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2015 (7) TMI 679 - ITAT KOLKATA

2015 (7) TMI 679 - ITAT KOLKATA - TMI - Income arising out the sale of share/unit - Capital gain or Business income - conversion of stock-in-trade into investment - Held that:- We have gone through ledger accounts of the assessee for the year under consideration and noticed separate ledger accounts in respect of conversion of stock-in-trade into investment. By converting the stock-n-trade into investment, it does not alter the character, nature and intention of that particular transaction especi .....

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al transaction. Accordingly, the profit that has been attributable to this trading activity corresponding to conversion of stock-in- trade into investment is to be treated as ‘business income’ and accordingly to be taxed. In view of the above findings of CIT(A) that the income from investment is to be taken as ‘capital gains’ and conversion of stock-in-trade to investment is to be taken as ‘trading income’, which is based on facts of the case and need no disturbance. Accordingly, we confirm the .....

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rsonal in nature or capital in nature. The books of accounts are audited and auditors have not pointed out any discrepancies in the nature of personal expenses or capital expenditure debited to profit and loss account. During the course of hearing, the Ld. counsel for the assessee clarified that the expenditure incurred on travelling and conveyance was mainly on account of foreign tour to interact with business people and to explore the prospects of export in carpets and garments which is otherw .....

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is partly allowed. - I.T.A No.783/Kol/2009,C.O. No.41/Kol/2009 - Dated:- 1-7-2015 - Shri P. K. Bansal & Shri Mahavir Singh, JJ. For the Petitioner : Shri Sanjay, Addl. CIT, Sr. DR For the Respondent : Shri S. Jhajharia, FCA ORDER Per Shri Mahavir Singh, JM: These, appeal by revenue and Cross Objection by assessee, are arising out of order of CIT(A)-XII, Kolkata in Appeal No. 501/XII/12(4)/07-08 dated 27.02.2009. Assessment was framed by ITO, Ward-12(4), Kolkata u/s. 143(3) of the Income-tax .....

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on 20.03.2009 vide F No. CIT(A)- XII/Kol/Batch/08-09/347-551 dt. 20.03.2009. It appears owing to typographical error in Form No. S6 dated of communication was stated as 20.02.2009. The actual date of commu9nication of the order of CIT(A)-XII-Kolkata is 20.03.2012. Ld. counsel for the assessee has not objected to the above as there is no delay, the appeal is within time. 3. First issue in this appeal of Revenue is against the order of CIT(A) in treating the income from sale of shares as Long Term .....

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company is deriving the income from business as well as from investments. The assessee is engaged in the business of carpets, garments, shares and stocks etc., The assessee has disclosed its income from sale of shares as LTCG and STCG as the case may be. The AO during the course of assessment proceedings noticed that assessee-company has LTCG and STCG from numerous sale and purchase transactions of units of mutual funds/shares through own investment/off market sale and through Kotak PMS. The AO .....

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to investment account and since then all such shares, units of mutual funds and other instruments as held by Kotak Securities Ltd., under their Portfolio Management on 01.04.04 are being held by company as investment, shares and securities and any sale thereof after 01.04.04 was only as investment of share and securities and on investment account only. b) As will further appear from the aforesaid resolution on and from 01.04.04 all shares and securities purchased by Kotak Securities Ltd on behal .....

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s business income at ₹ 2,78,47,070/-. Aggrieved, assessee preferred appeal before CIT(A), who after considering the submission of assessee treated the profit arising out of sale of shares as LTCG but issue of conversion of investment in stock-in-trade as business income by observing as under:- 4.4 Decision In the light of the discussion held both on facts and law, I am of the opinion that the original intention of the appellant was to treat shares as investment and not stock in trade as ev .....

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the head capital gains . As observed by the Hon'ble ITAT Kolkata Bench in the assessee of Reliance Trading Enterprises Ltd. (supra) the shares were purchased with an intention of earning dividend in addition to the prospect of making profit on sale of such investment shares at an opportune moment without making any hurry for sale ignoring dividend. Respectfully following the ratio laid down by the ITAT, Kolkata Bench in the case of Reliance Trading Enterprises Ltd., and the ratios laid down .....

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e to the trading activity (conversion of stock-in-trade into investment) is to be taxed under business income. Accordingly I direct the AO to give effect taking into consideration both investment account and trading account separately. The profit attributable to trading activity (conversion of stock-in-trade into investment) shall be taxed under the head business income . The net surplus resulted out of investment account shall be taxed under the head capital gains . In the result the appellant .....

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the ground that the assessee carried out business of share trading as evident from large volume of transactions and systematic, organized, repeated and regular activity in shares with a clear intention to earn huge profits. But the facts suggests that the assesseecompany was holding shares as investment all along and that the initial intention was evident by way the entries made in books and valuation of shares at cost and that the volume of transactions was low and that substantial dividend in .....

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e volumes of transactions in shares. As seen from the principles laid down by various courts, the main test prescribed is the initial intention of the assessee to decide whether an activity amounts to trading activity or investment activity . As seen from the above facts, the assessee is justified in its argument that its original initial intension is to hold the shares as investments and not as stockin- trade . The intention of the assessee as is evident from the circumstances at the time of pu .....

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with larger volumes, the assessee submitted that the volume of transactions carried out in terms of total holding is not large. It is further submitted that out of 113 scrips including mutual funds only 8 scrips were sold. According to assessee most of surplus (capital gain) was on account of sale/redemption of investment held for a long period. It is submitted that out of total net capital gain of ₹ 2,78,47,070/- the major capital gain amounting to ₹ 2,43,14,169/- pertains to sale o .....

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of appellate proceedings, it is noticed that the assessee-company during the AY 204-05, converted investment portfolio of ₹ 50,01,126/- carried out through Kotak PMS into stock-in-trade as on 01-04- 2003 and accordingly made entries in the books and continued purchases and sales under that head i.e. trading account. The resultant closing stock of ₹ 2.22 crores remaining as on 31.03.2004 under trading account carried forward to next AY 2005-06 and again brought back under investment h .....

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investment as on 01.04.2004) and balance gain was only on investments. Thus it is clear that out of total gain derived by the assessee of ₹ 2,7847,069/-, the gain corresponding to conversion of stock-in-trade into investment amounts to ₹ 29,03,004/-. In view of the above facts assessee argued that on the issue of capital gain versus business income , the assessee mainly argument on the point of intention of the assessee and the corresponding entries and treatment given in the books .....

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again converting the closing stock under that head into investment in the AY 2005-06 under consideration amounts to a clear change of intention depending on the circumstances. We have gone through ledger accounts of the assessee for the year under consideration and noticed separate ledger accounts in respect of conversion of stock-in-trade into investment. By converting the stock-n-trade into investment, it does not alter the character, nature and intention of that particular transaction especi .....

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ransaction. Accordingly, the profit that has been attributable to this trading activity corresponding to conversion of stockin- trade into investment is to be treated as business income and accordingly to be taxed. In view of the above findings of CIT(A) that the income from investment is to be taken as capital gains and conversion of stock-in-trade to investment is to be taken as trading income , which is based on facts of the case and need no disturbance. Accordingly, we confirm the findings o .....

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during this A.Y. 8. We have heard rival contentions and gone through the facts and circumstances of the case. We find that AO has made disallowance of travelling & conveyance allowance by estimating at 10% of the expenditure. It is seen that assessee has incurred total expenditure on travelling & conveyance at ₹ 12,00,280/- as the assessee s sale of carpet has gone to nil. According to AO, there is no relevance in allowing the whole of the expenditure. Accordingly, he disallowed 10 .....

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iness Congress Organized by International Chamber of Commerce by the Chairman and Managing Director would not be treated as anything else but for the purpose of business and in connection with the business and hence the entire expenditure is allowable expenditure u/s. 37 of the Act. It is further argued that the expenditure was incurred due to commercial expediency and incurred wholly and exclusively for the purpose of business. In support of the arguments, the assessee cited plethora of cases w .....

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t any discrepancies in the nature of personal expenses or capital expenditure debited to profit and loss account. During the course of hearing, the Ld. counsel for the assessee clarified that the expenditure incurred on travelling and conveyance was mainly on account of foreign tour to interact with business people and to explore the prospects of export in carpets and garments which is otherwise the main line of business activity of the assessee. Accordingly, we confirm the order of CIT(A). 11. .....

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Act @ 10% of the exempt dividend income of ₹ 63,71,824/- made in the assessment merely on presumption without pointing out any specific item of expenditure actually incurred for earning such income. Action of the Ld. CIT(A) in not deleting the said disallowance, inspite of his holding that such estimated disallowance was not in accordance with law, was wholly unreasonable, uncalled for and bad in law. 3. For that in view of the facts and circumstances of the case Ld. CIT(A) was wholly wron .....

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. 12. Brief facts are that thee AO estimated the disallowance of expenses at ₹ 6,37,182/- out of total dividend income of ₹ 63,71,821/- @ 10%. Aggrieved, assessee preferred appeal before CIT(A), who also confirmed the action of AO by applying provision of Sec. 14A of the Act and Rule 8D(2)(iii) of the IT Rules. 13. We have heard rival contentions and gone through the facts and circumstances of the case. We find that this issue is now covered by the decision of co-ordinate Bench of IT .....

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