DCIT, CIR-6(2), KOLKATA, KOLKATA vs. M/S TMT VINIYOGAN LTD, KOLKATA

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.

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.

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.