TMI Blog2011 (11) TMI 403X X X X Extracts X X X X X X X X Extracts X X X X ..... is directed against the order dated 26.11.2009 passed by the Ld. CIT(A)-2, Mumbai relating to the Assessment Year 2006-07. 2. In grounds of appeal no. 1, 2 and 3 the assessee has challenged the order of the Ld. CIT(A) in confirming the action of the AO in treating the short capital gain of ₹ 96,06,116/- on sale of shares as business income as against capital gain declared by the assessee. 3. Facts of the case, in brief, are that the assessee company is engaged in the business of Trading and exports of fabrics. During the course of assessment proceedings the AO noted that the assessee is engaged in the business of share transaction and has earned an amount of ₹ 1,09,46,154/- which was shown as short term capital gain . On being questioned by the AO to explain as to why the short term capital gain declared by the assesses should not be treated as business income , the assessee submitted its reply, the gist of which is reproduced by the AO in the body of the assessment order and which reads as under :- All the investments in the shares made by the company in the name of the company are held as investments and not as a stock in trade. All the inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on a couple of decisions and the CBDT Circular No.4 of 2007 dated 15.06.2007, he treated the amount of ₹ 96,36,116/- as business income as against short term capital gain declared by the assessee. 7. Before the Ld. CIT(A) the assessee filed detailed written submissions and list of shares and securities traded. Various decisions were also cited before the Ld. CIT(A) to the proposition that the assessee is not engaged in the business activity as far as its share transactions are concerned. The CBDT Circular No. 4 of 2007 dated 15.06.2007 was also brought to his notice. 8. During the course of hearing the Ld. CIT(A) asked the assessee to file copy of Board resolution authorizing the company to undertake the activity and authorizing the Directors to open DEMAT a/c and operate the same. The assessee filed the copies of these resolutions which are as under :- 1. Resolution dated March 22, 2004 which reads as under : Resolved that the company do hereby open an account with the depository participant viz. Mafatlal Securities Ltd. for trading in shares of various companies under Demat segment. 2. Resolution dated June 20, 2004 which reads as under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestments are treated as other income . The transactions of purchase and sale of investments are not routed through the trading account and opening and closing stock of shares are not shown as stock of trading items. He submitted that the investments in shares are consistently shown by the assessee in the balance sheet under the head investment . The AO in the assessment order passed u/s. 143(3) for the Assessment Year 2004-05 has accepted the same as investment and gain on sale of investment was treated as short term capital gain . Subsequent to the order of the Ld. CIT(A) for the Assessment Year 2006-07 the assessment order for the Assessment Year 2005-06 has not been disturbed either by re-opening of the assessment or notice u/s. 263. Referring to the decision of Hon'ble Bombay High Court in the case of CIT v. Gopal Purohit [2010] 188 Taxman 140 in which the income from purchase and sale has been held as short term/long term capital gain, he submitted that the appeal filed by the department has been dismissed by the Hon'ble Supreme Court in 334 ITR 308 (St.). Referring to page no. 84 of the paper book the Ld. Counsel for the assessee drew the attention of the Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has passed the resolution authorising the company for trading in shares of various companies under DEMAT segments, nothing more is required for establishing the intention of the assessee. In view of the decisions discussed by the AO as well as the Ld. CIT(A) and in view of the various decisions relied on by him, he submitted that the profit from sale of shares should be treated as business income as against short term capital gain declared by the assessee. He accordingly, submitted that the order of the Ld. CIT(A) should be upheld. 12.2 The Ld. Counsel for the assessee in his rejoinder submitted that the resolution passed by the Board of Directors is badly worded. Merely because of the resolution authorising the company to trade in shares, the character of the profit on sale of shares will not change from short term capital gain to business income . 13. We have considered the rival submissions made by both the sides, perused the orders of the AO and the Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. The only question that has to be answered in these grounds of appeal filed by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee before the Ld. CIT(A) that it had passed a resolution on 22.03.2004 to open the account with the depository participant for trading in shares of various companies under DEMAT segment. Again on 20.06.2004, the company vide its resolution authorized three of its Directors to deal in purchase and sale of shares and securities through DSP Merrill Lynch Ltd. not exceeding the value of ₹ 100.00 crore. Similarly on 16.12.2004 the company passed another resolution for appointing HDFC Asset Management Company Ltd., Mumbai as its portfolio manager to provide portfolio management and other services. The above resolutions passed by the company indicate that the company had the intention to do trading in shares with a profit motive. Merely, because the shares were shown under the head investment cannot alter the situation. It is the settled proposition of law that entries in the books of accounts are not conclusive. The conduct and intention of the assessee has to be considered before deciding the issue as to whether the profit from purchase and sale of shares has to be treated as capital gain or business income . The conduct of the assessee in the instant case by pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. 5. The learned Commissioner (Appeals) ought to have appreciated that there was no nexus between the expenditure debited to the P L account and the exempt income. 6. The learned Commissioner (Appeals) ought to have appreciated that the expenses debited to the profit and loss account were day to day expenses. 7. The learned Commissioner (Appeals) ought to have appreciated that provisions of section 14A (2) and 14A(3) were inserted w.e.f. from assessment year 2007-08 and, therefore, were not applicable for assessment year 2006-07. 16. Both the parties fairly agreed that the issue has to go back to the file of AO for fresh adjudication in the light of the decision of Hon'ble Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd. v. Dy. CIT [2010] 328 ITR 81/194 Taxman 203. We, therefore, deem it proper to restore the issue to the file of the AO for fresh adjudication and in the light of the decisions of the Jurisdictional High Court cited (supra). The grounds raised by the assessee are accordingly, allowed for statistical purposes. 17. In the result, the appeal filed by the assessee is partly allowed for statistical purposes. - - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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