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TMI Blog2017 (9) TMI 1395X X X X Extracts X X X X X X X X Extracts X X X X ..... ion before makin disallowance - Held that:- We find ourselves to be in agreement with the contention of the assessee that the very process of determination of the amount of expenditure incurred in relation to exempt income would be triggered, only if the A.O. returns a finding that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. It is only if the A.O. is not satisfied with the correctness of the claim of the assessee that no expenditure had been incurred in relation to the exempt income, therein only after recording cogent reasons as regards the same, that the A.O. can therein embark upon the determination of the amount of expenditure in accordance with the method prescribed in Section 14A r.w. Rule 8D. See Godrej & Boyce Manufacturing Company Limited (2017 (5) TMI 403 - SUPREME COURT OF INDIA ) As in the present case it can safely be concluded that the A.O had failed to arrive at a satisfaction that having regard to the accounts of the assessee, as placed before him, it was not possible for him generate the requisite satisfaction with regard to the correctness of the claim of the assessee that no expenditure had been incurre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he balance sheets since inception. The assessee further explaining the factors which were responsible for sale of certain scrips within a short period, therein submitted that the same was on account of change in government policy, change in management and change in global trading, and thus were sold not with any predetermined intent to make profit by trading in shares, but on account of the aforementioned external factors which would have persuaded any investor to have adopted a similar approach. The assessee in order to drive home her contention that the sale of the shares had rightly been reflected under the head Capital gains , therein relied on CBDT Circular No. 4/2017, dated 15.06.2007, which categorically differentiated between a Capital asset and a trading asset . The assessee further in support of her contention that she was holding the shares as an investor and not as a trader, therein submitted before the A.O that during the year under consideration she had carried out sale of only 4 scrips, the profit from which was booked under the head STCG. The assessee further submitted before the A.O that during the year under consideration the total contract notes for both purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier year. 2 Infrastructure Minimum, in The form of office, Employees, equipments, Etc. Residence is used for activity and part time clinic premises for profession. 3 Dividend Rs.15 lacs (page No. 5 of the Order) Rs. 24.62 Lacs During the year Under consideration 4 Assessment Order 143(3) Accepted As Investment In A.Y. 2001-02, 2003-04, 2004-05 Accepted As Investment in A.Y. 2005-06 and A.Y. 2009-10 5 Type of Transactions Carrying Both Delivery Based Transactions and Non-Delivery Based Transactions Carrying Delivery Based Transactions only. 6 Shown as Investment in Balance sheet Yes Yes 7 Trader or Investor Same Person Could Be Both Investor And Trader (Page No. 9 para 5.11) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s against those involved in the aforementioned preceding years, thus did not subscribe to the aforesaid view of his predecessors by observing as under:- Further from facts it cannot be said that in this year, the assessee was actively involved in large scale transactions with high frequency of purchase and sale of shares of various companies on regular basis during the current year since the holding periods are substantially longer than that in earlier years. The assessee has also earned substantial dividend exceeding ₹ 24.61 lacs during the year which is about 1.5% of investments. The turnover ₹ 7.61 Crores also cannot be said to be high as compares to the size of investments ₹ 15.66 crores on 31.03.2010 and ₹ 15.58 crores on 31.03.2009 rather it is less (only about 50%) than the investment whereas in other years, the sales exceeded the investments. The CIT(A) thereafter testing the facts involved in the case of the assessee during the year under consideration, in the backdrop of the parameters laid down by the Hon ble High Court of Bombay in the case of Gopal Purohit (supra) , therein held that the income from delivery based share transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding period, we have seen that the assessee has held shares in varying periods ranging from one week to nine months. Hence the average holding period was reasonably good. The repetition of transactions were very minimal, i.e, upto a maximum of four transactions only. The assessee has not borrowed funds for purchasing the shares. The assessee has held major shares for more than one year and has declared long term capital gains. We notice that the Assessing Officer has ignored all other factors, which are in favour of the assessee and has decided the issue against the assessee by considering only two factors. We have seen that even the two factors that were considered by the assessing officer works out in favour of the assessee only. Hence, in our view, the decision taken by the assessing officer in A.Y 2006-07 is not correct in the facts and circumstances of the case and hence the assessment orders passed in other years by following the decision rendered in A.Y 2006-07 would consequently rendered incorrect. Under these set of facts, we are of the view that there is merit in the contentions of Ld. A.R. that the assessing officer was not justified in assessing the gains arising on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee, wherein the latter had assailed the order of the CIT(A) on the following grounds:- 1 i. The Learned Commissioner of Income Tax (Appeals) erred in confirming the addition made by the Assessing Officer in respect of disallowance under section 14A r.w.r. 8D of Income Tax Ac t,1961 amounting of ₹ 8,76,258/- as expense s incurred in earning exempt income. Your appellant submits that she had not incurred any expense in earning exempt income and the disallowance u/s 14A ought to be deleted. ii. The Learned Commissioner of Income Tax (Appeals) failed to c on s ide r, that the learned A.O had not provided an y explanation or justification for the nonsatisfaction of the claim of the appellant in not incurring any expenditure in relation to earning exempt income. iii. The Learned Commissioner of Income Tax (Appeals) failed to consider the submissions made before him during the course of appellate proceedings. 2 . Without Prejudice to the above, the disallowance o f ₹ 8,76,258/- is excessive and unreasonable and be kept at minimum. 3 . The appellant reserves the right to add, amend, or al ter any ground or grounds of appeal on or before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... correctness of the claim of the assessee in respect of such expenditure. We are of the considered view that it is only if the A.O. is not satisfied with the correctness of the claim of the assessee that no expenditure had been incurred in relation to the exempt income, therein only after recording cogent reasons as regards the same, that the A.O. can therein embark upon the determination of the amount of expenditure in accordance with the method prescribed in Section 14A r.w. Rule 8D. We are of the considered view that our aforesaid view stands fortified by the recent judgment of the Hon ble Supreme Court in the case of : Godrej Boyce Manufacturing Company Limited (supra), wherein the Hon ble Apex Court had held as under:- Whether such determination is to be made on application of the formula prescribed under Rule 8D or in the best judgment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in the Assessing Officer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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