IN INCOME TAX APPELLATE TRIBUNAL E Bench, Mumbai Before Shri B.R. Baskaran (AM)& Ramlal Negi (JM) I.T.A. No. 20/Mum/2015 (Assessment Year 2010-11) Sheetal Ranwala ACIT-19(1) 602, Symphony Vs. Room No. 322 Plot No. 269 Piramal Chambers Junction of 8 t h & 12 t h Lalbaug Road, Khar West Parel Mumbai-400 052. Mumbai-400 012. (Appellant) (Respondent) PAN No.ADMPR0613D Assessee by Shri Jitendra Jain Department by Shri A.K. Kardam Date of Hearing 20.10.2016 Date of Pronouncement 20.10.2016 ORDER Per B.R. Baskaran (AM) :- appeal filed by assessee is directed against order dated 28.10.2014 passed by learned CIT(A)-30, Mumbai for A.Y. 2010-11 on following issues : a) Assessment of short term capital gain arising from sale of shares as business income. b) Disallowance made u/s. 14A of Act. 2. assessee is individual and she filed her return of income for year under consideration declaring total income of ` 29.52 lakhs. total income included short term capital gain of ` 48,96,441/- arising on sale of shares, against which brought forward short term capital loss of ` 30,47,389/- was adjusted. AO took view that assessee is carrying on purchase and sale of shares in systematic and organized way. Further volume of transaction was also considered to be very high. It was also seen that assessee is carrying on activity year after year. Accordingly he took view that there is continuity and regularity in purchase and sale of shares. 2 Sheetal Ranwala Accordingly he held that assessee is carrying on shares trading activity as trader and not as investor. He accordingly assessed short term capital gain of ` 48,96,441/- as business income of assessee. learned CIT(A) also confirmed same and hence assessee has filed this appeal before us. 3. At time of hearing learned AR submitted written submissions and contended that activities of assessee, if examined in terms of various criteria listed out by CBDT and Courts, would lead to conclusion that assessee is acted as investor only. For sake of convenience we extract below written submissions given by learned AR :- 1. assessee has shown shares as investment in balance sheet which is at page 14 of paper book. There is no interest bearing borrowings which is evident from page 14 of paper book. interest-free unsecured loan is from family members and which are brought forward from earlier years and same is evident on comparison of balance sheet as on 31-03-2010 and 31-03-2009. relevant pages are page 14 and 38 of paper book. 2. assessee's own fund is Rs. 3.14 Cr. which is more than investment in shares and hence shares are purchased from own funds. 3. All shares on which gain arose is delivery based transaction and same is evident from pages 20 to 29 which are demat accounts and page 13 which is statement of short-term capital gain. 4. assessee has earned capital gain by making investment in only 12 scrips and out of these 12 scrips, 4 scrips are out of earlier year. This is evident from page 13 of paper book. closing investment is only in scrips of 6 companies and same is evident from page 15. 5. Revenue has accepted capital gains on similar facts in all assessment years except year under consideration. Assessment for A.Y. 2009-10 and 2013-14 has been made under section 143(3) of Act. assessment order and details for A.Y. 2009-10 are at pages 31, 35 and 40 of paper book and assessment order for A.Y. 2013-14 is handed over across bar, 3 Sheetal Ranwala 6. Out of short-term capital gain of Rs. 48.96 lakhs, Rs. 1.6 lakhs is on account of holding of shares which are less than 1 month, Rs. 30.20 lakhs is on account of shares held for less than 3 months, and balance Rs. 18 lakhs is from scrips held for more than 3 months. 7. As per Circular No.4 of 2007 dated 15-06-2007, para 10, assessee can hold shares on account of investment as well as stock- in-trade. In instant case, AO is therefore not justified in assessing capital gain as business income on ground that firm in which assessee is partner is engaged in business of buying and selling shares. 8. As per Circular No.6 of 2016 dated 29-02-2016 if assessee opts for treating shares as investment then same has to be assessed as capital gain. 9. As per para 8 of Instruction No.1827 dated 31-08-1989, one of parameters to decide issue is under what head shares are reflected in balance sheet. It is submitted that and as evident from page 14 of paper book shares have been reflected under head investment in balance sheet. 10. parameter of dividend is not material factor in current scenario where even IPO are issued at huge premium and face value of shares is Re.1/. Furthermore dividends are declared on face value and shares are acquired from secondary market at market price with intention to earn gain from appreciation in value of shares. In instant case rate of dividend on investment made is 0.3% which is more than rental income on real estate investment which fetches rate of return of 0.25%. 11. assessee relies upon submissions made before CIT(A) and which are at page 1 of paper book. 4. Ld D.R, on contrary, supported order passed by Ld CIT(A). 5. We have heard parties and perused record. We notice that Ld CIT(A) has observed that assessee has borrowed funds from family member and her spouse. Ld A.R pointed out that they are interest free funds, meaning thereby, assessee did not incur any interest expenditure. In written submissions, assessee has also given reasons for receiving 4 Sheetal Ranwala lower amount of dividend income. Ld CIT(A) has observed that assessee has dealt in 196074 number of shares. assessee has pointed out that she has dealt in only 12 scrips, out of which four scrips were bought last year. Thus, it is seen that assessee has purchased and sold higher number of shares in respect of 12 scrips only, meaning thereby, volume cannot be taken to be high. We notice that holding period of shares for major portion of shares is reasonable. We further notice that assessing officer has accepted profit as Capital gains in AY 2009-10 and 2013-14 in scrutiny assessment made u/s 143(3) of Act. It is established principle that person can act both as trader and investor. 6. Hence, on conspectus of matter, we are of view that there is no reason to assess capital gains arising on sale of shares as business income. On cumulative consideration of various factors, we are of view that assessee has acted as investor only in respect of impugned transactions. Accordingly we set aside order passed by Ld CIT(A) on this issue and direct AO to assess gains arising on sale of shares under head Capital gains only. 7. next issue relates to disallowance made u/s 14A of Act. assessee did not incur any expenses and accordingly contended that no disallowance u/s 14A is called for. However, tax authorities have taken view that computation of disallowance under Rule 8D is made on deemed basis and hence disallowance is required to be computed u/s 14A read with Rule 8D of IT Rules. 8. We heard parties on this issue and perused record. perusal of statements of total income of assessee would show that assessee did not claim any expenditure against any income. question of apportionment of expenses between taxable income and exempt income would arise only if any expenditure is claimed by assessee. Hence we are unable to agree with view taken by Ld CIT(A) that provisions of Rule 8D 5 Sheetal Ranwala provide for deemed disallowance . It is well established proposition now that assessing officer can resort to compute disallowance under Rule 8D only if he is not satisfied with computation made by assessee having regard to accounts of assessee. Since assessee has not claimed any expenditure, in our view, there is merit in contentions of assessee that no disallowance u/s 14A is called for. Accordingly we set aside order passed by Ld CIT(A) on this issue and direct AO to delete this disallowance. 9. In result, appeal filed by assessee is allowed. Order has been pronounced in Court on 20.10.2016 Sd/- Sd/- (RAMLAL NEGI) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated : 20/10/2016 Copy of Order forwarded to : 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard File. BY ORDER, //True Copy// (Dy./Asstt. Registrar) PS ITAT, Mumbai Sheetal Ranwala v. ACIT-19(1), Mumbai