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06-06-2019, Jayantilal B. Jain, Section 14A, 10(36), Tribunal Mumbai

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3 months 1 week ago #9677 by amit
Section - 14A, 10(36)
Order Date - 06-06-2019
Favouring - Partly
Court - Tribunal Mumbai
Appellant - Jayantilal B. Jain
Respondent - DCIT
Justice - SAKTIJIT DEY, JM & MANOJ KUMAR AGGARWAL, AM
Citation - 619Taxpundit93
Appeal No. - I .T.A. No.5803/Mum/2017
Asstt. Year - 2012-13

Order

PER : Manoj Kumar Aggarwal

1. Aforesaid appeals by assessee for Assessment Years [in short referred to as ‘AY’] 2011-12 and 2012-13 contest separate orders of Ld. first appellate authority. Since common issues are involved, we proceed to dispose-off the same by way of this common order for the sake of convenience & brevity.

ITA No. 2241/Mum/2017, AY 2011-12

2. Aggrieved by the order of Ld. Commissioner of Income-Tax (Appeals)- 42, Mumbai, [in short referred to as ‘CIT(A)’], Appeal No. CIT(A)-42/IT402/14-15 dated 30/11/2016, the assessee is under appeal before us with following Grounds of appeal: -

“GROUND I: TREATING SHORT-TERM CAPITAL GAINS AMOUNTING TO RS. 51,70,511 AS BUSINESS INCOME:

1. On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the actions of Dy. Commissioner of Income Tax, Range 24(1), Mumbai ("the Ld. AO") in treating the short-term capital gains amounting to Rs.51,70 511 as business income on the alleged ground that the Appellant is engaged in the business of trading in shares by holding that the transactions carried out by the Appellant are voluminous and the period of holding is meagre.

2. He failed to appreciate and ought to have held that:

a. The Appellant had maintained two separate portfolios for shares, one as investment and the other for the purpose of trading;

b. In the earlier as well as future assessment years, the Ld. AO had consistently accepted the short-term capital gains arising on the sale of shares held as investment as shown by the Appellant.

3. The Appellant, therefore, prays that the Ld. AO be directed to treat the amount of Rs.51,70,511 as short-term capital gains and not as a business income.

GROUND II: DISALLOWANCE OF INTEREST EXPENSE U/S. 14A OF THE ACT R.W. RULE 8D OF THE INCOME-TAX RULES, 1962 ("THE RULES") AMOUNTING TO RS.5,42,245:

1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the actions of the Ld. AO in disallowing interest expense amounting to Rs.5,42,245 on the alleged ground that the Appellant has not proved the nexus of funds utilised for making investments.

2. He failed to appreciate and ought to have held that:

i. For computing the disallowance u/s 14A of the Act, only expenditure 'in relation to' earning dividend income is to be considered;

ii. Rule 8D of the Rules cannot be automatically applied without considering the facts of the Appellant and without recording his dissatisfaction with respect to the Appellant's claim.

3. The Appellant prays that the aforesaid disallowance of Rs.5,42,245 be deleted or be appropriately reduced.

4. Without prejudice to the above, the Appellant prays that the shares treated by the Ld.AO as held as stock-in-trade be excluded while computing the disallowance.”

3.1 Facts in brief are that the assessee being resident individual stated to be engaged in the business of readymade garments and trading in shares was assessed for impugned AY in scrutiny assessment u/s 143(3) on 26/03/2014 wherein the income of the assessee was determined at Rs.8.88 Lacs after certain adjustments / disallowances as against loss of Rs.56.41 Lacs filed by the assessee on 28/07/2011. The subject matter of present appeal before us is to determine the head under which Short-Term Capital Gains earned by the assessee on sale of shares would be assessable and disallowance of Rs.5.42 Lacs u/s 14A.

3.2 During assessment proceedings, it transpired that the assessee earned Short-Term Capital Gain on sale of shares for Rs.51.70 Lacs which was offered under the head Capital Gains. The said income, in the opinion of Ld. AO, was assessable as Business Income in view of the fact that the transactions were voluminous & period of holding was meager. The assessee defended the same by submitting that the said activity was assessable under the head Capital Gains only as assessed as well as accepted by revenue in earlier years, following the rule of consistency. However, the same could not convince Ld. AO, who treated the said income as Business Income. This would assume importance in view of the fact that income under the head capital gains would attract lower rate of tax as against Business Income which was to be taxed at regular rates of tax.

3.3 The second addition stem from the fact that the assessee earned exempt income aggregating to Rs.112.72 Lacs during impugned AY, which

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