TaxTMI 
TaxTMI 
2016 (6) TMI 251
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....rm Capital Gain. That the gain was Short Term Capital Gain was not in dispute. The Ld. CIT(Appeals) has erred in traversing beyond the scope of the appeal filed before him in holding that the profit on sale of shares was a 'business profit' and not a Short Term Capital Gain. 3. Without prejudice to the foregoing grounds, the Ld. CIT(Appeals) should have directed the allowance of the interest claimed in computing the Short Term Capital Gain. 4. FOR that the appellant craves leave to alter, amend, modify any of the grounds and/or take additional grounds before or at the time of hearing of this appeal. 3. The Assessee is a company. It is a non-banking finance company mainly engaged in granting and taking of loans. The assessee filed return of income for A.Y.2005-06 on 31.10.2005 declaring a total income of Rs. 95,03,100/-. The assessee declared short term capital gain on sale of shares held as investments of Rs. 95,22,232/- in arriving at the aforesaid short term capital gain. The assessee had reduced from the full value of consideration received on sale of shares interest expenditure of Rs. 7,09,614/-as expenses incurred in connection with transfer of shares. In the o....
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.... The assessee challenged the aforesaid order of the CIT before the Hon 'ble ITA T, Kolkata. The Hon 'ble ITAT, Kolkata vide. its order dated 09-10-2009 dismissed the assessee's appeal. 6. In the order passed u/s 143(3) r.w.s.263 of the Act, the AO held that there was no provision in the Act to allow interest on borrowed capital as deduction while computing capital gain. The AO accordingly re-computed the short term capital gain of the assessee at Rs. 1,16,05,085/- which was originally determined at a sum of Rs. 95,22,232/. The total interest expenditure claimed in the profit and loss account by the assessee was Rs. 35,94,527/-. 7. Aggrieved by the order of AO the assessee preferred appeal before CIT(A). The CIT(A) in exercise of his power of enhancement was of the view that the gain on sale of shares ought to have been assessed by the AO under the head income from business and not under the head short term capital gain. He accordingly called for the required details of purchase and sale of shares from the assessee and concluded as follows :- 7.5 During the appellate proceedings Ld. A.R. of the assessee was asked to provide the details of the shares on which the shor....
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....at the shares have been sold within a short period is wrong and misconceived. Most of the shares are sold after a period of 15 days or more. Only some of the shares were sold within a short period of less than 15 days but that does (lot, mitigate against its character of the shares being held as investments. iii) In the balance sheet the book value of quoted investment was Rs. 4, 15,60, 190/- and their market value was Rs. 5,35,02~693/-. Despite the gain of about Rs.l.2 crore in the investment shares the assessee preferred to hold these shares. iv) The assessee has also received the delivery of the shares purchased as investment. This clearly shows the nature of holdings by the assessee as investor. v) The assessee has been showing investment and capital gain in earlier years also which has been accepted by the Assessing Officer. Simply because some of the shares held as investments were sold within a short period of 15 days, it will not alter the character of the shares as sale of investments. Ld A.R. has cited two High Court decisions and has claimed that under similar circumstances in these decisions Hon ble High Court held that sale of shares was capital gain and no....
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....is issue we have to consider another factor i.e. the source of fund used in purchasing the shares. From the balance sheet of the assessee reproduced above it can be seen that last year as on 31.03.2004 the assessee had capital and reserve and surplus of Rs. 2.72 crore against which the investment in shares was 1.86 crore. This shows that till last year the investment in shares was made out of surplus funds of the assessee. On the other hand at the end of the current year as on 31.03.2005 the capital and reserve and surplus was about 4.15 crore but the investment in shares was Rs. 6.49 crore. It is also seen that from 31.03.2004 to 31.03.2005 the borrowed funds of the assessee increased from Rs. 2.29 crore to Rs. 6.39 crore. Thus during the previous year the borrowed funds of the assessee increased by about Rs. 4.1 cr. and the investment in shares also increased by about Rs. 4.63 cr.(6.49 - 1.86). These figures show that during the previous year under consideration the borrowed funds of the assessee were used to deal in purchase and sale of shares. Generally it can be said that a business man will make investment only when he has surplus funds. When borrowed funds are used by a busi....
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....ound of appeal. b) CIT vs D.N.Dosani 280 ITR 275 (Guj) wherein it was held that in the fresh assessment in pursuance of revisional order u/s 263 of the Act AO cannot exercise powers in relation to other items forming part of assessment record and substitute his opinion in place of the opinion of the CIT. c) ACIT vs M/s. Royal Western India Turf Club Ltd. In ITA NO.1654 & 6333/Mum/2012 dated 22.07.2015. In the aforesaid decision the Hon'ble Mumbai Tribunal held that We have heard the rival submissions and carefully perused the record. When the Revisional Authority calls for the assessment records and proceeds to set aside the assessment the standard language employed, in the revisional orders, is to direct the AO to make de novo assessment; but one should not go by the language employed therein if it comes in conflict with the powers vested in the Commissioner while passing the order under section 263 of the Act, which were considered in detail by the Hon'ble Gujarat High Court (supra). The direction given by the Commissioner has to be understood in the context/ setting in which such direction is given; in the instant case the show cause notice was issued on specific items....
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....missions. We have already extracted the operative part of the CIT's order u/s 263 of the Act. It is no doubt true that in the operative part of the order, the CIT has observed that the assessment is cancelled to be re-framed denovo. But these observations are followed by the following words "for making the required disallowances". It is not in dispute before us that the disallowance that were discussed in the order u/s 263 were whether interest expenditure should be allowed as deduction while computing the short term capital gain and disallowance of expenses u/s 14A of the Act. Thus on a reading of the order u/s 263 of the Act it is clear that the scope of the proceedings before the AO pursuant to the order u/s 263 of the Act was limited. The AO could not have gone into the question as to whether the short term capital gain declared by the assessee was income from business. If that be so, the CIT(A) in exercise of his powers of enhancement could not have gone into an issue on which the AO could not have made any enquiry. We therefore agree with the contentions raised by the assessee in ground no. 1 and 2 raised before us. 12. On the question whether the income in question has to b....