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M/s. Lend Lease Co. (India) Ltd. Versus I.T.O., Circle-6, Kolkata

2016 (6) TMI 251 - ITAT KOLKATA

Revision u/s 263 - Assessment of income - as per CIT(A) the gain on sale of shares ought to have been assessed by the AO under the head income from business and not under the head short term capital gain - whether interest expenditure should be allowed as deduction while computing the short term capital gain and disallowance of expenses u/s 14A

Held that:- We find right from A.Y.2001-02 till A.Y.2004- 05 the assessee had two portfolios of shares, one held as investment and the other a .....

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ee has been accepted by the revenue. It is thus seen that only the present A.Y.2005-06 the revenue is taking a stand that the sale of shares held as investment gives rise to income from business. The facts in the present A.Y. are identical to the facts in the other assessment years referred to above. In such circumstances we are of the view that taking a different stand in the present A.Y. would be violation of principles of consistency and the revenue should not be permitted to take such a stan .....

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under that very head. The computation of capital gain is provided in Section 48 of the Act. According to Section-48, the only deductions which are allowable are - (1) the cost of acquisition of the asset, (2) the cost of any improvement thereto and (3) expenditure incurred wholly and exclusively in connection with the transfer of the asset. The cost of acquisition means the amount paid for acquiring the asset. Once the asset is acquired, then any expenditure incurred thereafter cannot be consid .....

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venue deduction on year to year basis against the income generated from such asset or likely to be generated to the extent provided by the Legislature under different heads. We therefore uphold the order of the AO to this extent.- Decided partly in favour of assessee. - I.T.A No. 526/Kol/2011 - Dated:- 11-5-2016 - Sri N. V. Vasudevan, JM And Shri Waseem Ahmed, AM For the Appellant : Shri A.K.Tulsiyan, FCA & Shri Amit Kr.Lal, ACA For the Respondent : Md. Ghayas Uddin, JCIT, Sr.DR ORDER Per N. .....

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T(Appeals) erred in enhancing the assessment without complying with the requirement of sub-sec.(2) of sec.251. 2. FOR that the issue in the assessment as well as in the appeal before the Ld. CIT(Appeals) was the determination of the amount of interest deductible in computing the income from Short Term Capital Gain. That the gain was Short Term Capital Gain was not in dispute. The Ld. CIT(Appeals) has erred in traversing beyond the scope of the appeal filed before him in holding that the profit o .....

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ranting and taking of loans. The assessee filed return of income for A.Y.2005-06 on 31.10.2005 declaring a total income of ₹ 95,03,100/-. The assessee declared short term capital gain on sale of shares held as investments of ₹ 95,22,232/- in arriving at the aforesaid short term capital gain. The assessee had reduced from the full value of consideration received on sale of shares interest expenditure of ₹ 7,09,614/-as expenses incurred in connection with transfer of shares. In t .....

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erest expenditure cannot be considered as expenditure in connection with the transfer or cost of improvement of the capital assets within the meaning of section 48 of the Act. He therefore directed the AO to make the required disallowances after cancelling the order of assessment. The following were the relevant observations of the CIT in the order dated 12.12.2008 passed in the order u/s.263 of the Act:- Assessment was completed u/s.143(3) on 25-05-2007. Later on proceeding uls.263 was initiate .....

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en the transactions of shares is disclosed as trading of the assessee. Regarding application of Section 14A the assessee's claim of no expenditure in earning dividend is also not acceptable. In the case of Oberoi Leasing & Finance Company Pvt. Ltd. -vs- A.C.IT., Circle(6). KoL (ITA No.2363 (Kol) of 2005) relating to the assessment year 2002-03, the Honorable 1.T.A.T. has held that the entire administrative and other expenses should have been considered for. working out the proportionate .....

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, Kolkata. The Hon 'ble ITAT, Kolkata vide. its order dated 09-10-2009 dismissed the assessee's appeal. 6. In the order passed u/s 143(3) r.w.s.263 of the Act, the AO held that there was no provision in the Act to allow interest on borrowed capital as deduction while computing capital gain. The AO accordingly re-computed the short term capital gain of the assessee at ₹ 1,16,05,085/- which was originally determined at a sum of ₹ 95,22,232/. The total interest expenditure claim .....

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During the appellate proceedings Ld. A.R. of the assessee was asked to provide the details of the shares on which the short term capital gain was claimed to be earned by the assessee Ld..A.R. submitted these details. These details are enclosed with this order in Annexure-' A'. From the above details it can be seen that during the previous year under consideration the assessee has shown two types of short term capital gain (STCG). The first type of STCG is related to the transactions on .....

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e last year but were converted into investment; this year). There are many transactions in which the shares were sold within few days of purchase. Further, it can be seen that the assessee has purchased and sold as many as 39 scripts and has made sales on as many as 116 dates. The frequency of the transactions, the number of scripts purchased and sold and the short duration of retention of shares suggest that these transactions are not in the nature of investment but in the nature of trading in .....

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ty to explain why the purchase and sale of shares made during the year using borrowed funds should not be treated as share trading business and not as investment, Ld. A.R. of the assessee opposed this preposition and made following submission: i) The assessee is Non-Banking Financial Company (NBFC)and is mainly engaged in granting and taking of loans. ii) The assessee has been maintaining separate portfolios in its accounts for shares held as stock in trade and those held as investments. The obs .....

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in the investment shares the assessee preferred to hold these shares. iv) The assessee has also received the delivery of the shares purchased as investment. This clearly shows the nature of holdings by the assessee as investor. v) The assessee has been showing investment and capital gain in earlier years also which has been accepted by the Assessing Officer. Simply because some of the shares held as investments were sold within a short period of 15 days, it will not alter the character of the sh .....

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inguish between an investment transaction. On this issue a plethora of Court Judgments are available but even these judgments have not prescribed any formula to take a decision on this issue. However majority of the judgments are of the view that this issue cannot be decided on the basis of one single criterion. It has been held that this issue will have to be decided on the facts of each case considering various factors such as nature of business of the assessee, motive of purchase of shares, f .....

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ealing in purchase and sale of shares. It is not that the assessee company deals in shares only in the form of investments. They deal in shores as a trading activity also. They have done trading in shares not only during the previous under consideration but also in past many years. The assessee has shown stocks of trading shares in the current year as well as in earlier Years. Thus it can be seen that the assessee has been very much doing trading in shares regularly. Therefore, on the first impr .....

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ader can have a separate trading portfolio and a separate investment portfolio. However, to decide this issue we have to consider another factor i.e. the source of fund used in purchasing the shares. From the balance sheet of the assessee reproduced above it can be seen that last year as on 31.03.2004 the assessee had capital and reserve and surplus of ₹ 2.72 crore against which the investment in shares was 1.86 crore. This shows that till last year the investment in shares was made out of .....

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out ₹ 4.63 cr.(6.49 - 1.86). These figures show that during the previous year under consideration the borrowed funds of the assessee were used to deal in purchase and sale of shares. Generally it can be said that a business man will make investment only when he has surplus funds. When borrowed funds are used by a business entity it can be said that they are used for carrying on the normal business activity. In view of this discussion I am of the view that the purchase and sale of shares do .....

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and sale cannot be treated as investment but trading in shares which is a business activity of the assessee. Therefore, the whole of the remaining amount of interest of ₹ 20,07 ,292/- will be allowable to the assessee as a business expenditure. In view of the above discussion the A.O. is directed to treat STCG Rs.l,00,73,530/- as business income and allow deduction of interest of ₹ 20,07,292/-from this income. The net amount of ₹ 80,66,238/- will be taxed as income from share t .....

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It was his submission that since the scope of the assessment proceedings pursuant to order u/s 263 of the Act are limited to the specific issues dealt with in the order u/s 363 of the Act, the CIT(A) cannot in exercise of his powers of enhancement u/s 251 of the Act seek to make any investigation on the question whether the income was short term capital gain or income from business. In support of his contention the learned counsel for the assessee placed reliance on the following decisions : a) .....

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in place of the opinion of the CIT. c) ACIT vs M/s. Royal Western India Turf Club Ltd. In ITA NO.1654 & 6333/Mum/2012 dated 22.07.2015. In the aforesaid decision the Hon ble Mumbai Tribunal held that We have heard the rival submissions and carefully perused the record. When the Revisional Authority calls for the assessment records and proceeds to set aside the assessment the standard language employed, in the revisional orders, is to direct the AO to make de novo assessment; but one should n .....

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e AO has not made proper enquiries with regard to certain items which were specifically listed out in the order passed under section 263 of the Act and in this background the matter was set aside with a direction to the AO to make a fresh assessment and thus it has to be assumed that the direction was limited to the issues which were considered by the Revisional Authority. Such being the case the AO has no jurisdiction to touch upon a fresh issue which does not emanate from the notice issued by .....

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eedings under section 143(3) r.w.s. 263 of the Act. We, therefore, hold that the addition, towards entrance fees, made by the AO, in the proceedings under section 143(3) r.w.s. 263, is beyond the jurisdiction of the AO and therefore deserves to be deleted and we direct the AO accordingly, Though the learned CIT(A) has disposed of the appeals on merits, by following the decision of the Hon'ble Bombay High Court in the case of Diners Business Services P. Ltd. 263 ITR 1, we need not have to go .....

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dismissed accordingly. 10. The learned DR however pointed out that order u/s 263 of the Act the CIT has cancelled the original assessment and directed the reframing the assessment de novo and therefore the scope of the proceedings before the AO was very wide. 11. We have given a very careful consideration to the rival submissions. We have already extracted the operative part of the CIT s order u/s 263 of the Act. It is no doubt true that in the operative part of the order, the CIT has observed .....

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ngs before the AO pursuant to the order u/s 263 of the Act was limited. The AO could not have gone into the question as to whether the short term capital gain declared by the assessee was income from business. If that be so, the CIT(A) in exercise of his powers of enhancement could not have gone into an issue on which the AO could not have made any enquiry. We therefore agree with the contentions raised by the assessee in ground no. 1 and 2 raised before us. 12. On the question whether the incom .....

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e of business. In respect of shares which were held as investment, gain on transfer of those shares was declared under the head capital gain and the same was accepted by the revenue. It is no doubt true that in those years the assessment was made u/s 143(1) of the Act. Even for A.Y.2006-07 & A.Y.2006-07 the position was the same. The claim of the assessee was accepted u/s 143(1) but for A.Y.2007-08 and 2009-10 assessment was completed u/s 143(3) of the Act. The claim of the assessee has been .....

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