TMI Blog2020 (12) TMI 396X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowance u/s 14A r.w.r 8D - HELD THAT:- Disallowance made by the AO is not maintainable but however, we restrict the addition to an extent of exempt income - See M/s. Nirved Traders Pvt. Ltd. [ 2019 (4) TMI 1738 - BOMBAY HIGH COURT ] - ITA No.2464/PUN/2016 - - - Dated:- 9-12-2020 - Shri Inturi Rama Rao, Accountant Member And Shri S.S. Viswanethra Ravi, Judicial Member For the Assessee : Shri Prateek Jha For the Revenue : Shri S.P. Walimbe ORDER PER S.S. VISWANETHRA RAVI, JM : This appeal by the assessee against the order dated 29-07-2016 passed by the Commissioner of Income Tax (Appeals)-2, Pune [ CIT(A) ] for assessment year 2010-11. 2. Ground No. 1 raised by the assessee challenging the action of CIT(A) in upholding the profit on sale of shares is business income as against the claim of income from Capital Gains. 3. The brief facts relating to the issue on hand are that the assessee is an individual and engaged in share trading and a sub-broker of M/s. Emkay Shares Stock Brokers Ltd., Mumbai. The assessee declared a capital gain of ₹ 90,47,345/-. The quantum of sale and purchase along with the transaction value of the various scrip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agree with the arguments advanced in the First Appellate proceedings. He placed reliance in the case of Jaijuria Bros Ltd. Vs. CIT reported in 180 ITR 208 of Hon ble Calcutta High Court and held the shares which have been held for short duration and have been frequently transacted is assessable under the head income from business. Further, he placed reliance in the case of Majoj Kumar Samdaria Vs. CIT reported in 223 Taxman 245 of Hon ble High Court of Delhi and held income arising from sales of shares of very high frequency and volume and is assessable as business income. Thereby, he upheld the order of AO in treating an amount of ₹ 90,47,345/- as income from business. 6. Before us, Shri Prateek Jha, the ld. AR submits that the shares sold during the previous year relevant to year under consideration were purchased during the earlier years as well as in current year. The assessee maintained separate portfolios for investment and trading and referred to computation of total income at page 11 of paper book (Vol.-I). The short term capital gains on sale of shares are from the investment portfolios and income earned from under investment portfolios is to be assessed as incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otive and such activities of the assessee partake the characteristics of business, and it cannot be held the assessee has merely made investments in shares. The assessee has substantial unsecured loans and also paid interest on such loans. The assessee utilized said loans for the purpose of trading of shares. He argued that the intention of assessee is clear in buying the shares is to earn profits. He submitted that the CIT(A) has rightly placed reliance in the case of Manoj Kumar Samdaria (supra) wherein the SLP filed against the said decision, the Hon ble Supreme Court dismissed the said SLP which is reported in 228 Taxman 63 (SC). He argued that the profit on transaction in shares is to be treated as business income in terms of decision of Hon ble Supreme Court in the case of Majoj Kumar Samdaria (supra) and prayed to dismiss the ground No. 1 raised by the assessee. 8. Heard both sides and perused the material available on the record. The AO held the assessee did not maintain two portfolios for investment and trading. But, however, at Page No.14 of the paper book which clearly shows the assessee has maintained two portfolios, one for investment and the other is for trading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in investment portfolio and made entries to that effect in his books of accounts. Further, the respondent Revenue consistently accepted the treatment of shares and the profits arising thereon as capital gain for A.Ys. 2008-09 and 2009-10. The intention of the assessee is clearly established in treating the same as shares in investment portfolio for the earlier two years and respondent Revenue consistently accepted the said treatment shown by the assessee. Therefore, in our opinion, the order of ld.CIT(A) is liable to be set aside in terms of principle laid down by the Hon ble Jurisdictional High Court which was upheld by the Hon ble Supreme Court. For better understanding, the relevant portion of the decision of Hon'ble High Court of Bombay in the case of CIT Vs. Gopal Purohit cited supra is reproduced hereunder : The following questions of law have been formulated in the appeal filed by the Revenue against the judgment of the Tribunal, dt. 10th Feb., 2009 : (a) Whether, on the facts and circumstances of the case and in law, the Hon ble Tribunal was justified in treating the income from sale of 7,59,003 shares for ₹ 5,00,12,879 as an income from short-term c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of the activities, the manner of keeping records and the presentation of shares as investment at the end of the year, in all the years. The Revenue submitted that a different view should be taken for the year under consideration, since the principle of res judicata is not applicable to assessment proceedings. The Tribunal correctly accepted the position that the principle of res judicata is not attracted since each assessment year is separate in itself. The Tribunal held that there ought to be uniformity in treatment and consistency when the facts and circumstances are identical, particularly in the case of the assessee. This approach of the Tribunal cannot be faulted. The Revenue did not furnish any justification for adopting a divergent approach for the assessment year in question. Question (b), therefore, does not also raise any substantial question. 4. Insofar as Question (c) is concerned, again there cannot be any dispute about the basic proposition that entries in the books of account alone are not conclusive in determining the nature of income. The Tribunal has applied the correct principle in arriving at the decision in the facts of the present case. The f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.149/2017 dated 23.04.2019) wherein the Jurisdictional High Court held that the disallowance under Section 14A of the Act read with Rule 8D(2) of the Rules cannot exceed the Assessee's exempt income and the relevant portion of the same is extracted herein below : 5. Having heard the learned Counsel for the parties and having perused the documents on record, consistently different High Courts in the country have taken a view that the disallowance under Section 14A of the Act read with Rule 8D of the Rules cannot exceed the Assessee's exempt income. The Delhi High Court, in the case of Cheminvest Ltd. Vs. Commissioner of Income Tax 1, has held that when the Assessee has not earned any income which was exempt from tax, disallowance of the expenditure under Section 14A read with 8D of the Rules would not be permissible. 6. Karnataka High Court, in the case of Pragati Krishna Gramin Bank Vs. Joint Commissioner of Income-tax2, has held that expenditure in relation to income not includable in the total income cannot exceed such income. It was observed as under. 14. We make it clear that the expenditure for earning exempted income has to have a reasonable proporti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred by the assessee in relation to income which does not form part of the total income under the Act. In the present case, the tribunal has recorded the finding of fact that the assessee did not make any claim for exemption of any income from payment of tax. It was on this basis that the tribunal held that disallowance under section 14A of the Act could not be made. In the process tribunal relied on the decision of Division Bench of Punjab and Haryana High Court in case of CIT v Winsome Textile Industries Ltd. [2009] 319 ITR 204 in which also the Court had observed as under : 7. We do not find any merit in this submission. The judgement of this court in Abhishek Industries Ltd. (2006) 286 ITR 1 was on the issue of allowability of interest paid on loans given to sister concerns, without interest. It was held that deduction for interest was permissible when loan was taken for business purpose and not for diverting the same to sister concern without having nexus with the business. The observations made therein have to be read in that context. In the present case, admittedly the assessee did not make any claim for exemption. In such a situation section 14A could have no applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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