1.  Asstt. CIT Vs. Iqbal M Chagala, I.T.A. No. 77/Mum/2013, Date of Order: 30/07/2014, ITAT - Mumbai

For disallowing expenses U/s 14A, AO has to establish nexus between expenses and exempt income.

Held Yes

Assessee filed return for A.Y. 2009-10. During the course of Assessment AO find that assessee has exempt income and the audit report do not show disallowance of any expenses on exempt income, therefore he made  disallowance of 0.5% of average investment U/s 14(A) of IT Act. Assessee submitted that investment transactions are managed by the investment advisors and all the expenses related with investment had been debited to capital account of assessee.

Hon’ble ITAT held that if AO is not satisfied with the claim of the assessee, he should determined the amount of expenditure incurred in relation to exempt income and give the basis of such calculation. Provisions of rule 8D cannot be applied in the case since assessee did not claim any expenditure in relation to exempt income. Hence appeal of revenue is dismissed.

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2.  CIT Vs.  CNB FINWIZ LTD, I.T.A. No. 1241/2011, Date of Order: 06/08/2014, Delhi High Court

Nature of shares cannot be treated as stock-in-trade instead of investment merely for non-receipt of dividend.

Held Yes

Assessee a share broker engaged in business of sale and purchase of shares. He declared short-term capital gain on sale of shares. AO object the assessee’s claim and held that profit from sale and purchase of shares should be treated as “income from business” as the assessee is a share broker, AO also highlight that the period of holding is between 15 days to about 5 months and no dividend is  receive on shares, which were sold.

Assessee submitted that they are maintaining dual portfolio of investment (capital asset) and stock-in-trade (trading asset). The gains from investment are shown as “short-term capital gains”, whereas the profits earned from sale of shares are shown and treated as “business income”. However Hon’ble high court held that the assessee has maintained investment portfolio as well as trading portfolio. Merely because the dividend has not been received from shares held as investments, the nature of such shares cannot be treated as stock-in-trade. The appeal is dismissed.

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