TaxTMI 
TaxTMI 
TaxTMI 
2016 (9) TMI 642
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....ever, the AO made an addition of Rs. 407,158/- u/s 14A being half percent of average investments. On appeal, the ld. CIT (Appeals) upheld this disallowance. As far as the second issue regarding treatment of capital gains as business income is concerned, the assessee company had purchased rights of acquiring space in Paradise Mall, vide agreement dt. 10/03/05, for a sum of Rs. 49,400,000/-. It was the assessee's contention that due to some problems in the management of the Mall, the construction was delayed and the matter also went for arbitration. Since the Mall was under construction and no registered deed had been executed, the amount paid was shown under loans and advances. The assessee finally sold the said property on 15/09/08 and the AO treated the consequential capital gains as business income of the assessee and the ld. CIT (Appeals) further confirmed the same. 3. The ld. AR submitted that the assessee company had purchased shares of one closely held unquoted group company Mark Auto Ltd. It was further submitted that Mark Auto Ltd. was purchased by the assessee company during FY 05-06 in which the assessee company is holding around 48% share capital. It was further submitt....
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....eals) and supported the order of the AO. 5. We have heard the rival submissions and perused the relevant records. As far as the issue of disallowance u/s 14A read with Rule 8D is concerned it is seen that the scheme of section 14A has within it implicit notion of apportionment in the cases where the expenditure is incurred for the composite/indivisible activities in which taxable and non-taxable income is received. But when it is possible to determine the actual expenditure in relation to the exempt income or when no expenditure has been incurred in relation to the exempt income, then principle of apportionment embedded in section 14 A has no application. The objective of section 14 A is not allowing to reduce tax payable on the normal exempt income by debiting the expenditure incurred to earn the exempt income. Thus, the expenses incurred to earn exempt income cannot be allowed and the expenses shall be allowed only to the extent they are related to the earning of taxable income. If there is expenditure directly or indirectly incurred in relation to exempt income, the same cannot be claimed against the income, which is taxable as it is held by the Hon'ble Supreme Court in case of....
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....arefully, we would find that the Assessing Officer is required to determine the amount of such expenditure only if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under the said Act. In other words, the requirement of the Assessing Officer embarking upon a determination of the amount of expenditure incurred in relation to exempt income would be triggered only if the Assessing Officer returns a finding that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Therefore, the condition precedent for the Assessing Officer entering upon a determination of the amount of the expenditure incurred in relation to exempt income is that the Assessing Officer must record that he , is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Sub-section (3) is nothing but an offshoot of sub-section (2) of Section 14A. Sub-section (3) applies to cases where the assessee claims that no expenditure has been incurred in relation t....
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....following the ratio of the judgments as aforementioned, we hold that the disallowance u/s 14A was made without due deliberation and analysis by the Assessing Officer and the Ld. CIT(A) was also patently wrong in confirming the disallowance without testing the sustainability of the disallowance. Hence, we set aside the findings of the Ld. CIT (A) on this issue and restore the matter to the file of the AO for fresh adjudication after due verification of the claim of the assessee regarding no expenditure having been incurred. Needless to say, the AO shall afford a proper opportunity to the assessee to present its case. This ground of appeal is accordingly allowed for statistical purposes. 5.4 As far as the second issue regarding the treatment of long term capital gains as business income is concerned the Hon'ble Bombay High Court in CIT vs. V.A. Trivedi 172 ITR 95 (Bom.) has held that "ordinarily where a person acquired land with a view to selling it later after developing it and actually divided the land into plots and sold the same in parcels, the activity could only be described as a business adventure. Generally speaking, the original intention of the party in purchasing the prop....
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....he items has been taken in the balance sheet? If the items in question are value at cost, it would indicate that they are investments or where they are valued at cost or market value or net realizable value (whichever is less), it will indicate that items in question are treated as stock in trade. 5. How the company (appellant) is authorized in memorandum of association/articles of association? Whether for trade or for investment? If authorized only for trade, then whether there are separate resolutions of the board of directors to carry out investments in that commodity? And vice versa. 6. It is for the appellant to adduce evidence to show that his holding is for investment or for trading and what distinction he has kept in the records or otherwise, between two types of holdings. If the appellant is able to discharge the primary onus and could prima facie show that particular item is held as investment (or say, stock-in-trade) then onus would shift to Revenue to prove that apparent is not real. 7. The mere fact of credit of sale proceeds of shares (or for that matter any other item in question) in a particulars account or not so much frequency of sale and purchase will al....