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Income Tax Appellate Tribunal, DELHI BENCH “B”: NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI PRASHANT MAHARISHI
O R D E R PER BENCH 1. These are the appeals filed by the assessee and the revenue against the order of the ld CIT(A)-XIII, New Delhi dated 01.06.2012 for the Assessment Year 2008-09, ld CIT(A)-XXXIII, New Delhi dated 26.07.2013 for the Assessment Year 2010-11 and dated 05.07.2013 for the Assessment Year 2010-11. 2. The revenue has raised the following grounds of appeal in Assessment Year 2008-09:- “1. On the facts and in the circumstances of the case, the CIT(A) has erred in directing the AO to treat the income of Rs. 5250328/- as short term capital gain instead of business income, as held by the AO in assessment order passed u/s 143(3) of the Income Tax Act, 1961.
2. The order of the CIT(A) is erroneous and is not tenable on facts and in law.”
3. The assessee has raised the following grounds of appeal in for the Assessment Year 2010-11:-
1. On the facts and in the circumstances of the case, the Learned CIT (A) erred in upholding the validity of order passed by the Assessing Officer u/s 153A on 29.10-2012.
2. On the facts and in the circumstances of the case, the Learned CIT (A) erred in holding that gain/loss on account of share transaction where the holding period is less than 30 days constitutes business income/loss, as against the capital gain/loss claimed by the appellant.
3. The learned CIT (A) further erred in not following the order of his predecessor for assessment year 2008-09, dated 01.06.2012, wherein the issue had been decided in favor of the appellant.
4. On the facts and in the circumstances of the case, the Learned CIT (A) erred in upholding the disallowance of Rs.49,949/-, made by the Assessing Officer u/s 14A in assessment u/s 153A/143(3) on 29.10.2012.
5. The appellant may kindly be allowed to raise any additional ground in the course of hearing of the appeal.”
4. The revenue has raised the following grounds of appeal in ITA No. 6330/Del/2013 for the Assessment Year 2010-11:- “1. On the facts and in the circumstances of the case, the ld CIT(A) has erred in directing the AO to treat the gain on shares as short term capital gain, if the period of holding the shares by the assessee company was more than 30 days & gain on shares as business income, if the holding period is up to 30 days.
2. The order of CIT(A) is erroneous and is not tenable on facts in the law.”
First we take up the appeal No. 5493/Del/2012 for the AY 2008-09 filed by the revenue wherein the solitary ground of appeal
is that ld CIT(A) has erred in directing the AO to treat the income of Rs. 5250328/- as short term capital gain instead of business income.
6. The brief facts of the case is that the assessee is a company who filed its return of income on 30.06.2009 declaring total income of Rs. 3310820/-. During the year the assessee has incurred loss from business of Rs. 43312/-, short term capital gain on sale of shares of Rs. 5250328/-, long term capital loss of Rs. 2442517/- and dividend income of Rs. 1640483/-. During the course of assessment proceedings the assessee was asked that why profit on sale of share of Rs. 5250328/- shown as short term capital gain should not be treated as business income. Assessee submitted in its explanation however, the ld Assessing Officer rejected the same as script-wise, date-wise details was not submitted and based on the information submitted by the assessee ld Assessing Officer held that at Rs. 64 crores was the cost of the acquisition of the shares and such a huge volume itself indicates that assessee was doing the business activity. Consequently, the AO treated short-term capital gain of Rs. 5250328/- as business income.
7. The assessee contested the above before the ld CIT(A), who vide order dated 01.06.2012 vide para No. 6.3 of the order has held that appellant is engaged in the business of export and import of goods of mercantile and makes an investment in purchase of shares. During the year, the company dealt with 39 companies and all the short-term capital of Rs. 52.50 lakhs and long-term capital loss of Rs. 24.42 lakhs. The holding period was also from 2 days to 360 days. He also noted that the above shares are shown as investment and there is no frequent purchase and sale of shares. All transactions are delivery based. In the past years also the purchase and sale of shares have been taxed under the head ‘capital gain’. Aggrieved by the order of the ld CIT(A), the revenue is in appeal before us.
8. The ld DR submitted that the assessee has not submitted the details as called for by the AO and further the assessee’s transactions are huge. She supported the order of the ld AO.
9. The ld AR submitted that the assessee has dealt with 39 companies and they are shown as investment. He also submitted that in past also for AY 2005-06 and 2006- 07 the treatment of the sale of the shares under the head ‘capital gain’ is accepted. He further supported the claim of the assessee by the order of Hon'ble Delhi High Court in case of M/s. Dreamland Builtech, a sister concern of the assessee wherein, the identical facts and circumstances the claim of the assessee is accepted under the head ‘capital gain’. He submitted that the order passed by the ld Assessing Officer is almost on identical lines in that case also.
10. We have carefully considered the rival contentions and also perused the orders of lower authorities. The ld DR could not controvert given by the ld CIT(A) that assessee has dealt with 39 companies and has earned short term capital gain of Rs. 52.50 lakhs and long term capital loss of Rs. 24.42 lakhs. The revenue also could not show that the assessee is not treating the purchase of shares as investment. In the case of M/s. Dreamland Buildtech Pvt. Ltd. in the Hon'ble Delhi High Court has held that merely because 41 securities were brought and sale could not per se lead to the conclusion that earning there from are not short-term capital gain but business income. Further, the ld CIT(A) has also noted that assessee is purchase shares of the market occasionally and subscribing to the IPO to use surplus funds available and no borrowing of funds is made. It cannot be disputed that in the past also the assessee was carrying similar activities where actual deliveries are taken and given and revenue has accepted the capital gain declared by the assessee. Furthermore, in case of the assessee for AY 2007-08 the coordinate bench has decided the issue in ITA No. 2517/Del/2014 dated 25.10.2016, wherein in para No. 8 it has been held as under:-
“8. We have carefully considered the rival contentions and perused the material available on record before us. On perusal of the order of the Ld. CIT appeal. It is apparent that the during the year there were 35 transactions of purchases of the shares and 13 transactions of the sales during the year. Out of this transaction, some of the shares were held for less than 30 days and therefore the lower authorities held that the assessee is carrying on business in purchase and sale of shares and therefore the income arising there from is chargeable to tax as business income. The details of the shares purchased and sold by the assessee is available at page No. 16 of the order of the Commissioner of income tax appeals dated 26/07/2013 passed in pursuance to order of the Ld. assessing officer under section 153A of the income tax act for assessment year 2006 – 07 to 2011 – 12 in case of the assessee. According to that chart the assessee has dealt with in 8 scripts out of which in one of the script the assessee has earned a short term capital gain of Rs. 6731272/– and in other scripts there are minor profits or losses and further the assessee has also earned the long-term capital gain of Rs. 64905/-. On appreciation of the about transactions, The Ld. CIT appeal has held that the Scripts, which are held for less than 30 days, shall be chargeable to tax under the head business income relying on the decision of the Dreamland buildTech private limited. Subsequently, in that particular case assessee preferred appeal before the coordinate bench and vide order dated 12/12/2014 wide page No. 15 para No. 8.3 of the order of the appeal of the assessee was allowed and it was held that the entire profits from the purchases and sales of shares said to be assessed under capital gain, even though they are held for less than 30 days. The above finding of the coordinate bench was further affirmed by the Hon’ble high court vide its order dated 26/04/2016. Therefore, respectfully following the decision of the Hon’ble high court we also hold in the case of the assessee that even though the shares are held for less than 30 days same are chargeable to tax as capital gain and not as income from business profession in case of the assessee. In the result ground No. 2 of the appeal of the assessee is allowed.”
In view of the decision of the Hon'ble Delhi High Court in case of M/s. Dreamland Builtech Pvt. Ltd (supra) and the order of the coordinate bench in assessee’s own case we confirm the finding of the ld CIT(A) holding that the income of Rs. 5250328/- derived from sale of shares is chargeable to tax from short term capital gain and not as business income. In the result, appeal filed by the revenue in is dismissed.
Now we come to appeal No. 6330/Del/2013 for AY 2010-11 in case of the revenue wherein solitary ground of the appeal is that gain on shares of short term capital gain is held to be chargeable to tax under head ‘capital gain’ and not business income. The assessee has during the year dealt with only one script of Sujana Towers Ltd and earned capital loss of Rs. 104566916/-. The Assessing Officer treated the same as business loss. The assessee preferred appeal before the ld CIT(A), who vide order dated 05.07.2013, following the order of the associate concern of the assessee in M/s. Dreamland Builtech Pvt. Ltd has held that transactions entered into by the assessee in purchase and sale of shares are chargeable to tax under the head ‘capital gain’ and not business income. Therefore, the revenue is in appeal before us.
The ld DR submitted that based on Circular No. 4/2007 the income of the assessee shall be changeable to tax under the head business income only.
The ld AR submitted that the decision in the case of Dreamland Buildtech is now been uphold by the Hon'ble High Court and therefore the issue is squarely covered in favour of the assessee.
We have carefully considered the rival contentions and perused the relevant order of the lower authorities as well as the decision of the Hon'ble Delhi High Court in case of Dreamland Buildtech Pvt. Ltd. (supra) as well as the decision of the coordinate bench in the case of the assessee for earlier years. During the year the assessee has dealt with only in script namely Sujana Tower ltd for which the shares were purchased for Rs. 139903469/- and same were sold at Rs. 35336553/- and earned a capital loss of Rs. 104566915/-. These shares were held for more than 365 days. The assessee has shown them as an investment and has not borrowed any sum for purchase of those shares. In view of above facts and following the decision of the coordinate bench in case of the assessee for earlier years as well as on the decision of the Hon'ble Delhi High Court in case of Dreamland Buildtech Pvt. Ltd we confirm the finding of the ld CIT(A) in holding that the impugned transaction of loss on sale of shares is changeable to tax under the head capital gain and not business income. In the result appeal of the revenue is dismissed.
Now we come to the appeal of the assessee in for AY 2010- 11 wherein the disallowance made by the Assessing Officer u/s 14A of Rs. 49949/- confirmed by the ld CIT(A) is under challenge.
The assessee during the year has earned dividend income of Rs. 351947/-. The assessee has not attributed any expenditure and therefore, assessee was asked to submit why expenses incurred for earning exempt income should not be disallowed. The assessee submitted the details of expenditure disallowable u/s 14A as per Rule 8D but requested to restrict it to the expenditure of Rs. 49949/-. The ld Assessing Officer noted that assessee has incurred bank charges and other charges for the purpose of earning exempt income and hence, calculated the disallowable expenditure at Rs. 4668118/- but as disallowance cannot exceed the amount of expenses claimed by the assessee restricted the same to Rs. 49949/-. Against the order of the ld Assessing Officer disallowing the above sum the assessee preferred an appeal before the ld CIT(A), who confirmed the disallowance and therefore the assessee is in appeal before us.
The ld AR stated that the assessee has incurred expenses of audit fees, fees and taxes, miscellaneous expenses etc and therefore the disallowance is on higher side.
The ld DR submitted that the Assessing Officer makes disallowance as per Rule 8D and there is no scope of reduction in the same.
We have carefully considered the rival contentions. The only source of the income of the assessee is dividend income, which is exempt, and the assessee has incurred expenditure of audit fees, bank charges etc., therefore, the assessee has incurred expenditure for earning exempt income. In view of this the expenses claimed by the assessee for earning exempt are definitely disallowable and the computation of the disallowance is required to be made as per the provisions of Rule 8D of the Income Tax Act. The ld Assessing Officer has accepted the computation made by the assessee and also agreed to restrict it to the extent of expenditure incurred we find