TaxTMI 
TaxTMI 
TaxTMI 
2022 (9) TMI 1569
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....e, 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 the trading business and provisions of sec. 14A are not applicable." 2. In the ....
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....rom 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 other sources ... 1,68,320/- Gross Total Income 1,85,35,810/- Less : Short Term Capital Loss brought forward adjusted 1,85,35,810/- NIL Deductio....
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....l 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 of shares comprising of long term and short term capital gains, is of Rs. 62,18,77,918/-, which is 10% of the total turnover of the assessee. 7.1 On the aspect of sundry creditors, which the ld. Assessing officer has noted th....
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....; 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 in respect of disallowance which ought to have been made by the ld. Assessing Officer u/s 14A was also referred and was claimed that the disallowance if any, is to be made, should be restricted to an amount of Rs. 10,35,603/-. The said computation under Rule 8D as claimed by the assessee is placed at page 35 ....
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....ains, 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, Advocate, represented the assessee and Shri Biswanath Das, Sr. D/R, represented the Department. Assessee has placed on record, paper books in two volumes containing total 134 pages. Before us, ld. Counsel for the assesse reiterated the submissions made before the authorities below which are not repeated for the sake of brevity. 13. Ld. Counsel for the ass....
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....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 the facts of present case so as to find out whether the assessee is to be termed as engaged in trading/business of shares or to be treated as an investor simplicitor, we refer to certain broad principles culled out by the co-ordinate bench of ITAT Lucknow in the case of Sarnath Infrastructure Pvt. Ltd. reported in 120 TTJ 216 (Lck) which are reproduced as under:-....
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.... 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 argument of the assessee that it is violating those legal requirements, if it is claimed that it is dealing as a trader in that item? Whether it had such an intention (to carry on illegal business in that item) since beginning or when purchases were made? (10) It is permissible as per CBDT's Circular No. 4 of 2007 of 15th June, 2007 that an assessee can have both portfolios, one for trading and other for investment provided it is maintai....
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....nd 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 subsequent years till Assessment Year 2017-18, including the impugned year, assessee has always disclosed the closing balance of shares and debentures/mutual funds held by her in the balance sheet under the head investments. Further, in income-tax return filed in Form-IV, details of holding of shares and debentures/mutual funds has been reported under the head investments and the sub-head long/short term investments. This also has been a consistent practice of reporting in the ITR Form for all the years....
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.... 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 gain or business income) shall continue to be decided keeping in view the aforesaid Circulars issued by the CBDT." 16.3 CBDT also noted in para 5 of this Circular that these principles have been formulated with the sole objective of reducing litigation and maintaining consistency in approach on the issue of treatment of income arising from transfer of shares and securities. 16.4 In Circular No. 4/2007, CBDT has taken into cognizance the decisions of Hon'ble Supreme Court and Authority for Advance Rulings (AAR), which are ....
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.... 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. Ltd. in ITA No. 164/Kol/2016; Assessment Year 2010- 11, order dt. 26/04/2018, has dealt on the aspect of 'intention' of the assessee and application of 'rule of consistency' as under:- "6. We are of the view that on the issue, whether the income in question has to be assessed under the head income from capital gain or income from business, the assessee should demonstrate the intention and treatment in the books of accounts, whether he holds these shares and securities as an 'investment' or as a 'stock in trade'. This intention can be judged by the entry made by the assessee in his books of acc....
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....ooks 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 held, inter alia, as follows: "Once this is an established position, that assessee maintained the distinction in books of accounts between his investments and stock in trade and also maintained distinction of short term investments as well as long term investment and such investment were accepted by revenue in earlier years all long, now they cannot take u-turn and change the head of income without any basis". We have considered the rival submissions and are of the opinion that in the facts and circumstances of the case the view taken by the Tribunal is unimpeachable." 17.3 In this connection, we also refer to the judgment of Hon&#....
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....rofit 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 Exports Pvt. Ltd. vs. DCIT in ITA No. 1125/Kol/2013; Assessment Year 2008-09, order dt. 12/08/2016, held that, magnitude of the transactions do not alter the nature of transactions. It also held that though the principle of res judicata is not applicable but the principle of consistency will definitely apply and on that basis the claim of the assessee should be held proper. The relevant finding of the Tribunal is reproduced as under:- "In view of the above, we find that magnitude of the transactions do not alter the nature of the transactions. Therefore, magnitude of transactions carried out by the assessee in our view should not be very material in coming to the conclusio....
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....f 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 revenue has not disturbed the status declared by the assessee and accepted the returns u/s 143(3) of the Act, for which the details have been tabulated above and it is evidently oozing out that in the earlier years as well as subsequent years, the status of the assessee as investor was not disputed except for the impugned year and AY 2012-13 pending before the ld. CIT(A). Ld. Sr. D/R could not bring on record any material to demonstrate change in facts and applicable law in the year under consideration when compared with the preceding as well as subsequent years referred in the table above and therefore the rule of consistency is to be followed. We note that assessee has purchased the shares on delivery basi....