Chandra Mohan Garg, Judicial Member
1. This appeal has been preferred by the Revenue against the order of the CIT(A)-IV, New Delhi dated 16.12.2010 for AY 2005-06.
2. The only ground raised by the revenue in this appeal reads as under:-
"1. The ld. Commissioner of Income Tax(A) has erred on facts and in law in directing the Assessing Officer not to treat otherwise the income declared under the head Short Term Capital Gains ignoring the fact that during the year under consideration the assessee was engaged in the business of trading and investment of shares and securities."
3. Brief facts giving rise to this appeal are that the case of assessee was selected for scrutiny and a notice u/s 143(2) of the Income Tax Act, 1961 (for short the Act) was served on the assessee. During the assessment proceedings, the Assessing Officer observed that the assessee had an income from sale of investment and he treated the same as business income instead of income under the head "capital gains". With this observation, the amount of Rs.37,81,329 was treated as short term capital gain by the Assessing Officer. The aggrieved assessee filed an appeal before the Commissioner of Income Tax(A)-IV, Delhi which was allowed by ld. Commissioner of Income Tax(A) with the following observations:-
"10. From the details filed by the Ld. Assessing Officer, it is very clear that in the books of account, the shares in question are shown as investment on non-trading asset. The assessee is also not alleged to have borrowed money to buy the shares. The frequency of purchase and sale is not very frequent and in the remand report, the Ld. AO has himself certified that in none of the cases, they were less than 5 months of holding. It is evident that the shares had been purchased for realizing profit on appreciation of their value. The assessee has adduced enough evidence to suggest that the holdings were for short term capital gains. The Circular No. 4 of 2007 would not be applicable to the facts of the case. I am convinced that the income arising from the sale of shares would be assessed as Short Term Capital Gains and not business Income.
11. Further, the jurisdictional High Court has decided on the issue in CIT v Rohit Anand (2010) 46 DTR (Del) 236. Here the Hon'ble Court has upheld the decision of the Tribunal in ITO v Rohit Anand (2010) 34 DTR (DTR)(Trib) 89. The assessee was in the business of jewellery. It also invested in shares and showed the same as investment in the books. It was observed that investment was not rotated frequently and the total number of transactions were quite few. All the shares purchased were not sold and held for quite a number of days. It was held that transactions were to be treated as giving rise to capital gains and could not be branded as trading in shares. The case in hand stands on an equal footing and, therefore, has to be treated as income out of capital gains and not trading."
4. Ld. DR submitted that the Commissioner of Income Tax(A) has erred in law and facts in directing the Assessing Officer to not to treat otherwise the income declared under the head 'short term capital gains'. Ld. DR further submitted that the Commissioner of Income Tax(A) ignored the fact that during the year under consideration, the assessee was engaged in the business of trading of shares and securities. The DR also submitted that although the assessee has a right to keep two portfolios served for investment and second for trading in shares and securities but in the present case, the assessee was regularly buying and selling the shares and securities and this act of the assessee was intended to do the business of shares and securities. The DR vehemently contended that the intention of the assessee was not to invest money in shares and securities but to do the trading of securities and shares. Therefore, the Assessing Officer rightly held the income from sale of shares as business income. The DR concluded his submissions with a request that the order of ld. Commissioner of Income Tax(A) deserves to be set aside and that of the Assessing Officer be restored.
5. Replying to the above submissions, the assessee's representative submitted that the Commissioner of Income Tax(A) considered the duration of the holding of shares by the assessee and rightly observed that the intention of the assessee was investment only and income thereon would be considered as short term capital gain. The AR supported the order of the first appellate authority.
6. After careful consideration of above submissions and perusal of the record placed before us, we observe that it is a settled position that the assessee is entitled to keep two portfolios simultaneously, one for trading in shares and second for investment.
7. From the impugned order, we observe that the ld. Commissioner of Income Tax(A) has considered the duration of holding of shares by the assessee considering the time taken for purchase and sale of the shares. From the audited balance sheet of the assessee available from page no. 71 to 80, it is revealed that the assessee has made investment of Rs.37,57,962 at the end of relevant financial year. As per period of holding, considered by ld. Commissioner of Income Tax(A) in para 7 of his order, we observe that the assessee had held shares minimum from 5 months to 9 months. This period of holding suggests that the intention of the assessee was not to do the business of shares but for short term investment purpose and income from sale of these short term investments cannot be considered as business income.
8. In view of this factual matrix, we observe that the findings of the Assessing Officer are not sustainable and ld. Commissioner of Income Tax(A) rightly held that the income from sale of investment should be treated as giving rise to capital gains and should not be treated as business income. Accordingly, we finally observe and hold that there is no reason for us to interfere with the order of the Commissioner of Income Tax(A) and this appeal of the revenue is devoid of merits and deserves to be dismissed.
C.O. No. 357/Del/2011
9. The assessee has raised the following grounds in Cross Objection:-
"1. That on the facts and in the circumstances of the case, the ld. CIT(A)-IV, New Delhi has erred in confirming the disallowance of Rs.23,087/- u/s 14A of the I.T. Act, 1961 on estimated basis without identifying any expenditure incurred for earning tax free/exempted income.
2. That on the facts and in the circumstances of the case, the ld. CIT(A) has erred in confirming the addition of Rs.38,637/-."
C.O. No.1
10. The assessee's representative submitted that ld. Commissioner of Income Tax(A)-IV, New Delhi confirmed the disallowance of Rs.23,087/- u/s 14A of the Act on estimated basis. The AR further submitted that this confirmation has been done without identifying any expenditure incurred by the assessee for earning tax free or exempted income.
11. Ld. DR submitted that the disallowance on this count was originally made by the Assessing Officer amounting to Rs.50,000 on estimated basis with an observation that the assessee has shown dividend income of Rs.67,737 as exempted income and expenses related to this income needs to be disallowed as per section 14A of the Act. The DR submitted that although the addition u/s 14A of the Act amounting to Rs.50,000 was made by the Assessing Officer but in the appellate proceedings it was reduced to Rs.23,087/- by Commissioner of Income Tax(A) considering the arguments of the assessee.
12. After careful consideration of rival submission on this issue placed before us by both the parties, we observe that the Commissioner of Income Tax(A) has considered various decisions of the High Court and Delhi ITAT held that the onus on correction estimation of the expenditure related to the exempted income is on the revenue. After considering the judgment of Hon'ble Bombay High Court referred in the case of Godrej and Boyce Mfg. Co. Ltd. vs DCIT (2010) 328 ITR 81 (Bom), the Commissioner of Income Tax(A) made a reasonable estimate and held that it would be appropriate that 5% of the total expenditure was to be disallowed. In view of above, we are of the opinion that the assessee has earned tax free income and disallowance u/s 14A of the Act of Rs.23,087/- on estimated basis cannot be held as unjustified. Accordingly, we observe that there is no reason before us to interfere with the impugned order. Therefore Cross Objection no. 1 is dismissed.
Cross Objection No.2
13. The Assessing Officer noted that as per computation of income of the assessee, the assessee has earned interest on fixed deposits amounting to Rs.66,437 and the assessee has paid tax on other income shown as Rs.27,800 only instead of Rs.66,437. Hence, the Assessing Officer made an addition of Rs.38,637/- in this regard.
14. In the impugned order, the ld. Commissioner of Income Tax(A) confirmed this addition with a finding that the assessee has earned income on fixed deposits following the judgment of Hon'ble Jurisdictional High Court of Delhi in the case of Commissioner of Income Tax vs Shri Ram Honda Power Equipment Ltd. 289 ITR 475 (Del) wherein it was held that the interest income earned on fixed deposit has to be necessarily treated as income from other sources.
15. In view of above, addition made by the Assessing Officer and its confirmation by the Commissioner of Income Tax(A) is justified and we have no reason to interfere with the same. Accordingly, C.O. No. 2 is also dismissed.
16. In the result, appeal of the revenue and Cross Objection by the assessee are dismissed.