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Sagar Constructions Versus The Addl. CIT

2015 (3) TMI 798 - ITAT MUMBAI

Profit earned on sale of shares - Capital gains v/s business income - Held that:- After going through the order of the Tribunal in assessee's own case for the immediately preceding assessment year, wherein facts and circumstances were the same, we direct the AO to treat the profit on sale of shares as short term and long term capital gains depending on the period of holding of shares. -Decided in favour of assessee.

Undisclosed sale of shares - CIT(A) deleted addition - Held that: .....

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of any additional documents considered by him while deleting the addition. Accordingly, there is no infirmity in the order of CIT(A) deleting addition made on account of 5000 shares of Rajesh Exports. - Decided in favour of assessee.

Addition made on account of undisclosed shares of M/s Hindustan Organic Chemicals ltd has been deleted by the CIT(A) after observing that there was typographical mistake with regard to purchase of shares of Hindustan Organics on 28-2-2007, which was actu .....

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AO in respect of loan taken by the assessee firm from M/s Koradia Construction Pvt. Ltd. - addition deleted by the CIT(A) - Held that:- It is not disputed that assessee is not shareholder of M/s Koradia Construction Pvt. Ltd, therefore, the amount of loan received by the assessee not in the capacity of shareholder, is not liable to be treated as deemed dividend u/s.2(22)(e) in the hands of assessee firm in view of the decision of Hon‟ble Bombay High Court in the case of Universal Medicare .....

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stments which are made for earning exempt income is to be taken into account and other investments which fetches taxable income are to be excluded. Keeping in view the fact that assessee has offered taxable income in respect of its investment in future and options business as well as capital gains, we restore the computation of disallowance under Rule 8D. We direct accordingly. - Decided in favour of revenue for statistical purposes.

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d by assessee for 15401 shares and M/s Koradia Construction (sister concern) placed order for sale of 25000 shares to Khandwala Integrated Financial Services Ltd., who was common broker for assessee and sister concern, by mistakenly broker issued contract memo in the name of assessee for sale of 40401 shares. As the amount of sale proceeds of 25,000 shares is belong to Koradia Construction, therefore, the same was credited to their account which was reflected in confirmation of account. After co .....

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le of 25000 shares of Karuturi Communication Ltd. - Decided in favour of assessee. - ITA No.4646/Mum/2011, ITA No.4711/Mum/2011 - Dated:- 11-3-2015 - Shri R.C.Sharma S And Shri Sanjay Garg JJ For the Appellant : Shri Vimal Punmiya For the Respondent : Shri Asghar Zain ORDER PER R.C.SHARMA (A.M.) : These are the cross appeals filed by the assessee and Revenue against the order of CIT(A) dated 28-3-2011 for the assessment years 2008-09, in the matter of order passed u/s.143(3) of the I.T.Act. 2. T .....

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s considered as business income, whereas profit from investment in share and securities was treated as short term and long term depending on the period of holding. In the assessment year 2007-08, the assessee had claimed capital gains in respect of profit earned on sale of shares which was treated by the AO as business income. In an appeal filed before the Tribunal, the Tribunal vide its order dated 3-5-2013, decided the issue in favour of assessee and held that profit earned on sale of shares w .....

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that assessee has dealt in following three types of share transaction during the year :- i) Share Trading on Future & Option basis. ii) Share Trading on Speculation business i.e. selling & buying of same script on same day. iii) Share trading on Short Term Capital Gain. The dispute in the present appeal relates only to third type of transaction, profit on which was offered under the head capital gains. In support of the proposition that investment can be liable to tax only under the hea .....

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7-08 and held as under :- 7. We have carefully considered the rival submissions in the light of the material placed before us. Undisputedly, the assessee in its books of account has shown the investment in the shares under the head investment . This activity of the assessee has been started in the present year only. Initially the assessee had purchased certain shares and sold them within a short span. The reason for the same has been stated to be fall in the stock market. For proving so a chart .....

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it cannot be said there was a frequent sale and purchase of shares. The reason of sale is supported by fall of BSE index. Thus according to facts and circumstances of the case, it cannot be said that assessee has entered into activity of sale and purchase of shares with a view to trade. 7.1 Though the AO in the assessment order has mentioned that assessee has utilized borrowed funds, but during the course of hearing reference was made to P&L account to show that assessee does not bear any i .....

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m the accounts of the partners that interest has been charged by the assessee where the partners were utilizing capital of the firm. Similarly interest is paid to the partner where firm has utilized capital of the partner. Thus, there is no impact on the activity of the assessee regarding sale and purchase of shares so far as it relates to amount borrowed by partners. It is also observed by the A.O that partners have borrowed huge capital but he has not brought on record any single instance to s .....

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in the shares giving rise to income from capital gain and the second is to deal in the sale and purchase of shares as a trader. Such discretion of the assessee has been recognized in various judicial pronouncements which have been relied upon by Ld. AR and have been discussed in the above part of this order. According to such discretion assessee has expressed its intention to assign such activity in the nature of investment . Merely some entries of sale of immediate shares after purchase thereof .....

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on that the activity of sale and purchase of shares entered into by the assessee during the year under consideration cannot be held to be an activity giving rise to an income assessable under the head income from business or profession. The investment was made by the assessee in the activity of sale and purchase of share was with an intention to invest and shares unsold have been shown under the head investment . The sale at the short period was supported by just cause i.e. fall in price of shar .....

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a Construction P. Ltd., 39 taxmann.com 20; Circular No.4/2007, dated 15-6-2007; Karan R Bahl, 37 taxmann.com 29; Rajan R Bahl, 12 taxmann.com 447; Nashik Capital Financial Services Ltd., 33 taxmann.com 190, Shah-La Investment & Financial Consultants P. Ltd., 2 SOT 371; Mafatlal Fabrics Ltd., 17 taxmann.com 50; Devji Nenshi Palani, 28 taxmann.com 209; Veena Karla 37 taxmann.com 208 and Manoj Kumar Samdaria, 52 taxmann.com 247 (SC), and contended that in view of these decisions, the AO was jus .....

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ied or followed to bifurcate the various transactions into each of the portfolios, at the very beginning of entering of these transactions and not in the case of the assessee when the sales statements are received. Further, the very basis of these transaction entered for profit motive, its conduct to carry out such transactions, systematic, consistent, frequent, voluminous and repetitive nature of these transactions coupled with speculative and derivative transactions in similar shares with same .....

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accounts, trading accounts, not out of same margin funding availed with same broker using the same pool account etc. etc. The transactions should invariably be backed by actual/constructive delivery of shares, but the same is missing in the case of the assessee so far as shares traded through pool accounts of the various brokers financed out of margin funding; in fact no such demat accounts of the brokers with the shares belonging to the assessee credited therein was ever produced by the assess .....

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the immediately preceding assessment year. In respect of decision in the case of Gopal Purohit, ld. AR submitted that the ratio laid down by the jurisdictional High Court squarely applies in assessee‟s case insofar as assessee has two separate portfolios maintained and only delivery based transaction were offered for Taxation under the Head Income from Capital Gains . The same are reflected in books of account under the head investment‟ only. In respect of Wallfort Financial Service .....

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l gain on sale of shares, hence, such case cannot be relied in assessee‟s case. With respect to Koradia Construction Pvt. Ltd. (supra), ld. AR submitted that this decision of Mumbai Bench supports the case of the assessee insofar as the findings given in the aforesaid case equally applicable to the assessee since the gain on sale of shares reflected as investment was held to be liable to be assessed under the head income from capital gains‟. As per ld. AR even the Circular No.4/2007 .....

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e instant case, the assessee has filed all the details, therefore, reliance of aforesaid case has no relevance in the case of assessee. With regard to the case of Nashik Capital Financial Services P. Ltd., the ld. AR submitted that this case is related to applicability of Section 73. However, the assessee is a partnership firm, therefore, the aforesaid case has no relevance with the present appeal. In case of Shah-La Investment & Financial Consultants P. Ltd. (supra), the ld. AR submitted th .....

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and in the case of Manoj Kumar Samdaria, the facts and circumstances were totally different to the facts of the present appeal, therefore, the findings given in the aforesaid appeals have no relevance to the appeal of the assessee. 8. It was further contended by ld. AR that merely because assessee liquidates its investment within short span of time which had given better overall earning to assessee. It would not lead to conclusion that assessee had no intention to keep on funds as investor in e .....

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P. Ltd. {2012} 26 taxmann.com 48(Pune Trib.). 9. In view of the above discussion and after going through the order of the Tribunal in assessee‟s own case for the immediately preceding assessment year, wherein facts and circumstances were the same, we direct the AO to treat the profit on sale of shares as short term and long term capital gains depending on the period of holding of shares. We direct accordingly. 10. In the appeal of the Revenue (i.e. ITA No.4711/M/2011), the Revenue has tak .....

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nics Ltd. 3. "On the facts and in the circumstances of the case and in law, the Id.CIT(A) erred in deleting the addition of ₹ 5,78,70,000/- made by the Assessing officer on account of deemed dividend u/s.2(22)(e) of the I.T.Act, 1961. 4. "On the facts and in the circumstances of the case, and in law, the Id.CIT(A) erred in deleting the addition of ₹ 13,11,123/- made by the Assessing officer u/s.14A of the I.T.Act. 1961." 5. "On the facts and in the circumstances o .....

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ajesh Exports, we found that addition was made by the AO on misconception that assessee had purchased 5000 shares of M/s Rajesh Exports, but neither these shares were sold during the year nor shown in the closing inventory. The CIT(A) has deleted the addition after having the following observations :- 4.3.2 Regarding shares of M/s.Rajesh Exports, the A.O. noticed that the appellant purchased 5000 shares during this year and did not admit any sale and there was no closing stock. He, therefore, as .....

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shares. As seen from the above account a sum of ₹ 28,00,004/- is credited on 22-1-08 being sale proceeds of 5000 shares of Rajesh Exports. Further as per the statement of capital gain filed along with return of income, sale of 5000 shares is admitted on 22-1-08 at ₹ 28,00,005/- by incurring loss of ₹ 20,93,136/- in page 4 of the above statement. This means that the appellant has already admitted the sale of 5000 shares in the capital gain working and, therefore, the addition i .....

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accounted in computation of total income. However, due to wrong billing code fill by Broker Bill Memo was issued in the name of Koradia Construction. Therefore, the same was treated as shares sold by Koradia Construction on behalf of assessee, and accordingly assessee account was credited by the Koradia Construction. Confirmation of account between Koradia Construction and assessee also reflects that the shares were sold by Koradia Construction on behalf of the assessee. Contract note of transac .....

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accounts on 21-8-2008 i.e. before the end of the financial year, the CIT(A) held that there was no escapement of sale proceeds of 5000 shares. The finding recorded by CIT(A) has not been controverted by ld. DR. It is pertinent to mention here that no ground has been taken by the Revenue with regard to violation of Rule 46A by the CIT(A) in respect of any additional documents considered by him while deleting the addition. Accordingly, there is no infirmity in the order of CIT(A) deleting additio .....

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part of the opening stock. Actually the appellant had only opening sock of 4,88,978 shares which were entire sold during this year. The AO even while preparing Annexure-A did not adopt any opening stock but while passing the assessment order, he took the opening stock at 6,91,739/- shares without giving opportunity to the appellant. A perusal of the opening stock statement filed along with the return for A.Y2007-08 reads as under :- No. of Shares Total shares Amount(Rs.) 14.2.07 17761 13,573,21 .....

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₹ 6,47,668/ - on 28-2-07 the appellant by mistake typed previous figure of 217761 and based on this wrong figure, the A .O. worked out the undisclosed sale which is not correct. The above explanation of the appellant is bonafide and acceptable.. In any case the A.O. ought to have verified the demat statement which W8.S submitted before him which was not done. In the circumstances, the A.O. is directed to delete the addition. 14. We have considered rival contentions and found that addition .....

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he order of CIT(A) for deleting the addition made on account of shares of M/s Hindustan Organics Chemicals Ltd. 15. The addition made on account of deemed dividend u/s.2(22)(e) was deleted by the CIT(A) after following the order of ITAT Special Bench in the case of Bhaumik Colour Paint Pvt. Ltd. 118 ITD 1 and jurisdictional High Court in case of Universal Medicare Pvt. Ltd. 16. We have considered rival contentions and found that addition was made by the AO in respect of loan taken by the assesse .....

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nt firm is not a share holder in M/s.Koradia Construction Pvt. Ltd., The A.O. taxed deemed dividend u/s.2(22)(e) on the ground that the partners of the appellant firm were having substantial share holding in M/s.Koradia Construction Pvt. Ltd. from which the appellant received loan. Thus, the appellant not being a share holder, deemed dividend cannot be considered in the hands of the appellant as held by the Mumbai Special Bench Tribunal in the case of ACIT vs. M/s.Bhaumik Colour Paint Pvt. Ltd., .....

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rt that payment even assuming that it was a dividend, would have to be taxed not in the hands of the assessee, but in the hands of the shareholder. In view of the decision of the jurisdictional Tribunal and High Court, I hold that the advance received by the appellant from M/s.Koradia Construction Pvt. Ltd. cannot be taxed u/s.2(22)(e) in the hands of the appellant firm. Against the above order of CIT(A), the Revenue is in further appeal before us. 17. We have considered rival contentions. It is .....

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. Ltd., 118 ITD 1. Accordingly, we do not find any reason to interfere in the order of CIT(A) for deleting the addition made u/s.2(22)(e) of the Act. 18. The AO also disallowed ₹ 13,11,123/- u/s.14A. By the impugned order, the CIT(A) deleted the same. 19. We have considered rival contentions and found that the AO has made disallowance of ₹ 13,11,123/- by observing that assessee has earned dividend income to the tune of ₹ 1,35,630/- and incurred interest expenditure of ₹ 3 .....

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t assessee has offered taxable income in respect of future and options business, therefore, investment attributable to such securities are to be excluded from the investment taken by AO while computing disallowance under Rule 8D. His further contention was that as against dividend income of ₹ 1.35 lakhs, the assessee has offered taxable capital gain of more than ₹ 1 crore, therefore, suitable adjustment should be made while computing disallowance under Rule 8D. As per our considered .....

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istical purposes. 20. On the disallowance of ₹ 56,54,598/- made by the AO on account of undisclosed income under the head other sources i.e. sale of shares, the CIT(A) deleted the same after having following observations :- 7.3 I have considered the submissions of the representative and the stand taken by the AO. the AO based on the contract notes submitted by the appellant adopted sale of 40,401 shares on 13.7.2007. It is true that as per the contract notes the appellant sold 40,401 share .....

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s Koradia Construction Pvt. Ltd. as seen from the copy of ledger account and same is accepted by the AO. This means that the shares were held by the appellant s sister concern and sold by them. The AO wrongly assumed that the appellant admitted sales without purchases. A perusal of the capital gain working filed by the appellant along with the return of income shows that the appellant sold only 15,401 shares on 13.7.2007 as per page 2 of the working whereas the AO wrongly adopted sale of 40,401 .....

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