TaxTMI 
TaxTMI 
2012 (4) TMI 660
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.... 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 not in the nature of penalty for violation of any law. 6. The appellant reserves ....
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....ture 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 the frequency with which the shares have been purchased and sold and held by the assessee are in the form of stock-in-trade and not ....
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....06 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 for every transaction i.e. for purchases, the same transaction has been settled by taking the delivery and making payment and vice-vers....
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.... 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 section 28 of the Act. 4. The Central Board of Direct Taxes (CBDT) through Instruction No.1827 dated August 31, 1989 had brought to the notice of the assessing officers that there is a distinction between shares held as inve....
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.... 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 of books of account and finding the ratio between purchases and sales. It will not be out of place to mention that regulation 18 of the SEVI Regulations enjoins upon every FII to keep and maintain books of account containing true and fair accounts relating to remittance of initial corpus of ....
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....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 Amit Jain vs. ACIT, ITA No.309/Del/2010 dated 30/06/2011 (supra) and all other judgments were based on the said judgment of Amit Jain Vs. ACIT (supra). He argued that this is a issue which has to be decided by the Bench in the given circumstances and facts of the present case. Evidences brought on record by the assessee has to be taken into consideration, how th....
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....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 case does not forget but sells the shares every day. As regards the decision in the case of Amit Jain Vs. ACIT (supra), Mr. Tarsem Lal, the Ld. DR argued that the said decision rather goes in favour of the Revenue and against the assessee. The assessee is maintaining the books of account. Also the Securities Transactions Tax come into play that there is trading s....
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....he 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 assessee dated 21.11.2008 available at page 4 of AO's order which has been dealt by the AO in detail thereafter in his order. The Ld. CIT(A) has also mentioned about the claim of the assessee with reference to purchases/holding of shares being shown as investment in past, valuation being done at cost and the assessee has never treated such holdings in the past as st....
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.... 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 broker. The assessee has purchased shares which are delivery based and made the payment and vice versa is not under dispute. Whereas the trader normally makes the purchase and sale during the day without taking delivery and settling the transactions ultimately as at the end of the day without delivery, which is not the case of the assessee. The assessee has been de....