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2016 (2) TMI 1268 - AT - Income TaxDisallowance u/s 14A r.w.r. 8D - suo moto disallowance by assessee - non recording of satisfaction - HELD THAT:- After recording that satisfaction only AO can proceed to compute for determination of amount of expenditure incurred which is disallowable u/s 14A(2) of the Act. We could not find any such exercise made by the AO in the course of assessment proceedings. He has merely stated that the assessee company had disclosed expenditure at 10% of the exempt income disallowable u/s 14A is not proper. Therefore without putting across and questioning the reasoning of 10% and without regard to the books of accounts and after that failure to record satisfaction, straight way invoking provision of section 14A and Rule 8D of the Income Tax Rules 1962 is not permissible. Recharacterizing the short-term capital gain as business income - Whether short-term capital gain arising as per investment in portfolio management scheme could not be said to be business income? - HELD THAT:- On appreciation of cumulative facts are of the view that income of sale of mutual funds cannot be taxed under head business income but is chargeable to tax under the head capital gains. Furthermore, regarding the short-term capital gains of shares which is ₹ 762840/- we could not note that in most of the cases the period of holding is more than 100 days. The numbers of shares bought and sold were approximately 10 strips. The amount of turnover was also small. Looking at the turnover and overall facts of the case, we are of the view that profit on sale of share and mutual fund is chargeable to tax under the head capital gain only and not as business income. In view of the above facts, we reverse the finding of the learned Commissioner of Income tax (Appeals) and direct the AO to charge profit on sale of mutual fund and shares including gain arising on mutual fund held in portfolio management scheme of the brokers under the head capital gain only. - Decided in favour of assessee.
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