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2015 (12) TMI 1816 - AT - Income TaxCorrect head of income - Profits realized on sale of shares - business income or capital gain - long term capital gain or short term capital gain - period of holding of the shares - HELD THAT:- Schedule L (on Investments) to the Balance Sheet enclosed along with return that long –term investments are stated at cost less permanent diminution in value of investments only. The Investments(Other than Trade) of ₹ 44.71 crores as on 31 March 2006 are detailed in Schedule F of the Balance Sheet. The aforesaid investments are made upon the decision made by Board of Directors and with clear intention to hold the aforesaid Capital Assets as investment. The intention of the assessee is therefore never to make profit from sales as in the case of trading activities. The intention is to have steady and substantial capital appreciation and earn dividends if any from such investment. As regards, trading stock where the assessee intends to make profits, such stock has been disclosed in Schedule I of the Balance sheet showing a closing value of ₹ 30.85 crores on 31 March 2006. The accounting policy for trading of shares is disclosed in Schedule L of the Balance sheet which states that “closing stock of securities is valued at cost of market price which ever is lower. Thus, the intention of the assessee is very much clear as to what stocks are to be treated as business stock and what to be treated as investment stock. The Policy and treatment of stock transaction are clearly reflected in the Balance sheet of the assessee. We thus fully concur with the finding of the Learned CIT(Appeals) that the profit of ₹ 34,61,63,879 in respect of shares sold during the year (including gain of ₹ 29,05,58,750 realized on sale of shares of Dawar India Ltd. ) has been rightly treated by the assessee as long term capital gain and thus the Learned CIT(Appeals) has rightly held that the assessee is eligible for exemption under sec. 10(38) of the Act on the said long term capital gain. The First Appellate Order in this regard is thus upheld. The ground Nos. 1 and 2 are accordingly rejected. It is also clear that 84% gains from capital gains were long term and only 15% was from short term investment. It is always material that the intention of the assessee, which is to be seen while determining the nature of the transaction conducted by the assessee. On perusal of the holding period of the shares it is seen that the assessee transacted in 85 scripts had holding period of more than 400 days ( Dabur India holding was more than 6900 days), 29 scripts had holding period of more than 365 days (Appendix A). Besides, all the scripts sold were STT paid and all were delivery based. Accrual of interest income - AO made addition on the basis of special auditor’s report that assessee had not shown interest income received from Dawar Foods Ltd. - HELD THAT:- The submission of the assessee remained that assessee had advanced an amount of ₹ 6 crores to Dawar Foods Ltd. initially at the interest rate of 10%, however, during the year on mutual consents the rate was reduced from 10% to 8.5%. The Assessing Officer had not accepted this explanation of the assessee but the Learned CIT(Appeals) has accepted the same with this finding that it is a settled principle of law that only real income is to be taxed. In this regard, he has followed the ratios laid down in the case of CIT vs. Shoorji Ballabdass & Co. [1962 (3) TMI 6 - SUPREME COURT] . We thus do not find reason to interfere with the First Appellate Order in this regard. The same is upheld. The ground No. 3 is accordingly rejected. Benefit of charging of the gain u/s 111A - HELD THAT:- It is not the finding of the Assessing Officer or the Learned CIT(Appeals) that these shares were shown as stock in trade or the assessee was not correct in showing these shares as investment. We thus do not find infirmity in the claim of the assessee that the profit accrued on sale of these shares was short term capital gain and the assessee was eligible for claiming charging of the gain under the provisions laid down under sec. 111A of the Act. We thus while setting aside the orders of the authorities below in this regard direct the Assessing Officer to accept the claim of the assessee and allow the benefit of charging of the gain under sec. 111A of the Act. Addition u/s 14A - HELD THAT:- Interest receipt is more than the interest payment in respect of financial activities and the Assessing Officer has also not disputed the reserves available with the assessee. We are thus of the view that the Learned CIT(Appeals) has rightly deleted the disallowance. The same is upheld.
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