TaxTMI 
TaxTMI 
2012 (4) TMI 660
X X X X Extracts X X X X
X X X X Extracts X X X X
....ther erred in confirming the order passed u/s 143(3) of the Income Tax Act, 1961 by the ACIT, Cir.1, Jammu treating long term capital gains of Rs. 17,03,733/- as income from Business and levying the tax @ 30% instead of Nil%. (b) The CIT(A) has further erred in ignoring the facts and legal position which has been submitted by the assessee company/ AR of the assessee company in that regard. 3. On the fact and in the circumstances of the case and in law the CIT(A) erred in confirming the addition of Rs. 2,27,736/- paid towards Securities Transaction Tax though the assessee/AR of the assessee has submitted facts and legal position in this regard. 4. On the fact and in the circumstances of the case and in law the CIT(A) erred in confirming the disallowance of Rs. 18,558/- being proportionate expenditure on earning exempt income i.e. dividend income on ad-hoc basis u/s 14A of the Act. 5. On the fact and in the circumstances of the case and in law the CIT(A) erred in disallowing and adding Rs. 1,470/- stating to be penalties which were incidental to trade/business and in nature of fines for delay/non-compliance of contractual obligation and these are n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of shares with the motive of earning a profit, would result in the transaction being in the nature of trade/adventure in the nature of trade; but where the objection of the investment in shares of a company is to derive income by way of dividend etc. then the profits accruing by dealing in such investment (by sale of shares) will yield capital gain and not revenue receipt." 3.2 From the above said principles, the AO vide para 3.2 observed that the department has to verify as to how the shares were valued in the books of account i.e. as stock-in-trade or as investment in capital assets as at the end of the year. The AO observed that shares have been valued as stock-in-trade valued on FIFO basis. The assessee could not substantiate that the shares held by the assessee are as investment. As regards second principle, there are substantial transactions and regulation 18 of the SEBI Regulations enjoins upon every assessee to keep and maintain books of account which establishes that the assessee-company is trading in shares. As regards the third principle, the motive of the assessee is that of realizing profit. Therefore, the AO observed that on the basis of evidence on record and th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lared by the assessee in the balance sheet as at the end of each year starting from 31st March, 2001 till the ending of 31st March, 2006 has been valued at cost or market price whichever is less. Since the assessee was investor and it is the only method where the said value have to be declared at cost only. The assessee had not made any borrowings for the purchase of such investment in any of the year starting from assessment year 2001-02 till the impugned year and every investment has been made and retained out of own funds and not on the loan basis since the assesse did not have any intention of earning the profit by doing any business of whatsoever kind. Moreover, the assessee is not registered with SEBI or any other authority as trader. The assessee kept the records of each purchase and sale in the books of account and for extra and abundant caution got the accounts audited from the Auditors who submitted the report in Form-3CD. The assessee-company was also required to get the accounts audited, which has been done by the assessee. The assessee does not have any office establishment as the traders do for running the business. The transaction has always been delivery based and f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ken the action against the assessee treating the investment as business asset only for the assessment year for and from 2004-05 till the impugned year, as mentioned hereinabove. The department has changed its stand but the assesse has not done so. The assessee has not taken any benefit of the said amendment. Whether the said transactions are adventure in the nature of trade or as an investment has been approved by the Hon'ble Supreme Court and other courts of law and by the Board Circular No.4 of 2007 dated 15th June, 2007, available at pages 624 & 625 of the paper book, which for the sake of clarity is reproduced as under: "Circular No.4 of 2007, dt. 15th June, 2007 Distinction between shares held as stock-in-trade and shares held as investment - tests for such a distinction. The Income Tax Act, 1961 makes a distinction between a capital asset and a trading asset. 2. Capital asset is defined in Section 2(14) of the Act. Long-term capital assets and gains are dealt with under section 2(29A) and section 2(29B). Short-term capital assets and gains are dealt with under section 2(42A) and Section 2(42B). 3. Trading asset is dealt with under ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rofit, would result in the nature of trade/adventure in the nature of trade; but where the object of the investment in shares of a company is to derive income by way of dividend etc. then the profits accruing by change in such investment (by sale of shares) will yield capital gain and not revenue receipt. 9. Dealing with the above three principles, the AAR has observed in the case of Fidelity group as under:- We shall revert to the aforementioned principles. The first principle requires us to ascertain whether the purchase of shares by a FII in exercise of the power in the memorandum of association/trust deed was as stock in trade as the mere existence of the power to purchase and sell shares will not by itself be decisive of the nature of transaction. We have to verify as to how the shares were valued/held in the books of account i.e. whether they were valued as stock in trade at the end of the financial year for the purpose of arriving at business income or held as investment in capital assets. The second principle furnishes a guide for determining the nature of transaction by verifying whether there are substantial transactions, their magnitude etc; maintenance....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 15.11.2010 reported in 334 ITR (Statute) 308 vide S.L.P. (Civil) No.32891 of 2010. Similarly, on the similar issue in the case of Jindal Photo Investment Ltd. the Hon'ble Supreme Court dismissed the department's SLP on 13.09.2010 reported in 334 ITR (St.) 307. iii) CIT vs. Rohit Anand 327 ITR 445 (Delhi) The said decision of Rohit Anand has been reported in 34 SOT 42 available at PB 646 to 649. iv) CIT vs. PNB Finanace & Industries Ltd. 236 CTR 1 available at PB 650 to 655. v) Vinod M. Shah vs. Addl. CIT : 2010 38 SOT 503, available at pages 656 to 659. vi) CIT vs. Girish Mohan Ganeriwala, 260 ITR 417 (P&H) available at pages 714 - 715. 5.4. In the facts and circumstances of the case and relying upon the decisions of various courts of law, Mr. Ajay Vohra, prayed to accept the claim of the assessee that the investment in shares have been held as investment and not as stock-in-trade. The same should be assessed as capital gains and not as business income. 6. The Ld. DR, Sh. Tarsem Lal, on the other hand, argued that Mr. Ajay Vohra appearing for the assessee has elaborated only one judgment basically i.e. the judgment in the case of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of income which shows the intention of the assessee to trade. The assessee had charged the audit fees of Rs. 20,000/- which shows intention of the assessee is to earn profit. Primarily the Ld. DR argued that on circumstantial evidence, there is no dispute on facts and he concurred with the views of Mr.Ajay Vohra, the ld. counsel appearing for the assessee. The FIFO method of valuation of the assessee shows the intention of the assessee is to trade. Mr. Tarsem Lal invited our attention to the purchases and sales of the shares where the assessee had purchased lumpsum shares and shown shares in investment when the same found profitable. The assessee is selling the shares every day. Therefore in all preponderance and probabilities, the case is in favour of the Revenue that the assessee is doing the business as a trader. The system of accounting is mercantile. Mr. Tarsem Lal, the Ld. DR invited our attention to few instances at PB 10-39 where the assessee has purchased shares and sold the same at many occasions. There is no consistency shown by the assessee for holding the shares as investment. Rather the investor purchased the shares and forgets the same. The assessee in the present c....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... In this regard, Mr. Ajay Vohra, argued that the prudent investor will definitely encash capital appreciation and accordingly invited our attention at PB-4 which was brought to the knowledge of the Bench in the opening arguments that only 7.52% of the shares have been held for a period of 0 to 30 days. As regards the maintenance of accounts on mercantile basis, the same principle applies to the income under the head 'Capital Gains', 8. We have heard the rival contentions and perused the facts of the case. There is no dispute to the fact that the assessee had declared investment in shares as at the end of the impugned year. As regards the argument of the Ld. DR, Mr. Tarsem Lal that Rule of consistency has not been raised in the grounds of appeal by the assessee and Mr. Ajay Vohra, the Ld. counsel for the assessee had raised the ground with reference to rule of consistency only. We are of the view that the assessee had made a claim before both the authorities below in this regard that the assessee has been declaring the purchases/holding of shares as investment for the past several years and surplus has been claimed as capital gains. These facts are evident from the reply of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essee had retained the shares for appreciation in value and not with the intention of commercial motive. The shares have been valued at cost. The assessee had been earning the dividend income has not been rebutted by the Ld. DR. The assessee has not been maintaining any office establishment. The assessee is not registered with any Authority or Body such as SEBI etc. The entire portfolio is not valued at cost or market price whichever is lower because that can only be applied if the shares were sold as stock-in-trade but at cost price, as is done in the case of investment. The entire investment has been made out of owned funds and not out of borrowed funds is not under dispute. As regards the magnitude of transaction, the total short-term capital gains earned by the assessee is Rs. 1,80,75,100/- and out of the same Rs. 1,54,56,896/- is earned from 30 scripts only. In our view, at the time of sale, the colour of transaction cannot be changed. The AO and so the Ld. DR has not doubted the other facts disclosed by the assessee. As regards security transaction tax, the same is payable on every transaction whether it be trader or investor. As regards the service tax, the assessee is not a....