TaxTMI 
TaxTMI 
2015 (5) TMI 355
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.... fact that the assessee during the course of assessment proceedings vide his letter dated 4.12.2009 has stated that the Management fees of Rs. 41,88,451/- paid for managing Portfolio Management Scheme (PMS) has been wrongly claimed and offered the Portfolio Management Fees (PMS) for taxation meaning thereby that the assessee has himself impliedly admitted that his income from the sale and purchase of shares/mutual funds is business income though in the return of income the same has been shown income from Short Term Capital Gains. 4. On the facts and circumstances of the case, the Id. CIT(A) has erred in law as well as in facts in holding that the loss of Rs. 8,26,229/- on trading of derivatives is to be considered as business loss only and allowed to be set off against other income as per provisions of the Act. 5. The order of Ld. CIT()A is perverse in law land on facts. 6. The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal." 3. The facts in brief are that the assessee filed Return declaring an income of Rs. 2,32,72,210/- for the assessment year 2007-08. The return was processed u/s....
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....n shares held for trading and shares held as investments and have clarified that total effect of all the principles should be considered in determining whether in a given case the shares are held by assessee as investment or stock in trade. In the case of CIT Vs. Associated Industrial Development Co. (P) Ltd., 82 ITR 586, the Hon'ble Supreme Court had observed that whether a particular holding of shares is by way of investment or forms part of the stock-in-trade is a matter which is within the knowledge of the assessee who holds the shares and it should, in normal circumstances, be in a position to produce evidence from its records as to whether it has maintained any distinction between those shares which are its stock-in-trade and those which are held by way of investment. Ld. Counsel of the assessee has submitted that the assessee is a partnership firm through which the partners have invested their funds in various shares, securities, mutual fund schemes. During the year, the assessee firm invested its own fund (not borrowed fund) in various mutual funds, shares, securities & other investments and earned a net capital gain of Rs. 1,76,03,580.95. The assessee firm also earned an a....
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....assessee has made huge volume of independent purchases and sale of shares and mutual funds and the assessee has also claimed expenses on account of interest and administrative expenses which are not allowable in case of capital gain. The assessing officer is also of the opinion that there is no long term capital gain in any of the cases which indicate that the assessee is not an investor but a trader. A perusal of the balance-sheet of the assessee firm reflects that it has a 'capital base of more than Rs. 52 Crore out of which it has made investment of about Rs. 34 Crore and that in the Balance Sheet and the books of account maintained by the assessee firm, the transactions are being accounted for as investment. The assessee has also earned huge dividend income of Rs. 42,77,597/- during the year under consideration. 9. The ld CIT(A) has rightly observed that from the Balance Sheet and the activities carried out by the assessee, it cannot be said that the assessee is doing business and there is no other adverse feature to come to the conclusion that the assessee is not an investor but a trader. The Board circular referred is very clear whereby certain parameters have been fix....
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....n of partnership as defined in the Indian Partnership Act, 1932, to decide the head of income under which to assess the income. There is a flaw in the Assessing Officer's observation that there is no long term capital gain but only short term capital gains without appreciating that this was the first year of investment made by the assessee firm so there could be no question of having made any income from long term capital gains because minimum qualification to treat an income as capital gain is that it should be held by the assessee for more than an year. Further, the assessee when it sees the value of Investments going down in shares or mutual funds would normally get out/sell/switch to other options. Similar is the case where he finds that investment in other portfolios would yield better dividends or returns. Therefore, no adverse inference ought to have been drawn from the mere fact that there were no long term capital gains accrued to the assessee. Another reason held against the assessee by the assessing officer is that the assessee has claimed expenses of Rs. 20,97,294/- which include interest expenses of Rs. 2,70,077/- and, administrative expenses of Rs. 10,00,988/-. Expend....
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.... short term capital gains/loss, dividend and other income has been shown. The closing value of shares and mutual funds, shown as investments, has been valued at cost and not at "cost price or market price whichever is lower" as applicable to valuation of stocks. The majority of funds were invested in mutual funds & PMS and not in equity shares . 12. The ld. CIT(A) has taken due note of the Tax Audit Report filed by the assessee firm, in which the auditors have stated in item 8(a) regarding nature of business/profession as "Investment in Shares & Mutual Funds". In item 12(a) regarding the method of valuation of closing stock, the auditors have stated, "Not applicable (Being an Investment Firm}". Further, in Schedule 13 regarding significant accounting policies, the auditors have inter alia stated as under: - Investments are valued at cost. - Investment transactions are accounted for on trade date basis. - Accounting of Investments made through PMS and income earned thereon has been made as per audited statement received from the concerned Assets Management Company. 13. So, according to the ld AR thus, the Tax Audit report also reinforces the intention of the ass....
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....of purchase and sale scrip- wise is very high and the period of holding of a particular lot is minimal. It should be noted that over the course of time equity shares have become a popular mode of investment. There is huge variety to choose from. Due to globalization and various uncertainties of modern times, there is increasing volatility in the share market. This has affected the length of period of holding in the cases of investors also. Having regard to these various issues under the provisions of the Act where shares are held for one year and more, the same qualify to be assessed as long term capital assets. The period of less than one year results into short term capital asset. There is no minimum period prescribed for short term capital gains. In certain circumstances, holding of even one day may result into a short term capital asset. It is submitted that due to large number of companies listed on stock exchange and volatility in the market, even a serious investor has to frequently shuffle his portfolio but it does not signify that the investor is trading. 16. At any rate, where a particular lot of shares is primarily intended for trading, the same would not be held for ....
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....position was that ordinarily equity shares were capital assets in which assessee invested money, and if a particular acquisition of shares was treated as stock-in-trade, the burden of proof was on the AO who asserted it to be stock-in-trade, and in the present case, there was no material brought on record by the Assessing Officer to suggest that assessee's intention at the time of purchase was trading and not investment, hence, the action of the Assessing Officer was not justified in law for this reason also. Further it need to be noted that the assessee has shown the transactions of shares in its books of account under the head 'investment', which as per the above mentioned circular and other case laws, further strengthens the plea of the assessee that it is not shown as no stock in trade in the balance sheet which supports the fact that the same were held by the assessee in the nature of investment. 17. The ld CIT(A) has relied on the various relevant case laws which are found to be well in support of her decision. 18. We find that in the present case, all the transactions are delivery based transactions only. The assessee also earned dividend to the tune of Rs. 42,77,5....
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....atment of that incentive income will not change the nature of the investments. On the contrary, this receipt of incentive itself confirms the fact that this assessee has earned incentive consequent to investments being made, which is normally given to the investor. 25. As regards the portfolio management, it is observed on examination of the facts and records and as explained above, that the assessee has made investments through portfolio management in five cases, and out of these five cases, the assessee has suffered losses in two cases to the extent of Rs. 21,65,551/- and has made gain in three cases of Rs. 36,04,177/- with the result that the net gain on account of portfolio management is only Rs. 14,38,626/- out of the total capital gain of Rs.l,76,03,580/-. The investment in portfolio management is a common feature and cannot be held to be a business. 26. Another reason of the Assessing Officer is that assessee has prepared books of account, Profit and Loss Account and Balance Sheet and has got the same audited. There is nothing wrong in this. The assessee being a legal entity is required to maintain its books of account and get the same audited. This cannot be a ground ....
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....the aforesaid amount of Rs. 41,88,451/- has to be added back on account of Portfolio Management Fees while calculating the income from short term capital gains. We find that the ld CIT(A) has rightly directed that Rs. 41,88,451/- need to be added back while computing the income of the assessee. We do not find any infirmity in the said decision of the ld CIT(A) on the facts and circumstances of the case, which does not need any interference on our part, hence, we uphold the same. Therefore, the issue in dispute raised by the Revenue is rejected. 30. With regard to issue involved in ground no. 4 is concerned regarding holding that the loss of Rs. 8,26,229/- on trading of derivatives is to be considered as business loss only and allowed to be set off against other income as per the provisions of the Act is concerned. During the course of the appellate proceedings, the learned AR has raised another ground that in the return, the loss on trading of derivatives has been wrongly claimed as speculative loss instead of business loss as per section 43(S)(d)of the Act. So it was prayed, therefore, be treated as business loss and set off against other income as per the provisions of the Act....