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Deputy Commissioner of Income Tax, Circle-7, Kolkata Versus C.D. Equifinance Pvt. Limited

2016 (4) TMI 739 - ITAT KOLKATA

Profit from sale of shares - business income OR short-term capital gain - Held that:- CIT(Appeals) found merit in the contention raised on behalf of the assessee before him that the Circular No. 4 of 2007 issued by the CBDT and relied upon by the Assessing Officer actually supported the case of the assessee keeping in view that two separate portfolios for the shares purchased as investment and shares purchased as stock-in-trade were maintained by the assessee. Accordingly, the ld. CIT(Appeals) h .....

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to the exempt income in the form of dividend and LTCG. At the time of hearing before us the ld. Counsel for the assessee did not raise any contention to dispute the applicability of Rule 8D. The limited contention raised by him is that the assessee has already having made disallowance of ₹ 34,67,355/- under section 14A of the Act as against the disallowance of ₹ 80,46,448/- worked out by the AO by applying Rule 8D, the net addition should be made to the extent of ₹ 80,46,448/- .....

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by the CIT-(A)- VIII, Kolkata framed U/S 143(3) of the Act for assessment year 2008-09. 2. In Ground No 1 raised in this appeal, the Revenue has challenged the action of the ld. CIT(Appeals) in accepting the treatment given by the assessee to the profit from sale of certain shares as business income instead of short-term capital gain as held by the Assessing Officer. 3. The material facts of the case relevant to the issue involved in Ground No. 1 of the Revenue s appeal are as follows. The asse .....

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ion, the assessee had declared an income under the head short-term capital gain for short as STCG hereafter as on sale of shares made amounting to ₹ 3,64,42,754/-. the Assessing Officer during the course of assessment proceedings, he was of the view that the profit on sale of shares amounting to ₹ 3,64,42,754/- offered by the assessee as short-term capital gain was in the nature of business income having regard to the relevant facts of the case. He, therefore, required the assessee t .....

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hase of respective shares was sufficient to establish the nature and purpose of acquiring and holding the respective shares and securities as stock-in-trade or investment, as the case may be and the profit arising from sale thereof was accordingly declared as business income and short-term capital gain. 5. Having not satisfied by the explanation of the assessee the Assessing Officer on the basis on the assessments for A.Y 2006-07 and 2007-08 of assessee where the profit on sale of shares said to .....

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eedings, elaborate submissions were made on behalf of the assessee before the ld. CIT(Appeals) to meet all the objections raised by the Assessing Officer while treating the profit from share transactions as business income. The ld. CIT(Appeals) considered and discussed the submissions made by the assessee in respect of each and every point in detail in his impugned order as under:- I have carefully considered the submission made by the appellant along with the supporting/ evidences details furni .....

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t;stock-in-trade" then the appellant would have been entitled to claim valuation loss of ₹ 3,30,44,508/-. However; since the appellant has held these shares by way of Investments, the valuation loss of ₹ 3,30,44,508/- was neither recognized in the books nor it was claimed as deduction by it. It is further argued that the finding of the AO was not based on material and was factually wrong. In fact the appellant conducted in all 72 purchase transactions and 119 sale transactions o .....

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f shares exceeded one year. It is stated that the capital gains realized on sale of Investments, where holding period exceeded one year, was assessed as Long Term Capital Gains and exemption permissible u/s 10(38) has been allowed. The appellant, thus, argued that the AO could not artificially create a distinction between investment of shares on the basis of holding period. It is submitted on the basis of material on record that both short term and long term investments were acquired through the .....

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ready reference and record. It is noticed that in the appellate orders for those years, it was held that the income disclosed by the appellant under the head short term capital gain was to be assessed under that head and not as profit and gains of business. In the light of the above discussion and observation, carefully considering the appellant's submission, perusing the entirety of the facts of the case including the impugned assessment order and other material on record and following the .....

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ussing all the relevant aspects of the matter in detail with reference to the facts and figure available on record, the ld. CIT(Appeals) found merit in the contention raised on behalf of the assessee before him that the Circular No. 4 of 2007 issued by the CBDT and relied upon by the Assessing Officer actually supported the case of the assessee keeping in view that two separate portfolios for the shares purchased as investment and shares purchased as stock-in-trade were maintained by the assesse .....

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which are relevant to decide as to whether the relevant shares were purchased and held by the assessee as stock-in-trade or investment, have been duly taken into consideration by the Assessing Officer. 9. The ld. Counsel for the assessee, on the other hand, strongly supported the impugned order of the ld. CIT(Appeals) allowing the claim of the assessee on this issue and contended that the detailed submissions made by the assessee before the ld. CIT(Appeals) as well as the findings/ observations .....

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of his paper book. He also contended that the order of the ld. CIT(Appeals) allowing the claim of the assessee in that case has been upheld by the Tribunal vide its order dated 09.12.2010 passed in ITA No. 1407/KOL/2009. He also pointed out that the said order of the Tribunal has been upheld by the Hon ble Calcutta High Court in ITA No. 101 of 2011 dated 12.05.2015 and The recent consolidated order dt:09-12-2015 in ITA 1790/KOL/2008 & Batch cases by A bench of Kolkata Tribunal in assessee s .....

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extracted the relevant findings/ observations recorded by the ld. CIT(Appeals) in this regard in the foregoing portion of this order and a perusal of the same clearly shows that two separate portfolios were maintained by the assessee in respect of shares purchased and held as stock-in-trade and investment not only in the year under consideration but even in the earlier years and the claim of the assessee for short-term capital gain in respect of profit arising from the shares held in investment .....

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ng was to acquire and hold the relevant shares as investment only. As pointed out on behalf of the assessee before the ld. CIT(Appeals) as well as before us, the transfer of shares from one Demat account to another Demat account was only on account of conversion of shares held as investment into stock-in-trade and there was no transfer of shares held as stock-in-trade into investment in its books of account. 14. As noted by the ld. CIT(Appeals), the relevant shares credited to the separate Demat .....

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ess income. Similarly profit arising from derivative transactions and intraday transactions was offered by the assessee as business income. As found by the ld. CIT(Appeals), if the shares held by the assessee as investment were to be valued at cost or market price, whichever is lower going by the treatment given by the Assessing Officer to the said shares as stock-in-trade while bringing the gain in question as business income to tax in the hands of the assessee, the assessee would have become e .....

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ame portfolio for a period of less than one year, which, as rightly contented by the ld. Counsel for the assessee is self contradictory and inconsistent. Even the findings given by the Assessing Officer regarding low income from dividend and utilization of borrowed funds by the assessee for the purchase of relevant shares are found to be factually wrong by the ld. CIT(Appeals) on verification of relevant facts and figures and the ld. D.R. at the time of hearing before us has not been able to bri .....

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t shares were purchased and held by the assessee as investment and, therefore, the profit arising from the transactions of purchase and sale thereof is liable to tax in the hands of the assessee as short-term capital gain and not business income. The decision of the Coordinate Bench of this Tribunal in the case of Merlin Holding Private Limited involving similar issue and identical facts and circumstances, which has been upheld by the Hon ble Calcutta High Court, further supports our view. We, t .....

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such shares was chargeable to tax as short-term capital gain and not as business income. Accordingly, ground no-1 raised by appellant Revenue is answered in favour of assesse and consequently, ground no-1 is dismissed. 14. Ground No. 2 of in this appeal for A.Y. 2008-09, the Revenue has challenged the action of ld. CIT(Appeals) about the quantum of disallowance in restricting the disallowance of ₹ 34,67,355/- against ₹ 80,46,448/- as made by the Assessing Officer under section 14A o .....

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essee for making disallowance on its own, the AO found the direct expenditure of ₹ 14,30,718/- was reasonable with reference to dividend. 16. On LTCG, considering the total receipts of ₹ 43,30,71,742/- the AO arrived at disallowance of ₹ 1,00,08,431/- and applying Rule 8D(iii) at 0.5% of average investment, he worked out the administrative expenditure incurred by the assessee in relation to the earning of exempt income at ₹ 66,15,730/-. Accordingly, the disallowance under .....

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r, observed that that proportionate expenses is required to be disallowed in earning of such exempt income and the following reasons given in page no- 12 of his impugned order:- In view of the findings and discussion above, after carefully considering the submission of the appellant, perusing the entire facts of the case including the impugned assessment order and other materials on record and respectfully following the judgement of the Hon'ble ITAT,Kolkata in the case of Balrampur Chini Mil .....

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