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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Assessee by .. Shri Subhash Shetty, AR Revenue by .. Shri Vishwas Mundhe, DR Date of hearing .. 02-05-2017 Date of pronouncement .. 12-05-2017 O R D E R PER MAHAVIR SINGH, JM:
These two appeals one by the assessee and one by the Revenue are arising out of the different orders of CIT(A)-8, Mumbai, in appeal No. CIT(A)- 8/Cir4/220 & 432/2010-11 & 2011-12 dated 01-12-2011 & 06-09-2013. The Assessments were framed by ACIT, Circle 4(2), Mumbai for the A.Ys. 2008-09- 2009-10 vide orders dated 19-11-2010 & 30-11-2011 u/s 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
& SI Investments & Broking P. Ltd.; AYs:08-09, 09-10
2. The only issue in appeal of assessee in is against the order of CIT(A) confirming the disallowance made by AO in regard to expenses relatable to exempted income by invoking the provisions of section 14A of the Act read with rule 8D of the IT Rules 1962 (hereinafter the Rules).
Briefly stated facts are that the assessee is engaged in the business of share broking and trading. During the year under consideration, the assessee earned tax free dividend income of Rs. 38,48,595/- and claimed the same as exempt. The AO noted that the assessee has not allocated any expenditure qua exempted income and therefore Rule 8D of the Rules read with Rule 14A of the Act applied by him and he computed the disallowance of expenses relatable to exempted income by invoking Rule 8D(2)(iii) i.e. half percent of average value of investment and disallowed the sum of Rs. 11,79,775/-. Aggrieved assessee preferred the appeal before CIT(A), who also confirmed the action of the AO by observing in Para 2.5 as under: -
“2.5 The appellant's contention that no expenditure had been incurred to earn exempt income is not acceptable for the reason that the assessee being a share trade undertakes transactions of share which includes those transactions which subsequently yielded dividend of capital gain which was exempt. The expenses debited to P & L Account had been incurred for undertaking transactions of shares which also included such transactions which yielded exempt dividend. Therefore, the expenses including interest and administrative expenses debited to P & L Account include expenditure incurred for undertaking transactions of shares which yielded exempt income. Apparently, any expenditure incurred for undertaking transactions for shares which subsequently yielded exempt income is required to be treated as expenditure incurred for earning of exempt dividend income. Therefore, the assessee's contention Page 2 of 7 & SI Investments & Broking P. Ltd.; AYs:08-09, 09-10 that no expenditure had been incurred for earning of exempt income is not acceptable. The assessee has however, not maintained any details of expenses incurred for undertaking transactions of shares which have yielded exempt income. The amount of such expenditure is, therefore, required to be determined as per provisions of Rule 8D. In view of above discussion, the addition is confirmed. Thus, this ground of appeal is dismissed. ”
Aggrieved, now assessee is in appeal before us.
At the outset, the learned Counsel for the assessee only made request that he is ready to prove that no expenditure is incurred qua the exempted income because only dividend was credited in the bank account directly. According to him, the AO has only disallowed half percent of average value of investment i.e. Rs. 11,79,775/-. Accordingly, the learned Counsel for the assessee requested for remanding the matter back to the file of the AO so that he can file the evidences to prove his case. On the other hand, the DR contested the claim of the assessee.
After hearing both the sides and going through the facts of the case, we find that in case the assessee is able to explain that no expenditure has been incurred for earning this income, AO will look into the facts and decide the case accordingly. Orders of the lower authorities are set aside and the matter remanded back to the file of the AO for fresh adjudication. The appeal of assessee is allowed for statistical purpose.
Coming to Revenue’s appeal in CIT(A) in treating the business income as capital gains. For this Revenue has raised following two effective grounds: -
“1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing short term capital gain without appreciating the fact that the Page 3 of 7 & SI Investments & Broking P. Ltd.; AYs:08-09, 09-10 conversion into investment was not allowed by the AO during 2OO5-O6".
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the assessee converted its stock in trade in investment and had already paid tax on conversion which was treated as business income without appreciating the fact that it was suo-moto action of the assessee.”
At the outset, the learned Counsel for the assessee drew our attention to the Tribunal’s order in Para 3.2 and 3.3 of CIT(A)’s order which reads as under: -
“3.2 I have considered the submissions made by the appellant carefully. It is seen that similar issue was involved in appellant's own case in A.Y. 2006-07. My predecessor while deciding appeal of the appellant for A.Y. 2006-07 in Appeal No.IT/CIT(A)IV/Cir.4/360/0S-09, dtd. 14.09.2009 has made following observations: -
"The appellant is treating tire shares as 'investment' as the books of accounts and income of Rs.3,92,84,603/- in respect of one script Sesa Goa Ltd. is after bonus share issued by the company of 36000 shares. The activity of the appellant is not different than that of A.Y. 2005-06 where the AO has accepted the appellant to be an 'investor' so far as long lent: capital gain is concerned. The appellant had converted its stock in trade into investment and had already paid tax on conversion winch was treated as business income of Rs.2,33,28,4971-. The factual position of the appellant is similar to that of A.Y. 2005-06, except for the considerable increase in the quan Page 4 of 7 & SI Investments & Broking P. Ltd.; AYs:08-09, 09-10 turn which is due to good run in the stock exchange. The appellant is maintaining an investment portfolio and has not treated the shares as stock in trade, therefore, the shares have been held as investment and not as stock in trade. The shares, therefore, are capital assets as defined in Section 2(14) of the I.T. Act and transfer of the capital assets are assessed as Long Term Capital Gain and Short Tern: Capital Gain u/s. 22913 and 242B respectively. There is no reason, whatsoever, to treat the STCG and LTCG as business income. The AO is directed not to treat the STCG & LTCG as declared by the appellant as business income. This ground is (hits allowed.
3.3 As the facts and circumstances of the case are identical to that of A.Y. 2006-07, following my predecessor's order in the case of appellant for A.Y. 2006-07 mentioned in preceding para, the AO is directed not to treat the Short Term Capital Gain as business income. This ground of appeal is thus allowed.”
The learned Counsel for the assessee stated that the Tribunal in earlier years i.e. AY 2005-06 in order dated 07-03-2012 has restored the matter back to the file of the AO to treat the shares held by company for less than 30 days as business income and wherever shares held for more than 30 days treat the same as capital gain. For this Tribunal vide Para 9 observed as under: -
“9. Taking into the facts into consideration, we find no reason to deviate from the decision taken by the CIT(A) wherein, he has accepted the conversion of stocks from stock in trade to investments. While holding so, the & SI Investments & Broking P. Ltd.; AYs:08-09, 09-10
Bench, too noticed that there were certain shares, which were held for short duration. On this point, the Bench questioned the A.R. of the assessee about the frequency of holding. The AR fairly conceded that the direction be given to the AO to treat those shares/stocks as business, wherever the holding of the shares/stock is less than 30 days. Taking into account this admission on behalf of the assessee company, we direct the AO to examine trading of shares and stocks acquired during the year which the assessee company has held for less than 30 days and treat them as business. To this extent, Ground No.1 is partly allowed.”
The learned Counsel for the assessee stated that this was followed in AY 2006-07 by the Tribunal in order dated 19-07-2013 and even in AY 2007-08 in ITA No. 7483/Mum/2010 order dated 02-09-2015. We find that the Tribunal has consistently following the orders of AY 2005-06. Respectfully, following the same we also restore this matter back to the file of the AO to decide in term of the tribunal decision in ITA No. 1497/Mum/2009 for AY 2005-06 vide order dated 07-03-2012. Appeal of Revenue is allowed for statistical purposes.
In the result, appeals of Revenue and that of the assessee are allowed for statistical purposes. Order pronounced in the open court on 12-05-2017.