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TMI Blog2011 (9) TMI 1031X X X X Extracts X X X X X X X X Extracts X X X X ..... . 14,32,653/-, as normal business income out of the total Short-term Capital Gains of Rs. 24,77,878/-; It is prayed that the Short-term Capital Gains of Rs. 14,32,653/- on shares held for less than 6 months may be treated as Capital gains and appeal be allowed. " 3. The grounds of appeal raised by the Revenue read as follows :- " 1. On the facts and in the circumstances of the case and in law, the CIT (Appeals) erred in directing the assessing officer to treat the income of Rs. 27,38,938/- earned on trading of long term share holding as 'Income under the head capital gain' instead of 'business income', as treated by the assessing officer; 2. On the facts and in the circumstances of the case and in law, the CIT (Appeals) erred in directing the assessing officer to treat the income of Rs. 11,55,927/- earned on trading of shares held for more than six months, as 'Income under the head capital gain' instead of 'business income', as treated by the assessing officer. " 4. The facts of the case stated in brief are that the assessee is a Pvt. Ltd. company and during the relevant period derived income from consultancy, investment and finance. During the assessment year 2006-07 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. This indicated that the assessee was not doing investment, but engaged in the business of shares' sale purchase. The AO treated the short term capital gains and long term capital gains earned by the assessee as business income. The AO disallowed the claim of exemption under section 10(38) of the Act for long term capital gains earned by the assessee. 5. Before the ld. CIT (Appeals) similar arguments were made. Regarding making of the provision on account of diminution in the value of investments, it was submitted by the assessee that all the companies were required to prepare their final accounts as per mandatory Accounting Standard -13. As per AS-13 the assessee had to make provision towards diminution in the value of investments. However, there was no effect on the taxing income of the company. The AO had failed to apply his mind and had commented that they were holding shares alleged as investment at market value whereas the company had shown its investment at book value only. As regards the period of holding the ld. AR of the assessee submitted that the shares were held from period of four months to two years. Therefore, the shares were held as investment which has been sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were treated as business transactions. 6. Aggrieved by the order of the ld. CIT (A) the assessee is in appeal against treating the shares held less than six months as trading stock and short term capital gain arising thereon as business income. The Revenue is in appeal against treating the shares for a period of two years as long term capital gain and shares more than six months as short term capital gains. 7. Before us the ld. AR of the assessee submitted that the assessee had been investing in shares its surplus funds for last 20 years. The assessee has classified the shares as investments in its books of accounts. The assessee has held the shares for the period one month to two years. The deliveries of the shares purchased from its own sources, were received and credited to demat account of the assessee. It was also contended that many times the assessee had to sell shares because of market conditions. The market had been volatile during the relevant period. Therefore, in order to avoid loss by holding the shares for a longer time, the assessee had to sell the shares. During the year the assessee had sold shares of all 16 companies. He further submitted that where shares are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e us, there is no dispute about the fact that the shares purchased were transferred to De-mat account. The ld. CIT (A) has held that where the period of holding is more than six months, the transaction will be in the nature of capital gains and where it is less than six months; it will be in the nature of business. Long term capital gain has been defined under section 2(29B) of the Act and means capital gain arising from transfer of a long time asset. Long term capital asset has been defined under section 2(29A) and means a capital asset which is not a short term capital asset. Section 2(42A) defines short term capital asset to mean a capital asset which is held by an assessee for not more than 36 months immediately preceding its date of transfer. However, in respect of shares the short term capital asset would mean that such shares are held by the assessee for not more than 12 months. The ld. CIT (A), however, treated the short term capital gains in relation to shares, which have been held by the assessee more than six months and the shares held for less than six months have been treated as business income. This, in our opinion, is not in accordance with the provisions of law. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arties. The additional ground raised is reproduced as under :- " On the facts and in the circumstances of the case and in law, the treatment under section 14-A of the Act as ordered by the CIT (A) is erroneous and illegal, and must be quashed with directions for relief to the assessee. " 12. The facts of the case stated in brief are that the assessee earned dividend of Rs. 98,550/- on shares of nine companies and most of the investments were made before the relevant assessment year. The assessing officer disallowed Rs. 20,000/- out of administrative expenditure relating to management and consultation on investment of shares of various companies. On appeal the ld. CIT (Appeals) following the decision of ITAT, Special Bench in the case of ITO Vs. Daga Capital Management P. Ltd., Mumbai (SB) 119 TTJ (Mum.) (SB) 289 directed the assessing officer to make disallowance as per Rule 8D of the Act. 13. We have heard both the parties. The assessing officer had disallowed Rs. 20,000/- u/s 14A on ad-hoc basis. Ld CIT(A) has directed the assessing officer to compute disallowance as per Rule 8D in the light of decision Special Bench in the case of ITO Vs. Daga Capital Management P. Ltd.(sup ..... X X X X Extracts X X X X X X X X Extracts X X X X
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