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Income Tax Appellate Tribunal, KOLKATA ‘B’ BENCH, KOLKATA
Before: Sri J. Sudhakar Reddy & Sri S.S. Viswanethra Ravi]
order : January 25th, 2018 O R D E R Per J. Sudhakar Reddy :- This appeal filed by the Revenue and the Cross-Objection by the assessee are directed against the order of the ld. Commissioner of Income Tax (Appeals)-2, Kolkata, (hereinafter the ‘ld. CIT (A)’), passed u/s 250 of the Income Tax Act, 1961 (the ‘Act’), dt. 11/02/2015, for the Assessment Year 2009-10.
2 C.O. No. 35/Kol/2015 Assessment Year: 2009-10 M/s. TMT Viniyogan Ltd 2. The appeal of the revenue is on the following ground:- “That on the facts and in circumstances, the CIT(A) erred on facts as well as in law in holding that treatment of speculative loss of Rs.1,57,46,821/- incurred in purchase & sale of shares was not warranted, ignoring the fact that assessee was in the business of purchase and sale of shares and the provisions of Section 73 was squarely applicable in this case.”
The cross-objection by the assessee is on the following grounds:- “
1. That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified and erred in confirming the action of AO to compute disallowance under Sub Rule (ii) of Rule 8D of the I.T. Rules by taking value of Net Assets (i.e. Total Assets – Total Liabilities) as the denominator whereas the I.T. Rules expressly provide for Total Assets for computing the disallowance under the same.
2. That on the facts and in circumstances of the case, the Ld. CIT() has erred and was not justified in computing disallowance under Rule 8D(ii) on gross value of investments instead of taking those investments which generate exempt income as expressly provided under I.T. Rules.
3. That the respondent craves leave to add, amend, modify, rescind, supplement or alter any of the grounds stated here-in-above either before or at the time of hearing of the appeal.”
4. After hearing rival contentions, we find that the Assessing Officer invoked the Explanation to Section 73 of the Act, without giving reasons as to why the income declared by the assessee under the head “short term capital gains” has to be assessed under the head “business income”. Without such an exercise, invocation of Explanation to Section 73 of the Act, is meaningless. The ld. CIT(A), has given reasons as to why the income/loss, should be assessed under the head “short term capital gains” and not under the head “business income”.
4.1. The assessee had not sold any part of his closing stock, which is a quantity of 700 shares of the company from Financial Year 2005-06, onwards. What was sold in the impugned Assessment Year was shares held by the company as investments. In all the earlier Assessment Years, the Assessing Officer agreed with the assessee that the income in question should be brought to tax under the head “Long term capital gains”. Even otherwise, the substantial income of the assessee is from capital gains and income from other sources. On that count also, Explanation
3 C.O. No. 35/Kol/2015 Assessment Year: 2009-10 M/s. TMT Viniyogan Ltd to Section 73 of the Act, is not attracted. The assessee sold part of the investments which were held by it from the Assessment Year 2005-06. Under these circumstances, we find not infirmity in the order of the ld. First Appellate Authority, and uphold the same.
In the result, appeal of the revenue is dismissed.
The cross-objection of the assessee is on the issue of computation of disallowance u/s 14A of the Act, r.w.r. 8D(ii) of the Income Tax Rules, 1962 (the ‘Rules’).
6.1. The issue is whether the total assets have to be taken for computing the disallowance or net assets i.e. assets liabilities should be taken for computing the disallowance, under Rule 8D(ii) of the Rules.
A reading of Rule 8D (2)(ii), sub-clause C, refers to total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year. There is no concept of taking the net assets figure. Thus, we uphold the contentions of the assesse and direct the Assessing Officer to re-compute the disallowance u/s Rule 8D(2)(ii) of the Rules, by taking the total assets of the assessee as appearing in the balance sheet.
In the result, cross-objection of the assessee is allowed. Kolkata, the 25th day of January, 2018.