GILL & CO. P.LTD,MUMBAI vs. ADDL CIT CIR 2(1), MUMBAI

The appeal filed by the assessee is directed against the order dated 17-06-2011 passed by Ld CIT(A)-4, Mumbai and it relates to the assessment year 2008-09. The assessee is in appeal in respect of the following issues:- (a) Disallowance u/s 14A of the Act. (b) Assessment of gains arising on sale of shares as business income.

We heard the rival contentions and perused the record. The assessee is engaged in the business of trading in cotton bales and seeds. Besides that, it is also having commission income, investment income from mutual funds & shares. During the year under consideration, the assessee declared Short term capital gain of Rs.183.85 lakhs from sale of shares. The AO treated the same as business income of the assessee. Further, the assessee had received dividend income of Rs.23.63 lakhs from Mutual funds and shares. Since it was claimed as exempt, the assessee itself made a disallowance of Rs.89.32 lakhs u/s 14A of the Act. In the tax audit report, the tax auditor had worked out the disallowance u/s 14A of the Act at Rs.101.50 lakhs. However, during the course of assessment proceedings, the assessee gave a revised working of disallowance u/s 14A, wherein the same was worked out Rs.39.44 lakhs. The AO did not discuss about the revised workings given by the assessee, but chose to disallow the sum of Rs.89.32 lakhs originally disallowed by the assessee in the return of income. The Ld CIT(A) also confirmed the same.

The ld A.R contended that the tax authorities are not justified in not considering the revised workings given by the assessee. The Ld A.R further submitted that the assessee is having sufficient interest free funds, which are more than the amount of investments and hence there is no requirement of making any disallowance of interest u/s 14A of the Act as held by the Hon’ble jurisdictional Bombay High Court in the case of HDFC Bank (ITA No.330 of 2012 dated 23-07-2014). He further submitted that the Hon’ble Delhi High Court has held in the case of Joint Investments Pvt Ltd Vs. CIT (ITA 117/2015 dated 25.02.2015) that the disallowance u/s 14A of the Act should not exceed the amount of exempt income. The Hon’ble Delhi High Court has further held in the case of Cheminvest Ltd (ITA No.749/2014 dated 02-09-2015) that the provisions of sec. 14A shall be attracted only if there is actual receipt of exempt income. It further held that the decision rendered by Hon’ble Supreme Court in the case of Rajendra Prasad Moody (115 ITR 519)(SC) cannot be applied for working out disallowance u/s 14A of the Act. He further submitted that the Co-

A perusal of the contentions of the Ld A.R shows that this issue requires fresh examination, since the factual aspects relating to interest expenditure, availability of interest free funds etc., need to be examined in the light of the decision of Hon’ble Bombay High Court in the case of HDFC Bank (supra). The assessee has also reiterated certain propositions by placing reliance on the decisions rendered by Hon’ble Delhi High Court. Since these contentions are new contentions, we are of the view the same also requires fresh consideration at the end of the AO. Accordingly, we set aside the order of Ld CIT(A) on this issue and restore the same to the file of the assessing officer with the direction to examine this issue afresh by considering various contentions of the assessee as discussed supra.

The next issue relates to the assessment of gains arising on sale of shares as business income of the assessee. The Ld A.R submitted that the Ld CIT(A) has confirmed the order of the AO by following his decision rendered in the immediately preceding year, i.e., AY 2007-08. The Ld A.R submitted that this issue came to the consideration of the co-ordinate bench of Tribunal in the case of assessee in AY 2007-08 and it has directed the AO to assess the gains arising on sale of shares as Capital

On the contrary, the Ld D.R submitted that the volume of transactions carried on by the assessee in the purchase and sale of shares was high and most of the shares have been held for very short period.

In the rejoinder, the Ld A.R submitted that the assessee has earned a short term capital gain of Rs.2.10 crores on sale of one scrip named M/s DLF Ltd, which has been sold within 7 days of its purchase due to abnormal increase in the price. The assessee decided to sell immediately due to huge profit made by it in order to avoid possible loss arising on account of fall in the prices of shares. He submitted that the assessee has suffered loss of Rs.74.05 lakhs on the shares held for a longer period. Accordingly he submitted that the intention of the assessee was to hold the shares as investments only.

Having heard rival contentions, we find merit in the submissions made by the Ld A.R. We notice that the assessee has made a huge profit of Rs.2.10 crores on sale of one scrip, named M/s DLF Ltd and the assessee has also suffered loss in other scrips. The net short term capital gain declared by the assessee was Rs.1.75 crores. Under these set of facts, we are of the view that the assessee has taken a conscious decision to sell the shares of M/s DLF Ltd due to abnormal rise in the share price of that company. The assessee has also contended that it has used only its own funds for making investments and the said submission has not been controverted. The assessee has shown the purchase of shares as its investments in its books of account. In other years, the assessee has been accepted as an “investor” and it was not shown to us that there is change in the facts and circumstances of the case. Under these set of facts, we are of the view that the Ld CIT(A) was not justified in upholding the order of the AO on this issue. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to assess the profit or loss arising on sale of shares as “Capital gains”.