TaxTMI 
TaxTMI 
2018 (3) TMI 1169
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....ating it as business income. 2. The ld. CIT(A) erred in law and facts in directing the Assessing Officer to allow the payment of registration fees of Rs. 27.30 lakhs to SEBI even when such 'fee' is not covered by the provisions of section 43B and also as such liability pertained to earlier years. 3. The ld. CIT(A) erred in deleting the addition of Rs. 1.95 lakhs made by the Assessing Officer by invoking the provisions of section 14A" 3. First we take up the appeal in assessment year 2005-06. Briefly stated, the facts of the case are that the assessee is engaged in the business of stock broking services and was also engaged in investment in shares and stocks. In the return for AY 2005-06 it has declared returned income of 2,65,91,812 which also included short term capital gain of Rs. 2,60,49,812. Similarly for AY 2006-07 it filed the return of 3,45,41,714 which included short term capital gain of Rs. 1,96,75,256. For both the years the Assessing officer treated the short term capital gain as Business income. The assessee succeeded in appeal before the ld. CIT(A) and the Revenue had challenged the order of CIT(A) before us. The appeals of the Revenue were dism....
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....wo-three days and even on the same day. He quoted from AO's order for A.Y. 2006-07 that shares of M/s LML Ltd were sold 8 times and M/s Oswal Chemical were sold 14 times which pointed to trading transactions and not investment activity. He also submitted that the assessee received very little dividend on the investments held by it. He referred to the AO's order for A.Y. 2006-07 that earning dividend was sine-qua-non of investment activity. He argued that separate Demat accounts maintained for the shares held as stock-in trade and shares held as investment and keeping accounting and showing in Balance Sheet under specific head for Investment and Stock In Trade do not throw any light on the intention of the assessee regarding the treatment to be given to transactions. He stated that there are three types of incomes viz. Trading Income/Business, Long Term Capital Gain and Short Term Capital Gain and each type of income has to be verified by using the principles mentioned in CBDT Circular No. 4 of 2007 dated 15th June, 2007. He stated that the MOA specifies that assessee carries business of Investment and hence not entitled for income as investor. He also submitted that consistency doe....
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....or stock in-trade. When the shares are purchased it cannot be said with certainty whether the company will declare dividend and at the same time the decision to classify the share as investment/stock-in trade is taken by the assessee at the time of purchase of share. Further, average dividend yield on BSE Benchmark Sensex - 30 shares varies from 0.9% to only 1.5%. Clearly no prudent investor would invest in share only for earning of dividend. If earning of dividend was an essential condition of investment activity, no one would buy gold or house or paintings as investment. Therefore, it cannot be a yardstick for classification of share as alleged by the assessing officer. iv) He further stated that there is Separate Demat for investments. He submitted that the fact remains that the books of accounts were accepted by the AO in both FY 2005-06 and FY 2006-07. v) He further submitted that the assessee has been maintaining separate depository account for the shares held as investment and separate depository account for the shares required as for stock in trade. At the time for purchasing the shares, the assessee clearly identifies as to whether it is....
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....er the head 'investment' in contrast to other shares which have been shown as purchases / stock in trade. This itself proves the nature and the intention of the assessee at the time of purchase. xi) Ld. AR submitted that in the balance sheet, these shares held as on the closing date have been shown under the head 'investment' in contrast to stock-in-trade for other shares and books of account have been accepted by the AO then how the sale of these investments can be treated as Business Income. xii) He further submitted that the valuation of the shares held as stock in trade is at cost or market value whichever is lower. However, for shares held as investment they are valued at cost. This method of valuation stands disclosed in the audited balance sheet and accepted. He filed a chart showing valuation of shares held under the head "Investments" as on 31.03.2005 and submitted that there was a valuation loss of Rs. 36,16,094/- on these shares which is not claimed as these shares are held as Investments and not as stock in trade. As per the consistent practice, the shares once treated as for investment/ stock, their nomenclature and tax treatment rem....
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....sactions are actual delivery. The STT paid is not claimed as deduction by the assessee. Moreover the balance investments in the balance sheet as on the last day of the years are taken at cost and not at market value or cost whichever is less. Chart filed by the assessee shows that valuation loss is not claimed and this fact is not denied by the DR. 8. The ld. CIT(A) elaborately considered the issue and held as under for assessment year 2005-06: "I have considered the submissions of the appellant. It is seen that the appellant has maintained two separate accounts for the share dealings - one in respect of shares held as stock in trade and the other in respect of investment. As pointed out by the A.R. of the appellant, under the SEBI rules one cannot transfer the shares from one account to another according to one's own whims and pleasure but only at the prevailing market price as on that date. The Assessing Officer never went into this basic fact that once the shares are kept as stock in trade/ investments DMAT account any transfer is possible only at the prevailing market price hence, there is no scope of any tax evasion by changing the nature of share by tr....
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....hese shares had been shown in the balance sheet by treating this as investment and a consistent policy with regard to such shares have been followed by the appellant for the past several years. Accordingly it is also observed that the Assessing Officer has not brought out any differentiating facts as to how and why under similar circumstances though the claim of the appellant had been accepted in the earlier years, while in this year this should be treated differently. c) The A.R. has also highlighted various facts including maintenance of separate D-Mat accounts for investments in shares, the clear intention of the assessee by not claiming any STT deduction on the shares claimed as investment and the losses on the sale of shares being set off against gains on sale of shares, even though setting it off against business income would have been more profitable. These specific facts have not been controverted by the Assessing Officer and the intention of the appellant with regard to holding these shares for the purpose of investment could not be doubted. The reliance placed upon the Ld. Authorised Representative of the appellant on the decision of Gopal Purohit (supra....