TMI Blog2012 (1) TMI 264X X X X Extracts X X X X X X X X Extracts X X X X ..... an one year, is to be assessed as income earned from long term capital gain. Treating short term capital gain earned by the assessee as business income - Held that:- As the assessee is an “Investor”, we restore ground no.1, which is on the issue of treating short term capital gain earned by the assessee as business income, to the file of Assessing Officer for denovo adjudication in accordance with law. Thus, this ground is allowed for statistical purposes. Treatment of losses on derivative transactions as non-speculative loss by the first appellate authority - Held that:- We find that the issue is covered against the assessee and in favour of the Revenue by the decision of a Special Bench of the Tribunal in Shree Capital Services v/s ACIT [2009 (7) TMI 172 - ITAT CALCUTTA] wherein it is held that clause (d) of section 43(5) of the Act cannot be held to be clarificatory and it applies only to assessment year 2006-07 and onwards. The Hon'ble Jurisdictional High Court in CIT v/s Bharat R. Ruia [2011 (4) TMI 37 - BOMBAY HIGH COURT] impliedly upheld the Special Bench decision. At Para-37, the argument that amendment by way of insertion of clause (d) to the proviso to section 43(5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y years. Besides earning remuneration, she has been investing in shares and securities, bonds, mutual funds, etc., for more than thirty years, and this fact has been accepted by the Revenue. 3. For all the years under consideration, the Assessing Officer, after scrutiny of the material available before him, observed that apart from earning salary income and her individual business income, the assessee is also dealing in shares-transactions in large volume and most of the shares were purchased and sold within short period. The Assessing Officer held that from the nature of transactions of the assessee, it can be concluded that the assessee is engaged in the business of shares trading. He held that it is clear that the motive of the assessee is to carry on business in shares and to book profit. Thus, the Assessing Officer treated and assessed the profit from the transactions of purchase and sale of shares as assessee s Income From Business as against the assessee claiming the same as Capital Gain . The assessee, being aggrieved, carried the matter before the first appellate authority. The Commissioner (Appeals) partly confirmed the orders passed by the Assessing Officer. Aggrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atishchandra Doshi Etemia v/s JCIT, ITA no.6497/Mum./2009 and others, order dated 15th June 2011; ACIT v/s Mr. Jagdish Master HUF, ITA no.3233/Mum./2009, order dated 18th May 2011; and Bharat Kunverji Kenia v/s ACIT, 130 TTJ (Mum.) (UO) 86. 9. The arguments of the learned Counsel for the assessee are as follows:- i) The assessee has been making investments in shares for more than thirty years from out of her own savings and has been recording them as Investment in her books of account. Separate books of account are maintained; ii) The Revenue has been accepting such treatments in all the previous years; iii) The assessee has not borrowed funds for making investments and her capital account balance is more than her investments for all the years under consideration; iv) She has substantial dividend earnings; and v) All the shares, on which short term capital gain and long term capital gain are offered, are delivery based transactions. 10. Thus, the learned Counsel submitted that the Revenue should follow the principle of consistency of having treated the assessee as an Investor for more than thirty years and also follow the propos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s long term capital gain by the assessee, discloses that the average period of holding has been as high as 7,074 in Gujarat Ambuja Cements, 2,728 days in the case of ITI Ltd., 2,933 days in the case of Reliance Industries Ltd., 4,207 days in the case of Ruchi Soya, 4,435 days in the case of Tata Chemicals Ltd., 2,171 days in the case of Silverline Industries, 3,652 days in the case of Nirlon, etc. Sale of shares which are held for such long period, cannot be treated as trading transactions. When a person has been declaring income from Long Term Capital Gain as well as Short Term Capital Gain , in her income tax returns for a number of years and when the period of holding as indicated above, demonstrates that in many cases, the assessee has been holding shares as investments from long period, it is factually incorrect for the Assessing Officer to have come to a conclusion that the assessee has no income from capital gains and that the income derived by way of sale of shares is income from share trading and has to be assessed as business income. Having high volumes is not determinative of the issue. The undisputed fact in this case is that the assessee has been maintaining separat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aintained separate books of account for the last many years and the period of holding of certain shares indicate that they are investments.. The Assessing Officer has to be consistent in his approach. On an examination of the holding period of some of the shares which were sold within a period of one year, we find that the period of holding is as high as 326 days. In many cases, we find that the assessee has been holding shares for more than 200 days. For e.g., in the case of Steel Authority, the assessee has held shares for 358 days. In the case of Rolta India, shares were held for 316 days. When the assessee has shown the purchases as Investment in her books of account and when the values are done on cost only, the Assessing Officer should treat them as Investment . 17. In ITA no.3233/Mum./2009, assessment year 2006-07, order dated 18th May 2011, the judicial proposition on the issue were culled out:- (a) Whether a transaction of sale and purchase of shares were trading transactions or whether they were in the nature of investments is mixed question of law and fact. CIT v/s Holck Larsen, 60 ITR 67 (SC). (b) It is possible for an assessee to be both an investor as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e claim of bad debt amounting to ` 3,75,902, is on account of transaction with respect of bad delivery in case of 3,500 shares of Vakarangee Software Ltd. In the financial year 2000-01, so far as the case is concerned, it is a case in which share has been held for more than 1 year and hence may be treated to be investment of the appellant. The losses incurred on account of bad delivery is, treated to be capital loss. As no transfer of the shares has taken place the long term capital loss cannot be determined. Further more, the bad delivery has taken place in the F.Y. 2000-01. The capital loss, therefore, cannot be allowed as bad debt and the action of the A.O. is confirmed. 22. We uphold the findings of the first appellate authority. When the assessee claims that she is an Investor , the question of claiming bad debt does not arise. The loss is in the capital field. Thus, we dismiss this ground. 23. Ground no.3, is on the issue of disallowance of an amount of ` 64,334 of business expenses under section 14A of the Act. 24. The first appellate authority restricted this disallowance to ` 30,000. 25. We are of the opinion that this is a reasonable disallowance. The Hon& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was rejected by the Hon ble Court. In view of the above, we allow grounds no.2 to 5 of the Revenue. 36. In the result, Revenue s appeal is partly allowed. 37. We now take up Revenue s appeal in ITA no.5953/Mum./2009, for assessment year 2006-07. 38. The sole ground raised by the Revenue, reads as follows:- On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that F O / derivative transaction during 1.4.2005 to 24.1.2006, as non-speculative business loss without appreciating the fact that as per Explanatory note to Finance Act, 2005, derivative transactions has to be treated as speculative transactions as amendment to section 43(5)(d) of the Act is not retrospective in nature. 39. We have heard rival parties. In view of our findings on an identical issue for the earlier assessment year and as the year in question is assessment year 2006-07, we hold that the amendment by way of insertion of clause (d) to proviso to section 43(5), by Finance Act, 2005, w.e.f. 1st April 2006, comes into effect and the assessee succeeds in its plea. Hence, we uphold the order of the Commissioner (Appeals) though for different reasons. This ..... X X X X Extracts X X X X X X X X Extracts X X X X
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