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2016 (7) TMI 663 - ITAT KOLKATA

2016 (7) TMI 663 - ITAT KOLKATA - TMI - Profit from transaction of units and shares - STCG on transaction of purchase and sale of units of mutual funds and shares - Capital Gain or Business income - Held that:- It is not in dispute that the Assessee had treated the shares and units as investments in its books of accounts. Similar transactions have been accepted by the revenue in assessments for AY 2001-02 to 2003-04 as giving raise to capital gains and not as business income. In fact the assessm .....

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ircumstances in the AY 03-04 & 04-05 are identical. Though the rule of res judicata is not applicable but the principle of consistency will definitely apply and on that basis the claim of the Assessee should be held to be proper. - Decided against revenue - Denial of the claim of the assessee for deduction u/s 80HHC - Held that:- The prayer of the learned counsel for the assessee that the decision on this issue was rendered by the Hon’ble Supreme Court in the case of Topman Exports (2012 (2) .....

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t] held that computation of 1% of exempt income as disallowance u/s.14A of the Act was proper. In view of the aforesaid decisions, we are of the view that the request made by the learned counsel is acceptable. The disallowance u/s.14A is accordingly directed to be restricted to 1% of the exempt income. - I.T.A No. 1383/Kol/2010, C. O. No. 92/Kol/2010 - Dated:- 11-5-2016 - Shri P. M. Jagtap, AM And Sri N. V. Vasudevan, JM For the Department : Shri Niloy Baran Som JCIT, Sr. DR For the Assessee : S .....

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l. 3. The Assessee is a company. It is engaged in the business of export of iron and steel items. In the course of assessment proceedings u/s 143(3) of the Act for A.Y.2004-05 AO noticed that the assessee had shown short term capital gain of ₹ 14,06,221/- and long term capital gain of ₹ 26,14,277/- on account of sale and purchase of units. The details of the transactions resulting in the short term capital gain and long term capital gain were given as Annexures to this order. 4. The .....

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units in question were reflected as investments in the balance sheet and were not stock in trade of any business carried on by the assessee. The assessee also pointed out that in the past such income was declared under the head capital gain and accepted by the revenue. It may be mentioned here that in A.Y.2003-04 assessment u/s 143(3) was completed in the case of the assessee wherein identical nature of income was accepted by the AO as income under the head capital gain. AO however made a refere .....

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: (a) the assessee is dealing in shares and units throughout the year. (b) the volume of transactions is quite substantial (c) the scale of activity is vast covering a wide range of units and scripts. (d) the typical holding period for the majority of the shares and units varies from as little as a few months to just over a year. 5. Accordingly the AO determined the income from business as follows :- Consequently, the profit on sale of investments in shares and units is being computed under the .....

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nd 3,71,41,758 3,42,40,196 Equity Shares 15,44,405 13,46,084 4,00,58,888 3,69,36,280 The valuation of these stock-in-trade at cost or market price, whichever is lower is then as under Closing Stock Rs.3,99,76,903/- Opening stock Rs.3,69,34,515/- The income from business of trading in shares and units is then calculated as under : Closing stock Rs.3,99,76,903/- Less: Opening stock Rs.3,69,34,515/- Increase in stock ₹ 30,42,388/- Add : Profit on sale of share/mutual Funds ₹ 40,20,499/- .....

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manufacturing activity, Import and export of engineering products etc. The assessee pointed out that as per the CBDT s Instruction No.1827 dated 31.08.1989 distinction has to be made between shares held as stock in trade and shares held as investments. The assessee specifically pointed out that the guidelines laid down in the circular clearly specify that no single criterion listed in the said instruction was decisive and the total effect of all the criteria should be considered. The assessee sp .....

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the relevant observations of the CIT(A) :- Before me the appellant filed copies of its audited final accounts for the relevant year and for earlier years, i.e., 2001-02, 2002-03, 2003-04 & 2004-05 and other documents. From the perusal of these evidences it is observed that the shares/units of mutual funds purchased by the assessee have been classified as 'Investment' in its books of accounts and the assessee has carried its investments in such shares/units, in its books of accounts, .....

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as the contentions of the appellant, I am of considered opinion that the Assessing Officer was not justified in consider the transactions relating to redemption of units and sale of shares as a business activity. Profit on sale of such shares held as investment is assessable as income under "Capital Gains". The AO's finding cannot therefore be accepted. Considering the above facts, it is held that the profit on sale of shares and units of mutual funds by the assessee is to be asses .....

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ed the purchase and sale of and shares as a trading activity in the present year by referring to CBDT's Instruction No. 1827 dt. 31.08.1989. I have gone through the said instruction. This refers to as many as fifteen tests and guidelines in respect of shares held as Stock-in trade and shares held as investment. It is made clear at the end that no single criterion is decisive and the total effect of all the criteria should be considered, Moreover, these tests and guidelines, in my opinion, ca .....

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statistical purposes. 7. Aggrieved by the order CIT(A) revenue has preferred the present appeal before the Tribunal. 8. The learned DR relied on the order of the AO. The learned counsel for the Assessee relied on the order of the CIT(A) and the decision of the Hon ble Bombay High Court in the case of CIT Vs. Gopal Purohit 228 CTR 582 (Bom). 9. We have considered the rival submissions. The issue to be decided is as to whether the STCG on transaction of purchase and sale of units of mutual funds a .....

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e in the nature of investments is mixed question of law and fact. CIT Vs. Holck Larsen, 60 ITR 67 (SC). (b) It is possible for an assessee to be both an investor as well as a dealer in shares. Whether a particular holding is by way of investment or formed part of stock in trade is a matter which is within the knowledge of the assessee and it is for the assessee to produce evidence from his records as to whether he maintained any distinction between shares which were hold by him as investments an .....

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(d) Purchase without an intention to resell where they are sold under changed circumstances would be capital gains. CIT Vs. PKN, 60 ITR 65 (SC). Purchase with an intention to resell would render the gain profit on sale business profit depending on the circumstances of the case like nature and quantity of article purchased, nature of the operation involved. Saroj Kumar Mazumdar Vs. CIT, 37 ITR 242 (SC). (e) No single fact has any decisive significance and the question must depend upon the collec .....

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income. The circular gives a choice to the assessee to define the income earned from share or securities sale as capital gains or business income. The treatment in the books of accounts by the Assessee of the shares/units sold in its books of accounts as investments would be very important factor to be considered and should be sufficient to hold that shares/units held as investments cannot be treated as giving raise to income from business. 11. Keeping in mind, the above broad principles, we sh .....

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i Bench in the case of Janak S.Rangwala Vs. ACIT 11 SOT 627 (mum) has held that magnitude of the transaction does not alter the nature of the transaction. The total income declared by the Assessee in the return of income for the present AY is a sum of ₹ 41,03,490 comprising of income under the head Income from Business of ₹ 15,31,885/-. As we have already seen the Assessee s main business is export of iron and steel items and income from the said activity has been declared under the .....

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nclusion of the CIT(A) that the income from sale of shares and units declared by the assessee as capital gain has to be accepted is correct and calls for no interference. 13. In CIT Vs. Gopal Purohit 228 CTR 582 (Bom), the question of law raised was regarding whether STCG declared by the Assessee was to be assessed as business income or not. Question (b) considered by the Hon ble Bombay High Court was as follows: (b) Whether, on the facts and circumstances of the case and in law, the Hon ble ITA .....

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the assessee has followed a consistent practice in regard to the nature of the activities, the manner of keeping records and the presentation of shares as investment at the end of the year, in all the years. The revenue submitted that a different view should be taken for the year under consideration, since the principle of res judicata is not applicable to assessment proceedings. The Tribunal correctly accepted the position, that the principle of res judicata is not attracted since each assessm .....

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learly applicable in this case. As we have already seen that the AO in AY 03-04 accepted similar income as capital gain. It is not disputed by the revenue that the facts and circumstances in the AY 03-04 & 04-05 are identical. Though the rule of res judicata is not applicable but the principle of consistency will definitely apply and on that basis the claim of the Assessee should be held to be proper. 15. For the reasons given above, we confirm the order of the CIT(A) and dismiss the appeal .....

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accordance with Rule 8D of IT. Rules. 3. That the respondent craves leave to add, alter, adduce or amend any ground or grounds on or before the date of hearing of the appeal. 18. As far as ground no.1 in the cross objection is concerned the same relates to the denial of the claim of the assessee for deduction u/s 80HHC of the Act on the ground that there was no profit from the export activity. The prayer of the learned counsel for the assessee before us is that the decision on this issue was re .....

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