TaxTMI 
TaxTMI 
2020 (1) TMI 290
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.... of Rs. 1,53,828 as there is no expenditure incurred in relation to earning the income not forming part of the total income and as such, no disallowance can be made under section 14 A. 2. The CIT(A) erred in upholding the action of the Assessing Officer in treating short-term capital gains of Rs. 53,27,430 as a business income. The appellants contend that on the facts and in the circumstances of the case and in law, the CIT(A) ought not to have upheld the action of the Assessing Officer in considering the capital gains arising on sale of short-term capital assets as business income. 3. The Assessing Officer erred in charging interest under sections 234B and 234C of the Act. The appellants contend that the Assessing Officer ought not to have charged interest under sections 234B inasmuch as the appellants, in terms of section 208, were not liable to pay advance tax. The Grounds raised by Revenue read as under: - 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in restricting the disallowance of expenditure made u/s.14A to Rs. 1,53,828/- against Rs. 7,93,802/- disallowed by the Assessing Officer. 2.1 On the facts and in the circumstanc....
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....evant details and show-caused as to why interest as well as other expenditure should not be disallowed u/s 14A. In defense, the assessee submitted that it had already ignored claim of expenditure of Rs. 4.46 Lacs as against Rs. 3.79 Lacs worked out as per Rule 8D and therefore, further disallowance would not be warranted. However, not satisfied, Ld. AO worked out aggregate disallowance of Rs. 8.72 Lacs in terms of Rule 8D, which comprised-off of interest disallowance u/r 8D(2)(ii) for Rs. 4.92 Lacs and expense disallowance u/r 8D(2)(iii) for Rs. 3.79 Lacs. Since total expenditure debited to Profit & Loss Account was Rs. 7.93 Lacs, the aforesaid disallowance was restricted to Rs. 7.93 Lacs. 3.2 The learned first appellate authority, while confirming the stand of Ld. AO in invoking the provisions of Section 14A, directed Ld. AO to restrict the disallowance to 10% of exempt income and deleted the balance disallowance of Rs. 6.39 Lacs. The same has given rise to one of the grounds of cross-appeals. 3.3 Upon due consideration, we find that as per settled legal position, the provisions of Rule 8D were not applicable to the year under consideration. Therefore, the disallowance was to be....
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....ransactions were entered into only for the purpose of Investment and there was no motive to earn profit. Though, the word business has not been defined in the taxing statute, yet it postulates the existence of certain elements in the activity of the assessee which would invest it with the character of the business. According to well-established interpretation of word 'business' as found in taxing statutes it is the sense of an occupation or profession which occupies the time, attention and labour of a person normally with the object of making profit. To record an activity as business there must be of course dealings either actually continued or contemplated to be continued with a profit motive. Whether or not a person carries on business in a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and transaction must ordinarily be entered into with a profit motive. Such motive must pervade the whole series of transactions effected by the person in the course of his activity. Hence, in view of the above discussion the income is charged under the head "Business Income" and not as capital gain. 4....
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....'ble Jurisdictional High Court in the case of Smt. Prabhavati S. Shah v. CIT (supra) has held that the Appellate authority should not refuse to make enquiry in the case where facts and circumstances so demand. We observe that documents proposed to be filed by assessee are relevant and necessary to be considered to decide the issue as to whether shares were held by assessee as investment or stock-in-trade. It is relevant to state that Hon'ble Apex Court has held in the case of CIT Vs Prabhu Dayal 82 ITR 804 that question as to whether receipt is a capital receipt of income, has to be judged from the facts of each case and question of law can be drawn such facts. The Hon'ble Apex Court in the case of CIT Vs. H. Holck Larsen 160 ITR 67 also held that whether transaction of sale and purchase of share is a trading transaction or in the nature of investment, is a mixed question of law and facts. Therefore, to decide the question as to whether assessee has to be treated as investor in share or a trader or shares is to be considered, considering totalities of all facts. In view thereof, it is necessary that Ld. CIT(A) should have considered the evidences proposed to be filed by assessee to....
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....aforesaid directions that the matter of assessment of Long-Term Capital Gains as well as Short-Term Capital Gains was setaside for fresh adjudication in the light of additional evidences submitted by the assessee. 4.3 Pursuant to aforesaid directions, Ld. CIT(A) re-examined the claim in the light of additional evidences furnished by the assessee which were already filed before Ld.AO during remand proceedings in the first round of appeal. With respect to Long-term capital gains, the assessee submitted that the shares of two entities under consideration were held since financial year (FY) 2002-03 & 2003-04 with an intention to earn dividend income. There was no regular sale or purchase of shares of these entities and the investment were long term investment which was evident form the fact that the assessee never made provision for diminution in the value of shares in the books of accounts. Further, the shares were reflected as long-term nontrade investments in the Balance Sheet. In support of the said submissions, the assessee filed financial statement for various years along with copies of relevant purchase bills, delivery challans, ledger account copies, bank statements evidencing....
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....t the intention was to trade. Large volume of purchase and sale of shares does not per-se means business activity. The volume and frequency cannot be sole criteria to arrive at the conclusion that the assessee is into trading. A prudent Investor always keeps a watch on the market trends. Thus, the intention can be proved only by way of conduct of the appellant after the purchase. The conduct of the appellant in the present case shows that the intention was to hold the shares for long before disposing off the same which is, discussed in the coming paras. 10.13 The main dispute in this case related to treatment involving 2 scrips viz. M/s.Ruchi Soya and M/s.Ruchi Infra. Page 39 and 40 of the paper book shows the detail of purchase and sale of these 2 scrips Ruchi soya and Ruchi infra during this assessment year. Table containing the details filed by the appellant is enclosed to this order (Enclosure 'A'). A careful analysis of the table reveals the following facts: Details of sale of Ruchi Soya Shares:- Month No of transaction No days Total shares sold April 10 6 77,899 May 16 11 3,40,931 September 1 1 10,000 Total : 27 18 4,28,830 Details of sale of....
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....t is in consonance with the Board Circular. 10.16 Similar details with regard to purchase and sale of these two scrips during AY 2005-06 are available in page 38 of the paper book. A chart prepared indicating the date wise transaction was also furnished which is available in page 353 of the paper book. The scrutiny reveals the following: Ruchi soya sales month wise during FY 2004-05: July 100 September 35,235 October 171 December 10,656 January 6,630 February 2,400 March 63,700 1,18,882 The appellant had identified the date of purchase of the scrip also. The details are as under: Date Quantity 08/05/2002 3623 13/05/2002 688 31/03/2003 79,246 23/09/2003 35,235 1,18,882 10.17 The analysis of the details for both AY 2005-06 and 2006-07 shows that the scrips purchased during the year was not sold by the appellant. It was the stock held as investment in the earlier year held for more than a year only was disposed of during relevant year. The claim of investment made in these shares in the earlier years were never disputed by the AO. All the above shares sold are part of opening balance in the investment portfolio in the respective ....
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.... shares and the sales in all cases have been made after holding the shares for less than 3 months and the overall profit earned has also been small clearly suggesting that the assessee had been selling the shares motivated by profit. Even an investor sometimes may sell shares after holding for a short period in order to reshuffle the portfolio when a particular share is not doing well or in case of exceptional appreciation. Such selling after short holding has to be explained. In this case the assessee has not explained why it has been selling the shares after holding for a short term. The assessee has given general reasons such as government policy, management, market outlook etc. which is quite vague and does not explain satisfactorily the reason for frequently selling the shares after holding for a short period. It has been argued that in earlier years similar transactions have been accepted as investment activity but it has not been shown how the transactions in earlier years were exactly identical and whether the same10 had been accepted after examination. The assessee has also cited some tribunal decisions which in our view are distinguishable as each case has its own peculia....
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....he order. The very same AO had passed the order for the current year. When the same Assessing Officer had accepted these shares as investment in earlier years, he cannot suddenly change the treatment and consider the profit arising out of the transaction as business activity during this year. Thus the appellant had consistently declared the gain arising out of sale of share as Long and short term capital gain which was accepted by the Assessing Officer u/s 143(3). Though the rule res-judicata is not applicable to I.T. proceedings but in the absence of change in facts, the principle of consistency cannot be ignored by the AO. The appellant had disclosed the shares as investment in the Balance Sheet and not as stock-in-trade. This fact has also been recognized by the AO. If the rule of consistency is considered along with the other facts discussed in the preceding paragraphs, I am persuade to hold that the surplus on the sale of shares was rightly declared by the appellant as long term capital gains. ; 10.22 In the note below para 8.12, I have mentioned that multiple transaction on a single day is treated as one transaction. Simply there were multiple sale transactions on the same ....
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..... As already noted, the assessee's background does not indicate that she was familiar with the share business. She was a working partner in a partnership firm which was engaged in the garment business and was a Director in a company which was also engaged in a similar business. It would appear therefore that she hardly had any knowledge about the nuances of share trading. She also did not borrow any monies for the purpose of acquiring the shares and this fact is not disputed on behalf of the Revenue. The shares have been acquired out of the surplus funds left with the assessee. She has disclosed the shares in the Balance Sheet as shares only and not as stock-in-trade. This fact has also been recognized by the Departmental authorities. In paragraph 15 of his order the CIT(A) has observed that the assessee has considered all the purchase of shares only as investments and that they were classified as such in the Balance Sheet. He has also gone on to observe that the assessee had two portfolios, a trade portfolio and an investment portfolio. From the Balance Sheet as on 31.03.2005 it is difficult to find any shares held in the trade portfolio and to this extent the CIT(A) appears t....
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....Paper Book which contains the contract notes issued by Falcon Brokerage Pvt. Ltd. on 1st February 2005. Though there are several orders for purchase of the shares of Man Industries Ltd. on the same day, the assessee appears to have intended to acquire 25000 shades in this company and the contract note merely exhibited the different times on the same day at which the broker acquired the shares in the Stock Exchange at different rates. Ultimately the broker had acquired 25000 shares of the company on behalf of the assessee for a total price of Rs. 26,80,890/- . Thus it is actually a single transaction for acquiring 25000 shares in a company and not several transactions of acquiring the same company's shares on a single day as assumed by the AO. The assessee has a/so explained in similar fashion the details of the short term capital gains furnished in pages 17 to 19 of the Paper Book, which has been explained along with the details contained at page 30 of the Paper Book. These details show that the assessee sold 30 scrips during the year, which gave rise to the short term capita! gains of Rs,2,25,47,9927-. The sales on the same day but in different lots of the shares of the same c....
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.... to first ascertain whether the assessee is a dealer in shares or investor in shares. The character or the head of income under which the surplus is to be assessed for purposes of the Income Tax Act gets determined by the answer to this fundamental question. As we have already noted there are no strong materials to hold that the assessee traded in shares, whereas there is sufficient material to hold that she invested in shares as investor and never intended to carry on a business in shares. 13. For the above reasons we accept the contentions of the assessee and hold on the facts of the present case that the short term capital gains of Rs. 2,25,47,992/- on the sale of shares and mutual fund units should be assessed as short term capital gains as declared by the assessee. The appeal of the assessee is allowed with no order as to costs". 10.23 I have also analysed the sources for purchase of these 2 scrips. It is also worth to mention here the letter filed by the appellant before the CIT(A)-10, Mumbai dated 08.06.2009 wherein it was clarified that the appellant company did not utilise any interest bearing borrowed funds for the purpose of investment in these shares and hence, it w....
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....ual findings of Ld. CIT(A), with respect to treatment of Short-term capital gains as business income were as follows: - 12. Additional Grounds Raised : The appellant had filed additional grounds vide letter dated 24.11.2009 before the CIT(A). However, he failed to adjudicate the above grounds connected to treating the Short Term Capital Gain on sale of shares as Business Income. The appellant has raised this issue in ground No.3 of the appeal filed before the Hon'ble ITAT. The finding of the Hon'ble ITAT is in para 20 of its order. Since the CIT(A) did not adjudicate the additional ground taken, this issue was restored to the CIT(A) with the direction to decide the issue of claim of Short Term Capital Gain, after giving due opportunity of hearing and to consider such evidences as may be filed. 12.1 The additional ground filed is available in page 165 and 166 of the paper-book. The Additional grounds raised are as under :- 1) That the learned Income-tax Officer ought to have considered the short term capital gains claimed by the assessee. 2) That the learned Income-tax Officer has treated short term capital gains of Rs. 53,27,430/- as a business income without giv....
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.... BFL Soft 12 days 7. National Steel 19 days 6. Rain Commod 14 days 9. McdoweII 42 to 45 days 10. Surya Pharma 10 to 14 days 11. Ucal Fuel Systems 11 days 12, Zenith Computers 45 days 13. Zicom Security Sys 20 to 22 days 12.4 Another feature noticed was all these scrips mentioned above have been bought and sold only once by the appellant. Since the holding period was less than 45 days, the claim of the appellant that gain arising out of these scrips are short term gain cannot be accepted. Further, I find with regard to the scrips of ABC India Ltd. (128 to 133 days), M.P.GIychem (122 to 194 days), Ramco Sys. (76 to 80 days), Ruchi Soya (45 to 185 days) and Ruchi Strips (137 to 159 days), though the average holding period was more, but the appellant had repeatedly carried out multiple transactions with short selling which is definitely the attribute of the trader and not that of the investor. In view of this, the entire, claim of Short-Term Capital Gain is treated as "Business income" of the appellant and accordingly, ground taken by the appellant, is dismissed. 13. In the result, appeal is partly allowed. The aforesaid adjudication form subject matter of cr....