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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRIN.K. PRADHAN
Instant appeal by the assessee is directed against the order dated 2nd March 2012, passed by the learned Commissioner (Appeals)–30, Mumbai, for the assessment year 2008–09.
As could be seen from record, the present appeal was filed by the assessee before the Tribunal on 23rd April 2013 and it was fixed for hearing for the first time on 9th May 2013. From the very first date of hearing, the appeal is getting adjourned from time to time at the request of the assessee till 15th July 2015. On the date of hearing on 2 Shri Dilawara Singh Arora 24th November 2015, no one appeared on behalf of the assessee. Therefore, the Bench was forced to adjourn the hearing of appeal to 26th November 2015. On 26th November 2015, one Shri Deepak Mishra, claiming to be a clerk of assessee appeared and again sought adjournment. The Bench while adjourning the appeal to 18th August 2016, observed as under:–
“Assessee by : Shri Deepak Mishra Dept by : Dr. D.S. Ratnam Case was fixed on 29–11–15 but none appeared. Today one Mr. Deepak Mishra, clerk of assessee appeared and sought date. It seems that assessee is not interested in disposal of his appeal, hence the date is given at the request of his clerk. Case adjourned to 18–8–16. Both parties informed.”
However, on 18th August 2016, when the appeal was called for 3. hearing, neither any one appeared on behalf of the assessee nor there is even a petition seeking adjournment. Thus, as it appears, the assessee is totally uninterested in prosecuting and disposal of its appeal. Therefore, we proceed to dispose off the appeal ex–parte qua the assessee, after hearing the learned Departmental Representative.
The assessee has raised three grounds. In ground no.1, assessee has challenged the decision of the learned Commissioner (Appeals) in upholding Assessing Officer’s decision to assess the income from share transaction as business income instead of short term capital gain.
3 Shri Dilawara Singh Arora 5. Brief facts are, the assessee is an individual. For the assessment year under consideration, he filed his return of income on 29th September 2008, declaring total income of ` 31,29,608. During the assessment proceedings, the Assessing Officer noticed that the assessee has shown short term capital gain of ` 30,36,555 on sale of shares and against such income has shown interest expenditure of ` 7,24,408. After calling for details of share transactions from the assessee and examining them the Assessing Officer found that the assessee has entered into frequent transaction of purchase and sale of shares. He observed, during the relevant previous year, assessee has dealt in 22 scrips giving rise to short term capital gain. From the statement of short term capital gain, the Assessing Officer found that there are 41 transaction of sale of shares out of which in 39 transactions holding period is less than a month and in another two transactions holding period is less than three months. On going through the details of share transactions, the Assessing Officer also noted that assessee had entered into repetitive transactions. In other words, after purchasing a scrip the assessee had sold it then again purchased and resold which according to the Assessing Officer is in the nature of trading. He found the aforesaid trend in 22 scrips as tabulated in Page–3 of the assessment order. Further, he noted that substantial investments have been made out of borrowed funds which is evident from the interest payment of ` 7,24,408, whereas, the 4 Shri Dilawara Singh Arora assessee has earned dividend income of ` 3,92,671. He, therefore, was of the view that the assessee had undertaken share transaction not as an investment activity but as a trading activity. Therefore, short term capital gain of ` 30,36,556 was treated as income from business and after reducing therefrom the interest expenditure of ` 7,24,408 the net business income was determined at ` 23,12,136. Being aggrieved of the aforesaid decision of the Assessing Officer, assessee preferred appeal before the learned Commissioner (Appeals).
The learned Commissioner (Appeals), however, agreed with the view of the Assessing Officer.
We have considered the submissions of the learned Departmental Representative and perused the material available on record. The issue before us is whether the income from share transaction is to be assessed as short term capital gain as claimed by the assessee or business income as held by the Department. From the facts discussed in the assessment order, it is found that out of total 41 transactions in shares, 39 shares were held for less than a month. Further, it has been found by the Assessing Officer that in 22 scrips, the assessee had made repeated entry and exit which indicate the intention of the assessee to trade in shares rather than holding it as investment. The Assessing Officer has also observed that the assessee had used borrowed funds for investing in shares. The learned Commissioner
5 Shri Dilawara Singh Arora (Appeals) has also approved the aforesaid finding of the Assessing Officer. No material has been brought by the assessee before us to controvert the aforesaid factual findings of the Departmental Authorities. In the aforesaid view of the matter, we do not find any reason to interfere with the order of the learned Commissioner (Appeals). Accordingly, ground no.1 raised is dismissed.
In ground no.2, assessee has challenged the disallowance of interest of ` 7,24,408.
Brief facts are, while offering the income of short term capital gain of ` 30,36,555, from the share transaction, the assessee reduced therefrom the interest expenditure of ` 7,24,408. The Assessing Officer, while completing the assessment treated the income derived from share transactions as business income. However, out of the gross receipt from share transaction amounting to ` 30,36,555, he allowed interest expenditure of ` 7,24,408, thereby assessing the net income from share transaction at ` 23,12,136. Thus, as could be seen, the Assessing Officer allowed the interest expenditure while computing income from share transaction under the head “Business and Profession”. As it appears, assessee for reasons best known to him, challenged the so called disallowance of interest expenditure of ` 7,24,408 before the learned Commissioner (Appeals) who also 6 Shri Dilawara Singh Arora observed that the Assessing Officer was justified in not allowing the interest expenditure of ` 7,24,408.
We have considered the submissions of the learned Departmental Representative and perused the material available on record. As could be seen, the Assessing Officer while treating the income derived from share transaction as business income has actually allowed the interest expenditure of ` 7,24,408 and assessed the net business income of ` 23,12,136. Therefore, the ground raised by the assessee before the learned Commissioner (Appeals) challenging the disallowance of interest expenditure by the Assessing Officer was misconceived. Similarly, the observations of the learned Commissioner (Appeals) upholding the disallowance of interest expenditure by the Assessing Officer is unnecessary and unwarranted. Before us also, the assessee has raised this ground challenging disallowance of expenditure from short term capital gain. Alternatively, assessee has claimed that even if the income from share transaction is assessed under the head “Business” the interest expenditure is allowable under section 37(1). As we have already noted, the Assessing Officer while computing income from share transaction under the head business income has allowed the interest expenditure to ` 7,24,408. That being the case, there is no question of disallowance of interest expenditure, therefore,
7 Shri Dilawara Singh Arora the ground raised by the assessee being infructuous is not required to be adjudicated upon, hence, dismissed.
In ground no.3, assessee has challenged the disallowance of expenditure of ` 3,67,360 under section 14A r/w rule 8D.
The Assessing Officer in the course of assessment proceedings, noticing that the assessee has earned exempt income by way of dividend amounting to ` 3,92,671 and long term capital gain of ` 1,70,91,990 was of the view that proportionate expenditure attributable to earning of exempt income has to be disallowed in terms of section 14A r/w rule 8D. He noted, the assessee on his own has not disallowed any interest under section 14A. Therefore, the Assessing Officer proceeded to compute the disallowance under rule 8D(2). He observed, the assessee had incurred total interest expenditure of ` 7,24,408 out of which he worked out interest attributable to earning of exempt income at ` 1,85,547 in terms of rule 8D(2)(ii). He also worked out disallowance under rule 8D(2)(iii) @ 0.5% of the average value of investment at ` 1,81,813. Thus, the total disallowance computed by the Assessing Officer under section 14A r/w rule 8D, was ` 3,67,360. Being aggrieved of such disallowance, the assessee challenged the same before the learned Commissioner (Appeals).
The learned Commissioner (Appeals), however, confirmed the disallowance.
8 Shri Dilawara Singh Arora
We have heard the learned Departmental Representative and perused the material on record. As is evident, the Assessing Officer while computing the disallowance under section 14A, has applied provisions of rule 8D2(ii) and out of interest expenditure of ` 7,24,408, has disallowed an amount of ` 1,85,547. However, as could be seen, while computing the income from share transaction under the head Business, the Assessing Officer has allowed the entire interest of ` 7,24,408. This action of the Assessing Officer demonstrates that the interest expenditure is related entirely to earning of taxable income from share transaction, hence, no part of it can be apportioned towards the exempt income earned by the assessee. Therefore, in our considered opinion, no disallowance out of interest expenditure can be made in terms of rule 8D(2)(ii). However, as far as disallowance of 0.5% of the average value of investment in terms of rule 8D(2)(iii) is concerned, we agree with the view of the Departmental Authorities and uphold the disallowance. Ground no.3, is partly allowed.
In the result, assessee’s appeal is partly allowed. Order pronounced in the open Court on 16.09.2016