TMI Blog2014 (1) TMI 697X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income Tax Rules – Held that:- Rule 8D is prospective and is applicable with effect from A.Y. 2008-09 – Thus, the CIT(A) has rightly held that Rule 8D is not applicable – order of the CIT(A) upheld – Decided against Revenue. - I.T.A. No. 7945/Mum/2010, I.T.A. No. 7548/Mum/2010 - - - Dated:- 5-6-2013 - Shri Vijay Pal Rao, JM And Shri N. K. Billaiya, AM,JJ. For the Petitioner : Shri Y. P. Trivedi Ms. Usha Dalal For the Respondent : Shri O. P. Meena ORDER Per N. K. Billaiya, AM:- These cross appeals by the assessee and the Revenue are directed against the very same order of the Ld. CIT(A)-8 Mumbai dt. 24.8.2010 for assessment year 2007-08. As both these appeals were heard together, they are disposed of by this common order for the sake of convenience and brevity. ITA No. 7945/Mum/2010-2007-08 2. The sum and substance of the grievance of the assessee is that the Ld. CIT(A) has erred in sustaining the disallowance of Rs. 1,83,75,418/- being valuation loss on conversion of shares into stock-in-trade. 3. The assessee is a share and stock broker. For the year under consideration, the assessee declared a loss of Rs. 1,36,190/-. The case was selected for s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s CIT (2000) 75 ITD 338 (Hyd) and held that the loss on account of valuation of closing stock of shares is deemed to be speculation loss in view of the explanation to Sec. 73 of the I.T. Act and completed the assessment. 5. The assessee strongly agitated this matter before the Ld. CIT(A) but without any success. The Ld. CIT(A) observed that there is no apparent reason why the shares purchased in February, 2006 which were held as investment , be converted into stock-in-trade within a short period of two months as on 3.4.2006. The Ld. CIT(A) further opined that there are no facts emanating from relevant material being , assessment order or assessee's submission , which could justify or necessitate such conversion. The Ld. CIT(A) was convinced that the act of the assessee has resulted into only one benefit i.e. reduction of liability of tax by reducing the taxable income arisen on account of recovery of bad debt. The Ld. CIT(A) confirmed the view of the AO that the assessee company has adopted the device of resolution for conversion of investment into stock-in-trade with an intention to evade taxes by setting off valuation loss against bad debt recovered and confirmed the findings o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... similar reasons, the Ld. Counsel for the assessee relied upon the decision of the Hon'ble Supreme Court in the case of Wallfort Shares Stock Brokers (P) Ltd 326 ITR 1 (SC), Mrs Sarita P. Shirke Another 281 ITR 373 (Bom) and CIT Vs Oberoi Hotels Pvt. Ltd 334 ITR 292 (Cal). The Ld. Counsel for the assessee concluded that in the light of the ratio laid down by the Hon'ble Supreme Court and the High Courts even if the assessee has taken shelter of some tax planning which may have resulted into reduction of tax liability, it cannot be held that the assessee has evaded tax. The Ld. Counsel for the assessee further submitted that in the immediate preceding assessment year, the assessee has recovered bad debts to the tune of Rs. 8 crores. Therefore, the allegation of the Revenue authorities that the assessee has resorted to tax planning to reduce its tax liability does not hold any water because the assessee could have set off of the loss in the preceding year itself when the recovery of debt was more than 3 crores from the present year. The Ld. Counsel for the assessee prayed that the loss is genuine and as per the accounting principles and deserved to be allowed. 10. Per contra, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... means that the major component of the income is that of dividend. We failed to understand even after converting the investment into stock in trade, the assessee has not done any business in the shares so converted. The assessee has not done any trading in the immediate past assessment year nor during the year under consideration. This conduct of the assessee of converting Long term investment into stock in trade is not backed by any commercial prudence or justifiable cause. The assessee has not brought any cogent material evidence on record even subsequent to the year under consideration to show that it has done some trading or business in shares. 13. No doubt legitimate tax planning is not barred by any provision of the law in the light of the decision of the Supreme Court (supra). However, each case has to be considered on the conduct of the assessee and in the instant case, the conduct of the assessee clearly suggest that his only intention was to create artificial loss by converting investment in stock in trade and setting it off against the bad debts recovered. The say of the Counsel that the assessee could have done this in the earlier year itself when the recovery was 8 cr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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