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Income Tax Appellate Tribunal, MUMBAI BENCHES “F”, MUMBAI
Before: SHRI JASON P. BOAZ (AM) & SHRI SANDEEP GOSAIN (JM)
This appeal by the assessee is directed against the order of the CIT(Appeals)- 23, Mumbai dt. 04/03/2013 for Asst. year 2008-09.
The facts of the case, briefly, are as under:-
2.1 The assessee, an individual engaged in the speculation of shares and trading in derivatives in the year under consideration, filed her return of income on 27/09/2008 declaring loss of Rs. 23,19,096/-. The case was taken up for scrutiny and the assessment was completed u/s 143(3) of the Income Tax Act, 1961 (in short ‘the Act’) vide order dt. 30/11/2010; wherein the assessee’s loss was determined at Rs. 22,84,800/- in view of the following:- i) Disallowance u/s 14A Rs. 34,292/- ii) Holding Short term Capital gains to be business income Rs. 3,44,303/- 2.2 Aggrieved by the order of assessment dt. 30/11/2010 for Asst. year 2008-09, the assessee preferred an appeal before the CIT(Appeals)-23, Mumbai. The Ld. CIT(A) dismissed the assessee’s appeal vide the impugned order dt. 04/03/2013.
The assessee, being aggrieved by the order of the CIT(Appeals)-23, Mumbai dt. 04/03/2013 for Asst. year 2008-09 has preferred this appeal before the Tribunal raising the following grounds:-
1. The Commissioner of Income-tax (Appeals)-23, Mumbai (hereinafter referred to as the CIT(A)) erred in upholding the action of the Assistant Commissioner of Income-tax-12(1), Mumbai(hereinafter referred to as the Assessing Officer) in disallowing a sum of Rs. 34,292 on account of expenses incurred for earning dividend income by invoking the provisions of section14A of the Act.
The appellant contends that on the facts and in the circumstances of the case and in law, the CIT(A) ought not to have upheld the action of the Assessing Officer in disallowing the aforesaid amount of Rs. 34,292/- inasmuch as the same is not in accordance with the prescription of section u/s 14A read with rule 8D.
2. The CIT(A) erred in upholding the action of the Assessing Officer in treating short-term gains of Rs. 3,41,303/- as business income.
The appellant contends that on the facts and in the circumstances of the case and in law, the CIT(A) ought not to have upheld the action of the Assessing Officer in holding the capital gains arising on sale of short-term capital assets as business income and hence, the same is not tenable in law.
3. The CIT(A) erred in not admitting the following additional ground of appeal-
“The Assessing Officer erred in observing that long-term gains is business income. The appellant contends that on the facts and in the circumstances of the case and in law, the observation of the Assessing Officer that long-term capital gains arising on sale of long- term capital assets is business income is not tenable in law.”
The CIT(A) ought to have admitted the additional ground of appeal and decided the same.
4. Ground No: 3 4.1 At the outset of the hearing, the Ld.AR for the assessee submitted that the assessee is not pressing this ground in this appeal. In view of this ground no. 3 being not pressed, the same is rendered infructuous and is accordingly dismissed.
5. Ground No. 1- Disallowance u/s u/s 14A r.w. Rule 8D(2)(iii) Rs. 34,292/- 5.1.1 In this ground, the assessee assails the impugned order contending that in the factual matrix of the case, the Ld. CIT(A) ought not to have upheld the action of the Assessing Officer (‘A.O’) in disallowing the amount of Rs. 34,292/- on account of expenditure incurred for earning dividend income of Rs. 75,150/- as the disallowance made, was not in accordance with the provisions of section u/s 14A r.w. Rule 8D.
5.1.2 The Ld. AR for the assessee submitted that the assessee had earned dividend income of Rs. 75,150/- which was claimed as exempt u/s 10(34) of the Act. It is submitted that the Assessing Officer had made the disallowance u/s 14A r.w. Rule 8D (2)(iii) on the erroneous observation that the assessee has not shown any expenditure, as having been incurred for earning of the said dividend income. It is contended that the assessee had submitted before the authorities below that all the expenses related to the earning of the exempt dividend income were debited to the assessee’s capital account and therefore the same was not debited to the profit and loss account which pertained only to derivative transactions of the assessee. In this regard the Ld. AR drew the attention of the Bench to the paper book (pages 1 to 67) filed by the assessee and particularly pgs.4 to 12 thereof which were copies of the assessee’s financial statement for the period relevant to Asst. year 2008-09. Our attention was drawn to page 7 of the paper book which is a copy of the assessee’s capital account; wherein apart from credit of the exempt dividend income of Rs.75,100/- thereto, the assessee has claimed expenditure on account of delivery charges of Rs. 1,519/-, demat charges of Rs. 10,621/-, stamp charges of Rs. 7,577/- and security transactions charges of Rs. 72,415/- which it was submitted are to be attributed to the earning of the aforesaid exempt dividend income. The Ld. AR submitted that it is the aforesaid factually erroneous observation of the authorities below that led to the unwarranted disallowance of Rs. 34,292/- made u/s 14A r.w. Rule 8D(2)(iii), which ought to be deleted.
5.2 Per contra, the Ld. DR for revenue supported the orders of the authorities below.
5.3.1 We have heard the rival contentions and perused and carefully considered the material on record. The facts as emanate from the record are that the assessee earned dividend income of Rs. 75,150/- which was exempt u/s 10(34) of the Act. As can be seen from the impugned order, the assessee had in fact submitted before the Ld.CIT(A) that she credited the exempt dividend income to her capital account for the relevant period and had claimed expenditure therein on account of delivery charges (Rs.1,519/-) , demat charges (Rs.10,621/-) , Stamp charges (Rs. 7,577/-) and Securities transaction (Rs. 72,415/-) charges (details placed at pg. 7 of paper book) and it was in these circumstances that no separate claim was put forth in the profit and loss account which reflected the derivative transactions of the assessee. In the factual matrix of the case, as laid out above, we concur with the averments of the ld. AR that the Assessing Officer, without examination of the assessee’s accounts and recording that he is not satisfied with the assessee’s claim, proceeded on the factually erroneous conclusion that no expenditure was debited in respect of the earning of the assessee’s exempt dividend income, to make the disallowance u/s 14A r.w. Rule 8D; which was not warranted. In this factual view of the matter, we agree with the plea of the assessee that since it had already claimed expenditure incurred (supra) for earning the exempt dividend income of Rs. 75,150/-, the further disallowance of Rs. 34,292/- made by the Assessing Officer u/s 14A r.w. Rule 8D was not called for in the facts and circumstances of the case and accordingly delete the same. Consequently ground no.1 of the assessee’s appeal is allowed.
Ground No. 2 6.1 In this ground, the assessee assails the impugned order contending that the Ld. CIT(A) ought not to have upheld the action of the Assessing Officer in holding the ‘ capital gains’ of Rs. 3,41,303/- on sale of short term capital assets(i.e.STCG.) as ‘ business income’ on account of share trading activity. In this regard, the Ld. AR submitted that the very same issue was considered by the co-ordinate bench of this Tribunal in the assessee’s own case for Asst. year 2006-07 and held in favour of the assessee. In its order in dt. 19/09/2014 the Tribunal after considering the issue at paras 6 to 11 thereof, at para 12 has held and directed the Assessing Officer to assessee the gain on sale/purchase of shares at ‘STCG.’ only and not as business income. The Ld. AR also submitted that the assessment in the case on hand for A.Y. 2003-04 and 2004-05 were completed u/s 143(3) of the Act wherein the Assessing Officer has accepted the STCG. declared by the assessee. In A.Y. 2005-06, the assessee’s return was accepted u/s 143(1) of the Act.
6.2 Per contra, the Ld. DR for revenue placed strong reliance on the orders of the authorities below.
6.3.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited. The Assessing Officer was of the view that the assessee has carried on share transactions on a day to day basis, in a well planned, systematic and organized manner. According to the Assessing Officer, the assessee was carrying on share transactions as business activity only. This view was upheld by the Ld. CIT(A). A perusal of the orders of the authorities below shows that they have not examined the facts in the case on hand, but have proceeded to adjudicate the issue on the basis that the guidelines prescribed by the CBDT, instruction No. 1827dt. 31/08/1989 and CBDT, office memorandum dt. 13/12/2005 are automatically applicable to the case on hand.
6.3.2. We find that this very issue was considered by a co-ordinate bench of this Tribunal in the assessee’s own case for Asst. year 2006-07. In its order in the Bench after considering the issue in detail from paras 6 to 12 thereof has set aside the orders of the authorities below and directed the Assessing Officer to assessee the capital gains arising on sale of shares (i.e. short term capital assets) as STCG. only and not as business income. Following the aforesaid decision of the co-ordinate bench in the assesses own case for Asst. year 2006-07, since the facts of the matter are similar in this year also, we set aside the order of the Ld. CIT(A) and direct the Assessing Officer to assess the capital gains arising from sale of shares (i.e. Short term capital assets) as ‘STCG. only and not as ‘ business income’. It is ordered accordingly.
In the result, the assessee’s appeal for Asst. year 200-09 is partly allowed.
Order pronounced in the open court on 24th February, 2016