TMI Blog2016 (6) TMI 1270X X X X Extracts X X X X X X X X Extracts X X X X ..... essee’s profits/losses arising from shares investments as in the nature of capital gains than business income. Section 14A disallowance relating to exempt income from dividends - Held that:- A perusal of section 14A(2) reveals that the Assessing Officer has to record a non satisfaction having regard to an assessee’s account that the same are not correct in respect to expenditure in relation to exempt income not forming part of the total income under the act. There is no dispute that Rule 8D is applicable w.e.f. assessment year. 2008-09. However, we notice from the assessment order that there is no such satisfaction or non satisfaction being recorded before invoking Rule 8D resulting in the impugned disallowance. The Revenue further fails to rebut the lower appellate finding that the assessee has not incurred any expenditure as held in Commissioner of Income Tax-II Versus M/s Hero Cycles Ltd. (2009 (11) TMI 33 - PUNJAB AND HARYANA HIGH COURT ). Its arguments seeking to revive the impugned disallowance accordingly fail. - ITA No. 2374 /Ahd/2012 - - - Dated:- 29-6-2016 - Shri Pramod Kumar, Accountant Member and Shri S. S. Godara, Judicial Member Revenue by: Shri R.I. Patel, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case may be. 3. The assessee-individual derives income from interest, salary, capital gains and other sources. He carries on business of shares trading and mutual funds. The assessee filed return on 31-07-2009 admitting income of ₹ 80,17,050/-. The same stood processed. The Assessing Officer took up scrutiny. The assessee had shown capital gains of ₹ 62,87,095/- along with long term capital loss of ₹ 19,83,397/-, section 10(34) exempt income of ₹ 2,12,425/- and mutual funds dividends of ₹ 1,79,11,191/-. The Assessing Officer s prima facie view was that all these transactions were adventure in the nature of trading giving rise to business income and not capital gains inter alia on the ground that the assessee was already in the very business, he had no other vocation, the comparative chart of investments indicated a systematic approach and he had also availed loans of ₹ 20 crores from City Bank. The Assessing Officer came to assessee s investment chart to observe that the scripts in question had seen holding period of 1/2/3 days as well as less than one month in some cases, his balance sheet treating shares as investment was not conclusive and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y preceding assessment year i.e. A.Y. 08-09 and these shares are also declared as investment in the balance sheet for A.Y. 08-09. The details of this declaration is elaborated in the following lines. The investment in shares is grouped under sub heads FMPS 08- 09, debt funds and liquid funds which forms part of investments. Apart from these, investment in PMS is also reflected in the balance sheet under the head investments. These facts makes it very clear that appellant was consistently declaring investment in M.F. units, shares and PMS as investment in the balance sheet. This clearly indicate the intention of the assessee that he has made investments in M.F. units, shares and PMS. (iii) The appellant has also consistently declared profit and loss from redemption of M.F. units and sale of shares and PMS as Long Term/Short Term capital gain. To be precise the appellant had declared a LTCG of ₹ 115,40,54,754/- on sale of shares of Paras Pharmaceuticals Ltd. in the Asst. Year 2007-08. In the A.Y. 2008-09, LTCG of ₹ 26,03,258/- and STCG of ₹ 62,87,095/- was declared. In the A.Y. 2009-10 LTCG of ₹ 57,30,973/- and STCG of ₹ 19,83,397/- had been declared ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... F. units purchased by the appellant were not sold after a few days of purchases or during the day of purchase . In fact, M.F. units/shares on which long term capital gain/exempt long term capital gain accrued to the appellant were held for more than 12 months. The shares on which short term capital gain has accrued to the a'ppellant were also held for a period ranging from 6 to 9 months. As far as PMS is concerned transactions were conducted by Portfolio Manager and not by the appellant. The above facts clearly indicate that appellant has held the investments in shares for sufficiently long time and these facts further indicate that appellant was engaged in purchase of shares and units of mutual fund as investor only. (vi) It is also seen that major capital gain has arisen as a result of redemption of M.F. units. The units of M.F. are never traded on stock exchange. Units of M.F. are purchased directly from Mutual Fund companies and at the time of redemption these units are surrendered to the Mutual Fund companies. The appellant has followed the same practice. The above procedure clearly indicates that one cannot trade in Mutual Fund units and accordingly the gains accru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/PN/2008 in the case of M/s.KRA Holdings Trading Pvt.Ltd. A.Y. 2004-05. These orders were passed by Hon'ble Pune ITAT on 31-8-2009. 2.4 In view of above discussions I do not have any hesitation in holding that appellant is an investor in shares/M.F. units and accordingly gains accrued as a result of sales of shares and redemption of units of Mutual Fund is to be taxed as LTCG/STCG as the case may be. The rest of the grounds are to be decided keeping this fact in view. 5. Bothe parties heard. Case records perused. There is no dispute that the assessee admittedly is trader in shares. The instant litigation however does not arise from his trading transactions. The dispute rather is that the Revenue seeks to treat his profits/losses from share investments and redemption of investments as business income by giving colour of adventure in the nature of trade to be involved therein. We put up a query first of all as to whether he has been treated as a investor or trader in earlier assessment years. The assessee files before us copy of regular assessments framed in assessment years 2007-08, 2008-09 and 2011-12 treating him as an investor. This crucial fact has gone un-rebutted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,23,616/-. There is no dispute about the facts that he had availed City bank loan of ₹ 20 crores and paid interest thereupon of ₹ 26,18,569/-. The Assessing Officer invoked Rule 8D to compute proportionate interest disallowance of ₹ 14,54,767/- and that of administrative expenses @ 0.5% of average value coming to ₹ 43,17,470/- aggregating to the impugned amount of ₹ 57,72,237/-. 8. The CIT(A) deletes the impugned disallowance by observing as follows: 11. Vide ground No.4, appellant had challenged disallowance of ₹ 57,72,237/- u/s.14A of IT. Act. Appellant contended that he has not claimed the expenses mentioned in the profit and loss account and accordingly disallowance u/s.14A cannot be made. Perusal of computation of income reveals that appellant has declared capital gains on the sale of units of M.F./ shares. Appellant has not claimed expenses, which are considered by the A.O. for the purpose of disallowance U/S.14A of IT. Act, 1961. Since appellant has not claimed deduction of these expenses, accordingly I hold that disallowance against these expenses cannot be made as per provisions of section 14A. Reliance in this regard is placed o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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