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M/s Vahanvati Consultants P Ltd Versus DCIT 2 (3) , Mumbai

2016 (8) TMI 365 - ITAT MUMBAI

Income earned from the sale and purchase of shares - Assessed as Short term capital gains or as business income - Held that:- Lending and borrowing being business of assessee and the assessee having surplus borrowed funds having invested in the share transaction would not change the status of the assessee from an investor to a trader in relation to share transactions carried out by it. There is not repetitive transaction and even the assessee from the income earned from the shares has invested t .....

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rdingly direct the AO to treat the income of the assessee from share transaction as capital gains and not as business income of the assessee. - Disallowance made u/s 14A r.w. Rule 8D - disallowance of expenditure incurred for the purpose of earning the tax exempt income - Held that:- The Hon’ble Delhi High Court in the case of “Chem Investments vs. CIT” (2015 (9) TMI 238 - DELHI HIGH COURT) has held that section 14A will not apply if no exempt income is received or receivable during the rele .....

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9-6-2016 - SHRI G.S. PANNU, AM AND SHRI SANJAY GARG, JM For The Appellant by : Shri Manish V Shah For The Respondent : Shri S. Senthill Kumaran ORDER Per Sanjay Garg, Judicial Member: The Present Appeal has been preferred by the assessee against the order dated 26.09.2011 of the Commissioner of Income Tax (Appeals) - 6, [hereinafter referred to as the CIT(A)] relevant to assessment year 2008-09. 2. The assessee has taken the following grounds of appeal: I. Inappropriateness of confirming additio .....

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4A applying Rule 8D. Reasons given by CIT(A) in confirming additions that the AO made by treating SHORT TERM CAPITAL GAIN as BUISNESS INCOME and not granting full relief on additions that the AO made u/s 14A are wrong, insufficient and contrary to facts and evidence on record and in law. Ground No. 1 3. The assessee has raised two effective grounds of appeal. The issue raised in ground no.1 by the assessee is whether the income earned from the sale and purchase of shares is to be assessed as Sho .....

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n income etc. During the year under consideration, the assessee company made transactions of sale and purchase of shares and earned an income of ₹ 4,06,72,768/-. Assessee claimed the said income in its return of income as Short Term Capital Gain. During the assessment proceedings before the AO, the assessee explained that the company had made investments in the shares and the same were reflected under the head investments in balance sheet. The company had made transactions of sale and purc .....

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he holding period of the investments was not substantial. He, therefore, held that the motive of the assessee for purchase of shares was not investment but trading in shares. He accordingly treated the income earned by the assessee from share transactions as business income of the assessee. 5. Being aggrieved by the above action of the AO, the assessee filed appeal before the Ld. CIT(A). In appeal, the ld. CIT(A), vide impugned order, observed that the assessee during the year had done only acti .....

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sactions as business income of the assessee. 6. Being aggrieved by the order of CIT(A), the assessee has come in appeal before us. We have heard the rival contentions. The ld. AR of the assessee has invited our attention to pg. 10 of the paper book to show that the assessee had invested only in 13 scripts during the year. He has further submitted that majority of funds of the assessee were invested in mutual funds that the average holding period of the assessee for the shares was more than 4 mon .....

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n the subsequent assessment year A.Y. 2010-11, the assessee again has been treated as investor. He, therefore, has stated that the department has changed its stand during the year under consideration. So far as the use of borrowed funds was concerned, the ld. AR has stated that the assessee is in the business activity of lending and borrowing and surplus borrowed funds were invested in share transaction. That the assessee, otherwise, has its own sufficient capital that the investment was not onl .....

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of making share transaction. He, therefore, submitted that the lower authorities have rightly treated the income of assessee from the share transaction as business income of the assessee. 7. We have considered the rival contentions and have also gone through the records. We find that though the value of investment in shares is high, however, the number of scripts invested in is only 13. The assessee has shown in the balance sheet the above shares as investments. The assessee in the past as well .....

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principle of resadjudicata is not applicable to income tax proceedings, as each year is a separate year, however, the principle of consistency is to be followed, if there is no change in fact and circumstances in the subsequent year. So far as the contention of the Department that borrowed funds were used for investments, we find that lending and borrowing being business of assessee and the assessee having surplus borrowed funds having invested in the share transaction would not change the statu .....

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vity of the assessee. There is another peculiar fact of the case that there is not repetitive transaction and even the assessee from the income earned from the shares has invested the same in property. The major part of the funds of the assessee being invested either in mutual fund or in the property; over all activity of the assessee suggest that the funds have been used by the assessee for investment purposes only. We do not found any justification on the part of the lower authorities in treat .....

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for the purpose of earning the tax exempt income. Ld. AR of the assessee at the outset had stated that though the dividend income earned by the assessee out of the investment activities was only 46,218/-. However the AO applied rule 8D of the Income Tax Rules and has computed the disallowance at ₹ 63,29,768/-. Though the ld. CIT(A) has given a part relief in directing the AO not to treat the sum of ₹ 96,596/- incurred on account of Demat expenditure as directly relating to earning of .....

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15 to contend that the disallowance under Rule 8D(2)(iii) cannot be made on the basis of entire investments but should be worked out by taking only those investments which yielded dividend during the year. He has further relied in this respect on the decision of the co-ordinate bench of the tribunal in the case of M/s Amrit Diamond Trade vs. ACIT, ITA No.2642/Mum/13 vide order dated 15.01.2016. Ld. DR on the other hand has relied upon the finding of the lower authorities. 9. We have considered r .....

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