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2016 (1) TMI 571 - ITAT MUMBAI

2016 (1) TMI 571 - ITAT MUMBAI - TMI - Invocation of provisions of section 73 - Loss on sale of investment - whether business loss or speculation loss - whether the profit on sale of shares constitutes business income or capital gains in order to ascertain as to whether the shares were purchased by the assessee as investment or stock in trade? - Held that:- The intention of the assessee becomes relevant which can be gathered from the facts available on record. Admittedly, it is not the only crit .....

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uch shares and paid interest thereupon. The frequency of transactions, the dates of purchase and sale holding period also indicative of the intention of the assessee. It is not worthy that in earlier years, the department had been accepting to the stand of the assessee as investment in shares, therefore, unless and until contrary facts are brought on record, a different view is not expected, on the principle of consistency. So far as, invocation of section 73 of the Act is concerned, the case of .....

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side the invocation of provisions of section 73 treating the loss on sale of investment as business loss and not speculation loss - Decided in favour of assessee

So far as, allocating expenses towards speculative transaction are concerned, since, the above grounds have been decided in favour of the assessee, by holding that it was not a speculative business transaction, therefore, we find no merit in the ground of the assessee. The total turnover of the assessee is ₹ 7,76,72,915 .....

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tember 2008 to the provident fund account beyond the due date i.e. 15/10/2008. The assessee made the payment within the grace period of five days, thus, there is no delay of payment the amount. The case of the assessee is covered by the decision from Hon’ble Delhi High Court in CIT vs P. M. Electronics (2008 (11) TMI 3 - DELHI HIGH COURT) wherein, it was held that if the payment in PF and ESI account are made before the due date of filing of return u/s 139 of the Act then no disallowance of such .....

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e Authority, Mumbai. The only ground raised in this appeal pertains to setting aside the invocation of provisions of section 73 of the Income tax Act, 1961 (hereinafter the Act) treating the loss of ₹ 20,70,934/- on sale of investment as business loss and not speculation loss and further erred in allowing ₹ 46,50,365/- out of the total expenses of ₹ 56,86,633/- treated and allocated towards speculative business and further allowing the claim of the ₹ 1,94,268/- u/s 36(1)( .....

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ock Exchange (BSE). The business of the assessee consists of broking in shares, government and other securities, corporate advisory and mutual fund distribution. During the relevant period, the assessee made ten transactions in shares on exchange without delivery, which were duly treated by the assessee as speculative transaction. The assessee had been investing own funds in shares, mutual funds and other securities. The Assessing Officer treated the investment in shares as adventure in the natu .....

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under the brake up of investment in shares of listed and unlisted companies of the last three financial years. Year Ended Total Investment in shares of companies Cost of shares of listed companies Cost of shares of unlisted subsidiary companies Cost of shares of other unlisted companies % of Investments in shares of Listed Companies 31/03/2007 2,83,13,945 31,58,945 2,50,96,000 59,000 11.16% 31/03/2008 2,52,14,041 72,17,287 2,50,96,000 1,18,041 22.29% 31/03/2009 2,64,70,041 5,47,490 2,51,86,000 1 .....

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hs from its subsidiary company but not for investment in shares, which is evident from the fact that investment in shares of listed companies have fallen during the year from ₹ 72.17 lakhs to ₹ 5.47 lakhs, meaning thereby, the majority of the investment has been made in shares of unlisted companies which are not tradable. We further note that majority of the shares on which loss was suffered were held by the assessee for a period of over two years evidencing that the assessee made th .....

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case of Gopal Purohit, wherein, it was held as under:- 2. The Tribunal has entered a pure finding of fact that the assessee was engaged in two different types of transactions. The first set of transactions involved investment in shares. The second set of transactions involved dealing in shares for the purposes of business (described in paragraph 8.3 of the judgment of the Tribunal as transactions purely of jobbing without delivery). The Tribunal has correctly applied the principle of law in acc .....

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ing. A finding of fact has been arrived at by the Tribunal as regards the existence of two distinct types of transactions, namely, those by way of investment on the one hand and those for the purposes of business on the other hand. Question (a) above, does not raise any substantial question of law. 3. In so far as question (b) is concerned, the Tribunal has observed in paragraph 8.1 of its judgment that the assessee has followed a consistent practice in regard to the nature of the activities, th .....

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nt and consistency when the facts and circumstances are identical, particularly in the case of the assessee. This approach of the Tribunal cannot be faulted. The Revenue did not furnish any justification for adopting a divergent approach for the assessment year in question. Question (b), therefore, does not also raise any substantial question of law. 4. In so far as question (c) is concerned, again there cannot be any dispute about the basic proposition that the entries in the books of account a .....

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f the assessee is squarely covered by the ratio laid down in the aforesaid case by Hon ble jurisdictional High Court. Now, we are summarizing hereunder the loss suffered by the assessee on sale of shares/mutual funds:- Nature of gains Type of Investment Aggregate cost Sale proceeds Gain or Loss Short Term Mutual Funds 25,00,000 25,16,602 16,602 Short Term Shares 76,89,747 72,22,640 (-),467,107 Long Term Shares 52,28,237 36,07,628 (-)16,20,609 Total (-)20,71,114 The ld. Assessing Officer, in view .....

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occupation carried on with a profit motive. Whereas, Explanation -2 to section 28 reads as under:- Where the speculative transactions carried on by as assessee are of such a nature as to constitute a business, the business (hereinafter referred to as speculation business ) shall be deemed to be distinct and separate from other business. The term speculative transaction has been provided in section 43(5) of the Act which is reproduced hereunder:- (5) "speculative transaction" means a tr .....

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l delivery of goods manufactured by him or merchandise sold by him; or (b) a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; or (c) a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member; or .....

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. [Explanation 1].-For the purposes of 79[clause (d)], the expressions- (i) "eligible transaction" means any transaction,- (A) carried out electronically on screen-based systems through a stock broker or sub-broker or such other intermediary registered under section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992) in accordance with the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) or the Securities and Exchange Board of India Act, 19 .....

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d under this Act; (ii) "recognised stock exchange" means a recognised stock exchange as referred to in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and which fulfils such conditions as may be prescribed and notified by the Central Government for this purpose; [Explanation 2.-For the purposes of clause (e), the expressions- (i) "commodity derivative" shall have the meaning as assigned to it in Chapter VII of the Finance Act, 2013; (ii .....

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a time stamped contract note issued by such member or intermediary to every client indicating in the contract note, the unique client identity number allotted under the Act, rules, regulations or bye-laws referred to in sub-clause (A), unique trade number and permanent account number allotted under this Act; (iii) "recognised association" means a recognised association as referred to in clause (j) of section 2 of the Forward Contracts (Regulation) Act, 1952 (74 of 1952) and which fulf .....

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assessee had been investing in shares for the last so many years and in the audited accounts, the assessee reflected the same as investment on year to year basis. It is also undisputed fact that the investment made by the assessee in shares is much less than the worth of the assessee which is much higher. It is also noted that the assessee did not borrow any funds to make the investment in the shares. The only question arises, whether the profit on sale of shares constitutes business income or c .....

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by the assessee is also one of the relevant factor, whether it is treated as investment or stock in trade and also whether shown opening/closing stock or shown separately as investment or non-trading asset. Also whether the assessee borrowed money for purchasing such shares and paid interest thereupon. The frequency of transactions, the dates of purchase and sale holding period also indicative of the intention of the assessee. It is not worthy that in earlier years, the department had been acce .....

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nfully made for earning income, thus, treating the business transaction as speculative in nature is the subjective approach of the Assessing Officer. We find no infirmity in the conclusion of the ld. Commissioner of Income Tax (Appeals). 2.3. So far as, allocating ₹ 56,86,633/- as expenses towards speculative transaction are concerned, since, the above grounds have been decided in favour of the assessee, by holding that it was not a speculative business transaction, therefore, we find no m .....

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