2020 (12) TMI 467 - AT - Income Tax

Tribunal rules in favor of assessee on share transactions, allows education cess deduction. Revenue's appeal dismissed.

M/s. Advik Hi-Tech Pvt. Ltd. Versus The Deputy Commissioner of Income Tax, Circle-8, Pune. And (Vice-Versa)

The Tribunal allowed the assessee's appeal, classifying income from share transactions as short-term capital gain and permitting the deduction of ... Income from share transaction - short term capital gain OR business income - assessee maintains two separate accounts one for investment another for ‘stock-in-trade’ - HELD THAT:- On hearing both the parties and considering the facts, we find that the need of honouring the entries in the books of account. No case is made out for disturbing the claim of the assessee. This is the case where only 55 transactions are involved and separate account for investment is maintained. Therefore, applying judgment in the case of Gopal Purohit [2010 (1) TMI 7 - BOMBAY HIGH COURT] - Therefore, in our view, the order of the CIT(A) is required to be reversed on this issue and in favour of the assessee. Accordingly, the ground raised by the assessee is allowed. Addition u/s 40(a)(ii) - Education Cess under Finance Act while computing the taxable income under normal provision of the IT Act. - HELD THAT:- From the legal perspective, the issue of ‘education cess’ is an allowable expenditure as per provisions of Section 40(a)(ii). Deduction u/s.80IA(5) - wind mills located at Sangli and Dhule - HELD THAT:- In the case of Velayudhaswamy Spinning Mills (P) Ltd. [2010 (3) TMI 860 - MADRAS HIGH COURT] and held that the initial assessment year in respect to claim deduction u/s.80IA of the Act would mean the first year opted for by the assessee for claiming such deduction and is allowable for 10 years from the initial assessment year chosen by the assessee out of the 15 years beginning from the year in which undertaking commences the operations. It is settled law with regard to the claim of deduction u/s.80IA of the Act, initial assessment year to be considered would be the year in which the assessee first exercises his option to claim deduction u/s.80IA of the Act. Issues Involved:1. Classification of income from share transactions as business income or short-term capital gain.2. Treatment of expenses on repair of an existing toilet block as capital expenditure.3. Deduction of education cess under the Finance Act.4. Eligibility of deduction under Section 80IA(5) of the Income Tax Act without adjusting notional brought forward losses of earlier years.Issue-wise Detailed Analysis:1. Classification of Income from Share Transactions:The assessee contested the treatment of Rs. 25,16,273/- as business income instead of short-term capital gain. The Assessing Officer (AO) had relied on previous assessments treating such gains as business income. The CIT(A) upheld this view, disagreeing with the applicability of the Bombay High Court decision in Gopal Purohit, which distinguishes between investment and business transactions. However, the Tribunal found that in the preceding assessment year, the Pune Bench had ruled in favor of the assessee, recognizing separate accounts for investment and stock-in-trade. The Tribunal applied the precedent from the assessee's own case and the Bombay High Court's decision, concluding that the gains should be classified as short-term capital gain. Thus, Ground No.1 raised by the assessee was allowed.2. Treatment of Repair Expenses:The assessee did not press this ground regarding the disallowance of Rs. 2,52,000/- incurred on the repair of an existing toilet block, which was treated as capital expenditure by the AO and CIT(A). Consequently, Ground No.2 was dismissed as not pressed.3. Deduction of Education Cess:The assessee raised an additional ground for the deduction of Rs. 12,91,464/- paid towards education cess. The Tribunal referred to the Bombay High Court's decision in Sesa Goa Limited, which clarified that 'cess' is not included in the term 'tax' under Section 40(a)(ii) of the Income Tax Act, thus making it deductible. The Tribunal also cited the Pune Bench's decision in Bajaj Allianz General Insurance Company Limited, which supported the deductibility of education cess. Therefore, the additional ground raised by the assessee was allowed.4. Eligibility of Deduction under Section 80IA(5):The Revenue challenged the CIT(A)'s decision allowing the assessee to claim deduction under Section 80IA(5) without adjusting notional brought forward losses. The AO had reworked the eligibility of the deduction by treating the date of commencement of the windmill as the initial assessment year. The Tribunal, however, referred to the assessee's own case for the preceding year, where it was held that the initial assessment year is the year in which the assessee opts to claim the deduction, not necessarily the year of commencement. This view was supported by the Madras High Court's decision in Velayudhaswamy Spinning Mills and confirmed by the Bombay High Court in Hercules Hoists Ltd. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal.Conclusion:- The assessee's appeal was partly allowed, recognizing the gains from share transactions as short-term capital gain and allowing the deduction of education cess.- The Revenue's appeal was dismissed, affirming the assessee's eligibility for deduction under Section 80IA(5) without adjusting notional brought forward losses.