IN INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRIN.K. PRADHAN, ACCOUNTANT MEMBER ITA no.2758/Mum./2012 (Assessment Year : 2008-09) Shri Dilawara Singh Arora Arora House, Golf Link Union Park, Khar (West) . Appellant Mumbai 400 052 PAN AADPA6270F v/s Asstt. Commissioner of Income Tax . Respondent Circle 19(1), Mumbai Assessee by : None Revenue by : Shri B.S. Bist Date of Hearing 18.08.2016 Date of Order 16.09.2016 ORDER PER SAKTIJIT DEY, J.M. Instant appeal by assessee is directed against order dated 2nd March 2012, passed by learned Commissioner (Appeals) 30, Mumbai, for assessment year 2008 09. 2. As could be seen from record, present appeal was filed by assessee before Tribunal on 23rd April 2013 and it was fixed for hearing for first time on 9th May 2013. From very first date of hearing, appeal is getting adjourned from time to time at request of assessee till 15th July 2015. On date of hearing on 2 Shri Dilawara Singh Arora 24th November 2015, no one appeared on behalf of assessee. Therefore, Bench was forced to adjourn hearing of appeal to 26th November 2015. On 26th November 2015, one Shri Deepak Mishra, claiming to be clerk of assessee appeared and again sought adjournment. Bench while adjourning appeal to 18 th August 2016, observed as under: Assessee by : Shri Deepak Mishra Dept by : Dr. D.S. Ratnam Case was fixed on 29 11 15 but none appeared. Today one Mr. Deepak Mishra, clerk of assessee appeared and sought date. It seems that assessee is not interested in disposal of his appeal, hence date is given at request of his clerk. Case adjourned to 18 8 16. Both parties informed. 3. However, on 18th August 2016, when appeal was called for hearing, neither any one appeared on behalf of assessee nor there is even petition seeking adjournment. Thus, as it appears, assessee is totally uninterested in prosecuting and disposal of its appeal. Therefore, we proceed to dispose off appeal ex parte qua assessee, after hearing learned Departmental Representative. 4. assessee has raised three grounds. In ground no.1, assessee has challenged decision of learned Commissioner (Appeals) in upholding Assessing Officer s decision to assess income from share transaction as business income instead of short term capital gain. 3 Shri Dilawara Singh Arora 5. Brief facts are, assessee is individual. For assessment year under consideration, he filed his return of income on 29 th September 2008, declaring total income of ` 31,29,608. During assessment proceedings, Assessing Officer noticed that assessee has shown short term capital gain of ` 30,36,555 on sale of shares and against such income has shown interest expenditure of ` 7,24,408. After calling for details of share transactions from assessee and examining them Assessing Officer found that assessee has entered into frequent transaction of purchase and sale of shares. He observed, during relevant previous year, assessee has dealt in 22 scrips giving rise to short term capital gain. From statement of short term capital gain, Assessing Officer found that there are 41 transaction of sale of shares out of which in 39 transactions holding period is less than month and in another two transactions holding period is less than three months. On going through details of share transactions, Assessing Officer also noted that assessee had entered into repetitive transactions. In other words, after purchasing scrip assessee had sold it then again purchased and resold which according to Assessing Officer is in nature of trading. He found aforesaid trend in 22 scrips as tabulated in Page 3 of assessment order. Further, he noted that substantial investments have been made out of borrowed funds which is evident from interest payment of ` 7,24,408, whereas, 4 Shri Dilawara Singh Arora assessee has earned dividend income of ` 3,92,671. He, therefore, was of view that assessee had undertaken share transaction not as investment activity but as trading activity. Therefore, short term capital gain of ` 30,36,556 was treated as income from business and after reducing therefrom interest expenditure of ` 7,24,408 net business income was determined at ` 23,12,136. Being aggrieved of aforesaid decision of Assessing Officer, assessee preferred appeal before learned Commissioner (Appeals). 6. learned Commissioner (Appeals), however, agreed with view of Assessing Officer. 7. We have considered submissions of learned Departmental Representative and perused material available on record. issue before us is whether income from share transaction is to be assessed as short term capital gain as claimed by assessee or business income as held by Department. From facts discussed in assessment order, it is found that out of total 41 transactions in shares, 39 shares were held for less than month. Further, it has been found by Assessing Officer that in 22 scrips, assessee had made repeated entry and exit which indicate intention of assessee to trade in shares rather than holding it as investment. Assessing Officer has also observed that assessee had used borrowed funds for investing in shares. learned Commissioner 5 Shri Dilawara Singh Arora (Appeals) has also approved aforesaid finding of Assessing Officer. No material has been brought by assessee before us to controvert aforesaid factual findings of Departmental Authorities. In aforesaid view of matter, we do not find any reason to interfere with order of learned Commissioner (Appeals). Accordingly, ground no.1 raised is dismissed. 8. In ground no.2, assessee has challenged disallowance of interest of ` 7,24,408. 9. Brief facts are, while offering income of short term capital gain of ` 30,36,555, from share transaction, assessee reduced therefrom interest expenditure of ` 7,24,408. Assessing Officer, while completing assessment treated income derived from share transactions as business income. However, out of gross receipt from share transaction amounting to ` 30,36,555, he allowed interest expenditure of ` 7,24,408, thereby assessing net income from share transaction at ` 23,12,136. Thus, as could be seen, Assessing Officer allowed interest expenditure while computing income from share transaction under head Business and Profession . As it appears, assessee for reasons best known to him, challenged so called disallowance of interest expenditure of ` 7,24,408 before learned Commissioner (Appeals) who also 6 Shri Dilawara Singh Arora observed that Assessing Officer was justified in not allowing interest expenditure of ` 7,24,408. 10. We have considered submissions of learned Departmental Representative and perused material available on record. As could be seen, Assessing Officer while treating income derived from share transaction as business income has actually allowed interest expenditure of ` 7,24,408 and assessed net business income of ` 23,12,136. Therefore, ground raised by assessee before learned Commissioner (Appeals) challenging disallowance of interest expenditure by Assessing Officer was misconceived. Similarly, observations of learned Commissioner (Appeals) upholding disallowance of interest expenditure by Assessing Officer is unnecessary and unwarranted. Before us also, assessee has raised this ground challenging disallowance of expenditure from short term capital gain. Alternatively, assessee has claimed that even if income from share transaction is assessed under head Business interest expenditure is allowable under section 37(1). As we have already noted, Assessing Officer while computing income from share transaction under head business income has allowed interest expenditure to ` 7,24,408. That being case, there is no question of disallowance of interest expenditure, therefore, 7 Shri Dilawara Singh Arora ground raised by assessee being infructuous is not required to be adjudicated upon, hence, dismissed. 11. In ground no.3, assessee has challenged disallowance of expenditure of ` 3,67,360 under section 14A r/w rule 8D. 12. Assessing Officer in course of assessment proceedings, noticing that assessee has earned exempt income by way of dividend amounting to ` 3,92,671 and long term capital gain of ` 1,70,91,990 was of view that proportionate expenditure attributable to earning of exempt income has to be disallowed in terms of section 14A r/w rule 8D. He noted, assessee on his own has not disallowed any interest under section 14A. Therefore, Assessing Officer proceeded to compute disallowance under rule 8D(2). He observed, assessee had incurred total interest expenditure of ` 7,24,408 out of which he worked out interest attributable to earning of exempt income at ` 1,85,547 in terms of rule 8D(2)(ii). He also worked out disallowance under rule 8D(2)(iii) @ 0.5% of average value of investment at ` 1,81,813. Thus, total disallowance computed by Assessing Officer under section 14A r/w rule 8D, was ` 3,67,360. Being aggrieved of such disallowance, assessee challenged same before learned Commissioner (Appeals). 13. learned Commissioner (Appeals), however, confirmed disallowance. 8 Shri Dilawara Singh Arora 14. We have heard learned Departmental Representative and perused material on record. As is evident, Assessing Officer while computing disallowance under section 14A, has applied provisions of rule 8D2(ii) and out of interest expenditure of ` 7,24,408, has disallowed amount of ` 1,85,547. However, as could be seen, while computing income from share transaction under head Business, Assessing Officer has allowed entire interest of ` 7,24,408. This action of Assessing Officer demonstrates that interest expenditure is related entirely to earning of taxable income from share transaction, hence, no part of it can be apportioned towards exempt income earned by assessee. Therefore, in our considered opinion, no disallowance out of interest expenditure can be made in terms of rule 8D(2)(ii). However, as far as disallowance of 0.5% of average value of investment in terms of rule 8D(2)(iii) is concerned, we agree with view of Departmental Authorities and uphold disallowance. Ground no.3, is partly allowed. 15. In result, assessee s appeal is partly allowed. Order pronounced in open Court on 16.09.2016 Sd/- Sd/- N.K. PRADHAN SAKTIJIT DEY ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 16.09.2016 9 Shri Dilawara Singh Arora Copy of order forwarded to: (1) Assessee; (2) Revenue; (3) CIT(A); (4) CIT, Mumbai City concerned; (5) DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary (Dy./Asstt. Registrar) ITAT, Mumbai Dilawara Singh Arora v. Asstt. Commissioner of Income-tax Circle–19(1), Mumbai