Appeal partially granted on income classification, but disallowances upheld under Section 14A and ad-hoc business expenses.

The Tribunal partially allowed the appeal, ruling in favor of the assessee regarding the classification of income from long-term equities as capital gains. However, the disallowances under Section 14A and the ad-hoc business expense disallowance were upheld. The decision was announced on 14th October 2021.

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Issues Involved:
1. Classification of income from long term listed and unlisted equities as capital gains or business income.
2. Disallowance under Section 14A read with Rule 8D of the Income Tax Rules.
3. Inclusion of strategic investments in Dabur India Limited in disallowance under Section 14A.
4. Ad-hoc disallowance of business expenses.

Issue-wise Detailed Analysis:

1. Classification of Income from Long Term Listed and Unlisted Equities:
The primary issue was whether the income from long term listed equities (Rs. 3,19,01,839) and unlisted equities (Rs. 2,39,76,250) declared by the assessee as capital gains should be treated as business income. The assessee argued that the issue was covered in their favor by previous Tribunal orders for assessment years 2008-09 to 2013-14, where similar transactions were treated as capital gains. The Tribunal noted that in those years, the activity of purchase and sale of shares was considered under the head of 'capital gain' and not business income, following various decisions and CBDT circulars. Consequently, the Tribunal upheld the assessee's claim, allowing grounds 1 and 2 in favor of the assessee.

2. Disallowance under Section 14A read with Rule 8D:
The assessee computed the disallowance under Section 14A read with Rule 8D and reduced it by the proportion of dividend income from shares of Dabur India Ltd. The Assessing Officer and CIT(A) rejected this reduction, leading to an additional disallowance of Rs. 77,82,133. The Tribunal, following its previous decision for assessment year 2013-14, upheld the disallowance, noting that the assessee's method of reducing the disallowance was not justified. Thus, ground 3 of the appeal was dismissed.

3. Inclusion of Strategic Investments in Dabur India Limited:
The assessee argued that strategic investments in Dabur India Limited should not form part of the disallowance under Section 14A. However, in light of the Supreme Court's decision in Maxopp Investment Ltd Vs CIT, the Tribunal found the issue to be covered against the assessee. Therefore, ground 4 was dismissed.

4. Ad-hoc Disallowance of Business Expenses:
The assessee contested the ad-hoc disallowance of Rs. 9,44,390, which was 10% of the total business promotion expenses. The Tribunal noted that the assessee had agreed to this disallowance during the assessment proceedings. Following its decision for assessment year 2013-14, the Tribunal upheld the disallowance, dismissing ground 5 of the appeal.

Conclusion:
The Tribunal allowed the appeal partly, favoring the assessee on the classification of income from long term equities as capital gains but upholding the disallowances under Section 14A and the ad-hoc business expense disallowance. The order was pronounced in the open court on 14th October, 2021.

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