TMI Blog2013 (4) TMI 664X X X X Extracts X X X X X X X X Extracts X X X X ..... actions are not large enough and neither they are frequent to hold that there has been any intention on part of the of the assessee to indulge into business of trading in shares & has earned substantial dividend income of Rs. 20,14,851/- during the year which is indication of the assessee's intention of investment in shares for earning dividend income. See C.I.T. vs. Rohit Anand (2010 (8) TMI 232 - Delhi High Court) wherein said that it is relevant to see the intention of the assessee at the time of making of investment so as to determine whether the transactions was for dealing in shares or making investment for earning dividend - No infirmity in the conclusion that profit arisen on sale of shares held as investment by the assessee deserves to be assessed as short term capital gain and long term capital gain as disclosed by the assessee. Against revenue. Addition u/s.14A by applying Rule 8D - CIT(A) deleted the addition - Held that:- Addition made by the AO is not sustainable as Rule 8D is not applicable for asstt. year 2007-08. The interest related to loan of Rs. 2.5 crore taken by the assessee from M/s Cholamandalam Investment during the previous financial year 2005-06. The C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r sale and purchase of shares like stock in trade, which shows that the motive of assessee was to earn profit on sale and purchase of shares and not to earn dividend. Thereafter Assessing Officer has made reference to Circular No. 4/2007 dated 15.6.2007 issued by the CBDT as also the cases of C.I.T. vs. Associated Industrial Development Co. 82 ITR 586; C.I.T. vs. Holck Larsen 160 ITR 67 and the decision of Authority of Advance Ruling in case of Fidelity Group reported in 288 ITR 641. It has been concluded that the action of the assessee of treating the gain from sale and purchase of shares as capital gains instead of business income is not acceptable for the following reasons:- a. The assessee is not maintaining separate books of accounts for the alleged investments and regular business, no separate account is maintained to differentiate the alleged investment made and for business activity. The assessee was utilizing the sales proceeds of the alleged investments for the purpose of business. Similarly, the assessee was utilizing the funds of business for alleged purchase of investment / shares. Merely, an assumption by the assessee that a particular purchase is investment is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of C.I.T. vs. Rohit Anand Reported in 46 DTR 236. Ld. Commissioner of Income Tax (A) further placed the decision of the Hon'ble Mumbai High Court in order dated 61.2010 in C.I.T. vs. Gopal Purohit 226 CTR 582. Considering the above, Ld. Commissioner of Income Tax (A) concluded as under:- "In the instant case, as already noted above, the appellant had made only investment in equity shares and no stock in trade account is depicted and identifiable in the books of accounts. The magnitude of transactions in the investment account in comparison to the turnover disclosed in trading account are negligible. It is also observed from the capital gain statements placed on record that the delivery of shares has taken place and that these shares have been held for a period ranging between a few months, in case of short term capital gain in equity shares and more than 3 years in case of long term capital gains by the appellant. It is also observed that while the long term capital has arisen on account of sale of 10000 shares in Ind Swift Ltd., this sale forms only .28% of the total holding by the appellant in Ind Swift Ltd. and that all these shares have been transferred only through one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sheet at cost and not as cost / market value whichever is lower. Furthermore, all the shares which have been sold were delivery based and the shares have been held for the period ranging between few months to more than 3 years by the assessee. Thus, we find that the assessee has only made investment in equity shares and not in stock in trade, this is depicted and identifiable and the books of accounts in this regard. Further, the magnitude of the transactions in the investment account in comparison to the turnover disclosed trading account were negligible. The long term capital gain has arisen on account of sale of 10000 shares in Ind Swift ltd. These sales forms only .28% of the total holding by the assessee in Ind. Swift Ltd. and all these shares have been transferred only through one transaction and shares of Micro Tech. have been transferred through 3 transactions. In case of shares of paramount the shares have been sold through total 9 transactions between 3.4.06 to 28.4.06. From this Ld. Commissioner of Income Tax (A) has rightly concluded that number of transactions are not large enough and neither they are frequent to hold that there has been any intention on part of the of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been submitted by the appellant through the copy of statement of account of M/s Cholamandalam Investment and Finance Ltd. for FY 06-07 the this whole of the interest for Rs. 26,24,997/- on which TDS has also been deducted has been paid only to M/s Cholamandalam Investment and not to any other party during the year. It has also been observed that this amount of interest relates to the loan of Rs. 2.5 Crores taken by the appellant from M/s Cholamandalam Investment during the previous financial year 05-06 and which has been used for the purposes of business and not for making any investment in shares. This has been substantiated by the appellant through the fact that there has been substantial amount of increase in the following business heads during FY 05 06 namely in fixed assets for Rs. 1.28 crores ; loans and advances for Rs. 3.50 Crores ; sundry debtors for Rs. 2.34 Cores and Decrease in sundry liabilities for Rs. 1.44 Crores. Thus there has been a total increase in assets for Rs. 8.57 Crores during FY 05-06, which has partly been met out of the loan of Rs. 2.5 Crores taken from M/s Cholamandalam Investment on which the interest for Rs. 26.24 Lacs has been paid during FY 06-07. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nistrative expenses on a reasonably estimated basis in absence of the Assessing Officer pointing out any specific / particular expense or drawing any direct nexus between the expense incurred and earning of the dividend income. Ld. Commissioner of Income Tax (A) in this regard referred to the decision of the Hon'ble Mumbai High Court in the case of Godrej Boyce Mfg. Co. Ltd. vs. DCIT. Ld. Commissioner of Income Tax (A) held as under:- "In terms of the above observations of Bombay High Court in case of Godrej Boyce (Supra) it is observed that for making disallowance under section 14A there needs to be a reasonable and proximate nexus between the expenditure and the exempt income that the AO is not precluded from making apportionment in a case where the assessee does not maintain separate accounts. Further the Bombay High Court in the case of Godrej Boyce (supra) has also held that disallowance under section 14A(1) can be made on a reasonable basis and that expenses can be apportioned for the above purpose, as per the extensive quotations from the relevant portions of the said judgment. It would be relevant to consider the details of the various expenses incurred under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble in total income Whether in terms of section 14A(2) condition precedent for Assessing Officer to determine amount of expenditure incurred in relation to exempt income is that he must record his dissatisfaction with correctness of claim of expenditure made by assessee or with correctness of claim made by assessee no expenditure has been incurred. Held, yes -Whether therefore, determination of amount of expenditure in relation to exempt income under rule 8D would only come into play when Assessing Officer rejects claim of assessee in this regard Held, yes - Whether rule 8D, which was introduced by virtue of Notification No. 45/2008, dated 24.3.2008, is prospective in operation and cannot be regarded as being retrospective Held, yes Whether though sub-sections(2) and (3) of section 14A were introduced with prospective effect form assessment year 2007-08 onwards, they would be workable only with effect from date of introduction of rule 8D which gave content to expression 'such method as may be prescribed' appearing in section 14A(2) Held, yes - Whether, however, fact that sub-sections (2) and (3) of section 14A and rule 8D would operate prospectively (and, not retrospective ..... X X X X Extracts X X X X X X X X Extracts X X X X
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