INDI STOCK PVT LTD.,KOLKATA vs. ITO, WD-6(2), KOLKATA, KOLKATA

The assessee in the present case is a Non-Banking Finance Company. The return of income for the year under consideration was filed by it on 23.10.2006 declaring total income of Rs.29,40,150/-. In the said return, profit of Rs.31,72,624/- shown by the assessee from the transactions of purchase and sale of shares was declared by the assessee as short-term capital gain. In the assessment completed under section 143(3) vide an order dated 17.12.2008, the said profit was treated by the Assessing Officer as business income of the assessee after taking into consideration the volume of transactions of shares, the frequency of transactions, the period of holding, etc. He also made a disallowance of

Aggrieved by the order of the Assessing Officer passed under section 143(3), an appeal was preferred by the assessee before the ld. CIT(Appeals) and after considering the submissions made by the assessee as well as the material available on record, the ld. CIT(Appeals) upheld the action of the Assessing Officer in treating the short-term capital gain declared by the assessee on account of profit from the transactions of purchase and sale of shares as business income by following the decision of the Tribunal in assessee’s own case for assessment year 2005-06 rendered vide its order dated 30.09.2008 passed in ITA No. 1004/KOL/2008. He also confirmed the disallowance of Rs.1,00,000/- made by the Assessing Officer under section 14A for the following reasons given in paragraph no. 4.2 of his impugned order:- “4.2 I have considered the submission of the appellant. The main contention made by the appellant is, that it had utilized its own funds for making investment and there was no interest paid for earning exempt income. However, disallowance u/s.14A is not restricted only to the direct expenses incurred for earning of exempt income and also includes various indirect expenses. The expression 'expenditure incurred by the assessee in relation to income which does not form part of total income' has a wider meaning. Therefore such expenditures would not encompass only the direct or proximate expenditures incurred for the purpose of earning exempt income but it would include all other expenses attributable or in relation to exempt income i.e. it implies both direct and indirect relationship between expenditure and exempt income. Since the appellant is engaged inter alia in trading of shares, its office establishment, man-power & other resources were employed in the activity of dealing in shares, a part of which would naturally be related to investment in shares on which dividend and long term capital gain has been earned. Also, a company cannot earn dividend without its existence and management. Investment decisions are very complex in nature. They require substantial market research, day to day analysis of market trends and decisions with regard to acquisition, retention and sale of shares, units of mutual funds, etc. at the most appropriate time. The investment requires availability of funds and consequential blocking of funds. Besides, investment decisions are generally taken in the meetings of the Board of

Aggrieved by the order of the ld. CIT(Appeals), the assessee has preferred this appeal before the Tribunal on the following grounds:- “1. For that in view of the facts and in the circumstances of the case the Ld CIT(A) erred in confirming the action of AO in holding the profit of Rs.31,72,624/- earned by the petitioner company on sale of its investments as business income instead of capital gain as was offered by your petitioner company. The action of Id. CIT(A) is wholly unjustified, illegal and bad in law and it may kindly be held accordingly.

As regards the issue involved in ground No. 1, the ld. counsel for the assessee has submitted that similar issue involved in assessee’s own case for the earlier years is pending before the Hon’ble Calcutta High Court. In this regard, he has filed a declaration of the assesee in Form No.

As regards the issue involved in Ground No. 2 relating to the disallowance of Rs.1,00,000/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) under section 14A, the ld. counsel for the assessee has contended that the disallowance under section 14A of Rs.1,00,000/- is excessive and unreasonable keeping in view the corresponding exempt income received by the assessee in the form of dividend only to the extent of Rs.2,77,363/-. He has contended that this disallowance may be restricted to 1% of the dividend income as per the consistent stand taken by the Tribunal. However, as rightly submitted by the ld. D.R., the assessee during the year under consideration has received in addition to dividend income substantial long-term capital gain amounting to Rs.1,85,65,802/-. He has contended that the disallowance of Rs.1,00,000/- made under section 14A keeping in view the quantum of total exempt income earned by the assessee during the year under consideration in the form of dividend and long-term capital gain is quite fair and reasonable. I find merit in the argument of the ld. D.R. I accordingly confirm the disallowance of Rs.1,00,000/- made under section 14A and dismiss Ground No. 2 of the assessee’s appeal.

The issue involved in ground No. 3 relating to the charging of interest under section 234B and 234D is consequential in nature and the

In the result, the appeal of the assessee is dismissed. Order pronounced in the open Court on 30th day of November, 2017.