TMI Blog2010 (11) TMI 441X X X X Extracts X X X X X X X X Extracts X X X X ..... e - Again, the company is enjoying a short term loan of Rs. 95,000,000 borrowed at Indore Branch against the pledge of agricultural produce/commodities stored in approved warehouses as per sanction letter from the HDFC Bank dated 28th July 2004 - This short term loan can't be used for any other purpose. Hence, this loan is not utilised for investment in shares and mutual funds - Thus it can be seen that only company's funds are used for the purpose of investment" - In case assessee had utilised its own funds, no disallowance was called for - Therefore, restore this issue to the file of Assessing Officer for examining this aspect afresh - Thus, appeal by the assessee is allowed for statistical purposes. - ITA No. 1453/Mum/2009, - - - Dated:- 15-11-2010 - S.V. Mehrotra, Vijay Pal Rao, JJ. Deepak Tralshawala for the Appellant Shravan Kumar for the Respondent ORDER S.V. Mehrotra:- 1. This appeal by the assessee, is directed against order dated 30th December 2008, passed by the Learned CIT(A)-VI, Mumbai, for assessment year 2005-06. 2. Facts in brief are that, the assessee-company, during the relevant assessment year, carried on the business of tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 93,479 under section 14A of the Act. 3. The assessee-company, being aggrieved by the stand of the Assessing Officer, carried the matter in first appeal wherein the learned CIT(A) confirmed the order of the Assessing Officer. Aggrieved, the assessee-company is in further appeal before the Tribunal raising following grounds of the appeal:- "On the facts and circumstances of the case and in law, the learned CIT(A) erred in:- (i) holding that A.O. is justified in taxing the short term capital gains of Rs.33,91,984/- as business income, ignoring that the shares and units sold have consistently been shown as "investment" in the balance sheet, and that even the main objects of the assessee - company did not authorise the assessee to do the business of trading in shares and securities. (ii) directing A.O. to follow the instructions issued by the CBDT and apply methodology prescribed in Rule 8D(1) for disallowing related expenditure under section 14A for earning exempt income ignoring the fact that no expenditure was actually incurred to earn the exempt income of Rs.2,54,798/-. (iii) Rule 8D is ultravires the Income Tax Act, 1961, since it enhances the disallowances u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T, ITA no.2586/Mum./2009, for assessment year 2005-06, vide order dated 26th March 2010, wherein, the Tribunal has, taking into consideration the frequency of transaction, upheld the Assessing Officer's action. He further relied on the CBDT Circular no.4 of 2007. 7. We have heard the rival submissions, perused the orders of the lower authorities and the materials available on record. The moot point for our consideration is, whether or not, the assessee's intention was to hold the shares as its investment or the shares were held for earning profit by way of trading in shares. This is always a vexed question as one has to determine the intention of the assessee which is primarily within his own knowledge. No acid test has been laid down in any of the decisions as a determining yardstick to decide the intention of the assessee. It all depends on facts and circumstances of each case as to whether the entire transaction has been undertaken with an intention to earn dividend by way of keeping the same as investment or it was purely with an intention to earn profit by way of trading in shares. In the case of a company, the memorandum of association gives the object for which the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he fact that in most of the cases, the transactions of purchase and sale have been effected within 50 days in the case of shares and in the case of mutual fund, the period of holding in most of the cases is 100 to 150 days. Thus, the entire gamete of transactions, when considered together, clearly shows that the assessee had no intention to hold its shares and mutual funds as part of its investment portfolio. Rather the intention was to liquidate the shares as early as possible in order to earn profit. It is further pertinent to note that in the case of Ucal Fuel System and Unichem Laboratory Ltd., the assessee incurred losses when it sold its shares on 29th March 2005 and 30th March 2005. In the case of Ucal Fuel System, the assessee had purchased 3,000 shares on 1st February 2005, and on 29th March 2005, it had sold 95 shares and immediately thereafter on 30th March 2005, it sold 2,905 shares. Had the intention been to invest in shares, there was no necessity to sell the shares at loss. Further, close scrutiny of purchase and sale pattern shows that in most of the cases shares have been purchased in the month of January and sold in the month of March. The whole action on the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hon'ble Bombay High Court in Godrej Boyce Limited vs ACIT, vide judgment dated 12th August 2010, wherein, it has been held that applicability of Rule 8D is only prospective in operation, therefore, for assessment year 2005-06, it was not applicable. Consequently, learned CIT(A)'s directions are vacated. Now, coming to the issue of apportionment of expenditure towards earning of dividend income as made by the Assessing Officer, we find that the assessee, in its submissions, as reproduced at Page-3 of the Assessing Officer's order, had pointed out as under:- "5. No Borrowed Funds are used for the purchase and sale of shares and units in Mutual funds:- The company is enjoying a short term loan of Rs. 95,000,000 borrowed at Indore Branch against the pledge of agricultural produce/commodities stored in approved warehouses as per sanction letter from the HDFC Bank dated 28th July 2004. This short term loan can't be used for any other purpose. Hence, this loan is not utilised for investment in shares and mutual funds. Thus it can be seen that only company's funds are used for the purpose of investment." 10. The above submissions have not been examined by the lower authoritie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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