2016 (2) TMI 596 - AT - Income Tax

Tribunal rules in favor of appellant, treating share sale as capital, allows advertisement expenses.

DCIT, Circle-11 (1), New Delhi Versus M/s Indiabulls Securities Ltd

The Tribunal upheld the Ld. CIT(A)'s decision in the case, ruling in favor of the appellant. The appellant's sale of shares was treated as capital in ... Sale of shares - normal business income OR short term capital gain - Held that:- As in terms of the Circular no. 1/2007 of CBDT also, neither the frequency of trading in shares nor the volume indicate that the appellant had been engaged in regular and significant trading in shares for itself. An investor may have two portfolios, one for trading purpose and another for investment. Evidently, the appellant had not made transactions except the single transaction of sale and purchase of shares which were allotted to it on all application at the time of IPO. Therefore, keeping in view the above facts, the aforesaid transaction is held to be investment in nature, which has been rightly shown as capital in nature. This ground is accordingly, allowed in favour of the appellant. - Decided in favour of assessee Disallowance of advertisement expenditure - Held that:- the appellant had made a full page advertisement, on 24 March 2008 in the 'Business Standards' newspaper, which was clearly in the name of appellant company only and therefore the suspicion of the appellant that it may have been for the purpose of the entire group and not for the appellant company only, was based on incorrect facts. The appellant company therefore, meets all the requirements under section 37(1) of the Act in making claim of the advertisement expenses, which were for the purpose of business promotion of the appellant company - Decided in favour of assessee Issues:1. Addition of sale of shares as normal business income instead of short term capital gain.2. Addition of advertisement expenses.Issue 1: Addition of Sale of SharesThe appellant, a stock broker, had applied for shares through an IPO and held them for over a month before selling them. The appellant had not engaged in regular trading of shares for itself in the past. The solitary transaction did not indicate a regular business activity. Referring to CBDT Circular No.1/2007 and the ruling in the case of M/s Fidelity Group, the Ld. CIT(A) held the transaction to be of investment nature and rightly treated it as capital in nature. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal on this issue.Issue 2: Addition of Advertisement ExpensesThe Assessing Officer disallowed advertisement expenses, suspecting they may have benefited the entire group and not just the appellant company. However, the Ld. CIT(A) found that the full-page advertisement in a newspaper was solely in the name of the appellant company, meeting the requirements under section 37(1) of the Act for business promotion. Consequently, the CIT(A) allowed the appellant's claim for the advertisement expenses. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal on this issue.In conclusion, the Tribunal upheld the Ld. CIT(A)'s orders, partly allowing the appeal of the assessee by deleting the additions in dispute. The Revenue's appeal was dismissed, affirming the decisions on both issues.