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TMI Blog2012 (12) TMI 209X X X X Extracts X X X X X X X X Extracts X X X X ..... aken the following grounds:- "1. On the facts and circumstances of the case and in law, the CIT(A) has erred in treating the business income of Rs. 46,27,931/- as Short Term Capital Gain as claimed by the assessee. 2. On the facts and circumstances of law, the CIT(A) has erred in deleting the addition made by the AO treating the interest expenditure of Rs. 7,28,617/- as for non-business use and not allowable u/s 37(1) of the I.T. Act, 1961." 3. Apropos ground Nos. 1&2 of the Department's appeal, the AO made disallowance of Rs. 20,51,591/- u/s 14A of the Act. The assessee had declared a dividend income of Rs. 82,06,366/- in its return of income, claiming it as exempt. Before the AO, the assessee submitted that the intention of the assessee was not to earn dividend but to hold the securities for earning profit from their sale/purchase; that the dividend was only incidental to the activity derived from the purchase/sale of shares; and that the assessee had not incurred any expenses related either directly or indirectly to, or allocable to the earning of the dividend income. The AO refused to accept the stand taken by the assessee. It was observed that for earning dividend income, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al on record. The AO made disallowance of Rs. 20,51,591/-, i.e., 25% of the dividend income of Rs. 82,06,366/-, holding that the assessee had not made any submission of expenses relating to investment or dividend of income, though indisputedly, certain expenses are bound to have incurred for earning the dividend income. In "Maxopp Investment Ltd. V. CIT"(supra) it had been held that in terms of section 14A(2) of the Act, the condition precedent for the AO to determine the amount of expenditure incurred in relation to exempt income is that he must record his dis-satisfaction with the correctness of the claim of expenditure made by the assessee or with the correctness of the claim made by the assessee that no expenditure had been incurred; that therefore, the determination of the amount of expenditure in relation to exempt income under Rule 8D of the Rules would only come into play when the AO rejects the claim of the assessee in this regard. "Maxopp Investment Ltd. V. CIT"(supra), it is seen, is squarely applicable hereto. The assessment order does not evince any such dis-satisfaction of the AO with regard to the claim of the assessee that no expenditure had been incurred. 8. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 899(SC). It was observed that in the assessee's case, the shares had been purchased in very large quantities which eliminates the possibility of investment for personal use, possession or enjoyment. Moreover, the purchase/sale transactions of shares were repetitive, showing that the profits and gains from the Trading of shares was the assessee's business income; that further more, it was absolutely clear that the intention of the assessee while purchasing the shares was to re-sale them at a profit and there was no intention of holding the same; that by showing the part of the share trading in its profit and loss account, the assessee had itself accepted that share trading was its business activity; that it was only an admission on the part of the assessee to camouflage such business income as Short Term Capital Gain; that undeniably, the sales produced the surplus were connected with the assessee's business, so that the surplus was nothing else but the profits and gains of such business of the assessee; and that in view of "Karam Chand Thapar &Brothers Pvt. Ltd."(supra), in the facts of the case, there was no merit in the assessee's contention that it was the prerogative of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observing that a part of the shares available with the assessee were in the nature of investment and surplus from sale thereof was assessable as capital gains only; that there is no bar on a person having two portfolios and where it is so, there can be income both by way of capital gains as well as business income. 14. Before us, the ld. DR has contended that the ld. CIT(A) has erred in treating the business income of Rs. 46,27,931/- as Short Term Capital Gain, as claimed by the assessee, while doing so, the ld. CIT(A) has wrongly ignored that since the assessee was trading in shares as business activity, he could not have shown part of the games from trading of shares as Short Term Capital Gains while at the same time showing part thereof in its profit and loss account; that the ld. CIT(A) has also wrongly over-looked the fact that it is quite evident that the assessee had held the shares for a short time only, since Short Term Capital Gain was declared and that the assessee was wrong in contending that the shares from which the Short Term Capital Gains came were its Long Term Investments; that the case laws relied on by the AO are fairly and squarely applicable to the facts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the shares/securities in the nature of Trading/Revenue assets, which are held for disposal in the ordinary course of business,, are being classified by the assessee as current investment. Accordingly, it is under the head of income from business and profession that the profit/loss thereon is generated. Undisputedly, such fact has also been mentioned in the computation of income filed by the assessee along with the return of income. 17. For assessment year 1995-96, the ld. CIT(A) vide order dated 20.8.2003, (copy at APB 45 to 51), had held that the assessee had been maintaining separate account for investment and in trade since the beginning; and that even the books of account seized and employed for making assessment for that year confirmed the said state of affairs. The Tribunal, vide order dated 25.3.08 (copy at APB 133 to 152), confirmed the CIT(A)'s order for assessment year 1996-97 ( copy at APB 54 to 61), for assessment year 2001-02 (copy at APB 62 to 65) and for assessment year 2002-03 (copy at APB 66 to 69), the AO, following the principle of consistency, accepted this position. It was held that a part of shares available with the assessee were in the nature of investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the ground which had been dealt with specifically and decided in favour of the assessee. 7. It is trite law that even where two views are possible, proceedings under section 148 cannot initiated. In the instant case, on the other hand, there is a categorical finding of the CIT(A) on this very aspect which was upheld by the ITAT also. We, thus, find that no question of law arises for determination in the present appeal and, therefore, dismiss this appeal." 18. The Hon'ble High Court, it is seen, took note of the fact that the ld. CIT(A), in the block assessment proceedings, had held that the stocks were rightly shown by the assessee as investment in its books of account, which could not be treated as stock in trade and that this categorical finding of the ld. CIT(A) in the block assessment proceedings had attained finality. 19. Be that as it may, as the matter stands, for assessment year 1995-96, the issue stands decided in favour of the assessee and this position has been followed by the AO for assessment years 1996-97, 2001-02 and 2002-03. 20. The factum of the assessee's holding two portfolios is nowhere denied. Rather, it has been accepted for more than a decade. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st expenditure of Rs. 7,28,217/- on account of alleged non-business use of the borrowed funds. The AO observed that the assessee had borrowed funds and had given interest free loans to its sister concerns. 24. The assessee maintained before the ld. CIT(A) that interest of Rs. 7,28,217/- paid by the assessee company comprised of Rs. 63,489/- representing vehicle finance charges to bank/institution and Rs. 6,64,728/- representing interest to broker on Margin Financing in respect of shares purchased. It was submitted that the vehicle finance charges have been paid to bank/institution in respect of the vehicles financed through them, which vehicles had been used only for the business purposes of the assessee company and which fact had not been disputed by the AO; that the AO had allowed depreciation on those very vehicles; that further, no funds had been borrowed and the assessee company had not got any funds from bank and given them as interest free advances to its sister concern; that the amount had been paid directly by the bank to the company from whom the vehicles had been purchased; that this was also true that the interest paid to Fortis Finance Services Ltd. and the said inte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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