AI Drafter 
TaxTMI 
TaxTMI 
2015 (12) TMI 1525
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....irected against the order of the ld. Commissioner of Income Tax (Appeals)-VIII, Kolkata dated 04.06.2008. 3. At the outset, it is noted that there is a delay of eight days on the part of the Revenue in filing this appeal before the Tribunal. In this regard, an application has been filed by the Department seeking condonation of the said delay and keeping in view the reasons given therein as well as the fact that the ld. Counsel for the assessee has not raised any objection in this regard, we condone the said delay and proceed to dispose of this appeal of the Revenue on merit. 4. In Ground No 1 raised in this appeal, the Revenue has challenged the action of the ld. CIT(Appeals) in accepting the treatment given by the assessee to the profit from sale of certain shares as business income instead of short-term capital gain as held by the Assessing Officer. 5. The material facts of the case relevant to the issue involved in Ground No. 1 of the Revenue's appeal are as follows. The assessee is a Company, which is engaged in the business of dealing in shares and securities and rendering financial consultancy services. The return of income for the year under consideration was....
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.... in the opening stock as on 1/4/2004. The most of the scrips of shares have been purchased and sold during the year itself. 6(d). The cost of shares purchased is Rs. 15.92 crore and the sale consideration of the shares sold is Rs. 19.60 crores. 6(e). The shares on which the assessee has claimed Short Term Capital Gain, dividend received is of Rs. 2.69 lakhs only, as against the gain (difference of sale & purchase) of more than Rs. 3.76 crore. No person will carry out a turnover of more than Rs. 19 crore to get dividend of Rs. 2.69 lakhs. The dividend received on shares is only incidental, as the assessee happened to hold these shares on record date. Therefore, the motive in sale and purchase of shares and units is not earning of dividend, but to earn business profit. 6(f). The conduct of the assessee company, as discussed above, shows that the shares/units were purchased with an intention to sale them at a profit. Therefore, the treatment given by the assessee to these shares/units in the books of account is not material. The Hon'ble Supreme Court in the cases of Kedarnath Jute Manufacturing Co. Ltd. vs. CIT [1971] 82 ITR 363 (SC) and Sutlej Cotton Mills Ltd. vs. CI....
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....n having two separate Demat accounts for two different purposes is very artificial. Looking into the background of the managing director, the activities of assessee's sister concern viz. M/s. C. D. Equisearch Pvt. Ltd., the large number of shares in which the assessee has dealt in, the turnover of the transactions, the research used in purchasing and selling shares, the frequency of transactions, the short duration for which the shares are held, all these factors throw light that the assessee is into an organized business activity and all the above facts cumulatively out weigh the solitary fact of having two Demat accounts. Thus the submission of the assessee that shares from trading demat account are never transferred to the shares in investment demat account is not correct. 11(c). It is further important to note here that the assessee is utilizing borrowed funds for its investment activities. As mentioned previously the outstanding loan as on 31/3/2005 is Rs. 24,82,02,119/-. The assessee has paid interest of Rs. 2,06,24,510/- on this loan. The payments for trading purchase as well as investment purchase are made from the same account on which the assessee has pai....
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....ns as business income. The ld. CIT(Appeals) considered and discussed the submissions made by the assessee in respect of each and every point in detail in his impugned order as under:- "22. I have considered the findings of the A.D. in the impugned order & submissions made by the A/Rs. I have given my utmost consideration to the various judicial decisions on which the A.O. and the appellant placed reliance and have considered applicable provisions of law. In these grounds the material question involved is whether the profit of Rs. 3,67,36,507/- earned on transfer of shares held for period less than 12 months; is assessable as "business income" or as "short term capital gains. On perusal of the assessment order, other documents and evidences submitted before me, I find that in the annual audited Profit & Loss A/c for the year ended 31st March 2005 the assessee disclosed profit on sale of investment at Rs. 31,42,18,561/-. The appellant held shares by way of investment which were disclosed in the Balance Sheet at Rs. 81,95,12,412/- and the investments were stated "at cost". In the profit & Loss A/c the appellant disclosed profit from share trading and dealing activities at Rs. 6,27,....
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....dealing business in the past. Besides, both the companies held shares and securities for Investment purposes as well. In the financial books the distinction was made between shares for trading purposes and for investment purpose. The classification between 2 types of holding was accepted by the A.O.s in the regular assessments in the past assessment. It is only in A.Y. 2005-06 the A.O. disputed the classification of income in so far as it pertained to assessment of the short term capital gain. 24. The Supreme Court in case of CIT Vs. Madan Gopal Radheylal [73 ITR 652] held that there cannot be a presumption that every acquisition by a dealer in a particular commodity is an acquisition for the purpose of his business. In each case the intention is to be gathered from the facts of the case and from the conduct of the assessee acquiring the commodity and his dealings with the same. As per the ratio laid down in this decision of the Supreme Court, there cannot be presumption that where an assessee is a dealer in shares, every acquisition by the said dealer is for trading or business purposes. One should therefore, gather the intention with reference to assessee's conduct and the....
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.... loss in the value of inventory due to fall in the market price. However, loss on account of fall in the market price was never taken in to consideration in relation to Investment. It appeared from the past assessments that the distinction between the share trading business and investment was accepted by the A.Y. In particular in the order u/s 143(3) for the A.Y.2003-04 dated 09.03.2006; in case of CD Equi search Pvt. Ltd the A.D. recorded that the assessee was engaged in the business of stock market operations and was earning income from brokerage besides share trading and investment activity. Accordingly in the regular assessments for A.Y.2003-04 & 2004-05 profit on sale of investments was assessed as capital gains and profit from share trading was assessed as business income. Even in the impugned order the A.D. accepted the valuation of inventory of trading shares based on the principle of "lower of cost or market value". The A.O. did not disturb the accounting position relating to carrying lost of investment and the assessee's method of valuing the investment "at cost" was accepted by the A.O. Under the circumstances, I find that the A.O. himself has not been consiste....
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....ed form. Whenever and wherever the appellant purchased shares for trading purposes delivery of shares was taken in the "Trading demat account" and wherever the deliveries were taken Investment Purposes, deliveries were reflected in the "Investment demat account", From the entries appearing in the respective demat account, the intention of the appellant behind acquiring & holding shares either for trading purpose or for investment purpose became manifestly clear. The conduct of the appellant in taking deliveries in 2 different & distinct demat accounts established assessee's intentions behind acquisition of shares for distinct purposes. On these facts therefore, I find force in the submissions of the A/R that overall conduct of the appellant established the distinction between the 2 types of holding & therefore the A.D. could not dispute or disbelieve it for the reasons set out in the order when the appellant's explanations were not found to be untrue. 29. I further find that the distinction between trading stock & Investment was accepted by the Assessing Officer in relation to long term investment because profit of transfer of shares held for period exceeding 12 months h....
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.... share holding by way of investment the appellant also earned substantial dividend income of Rs. 4.85 Crores. These facts therefore, clearly establish that the investments were held mainly for the purpose of earning dividend and realize capital appreciation. These facts clearly prove that observations made by A.O. in paras 5(b)(iii) & 6(d)(e) of his order rather supported the assessee's case. The conduct of the assessee and the manner in which the assessee dealt with the shares as stock in trade and as investment clearly established the distinction between the two. Even after applying the principles propounded by the A.O. himself I find that clear distinction was always maintained by assessee between the trading & investment activities. Having regard to the all facts of the case therefore, it appeared that the profit of Rs. 3.67 Crores realized from transfer of short term investment was assessable as capital gains and not as business profit. 32. I further find that the A.O's reliance on large number of decisions of the Supreme Court as set out in his assessment order was misplaced. In the present case the A.O. himself admitted the distinction between the shares....
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.... the assessee keeping in view that two separate portfolios for the shares purchased as investment and shares purchased as stock-in-trade were maintained by the assessee. He also found that the case laws relied upon by the Assessing Officer to come to his conclusion were distinguishable on facts and actually some of the case laws so relied upon including especially the decision of the Authority for Advanced Ruling in Fidelity North Star Fund 288 ITR 641 advanced the claim of the assessee. Accordingly, relying on the said judicial pronouncements as well as the CBDT Circular No. 4 of 2007 and having regard to all the facts and circumstances of the case as discussed by him elaborately in his impugned order, the ld. CIT(Appeals) held that the profit of Rs. 3,67,36,507/- was earned by the assessee on the shares and securities purchased and held as investment and the same, therefore, was chargeable to tax in the hands of the assessee as short-term capital gains and not business income. 10. The ld. D.R. strongly relied on the order of the Assessing Officer in support of the Revenue's case on this issue and contended that all the material aspects, which are relevant to decide as to wh....
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....wer to this question depends mainly upon the intention of the assessee to acquire and hold the relevant shares. This intention is to be gathered from the facts and circumstances involved in each case and such facts and circumstances are required to be considered and appreciated in the light of various guidelines laid down in the various judicial pronouncements as well as the relevant CBDT Circulars. In this regard, it is observed that the ld. CIT(Appeals) in his impugned order has considered all the relevant facts and figures of the assessee's case in the light of such guidelines to come to the conclusions that the relevant shares were acquired and held by the assessee as investment and therefore, the profit arising from sale of such shares was chargeable to tax as short-term capital gain and not as business income. 13. We have already extracted the relevant findings/observations recorded by the ld. CIT(Appeals) in this regard in the foregoing portion of this order and a perusal of the same clearly shows that two separate portfolios were maintained by the assessee in respect of shares purchased and held as stock-in-trade and investment not only in the year under consideration bu....
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.... sale of shares held in investment portfolio for a period of more than one year was offered by the assessee to tax as long-term capital gain and the same was accepted by the Assessing Officer. He, however, gave different treatment to the shares held in the same portfolio for a period of less than one year, which, as rightly contented by the ld. Counsel for the assessee is self contradictory and inconsistent. Even the findings given by the Assessing Officer regarding low income from dividend and utilization of borrowed funds by the assessee for the purchase of relevant shares are found to be factually wrong by the ld. CIT(Appeals) on verification of relevant facts and figures and the ld. D.R. at the time of hearing before us has not been able to bring anything on record to controvert or rebut the same. 15. If all the findings recorded by the ld. CIT(Appeals) in his impugned order as discussed above, which have remained un-rebutted or uncontroverted by the ld. D.R., are considered in the light of the relevant CBDT Circular No. 4 of 2007 as well as the judicial pronouncements cited on behalf of the assessee and relied upon by the ld. CIT(Appeals) in his impugned order, we fi....
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..... I have considered the submissions of the A/R and perused the order of the A.O. on the subject. According to the A/Rs the borrowed capital was partly used for making investments from which the appellant earned dividend income which was fully exempt and capital gains income which was partly taxable. In the impugned order the A.O. has reproduced the appellant's working of interest allocation amongst different income segments. I find that A.O. per se did not dispute or disbelieve the appellant's working of interest allocation. It is however found that the A.O. made disallowance purely on estimate by allocating gross expenses in the ratio of tax exempt income to gross income. In my opinion the estimate of the amount disallowable u/s 14A as made by the A.O. is not legally and factually correct. The A.O. considered the "net profit margins" in various transactions to arrive at base figure of Rs. 42,87,15,758/-. I however, find that quantum of many of expenses such as transactions charge, depository charges, interest paid on borrowed capital depend on the "turnover" and not on the "net profit margins" earned by the assessee. According to methodology adopted by the A.O. he apportio....
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....he rival submissions on this issue and also perused the relevant material available on record. As rightly submitted by the ld. Counsel for the assessee, Rule 8D is applicable only from assessment year 2008-09 and the same being not applicable to the year under consideration, i.e. A.Y. 2005-06, the disallowance made by the Assessing Officer under section 14A by applying the said Rule was not sustainable. As further submitted by him, the disallowance under section 14A for the assessment years upto 2007-08 is required to be worked out on reasonable basis and the disallowance so worked out by the ld. CIT(Appeals) being fair and reasonable in the facts and circumstances of the case, the same deserves to be confirmed. The ld. D.R., on the other hand, has not been able to raise any material contention to show that the disallowance as worked out by the ld. CIT(Appeals) under section 14A is not reasonable. We, therefore, find no justifiable reason to interfere with the order of the ld. CIT(Appeals) on this issue and upholding the same, we dismiss the Ground No. 2 of the Revenue's appeal. 20. Now we take up the cross appeals filed for the assessment year 2006-07 being ITA No. 552/KOL/2010....