TMI Blog2016 (2) TMI 1268X X X X Extracts X X X X X X X X Extracts X X X X ..... under head business income but is chargeable to tax under the head capital gains. Furthermore, regarding the short-term capital gains of shares which is ₹ 762840/- we could not note that in most of the cases the period of holding is more than 100 days. The numbers of shares bought and sold were approximately 10 strips. The amount of turnover was also small. Looking at the turnover and overall facts of the case, we are of the view that profit on sale of share and mutual fund is chargeable to tax under the head capital gain only and not as business income. In view of the above facts, we reverse the finding of the learned Commissioner of Income tax (Appeals) and direct the AO to charge profit on sale of mutual fund and shares including gain arising on mutual fund held in portfolio management scheme of the brokers under the head capital gain only. - Decided in favour of assessee. - ITA Nos. 3917/Del/2011 - - - Dated:- 10-2-2016 - SHRI I.C. SUDHIR, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER For the Assessee : Sh. Ved Jain, Adv Sh. Pranjal Srivastava, Adv Sh. Ashish Goel, CA For the Respondent : Sh. Anshu Prakash, Sr. DR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,28,928/- and after deducting disallowance made by the AO the assessee himself of ₹ 13,43,545/- confirmed the net disallowance of ₹ 17,85,383/-. Against this the assessee in appeal before us. 5. It was contended that the assessee has earned exempt dividend income as ₹ 1,35,35,450/- and adhoc 10% has been disallowed by the assessee. The assessee further contended that while applying Rule 8D the AO has considered the total value of investment including investment in subsidiary, Mutual fund Investments in fixed maturity plans, bonds, shares and other mutual funds etc. It was his contention that in the above investment the AO has included investment in subsidiary as well as investment, which are subject to tax such as investment in bonds etc. for disallowance of expenditure @ 0.5% of the value of investment. It was further argued that the total expenditure incurred by the assessee is only ₹ 53.17 lacs out of which ₹ 11,56,000/- is already added back in the computation of the total income and an expenditure of ₹ 6,46,425/- is pertaining to the specific project. Hence our of remaining expenses of ₹ 35,14,664/- AO has disallowed the expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owable u/s 14A(2) of the Act. We could not find any such exercise made by the AO in the course of assessment proceedings. He has merely stated that the assessee company had disclosed expenditure at 10% of the exempt income disallowable u/s 14A is not proper. Therefore without putting across and questioning the reasoning of 10% and without regard to the books of accounts and after that failure to record satisfaction, straight way invoking provision of section 14A and Rule 8D of the Income Tax Rules 1962 is not permissible. our view is also gest support by the decisions of Hon ble Delhi High Court in the case of CIT Vs. Taikisha Engineering Ltd 370 ITR 338 where Hon ble High Court has held that AO at the first instance must examine the disallowance made by the assessee and if and only if he has not satisfied on this account after making reference to the accounts he is entitled to adopt the method prescribed under Rule 8D of the Rules. Where the disallowance made by the assessee is found to be unsatisfactory then only AO is entitled and authorizedto compute the disallowance under the rule 8D of the Rules. b. Furthermore we are also of the view that investment made by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 32,35,452/- as business income of the assessee stating that short-term capital gain arising as per investment in portfolio management scheme could not be said to be business income. 10. Brief facts of the case is that during the year under consideration the assessee has earned long term capital gain of ₹ 75,01,260/- and short term capital gain of ₹ 32,35,452/- on sale of shares, mutual funds and portfolio management scheme. The assessee in the balance sheet has classifi it as investment assets. The Assessing Officer treated the longer capital gain chargeable to tax under head capital gain but recharacterized short-term capital gain is business income. The main reason given by the AO was that the assessee company though doing the business of consultancy , due to non -compete clause in agreement it assessee got surplus, theses sum were invested in mutual funds. As the funds given from the business income AO was of the view thattherefore it is business income of the assessee. He also looked at Form No.10DC which is a form of certificate of security transaction tax and held that as in that form it is stated too be value of transaction entered into during t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pted by AO as chargeable to tax under head capital gain. Regarding frequency of transactions assessee has dealt in 10 mutual funds and period of holding is 177 days, 249 days etc. except in two funds where holding is less than 30 days. These amounts are classified in the balance sheet of the assessee as investments and not as current assets. The amount of money invested in these mutual funds are owned funds of the assessee and are not out of borrowed funds. The company admittedly is engaged in the principal business of advisory services and is not in the business of trading in mutual funds or securities, which is evident from the objects of the company as well as annual accounts of the company. Ld. OA and CIT (A) has held otherwise for the only reason that in form No 10 Dc of the Securities Transaction tax Rules the column shows the heading about the amount of turnover made by the assessee. We are of the view that that form is required to be given by the STT collecting agencies and which is levied on the amount of turnover i.e. transaction value of purchases and sale of shares and MF. The person issuing such form is not at all concerned with the fact that how this amount can be dea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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