2014 (7) TMI 1059 - AT - Income Tax

Appellate Tribunal Upholds Disallowance under Income Tax Act Section 14A, Emphasizes Lack of Direct Correspondence

The appellate tribunal upheld the disallowance under section 14A of the Income Tax Act, emphasizing the lack of direct correspondence between expenditure ... Disallowance u/s 14A – Held that:- There is no direct correspondence between the incurring of an expenditure and the earning of income there-from including as to its time – Relying upon CIT vs. Rajendra Prasad Moody [1978 (10) TMI 133 - SUPREME Court] - the disallowance having been effected by the AO only with reference to Rule 8D (2)(iii), is itself below the disallowance made – thus, the order of the CIT(A) is upheld – Decided against Assessee. Assessment of STCG as business income – Held that:- The AO after enlisting the assessee’s case makes his observations with regard to the transactions entered into by the assessee - the assessee was not an investor and that the income disclosed by him as STCG is in fact business income, assessing it as such - No meaningful purpose under the circumstances would be served in restoring the matter back to the file of the assessing authority - CIT(A) have not rendered any specific decision/findings with reference to the facts and circumstances – thus, the matter is remitted back to for fresh consideration – Decided in favour of Assessee. Issues:1. Disallowance under section 14A of the Income Tax Act.2. Assessment of income returned as short term capital gain (STCG) as business income.Issue 1: Disallowance under section 14A of the Income Tax Act:The appeal raised concerns about the disallowance under section 14A of the Income Tax Act. The assessee argued that the disallowance was not justified as the tax-exempt income earned was lower than the disallowance amount. However, the tribunal found the argument misconceived. The tribunal noted that the income not forming part of the total income exceeded the disallowance amount by a significant margin. Additionally, the tribunal highlighted the lack of direct correspondence between expenditure and income earning, citing legal precedents to support its decision. The disallowance was ultimately upheld based on the facts presented.Issue 2: Assessment of income returned as short term capital gain (STCG) as business income:The second issue revolved around the assessment of income returned as short term capital gain (STCG) as business income. The assessee contended that the order by the Commissioner of Income Tax (Appeals) followed a decision from a previous year, which was subsequently sent back for fresh adjudication. The tribunal reviewed the relevant findings from the previous case and emphasized the importance of the holding period of shares in determining the nature of income. The tribunal noted that the assessing officer had considered various transactions and holding periods before concluding that the income disclosed as STCG was indeed business income. The tribunal aligned with the assessing officer's interpretation of the law and facts, deciding not to restore the matter back for reconsideration. Instead, the tribunal directed the Commissioner of Income Tax (Appeals) to decide the appeal afresh in accordance with the law after allowing the assessee a reasonable opportunity to present its case.In conclusion, the appellate tribunal partially allowed the assessee's appeal for statistical purposes, emphasizing the need for a fresh decision by the Commissioner of Income Tax (Appeals) on the assessment of income returned as short term capital gain.