TMI Blog2011 (7) TMI 535X X X X Extracts X X X X X X X X Extracts X X X X ..... so, considered view that those transactions be re-examined by the A.O. to see as to whether the purchases and sales of those shares were carried out by the assessee with an intention for investment purposes or for share trading purposes after giving due opportunity of hearing and considering such evidences as may be produced by the assessee - Thus STCG in respect of shares, which were held by assessee for a period of 30 days or more be accepted. However, in respect of shares which were held by the assessee for a period of less than 30 days, the A.O. will examine the same as to whether those shares were transacted for investment purposes or trading purposes after giving opportunity of hearing to the assessee. Disallowance u/s. 14A r.w.r.8D of I.T. Rule - Held that:- The authorities below were not justified to apply Rule 8D of the Rules for the purpose of making disallowance u/s. 14A as the dividend income shown by the assessee of Rs.9,85,958/- is exempted from tax u/s. 10(34). Be that as it may, it will be reasonable to make disallowance of Rs.12,000/- as per Sec. 14A as the dividend income of Rs.9,85,958/- is exempt from tax u/s. 10(34). Hence the cross-objection of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess income of the assessee. 3. On appeal, the ld. C.I.T.(A) after considering the facts of the case, documents filed by the assessee, assessment order and also following the decision of the Tribunal in the case of the assessee on similar set of facts for earlier assessment years, i.e. A.Ys 2004-05 and 2005-06, held that the profit on sale of investment should be treated as capital gain and not business income. He, accordingly, directed the A.O. to allow LTCG and STCG as claimed by the assessee instead of business income as taken by him in the assessment order. Hence this appeal by the Revenue. 4. On behalf of the department, ld. Departmental Representative submitted that the order of ld. C.I.T.(A) is not a speaking and reasoned order. He submitted that the ld. C.I.T.(A) has not verified the facts and he has gone on the rule of consistency as well as the intention of the assessee that the shares and mutual funds purchased by the assessee were entered as an investment in the books of account and, accordingly, has held that the profit on sale of shares and mutual funds is the capital gain and not the business profit of the assessee. The ld. Departmental Representative has file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he chart giving the break-up of LTCG which is to be assessed @ 20% and long-term capital gain which is exempted, and submitted that the said shares were purchased by the assessee in the earlier assessment years and the same were accepted even by the Tribunal as investments. He submitted that the profit on the sale of said shares, which had been accepted as investment in the earlier assessment years, has to be considered as LTCG as the period of holding is more than 12 months in regard thereto. The ld. A/R further referred page- 12 of the paper book giving the break-up of total STCG of Rs.78,12,785.46. He submitted that the said STCG comprises of STCG assessable at 10% tax and the said amount is Rs.48,47,306.44, STCG assessable at 30% tax and the amount comprises of Rs.11,500/- and also the STCG on sale of mutual funds of Rs.29,65,479.02 which is also assessable @ 10% tax. He submitted that there are certain shares and mutual funds which were acquired by the assessee in the preceding assessment years and the same had been shown by the assessee as investment in its books of account in the preceding assessment year. He further submitted that in respect of the profits on purchase and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the audited accounts. The ld. A/R further submitted that the assessee had also earned the dividend income of Rs.9,85,958.47 and interest income of Rs.2,92,00,231.81 as per its P/L Account and no interest paid is claimed as expenditure. Therefore, the assessee in the assessment year under consideration only carried out the investment business and giving loans and advances on interest. He also submitted that I.T.A.T., Mumbai Bench in the case of Hitesh Satishchandra Doshsi vs. JCIT vide its order dated 15/6/2011 has held that period of holding is not relevant to consider whether the profit on sale transaction is to be considered as short-term capital gain or business profit. The ld. A/R submitted that the case of the assessee is fully covered by the said decision of I.T.A.T., Mumbai Bench dated 15/6/2011 and to substantiate his submission, he filed a copy of the said order. 6. We have heard the parties and perused the material placed on record. Coming to the issue of LTCG on sale of shares as claimed by the assessee, we observe that the shares were purchased in the earlier assessment years as is appearing on page-12 of the chart filed before us. The ld. Departmental Representa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to earn dividend income in addition to the prospect of making profit on sale of such investment shares at an appropriate opportune moment without making any hurry for sale ignoring dividend. The investment shares and securities purchased and held till their sale had dual purpose i.e. for earning dividend as an incidental income as well as to make profit on sale at appropriate time. The conclusions drawn by the A.O by treating the investment shares as trading shares was based purely on assumptions and presumptions without bringing on record any material or evidence in support thereof. The A.O did not reject the books of a/c. vis- -vis the audited accounts u/s 145 of the I.T. Act before arriving at such a conclusion. The A.O's finding cannot, therefore, be accepted. In view of the above, we agree with decision of the Ld. CIT(A) that the profit on sale of investment shares, securities and mutual fund is assessable under the head "capital gain". We hold accordingly. Ground No. 1 of the revenue's appeal is, therefore, dismissed." 6.1. We further observe that the department also preferred appeal before the Tribunal for the assessment year 2005-06 and the Tribunal vide its order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... call for interference in an appeal under s. 260A. No substantial question of law is raised." [Emphasis supplied]. 7. Considering the totality of the facts and circumstances of the case and respectfully following the orders of the Tribunal in the case of the assessee itself for earlier years and the decision of Hon'ble Bombay High Court referred to above, we hold that the ld. C.I.T.(A) was justified in directing the A.O. to accept the LTCG of Rs.2,50,40,713.45 and LTCG (with indexation) of Rs.92,393.20. The order of ld. C.I.T.(A) on this issue is, therefore, upheld and the ground of appeal of the department raised in this regard is dismissed. 8. Now coming to other limb of the ground of Revenue's appeal in respect of STCG claimed by the assessee aggregating to Rs.78,12,785.46, we observe that there is a profit of Rs.29,65,479.02 on sale of mutual funds, the details of which as per chart placed on page-12 of the paper book are as under:- Short-Term Capital Gain (MF)- 10% Tax Qty. Sale Date Purchase Date Gain/Loss Reliance Equity Fund 250000 2889200.00 02.08.05 2500000.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to whether the said profit is to be assessed under the 'STCG' or as 'business profit'. 10. Now coming to the STCG of Rs.48,47,306.44 shown by the assessee, which is offered for tax @ 10%, it is relevant to state that originally the assessee filed another chart and the said chart stated the STCG of Rs.24,20,806.14. While seeking clarification, the ld. A/R submitted that there are four items included therein which have been wrongly included, i.e., ICICI Bank shares (60,000 shares) and Bank of Baroda shares (5600, 4200 and 18200 shares) on which there was a loss of Rs. 10,05,000.00, Rs.1,58,558.56, Rs.2,70,921.42 and Rs.9,92,020.32 respectively, which were wrongly shown in the said chart and, accordingly filed a new chart giving the break-up of the STCG (assessable @ 10% tax) showing STCG of Rs. 48,47,306.44. The ld. A/R submitted that the total capital gain shown by the assessee in the revised chart is Rs.3,29,61,078.91, which is tallying with the capital gain shown by the assessee in its audited P/L Account at page-4 of the paper book. Considering the above facts, we consider the new chart filed by the assessee showing the capital gain (assessable @ 10% tax), giving break-up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r a period of less than 12 months along with the other shares under the head 'investment', there cannot be sub-division of transaction and to hold that those shares which had been held by the assessee for a period of less than 12 months should not be considered under the head 'investment' and to hold them as trading in nature. A similar issue came up before the I.T.A.T., Mumbai Bench in the case of Hitesh Satischandra Doshi vs. JCIT (supra) and in para 10.1 it has been observed by the Tribunal that the ld. C.I.T.(A) has committed an error in bifurcating the transactions of purchase and sale of shares on the basis of holding period of 30 days and thus the income arising from the same claimed by the assessee as STCG has been sub-divided as STCG and business income. Therefore, if we accept the contention of ld. Departmental Representative that the shares which were held by the assessee for a short period, i.e. for a day or two and that too in respect of only a few of the transactions, as is observed from the chart appearing on page-12 of the paper book and to treat those shares as stock-in-trade and at the same time to treat the other shares under the head 'investment' because those s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Sec. 14A of the Act on the ground that the dividend income of Rs.9,85,958/- is exempted u/s. 10(34) of the Act. In the first appeal, the ld. C.I.T.(A) has confirmed the action of the A.O. on the ground that Rule 8D of the Rules is binding and the A.O. has correctly calculated the expenditure of Rs.8,48,305/- u/s. 14A of the Act. 13. At the time of hearing, the ld. A/R relied on the decision of Hon'ble Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd. vs. DCIT [328 ITR 81(Bom)] and submitted that the Hon'ble Bombay High Court has held that Rule 8D of the Rules is prospective in nature and is applicable to assessment year 2008-09 onwards. He further submitted that the Tribunal could make a reasonable disallowance instead of restoring the matter to the A.O. He submitted that the Tribunal is normally making disallowance of 1% of the dividend income. The ld. Departmental Representative has no objection to make a reasonable disallowance as per sec. 14A of the Act since dividend income is exempted u/s. 10(34) of the Act. 14. Considering the above submissions of the learned representatives of the parties and after perusing the orders of the authorities below, we agr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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