TMI Blog2012 (12) TMI 1048X X X X Extracts X X X X X X X X Extracts X X X X ..... P L Account on estimate basis. 5. That the order passed by Ld CIT(A) and Assessing Officer are against the principles of consistency. 6. That the appellant pray for leave to add, alter, amend or delete the above ground of appeal either before or at the time of hearing. 2. The brief facts of the case are that the assessee company is engaged in the business of exhibiting films and it filed its return of income on 23.11.2006 declaring income of Rs. .7,41,684/-. The case was selected for scrutiny under CASS. During assessment proceedings, the Assessing Officer noted that in the computation of income, the assessee had declared income from business after setting off of business loss and unabsorbed depreciation brought forward from earlier years. The Assessing Officer further noted that as a note to computation of income, the assessee had declared profit loss on sale of shares and mutual funds as business income and business loss amounting to Rs. .98,95,886/- and ₹ 15,05,035/- respectively. On perusal of balance sheet as on 31.3.2006, the Assessing Officer observed that in Schedule-D in balance sheet, the investments were shown at Rs. .4,01,19,160/- as long term i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t term capital gain was not part of profit of the business and therefore the net profit of the company was below Rs. .20 lakhs and no sum was payable to the director. 3. The Assessing Officer further noted that since the business income declared by the assessee was being assessed as income under the head short term capital gain, no expenses other than cost of asset sold were allowable and keeping in view this fact he disallowed a sum of Rs. .1,81,430/- being 1/10th of the expenses classified under the head personal expenses after reducing commission paid to Director. 4. Dissatisfied with the order, the assessee filed appeal before Ld CIT(A) and submitted as under:- a) That appellant company bought shares of various companies during the previous year and sold the same in the previous year and since there were frequent transactions and therefore it amounted to business transactions. b) That the period for which share were held was very less which clearly reflects the intention of appellant which was just to earn profit on sale rather than to hold it for purposes of dividend and appreciation. c) That during the year under consideration the appellant company was e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since investing in shares and securities was one of the main object of the appellant company as per memorandum of association, the expenditure incurred on giving salary to staff who were engaged in looking after the sale and purchase of shares was allowable expenditure as business expenditure u/s 37(1) of the Act. However, the Ld CIT(A) did not agree with the contentions of the Ld AR and held that the business income declared by assessee from sale of shares/mutual funds was in the form of short term capital gain as the assessee had not shown anything else in stock in trade and rather had shown the value of shares/mutual funds investment under the head investments. 6. Aggrieved, the assessee filed appeal before this Tribunal. 7. At the outset, the Ld AR submitted that Assessing Officer treated the business income of company as capital gain merely because the value of shares/investments were shown as investments and were not shown as stock in trade. He further submitted that object clause 27 of memorandum of association duly authorizes the company to invest in shares/mutual funds. He took us to page 13 of paper book inviting our attention to the fact that investment during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to Rs. .20,61,266/- was not payable. She also argued that since company was engaged in investment activities, therefore, disallowance of 1/10th of personal expenses was justified. 10. The Ld AR in his rejoinder submitted that Circular No.4 dated 15.6.2007 states that holding of shares by way of investment or stock in trade is a matter which is within the knowledge of the assessee who holds the share and therefore assessee s version of holding of shares whether as business assets or investment assets should be kept in mind. 11. We have heard the rival submissions of both the parties and have gone through the material available on record. We find that assessee company was engaged in the business of exhibition of films and had accumulated losses and unabsorbed depreciation. The assessee company had made investments in Bonds, mutual funds and shares of various listed and unlisted companies and cost of such investment after providing diminution in the value of investment as on 31.3.2004 and as on 31.3.2005 was reflected in the balance sheet as investments. During the year under consideration, the assessee company made further substantial investments out proceeds of previous ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company purchases and sell shares, it must be shown that they were held as stock in trade and that existence of the power to purchase and sell shares in the Memorandum of Association is not decisive of the nature of transaction. ii) The substantial nature of transaction, the manner of maintaining books of accounts, the magnitude of purchases and sales and the ratio between purchases and sales with holding would furnish a good guide to determine the nature of transaction. Applying the above principals to the facts and circumstances of the present, we observe as under:- 1. The assessee has classified the investment in shares/mutual funds under the heading investments after providing for diminution in the value thereof and has not shown them as stock in trade. 2. The assessee has not reflected any purchases sales of shares/mutual funds and has not prepared any trading account to reflect the turnover of the company and has rather taken the net result as income of the assessee. 3. The assessee in Schedule-K at page 15 of annual report has shown the said income under the head other income (being income from long term investment other than trade). 4. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that transactions of sale and purchase of share was in the nature of business is not similar to the facts and circumstances of the present case because in that case the volume of purchase and sale was quite large as compared to value of investment as on the close of the year and moreover the holding period was very short and transactions were continues and regular and borrowed funds were used for purchase of shares whereas in the present case, the volume of purchase and sales though were substantial but the value of shares as on 31.3.2005 and as on 31.3.206 was quite substantial and was more than turnover and secondly the period of holding of shares was quite long as can be seen from the balance sheets and moreover no borrowed funds were used in the present case and there was no regularity and continuity of the purchases and sales. Similarly, the case laws relied upon by Ld AR relating to CIT v. Dairus Pandole 330 ITR 485 also does not match with the facts and circumstances of the present case as in that case the Assessing Officer had intended to treat loss under the head income from capital gain as business loss on account of the fact that stock of shares had been shown under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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