TMI Blog2011 (9) TMI 1031X X X X Extracts X X X X X X X X Extracts X X X X ..... cer with the directions to determine the disallowance of the expenditure relatable to the exempt income in the light of decision of Hon’ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. (supra). The assessing officer is directed accordingly. - I. T. Appeal No. 2694 (Del) of 2009 & I. T. Appeal No. 3317 (Del) of 2009. - - - Dated:- 30-9-2011 - SHRI R. P. TOLANI, JM AND SHRI K. D. RANJAN, AM For the Petitioner : Shri K. Sampath, Adv.; For the Respondent : Shri Rohit Garg, Sr. D. R. ORDER PER K. D. RANJAN, AM : These cross appeals by the assessee and the Revenue for assessment year 2006-07 arise out of order of the ld. CIT (Appeals) XIII, New Delhi. These were heard together and are being disposed of, for the sake of convenience, by this consolidated order. 2. The grounds of appeal raised by the assessee read as follows :- 1. The assessment made by the Commissioner of Income-tax (Appeals) is bad in law and on the facts of the case; 2. That having regard to the material on record and detailed submission made, the ld. CIT (Appeals) has erred in law and on facts in treating the Shortterm Capital Gains on shares held by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The company had made investment for the long term, but as stock market had been very volatile, which made it difficult to guess the holding term for majority of shares. Thus investments made, even after due research, for long term, had to be sold with the haste after holding for short period because of rapidly changing marketing conditions, Govt. policies and economy, for the fear of making loss. It was also submitted that the assessee had sold shares of four companies on which long term capital gain was claimed and most of the shares were for more than two years. The company had sold shares of 12 companies on which short term capital gains were claimed out of which shares of 5 companies were purchased during the last financial year 2004-05 and the average period of holding the shares was four months. The short term transactions mainly represent either a wrong decision by buying undesirable or mistake through wrong information. This contention of the assessee was rejected by the AO relying on CBDT Circular and decisions. The assessing officer also observed that assessee was making provisions in his books of accounts for diminution in the value of investment i.e. they were holding t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... short term capital gains of ₹ 24,77,878/-, the ld. CIT (A) noted that there were 19 transactions relating to sale of shares during the year. In these cases the frequency of transactions was minimum and the investment was made out of surplus funds of the assessee. However, on examination of some of the transactions it was seen that the assessee had purchased and sold the shares in brief interval of time indicating that part of the shares transactions relating to the same were also done with the intention of earning profit through trading of shares. The ld. CIT (A) identified such shares where the shares were sold within a short period of one to two months. He also noted that there were some shares which were held for more than six months also. The ld. CIT (A), therefore, had observed that in the cases where shares purchased and sold within one to two months, the transactions were to be treated as trading in shares. However, in cases where shares were held at least for a period of six months such shares should be considered as investments. However, where the holding period was less than six months, the transaction of sale/purchase should be treated as trading activity. The ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee company has taken unsecured loans from four parties covered in the registered maintained under section 301 of the Companies Act. The maximum time spending during the year was ₹ 550.75 lakhs. The year-end balance loan taken from such parties is ₹ 92.33 lakhs. It has, therefore, been submitted that borrowed funds have been utilized for the purpose of purchase of shares, hence the entire profit arose on sale of shares is to be assessed as business income. The assessee has derived small income from consultancies. Therefore, the activity involving purchase and sale of shares has to be treated as one of the business activities of the assessee. Further circular No. 4 of CBDT prescribes certain parameters for identifying whether the activities were in nature of business or investments. The assessing officer had followed CBDT circular to arrive at the decision that the assessee was involved in business activities of sale - purchase of shares. He also submitted that the assessee has used substantial time in trading activities. He, therefore, submitted that the ld. CIT (A) was not justified in allowing the claim of the assessee in respect of shares held for more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement with the views of the ld. CIT (A). 10. In the case of CIT Vs. Gulmohar Finance Ltd. (supra) where the assessee had shown the shares as investments in the balance sheet in the earlier years and no objection was taken to this position, Hon ble Delhi High Court has upheld the order of the Tribunal holding that shares were held as investment. In the case of Ess Jay Enterprises P. Ltd. (supra) Hon ble Delhi High Court has also held that the assessee having shown the shares as investment in the books of account and there was no material on record to show that the same were converted into stock in trade, Hon ble Delhi High Court upheld the stand taken by the ITAT that the profits arising on sale of share was assessable as capital gains and not as business income. In the case before us the ld. AO has not brought any material on record to show that the shares were not held by the assessee as investment. Therefore, in our considered opinion, the profits arising on sale of shares held as investment will be assessable as capital gains depending upon the period of holding as long term or short term capital gain. Accordingly, we allow this ground of appeal in favour of assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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