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2018 (8) TMI 1961 - ITAT DELHICorrect head of income - Characterisation of income - Issue of treatment of long-term capital loss as business loss by treating it as a business income - Period of holding of shares - HELD THAT:- We hold that in so far as transaction in sale of shares shown under the head ‘Long Term Capital Gain’ same cannot be taxed under the head business income especially in the light of the categorical clarification by the CBDT. Simply because the assessee has held the shares for less than period of 12 months it does not straight away put in the bracket of trading activity, especially when there is no repetitive transaction of the shares. However in so far as detail of Short Term Capital Gain is concerned, the assessee has filed voluminous detail which has been neither examined or looked upon by the Assessing Officer or by the ld. CIT(A), therefore, we deem it proper that in so far as transaction of shares shown under the head ‘Short Term Capital Gain’, matter should be restored back to the file of the Assessing Officer to examine, whether there is any repetitive transaction; or whether similar scrips have been shown by the assessee in its trading portfolio; or there is frequent switching of same shares. AO will examine these aspects and will also examine it in the light of the clarification issued by the CBDT vide circular dated 2nd May, 2016. Thus, with this direction this issue is remanded back for limited purpose; and in so far as transaction of Long Term Capital Gain is concern, we hold that same is assessable as Long-Term Capital Gain and not business income. Coming to the objection raised by the ld. CIT-DR that the new plea has been raised with regard to the transaction of Punjab Tractor Ltd., we do not find any merits in such objection, because the acquisition of sale of Punjab Tractor Ltd. has been discussed by the Assessing Officer also and moreover if the entire issue of Long-Term Capital Gain, whether assessable under the head ‘capital gain or business income’ is in dispute and if certain facts are being pointed out from the material already on record, then the same can always be examined to see, whether it was acquired for the purpose of investment or for the purpose of trading. Thus, objection raised by the ld. CIT-DR is rejected. Assessee appeal allowed for statistical purposes. Addition made u/s.14A r.w.r. 8D - HELD THAT:- So far as disallowance under Rule 8D2(iii) is concerned, it is not in dispute, because already assessee has offered more than what is disallowable under the formula given under Rule 8D2(iii). AO has imputed the disallowance of interest without even analyzing the nature of accounts and the fact that assessee has a huge net surplus of interest income which has been offered for tax. The assessee is a NHBC and since the interest payment has been adjusted with the interest received, this itself goes to show that assessee is maintaining a separate finance activity and the interest payment is directly relating to such financial activities. Nowhere AO such an interest payment has any co-relation with the loan funds for the purpose of making the investment. On the other hand, we find that the assessee has huge surplus funds in its reserve which is around ₹ 19,200 lacs. Under these circumstances, it could be easily presumed that, investments have been made from interest free surplus funds and no portion of interest expenditure can be disallowed. Accordingly, we do not find any infirmity in the order of the ld. CIT (A) and same is confirmed. Treating profit from sale of shares as Long-Term and Short-Term Capital Gains or business income - AY 2008-09 - HELD THAT:- As shares which were held for more than 365 days were held as investment from the date of acquisition. We have already held that so far as the shares transacted under the head Long Term Capital Gain the same cannot be held to be for the purpose of trading activity and consequently it cannot be assessed under the head ‘Business Income’, following the CBDT Circular (supra). On this issue and various judgment of the Hon'ble High Court have been followed. In so far as Short-Term Capital Gain is concerned, we have given certain directions to the Assessing Officer for examination of certain aspects; therefore, for this year also same direction is given to the Assessing Officer. Accordingly, appeal for the Assessment Year 2009-10 is treated partly allowed for statistical purposes. Addition of interest under Rule 8D(2)(iii) - HELD THAT: - We find that the assessee’s contention has been that it always had huge sufficient interest free funds available with it which is also evident from the balance-sheet in the form of huge ‘reserves and surplus’ and therefore, no disallowance of interest could have been made. This contention of the assessee has not been rebutted by the Assessing Officer. Apart from that, assessee has also categorically stated that none of its borrowed funds was applied for the purpose of the investment and it has earned interest income of ₹ 19.84 crore from the loan advanced by it and has paid interest on loans of ₹ 1.98 crores only. Thus, there is a net interest income. We have already given a finding while deciding the appeal for Assessment Years 2008-09 that if there is net interest income then no disallowance of interest can be made. Under these circumstances and facts, we hold that no disallowance of interest can be made. Accordingly, the disallowance made by the Assessing Officer under Rule 8D(2)(iii) is directed to be deleted. TDS u/s 194H on DEMAT charge - Whether no principle agent relationship? - HELD THAT:- We find that the only reason for disallowing the payment of DEMAT charges by AO is that the CBDT Notification No.56/2012 has come into effect from 01.01.2013 and therefore, for the earlier period TDS is required to be deducted u/s.194H. Such a reasoning for disallowance cannot be sustained, because if CBDT has clarified that no TDS is required to be deducted on DEMAT charges, then such a clarification brought to remove the rigors and the hardship to the assessee, has to be given retrospective effect, because the reason given by the CBDT to bring the circular was to reduce the hardship and the compliance cost and it is causing great hardship to the deductee. Such a clarification brought by CBDT to remove the hardship, cannot be held that prior to 01.01.2013 such a hardship should be imposed. Accordingly, the order of the ld. CIT(A) for deleting the said disallowance is affirmed.
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