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2015 (6) TMI 95 - ITAT DELHI

2015 (6) TMI 95 - ITAT DELHI - TMI - Sale of shares - business profits or short term capital gains - Held that:- Gains derived from the purchase and sale of shares by the assessee is rightly offered to tax under the head capital gains and not business income. The facts show that out of the total short term capital gain of ₹ 1,75,51,496/- the undisputed fact is that an amount of ₹ 1,39,41,555/- was earned on shares which were held by the assessee for more than 30 days. In fact short t .....

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he same. On this factual matrix we agree with the contentions of the Ld.Counsel for the assessee that the gains in question cannot be assessed under the head income from business. - Decided in favour of assesse.

Disallowance of expenditure under Section 14A - whether disallowance is excessive and unreasonable? - Held that:- Contention of the assessee is not acceptable that the disallowance restricted and upheld by the CIT(A) was incurred for the maintenance of the legal existence of t .....

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rned from huge average investment of ₹ 32.8 crore cannot be ignored. On the basis of above noted fact, we safely conclude that the legal existence of assessee company during the year under consideration was maintained for the purpose on investments and as such no other business activity was conducted by the assessee during the period. Hence, in our considered opinion, in this situation there is no requirement of bifurcation of claimed expenses viz. for maintaining the legal existence of co .....

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book, we note that the assessee has shown long term capital loss of ₹ 66,59,311. From bare reading of assessment order, we observe that the issue has not been properly and expressly addressed by the AO while framing assessment order and this issue was not raised by the assessee before the CIT(A) in the first appeal. Hence, we are of the considered view that the contention of the assessee cannot be accepted as the assessee itself has made the claim that the entire income/loss from sale of .....

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s of the Act. - Decided against assesse. - I.T.A.No.4562/Del/2012, I.T.A.No.5492/Del/2012 - Dated:- 29-5-2015 - SHRI S.V. MEHROTRA AND SHRI CHANDRA MOHAN GARG, JJ. For the Appellant : Shri Santosh K. Aggarwal, Adv. For the Respondent : Smt. Parwinder Kaur, Sr. DR ORDER PER CHANDRA MOHAN GARG, JUDICIAL MEMBER These appeals by the revenue and the assessee have been preferred against the one order of CIT(A)-XIII, New Delhi dated 16.6.2012 in Appeal No. 225/10-11 for AY 2008-09. 2. Ground No. 1, 5 .....

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m capital gains; 3. That the Commissioner (Appeals) erred in confirming the disallowance of expenditure of ₹ 1,65,196/- under Section 14A of the Act; 3.1 That the Commissioner (Appeals) failed to appreciate that no expenditure was incurred for the dividend income earned and as such no expenditure was to be deducted under the said provisions; 3.2 That the Commissioner (Appeals) failed to appreciate that the entire expenditure was incurred by the Appellant for the purposes of its business; 3 .....

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under Section l4A of the Act is excessive and unreasonable; 4. That the loss of ₹ 66,59,311/- on sales of shares during the year was also business loss and was to deducted from the total income from business; 3. The sole ground raised by the revenue in ITA No. 5492/D/12 reads as under:- 1. On the fact and in the circumstances of the case, the CIT(A) has erred in directing the AO to treat the income of ₹ 1,10,92,223/- as short term capital gain instead of business income, as held by t .....

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s and submitted that the issues involved in these grounds are squarely covered in favour of the assessee by the decision of the Tribunal (supra). Ld. Counsel took us through para 4 to 8.5 of the order of the Tribunal and submitted that in the similar set of facts and circumstances on similar issue, the Tribunal in the order dated 12.12.14 (supra) for AY 2006-07 has held that the bifurcation of the short term capital gain and treating the transaction as investment in the company where the holding .....

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of transaction related to short term capital gain is neither proper nor justified. Ld. DR fairly accepted the issue has been decided in favour of the assessee by the Tribunal order dated 12.12.14 (supra) for AY 2006-07. 5. We may point out that in the similar set of facts and circumstances, after considering the contentions placed in para 8.1 of the Tribunal order (supra), the Tribunal in assessee s own case for AY 2006-07 (supra) has categorically held as under: 4. The Ld. Counsel for the asse .....

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He referred to page 37 of the Ld.CIT(A) s order and pointed out that certain shares sold, were from out of investment made during the Previous Year and which were opening balances of the current year. He contended that there were no borrowed funds and the assessee had no infrastructure whatsoever to carry out any trading activity. He pointed out that the assessee had paid security transactions tax and had not claimed any deduction for the same. Ld.Counsel pointed out that trading in shares, is n .....

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t. 16.8.2010 (Del) * Nirmal Kumar Jain ITA 3562 and 2729/Del/09 order dt. 29.1.2010 * CIT vs. Gopal Purohit (Bom) * Sarnath Infrastructure 313 ITR CAT (13) (Lucknow) 5. Mr.Sunil Bajpai, the Ld.CIT, D.R. along with Smt.Parwinder Kaur, Sr.D.R. submitted that the assessee has been frequently and regularly conducting share transactions during the year. They argued that the assessee was doing systematic activity of trading in shares and that huge volumes of transactions were done, whether the period .....

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es speculation business and discloses speculation losses and that a contrary argument is raised that the entire holding of shares is investment. They relied on the finding of the AO. 6. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and perusal of papers on record and orders of the authorities below, case laws cited, we hold as follows. 7. The issue whether a particular transactions results in business income or a capital gain is a question of inte .....

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26.12.2004 and 25.3.2005 resolved to acquire and hold shares out of surplus funds as part of its investment portfolio. 3. The shares and securities acquired are classified as investments in the balance sheet and were valued at cost only. 4. There were no borrowed funds out of which the shares/securities were purchased. The purchases were made out of own funds. 5. In an order passed u/s 143(3) of the Act for the AY 2005-06 similar profits/gains declared under the head capital gains are accepted b .....

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s held below a period of 30 days. 8. The finding of the AO that the holding period of majority of the shares by the assessee was between 10 days to 01 month is factually incorrect. 8. We now discuss the case laws on the subject. · In the case of G.Venkateswami Naidu and Co. Vs. CIT : 35 ITR 594 (SC), the Supreme Court held as under: If a person invests money in land intending to hold it, enjoys its income for some time, and then sells it at a profit, it would be a clear case of capital ac .....

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more readily resaleable? ... Where they (acts of purchase or sale) similar operations usually associated with trade or business? . . . Are the transactions of purchase and sale repeated" In regard to the purchase of the commodity and its subsequent possession by the purchasers, does not element of pride of possession come into the picture. A person may purchase a piece of art, hold it for some time and if a profitable offer is received sell it. During the time that the purchaser had its pos .....

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total effect of all relevant factors and circumstances that determines the character of the transaction. . .. . .. 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 offset by the presence of other factors, it would raise a strong presumption that the transactio .....

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y capital investment, for instance, shares, is made without the intention to resell at a profit, a resale under changed circumstances would only be a realisation of capital and would not stamp the transaction with a business character. Where a purchase is made with the intention of resale, it depends upon the conduct of the assessee and the circumstances of the case whether the venture is on capital account or in the nature of trade. A transaction is not necessarily in the nature of trade becaus .....

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yet it may be that that is not the only purpose for which he purchased the article or the commodity, nor the only purpose to which he might turn it if favourable opportunity for sale does not occur ... An amateur may purchase a picture with a view to its resale at a profit, and yet he may recognise at the time or afterwards that the possession of the picture will give him aesthetic enjoyment if he is unable ultimately, or at his chosen time, to realise it at a profit. ... " An accretion to .....

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uot; In the case of Raja Bahadur Kamakhya Narain Singh vs. CIT: 77 ITR 253 (SC) the Supreme Court observed as under: "Since the expression "adventure in the nature of trade" implies the existence of certain elements in the transactions which in law would invest them with the character of trade or business and the question on that account becomes a mixed question of law and fact, the court can review the Tribunal's finding if it has misdirected itself in law. It is fairly clear .....

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in an operation of profit-making. If the transaction is in the ordinary line of the assessee's business, there would hardly be any difficulty in concluding that it was a trading transaction, but where it is not, the facts must be properly assessed to discover whether it was in the nature of trade. The surplus realised on the sale of shares, for instance, would be capital if the assessee is an ordinary investor realising his holding; but it would be revenue if he deals with them as an adventu .....

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enhanced value, does not render the investment a transaction in the nature of trade. The test often applied is, has the assessee made his shares and securities the stock-in-trade of a business ..... " (emphasis supplied) · In the case of Karam Chand Thapar & Bros. (P) Ltd. Reported in 82 ITR 899 the Hon ble Supreme Court held as follows. ..................... The Tribunal also relied on the circumstance that the assessee was showing these shares as investment shares in its books .....

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r considering the above rulings, we cull out the following principle which can be applied on the facts of a case to find out whether transactions in question are in the nature of trade or are merely for investment purposes: (i) What is the intention of the assessee at the time of purchase of shares (or any other item). This can be found out from the treatment it gives to such purchase in its books of account. Whether, it is treated as stock-in-trade or investment. Whether shown in opening/closin .....

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tem is indicative of intention of trade. Similarly, ratio between the purchases and sales and the holdings may show whether the assessee is trading or investing (high transactions and low holdings indicate trade whereas low transactions and high holdings indicate investment). (iv) Whether purchase and sale is for realising profit or purchases are made for retention and appreciation in its value? Former will indicate intention of trade and latter, an investment. In the case of shares whether inte .....

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in MOA/AOA? Whether for trade or for investment? If authorised only for trade, then whether there are separate resolutions of the board of directors to carry out investments in that commodity and vice versa. (vii) It is for the assessee to adduce evidence to show that his holding is for investment or for trading and what distinction he has kept in the records or otherwise, between two types of holdings. If the assessee is able to discharge the primary onus and could prima facie show that partic .....

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a trader in the items in question and whether the assessee is complying with them. Whether it is the argument of the assessee that it is violating these legal requirements, if it is claimed that it is dealing as a trader in that item? Whether it had such an intention to carry on illegal business in that item since beginning or when purchases were made? (x) It is permissible as per CBDT Circular no.4 of 2007 of June 15, 2007 that an assessee can have both portfolios, one for trading and other for .....

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ords. 3. However, upon a perusal of the impugned order, we are of the opinion that no substantial question of law arises in the present proceedings inasmuch as both the Commissioner of Income Tax (Appeals) and the Tribunal have given cogent reasons in arriving at the conclusion that the respondent-assessee was not-a-trader in stock but only a investor and further his income on sale of shares was not business income. In fact, the Tribunal in its impugned order has observed as under.- "9. We .....

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rather than the actual intention and the way of carrying on share transaction. There is no doubt that even a single transaction can be in the nature of trade but the assessee has demonstrated that his. intention was never to trade in shares. The intention is manifested by treatment given to such investment that the investment is out of own fund and not borrowed that the investment is not rotated frequently, that the total number of transactions are very few, that all the shares purchased are not .....

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lding that the shares are held as stock in trade and profit from which is to be assessed as business income. In all such cases the intention is manifested by the assessee himself by his conduct and other relevant factors as considered by the learned CJT(A). It is also seen that the shares were treated as investment in earlier year and which fact has been accepted by the Assessing Officer. The assessee has also earned huge dividend income from such shares. The Assessing officer merely because of .....

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f full purchase price. Here. the assessee has been holding the shares by taking delivery and making full payment for such investment. In such circumstances, the transactions are to be treated as giving rise to the capital gain and cannot be branded as trading of making investment so as to determine whether the transaction was for dealing in shares or making investment for earning dividend and appreciation from such investment. The total number of shares dealt in respect of long term portfolio is .....

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to record. Accordingly, we find that no substantial question of law arises in the present appeal. 8.1. The main arguments of the assessee have been summarised by the First Appellate Authority at pages 33 to 35 of his order which is extracted for ready reference. i. The assessee has been investing surplus funds in shares since AY 2005-06 and the fact of investment is supported from audited balance sheet for the year ending 31.3.2005. The details of investment are given in respective schedule to .....

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tax (STT). vi. Separate details were maintained and profit and loss account was worked out on the basis of same and correctness such profit/loss is not in dispute. vii. The assessee has earned dividend income of ₹ 10,01,322/-. viii. The assessee has earned capital gain on the basis of period of holding. ix. In view of the unfavourable market conditions, the management of the assessee decided to investment the available funds in various shares/securities in order to earn return/dividend rat .....

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he assessee would have valued the same at lower of cost or market value and not at cost. xiii. The sale proceeds of the shares have not been reflected as turnover and the profit derived from the sale has been shown as profit on sale of investments. xiv. Acquisition of shares was not made in the normal/regular course of business of the assessee as the main/normal business for which the assessee had been set up was to engage in real estate business. xv. Classification of shares/securities by the a .....

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ate as to how the nature/character of the said shares could at all be changed during the year under consideration merely because the said shares were sold by the assessee during the current year. xvii. On perusal of the details of capital gains on various shares and analysis of the gains with reference to the number of days for which shares were held prior to its sale, it will be further noticed that substantial part of the port folio was held for a considerable period of time by the assessee pr .....

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for more than 30 days. In fact short term capital gain of ₹ 83,56,196/- was earned on shares which were held for more than 4 months. Similarly the assessee earned capital gains of more than ₹ 40 lakhs for shares which were held for more than 5 months. This is not a characteristic of a trader. There are no borrowed funds. The assessee has always classified the purchases as investments in its books of accounts. In the earlier year the assessee has disclosed capital gains and the AO in .....

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shi Etemia vs. JCIT in ITA no.6497/Mum/2009 and ITA 148/Mum/2010 for the AY 2003-04 and other appeals had after considering a number of decisions at page 15 held as follows. 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 in the case where the holding period is less than 30 day, in our considered opinion, is not justified on the part of the CIT(A). Since the .....

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. In view of the above decision we allow ground nos. 2 and 3 filed by the assessee. 6. While evaluating the facts and circumstances of the present case, from statement of capital gain with holding period 2008-09 available at page 34 of the Paper Book, which was also submitted before the CIT(A), we are in agreement with the contention of the ld. Counsel of the assessee that the maximum amount of capital gain was earned from the shares which were held more than 61 to 90 days amounting to ₹ 4 .....

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g off of short term capital loss on the shares purchased and sold during the year amounting to ₹ 2,13,23,560, the net profit or claimed short term capital loss was ₹ 1,75,02,202. These figures have not been disputed by the AO. The issue remains whether this profit is a business income from the shares held as stock in trade or short term capital gain from investment. From the impugned order, we may observe that the CIT(A) has given a bifurcation by holding that gain earned by the asse .....

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ibunal, the conclusion of the CIT(A) is demolished. At the same time, we are inclined to hold that since the income from sale of shares was treated as short term capital gain in the earlier AYs by accepting the contentions of the assessee as noted in the Tribunal order para 8.1, hence, we have no reason to take a different view on the same set of facts and circumstances in the present case for AY 2008-09. Therefore, we conclude that the issue is squarely covered in favour of the assessee for AY .....

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ividend income earned and as such no expenditure was to be deducted under the said provisions of the Act. Ld counsel strenuously pointed out that the Commissioner (Appeals) failed to appreciate that the entire expenditure was incurred by the Appellant for the purposes of its business and he also failed to appreciate that the Assessing Officer erred in applying the formula laid down in the Rule 8D of the Rules without recording any sustainable reasoning as to why the claim of the Appellant that n .....

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xistence of the assessee company for complying the relevant obligations under Company s Act and other related statutory provisions. 9. Replying to the above, ld. DR pointed out that the AO was quite justified in applying Rule 8D of the Rules for AY 2008-09. Ld DR has further drawn our attention towards operative para 7.3 of the order and submitted that the CIT(A) was very well justified in restricting the disallowance to ₹ 1,65,196 as against calculated as per formula prescribed by Rule 8D .....

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otal income. It is also seen that appellant has shown total average investments of ₹ 32,81,21,848/- on which exempt income in the form of dividend and long term capital gain was receivable to the appellant. It is observed that earning of exempt income is not a passive activity. In the present age of making of investment, maintaining or continuing with investment and time of exit from the investment are well informed and well coordinated management decision involving not only inputs from va .....

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the 0.5% of the average investment comes to ₹ 16,40,609/-, however, the appellant has only incurred ₹ 1,65,196/- on earning exempt income. As discussed above, on earning exempt income the appellant has to incur indirect expenses on collection, telephone, management, follow up etc. Therefore, the expenses relating to exempt income are restricted to the extent of expenses claimed. Therefore, the disallowance made by the Assessing Officer of ₹ 1,65,196/- is confirmed. 11. In view .....

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unjustified. It is pertinent to note that while the company was created for the purpose of real estate business and had not conducted any business in this regard, then the huge exempt dividend income earned from huge average investment of ₹ 32.8 crore cannot be ignored. On the basis of above noted fact, we safely conclude that the legal existence of assessee company during the year under consideration was maintained for the purpose on investments and as such no other business activity was .....

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ned order in this regard. Accordingly, this ground of the assessee fails and thus, the same is dismissed. Ground NO. 4 12. Apropros ground no.4 of the assessee, the Ld. counsel of the assessee pointed out that the assessee has shown long term capital loss of ₹ 66,59,311 on sale of shares during the year under consideration which were held by the assessee for more than one year, therefore, as per calculation submitted before the revenue authorities available at page 34 of the Paper Book, lo .....

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