S.S. BUILDCON P. LTD,MUMBAI vs. ACIT CEN CIR 37, MUMBAI

The first issue in the appeal of the assessee is that the Ld. CIT(A) erred in sustaining the disallowance of Rs. 3,83,270/- made by the AO u/s. 14A of the Act.

On appeal, the Ld. CIT(A) sustained the disallowance holding that the AO adopted reasonable basis for making disallowance.

The Ld. Counsel for the assessee referring to page-8 of the compilation submits that out of total expenses debited to profit and loss account i.e. Rs. 3,79,844/- under administrative expenses, service tax, security transaction tax and share stamp duty amounting to Rs. 2,68,625/- has been added back by the assessee itself and not claimed as expenses in statement of total income. He further submits that loss of Rs. 1,05,340/- is debited to administrative expenses is on account of loss on F & O trading and this is not an expense debited to P&L account. Therefore, he submits that the assessee claimed expenses as deduction in computing profit from the business was only Rs.9,304/- and at best the expenses attributable for earning dividend income which can be disallowable should be restricted to Rs. 9,304/-.

The Ld. Departmental Representative placed reliance on the orders of the lower authorities.

On hearing both sides, we find considerable force in the submissions of the Ld. Counsel for the assessee. For this assessment year Rule 8D of the I.T. Rules are not applicable and therefore only the reasonable expenses attributable for earning exempt income has to be disallowed. We find from Schedule-I of the Profit & Loss account which is the administrative expenses, the total expenses was debited were Rs. 3,79,844/-. In the computation of income the assessee added back Service tax of Rs. 91,492, Security Transaction charges of Rs. 1,42,413/- and Share Stamp Duty of Rs. 34,720/-. Apart from that an amount of Rs. 1,05,339/- which was debited under Administrative expenses relates to loss on F&Ô trading. Therefore, as rightly submitted by the Ld. AR, all these items should be excluded and if it is excluded, what was debited by the assessee towards business expenses could be only Rs. 9,304/- towards Audit fee, Demat charges, Bank charges, Legal expenses, ROC filing fees and preliminary expenses. Therefore, the disallowance at best should be restricted to Rs. 9,304/-. However, it cannot be said that this entire expenses can be said to be incurred for earning exempt income. In the circumstances, we direct the AO to restrict the disallowance u/s. 14A of the Act to 5% of the dividend income earned by the assessee.

The last issue in the appeal of the assessee is that the Ld. CIT(A) erred in confirming the sum of Rs, 13,07,762/- as income from business and not as short term capital gain.

On appeal, the Ld. CIT(A) sustained the action of the AO in treating share transactions as business income in place of short term capital gain by dismissing the appeal of the assessee.

The Ld. Counsel for the assessee referring to page-7 of the Paper Book which is the profit and loss account submits that assessee is in the business of share trading and also investments. Referring to Schedule-H of the Balance sheet submits that the income consists of short term capital gain and profit on share trading. He further submits that even the audited accounts shows that the assessee is having investments and also shares trading business separately. He submits that the assessee is maintaining two portfolios i.e. one for investments and the other for share trading therefore there is no justification in treating the short term capital gain as income from business. In alternative, the Ld. Counsel submits that deduction u/s. 88E should be allowed to the extent of Rs. 1,89,843/- in the event of assessing short term capital gain as business income.

The Ld. DR placed reliance on the order of the lower authorities.

Heard both sides, perused the orders of the lower authorities and the submissions made before us. On perusal of the assessment order, we find that the AO has not discussed anything as to why he is treating the short term capital gain as business income. There is not even a whisper about his action in treating the short term capital gain as business income. The Ld. CIT(A) observed that the assessee never shown the investments in the balance sheet which is again a contrary to the facts appearing in the balance sheet which clearly shows that there were investments to the extent of Rs. 15,67,38,053/- and it is the contention of the assessee that it is maintaining two portfolios one towards investments and one towards trading, the income from investments shown as under capital gains and income from trading activity shown as business income. In our considered view, since the AO has not examined the issue in proper perspective as was done by the Ld. CIT(A) also, we considered it proper to remit the issue to the file of the AO for fresh adjudication in accordance with law after providing adequate opportunity to the assessee. Thus, we restore this issue to the file of the AO.

In the result, the appeal filed by the assessee is partly allowed for statistical purpose.