisted shares is related to an issue pertaining to lifting of corporate veil; or iii. the transfer of unlisted shares is made along with the control and management of underlying business; and the Assessing Officer would take appropriate view in such situations.
The above may be brought to the notice of all the necessary compliance.
17.2 Now this circular has been approved and upheld in many judgments including that of Hon'ble Gujarat High Court in the case of PCIT vs. Ramniwas Ramjivan Kasat, reported in 248 Taxman 484. (Guj). Following the above two circulars, the Tribunal in assessee’s own case in the A.Y. 2011-12 has decided the issue in favour. Apart from that, there are many judgments now including that of Hon’ble Jurisdictional High Court rendered after the judgment of Tribunal order for the earlier years (supra), wherein it has been consistently held that if the shares have been held under the portfolio of investment which is separate from the shares then same cannot be
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brought to tax under the head capital gain. Some of the judgments are as under: -
CIT vs. Gopal Purohit, 336 ITR 287 (Bom.) [Also confirmed by Hon’ble Supreme Court] 2. CIT vs. Vinay Mittal, 208 taxman 106 (Del. HC) 3. ITO vs. Rohit Anand, (2009) 34 SOT 42 (Del.) 4. CIT vs. Amit Jain, 374 ITR 550 (Del.) 5. CIT vs. Sahara India Housing Corporation Ltd., ITA No.740/2009 (Del.)
In the light of the catena of decision Hon'ble Jurisdictional High Court and also some of the judgment affirmed by the Hon'ble Supreme Court and the facts as discussed above, the earlier years Tribunal order cannot be held to have any binding precedence and accordingly, we hold that in so far as transaction in sale of shares shown under the head ‘Long Term Capital Gain’ same cannot be taxed under the head business income especially in the light of the categorical clarification by the CBDT.
3.8 Further, the Tribunal in the assessee’s own case for assessment year 2010-11 (ITA No. 701/2015 in order dated 02/01/2019) following the order of the Tribunal for assessment year 2008-09, 2009-10 in 2011-12 upheld the activity of the parties on sale of the shares assessable under the head capital gain. The relevant finding of the Tribunal reproduced as under:
“5. Thus, respectfully following the precedents of the earlier years and as a principle of consistency, we uphold the order of the CIT(A) that long term capital gain/capital loss cannot be treated as business income or loss and also long-term gain cannot be treated as business income. Accordingly, ground no. 1 raised by the Revenue stands dismissed.”
3.9 Further, in assessment year 2012-13 i.e. immediately preceding assessment year, the Tribunal in ITA No.4711/Del/2016 in order dated 26/03/2018 held the activity of purchase on sale of the shares assessable under the head capital gain. The relevant finding of the Tribunal is reproduced as under:
“6. We have carefully considered the rival contentions and also perused the orders of the lower authorities. The assessee is Non Banking Financial Company and income from capital gains were investment made in equities are sold. The assessee treated long term capital gain from sale of equities held for more than 12 months exempt u/s 10(38) of the Act. The Assessing Officer treated it as business income, Now, the above issue is squarely covered in favour of the assessee by Circular No. 6 dated 29.02.2016 issued by CBDT.
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The above circulars peaks that if shares are held for more than 12 months, if assessee shows it as LTCG, same should be accepted.
In view of above facts we are of the opinion that when the assessee himself has treated the income arising from sale of securities held for more than 12 months as capital gains, there is no reason to dispute it by Assessing Officer.
In view of this ground No. 2 of the appeal of the assessee is allowed holding that long term gain from listed securities of Rs.25,13,359 is chargeable to tax under the head capital gain and not business income. Ground no. 2 of the appeal is allowed.”
2.10 In view of the consistent finding of the Tribunal since assessment year 2008-09, 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.”
4.4 Hence, respectfully following the finding of the Tribunal (supra) the Grounds 1 and 2 are accordingly allowed in favour of the assessee. 5. The Grounds No. 3 relates to disallowance under Section 14A read with Rule 8D of the Income Tax Rules, 1962 (in short ‘the Rules’) 5.1 The facts in brief qua the issue in dispute are that the assessee computed the disallowance under Section 14A of the Act read with Rule 8D of the Rules as under: Calculation of Expenses U/s 14A (i) Amount of expenditure directed relating to exempt income NIL (ii) Indirect Interest expenses Interest paid Average Value of NIL investment/Average value of total assets (iii) 0.5% of Average value of the investments 10220641 Closing Investments 2506291454 Opening Investments 1581876664 Average investments 2044128159 10220641 Gross disallowance u/s 14A Less: Expenses on account of income on which no activity has done in the previous year Total exempt Income
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Dividend received 312842907 Long Term gain u/s 10(38) 31901839 Tax free interest 52856859 397601605 Less: Dividend reed from DIL 302739200 % of DIL dividend in exempted income 76% 7782133 Disallowance u/s 14A 2438505
5.2 We find that the assessee firstly computed the disallowance under section 14A as per Rule 8D of the Act and, thereafter, reduced the disallowance in the proportion of dividend income from shares of Dabur India Ltd. The claim of the assessee that no expenditure was incurred in relation to the earning of dividend income from the Dabur India Ltd. The assessee is one of the promoters of the group company Dabur India Ltd. and no investment activity has been conducted by the assessee company in holding the shares of the Dabur India ltd. The learned Assessing Officer rejected this contention of the assessee and made addition of Rs.77,82,133/- i.e. the amount which was reduced by the assessee from the disallowance computed under Rule 8D of the Rules. On further appeal, the learned CIT(A) upheld the finding of the Assessing Officer as under: “4.4 The provisions of Section 14A refers to a category of income, namely, the income which as a result of investment made by assessee does not form part of the total income under the Act, in that case, the assessee is not entitled to claim deduction of expenditure incurred in relation to such investment. The intention of statute also becomes clear from the words and expression used in Rule 8D which prescribes the method for determining amount of expenditure in relation to income not includable in total income.”
5.3 Before us, the learned counsel of the assessee reiterated the submissions which was made before the learned CIT(A) and stated that no expenses have been incurred in relation to the dividend income earned from Dabur India Ltd. Learned counsel
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for the assessee alternatively submitted that for computing disallowance under Rule 8D, the only investment which has yielded dividend income should be considered as held in the case of ACIT vs. Vireet Investment (P) Ltd.,165 ITD 27 (Del) (Spl Bench). 5.4 The learned DR, on the other hand, relied on the findings of the learned CIT(A). He further submitted that the Tribunal in assessment year 2013-14 in the case of the assessee has rejected this contention of the assessee. 5.5 We have heard rival submission of the parties and perused the relevant material on record. 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 ITA No.3785/Del/2017 (supra). The relevant para is reproduced as under: “3.9 Regarding the second contention of the assessee that no dissatisfaction was recorded by the Assessing Officer on the claim of the assessee of expenses toward earning exempt income, we agree with the finding of the Ld. CIT(A), that when the assessee itself as computed the disallowance in terms of rule 8D and thereafter reducing the expenses corresponding to earning dividend income from shares of M/s Dabur India Ltd. was not justified. The Assessing Officer in para 4.3 to 4.5 of the assessment order has duly rejected the action of the assessee of reducing the expenses related to earning of the dividend income from the shares of M/s. Dabur India Ltd. Accordingly, we reject the contention of the assessee and upheld the finding of the Learned CIT(A) on the issue in dispute. The ground No. 2 of the appeal of the assessee is accordingly dismissed.”
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5.6 Hence, respectfully following the findings of the Tribunal (supra), the Grounds No. 3 of the appeal of the assessee is dismissed. 6. In the Ground No. 4, the assessee has contested that the investment in Dabur India Ltd. being a strategic investment would not form part of the total income under the Act. However, in view of the decision of the Hon’ble Supreme Court in the case Maxopp Investment Ltd Vs CIT in 402 ITR 640, the issue is covered against the assessee and, therefore, this grounds of appeal is dismissed. 7. The grounds no. 5 relates to disallowance of business expenses Rs. 9,44,390/-. Before us, the learned counsel for the assessee fairly accepted that this issue is covered against the assessee by the order of the Tribunal in assessment year 2013- 14. The facts of the case are that the assessee debited business promotion expenses of Rs.94,43,907/-. The assessee failed to justify the expenditure by way supporting evidences. 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. 6.1 The learned 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.
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6.2 The Tribunal in the decision (supra) passed for assessment year 2013-14 has upheld the disallowance. The relevant para is reproduced as under: “4.5 We have heard rival submission of the parties on the issue in dispute. It is undisputed that 10 percentile disallowance was agreed by the Authorized Representative of the assessee before the Assessing Officer and therefore the Assessing Officer did not identify the individual expenditure not related to the business purpose. In view of the admission of the Authorized Representative of the assessee for 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. The ground No.3 of the appeal of the assessee is accordingly dismissed.”
6.3 Thus, respectfully following the decision of the Tribunal (supra), this ground of appeal of the assessee is dismissed. 7. In the result, the appeal of the assessee is allowed partly Order pronounced in the open court on 14th October, 2021
Sd/- Sd/- (KUL BHARAT) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 14th October, 2021. RK/-(DTDC) Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi