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TMI Blog2012 (12) TMI 599X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the disallowance to the extent of attributable expenses relating to exempt income.? 2. Whether on the facts and in the circumstances of the case and in law, ld CIT(A) is right in deleting the addition of Rs.2,22,59,502 treating the action of AO is not justifiable in view of the CBDT's circular No.4 of 2007."" 2. In respect of ground No.1 of appeal, the AO has stated that assessee has earned dividend income of Rs.1,88,645 and the same has been claimed as exempt u/s.10(34) in the computation of total income. The AO has stated that assessee company derives income from business operation as well as from investments. He following Rule 8D r.w. sub-section (2) of Section 14A of the I.T.Act, 1961 made a disallowance of expenditure u/s.14A of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the AO is justified. 4. Ld A.R. on the other hand, submitted that Rule 8D of Income tax Rules applies only if AO is not satisfied with the correctness of the claim of the assessee in respect of expenditure in relation to income which does not form part of total income under the Act. He submitted that there is no finding of the AO in the assessment order and he applied Rule 8D mechanically without considering the fact that assessee has debited total expenditure in its profit and loss account aggregating to Rs.1,68,385 and out of it, assessee itself disallowed Rs.1,06,897. He submitted that out of balance amount of Rs.61,488, expenditure of Rs.42,208 is towards maintaining the status of the assessee company and such expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd (d) Maxwell. The AO stated that the details reveal that scrips have been traded in bulk quantity. The said shares were purchased and sold during the year. The AO asked the assessee to explain as to why the gain on purchase and sale of shares should not be treated as business income. The assessee stated that the short term capital gains are in respect of only four scrips and minimum period of holding was above 2 months and the maximum was above 10 months. It was also stated that the said scrips have been bought and sold through the stock exchange and STT was paid. It was also contended that all the above scrips were shown as part of investment in Schedule of the company and never converted into stock in trade or vice-versa. It was also co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held vide para 5.1 of the impugned order that AO is not justified in treating the capital gain shown by the assessee as business income. The said para reads as under: "I have duly considered the submissions of the appellant's AR. I find that during the entire year, the assessee has entered into 3 transactions of purchases of its scrips. From the facts of this case, it is evident that the assessee's intention was to hold them for a long period. The assessee has disclosed these transactions and the same has been accepted by the AO. But the AO has termed these transactions as business transactions which is not correct. Reliance is placed on the decision of ITAT Mumbai in the case of Janak S. Rangwala, as reported in 11 SOT 627, wherei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that all the shares purchased in A.Y. 2007-08 were shown under the head 'investment' and the department has accepted the balance sheet of the preceding assessment year. He submitted that the observation of the AO that there was frequent sale and purchase of shares by the assessee is not factually correct and to substantiate his submission, he placed reliance on the statement giving details of purchase and sale of shares, on which, assessee has claimed short term capital gain. He further submitted that the AO considered the cases in the assessment order (supra) theoretically and nowhere he has stated how the said cases fit to the case of the assessee. Ld A.R. also referred to CBDT circular No.4/2007 dt.15.6.2007 and submitted that CBDT its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s own facts and circumstances. Therefore, the important factor is the intention of the assessee at the time of purchase, which has to be gathered from the actual conduct of the assessee while dealing with the shares subsequently and not only on the basis of entry in the books of account or the objects in the Memorandum of Association as observed by Hon'ble Supreme Court in the case of CIT vs. Madangopal Radhey Lal, 73 ITR 652(SC). 14. On perusal of the details of shares given in the statement, we agree with ld counsel for assessee that there are only four scrips of shares and out of which scrips of shares of three companies were purchased in the preceding assessment year and only share of one company namely Biopac Incor was purchased on 24 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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