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2016 (3) TMI 1068 - ITAT HYDERABAD

2016 (3) TMI 1068 - ITAT HYDERABAD - TMI - Capital gains v/s business income - nature of income - Held that:- Taking into consideration the total effect of the principles, as advised by the Board, it would be clear that the short term capital gains is not on account of business activity. It is but similar to the activity in long term capital gains. As noted earlier, AO has accepted the long term capital gains on similar transactions in investment account. More over assessee has substantial tradi .....

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Shreyas S Morakhia [2012 (3) TMI 103 - BOMBAY HIGH COURT ] and in the case of Bonanza Portfolio Ltd [2009 (8) TMI 636 - DELHI HIGH COURT] , as assessee offered brokerage income which was taken into account in the books, the principle amount has to be considered as full amount of debt for claim of deduction. Even if a fraud was committed on that account the same is allowable as bad debt. We, therefore, uphold the order of the CIT(A) in allowing assessee’s claim of bad debts. - Decided against rev .....

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ing, portfolio management services and provision of depository services. The AO completed the assessment by making the following additions/disallowances: Sl.No. Particulars 2007-08 2008-09 1. Income from STCG treated as business income 77,50,201 2,31,93,041 2. Disallowance u/s 14A 1,50,000 3,00,000 3. Donation disallowed 50,000 - 4. Bad debts written off - 58,84,364 2.1 Assessee s main business was stock and share broking, depository services and portfolio management services. Assessee offered i .....

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of shares sold was 1,96,1225. For AY 2008-09, assessee had made purchases of ₹ 12,02,28,184/- and sales of ₹ 14,34,21,225/ in respect of shares on which short term capital gains was declared. The AO noted that since the holding period of the shares was very small, the motive could not be said to be earning of dividend. It was considered that assessee received dividend on merely 7250 shares out of the total shares traded of 1,96,125 for AY 2007-08 and on 66200 shares out of the total .....

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he AR of assessee submitted that surplus funds were deployed for investments and that some of the investments may have been liquidated within the same FY for the following reasons: a. If the dividend yield fell below the expectations or investments goal were reached earlier than anticipated. b. If there was a change in the assumptions based on which investments decision was originally made. c. If there was an urgent requirement of funds for which it was necessary to liquidate the investment. It .....

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shares categorized as investment in assessee s books was assessable as capital gains and not as profits from business. After detailed analysis Ld. CIT(A) summarised the reasons as under: a. The shares were classified as investment in the books of account. b. The transactions were delivery based, except for two transactions for each of the two years for which assessee has furnished a reasonable explanation. c. Assessee had not used borrowed funds for the purpose of investment. d. The frequency of .....

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the AO. In AY 2008-09, there is another ground pertaining to the claim of bad debts. 7. The ld. DR besides relying upon the order of the AO submitted that the ld. CIT(A) ought to have analysed the frequency, magnitude and volume of transactions and drawn inference from the decisions of Hon ble Supreme Court in the case of Raja Bahadur Visheswara Singh 41 ITR 685 (SC) and as also the Hon ble High Court of A.P. in the case of P.V.S. Raju & Rajyalakshmi Vs. Addl. CIT 340 ITR 75 wherein the cou .....

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5-06 when short term capital gains was taxed at the special rate of 10%, which was later increased to 15% w.e.f. 01/04/2009. This would show that assessee was making investments with objective of earning dividend income and that the short term capital gains was being earned even when normal tax rate was charged and shown as such in accounts and income tax returns. The intention and objective of assessee would be clear from this conduct when the income from sale of shares was being categorized &a .....

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hort term capital gains right from the early existence of the company and regular substantial dividends could also show the objective of assessee is earning the dividend income. It was also submitted that AO did not disturb the treatment given to sale of shares in investment account as long term capital gains, but only on which short term capital gain was offered. The ld. AR placed submissions under the rule 27 of ITAT Rules, 1963, stating that the CIT(A) is not correct or justified in rejecting .....

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t or disturbing the nature of income from short term capital gains. The Hon'ble jurisdictional High Court had considered the principle of consistency as against the principle res judicata. The Hon'ble High court has also taken support of the cases in Escorts Limited (2011 338 ITR 435 [Delhi],) Danos Pandole in (2011) 330 ITR 485 (Bom.) and Gopal Purohit (2011 336 ITR 287 [Bom.] ). The decision of the Hon'ble A.P High Court in the case of Spectra Shares Private Limited Vs. CIT is squa .....

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principle of consistency. Therefore, taking into consideration the total effect of the principles, as advised by the Board, it would be clear that the short term capital gains is not on account of business activity. It is but similar to the activity in long term capital gains. As noted earlier, AO has accepted the long term capital gains on similar transactions in investment account. More over assessee has substantial trading income which was dealt separately in books of accounts. Therefore, we .....

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7; 1,05,74,635/- of which a sum of ₹ 46,90,271 was recovered and the balance sum of ₹ 58,84,364 was claimed as a bad debt. Assessee submitted that it did not file a complaint with the police for the following reasons: a. The business of the company was sensitive in nature and its reputation was of paramount commercial importance. b. The employees concerned had left a suicide note due to which the focused on recovery of the amounts instead of taking action against the persons concerne .....

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ters written by the perpetrators of the fraud. He also noted that all the employees had sought time to repay the amount and that there was no formal complaint to the police. In view of the above observations, he disallowed the bad debts claim of assessee. 12. In the course of the appellate proceedings before the Ld. CIT(A), the AR has submitted that the amounts due had been actually written off in books of account as could be seen from the copies of account of the clients filed during the assess .....

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