TMI Blog2014 (2) TMI 256X X X X Extracts X X X X X X X X Extracts X X X X ..... of interest income which is not assessable as income of the assessee of the year on the basis of consistent and regular system followed by the assessee does not empower the Assessing Officer to change the consistent system of accounting and bring to tax interest income on mercantile basis - As per provisions of section 145 of the Act - The interest income is assessable on the basis of consistent and regular system of accounting either cash or mercantile as regularly followed by the assessee - The order of CIT(A) upheld - Decided against Revenue. - ITA No.3497/Ahd/2010, ITA No. 98/Ahd/2011, ITA No. 661/Ahd/2011, ITA No. 848/Ahd/2011, ITA No. 527/Ahd/2012, ITA No. 2373/Ahd/2012 - - - Dated:- 31-1-2014 - Shri N. S. Saini And Shri Kul Bharat,JJ. For the Petitioner : Sh. O. P. Vaishnav, Sr. D.R. For the Respondent : Sh. S. N. Soparkar with Smt. Urvashi Shodhan ORDER Per Shri N. S. Saini, Accountant Member: ITA Nos. 3497/A/2011 and 98/A/2011 are the cross appeals filed by the assessee and Revenue against the order of CIT(A)-XI dated 02.11.2010. ITA Nos. 661/A/2011 and 848/A/21011 are the cross appeals filed by the assessee and Revenue against the order of the CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal estimated at one month. The Tribunal held where shares are held for more than one month, they should be treated as investment and on their sale, short term capital gains should be charged, otherwise the profit should be treated as business profit. The CIT(A) following the same confirmed the order of the Assessing Officer. 5. The Ld. AR of the assessee relied on the decision of the Hon ble Gujarat High Court in the case of CIT Vs. Bankim Jayantilal Shah (2013) 218 taxman 310 (Guj.) and submitted that the Hon ble jurisdictional High Court has held that merely because the share was held only for a day would not be sufficient to hold that the assessee was in the business of trading in shares. He also relied on the decision of the Hon ble Gujarat High Court in the case of CIT Vs. Vaibhav J. Shah (HUF) in Tax Appeal No. 77 78 of 2010 order dated 27.06.2012 and submitted that where the assessee had very few transactions in very few scripts, then it cannot be held that the assessee was in the business of purchase and sale of shares. It was therefore the submission of the Ld. AR that the finding of the CIT(A) relying on the order of the Ahmedabad Bench of the Tribunal in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ld. DR supported the orders of lower authorities and placed reliance on the decision of the Ahmedabad Bench of the Tribunal in the case of Sh. Sugamchandra C. Shah Vs. ACIT (supra). 11. We find that the Tribunal in the case of Shri Sugamchandra C. Shah (supra) held as under: 19. We hold that if shares are not held even say for a month, then the intention is clearly to reap profit by acting as a trader and he did not intend to hold them in investment port-folio. We believe that if a person intends to hold his purchases of shares as investment, we would watch the fluctuation of rates in the market for which a minimum time is necessary, which we estimate at one month. Where shares are held for more than a month, they should be treated as investment and on their sale short term capital gain should be charged. When shares are held for less than a month, gain on them should be treated as profit from business. 12. We find that the Mumbai Bench of the Tribunal in the case of Hitesh Satishchandra Doshi Vs. JCIT (2011) 12 taxmann.com 79 (Mum.) held as under: 9. We have considered the rival contentions and perused the relevant records. The Assessing Officer took the ratio of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oney to purchase and paid interest thereon; what is the frequency of such purchase and disposal in that particular item; whether the purchase and sale is for realizing profit or purchases are made for retention and appreciation in its value; how the value of items has been taken in the balance sheet. Thus, no single factor can be said to be decisive factor and no single principle can be laid down to determine the nature of the transaction i.e., trading activity or investment. Each case has to be decided based on the particular facts of the said case. Therefore, there cannot be any precedent in the matter of adjudication of the issue of nature of transaction with regard to purchase and sale of shares and securities. The issue can be determined only by taking into account all the relevant facts and principles as laid down by the Hon'ble Supreme Court and other High Courts. Thus, principles are taken as guidelines to be applied in the facts of each case and cannot be taken as strict jacket/formula. Therefore, the bifurcation of the short term capital gain and treating the transaction as investment in the cases where the holding period of more than 30 days and as business transaction i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee has not been disputed rather has been accepted by the revenue prior to the assessment year under consideration. Thus, from the facts and materials on records, it is clearly established that the intention of the assessee, at the time of acquiring the shares, which are claimed as investment was for investment and not for trading so far as representing the long term capital gains and short term capital gains. Own funds or borrowed funds used for purchase of shares and payment of interest 13. As per the balance sheet of the assessee at page 22 of the paper book, for the assessment year 2003-04, the assessee is having its own funds of Rs. 3.71 crores and investment of Rs. 3.91 crores, which clearly shows that the assessee was having its own funds to the extent of 95 per cent of the investment. Therefore, we do not find any substance in the contention of the ld. DR that the assessee has used borrowed funds for the purpose of investment. The position is almost the same in the subsequent years. Moreover, the CIT(A) in para 4.3.1(a) has recorded the finding that the source of acquisition are out of own funds and family funds. 13.2 Similarly in the case of sale, the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in order to reduce the risk of loss of capital or income, the investor may try to diversify the investment; therefore, there may be a case of reshuffling portfolios by selling of some scrips and buying of some other scrips to mitigate the scope of loss of capital or income. Therefore, the reshuffling in a short period is not necessary be taken as an activity of trading when the intention was to reduce the risk of loss of capital. 15. In the present case the commodity in question is shares which are generally traded. But that is not conclusive because it is common knowledge that shares are also held as investment particularly shares of blue chip companies which may yield consistent dividend and may also appreciate in value over a period of years, the appreciation being similar to the appreciation in the value of other investments such as fixed deposits with banks, real estate, gold and other precious metals, etc. It is a fact that in the present case the assessee has shown the shares as investment in his Balance Sheets. The relevant details are given in para 2.2(c) of the order of the CIT(A) for the assessment year 2006-07. The same is set out below : F.Y. ending o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ICICI Bank Ltd., Larsen Toubro Ltd., CEAT Ltd., Tata Steel, Voltas Ltd. The holding period ranges from 387 days to 9016 days. It is seen thus that the assessee has held the shares for quite a long period. For example, the shares of Greaves Cotton Ltd., were held for almost 27 years (9016 days). The shares of Avery India Ltd., were held for 7493 days. The shares of PCS Industries Ltd., were held for 5674 days. Many of the shares were held for 3000 to 4000 days (9 years to 12 years). Similar details have been filed for the assessment year 2006-07 also. For this year in respect of substantial number of sale of shares the holding period was more than one month and in respect of shares which were held for less than a period of twelve months, the surplus was shown as short term capital gains. In respect of the surplus shown as long term capital gains, the period of holding in all the share transactions was several years. It is significant that the revenue has not filed any appeal against the finding of the CIT(A) that the long term capital gains declared by the assessee for the assessment year 2006-07 should be assessed as such and not under the head "business". The Hon ble Gujarat H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of shares takes place, the most important test is the volume, frequency, continuity and regularity of transactions of purchase and sale of the shares. However, where there is repetition and continuity coupled with magnitude of the transaction, bearing reasonable proportion to the strength of holding, then an inference can be drawn that activity is in the nature of business. Learned Counsel for the revenue from the records could not demonstrate that there were large number of transactions which had frequency, volume, continuity and regularity and fell within the tests laid down by the Division Bench of this Court. The Hon ble Gujarat High Court in the case of Bankim Jayantilal Shah held as under: 3. Having perused the documents with the assistance of the learned counsel for the Revenue, in the present case, the Tribunal noted that the assessee had held three scrips for period of 1380 days which were then sold for a gain of Rs.61.11 lacs. Other lone transaction during the year under consideration was sale of one scrip valued at Rs.672/-. The Tribunal was of the opinion that merely this scrip was held only for one day would not be sufficient to hold that the assessee was in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered view, the claim of the assessee that acquisition of units and shares were for investment cannot be held to be incorrect. Therefore, in our considered view, the profit on sale of such investment will give rise to income which is assessable under the head capital gains . We, therefore, set aside the orders of the lower authorities on this issue and direct the Assessing Officer to accept profit on sale of units and shares as assessable under the head capital gains for both the years under consideration. Thus, the grounds of appeal of the assessee for both the years are allowed. 14. The only other ground of appeal raised by the assessee in Assessment Year 2006-07 is with regard to charging of interest u/s 234B and 234C of the Act. 15. At the time of hearing, the Ld. AR of the assessee did not make any submissions on this ground of appeal. Therefore, the same is dismissed for want of prosecution. 16. In the result, the assessee s appeal is partly allowed for Assessment Year 2006-07 and allowed for Assessment Year 2007- 08. 17. In the Revenue s appeal for Assessment Years 2006-07, 2007-08, 2008-09 and 2009-10, the only issue involved is that the Ld. CIT(A) erred in la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the lower authorities and material available on record. In the instant case, the Assessing Officer found that the assessee has claimed credit for TDS but the interest income disclosed in the return of income filed by the assessee is lesser than interest income shown in TDS certificate. Therefore, the Assessing Officer added to the income of the assessee the difference amount of interest income as compared to the interest income showing the TDS certified interest income shown by the assessee in the return of income for the years under consideration, and thereby made the addition of Rs 55,90,328/- in Assessment Year 2006-07, Rs 2,97,365/- in Assessment Year 2007-08, Rs 1,61,99,267/- in Assessment Year 2008-09 and Rs 39,14,134/- in Assessment Year 2009-10. 22. On appeal, the CIT(A) deleted the addition made by the Assessing Officer on the ground that the assessee was offering to tax interest income earned on cash basis and therefore, the addition of interest income on accrual basis was not justified and also simultaneously directed the Assessing Officer to allow credit for TDS only to the extent interest income has been offered to tax by the assessee and to allow balance amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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