TaxTMI 
TaxTMI 
2022 (9) TMI 1569
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....t on the facts and in the circumstances of the case, the Ld. CIT(A) erred in law as well as on facts in holding that the shares sold within 90 days be treated as business income. The Ld. CIT(A) passed the order on erroneous belief and misconception of law and facts in considering the capital gain arising on sale of investment in shares as business income. 2.a) For that the Ld. CIT(A) erred in law as well as on facts in holding that the disallowance u/s. 14A read with Rule-8D is to be made on the shares which were held more than three months, in spite of the fact that the Short Term Capital Gain is taxable, not exempt, hence provisions of sec.14A are not applicable. b) Without prejudice to the foregoing ground, the disallowance u/s. 14A if any is liable, it should be only on the shares which have earned dividend income. c) Without prejudice to the foregoing ground, if any disallowance u/s. 14A read with Rule-8D is liable, then it should not exceed the exempt income. d) Without prejudice to the foregoing ground, in case Short Term Capital Gain arising on sale of investment is being treated as business income then dividend earned is incidental to th....
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....ich are common for both the assessees by taking the facts from the case of Smt. Yamini Khanedlwal in ITA No. 425/Kol/2015. 5. Brief facts from the records are that the assessee is in the business of trading in derivatives. During the year under consideration, the assessee has earned income from speculation in share trading in derivatives (loss) as well as short term and long term capital gains on shares and mutual fund units as well as income from other sources. Return of income was filed on 13/10/2010 reporting total income at Nil. Total income as returned by the assessee consisted of the following:- "i) Income from business a) Trading in derivatives (loss) (-) 31,44,516/- b) Income from speculation in shares 10,12,880/- Loss in business : (-) 21,31,636/- ii) Short Term Capital Gains in listed securities & units a) On listed securities ... 2,05,68,467/- b) On listed units ... (-) 69,341/- 2,04,99,126/- iii) Long Term Capital Gains NIL Net Long Term Capital Gain on listed securities exempted u/s. 10(38) 18,95,942/- iv) Income from....
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....ntention of investing in the stock market was always to earn capital gains and dividends by holding the shares and undertaking delivery-based transactions and thus, the short-term/long term capital gains and dividends are, all outcome of investing activity only which cannot be treated as business activity. It was submitted before the ld. CIT(A) that shares have been shown in the balance sheet under the head "investments" which were depicted as closing stock of shares held by the assessee on the closing date of the balance sheet. It was contended that the closing stock in the balance sheet denotes investments and not the trading stocks/inventory. To support this contention it was also submitted that under the income-tax return Form ITR-IV in part ATS, the value of shares is shown under the column "investments" and sub-column "short-term investment". The valuation of shares was made at cost and the nature of business/profession in the Tax Audit Form No. 3CD in item no. 8A was mentioned as "trading in derivatives". It was stated that its audit was undertaken since the turnover in derivatives exceeded the limit prescribed u/s 44AB of the Act. Out of the total turnover, the sale value o....
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.... Year I.T. Dept. Accepted Capital Gain Under Section I.T. Dept. Not accepted Capital Gain under Section Remarks 2006-07 143(3) - 2007-08 143(1) - 2008-09 143(1) - 2009-10 143(1) - 2010-11 - 143(3) Pending before ITAT 2011-12 143(1) - 2012-13 - 143(3) Pending before CIT(A) 2013-14 - 143(3) Due to small amount of loss, No appeal filed. 2014-15 143(3) - 2015-16 143(1) - 2016-17 143(1) - 2017-18 143(1) - 7.4. By referring to the above chart, it was submitted by the assessee that rule of consistency ought to be followed. In respect of disallowance made u/s 14A, it was contended before the ld. CIT(A) that even if the disallowance has to be made it can be made only on the value of shares on which dividend has been received and which have been held as investment by the assessee, by placing reliance on the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs. REI Agro Pvt. Ltd. in G.A. 3022 of 2013 ITAT TAT 161 of 2013, dt. 23rd December, 2013. Computation ....
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....sactions for their treatment into capital gains versus business income. He thus, finally held that gains on sale of shares held for up to 3 months be treated as business income and for the gains on sale of shares held from three months to 12 months be treated as short-term capital gains and those for more than a year be treated as long-term capital gains, exempted under section 10(38) of the Act. He thus concluded, by holding the gains of Rs. 2,61,79,028/- as business income, Rs. 25,09,735/- as short-term capital gains and Rs. 18,26,601/- as long-term capital gains, which was subjected to verification by the ld. Assessing Officer. 11. In respect of disallowance u/s 14A, ld. CIT(A) held that short-term holding of shares had to be excluded from investment value for calculation under Rule 8D. Thus, re-worked the calculation of disallowance under Rule 8D(2)(ii) & (iii) and thus arrived at the figure of Rs. 42,61,293/- under Rule 8D(2)(ii) and Rs. 3,95,219/- under Rule 8D(2)(iii) totaling to Rs. 46,57,011/- and thus, the appeal was partly allowed. 12. Both, the assessee and the revenue are in cross appeals before the Tribunal on the above two issues. Before us, Shri J.M. Thard, Ad....
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....ajkot in the case of Nemish Jaikishor Mehta vs. ACIT in ITA No. 15/Rjt/2013 dated 03.11.2017 has lucidly dealt with this issue of whether gain from sale of shares is to be assessed as a business income or short/long term capital gain which is a highly debatable one. In the said decision, it is stated that this issue has always puzzled the adjudicator even after availability of large number of authoritative pronouncements by Hon'ble Court. This is due to the reason that one has to gather the intention of an assessee while he/she entered into the transaction. The expression "intention" as defined in Meriam Webster Dictionary means, "what one intends to accomplish or attain, it implies little more than what one has in mind to do or bring out. It suggests clear formulation or deliberation". Thus, it is always difficult to enter into the recess of the mind of an assessee to find out the operative forces exhibiting the intention for entering into the transaction. This gives rise to a debate. Nevertheless, we have to look into the criterion adopted by the ld. Assessing Officer in this case, which will goad us on just and proper conclusion. 15.2 As we embark on the journey to inquiry on....
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....e company (assessee) is authorized in memorandum of association/articles of association? Whether for trade or for investment? If authorized only for trade, then whether there are separate resolutions of the board of directors to carry out investments in that commodity? And vice verse. (7) It is for the assessee to adduce evidence to show that his holding is for investment or for trading and what distinction he has kept in the records or otherwise, between two types of holdings. If the assessee is able to discharge the primary onus and could prima facie show that particular item is held as investment (or say, stock-in-trade) then onus would shift to Revenue to prove that apparent is not real. (8) The mere fact of credit of sale proceeds of shares ( or for that matter any other item in question) in a particular account or not so much frequency of sale and purchase will alone will not be sufficient to say that assessee was holding the shares (or the items in question) for investment. (9) One has to find out what are the legal requisites for dealing as a trader in the items in question and whether the assessee is complying with them. Whether it is the argumen....
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....an afford good and cogent evidence to judge the nature of the transaction and would be a relevant circumstance to be considered in the absence of any satisfactory explanation. (e) The fifth test, normally applied in case of partnership firms and companies, is whether the deed of partnership or the memorandum of association, as the case may be, authorizes such an activity. (f) The last but not the least, rather the most important test, is as to the volume, frequency, continuity and regularity of transaction of purchase and sale of the goods concerned. In a case where there is repetition and continuity, coupled with the magnitude of the transaction, bearing reasonable proposition to the strength of holding then an inference can readily be drawn that the activity is in the nature of business." 16. In the light of the above, we proceed to examine the facts of the present case. It emerges out from the record that assessee has consistently reported in the balance sheet right from 31/03/2006, wherein the balance of Rs. 1,83,43,973/- in shares and debentures/mutual funds with other Indian companies has been disclosed under the head investments. Even after all the subse....
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....sset or stock in trade, is essentially a fact specific recognition and with a view to reduce litigation and uncertainty in the matter, in partial modification to Circular No. 4 of 2007, further instructions have been issued to the Assessing Officers to take into account the following- "a) Where the assessee itself, irrespective of the period of holding the listed shares and securities, opts to treat them as stock-in-trade, the income arising from transfer of such shares/securities would be treated as its business income, b) In respect of listed shares and securities held for a period of more than 12 months immediately preceding the date of its transfer, if the assessee desires to treat the income arising from the transfer thereof as Capital Gain, the same shall not be put to dispute by the Assessing Officer. However, this stand, once taken by the assessee in a particular Assessment Year, shall remain applicable in subsequent Assessment Years also and the taxpayers shall not be allowed to adopt a different/contrary stand in this regard in subsequent years; c) In all other cases, the nature of transaction (i.e. whether the same is in the nature of capital g....
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....rchase and sale of shares with the motive of earning a profit, would result in the transaction being in the nature of trade/adventure in the nature of trade; but where the object of the investment in shares of a company is to derive income by way of dividend etc. then the profits accruing by change in such investment (by sale of shares) will yield capital gain and not revenue receipt". 16.5 CBDT, thus advised the Assessing Officers that the above principles should guide them in determining whether in a given case, the shares are held by the assessee as investment (and therefore will give rise to capital gains) or as stock-in-trade (and therefore will give rise to business profits). Assessing Officers were further advised that no single principle would be applicable and the total effect of all the principles should be considered to determine whether, in a given case, the shares held by the assessee as investment or stock in trade. 17. We also take guidance from the jurisprudence available on the subject matter in respect of criterion adopted by the ld. AO. 17.1 While considering similar facts, the co-ordinate bench of ITAT Kolkata in the case of ITO vs. Divyam Tie-up Pvt. L....
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....t the income derived by the Radhasoami Satsang was entitled to exemption under ss. 11 and 12 of the IT Act of 1961." In the assessee's case under consideration, the Department has been accepting the stand of the assessee, during the previous year as well as in subsequent years to disclose the income on account of sale of investments under the head 'short term capital gain'. Moreover, the assessee`s intention is to be as an 'Investor, as has been observed by the treatment in the books of accounts as 'investment'. Therefore, we note that there is consistency in the 'intention of the assessee' as well as treatment in the books of accounts, and the said consistency has not been challenged by the department by bringing any new facts on the record." 17.2 On this issue relating to application of 'rule of consistency', Hon'ble Jurisdictional High Court in the case of CIT vs. Amitabh Sonthalia in G.A. No. 2877 of 2013, ITAT No. 154 of 2013, judgment dt. 8th January, 2014, upheld the view taken by the Tribunal which is reproduced as under:- "We have heard both the parties and are of the opinion that no interference is called for. The Tribunal in its order under challenge....
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....e any dispute about the basic proposition that entries in the books of account alone are not conclusive in determining the nature of income. The Tribunal has applied the correct principle in arriving at the decision in the facts of the present case. The finding of fact does not call for interference in an appeal under s. 260A. No substantial question of law is raised. Tribunal having entered a pure finding of fact that the assessee is engaged in two different types of transactions namely, investment in shares and dealing in shares for the purposes of business and held that the delivery based transactions are to be treated as investment transactions and the profit received therefrom is to be treated as short-term or long-term capital gain depending on the period of holding of shares and that there ought to be uniformity in treatment and consistency in various years when the facts and circumstances are identical, no substantial question of law arises." 17.4 By placing reliance on the decision of the Hon'ble Bombay High Court in the case of Commissioner of Income Tax vs. Gopal Purohit (supra), the Co-ordinate Bench of the ITAT Kolkata in the case of Shree Padmasagar Export....
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....also be treated as part of the trading activity?" 17.5.1 On the second substantial question of law for deployment of borrowed funds, Hon'ble High Court expressed its view that the Act does not prohibit the assessee from making investments in capital asset after using borrowed funds. The relevant finding is reproduced from para 12 as under:- "12. As regards the second question of the assessee having taken loan and having invested borrowed funds in purchase of shares, we are of the view that the Income Tax Act does not prohibit the assessee from making investments in capital assets after using borrowed funds. The Tribunal has also considered this aspect of the matter and decided in favour of the assessee and we see no reason to differ with such opinion of the Tribunal." 18. In light of the above discussion and understanding, we note that the assessee has consistently disclosed/reported her holdings in shares/mutual funds in the balance sheet under the head investments which manifests the intention of being an investor. The same have been reported in the income-tax return form consistently under the head investments and not under the head current assets. Also the revenu....
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....k to the file of the ld. Assessing Officer who may be directed to consider this computation after due verification. 21. On confrontation of this submission by the ld. Counsel to the ld. Sr. D/R, nothing was objected upon. Accordingly, we find it proper to remit the matter back to the file of ld. Assessing Officer for the limited purpose of verification of the calculations made by the assessee reproduced (supra) and accordingly consider the disallowance u/s 14A of the Act. This finding also applies equally in the case of Shri Suraj Khandelwal in ITA No. 1069 & 1105/Kol/2015. 22. Coming to Ground No. 2 & 3 in the case of Shri Suraj Khandelawal in ITA No. 1069/Kol/2015, for ground no. 2, at the outset, ld. Counsel for the assessee submitted that short-term capital gains has been inadvertently reported by the assessee as the income from long-term capital gains on NIFTY BEES amounting to Rs. 43,00,000/- on which ld. CIT(A) has not given any finding. Accordingly, he requested that the matter be set aside to the file of ld. Assessing Officer for verification and due consideration. Similar prayer has been made in respect of Ground No. 3, wherein an addition in respect of notional int....