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2016 (4) TMI 1050 - ITAT KOLKATA

2016 (4) TMI 1050 - ITAT KOLKATA - TMI - Loss from speculation business of sale of shares - long term capital gain or short term capital gain - Held that:- We find from the facts of the case that the assessee is NBFC as per section 45-IA of the RBI Act, 1934. The assessee has always taken the value of investment at cost and categorized the investment in shares under the head investment and not as current assets. The assessee has earned dividend income of ₹ 2,87,49,687/- during the year and .....

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period of holding by the assessee of shares of OBC ranged between 556 days to 213 days i.e. between 18 months to 7 months. We also find from the orders of the lower authorities that none of the authorities below has doubted the genuineness of sales or purchases or genuineness of transaction and source of payment, whether received or paid. From these facts we can analyze that the assessee by virtue of being an NBFC is authorised to invest in shares and such a terminology does not indicate that th .....

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assessee as investor and we confirm the same. - Decided against revenue

Disallowance u/s. 14A - Held that:- For attracting Section 14A, there has to be a proximate cause for disallowance, which is its relationship with the tax exempt income. Pay-back or return of investment is not such proximate cause, hence, Section 14A is not applicable in the present case. Thus, in the absence of such proximate cause for disallowance, Section 14A cannot be invoked. In our view, return of investment .....

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Dated:- 16-3-2016 - Shri Mahavir Singh, JM & Shri M. Balaganesh, AM For The Appellant: Shri Rajendra Prasad, JCIT For The Respondent: Shri Ravi Tulsiyan, FCA ORDER Per Shri Mahavir Singh, JM: This appeal by revenue is arising out of order of CIT(A)-I, Kolkata vide Appeal No. 748/CIT(A)-I/C-1/11-12 dated 20.02.2013. Assessment was framed by DCIT, Circle-1, Kolkata u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) for Assessment Year 2009-10 vide his order dated 23 .....

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hort term capital loss. 3. Briefly stated facts are that the assessee is a public substantially interest company following mercantile system of accounting. The assessee company is a non-banking financial company u/s. 45(1A) of the RBI Act, 1934,. The assessee is an investment company having main object of investment in shares. According to AO, the assessee has disclosed long term capital loss to the tune of ₹ 3,34,30,136/- in its P&L Account for the year ended 31.03.2009. Assessee also .....

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and also utilization of interest bearing borrowed funds in purchase of shares and accordingly, he treated the long term capital loss and short term capital loss as business loss by treating the share transaction business as regular business by observing as under: Frequency and transactions towards purchases and sales of shares/securities is a strong case of trading in shares. Hon'ble Supreme Court in the case of Raja Bhandhur Vishaswara Singh CIT (411 ITR 685) has also expressed the same vi .....

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en resulting into LTCG also, it is found that shares of OBC were acquired in bigger volumes on 22 different dates and sold on 5 different dates. (ii) Utilization of interest bearing borrowed fund in purchase of shares is a strong circumstances of trading in shares. The Hon'ble Madhaya Pradesh High Court in the case of CIT Vs Godabari Corp. Ltd. (156 ITR 835) has supported this view. On perusal of P&L A/c., it is found that the assessee has paid interest of ₹ 20.6 6lakhs. (iii) The .....

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s and circumstances of the case, the loss disclosed under the heads 'L T C Loss' for Rs. (-) 3,34,30,136/- and 'STC Loss' for Rs. (-)36,39,94,084/ is treated as business loss. Therefore, the Share Transaction Business is treated as Regular Business and the total loss from the business is arrived at - Rs. [(-)3,34,30,136.00 + (-) 36,39,94,084.00] i.e. Rs. (-) 39,74,24,220/-. Now to examine applicability of explanation to Section 73, head-wise analysis of income and deployment of f .....

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the assessee has income from on securities Rs.l,33,91,344.64 & dividend income of ₹ 2.87 crore and dividend has been claimed exemption. Interest income has been offered under the head Income from Business & Profession" there is no other income from 'House Property', Other Source' or 'Capital Gains'. Therefore, the assessee has the main Income/Loss from Business as discussed above. As such Explanation below section 73 of the Income Tax Act applicable in asse .....

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e preferred appeal before CIT(A), who deleted the addition by observing as under: After careful consideration of the assessment order and written submission it is noticed that the AO treated the long term capital loss of ₹ 3,34,30,136/- and short term capital loss of ₹ 36,39,94,084/- in shares claimed by assessee as business loss and applied explanation to section 73 of the Income tax Act and treated the whole loss of ₹ 39,74,24,220/- as speculative loss which was allowed to be .....

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ed interest of ₹ 1,33,91,334/- from loan and advances given and debited interest of ₹ 20,66,968/- in the P&L a/c and assessee had also received a dividend of ₹ 2,87,49,680/- on these investments. In the computation of income assessee had disallowed expenses of ₹ 33,57,610/- on account of tax-free income, while the short term capital loss was carried forward. In the financial under consideration assessee had sold of ₹ 44,08,300/- shares of Oriental bank of Commer .....

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of sale of OBC shares were done through recognised stock exchange and were subjected to STT. The appellant in the written submission relied upon the judgment of Bombay High Court in the case of Gopal Purohit 228 ITR 582 (Bombay) and the case of CIT Vs. Consolidated Invest Holding Ltd. 337 ITR 264 Delhi High Court to support his contention the purchase of shares of OBC was in nature of investment rather than in nature of business and explained that the shares were sold as the prices started decli .....

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d. Aggrieved against the order of CIT(A) revenue is now in appeal before Tribunal. 5. We have heard rival submissions and gone through facts and circumstances of the case. We find that the assessee filed its return of income by declaring long term capital loss of ₹ 3,34,30,136/- and short term capital loss of ₹ 36,39,94,084/-. The assessee is a nonbanking finance company and by its nature making investments and this fact reported by assessee in Form No. 3CD Para B clause 8(a). The as .....

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capital gains/loss depending upon the holding period. Accordingly, the gains or loss was offered to tax and the same was accepted in earlier years and future years. According to AO, the assessee s main business is dealing in shares. Thus he invoked explanation to section 73 of the Act and treated the gains/loss arising out of sale of shares, numbering 44, 08, 300, of Oriental Bank of Commerce for the consideration amounting to ₹ 65,56,30,091/- and loss arising out of the same was treated .....

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g the year, which was claimed as exempt u/s. 10(34) of the Act. Ld. Counsel for the assessee before us stated that the shares of Oriental Bank of Commerce have been shown in the Balance Sheet under the head investments and not as stock in trade under the current assets. According to him, as per the schedule to the Balance Sheet of a Non Banking financial Company Prudential Norms, no shares are to be held by assessee as current investment and all the investments are in the nature of long term inv .....

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d invest in some other shares owing to steep decline in the price of these shares. Ld. Counsel for the assessee also argued and drew our attention to pages 71 to 76 wherein it can be seen that the period of holding or Oriental Bank of Commerce s shares by assessee ranging between 556 days to 213 days i.e. between 18 months to 7 months. In view of these facts, ld. Counsel for the assessee stated that the evidence and submissions clearly prove that the assessee was not a dealer in shares but only .....

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ccording to him, there is no frequency in transaction as is evident from pages 71 to 76 of assessee s paper book wherein complete details of holding of shares of Oriental Bank of Commerce as well as gains or loss is disclosed. On the other hand, Ld. Sr. DR relied on the order of AO. 6. We find from the facts of the case that the assessee is NBFC as per section 45-IA of the RBI Act, 1934. The assessee has always taken the value of investment at cost and categorized the investment in shares under .....

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sale price, date of sale, date of purchase is enclosed in assessee s paper book at pages 71 to 76 wherein it can be seen that the period of holding by the assessee of shares of OBC ranged between 556 days to 213 days i.e. between 18 months to 7 months. We also find from the orders of the lower authorities that none of the authorities below has doubted the genuineness of sales or purchases or genuineness of transaction and source of payment, whether received or paid. From these facts we can anal .....

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Income Tax Return. The investments made by the respondent assessee have always been valued at cost, therefore, the investments made by the assessee can be said to be long term investments. The respondent assessee is dealing only as an investor and has never dealt as a trader in share transactions. All the investments have been made under delivery based segment. 7. In view of the above facts, we are of the view that the assessee has established that the shares held by it as investment are capita .....

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folios, one relating to investment and another relating to business of dealing in shares, that a finding of fact had been arrived at by the Tribunal as regards the two distinct types of transactions, namely, those by way of investment and those for the purposes of business, and this warranted no interference. (ii) That there should be uniformity in treatment and consistency when facts and circumstances for different years were identical particularly in the case of the same assessee. (iii) That e .....

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he shares which were acquired were sold within a short span of 7 to 10 months by the assessee. There is also no dispute that the assessee had also asserted to be non-banking financial company having business of investments and dealing in shares. However, the facts which were noted by the CIT(A) and also the Tribunal are worth considering. The assessee was, in fact, engaged in manufacture of photographic goods having manufacturing units at different places prior to the de- merger of the photograp .....

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urchased by the assessee when it was a manufacturing company and the aforesaid shares were not purchased as part of any business activity of dealing in shares at the time of purchase. The assessee was neither in the business of investments nor dealing in shares, though it held shares of different companies at the beginning of the relevant previous year. The assessee had acquired those shares in a public issue and had, in fact, shown them in the books of accounts as investment and were booked und .....

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to achieve long-term appreciation and the mere fact that the shares were sold in a short span of time of its acquisition due to steep and unanticipated rise in stock market does not mean that the intention of the assessee at the time of purchase of shares was not to hold them for a long period of time or to deal in them. This was a pure question of fact arrived at by CIT(A) and the Tribunal, and rightly so that the profit arisen from sale of shares of ONGC during the relevant previous year was t .....

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nvestments at appropriate intervals which may lead to high turnover in the investment account. However, it does not mean that the investments are actually held as stock in trade. An investor may frequently buying or selling shares, but shares purchased during a particular year may not be sold in the same year and shares sold during the year which have been purchased more than a year ago. This will be treated as investment and not trading. 10. In view of these facts, we are of the considered view .....

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in restricting the disallowance u/s. 14A to ₹ 34,63,114/- instead of ₹ 71,20,710/- 12. Briefly stated facts are that the assessee has earned exempted income i.e. dividend of ₹ 2,87,49,680/- and claimed the same as exempt u/s. 10(34) of the Act. The assessee itself computed disallowance u/s. 14A of the Act at ₹ 33,57,610/-. But the AO computed the disallowance by invoking Rule 8D of the I. T. Rules, 1962 at ₹ 71,20,710/- by computing as under: (i) Direct expenses Nil .....

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ing of above dividend income as per the computation of income filed along with of return. The nature of expenses debited in P&L A/c was on account of interest paid for ₹ 20,66,969/- and ₹ 13,96,145/- on account of administrative and other expenses. While the AO computed the proportionate interest paid for ₹ 16,73,997/- and ½% of the average investment for ₹ 54,46,713/- u/s. 14A read with Rule 8D and net amount of ₹ 37,63,100/- over and above the proportio .....

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a/c. Therefore this ground is partly allowed. Aggrieved, revenue preferred second appeal before Tribunal on this issue. 14. We have heard rival submissions and gone through facts and circumstances of the case. We find that the assessee has earned dividend of ₹ 2,87,49,680/- on a total investment in shares at a figure of ₹ 127,68,82,654/- as on 31.03.2008 and of ₹ 28,62,60,276/- as on 31.03.2009. The assessee has explained that its own funds comprising of shareholders fund and .....

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Supreme Court in the case of CIT Vs. Walfort Shares & Stock Brokers Pvt. Ltd. (2010) 326 ITR 1 (SC) wherein Hon ble Supreme Court has laid down the following principle for invoking the provisions of section 14A of the Act read with Rule 8D of the I. T. Rules, by holding as under: For attracting Section 14A, there has to be a proximate cause for disallowance, which is its relationship with the tax exempt income. Pay-back or return of investment is not such proximate cause, hence, Section 14A .....

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