TMI Blog2011 (3) TMI 496X X X X Extracts X X X X X X X X Extracts X X X X ..... ue and the cross objection of the assessee both are directed against the order of the C.I.T.(A)-XII, Kolkata dated 27.05.2009 pertaining to assessment year 2006-07. For the sake of convenience, both this appeal and the cross objection are disposed off by this consolidated order. 2. The only ground in this Revenue's appeal reads as under:- "1. On the facts and in the circumstances of the case, Ld. CIT(A) was not correct in directing the Assessing Officer to treat the net surplus of Rs.3,74,97,575/- as income from Capital Gains' instead of 'Business income'." 3. The assessee has also filed the cross-objection on the following grounds:- "Disallowance of expenditure u/s 14A: a. For that on the facts and in the circumstances of the case, the ld. Commissioner of Income tax (Appeals) erred in upholding the disallowance of expenses u/s 14A of the Income tax Act, 1961 made by ld. Assessing Officer. b. For that on the facts and in the circumstances of the case, the ld. CIT (Appeals) erred in upholding the disallowance u/s 14A made by ld. A/O amounting to Rs.5742/- on account of Securities Transaction Tax. c. For that on the facts and in the circumstances of the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . C.I.T.(A) has relied on several judicial pronouncements including the order of I.T.A.T., Kolkata Benches in the case of DCIT vs. Reliance Trading Enterprises Ltd.[(2007) 11 SOT 627] and observed as under: "4.4. In the light of the discussion held both on facts and law, I am of the opinion that the original intention of the appellant was to treat shares as investment and not stock in trade as evident from the entries made in the books of account and balance sheet. The volume of transactions, frequency of transactions, period of holding etc. would not alter the nature of transaction from investment to trading when the initial intention of the appellant was to hold the shares under investment and accordingly recorded in the books. As such the assets (shares) categorized under the head 'investment' are to be treated as capital assets and the profit on sale of such assets are taxable under the head 'capital gains'. In the light of observations made by the Hon'ble ITAT, Kolkata Bench in the case of Reliance Trading Enterprises Ltd. (supra), I am of the opinion that the shares/units purchased with an intention of earning dividend in addition to the prospect of making profit on sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that the ld. C.I.T.(A) ignored the decision of Hon'ble Apex Court in the case of CIT vs. Distributors Baroda [83 ITR 377 (SC)]. The ld. Departmental Representative, therefore, submitted that the order of the ld. C.I.T.(A) be reversed by confirming the order of A.O. 7. On the other hand, the learned authorized representative of the assessee supported the order of id. C.I.T.(A). He referred to page-2 of the order of id. C.I.T.(A) which contained the details of the surplus arose to the assessee on sale of shares/redemption of units aggregating to Rs.3,74,97,575/-. He submitted that the assessee maintained separate accounts in respect of the shares and units held as investment and the shares held as stock-in-trade. In this regard, he referred to pages 3 to 6 of the paper book, which contained the details of the units and shares sold in the assessment year under consideration. He submitted that the said statement also contained the period of holding of the units and shares. The ld. A/R submitted that out of the total amount of Rs.3,74,97,575/- there is a long-term capital gain, on which STT was also paid, aggregating to Rs.2,77,70,029/-. Further, there was also long-term capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue whichever is lower, except in the cases of unquoted shares where it is valued at lower of cost of break-up value. The ld. A/R again referred page 40 of the paper book, which is a copy of PIL Account for the year ended 31st March, 2006, and submitted that the total interest received by the assessee was of Rs.11,02,452/- and whereas the interest paid by the assessee was only Rs.3,15,000/-. He submitted that the contention of the id. Departmental Representative that the assessee used borrowed fund for investment in shares/units is not factually correct. The ld. A/R submitted that the order of the ld. C.I.T.(A) is based on facts and the same should be confirmed. 8. We have heard the rival contentions of the parties and perused the material placed on record. The A.O. observed that the assessee has shown capital gains on transactions of shares and units of Mutual Funds and the surplus (net profit) of Rs.3,74,97,575/- on such transactions has been claimed as out of sale of investments. The A.O. treated the said surplus as assessee's income from share trading business. Therefore, the issue before us is whether the surplus earned by the assessee out of sale of shares/units was its c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. We further observe on perusal of page-12 of the order of ld. C.I.T.(A) that major portion of the surplus on sale/redemption of shares/units, i.e. approximately Rs.2.08 crores, was in respect of the investments held for quite a long period ranging from 2 years to 6 years of 6 scrips/scheme and long-term capital gain was shown against sale of such shares/units, subject to STT, except in one case where SIT was not charged. We further observe from page-12 of ld. C.I.T.(A)'s order that there was no purchase of shares/units during the year under consideration and out of the opening investment of shares amounting to Rs.3,53,76,654/-, the assessee sold such shares/units for Rs.83,64,275/-, which was 25% of the opening stock and retained the balance 75%. In natural course of share trading business, in our considered opinion, there must be purchase during the year and the total turnover is to be much more of the total holding of stock. Therefore, the allegation of the department that there was heavy volume of transaction in respect of assessee's investments is not found to be correct. 9. The crucial test as laid down by various Hon'ble Courts to decide whether a transaction is in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its order has held as under:- "8. We have heard both the parties and perused the records as well as the documents contained in the Paper Book filed before us. There is no denying the fact that ac per the accounts maintained the assessee had acted both as a trader as well as investor in shares as per the Memorandum and Articles of Association. Accounts were maintained for trading/business shares which are held as stock-in-trade and separately for investment shares which are held and shown in Balance Sheet under the head "investment" representing capital assets. The decision used to be taken by the assessee at the time of purchase itself based on different factors whether any share and security was to be held as "investment" or "trading". When the shares are accounted for in the books as investment shares, the volume of transaction of such shares cannot alter its status from investment to trading. Profit on sale of such investment shares held as capital assets are assessable under the head capital gain. The period of holding such assets cannot determine its status or change it from investment (capital) to trading (stock-in-trade). The audited a/cs. For the A. Y. 2004-05 and th ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
