TaxTMI 
TaxTMI 
2014 (9) TMI 519
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....15,28,073/- by selling of shares of M/s. Share Street (P) Ltd. which were unlisted shares. (iii) deleting the disallowance of Rs. 30,16,695/- (Rs.26,92,378 + Rs. 48,401 + Rs. 2,75,916) made by the AO by applying Section 14A read with rule 8D.'' 3.2 The brief facts of the case are that the assessee is an individual who derives the income from trading of shares & securities, future and option and the assessee is also a partner of the firm M/s. Sumangal Gems from where he receives remuneration and share of profit. During the course of assessment proceedings, the AO found that the assessee was doing business in shares as well holding some of the shares as investment for trading in shares, securities and future & option. The assessee maintains the books of account in the name of Shyam Sunder Khandelwal. All the books of account of the assessee were audited. The AO however, held that the assessee was dealing in continuous equities of shares trading, future and option etc. Therefore, the transactions both i.e. business transaction as well as claim to be out of investment account were clubbed together and subjected the treatment under the head business from profit and gains. 3.3 Besides....
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....5 year after year. Since the assessee has distinctly treated these shares as investments, the AO could not treat them as stock in trade.'' 3.5 The ld. CIT(A) after considering the submissions of the assessee deleted the additions on account of both the grounds of the assessee by following observations. 4.4......(i) On perusal of the paper book filed by the A.R. showing computation of total income and the balance sheet, it is seen that the assessee has maintained very detailed balance sheets wherein the investment in scrips through portfolio management scheme (PMS) has been shown as investments. The summary of the PMS investment through K.B. Capital & Market Pvt. Ltd. was also furnished from 1.11.2004 to 31.3.2011 wherein the amount invested in scrips has consistently been shown as investments. The judicial pronouncements in the cases of Mahendra S. Shah vs. Addl. CIT (2011) 140 TTJ (Mumbai) 16 and Hitesh Satish Chandra Doshi vs. Jt. CIT (2011) 140 TTJ (Mumbai) 32 have consistently taken the view that if the assessee has shown purchase of scrips as investments in his balance sheet rather than stock in trade then the department cannot treat the nature of the transactions differentl....
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....ing in shares both for the purposes of investments and also business transactions. Both accounts of transactions are being reflected in his accounts separately. The expenses claimed by the assessee pertain to the transactions in shares shown in his P&L account and interest income earned. Therefore, these cannot be disallowed u/s 14A. In view of the above, the disallowances of Rs. 48,401/- and Rs. 2,75,916/- are directed to be deleted'' 3.7 Aggrieved, the Revenue is before us wherein the ld. DR vehemently argued that the assessee was heavily engaged in the business of purchase and sale of shares, securities, future and options and other derivatives. Therefore, it is a case of clear cut interlacing and intermingling of the funds utilized by the assessee for the shares transaction business and wherever it is suited to the convenience of the assessee, the transactions have been segregated as pertaining to investment account, thereby claiming huge benefit on tax. The AO has clearly observed that there was huge multiplicity, frequency and intermixing of the transactions for which the assessee could not give satisfactory explanation. The relevant excerpts from AO's order is as under:- "....
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.... Singh vs. CIT , 41 ITR 685 (SC) (3) Bharat Development (P) Ltd. vs. CIT (1980( 4 Taxman 58 (Del.) (4) Rajputana Textile (Agencies) Ltd. vs. CIT (1961) 42 ITR 743 (SC) (5) W.L. Knopp vs. CIT 16 ITR 398 (Mad.) It is further submitted that in the assessee case a systematic, regular and periodic activity with numerous and continuous transactions was strongly indicated. Reliance was placed on the decision of the ITAT, Ahemdabad Bench in the case of DCIT vs. Smt. Deepaben Amitbhai Shah (2006, 100 TTJ (Ahd.), wherein it was held that whether or not a person carries on business in a particular commodity can be inferred from the volume, frequency, continuity and regularity of the transactions and the motive involved In this case, it was held that having regard to the large volume, frequency, continuity and regularity of transactions of purchase and sale of shares, it can be inferred that these transactions must have been entered into by the assessee with a profit motive. It is further pleaded that the ld. CIT(A) has not carried out proper verification as to whether shares which were held in business portfolio of the assessee were not transferred to investment portfolio by internal tran....
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....tion) should be treated alternatively as 'Income from other sources' rather than the capital gain. However, it is desirable to mention that the proposed treatment is not being given under provisions of any specific section of the I.T. Act, 1961 but on the basis of settled legal position that if any income, because of its peculiar nature, can't be taxed under any specific head of income, it could be taxed under the head "Income from other sources'. In any case Section 56(vii)( c ) is applicable to the persons who receives any movable property for inadequate consideration which is not the case here. But since the transaction has already been considered as business transaction and the income thereof Rs. 1570305/ - has already been considered as business income, no separate addition is being made on this account.'' 3.9 The ld. CIT(A) has held that business portfolio and investment portfolio of the shares held by the assessee are separate and it should be treated under the head 'business income and capital gains' respectively. The ld. CIT(A) has failed to appreciate the AO's observation in respect of overvaluation of the private company shares and allowed the relief in summary manner.....