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2016 (7) TMI 171 - ITAT DELHI

2016 (7) TMI 171 - ITAT DELHI - TMI - Profit derived from share trading - business income OR long term capital gain exempt u/s 10(38) - Held that:- Once the assessee was consistently showing the shares as its investment, the same cannot be converted into stock-in-trade, unless the intention is proved otherwise. - Ld. CIT(A) has pointed out that from the record it is evident that assessee company had distinct port-folio of shares and mutual funds under two categories i.e. investments and stoc .....

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High Court in the case of Godrej & Boyce Mfg. Co. Ltd. Vs. DCIT [2010 (8) TMI 77 - BOMBAY HIGH COURT] held that though Rule 8D was not applicable but since administrative and personal expenses must have been incurred to earn exempt income, determined the disallowance at ₹ 63,352/-. Having heard both the parties, we do not find any reason to interfere with the order of ld. CIT(A) on this count, as he has made a reasonable disallowance of 5% of the expenditure incurred under the head adminis .....

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tra : Accountant Member And Smt. Beena A. Pillai: Judicial Member For the Appellant : Shri Rajesh Kumar Sr. DR For the Respondent : Shri Sanjay Agrawal CA ORDER Per S. V. Mehrotra, A. M These are revenue s appeals against separate orders of the ld. CIT(A)-XV, New Delhi relating to AY 2005-06 to 2007-08. All these appeals were heard together and are being disposed of by this composite order for the sake of convenience. AY 2005-06 (ITA no. 1563/Del/2010): 2. Grounds of appeal raised by the revenue .....

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erm capital gain exempt u/s 10(38). 3. The appellant craves to leave, to add, alter or amend any ground of appeal raised above at the time of the hearing. 3. Brief facts of the case, as obtaining from the assessment order, are that in the relevant assessment year, the assessee company was engaged in the business of purchase and sale of shares, debentures, stock bonds and securities. The assessee filed its return of income declaring total income of ₹ 17,38,820/-. The AO noticed that assesse .....

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assessee to explain why capital gain declared on shares/ securities should not be treated as business income as the business of the assessee was trading in shares. The assessee vide its reply dated b14.9.2007 submitted that its business was to make investment as well as to hold these investments. It was further submitted that investment had been made by the assessee on long term basis and classified as investment in its accounts. The investments were made from own funds and, therefore, the sale .....

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s, bonds, obligations and securities . The AO further pointed out that perusal of the P&L a/c shows that the assessee had primarily derived its income from speculative trading of shares and delivery based trading of shares. He noted that the long term capital gain was shown in respect of sale of scrip in Rasandik Engineering Industries India Ltd. amounting to ₹ 98,41,195/-. AO further observed that it is scrip in which the assessee had also done non- delivery based speculative trading .....

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.6.2007 and also in view of the decision of Hon ble Bombay High Court in the case of CIT Vs. Gopal Purohit ITA no. 1121 of 2009 dated 6.1.2010 and ITAT Mumbai Decision in the case of J.M. Share & Stock Brokers Ltd. Vs. JCIT in ITA nos. 2801/Del/2000 & ors., vide order dated 30.11.2007), held that profit on sale of such shares had to be assessed as capital gain. 6. Ld. DR relied on the order of AO and submitted that since the assessee company was in the business of share trading, therefor .....

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.3.2005. Ld. counsel further referred to the written submissions filed before ld. CIT(A), contained at page 23 of the PB, wherein details of share holding as on 31.3.2004 and 31.3.2005 was as under: Name 2003-04 2004-05 No. of Shares Amount No. of shares Amount Rasandik Engineering Industries India Ltd. 814396 7618277.00 838882 16232324.00 Jay Bharat Maruti Ltd. 100 2010.00 100 2010 Automotive Stampings and Assemblies Ltd. 60 370.00 60 252 Tata Motors Ltd. 1500 746015.00 1500 746015 Tata Steel L .....

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00 00.00 750000.00 2003-04 5297581.00 5143350.00 8484287.00 150000.00 750000.00 2004-05 12852886.00 12430877.00 17098334.00 00.00 00.00 9. Ld. counsel further relied on the CBDT Circular no. 6 dated 29.2.2016, wherein it has been, inter alia, observed as under: b) In respect of listed shares and securities held for a period of more than 12 months immediately preceding the date of its transfer, if the assessee desires to treat the income arising from the transfer thereof as Capital Gain, the same .....

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eatment of income derived from transfer of shares and securities. All the relevant provisions of the Act shall continue to apply on the transactions involving transfer of shares and securities ' 10. Ld. counsel further relied on the decision of ITAT Delhi Bench C in assessee s own case for AY 2008-08 rendered in ITA no. 4151/Del/2013 vide order dated 9.5.2014, wherein it has been held that principle of consistency requires that the view taken in one year should be followed in subsequent year .....

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s held for a period of more than one year. In this connection, it is relevant to note that for the immediately preceding three assessment years, namely, 2005- 06, 2006-07 and 2007-08, the AO adopted similar approach as in the year under consideration but the CIT(A) overturned the assessment order on such point by holding similar income to be capital gain instead of business income assessed by the assessee. 5. Principle of consistency requires that the view taken in one year should be followed in .....

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existing position time and again. In the like manner, the Hon'ble Bombay High Court in CIT VS. Gopal Purohit (2011) 336 ITR 287 (Born) has held income from shares as Business income on the basis of the rule of consistency. Since, the view taken by the Assessing Officer on similar issue has been reversed by the ld. CIT(A) and no material has been brought on record by the Id. DR to demonstrate that the Tribunal tinkered with such view canvassed by the ld. first appellate authority for the earl .....

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in view of the main object of the company of assessee for which it was formed. The first main object of assessee as per memorandum of association contained at page 74 was as under: To carry on investment business and to purchase, acquire, hold and dispose of or otherwise invest in shares, debentures, stocks, bonds, obligations and securities, issued or guaranteed by any company constituted or carrying on business in India or elsewhere and debenture, stocks, bonds, obligations, and securities is .....

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main object of the assessee was trading in shares including investment in shares etc. also. However, in order to find out whether the income arising from sale of shares is to be assessed as capital gain or business income, we have to find out the true intention of assessee keeping in view the facts and circumstances of each case. 14. In the present case the CIT(A) has analyzed the factual aspects as under: 1. The assessee Company is a Promotor group company of Rasandik Engineering Industries Ind .....

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e investment have been made from own fund over a period of time and are classified as long term investment in the books and accounts of the assessee company. 4. The investment is held in dematerialized form. The sales from the demat accounts are recognized on First in First out (FIFO) basis. 5. The copies of demat accounts are enclosed to show the long-term holding of the shares. 6. The opening balance of holding in Rasandik Engineering Industries India Ltd. shares was 814396 equity shares on 01 .....

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feiture. 9. It also sold 2000 shares on off market basis under Proviso to section 112(1). 10. Other sales were 325 shares. 11. The closing holding therefore worked out as under:- Opening balance 8,14,396 Purchases 1,84,523 Allotment 3,200 Sales & transfer (1,63,462) Closing balance 8,38,657 Thus, the investment in shares has been made for long term basis. 15. The aforementioned facts have remained uncontroverted by the department. Once the assessee was consistently showing the shares as its .....

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e, as the assessee was holding the shares as investment consistently and the same were acquired out of own funds, there was no reason to treat the same as business income. We, accordingly confirm the order of ld. CIT(A) on this issue in view of various decisions relied by ld. CIT(A) as noticed earlier. 17. In the result, department appeal for AY 2005-06 is dismissed. AY 2006-07 (ITA no. 1279/Del/2011): 18. Grounds of appeal raised in AY 2006-07 are as under: 1. On the facts and circumstances of .....

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ant craves leave, to add, alter or amend any ground of appeal raised above at the time of the hearing. 19. Ground nos. 1 & 4 are general and require no adjudication. 20. Apropos ground no.3, brief facts are that assessee had filed return declaring loss of ₹ 20,06,475/-. The AO noticed that the assessee had declared long term capital gain (claiming exemption u/s 10(38) amounting to ₹ 3,23,56,173/- and short term capital gain amounting to ₹ 37,93,206/-. The AO has further not .....

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ndik Engineering Industries India Ltd., the claim of the assessee that it has derived long term capital gains from the same scrip cannot be accepted. Thus, the entire gains derived by the assessee from the purchase and sale of shares is held to be business income of the assessee . 21. Thus, the facts in the present assessment year as regards ground no. 3 are similar to the facts as obtaining in AY 2005-06. Therefore, for the reasons Therefore, for the very same reasons as in AY 2005-06, s above, .....

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rt in the case of Godrej & Boyce Mfg. Co. Ltd. Vs. DCIT 2010-TIOL- 564-HC-Mum-IT, held that though Rule 8D was not applicable but since administrative and personal expenses must have been incurred to earn exempt income, determined the disallowance at ₹ 63,352/-. 25. Having heard both the parties, we do not find any reason to interfere with the order of ld. CIT(A) on this count, as he has made a reasonable disallowance of 5% of the expenditure incurred under the head administrative and .....

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dition of RS.52,64,895/- as business income instead of LTCG & STCG. 3. On the facts and circumstances of the case and in law, the Ld. CIT" (A) has erred in deleting addition u/s 2(22)(e) of RS.15,34,349/- on account of loan received. 4. The appellant craves leave, to add, alter or amend any ground of appeal raised above at the time of the hearing . 28. Ground no. 4 is general and requires no adjudication. 29. Apropos ground no.2, brief facts are that assessee had filed return declaring .....

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. It is the same scrip in which the assessee has also done non-delivery based speculative trading and declared speculation profits on the same. Therefore, when the assessee has itself declared business income from the trading in the shares of Rasandik Engineering Industries India Ltd., the claim of the assessee that it has derived long term capital gains from the same scrip cannot be accepted. Thus, the entire gains derived by the assessee from the purchase and sale of shares is held to be busin .....

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at the AO noticed that assessee had declared dividend income of ₹ 8,87,929/-. He show caused the assessee regarding applicability of section 14A. After considering the assessee s reply, applying the provisions of Rule 8D(2)(iii), he determined the disallowance u/s 14A at ₹ 16,35,393/-. 32. Ld. CIT(A), keeping in view the decision of Hon ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. Vs. DCIT 2010-TIOL- 564-HC-Mum-IT, held that though Rule 8D was not applicable .....

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any, the AO noticed that assessee had received loan from one of its group company i.e. Radhika Securities Pvt. Ltd. He required the assessee to file copy of account, shareholding pattern of Rasandik Engineering Industries India Ltd.. He also show caused the assessee as to why addition u/s 2(22)(e) be not made. After considering the assessee s reply, the AO observed as under: The share holding pattern of the Radhika securities Pvt. Ltd. is as under Mrs.Anjula Khanna-25% Mrs.Radhika kapoor-75%. Th .....

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de addition of ₹ 15,34,349/- as per the calculation given in para 5 of his order. 36. Ld. CIT(A) deleted the addition, inter alia, keeping in view the decision of Special Bench of the ITAT Mumbai in the case of Bhaumik Color Pvt. Ltd. Vs. ACIT (2008) TIOL 641, wherein it was held as under: "On the first question : Deemed dividend can be assessed only in the hands of a person who is a shareholder of the lender company and not in the hands of a person other than a shareholder. On the se .....

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and the judicial decisions cited above show that deemed dividend will be taxed in the hands of the share holder. In the instant case since the appellant was not a share holder of the company, therefore, the assessment of the deemed dividend in the hands of the appellant was not correct. In view of the findings above and judicial precedents on the subject, this ground of appeal is allowed in favour of the appellant. 38. Ld. counsel pointed out that now this issue is also concluded by the decision .....

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e normal circumstances, such a loan or advance given to the shareholders or to a concern, would not qualify as dividend. It has been made so by a legal fiction created under section 2(22)(e) of the Act. We have to keep in mind that this legal provision relates to "dividend". Thus, by a deeming provision, it is the definition of dividend which is enlarged. Legal fiction does not extend to shareholder". When we keep in mind this aspect, the conclusion would be obvious, viz., loan or .....

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