TaxTMI 
TaxTMI 
2018 (1) TMI 714
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....y of the assessee proved that he was engaged in the business of purchase and sale of securities in an organized and regular manner and showing income therefrom under a different head is just a strategy to avoid tax. iii. The CIT(A) has not appreciated that the turnover of the assessee was Rs. 72.74 crores and in the light of guidelines provided by CBDT Circular No. 4/2007 dated 15.06.2007, the substantial nature of transactions entered into by the assessee can be classified as business activity only. iv. The CIT(A) has erred in relying on the order of the predecessor in A.Y. 2008-09 without appreciating that the department has not accepted that order and appeal has been filed in ITAT which is still pending." 3. The Revenue has raised the following grounds of appeal for Assessment Year 2011-12:- 1. The Ld. CIT(A) has erred in directing the AO to assess profit of Rs. 7,38,81,893/- from sale of shares under the head Capital Gain instead of Business Income despite the fact that the assessee was engaged in the business of trading in shares and it was the sole activity of the assessee which is also an admitted object of assessee firm as per Partnership Deed.....
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....vities. From the balance sheet and profit and loss account of the firm, It was seen that at the beginning of the year relevant to a Y 2010 - 11 assessee had investment in shares and securities of Rs. 6 3558 3427 and at the close of the year it has investment of Rs. 885609456. During the year the assessee acquired fresh investment of Rs. 8 5871 2486 and realised the investment of Rs. 7 2848 8592/-. On sale of this investment assessee earned gain of Rs. 11 98 02135/- and shown as long term and short term capital gains. In the computation of income filed along with the return of income assessee declared long-term capital gain of Rs. 112262709/- and claimed exemption under section 10 (38 ) paying security transaction tax and also disclosed long term capital loss of Rs. 1 59123/-. It also disclosed short-term capital gain of Rs. 1 271939/- which was chargeable to tax at the rate of 15% and short-term capital gain of Rs. 6 4 to 6610/- taxable at the rate of 30%. The partners contributed many of the stocks and shares as capital contribution in the firm. 7. For assessment year 2010 - 11, Assessee filed return on 28/7/2010 showing income of Rs. 7 863720/- with current year loss of Rs. 1 ....
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....ection 115 JB of the income tax act and therefore the assessee has used the colourable device and avoided the payment of tax to the tune of Rs. 3.40 crores. He further stated that as all the 8 partners are the private limited companies and based on the details of addition and withdrawal of capital by the partners it is proved that these shares were actually held by the partner companies in their names who has made the investment but were shown in the hands of the firm. I making corresponding book entry in their capital account. He further held that though the partnership was reconstituted however, certain earlier partners controlling the partner companies through majority of shareholding. Hence, he stated that partnership firm is been created as a colourable device for evasion of tax. He further held that as the main business object of the assessee firm was that to carry on the business of dealing in shares and security, statement of purchase and sale of shares also shows the activity of the assessee and prove that it is engaged in the business of purchase and sale of securities in an organised and regular manner and showing income therefrom under a different head is just a strateg....
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....see. He submitted a written note wherein he submitted the several decisions. 11. Despite notice, none appeared on behalf of the assessee. Therefore we proceed to decide this appeal on merits of the case, as per information available on the record. 12. We have carefully considered the rival contention and perused the orders of the lower authorities. Identical issue arose in the case of the assessee firm for assessment year 2008 - 09 in ITA No. 1263 del 2011 dated 04/03/2015 wherein the coordinate bench in appeal of the revenue has held as under:- "(i) I.T.A.No. 839/Del/2012: (Assessee's appeal): "1. That the learned CIT(Appeals) has erred in not granting relief in respect of the addition of Rs. 12 lacs made by the Assessing Officer u/s 69C of the Income Tax Act,1961. 1.2 That the learned CIT(Appeals) has erred in not adjudicating upon the issue, though taken note of on pages 12 and 20 of her order in paras 7, 23 and 24. 1.3 That the addition of Rs. 12 lacs made by the Assessing Officer deserves to be deleted. (ii) I.T.A.No. 1263/Del/2012: (Revenue's appeal): (A) Whether in the facts and circumstances of the case, CI....
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.... tax by the corporate partners. 3.7 The assessee was asked to submit as to why its income be not treated as income from business instead of capital gains declared by the assessee. In response to the same the assessee submitted vide his letter dated 10-12-2010 as under: "With reference to the above assessment proceedings and with reference to your query as to why capital gains declared be not treated as business income, we would like to submit that partnership was formed with a view to carry on activity of investment in shares and securities and has been carrying out only these activities. From the copy of the balance sheet already submitted it will kindly be seen that in the balance sheet investment in mutual funds and shares and securities are reflected as investment and value of such investment as on 31-03-2007 was Rs. 42,19,89,570/-. Details of investment in shares and securities are given in Schedule 2 attached to the balance sheet.' From the details long term capital gains claimed to be exempt u/s 10(38) of the Income Tax Act, 1961, it will kindly be seen that the holding period in respect of shares which have been sold and gains in respect of wh....
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.... to disallow expenses relating to earning of tax free income. All the partner companies have huge expenses, whereas in the firm no expense has been claimed to earn the dividend income. This appears to be one of the main motive for creation of this firm on 13-12-20006. 3.12 The firms independent operations are not in conformity with the others arrangements of the firm because such high volumes of transactions have not only been operated but successfully into huge profit. It is difficult to understand as to how the firm is operating without any administrative & personal expenditure like employee, rent, telephone and other daily expenses on account of stationery, payment of stamp duty etc. The firm also does not have any fixed asset. The total expenditure incurred by the assessee in earning the huge amount income of Rs. 5.32 crores is only Rs. 5,01,701/- which comprises of auditors remuneration of Rs. 11,236/-, depository charges Rs. 2,664/-, STT of Rs. 4,85,558/- and bank charges of 2,250/- which is hardly 1 % of the net profit earned. The cash in hand as on 01-04-2007 and 31-03-2008 is nil. 3.13 The assessee firm in its profit & loss a/c for the period ending 31-03....
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....O (1985 ) 154 ITR 148 has observed that tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be a part of tax planning and it is the obligation of every citizen to pay the taxes honestly. In the case of Mc. Dowell & Co. Limited Vs. CIT 154 ITR 148 (SC) and Union of India Vs. Plywood Electronics ( 1990) 184 ITR 308 (SC), Hon'ble Supreme Court has held that when two interpretations are possible, one leading to avoidance or evasion of tax should be avoided and that which prevents such avoidance or evasion should be adopted. In the case of the assessee, the interpretation by the assessee leads to avoidance of tax on facts and on merits it leads to incorrect interpretation of law also. 5. Therefore, it is clear that the nomenclature in the balance sheet. profit & loss a/c and ITR would not alter the colour of transaction and I am satisfied that the assessee has willfully and deliberately avoided payment of taxes on his business income. 6. In view of the above facts and circumstance and after considering the submissions placed on record, I am fully convinced that the entire arrangement is business carried out for the s....
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....ss. 6.8 I find force a merit in the arguments put forth by the appellant for the reasons given below: a) The balance sheet filed before the Assessing Officer in the course of assessment proceedings as well as the undersigned in the course of the appellate proceedings showed the investments at Rs. 42, 19,89,569/- as on 31.3.2007. b) It was categorically stated by the AR that during the A.Y. 2007-08, the appellant had two portfolios, one an investment portfolio and another trading portfolio. The appellant in this year traded in shares as trading activity and hence no stock was carried forward. c) During the assessment year 2008-09 the appellant has not traded in shares as there was no stock and only sold investments out of the investment portfolio. d) To substantiate the above transactions, the AR of the appellant filed details of shares in the investment portfolio where the investments were held for more than 12 months and also for less than 12 months. Therefore, the computation of capital gains therefrom was accordingly shown in the statement of income as 'long term capital gains' and 'short term capital gains'. ....
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....ead capital gains. Section 111A stipulates that scripts and mutual funds that suffer securities transactions tax and held for 12 months are to be treated as short term capital gains. An intention is an anticipated outcome that is guided through a process and a purpose to obtain an end result. In the case of the appellant, such intention to make quick and high profits were not clearly brought out by the Assessing Officer. In view of the above discussion the transactions under taken by the appellant were found to be correct. Therefore, the Assessing Officer is directed to re-compute the income of the appellant treating the same under capital gains only and not under business income." 4. Aggrieved, both the parties are in appeal before us. Revenue is aggrieved with the relief allowed to assessee whereas the assessee is aggrieved for not adjudicating on the addition of Rs. 12 lacs. 5. At the outset, Ld. D.R. took up the appeal of Revenue and invited our attention to finding of A.O. and argued that the income declared by assessee was rightly held by A.O. to be the income from business and he heavily placed his reliance on the assessment order. 6. Ld. ....