9911796707
TMI Blog2013 (4) TMI 664X X X X Extracts X X X X X X X X Extracts X X X X ..... s case during the year the assessee company which is primarily engaged in the business relating to research and experimental development on natural sciences and engineering has also disclosed income from long term gain on sale of shares for Rs. 2,05,588/- as well as sale of shares for short term capital gain for Rs. 9,56,491/-. The assessee has also received divided for Rs. 20,14,851/- besides the income from research and analysis for Rs. 45,21,500/-. The Assessing Officer issued a show cause to the assessee as to why the short term and long term capital gains declared by the assessee shall not be assessed as business income. Upon consideration of the submission of the assessee the Assessing Officer held that although the assessee has mentioned these purchases as investments in its books of accounts but looking to the nature of transactions of shares it was found that the assessee was doing frequent transactions for 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lower, it would have been the case when the shares were held as stock-in- trade. He further observed that the capital gain statement placed on record shows that all shares sold were delivery based and these shares have been held for a period ranging between a few months to more than 3 years by the assessee. In light of the above, Ld. Commissioner of Income Tax (A) observed that the capital gain should be assessed under the head capital gain and not under the head business income as held by the Assessing Officer. In this regard, Ld. Commissioner of Income Tax (A) further referred to the Board Circular No. 7 dated 15.6.2007 on this issue. He observed that the Circular provides guidance and lays down the principles so as to determine whether in case shares have been held as investment or as stock-in-trade. Ld. Commissioner of Income Tax (A) further referred to the decision of the Hon'ble Delhi High Court in the 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) conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rival contentions in light of the material produced and precedent relied upon. Ld. Departmental Representative submitted that Ld. Commissioner of Income Tax (A) in this case had not rebutted all the points brought on by the Assessing Officer. She argued that the order of the Ld. Commissioner of Income Tax (A) is non-speaking order. She also placed reliance on the order of the Assessing Officer. Ld. Counsel of the assessee on the other hand place reliance upon the orders of the Ld. Commissioner of Income Tax (A). 7. We have carefully considered the submissions. We find that in this case Ld. Commissioner of Income Tax (A) has given a finding that the assessee has maintained the books of accounts clearly indicating that the shares are investment on long term basis treating them as investment and the not the stock-in-trade. Furthermore, the valuation of the investment in shares is reflected in the balance 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 on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investment by the assessee deserves to be assessed as short term capital gain and long term capital gain as disclosed by the assessee. 8. Apropos the issue of deletion of addition of Rs. 25,81,645/- In this case Assessing Officer noted that assessee has shown tax free dividend income of Rs. 20,14,851/-. Assessing Officer opined that section 14A was applicable and he applied Rule 8D in this regard and computed the total disallowance of Rs. 25,81,645/- as expenses incurred in relation to earning of tax free income. 9. Upon assessee's appeal Ld. Commissioner of Income Tax (A) considered the issue. Ld. Commissioner of Income Tax (A) opined that Rule 8D was not applicable for asstt. year 2007-08. He further held as under:- "As regards the issue as to whether any interest expenditure for Rs.26,24,997/- which is debited In P&L Account is attributable to earning of the exempt dividend income or not it has 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 313 ITR 340 (Bom) (supra), wherein the High Court has held that "if there be interest free funds available to an assessee sufficient to meet its investments and that at the same time the assessee had raised a loan it can be presumed that the investment were from the interest free funds available" is applicable to facts of the appellant's case and therefore there is no question of attribution of "interest expenditure" for earning of tax exempt income u/s 14A in appellant's case. Therefore disallowance of Rs. 16,23,111/- made on account of interest by the AO through application of Rule 8D, [which in any case is not applicable to AY 2007-08 in terms of the decision of Mumbai High Court in the case of Godrej & Boyce (supra)] is even otherwise deleted." 9.1 Further, Ld. Commissioner of Income Tax (A) considered the issue as to whether provision of section 14A can be applied to disallow the part of administrative 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o Rs. 3,62,082/- 10% thereof that is Rs. 36,208/- is reasonably attributed to earning of the exempted income. This works out to a total disallowance ofRs. 1,17,132/-. Apart from this disallowance for Rs 1,17,132/- which is confirmed, the disallowance of Rs. 9,58,534/- made by the Assessing Officer through application of Rule 8D read with section 14A is directed to be deleted." 10. Against the above order the Revenue is in appeal before us. 11. We have heard the rival contentions in light of the material produced and precedent relied upon. We can gainfully refer here the Hon'ble Jurisdictional High Court decision in the case of Maxopp Investment Ltd. vs. C.I.T., New Delhi (203 Taxman 364) wherein it has been expounded in the Head Notes as under:- "Section 14A of the Income Tax Act, 1961, read with Rule 8D of the Income Tax Rules, 1962 - Expenditure incurred in relation to income not includible 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
