TaxTMI 
TaxTMI 
2018 (12) TMI 1325
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....f Rs. 5,28,64,636/- earned out of sale of investment in shares as business income and not as capital gains (Rs.5,14,03,098/- and short term capital gains Rs. 14,61,538/-) as returned by the assessee. The same being in the nature of capital gain be treated as capital gain and not as business income. 2. In disallowance the claim of Rs. 44,95,264/- under section 80IA. This action being not in accordance with the law it is prayed that the same may be allowed. The appellant named above craves to add, alter, to amend and to modify the grounds as and when required." 4. With regard to ground No.1, the Assessing Officer has treated an amount of Rs. 5,28,64,636/- earned out of sale of shares as 'business income' and not as 'capital gains' as returned by the assessee. On perusal of the Audit Report, Assessing Officer noticed that the assessee was trading in shares. It started investing its surplus funds in stock in trade. At the beginning of the F.Y.2004-05, the assessee company converted some of the shares held as stock in trade into capital assets. Later on these shares were sold in the F.Y.2005-06 and the capital gain was worked out as a result of such sales. As per the assessee's ....
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.... Further, the Tribunal drew an analogy from the cases of transfer of agricultural land, where agricultural land, which was not a capital asset, subsequently became a capital asset due to the amendment to the Income- Tax Act. In those cases, the Gujarat High Court in Ranchodbhai Bhaijibhai Paid Vs. CIT 81 ITR 446, followed the Bombay High Court in Keshavji Karsondas vs. CIT 207 ITR 737, had held that an asset cannot be acquired first as a non-capital asset at a different point of time and again as a capital asset at a different point of time. There can be only one acquisition of the asset and that is when the assessee acquires it for the first time, irrespective of its character at that point of time. Therefore what is relevant for the purpose of capital gains is when the asset was acquired, and not when it became a capital asset. The Tribunal also noted the fact that there is no specific provision for tax treatment of conversion of stock-in-trade into investment, similar to the provisions of section 45(2) which provide for the manner of taxation of the capital gains arising on conversion of investment into stock-in-trade. This decision of the Tribunal has been upheld by the Bo....
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....uld be treated as transfer. Thus, the Assessing Officer rejected the claim of earning of capital gain as a result of sale of shares and treated the profit derived on sale of shares as profits derived from trading business. 6. When the matter travelled upto the ld. CIT(Appeals), he simply reiterated the findings of the Assessing Officer and upheld the addition so made without adjudicating in details whether the action of conversion of stock-in-trade of shares to investment was specifically prohibited or not or from any legal parameters where such action of the assessee could be accepted so far as the Income Tax Act is concerned. The ld. CIT(A) merely disposed of the issue upholding the version of Assessing Officer. That being further aggrieved, the assessee carried the matter in appeal before us. 7. At the time of hearing, Ld. AR vehemently argued that nowhere in the Income Tax Act prohibits conversion from stock-in-trade of shares to investments. There is no direct embargo restricting the assessee from converting stock-in-trade of shares to investments. The only point is once converted the pattern is to be maintained. Such conversions have been allowed by various judicial pronoun....
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.... of the Income Tax Act, there is no direct and specific embargo for conversion of stock-in-trade of shares to investment and vice versa. That over the years, Hon'ble Courts have held once such conversation has taken place, assessee should maintain that pattern. There should not be any further change in the pattern and thereby, statement of the accounts should also be maintained. In effect, there should not be any action of the assessee by which any loss arises to the Revenue. In the instant case, it is not disputed that conversion has taken place from stockin- trade to investment and also that the Hon'ble Apex Court has observed that such conversion has no legal bar. Therefore, in view of the matter, we set aside the order of CIT(Appeals) on this issue. Accordingly, ground of appeal No.1 raised in appeal by assessee is allowed. 11. Ground No.2 relates to disallowance of claim of Rs. 44,95,264/- under section 80IA of the Act. 12. At the time of hearing, Ld. AR of the Assessee appraised the Bench that the issue is squarely covered by the assessee's own case in ITA No.937/PUN/2008 for the assessment year 2005-06. 13. On the other hand, Ld. D.R very fairly conceded to this s....
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.... which in any case were adjusted upto assessment year 2009-10. The said findings of CIT(A) have not been controverted by learned Departmental Representative for the Revenue except to stress that the same needs verification. We find no merit in the plea of learned Departmental Representative for the Revenue in this regard, especially where in assessment year 2010-11 which was the preceding year to the instant assessment year. The claim of deduction has been allowed in the hands of assessee. It may also be pointed out herein itself that the assessee was running civil construction activity from which it was showing profits from year to year and the losses arising from windmill in the earlier years have already been set off against the said income and the balance income had been assessed in the hands of assessee. It is not case of Revenue that after adjustment of losses in the respective years the assessee had shown any losses. There is no merit in the order of Assessing Officer in holding that deemed losses have to be adjusted against profits of undertaking. In view thereof, we hold that the assessee was entitled to the claim of deduction under section 80IA(4)(iv)(a) of the Act. The g....
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....ave perused the case record and analyzed the facts and circumstances of the case. We find that the CIT(Appeals) in his extensive order analyzing this issue has referred to the decision of Hon'ble Supreme Court in the case of Liberty India Vs. CIT, reported in 317 ITR 218 (SC) and further, it is observed by the Ld. CIT(Appeals) as follows: "5.5.4 The Apex Court in the case of Liberty India categorically held that the eligible profits are to be computed as if such eligible business is the only source of income of the assessee. However, the ITAT Pune in the case of Serum International Ltd. in ITA Nos. 290 to 292/PN/2010 dated 28.09.2011 for the A.Ys. 2004-05 to 2006-07, following the decision of the Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills (P.) Ltd. 38.DTR 57 held that when the assessee exercising the option, only the losses of the year beginning from the initial asst. year (A.Y.2005-06 in the instant case) are to be brought forward and not the losses of the earlier year, which has been already set off against the other income of the assessee. In view of the decision of the Apex Court in Liberty India's case, decision of Bombay High Court in the....