TaxTMI 
TaxTMI 
2015 (10) TMI 24
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....2014 passed by the ITAT in ITA No.5791/Del/2010 for AY 2006-07. 3. As far ITA No. 947 of 2011 is concerned by an order dated 25th September 2013, the following question of law was framed: "Whether the transaction in question was rightly held by the Tribunal in the nature of investment and not in the nature of trade?" 4. In ITA No.539 of 2014, notice was issued limited to the question concerning the treatment of capital loss as business loss. 5. The brief background to the appeals is that the Assessee is a private limited company engaged in the business of trading and finance. For the AY 2005-06, the Assessee filed its return of income on 31st October 2005 declaring a total income of Rs. 3,75,88,170 which comprised of busin....
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....tive for this undue change in this year (AY 2005-06) appeared to be lowering the tax incidence and taking undue benefit of the exemption from tax on long term capital gains under Section 10(38) of the Act and concessional rate of tax @ 10% on short term capital gains under Section 111A which had been brought into the Act with effect from 1st April 2005. Treating the entire shares held by the Assessee as stock in trade, the AO treated the resultant profit from the sale of shares in the sum of Rs. 10,22,58,060 as business profit in the hands of the Assessee and directed it to be brought to tax as such. 6. During the pendency of the appeal filed by the Assessee before the Commissioner of Income Tax (Appeals) [CIT(A)], in response to the que....
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....ee"s claim, it had never shown them as investment prior to AY 2005-06 as evidenced by the auditor"s report. Importantly, it was pointed out that the Assessee had shown the value of opening stock as on 1st April 2004 at Rs. 16,99,384/-which should have been taken at Rs. 6,88,64,982/-. It had transferred the balance stock of shares from the stock in trade and treated it as investment in the AY 2005-06. This is also evident from the Balance Sheet and P & L account of AYs 04-05 and 05-06. The Audit report of AY 04-05 filed along with the return had shown different figures under the heads "closing stock", "purchase of shares", "profit before taxation" and "balance carried over to Balance sheet" as shown in the P & L account of AY 05-06 under the....
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....rs ending 31st March, 2004 and 31st March, 2005. 11. Today, Mr.Rohit Madan learned Senior Standing counsel for the Revenue, has produced the record of the AO for AY 2005-06 but not the record of the CIT (A). The record of the AO for AY 2005-06 reveals an important fact concerning the regrouping of the investment by the Assessee for the year ending 31st March 2004. It is seen that the audited balance sheet of the Assessee for the year ending 31st March 2005 which was signed by its Directors and by its CA on 5th July 2005 contains two columns giving the figures as on 31st March 2004 and 31st March 2005. It is seen that in this balance sheet the figures given for the "inventory" as on 31st March 2004 have sought to be shown as per 'regr....
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....ncluding the Registrar of Companies (RoC) and the income tax authorities, the figures in such balance sheet for the closing stock of shares can simply be altered subsequently by adopting the device of "regrouping" by the Assessee, even by a Board resolution. That is a process unknown to the law. Even from the point of view of principles governing statutory accounts, such change cannot be simply given effect to in the balance sheet and P&L account for a subsequent year. For instance, such a change, as was sought to be made by the Assessee in the instant case, to the value of the closing stock of shares by treating it as investment instead of stock-in-trade, would affect (and perforce necessitate changes) in the balance sheet and P&L accounts....