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Income Tax Appellate Tribunal, DELHI BENCH “B”: NEW DELHI
Before: SHRI C.M.GARG & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M. 1. This is an appeal filed by the assessee against the ld CIT(A)-XVIII, New Delhi dated 17.02.2014 for the Assessment Year 2007-08. 2. The assessee has raised the following grounds of appeal:- “1. That the order of the Commissioner of Income-tax (Appeals) - XVIII, New Delhi, dated 17.02.2014, is wrong on facts and bad in law;
2. That the Commissioner (Appeals) erred in confirming that the gain of Rs.63,17,841/- from sales of shares was business profit and not short term capital gain; 2.1 That the Commissioner (Appeals) erred in confirming that the gains on shares sold within :r the period of 30 days of their acquisitions were business profit instead of short term capital gains; 2.2 That the Commissioner (Appeals) erred in confirming that the Appellant had been carrying of on the business of dealing in shares. He failed to appreciate that the shares were purchased to make investments and the Appellant had no intention to carry on the business of dealing shares;
3. That the Commissioner (Appeals) erred in confirming the disallowance of Rs.40,000/-under Section 14A of the Act; Page 2 of 7 3.1 That the Commissioner (Appeals) failed to appreciate that the Assessing Officer erred in making disallowance under Section 14A of the Act without recording as to why the claim of the Appellant that no expenditure was incurred for the dividend income was incorrect; 3.2 That the Commissioner (Appeals) failed to appreciate that no expenditure was incurred for the dividend income earned and as such no expenditure was to be deducted under the said provisions; 3.3 That the Commissioner (Appeals) failed o appreciate that the entire expenditure was incurred by the Appellant for the purposes of its business; 3.4 That the disallowance of Rs.40,000/-- under Section 14A of the Act is excessive and unreasonable; 4. That the conclusions and inferences of the Assessing Officer and/or Commissioner (Appeals) are based on suspicions, conjectures, surmises and extraneous and irrelevant considerations; 5. That the reliefs prayed for may kindly be allowed and the order(s) of the Assessing Officer and/ or Commissioner (Appeals) may kindly be quashed, set aside, annulled or modified; 6. That the aforesaid Grounds of Appeal are without prejudice to each other;
7. That the Appellant craves leave to vary, alter, amend or add to the aforesaid Grounds of Appeal before or at the time of hearing of the above appeal.”
3. The brief facts of the appeal is that appellant is a private limited company carrying on the business of trading in plant and machinery, machinery tools, auto mobile components etc. The appellant filed its return of income on 31st of March 2008 declaring nil income. The assessment was made by the Ld. AO vide assessment order dated 30/11/2009 determining the total income of the assessee of Rs. 6382746/– . During the year the assessee has earned profit of Rs. 6382746/– on sale of shares which were shown by the assessee as capital gain on sale of those shares according to the period of holding of the shares. The Ld. assessing officer took the view that the appellant was carrying on the business of dealing in shares and therefore such profit is chargeable to tax as business income of the assessee and not be capital gain as claimed by the appellant. The appellant has earned dividend income of Rs. 860000/– on the investment held by it in the assessment year under reference and therefore as the above amount of income was exempt, the provisions of section 14 A of the income tax act was complied by the appellant holding that no part of expenditure incurred by the assessee of Rs. 83609/- for earning the exempt income. Accordingly, in the return of income assessee did not disallow the above sum. However, Page 3 of 7 according to the Ld. assessing officer the provisions of rule 8D of the income tax rules are applicable and therefore he determined the sum of Rs. 542962/– as amount disallowable and the above disallowance was restricted to the extent of expenditure incurred by the assessee of Rs. 83609/-. Assessee is being aggrieved by the order of the Ld. assessing officer preferred an appeal before the Ld. CIT appeal who in turn confirmed the finding of the Ld. assessing officer holding that the profit on sale of the share of the assessee is chargeable to tax as business profits and not as capital gain and further out of the disallowance of Rs. 83609/-incurred by the assessee Rs 40000/- is disallowable under section 14 A of the income tax act read with rule 8D of the income tax rules, 1962. Aggrieved by the order of the Ld. Commissioner of income tax appeal the assessee has preferred appeal before us as per the grounds of appeal raised.
4. The Ground no 1 and 4 to 7 of appeal of the assessee are general in nature and as no arguments were advanced by the parties, Theses grounds of the appeal of the assessee are dismissed.
5. Ground No. 2 of the appeal of the assessee is against the confirmation of the gain on sale of share of Rs. 6 317841/– from sale of shares as business profit and not short term capital gain as offered by the assessee in its computation of total income. This ground of the appeal of the assessee was further extended contesting that gain on shares sold within the period of 30 days of their acquisitions were not business profit but short-term capital gain as offered by the assessee. It is further contended that assessee is carrying on the investment in shares without any intention to earn business income out of those shares. The Ld. assessing officer was of the view that though the assessee has mentioned that these purchases and sale of shares in its books of accounts have been shown as investment but the nature of the transaction of the shares shows that the assessee was doing frequent transactions for sale and purchase of the shares. He further said that the assessee is not carrying on any other activity other than the purchase and sale of the shares. It was further the finding of the Ld. assessing officer that the sole object of the assessee was to dealing the trading of shares and none other than that, therefore relying on the draft circular No. 4/2007 dated 15/06/2007 issued by the Central board of direct taxes, the Ld. assessing officer was of the view that assessee is carrying on the business of trading in Page 4 of 7 shares as no separate books of accounts of the investment in regular businesses are maintained, there is a frequent trading in a particular script and the shares are transferred from stock in trade to investment account without any reason. The Ld. Commissioner of income tax appeal also upheld the findings of the Ld. assessing officer almost for the same reasons.
The Ld. authorized representative submitted before us that that the assessee is a private limited company formed with the object of carrying on the business of real estate. However, as the surplus funds are available. They are invested in the shares from time to time. He submitted that the assessee has purchased the shares and held them and investment in its books of accounts. Regarding the period of holding he stated that even if the shares are held for less than 30 days as has been stated at page No. 3 of the assessment order, it cannot be held to be the business income of the assessee. For this purpose, he relied on the order of the Ld. CIT appeal dated 26/07/2013 wherein at page No. 20 of the order of the Ld. CIT appeal in the assessee’s own case, it is been held relying upon the decision of M/s Dreamland buildtech private limited that capital gain or loss, on account of share transaction if the period of holding a less than 30 day shall be considered as business income. With respect to the other transaction it is been held that the assessee’s income from sale of shares shall be chargeable to tax as capital gain. He further submitted that that the order of CIT appeal in Dreamland Buildtech private limited travelled to the tribunal and subsequently to the hon. High Court where concurrently it has been held that the income of the assessee from the sale of the shares shall be considered as capital gain. He therefore submitted that issue is squarely covered in favour of the assessee.
The Ld. departmental representative relied upon the order of the lower authorities.
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 Page 5 of 7 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.
Ground No. 3 of the appeal of the assessee is against the disallowance of Rs. 40,000 under section 14 A of the income tax act. During the year the assessee has earned tax-free dividend income of Rs. 8.60 Lacs and assessee has not offered any disallowance under section 14 A of the income tax act. Before the Ld. assessing officer the appellant submitted that it has not incurred any expenditure related to the exempt income and therefore there cannot be any disallowance under the provisions of section 14 A of the income tax act and therefore provision of section 14A does not apply. Against this, the Ld. assessing officer applied those provisions of rule 8D and determined a sum of Rs. 542692/– and restricted the disallowance to Rs. 83609/-as the amount of expenditure incurred by the assessee and Page 6 of 7 debited in the profit and loss account. On appeal before the 1st appellate authority, he restricted the disallowance to Rs. 40,000 on estimate basis for earning of dividend income. Therefore, assessee in appeal before us.
Before us, the Ld. authorised representative submitted that that assessee has incurred expenditure of Rs. 63,000 of fees and taxes, bank charges of Rs. 14991/-and audit fee of Rs. 5618/-. He submitted that the above expenditure incurred for the purpose of the business of the assessee and to maintain the corporate identity of the assessee, but not for the earning of the exempt income. He further submitted that that the Ld. CIT appeal has sustained the disallowance of Rs. 40,000 without any basis and he further submitted that there is no satisfaction recorded by the assessing officer about the claim of the assessee about the claim of appellant that there is there is no expenditure, which is incurred for earning of the exempt income and therefore the disallowance made under section 14 A by the Ld. assessing officer and sustained by the Ld. Commissioner of income tax appeal may be deleted.
Ld. departmental representative relied upon the orders of the lower authorities.
We have carefully considered the rival contentions. According to us the details of the expenditure incurred by the assessee are tabulated by the Ld. 1st appellate authority at page No. 18 of his order, which are related to the audit fees, bank charges and fees and taxes. The appellant submitted before the Ld. assessing officer that it has not incurred any expenditure for earning those income and further against the claim of the assessee Ld. assessing officer without recording the satisfaction that the claim of the assessee is incorrect has straightaway applied the provisions of rule 8D of the income tax rules, 1962. The above action of the Ld. assessing officer cannot be upheld in view of the decision of the Hon’ble Delhi High Court in case of CIT versus Taikisah engineering private limited 330 ITR 338 that without recording the satisfaction against the claim of the assessee that it has incurred nil expenditure for earning of the exempt income the provisions of rule 8D cannot be invoked. In any case, the Ld. assessing officer has not pointed out any expenditure, which has been incurred by the assessee according to him for the earning of the exempt income of dividend of Rs. 8.60 Lacs. Further, the restriction of the disallowance to Rs. 40,000