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Deputy Commissioner of Income Tax, ACIT Versus Smt. Smruti Shreyans Shah, Gujarat Samachar Bhavan And Vica-Versa

Sale of shares - LTCG or STCG - Held that:- Taking a consistent view The assessee is an investor not engaged in the business of sale purchase of shares and mutual funds. The question is accordingly decided against the Revenue both assessment year. The Assessing Officer is directed to treat her income from sale of shares and mutual funds in the two assessment years as short term capital gains and pass a consequential order. - Decided in favour of assessee.

Disallowance of interest - CI .....

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s required to be allowed. On the contrary, the Assessing Officer disallowed the claim on the basis that the facilities were not used for making investment in FD and sum was not wholly or exclusively for the purpose of earning of interest income of FDs. On the contrary, the ld. CIT(A) had given the finding that so far interest paid on bank overdraft with HSBC Bank, ICICI Bank and, PNB. The nexus has been established between the interest paid and interest earned. Therefore, we do not see any reaso .....

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le Apex Court in case of Keshavji Ravji & Co. vs. CIT (1990 (2)1 - SUPREME Court) and Hon'ble Gujarat High Court in case of CIT vs. Wintex Mills Ltd.(1999 (9)24 - GUJARAT High Court ), on the basis of principle of netting, the assessee was entitled for deduction in respect of the interest paid on overdraft account. Therefore, we hereby direct the Assessing Officer to delete the disallowance - Decided in favour of assessee. - ITA Nos. 170 & 2692/Ahd/2011, CO No. 43/Ahd/2011 - Dated:- 30-9-2015 - .....

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ether and being disposed of by way of consolidated order for the sake of convenience. 2. First we take up appeal filed by Revenue for A.Y. 2007-08. 3. The Revenue in ITA No.170/Ahd/2011 has raised following grounds of appeal: "1. The Ld.CIT(A) has erred in law and on facts in directing the A.O. to consider the income of ₹ 19,59,688/- from long term capital gain from sale of shares as 'income from capital gains' only. 2. The Ld.CIT(A) has erred in law and on facts in directing .....

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On the facts and circumstances of the case and in law, the CIT(A) ought to have upheld the order of the A.O. 5. It is, therefore, prayed that the order of the CIT(A) may be setaside and that of the A.O. may be restored to the above extent." 2. Briefly stated facts are that the case of the assessee was taken up for scrutiny assessment and assessment u/s.143(3)of the Income Tax Act, 1961, (hereinafter referred to as 'the Act') was framed vide order dated 30.11.2009. The Assessing Offi .....

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before ld. CIT(A) who after considering the submissions partly allowed the appeal. The ld. CIT(A) by following the decision of the Tribunal in case of Shri Sugamchand C. Shah in ITA No. 3554/Ahd/2008 vide order dated 29th January, 2010 directed the Assessing Officer to treat the income of ₹ 19,59,688/- as long term capital gain from sale of shares. The ld. CIT(A) also directed the Assessing Officer to consider the short term capital gain of ₹ 13,90,773/- from the sale ofshares held f .....

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d the sale of shares of ₹ 19,59,688/- as long term capital gain and also surplus fund from sale of shares held for period more than one month as income chargeable as short term capital gain amounting to ₹ 13,90,773/-. At the outset, ld. Counsel for the assessee pointed out that in A.Ys. 2005-06 and 2006-07 as well the Assessing Officer had treated the sale of shares as business income and there is no change into facts and circumstances of the present case. Ld. Counsel submitted the i .....

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IT(A) has directed the Assessing Officer as under: "5.6 In the case of appellant, so far as the income from long term capital gain from sale of shares of ₹ 19,59,688/-, is concerned, the period of holding undisputedly is greater than one month hence applying the ratio of the case of Sugamchand C. Shah (supra), I direct the Assessing Officer to consider the said income of ₹ 19,59,688/- from long term capital gain from sale of shares as 'income from capital gains' only. In .....

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capital gain ₹ 13,90,773/- from sale of shares held for period more than one month to be assessed as income chargeable as short term capital gain." We find that the co-ordinate Bench in A.Y. 2006-07 has reproduced the finding of ld. CIT(A) which is as under: 9. The preferred two separate appeals in both assessment years. The CIT(A) has partly accepted her contentions as under: "3.6 I have carefully considered the assessment orders passed by assessing officer and submissions made .....

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e criteria that period of holding is short and frequency and number of transactions is more. He has therefore come to the conclusion that the motive is to earn maximum profit and not to have investment. 3.7 In the present case, the issue of determination is as to whether the surplus arising from sale of shares & mutual funds is to be taxed asshort term or long term capital gain or the same should be taxed as business income at normal rates. Recently the Hon'ble Ahmedabad ITAT in case of .....

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ntrary material or facts have been pointed out by the Revenue to show that facts in the current year are different than the facts in earlier years. It is also not pointed out by the Revenue that frequency and number of transactions are abnormally high in the current year as compared to what was done in earlier years. 12 There is also no material to come to the conclusion that the valuation of investment has been done on cost or net realizable value whichever is low. The assertion of the assessee .....

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selling of shares may be more but in respect of shares held for a considerable longer period (for more than 366 days) as per finding given by the Learned CIT(Appeals). This finding remained uncontroverted. The assessee has earned gain of ₹ 37,52,281/-, on sale of those shares which were held for more than 366 days and upto 6832 days. In any case, when those shares were purchased it could not be said that intention of the assessee was to deal in them and not to hold them as investment. Even .....

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t value thereof have reached a plateau so as to make investment in other assets which have potential of appreciation in market value. This decision to sell his investment at high market price cannot convert an otherwise investment into trading. If in the past, the Department has accepted the sale of shares of holdings of more than a year as investment and profits thereon has been assessed under the head "capital gain ", then there is no reason to hold differently this year. We accordin .....

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#39; days to '366' days, fn some cases, the frequency of transactions are apparently substantial as that assessee is de facto selling and purchasing shares as trader. He is also holding shares for long period - indicating that they are held as investment. Therefore, a criteria has to be fixed for determining as to when he is acting as trader and when as investor. Accordingly, we decide following criteria to hold when gains are to be taxed as profit to be earned under the business or to b .....

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d 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. 3.8 The Assessing officer has treated income from sale of shares as well mutual funds, as income from business & profession, whereas,the learned counsel of appellant has submitted that gain frominvestment portfolio should be taxed as income from capital gain. In the case of appellant, it is noticed that assessee has s .....

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lio comprising of stock-in-trade which are to be treated as trading assets. Where an assessee has two portfolios, the assessee may have income under both heads i.e., capital gains as well as business income." 3.9 Applying the ratio of decision ofAhmedabad ITA T referred herein above, profit on sale of shares wherein shares are held for less than one month is treated as income from business and profession and remaining amount of income is considered as capital gain. From the details of capit .....

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to hold when gains are to be taxed as profit to be earned under the business or to be taxed as short term capital gain. 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, he would watch the fluctuation of rates in the market for which a minimum time is necessary, which we estimate .....

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as income from capital gain. In the case of appellant, it is noticed that assessee has shown incomefrom sale of shares as capital gains as well as income from business &profession as per books of account maintained. The claim of appellantthat any assessee can hold two portfolios is supported by para 10 of circular no 4/2007 dated 15/06/2007 which reads as under: 10. "CBDT also wishes to emphasize that it is possible for a tax payer to have two portfolios, i.e. an investment portfolio c .....

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ssion and remaining amount of income is considered as capital gain. From the details of capital gain submitted by appellant, it is evident that appellant has earned loss of ₹ 14,69,622 from sale of shares & mutual funds in A.Y. 2005-2006 and profit of ₹ 23,26,630 in A.Y. 2006- 2007 wherein holding period is less than one month, hence Idirect assessing officer to tax such income/loss as income from business & profession. 3.10 The Assessing officer at page no 14 of the assessme .....

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f ₹ 19,48,364 from sale of TCS shares, hence, Assessing officer is directed to consider such gain as income from business & profession. So far as profit from PNB is considered, appellant has incurred loss of ₹ 14,97,820 and as same has been sold within one month, suchtransaction is already considered as business income/loss in para 3.9 herein above. The transactions in NTPC has already been considered as income from business & profession hence no adverse inference is called. .....

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ome-from business & profession. So far as profit from IDFC is concerned, same is already treated as income from business in preceding para. In view of such observation, gain of ₹ 25,98,048 (23,26,630 and ₹ 2,71,418) is considered as income from business & profession and remaining income of ₹ 87,63,671 is treated as income from capital gain. The assessing officer is directed to allow credit for STT paid by appellant regarding transactions treated as income from business .....

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e of shares/mutual funds is to be treated as short term capital gains or business income. In our considered opinion, this is a perennial issue to be decided as per facts of each case. The hon'ble jurisdictional high court in case Tax Appeal No.77 of 2010 decided on 27.6.2012 CIT vs. Vaibhav J. Shah holds that the most important test for judging nature of profits arising from sale purchase of shares has to be based on volume, frequency, continuity and regularity of transactions withholding pe .....

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of any repetition of her share transactions in the impugned assessment year or reinvestment of the capital gain is forthcoming. She has also been maintaining stock portfolio qua some of her share investments (supra). These profits from sale of shares have arisen from the shares not forming part of her stock. All the assessee had done is to sell theshares in a period of less than three months. Rather one scrip has been sold within three days in the former assessment year. And in a similar span of .....

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hi 46 SOT 336 (Mum.) held that when an assessee maintains similar number of companies and only number of shares therein increase or decrease, he is only a prudent investor. We take into account all the abovestated facts, circumstances and case law quoted hereinabove to hold that the assessee is an investor not engaged in the business of sale purchase of shares and mutual funds. The question is accordingly decided against the Revenue both assessment year. The Assessing Officer is directed to trea .....

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to ground no.3, ld. Sr. D.R. supported the order of the Assessing Officer and submitted that the ld. CIT(A) was not justified in reducing the disallowance. He submitted that the Assessing Officer has given a finding that assessee has not demonstrated the nexus between interest income earned and the expenditure incurred. On the contrary, the ld. Counsel for the assessee submitted that at page 6 of the assessment order the figures of receipt of interest and payment of interest is reflected. He sub .....

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on OD Account is ₹ 20.29 lacs. The sum received on FDs is much more than the interest payable on OD accounts. He submitted that in accounting as well as in law netting of interest is required. Ld. Counsel for the assessee relied on the decision of Hon'ble Supreme Court decision in case of Keshavji Ravji & Co. vs. CIT (1990) 183 ITR 1 (SC). Ld. Counsel also relied on the decision of Gujarat High Court in case of CIT vs. Wintex Mills Ltd. (2000) 245 ITR 266 (Guj.). Ld. Counsel for t .....

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claimed by the assessee is required to be allowed. 8. We have considered the rival contentions and perused the material on record. There is no dispute with regard to the position of law that the expenditure not being in the nature of capital expenditure made out or extended wholly or exclusively for the purpose of earning interest income is allowable for deduction u/s.57 of the Act. The contentions of the assessee is that the interest paid to the banks in respect of over draft accounts was exte .....

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n established between the interest paid and interest earned. Therefore, we do not see any reason to interfere into this finding of ld. CIT(A). This ground of Revenue's appeal is rejected. 9. Now, coming to the Cross Objection No.43/Ahd/2011, assessee has raised following grounds: 1. On the facts and in the circumstances of the case, the CIT(A) has erred in not allowing deduction of total outgo for interest in a sum of ₹ 20,25,250 on bank Over Drafts (ODs) which is claimed by the assess .....

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r during the course of hearing of the Cross-objection. The only effective ground is against upholding the disallowance of ₹ 6,43,103/-. Ld. Counsel for the assessee reiterated the submissions as were made in ITA No.170/Ahd/2011. On the contrary, ld. Sr. D.R. supported the order of authorities below. 10. We have heard the rival contentions and perused the material on record. There is no dispute with regard to the fact that the expenditure expended wholly and exclusively for the purpose of e .....

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king FDs only. Under these facts, we are of the considered view that the assessee is entitled for deduction of the interest income. Moreover, in the light of ratio laid down by the Hon'ble Apex Court in case of Keshavji Ravji & Co. vs. CIT (supra) and Hon'ble Gujarat High Court in case of CIT vs. Wintex Mills Ltd.(supra), on the basis of principle of netting, the assessee was entitled for deduction in respect of the interest paid on overdraft account. Therefore, we hereby direct the .....

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, ld. Counsel for the assessee submitted that the ld. CIT(A) has given finding in fact which is not controverted by the Revenue. Therefore, he submitted that there is no illegality in the orderof CIT(A). Same may be upheld. 13. We have heard the rival contentions and perused the material on record. The ld. CIT(A) in para 4 of this order has decided the issue as under: "4. As regards the FD with PNB of ₹ 6 crores invested on 3/1/2007, the FD was matured on 18/4/2007 for ₹ 606,51, .....

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