2018 (6) TMI 405 - AT - Income Tax

Tribunal decision: Assessee's appeal partially allowed, income as capital gain, travel expenses deleted.

SECOND LEASING PRIVATE LIMITED Versus ACIT, CIRCLE-8 (1), NEW DELHI

The Tribunal allowed the Assessee's appeal partially. It directed the AO to treat the income as capital gain, delete the disallowed traveling expenses, ... Nature of income - profit from sale of shares - Capital gain or business income - Held that:- The accounting treatment in the books of accounts of the assessee cannot be rejected. The books of accounts are essential evidences. The recording of transactions in the books is a primary evidence of the intention for which such investment or purchase has been made. There has to be material to reject such primary evidence. The same cannot be rejected merely because the AO has a different view. A transaction has to be seen from the perspective of the person who has entered into that transaction. In the present case, the assessee all along has been making investment and accounting for the same as investments. This stand has been accepted in the past and there is no reason to differ with the same in the current year. The accounting treatment given in the current year being the same as in the earlier years, the AO was not justified in altering the same. The aforesaid view has also been upheld in the case of CIT vs. Girish Mohan Ganeriwala [2002 (10) TMI 61 - PUNJAB AND HARYANA HIGH COURT] whereby it was held that profit from sale of shares is assessable as capital gain more so, when such profits were assessed as capital gain in earlier years - Thus AO is directed to treat the income as capital gain declared by the assessee as against business income. Disallowance on account of traveling expenses - assessee before the AO has taken the stand that it has paid fringe benefit tax at the rate of 20% - Held that:- Now it is a settled position of law that no disallowance can be made once expenses are exigible to FBT. See BG Shirke Construction Technology Pvt. Ltd. Vs. CIT [2012 (10) TMI 435 - ITAT PUNE] Issues Involved:1. Treatment of short term capital gain and long term capital loss as business income.2. Disallowance of traveling expenses.3. Disallowance under Section 14A of the Income Tax Act.Detailed Analysis:1. Treatment of Short Term Capital Gain and Long Term Capital Loss as Business Income:The primary issue was whether the short term capital gain of Rs. 2,79,79,723/- and long term capital loss of Rs. 68,016/- should be treated as business income or capital gain/loss. The Assessee argued that historically, such transactions were treated as capital gains, and there was no change in the nature of transactions in the current year. The Assessee highlighted that the investments were declared and accepted as capital gains in previous assessment years (2005-06 and 2006-07). The Assessee also pointed out that the transactions were delivery-based, duly credited to the Demat account, and dividend income was received, indicating an investment nature.The Revenue contended that the volume and frequency of transactions suggested a business activity. However, the Tribunal found that the Assessee had consistently treated these transactions as investments in its books of accounts, which were accepted in previous years. The Tribunal noted that the Assessee had only 36 purchase transactions and 49 sales transactions during the year, and these were not intra-day transactions. The Tribunal concluded that the AO had incorrectly treated these as multiple transactions and emphasized that the Assessee's intention was to invest, not trade. The Tribunal also referenced CBDT Circular No. 6/2016, which supports treating listed shares held for more than 12 months as capital gains.The Tribunal directed the AO to treat the income as capital gain declared by the Assessee, thus allowing this ground of appeal.2. Disallowance of Traveling Expenses:The AO disallowed Rs. 1,22,222/- of traveling expenses, treating 50% as personal. The Assessee argued that fringe benefit tax (FBT) was applicable, and 20% of the expenditure was offered under FBT. The Tribunal noted that it is a settled position of law that no disallowance can be made once expenses are exigible to FBT. The Tribunal referenced the decision in BG Shirke Construction Technology Pvt. Ltd. Vs. CIT, which supports this view.The Tribunal directed the AO to delete the addition in dispute, allowing this ground of appeal.3. Disallowance under Section 14A of the Act:The AO made a disallowance of Rs. 14,08,542/- under Section 14A by applying Rule 8D. The CIT(A) restricted the disallowance to Rs. 6,95,204/-, which was admitted by the Assessee in a written submission. The Tribunal found no reason to interfere with this figure as it was accepted by the Assessee.Accordingly, this ground of appeal was rejected.Conclusion:The appeal of the Assessee was partly allowed. The Tribunal directed the AO to treat the income as capital gain and delete the disallowance of traveling expenses, while the disallowance under Section 14A was upheld as restricted by the CIT(A). The order was pronounced on 04-06-2018.