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TMI Blog2018 (8) TMI 1636X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Ld. CIT(A) has erred in law and on facts, in confirming the disallowance u/s 14A amounting to Rs. 7, 60, 000/-, without giving due consideration to the facts and circumstances of the case. 2. The Ld. CIT(A) has erred in not considering the ground related to initiation of penalty proceedings u/s 271(1)(c) , as the assessee had neither concealed the particulars of income nor submitted any inaccurate particulars of income. 3. That the assessee craves for liberty to raise any other ground at the time of hearing of appeal. " 2. Brief facts of the case are as under: For the year under consideration assessee filed its return of income on 08/10/09. The same was processed under section 143 (1) of the Income Tax Act, 1961 (the Act) and was selected for scrutiny. Accordingly, notice under section 143 (2) of the Act along with notice under section 142(1) of the Act, with questionnaire, was served upon assessee. In response to statutory notices Representatives of assessee appeared before Ld. AO and discussed the case. 2. 1. Ld. AO observed that during the year under consideration, assessee is stated to be engaged in the business of buying, selling and dealing in securities of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s frequently trading in a particular scrip i. e. a particular share was frequently purchased and sold. If the intention of the assessee was to earn dividend then they would have held those shares for a longer period instead of selling and purchasing at short intervals. Ld. AO further observed as under: In Asstt. Year 2007-08, the assessee itself treated its income as income from business and profession and considering this fact in mind the Assessing Officer accepted the plea of the assessee and the assessment was completed at the same figures without making any further additions as the department was taking the similar view in other cases on similar issue. Moreover, the assessee in his submission dated 16. 09. 2009 (submitted on 17. 09. 2009) clearly mentioned that the company is engaged in the business of buying, selling and dealing in securities of any kind, shares, debentures, debentures stocks, properties, bonds units, obligations and other securities. The audit report in 3CD annexed with the return also disclosed that nature of business was DEALING IN SHARES. The assessee company in his Profit and Loss Account has disclosed the income from operations and not from investmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital asset" and a "trading asset" has been made out on the basis of the decision of Hon'ble Supreme Court in the case of CIT vs. Associated Industrial Development Company Pvt. Ltd. reported in 82 ITR 586, CIT vs. H. Holck Larsen reported in 26 Taxman 305 and Authority for Advance Ruling (AAR) in the case of Fidelity North Star Fund, reported in (2007) 158 Taxman 372. She submitted that, merely exercising power from Memorandum and Articles of Association to purchase and sell shares as investment will not by itself be decisive of the nature of transaction. 5. 2. Ld. CIT-DR submitted that in Schedule 10 to audited accounts, revenue recognition has been categorised under 3 heads being: * transaction in respect of dealing in securities which are recognised on the trade dates; * dividend income on units of mutual funds is recognised on receipt basis and any gains/losses are recognised on the date of selling * profit on sale of investments is recognised on traded date. 5. 3. She submitted that assuming assessee has invested in these shares, it is not supported by audited accounts as there are no separate accounts maintained by assessee for purposes of investment in shares and sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Jubilate Securities Pvt. Ltd, , reported in 333 ITR 445 ; he submitted that there was no restriction on assessee to hold 2 portfolios in so far as shares were concerned. He submitted that shares purchased and shown in investment portfolio when sold would result in capital gains. 7. In the rejoinder Ld. CIT DR submitted that the decisions referred to and relied upon by Ld. Counsel are factually distinguishable with present facts. She submitted that the decision of Hon'ble Supreme Court in case of Anil Jain vs CIT (supra), are on a different facts. Further going through decision of Hon'ble Delhi High Court in the case of CIT vs. Rohit Anand, Ld. CIT DR submitted that assessee herein treated shares as investment in his books of accounts, and the intention was manifested by the treatment given to such investment as the investment was not rotated frequently and total number of transactions were very few. She further submitted that it was also a situation where the shares purchased were not sold and rather held for quite number of days. On going through decision of Hon'ble Delhi High Court in the case of CIT vs. Jubilate Securities (supra), Ld. CIT-DR submitted that in the facts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at was reflected as on 31/03/08. The transaction statement of the remaining 9 scrips placed at page 46-50 of paper book, show closing balance to be 'nil', as on 31/03/08. The statement also reveals that assessee in respect of these 9 scrips undertook intra-day transaction. 8. 2. It is observed that these 9 scrips have not been held by assessee even for substantial period of time which has been alleged to be made for investment purposes. Hon'ble Supreme Court in CIT v. Associated Industrial Development Co. (P. ) Ltd. [1971] 82 ITR 586, observed that: "Whether a particular holding of shares is by way of investment or forms part of the stock-in-trade is a matter which is within the knowledge of the assessee who holds the shares and it should, in normal circumstances, be in a position to produce evidence from its records as to whether it has maintained any distinction between those shares which are its stock-in-trade and those which are held by way of investment. " 8. 3. We have also perused details at page 34 and 35 of paper book, with reference to point 13 and 14 therein. Ld. CIT DR placed reliance upon 3 scrips which are common to alleged list of investment, as well as shares h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r consideration received on account of dividend. It is also submitted that these dividends have been received from investments in units of mutual funds. Ld. Counsel submitted that assessee did not incur any expenditure for earning said dividend because of which no disallowance was computed by assessee in its computation of income. He submitted that Assessing Officer computed disallowance by considering 0. 5% of average value of investments, which is not justifiable on any count. He submitted that, considering the judicial precedents, disallowance under section 14 A, must be recomputed. 10. 2. Ld. CIT DR was in agreement with the submissions of Ld. Counsel regarding a direction to Ld. AO to recompute disallowance under section 14 A having regard to decision of Hon'ble Supreme Court in the case of Maxopp Investments Ltd. vs CIT reported in (2018) 91 taxman. com 154. 11. We have perused the submissions advanced by both the sides in the light of records placed before us. 11. 1. Admittedly, assessee has not computed any disallowance under section 14 A towards earning of exempt income. We therefore direct Ld. AO to recompute the disallowance under section 14 A (1) read with Rule 8D, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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