TaxTMI 
TaxTMI 
TaxTMI 
2017 (2) TMI 593
X X X X Extracts X X X X
X X X X Extracts X X X X
....hares which are held for less than 30 days, instead of holding the income under the head "income from short term gain". 3. The first and second ground concerns disallowance of Rs. 12,19,173/- under section 14Aof the Income Tax Act, 1961 (hereinafter referred to as "the Act"). The aforesaid disallowance has been worked out with reference to Rule 8D(2)(iii) being administrative and general expenses estimated at 0.5% of the average value of investment. 4. A few facts relevant to controversy involved as per Ground Nos.1 & 2 may be noted. The assessee-company is engaged in the business of sales and purchase of shares. The major income of the assessee is derived by way of dividend income flowing from investment in shares. Other source of income includes interest income from money advanced to various parties. During the relevant assessment year, the assessee has declared receipt of dividend income to the tune of Rs. 2,70,17,059/- which is exempt from tax. The assessee has shown investment of Rs. 24,38,34,685/- as on 31.3.2008. The Assessing Officer (AO) observed that in view of the tax-free income earned by the assessee, disallowance of indivisible expenditure attributable to dividend ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eference to average value of investment is highly unjust because many expenses, as pointed out, are not relatable and not incurred for earning of dividend income. The Ld.AR next contented that requisite "satisfaction" has not been recorded in writing while applying Rule 8D of the IT Rules. In the absence of "satisfaction" contemplated in section 14A, the action of the AO falls short of the statutory requirement and thus a nullity. Therefore, the order of the CIT(A) confirming the disallowance on the basis of Rule 8(2)(iii) is erroneous and requires to be viewed with disfavor. 8. The Ld.DR Mr.Prasoon Kabra, on the other hand, submitted with reference to the financial statement that major part of its resources have been applied towards investments. Various expenditure incurred as reflected in Profit & Loss Account including "professional charges" and "rent expenses" thus necessarily are attributable to the investments yielding exempt income. Therefore, the disallowance has been rightly worked out by applying newly introduced formula prescribed as per Rule 8D of the I.T.Rules. The Ld.DR next contended that the AO has duly issued show cause notice for applying Rule 8D of IT Rules and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se has been shown by the assessee for doing so. Thus, in the given set of facts, in our considered opinion, the formula provided under Rule 8D would come into play. 10. We shall now delineate on the next limb of argument canvassed on behalf of assessee towards non-recording of requisite 'satisfaction' for invoking section 14A r.w. Rule8D of the I.T.Rules. To address this aspect of controversy, we observe that the AO has issued show-cause notice (SCN) for disallowance under section 14A r.w.Rule 8D and sought explanation from the assessee in this regard. As noted earlier, the Profit & Loss Account filed by the assessee also makes its manifest the expenditure noted therein are overwhelmingly attributable to both taxfree and taxable income and remains indivisible. The expression 'accounts' used in section 14A is not confined to books of account but includes financial statements. Thus, there exists adequate and prima facie material to support formation of satisfaction. Therefore, presence of satisfaction contemplated under section 14A having regard to accounts cannot be discredited. It would be pertinent here to say that phraseology employed in section 14A(2) of the Act suggests that w....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... gains are in the nature of business and therefore requires to be assessed under the head "business income". He accordingly assessed the STCGs of Rs. 55,79,921/- as "business income" of the assessee. 13. In first appeal, the CIT(A) however on consideration of host of factors as noted in paras-11 to 13 of its order granted partial relief. By the same token, the CIT(A), however, endorsed the action of the AO in treating the "capital gains" arising on sale of shares as "business income" where shares were held for less than 30 days during the year. 14. In second appeal before the Tribunal, the Ld.AR for the assessee relied upon the facts placed before the CIT(A) and contended that only at six instances, the assessee has derived gains on sale of shares which were held for less than 30 days. Therefore, inference of profit motive cannot be drawn adverse to the assessee. The Ld.AR submitted that the scheme of the Act does not allow artificial bifurcation of capital gains arising on sale of shares on considerations of holding for more than 30 days or less than 30 days. It was contended that the action of the CIT(A) is therefore not sustainable in law. The Ld.AR further submitted that the ....