TMI Blog2017 (2) TMI 589X X X X Extracts X X X X X X X X Extracts X X X X ..... me under the head “capital gains” from the sale-purchase of securities which is held for a period more than 12 months consistently then the same has to be treated as income under the head “capital gains” only. Similarly, the transactions for the sale-purchase shares carried out through PMS cannot be regarded as business transactions for the reasons discussed above. Therefore, we are inclined to reverse the order of Authorities Below - Decided n favour of assessee Disallowance u/s 14A r.w.s. 8D - Held that:- The assessee has claimed total expenditure of ₹ 4,14,08,065/-. Out of the same a sum of ₹ 2 crores was donated to charitable trust which in our considered view has no nexus with the dividend income. However the balance expenses of ₹ 2,14,08,065/- has been incurred and claimed by the assessee under the head administrative and other expenses. In the instant case the disallowance has been worked out to ₹ 60,53,495/- out of total administrative expenses of ₹ 2,14,08,065/-. Hence, the disallowance is not exceeding the total administrative expenses incurred by the assessee. Therefore the recent Notification issued by the CBDT No. SO 1949(E) dated 2.6.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced case law and, therefore, the said order under appeal is bad in law and perverse. 4. Facts in brief are that assessee in the present case is a Private Limited Company and engaged in the business of mining, processing and export of chrome ore other mineral. In the year under consideration, assessee has filed its return of income declaring total income of ₹ 33,94,53,780/- which was processed u/s 143(1) of the Act on 30.05.2011. Subsequently, case was selected under scrutiny and accordingly, notices u/s 143(2) and 142(1) of the Act were issued along with questionnaire to the assessee. The assessment was framed after making certain additions and disallowances to the total income of assessee at ₹ 34,57,40,170/- u/s. 143(3) of the Act. 5. First issue raised by assessee in this appeal in ground No. 1 is that Ld. CIT(A) erred in confirming the order of Assessing Officer by treating the quantum capital loss of ₹ 60,83,332/- as speculation loss in terms of provision of Explanation to Section 73 of the Act. The assessee, in the year under consideration has shown following income under the head capital gains :- Sl. No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessment stage that the appellant had parked its surplus fund in PMS with a view to maximize the profit on such investment; and, the same was shown as investment in the balance sheet. The AO did not accept the explanation. The AO noted that the issue has to be decided on the basis of the volume and frequency of transactions. The AO noted that the appellant has shown during the year total purchases of ₹ 89,30,116/- and total sales of ₹ 1,45,62,970/-. The Assessing Officer held that the volume as well as the frequency of the transactions made during the year clearly suggest that the appellant was involved in trading of share; and consequently, the profit arising thereby was assessable as business income. The Assessing Officer relied on the decision of the Hon'ble Delhi Tribunal to hold that the profit arising out of transactions in shares made through PMS had to be treated as business income. The AO noted that the appellant company was engaged in the business of mining. As the principal business of the appellant is not that of granting of loans and advances, and, as the gross total income of the appellant company does not consist mainly of income which is cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the books of account of assessee and aforesaid transactions were classified by assessee under the head investment and such practice was also followed by assessee in the earlier year also. We also find that the assessee in the earlier year has shown such transactions under the head capital gains and no disallowance was warranted by AO in his assessment order for AY 2009- 10. 8.1 We also find that recently CBDT has issued Circular No. 6 of 2016 on 29.02.2016 which states as under:- a) Where the assessee itself, irrespective of the period of holding the listed shares and securities, opts to treat them as stock-in trade, the income arising from transfer of such shares/securities would be treated as its business income, b) In respect of listed shares and securities held for a period of more than 12 months immediately preceding the date of its transfer, if the assessee desires to treat the income arising from the transfer thereof as Capital Gain, the same shall not be put to dispute by the Assessing Officer. However, this stand, once taken by the assessee in a particular Assessment Year, shall remain applicable in subsequent Assessment Years also and the taxpayers s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as business transactions for the reasons discussed above. Therefore, we are inclined to reverse the order of Authorities Below and this ground of assessee is allowed. 9. Next issue raised by assessee in ground No.2 is that Ld. CIT(A) erred in confirming the order of AO by sustaining the disallowance of ₹ 60,53,495/- u/s 14A r.w.s. 8D of the IT Rules, 1962 (hereinafter referred to as the Rule ). 10. The assessee, in the year under consideration has shown income of dividend income for ₹ 3.99 crores which is exempt u/s 10(34) of the Act. The assessee in relation to dividend income has disallowed the expense at its own for ₹ 4,41,728/- u/s. 14A of the Act. The assessee also submitted that there was no other expenditure incurred in relation to the exempted income. However, the AO disregarded the claim of assessee by observing that assessee has made investment in share / mutual fund for ₹ 158,12,49,403/- and to maintain such volume of investment assessee has to incur expenditure for the maintenance and keeping of accounts of such investment. Therefore, to maintain the accounts, assessee needs manpower and expertise for holding such huge portfolio of invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO calls for no interference. Ground no 2 is dismissed. Aggrieved by this, assessee has come up in appeal before us. 12. Before us Ld. AR submitted that no borrowed fund was utilized in making such investment and there was sufficient fund available with the assessee in the form of share capital and free reserves. Ld. AR in support of assessee s claim drew our attention on its balance sheet where shareholders funds of ₹ 240,68,81,386/- was shown in the balance sheet which is placed on page 46 of the paper book. He further submitted that assessee has not paid any managerial remuneration to its Director. Therefore, no expenses can be attributed to the exempted income. Ld. AR further submitted that there a Notification with respect to provision of Rule 8D of the Rule and as per the Notification 1% of the annual average of monthly averages of the opening and closing balance of the value of investment needs to be disallowed. On the other hand, Ld. DR emphatically supported the orders of Authorities Below. 13. We have heard the rival contentions of both the parties and perused and carefully considered the material on records; including the judicial pronouncements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee in its profit and loss account is also not tenable. It is because the provisions of section 14A do not limit the disallowance to the extent of managerial remuneration. The disallowance envisaged in the section 14A of the Act extends to all the administrative expenses claimed by the assessee in profit and loss account. The learned AR drew our attention on page 54 of the paper book where the details of administrative other expenses were placed. On perusal of the same we find that the assessee has claimed total expenditure of ₹ 4,14,08,065/-. Out of the same a sum of ₹ 2 crores was donated to charitable trust which in our considered view has no nexus with the dividend income. However the balance expenses of ₹ 2,14,08,065/- has been incurred and claimed by the assessee under the head administrative and other expenses. In the instant case the disallowance has been worked out to ₹ 60,53,495/- out of total administrative expenses of ₹ 2,14,08,065/-. Hence, the disallowance is not exceeding the total administrative expenses incurred by the assessee. Therefore the recent Notification issued by the CBDT No. SO 1949(E) dated 2.6.2016 and relied ..... 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