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2018 (12) TMI 1059 - AT - Income TaxGain on sale of investment - long term capital gain OR business income - Held that:- Without there being any material changes in facts for the year under consideration, there is no reason for the AO to deviate from the stand taken in earlier and subsequent assessment years. Hence, we are of the considered view that profit derived from sale of shares is assessable under the head ‘capital gains’ as declared by the assessee. The Ld.CIT(A), after considering relevant facts, has rightly directed the AO to assessee profit derived from sale of shares under the head ‘long term capital gain / short term capital gain. Disallowance u/s 14A by invoking rule 8D(2) - Disallowance of expenses incurred in relation to exempt income - assessee has earned dividend income from shares and mutual funds and claimed exemption u/s 10(38) - Held that:- Although the assessee has disallowed direct expenses being PMS charges and demat charges, but did not disallow interest expenses and other expenses. Insofar as interest expenses, the assessee has filed necessary evidences to prove availability of own funds. In view of the binding nature of decision of Reliance Power & Utilities Ltd vs CIT [2009 (1) TMI 4 - BOMBAY HIGH COURT] and HDFC Bank Ltd vs CIT [2014 (8) TMI 119 - BOMBAY HIGH COURT] once the availability of funds is established even though there is borrowed funds, then a general presumption is drawn in favour of the assessee that investment is made out of own funds. Therefore, the question of disallowance of interest expenses does not arise. Accordingly, we direct the AO to delete disallowance made towards interest expenses u/r 8D(2)(ii) of I.T. Rules, 1962. As regards other expenses .CIT(A) has directed the AO to restrict the disallowance to the extent of 2%, we find that considering the nature of expenses incurred by the assessee and quantum of exempt income, the rate applied by the Ld.CIT(A) appears to be on lower side. Therefore, to meet the ends of justice, we deem it appropriate to direct the AO to restrict the disallowance of expenses to the extent of 5% of total exempt income u/r 8D(2)(iii) for AY 2006-07 & 2007-08. Insofar as AY 2008-09, there is no dispute with regard to the direct expenses which have already been disallowed by the assessee on its own. Insofar as interest expenses, our findings given for AYs 2006-07 & 2007-08 holds good as the assessee has proved availability of own funds. As regards other expenses, from AY 2008-09 onwards rule 8D(2) came into picture and accordingly disallowance contemplated u/s 14A shall be determined by applying the prescribed formula provided u/r 8D(2)(iii). The AO has determined other expenses @0.5% of average value of investments.
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