TaxTMI 
TaxTMI 
2017 (4) TMI 1351
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.... CIT (A) has erred in allowing business income of Rs. 4,19,33,272/- as Short Term Capital Gains of Rs. 1,53,54,744/- and Long Term Capital Gains of Rs. 2,65,78, 528/- and ignoring the decision of Gujarat High Court in the case of CIT vs. Motilal Hirabhai Spg & Wvg. Co. Ltd [1978] 113 ITR 173 (Guj) and Raja Bahadur Visheshwar Singh vs. CIT [1961] 41 ITR 685 (SC) wherein it is stated that when the assessee has huge quantum periodic, repetitive and voluminous with substantial regularity of transactions then it indicate systematic and organized activity with profit motive." 3. Further, bringing our attention to assessee‟s CO, Ld Counsel for the assessee submitted that the same is filed in connection with the disallowance of Rs. 19,07,147/- u/s 14A read with Rule 8D of the Act. Basic facts in connection with the said issues are that the assessee is an individual carrying business activity as inter corporate finance broker, arranging of corporate deposits, bill discounting etc. Assessee is also an investor in shares, debentures and Central Government Bonds. Assessee is in this line of business for the last three decades. During the year under consideration, assessee furnished re....
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....issue and it does not call for any interference. In this regard, Ld AR furnished the written submissions. On the contrary, ld DR for the Revenue submitted that the assessee is professionally a businessman in dealing with the shares and the intention of dealing with these transactions of share purchase and sale constitutes „business activity‟ for a profit motto. Therefore, Ld DR heavily relied on the order of the AO. 7. On hearing both the parties on this issue, we are of the opinion, there is no dispute on the fact that the shares in question are undisputedly long term capital assets within the meaning of section 2(29)(b) r.w.s 2(29)(a) and 2(42)(a) (b) of the Act. The period of holding constitutes the determining factor conclusively so far as the said definitions relating to the short term and long term capital loss and the short term and long term capital gains. We have perused the said written submissions of the assessee and relevant paras are extracted as under:- "11. At outset, Assessee would like to place reliance on two Circulars of the CBDT; Circular No. 4/2007 dated 15 June 2007 (Refer Pg 86-87) and Circular No. 6/2016 dated 29 February 2016 (Refer ....
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....ircular as well as the precedents in the matter, we are of the opinion, the order of the CIT (A) on this issue of LTCG is fair and reasonable and it does not call for any interference. Accordingly, we affirm the view of the CIT (A). SHORT TERM CAPITAL GAINS 10. During the year under consideration, assessee reported STCG amounting to Rs. 1.54 Crs (rounded of). The details are given in para 16 of the written submissions and the same is extracted as under:- S. No. Range of days No. of scrips Purchases Sales Profit Loss Total (profit-loss) Gain% 1. 0-7 11 26,54,849 27,20,575 68,276 -2,550 65,725 0.5 2. 07-15 4 5,23,563 5,60,827 37,265 - 37,265 0.3 3. 15-30 25 2,62,78,137 2,81,77,535 21,46,607 -2,47,209 18,99,398 13.7 4. 30-90 56 5,23,78,359 5,26,55,063 58,10,164 -56,26,001 2,76,703 2.0 5. 90-180 36 4,61,80,980 5,27,42,634 92,44,995 -25,90,801 65,61,654 47.4 6. 180-270 14 91,87,411 1,13,94,111 25,90,614 -3,83,914 22,06,700 15.9 11. From the above table, it is evident that the holdin....
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....attention to the expressions DEL and TRD against the transactions appearing in the contract notes and mentioned that the assessee applies his mind at the time of purchase of shares where they should constitute investment or stock-in-trade. The books of accounts are accordingly maintained and there is no transfer of shares from one category to the other. Considering the principle of consistency in this matter, the Assessing Officer is not justified in treating the entire short term capital assets as business assets for taxing the same as business income. In this regard, Ld AR also brought our attention to the fact that the assessee disclosed sum of Rs. 3,85,274/- as business income attributable to the intraday transactions of the shares. Further, Ld Counsel for the assessee relied heavily on the contents of Circular No.6 of the CBDT and demonstrated that the AO is not justified in disturbing the above claim of the assessee without any sustainable reasons. Ld AR also mentioned that no mistake is found in the entries in the books of accounts regarding relevant shares. Ld AR also relied on the judgment of the Hon‟ble Supreme Court in the case of Gopal Purohit in support of AOR....
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....nd sale of shares. The same has been dealt by CIT (A) ( page no.43-44 of the CIT (A) order) wherein the CIT (A) ha stated that assesse has earned income of Rs. 37.44 lacs out of consulting services activities which no trader will have such free time to earn such income and the assessee has sufficient capital of his own to make investments." 14. Eventually, it is the submission of the assessee that the decision of the CIT (A) should be sustained and the appeal of the Revenue should be dismissed on this part of the issue. 15. We have heard both the parties on this issue relating to the treating of the STCG as business income of the assessee. From the records, it is clear that the assessee earned three types of gains / profits from the transactions involving sale / purchase of shares. In the return of income, Rs. 2.66 Crs and Rs. 1.54 Crs (rounded of) were shown as Long Term and Short Term capital gains respectively. In addition, assessee also has share trading income amounting to Rs. 3,85,274/-. Ignoring the claim of the assessee, AO treated all these three groups of income as „business income‟ of the assessee. There is no incriminating evidence otherwise mentioned ....
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....ounts - The Appellant has made a clear demarcation of the share trading activity and normal share investment activity. The Appellant has shown shares and securities as "investments" in the Balance Sheet. Further, the profit on share trading activity of Rs. 3,85,274/- has already been offered to tax as business income in ROI. * A capital asset is always a capital asset and cannot be treated differently at the time of sale. * No use of borrowed funds for purchase of shares - The shares were purchased out of the own funds and no borrowed funds were utilized for purchase. * Volume and frequency of shares - a. Mere number of transactions, does not decide that whether a person is an investor or trader in shares. The conduct of the Appellant has to be looked into totality and no single aspect can determine whether the Appellant is an investor or a trader in shares. b. A single sale/purchase order, split into number of transactions by brokers, does not infer that Appellant has carried out that many transactions. Where bulk orders are placed for purchase or sale of a share of a particular company, the brokers/electronic trading system execute the....
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....for the AO to deviate from the past stand of the Department of treating the appellant as an investor in share. Therefore, the AO is directed to treat the capital gains of the appellant both long term and short term amounting to Rs. 4,19,33,272/- as such treating the appellant as an investor in shares and not as business income. The findings of the AO in this regard are reversed. The grounds of appeal are allowed." 17. After examining the said paras 6.21 to 6.29 of the CIT (A)‟s order, we find the CIT (A) has applied the judgment of the Hon‟ble Supreme Court in the case of CIT vs. Gopal Purohit [336 ITR 287] (Mum) before coming to the conclusion that the STCG should be treated as business income of the assessee. 18. To sum up, we find the view of the AO in treating the LTCG and STCG as business income of the assessee, is not proper. Considering statutory provisions regarding the definition of LTCG, we are convinced that the views of CIT (A) are sustainable. Similarly, regarding the claim of STCG also, we find that (i) the consistency principles; (ii) use of own funds of Rs. 54 Crs; (iii) earning of gross dividend income of Rs. 1.20 Crs or Rs. 30 lakhs on account of....
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....with the share trading activity and the earning of the exempt income. Considering the above, it is the prayer of the Ld Counsel for the assessee that the disallowance should not exceed the balance amount of Rs. 3,60,330/- (ie Rs. 19,07147 - Rs. 13,32,012/-). At the end of the argument, Ld Counsel for the assessee submitted that it is on the fairer side of the adjudication of the issue that the disallowance of expenses u/s 14A should not exceed the said amount of Rs. 3,60,330/-. Ld AR also submitted that the Bench may even proceed to quantify the disallowance applying the flat rate of some percentage in the spirit of the judgment in the case of Godrej Agrovet. 23. On the other hand, Ld DR for the Revenue relied on the order of the AO and on the provisions of Rule 8D of the IT Rules, 1962. 24. We have heard both the parties and perused the orders of the Revenue Authorities as well as the relevant material placed before us. On hearing both the parties, we find, the relevant facts of this issue include earning of exempt income for Rs. 1.20 Crs (rounded of) and the total debits worked out to Rs. 16,92,342/-. AO disallowed Rs. 19,07,147/-, which is far exceeded the said total debit....