TMI Blog2014 (9) TMI 519X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee as facts emerges that the assessee has claimed these shares in investment account and they are available at reduced rate of taxation - assessee did not spell out any market credentials of the shares of M/s. Share Street (P) Ltd. nor the product range or worth of the company - there is no factual elucidation about the turnover and assets of this company so as to work out the valuation of unquoted equity shares at ₹ 65/- per share - CIT(A) without adverting to any factual observations has allowed the relief by summary observation which cannot be upheld. Disallowance u/s 14A r.w. Rule 8D – Held that:- The amount has been disallowed against the interest paid on loans by applying the provision of Rule 8D which on the face of its seems to be excessive - CIT(A) instead of giving any factual projection by summary observation has deleted the entire addition – Thus, the issue should be restored back to the file of the CIT(A) to pass a speaking order on the facts and circumstances of the case duly considering the factual issues raised by the AO in his order about the intermixing and interlacing of the funds and possibility of internal transaction from business account to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s well as claim to be out of investment account were clubbed together and subjected the treatment under the head business from profit and gains. 3.3 Besides the AO was of the view that the assessee had taken loans and paid interest amounting to ₹ 26,92,378/- on borrowed funds which according to him were utilized by the assessee for earning exempt dividend income. The AO therefore, invoked the provision of Section 14A of the Act read with rule 8D and computed the disallowance u/s 14A of the Act at ₹ 39,16,695/-. 3.4 Aggrieved, the assessee preferred first appeal before the ld. CIT(A) wherein the assessee raised his contentions as under:- 4.2 .(i) The assessee is an investor in mutual funds and securities part of which are maintained under the portfolio management system through a portfolio manager. Apart from these investments in mutual funds and securities the assessee also trades in shares and securities and future options. (ii) The assessee maintains separate books of accounts for all the activities and these are audited u/s 44AB. (iii) The assessee invested his surplus funds from FY 2004- 05 in shares and stock for capital appreciation and to this en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee has shown purchase of scrips as investments in his balance sheet rather than stock in trade then the department cannot treat the nature of the transactions differently for taxable purposes. It is for the assessee to decide whether he is holding the shares for investment purpose or as stock in trade and its decision should be reflected in his accounting method which should be subject to verification. (ii) In this particular case the assessee has consistently shown purchase of shares through PMS as investments in his balance sheet from 2005-06. The department cannot change the character of the transaction from that of capital gain to business. The short term capital gain of ₹ 20,40,609/- and long term capital gain of ₹ 29,27,833/- are directed to be treated as capital gain and not income from business. Similarly, the capital gains accruing to him of ₹ 15,28,073/- from sale of shares of M/s Shares Street (P). Ltd. is directed to be treated as long term capital gain and not income from business. Therefore, the first two grounds of appeal of the assessee are allowed. 3.6 Apropos the third issue of the assessee, the ld. CIT(A) deleted the entire a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The AO has clearly observed that there was huge multiplicity, frequency and intermixing of the transactions for which the assessee could not give satisfactory explanation. The relevant excerpts from AO s order is as under:- In continuation of the ongoing discussion, it would be relevant to refer to an important test which is sometimes applied in determining the character of the transaction. Was the purchase made with the intention to resell at a profit? It is often said that a transaction of purchase followed by resale in distinguishing business transaction from transactions of investment. Case may however, arise where the purchase has been made solely and exclusively with the intention to resell at a profit and the purchaser has no intention of holding the property for himself or otherwise enjoying or using it. The presence of such an intention is no doubt a relevant factor and unless it is off set by the presence of other factors it would raise a strong presumption that the transaction is an adventure in the nature of trade. The assessee has not been able to give any specific reason for such a frequency, multiplicity and volume in respect of all the scrips. The nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee with a profit motive. It is further pleaded that the ld. CIT(A) has not carried out proper verification as to whether shares which were held in business portfolio of the assessee were not transferred to investment portfolio by internal transactions. He has relied on bald explanation that separate books of account were maintained. Therefore, the transactions ought to have been treated on two different methods The ld. DR further pleaded that what is necessary to see whether there was any interlacing or intermixing of funds and whether or not there were any internal or journal entries in the books of account of the assessee by which shares from trading portfolio to investment portfolio were carried out. This is very easy in the case of the assessee as proprietor of both the portfolios are not separate but the assessee himself. 3.8 Apropos Ground No. 2, the ld. DR contends that the assessee sold 28551 shares of one private limited company i.e. M/s. Share Street (P) Ltd. for a face value of ₹ 10/- each share for which the assessee realized the amount of ₹ 18,55,815/- @ ₹ 65/- per share. The AO was of the view that the assessee in order to generate capital h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shares held by the assessee are separate and it should be treated under the head business income and capital gains respectively. The ld. CIT(A) has failed to appreciate the AO s observation in respect of overvaluation of the private company shares and allowed the relief in summary manner. It is pleaded that in the case of shares of M/s. Share Street (P) Ltd., the shares are unquoted private company shares and no credentials as well as worth of the private company are available in public domain. It was easy for the assessee to doctor the sale price of shares with the management of such company must be known to the assessee. The ld. CIT(A) in this ground has adopted the summary approach and missed the crucial pointed involved for determination of the question. 3.10 Apropos third ground i.e. disallowance of expenditure u/s 14A of the Act where the ld. DR relied on the order of the AO. The ld. AR relied on the order of the ld. CIT(A) and placed reliance of the case laws as mentioned in the written submission. 3.11 We have heard the rival contentions and perused the materials available on record. In our considered view, the AO and ld. DR contentions apropos the frequency of in ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
