Assessee wins on share trading classification but loses on section 14A and 35D deductions in revision proceedings

M/s. Saravana Stocks – Investments (P) Ltd. Versus The DCIT / ACIT, Company Circle-VI (1), Chennai

M/s. Saravana Stocks – Investments (P) Ltd. Versus The DCIT / ACIT, Company Circle-VI (1), Chennai - [2023] 107 ITR (Trib) 37 (ITAT [Chen]) Issues Involved:
1. Assumption of jurisdiction under Section 263 of the Income Tax Act, 1961.
2. Verification of transactions of sale/purchase of shares offered to tax as Income from Capital Gain.
3. Disallowance of deduction claimed under Section 35D of the Income Tax Act, 1961.
4. Condonation of delay in filing the appeal.

Summary:

Condonation of Delay:
The Tribunal addressed the delay of 1526 days in filing the appeal, attributing it to incorrect professional advice from the assessee's CA, Mr. K.V. Srinivasan, who advised against filing an appeal against the order passed under Section 263. The Tribunal found the reasons for the delay to be bona fide and genuine, supported by affidavits from the CA and the Director of the assessee's company. Citing precedents, the Tribunal condoned the delay, emphasizing that no appeal should be dismissed on technical grounds if there is a genuine reason for the delay.

Assumption of Jurisdiction under Section 263:
The Commissioner of Income Tax (CIT) invoked Section 263, asserting that the assessment order was erroneous and prejudicial to the interest of the Revenue. The CIT identified issues regarding the assessment of short-term capital gains from the sale of shares, disallowance under Section 14A, and deduction under Section 35D. The Tribunal, however, found that the Assessing Officer (AO) had conducted adequate enquiries and verified the necessary details during the assessment process. It was concluded that the CIT's assumption of jurisdiction was incorrect as the case involved inadequate enquiry rather than a lack of enquiry.

Verification of Transactions of Sale/Purchase of Shares:
The CIT argued that the AO failed to verify the short-term capital gains declared by the assessee from the sale of shares. However, the Tribunal noted that the AO had indeed verified the transactions during the scrutiny assessment, and the assessee had provided all necessary details. The Tribunal held that the CIT erred in assuming jurisdiction under Section 263 on this issue as the AO had made adequate enquiries.

Disallowance of Deduction under Section 35D:
The CIT directed the AO to disallow the deduction of Rs. 2,20,000 claimed under Section 35D, arguing that the deduction was not allowable as it was the sixth year of business. The Tribunal upheld the CIT's direction on this issue, agreeing that the deduction was not permissible under the provisions of Section 35D.

Disallowance under Section 14A:
The CIT contended that the AO had not properly computed the disallowance under Section 14A read with Rule 8D. The Tribunal upheld the CIT's direction to the AO to verify and correctly compute the disallowance as per the provisions of the Act.

Conclusion:
The Tribunal quashed the CIT's order under Section 263 regarding the assessment of short-term capital gains but upheld the CIT's directions on the issues of disallowance under Section 14A and deduction under Section 35D. Consequently, the appeal against the consequential assessment order was dismissed as infructuous. The Tribunal allowed the appeal in ITA No.2298/Chny/2018 and dismissed the appeals in ITA Nos.1852/Chny/2018 and ITA No.2803/Chny/2019 as infructuous.