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2017 (2) TMI 589 - ITAT KOLKATA

2017 (2) TMI 589 - ITAT KOLKATA - TMI - Treatment of quantum capital loss as speculation loss in terms of provision of Explanation to Section 73 - Held that:- After considering the volume, frequency and quantum of transactions, Authorities Below presumed that assessee was carrying out the activity of business. Therefore the profit and loss on such transactions should be treated as under the head “business”. Admittedly, we find that that there is no dispute with regard to treatment of the aforesa .....

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s the assessee has availed the services of PMS to maximize the profit. At the end we conclude that the assessee has been showing income under the head “capital gains” from the sale-purchase of securities which is held for a period more than 12 months consistently then the same has to be treated as income under the head “capital gains” only. Similarly, the transactions for the sale-purchase shares carried out through PMS cannot be regarded as business transactions for the reasons discussed above. .....

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er expenses. In the instant case the disallowance has been worked out to ₹ 60,53,495/- out of total administrative expenses of ₹ 2,14,08,065/-. Hence, the disallowance is not exceeding the total administrative expenses incurred by the assessee. Therefore the recent Notification issued by the CBDT No. SO 1949(E) dated 2.6.2016 and relied by the assessee where the disallowance was limited to the extent of total expenses will not be of any help.- Decided against assessee - ITA No. 643-6 .....

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r referred to as the Act ) vide their different orders dated 23.02.2012 and 26.12.2012 for assessment years 2010-11 & 2011-12 respectively. Shri Amitav Kothari, Ld. Authorized Representative appeared on behalf of assessee and Shri Vijyendra Kumar, Ld. Senior Departmental Representative represented on behalf of Revenue. 2. Both appeals are heard together and are being disposed of by way of a consolidate order for the sake of convenience. First we take up ITA No.643/Kol/2013 for A.Y.10-11. 3. .....

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. Commissioner of Income Tax (Appeals) erred in confirming the addition of ₹ 60,53,495/- made by the assessing officer under Sec. 14A of Income Tax Act, 1961 read with Rule 8D as against the claim of the assessee that no disallowance should be made u/s. 14A of IT Act, 1962, the rule 8D does not apply in the case of the assessee company and dividend income is not an income which does not form part of the total income under this Act as the same have already suffered tax u/s. 115O of Income T .....

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s return of income declaring total income of ₹ 33,94,53,780/- which was processed u/s 143(1) of the Act on 30.05.2011. Subsequently, case was selected under scrutiny and accordingly, notices u/s 143(2) and 142(1) of the Act were issued along with questionnaire to the assessee. The assessment was framed after making certain additions and disallowances to the total income of assessee at ₹ 34,57,40,170/- u/s. 143(3) of the Act. 5. First issue raised by assessee in this appeal in ground .....

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ssment proceedings, it was observed by AO that all the aforesaid transactions were carried out through Portfolio Management Scheme (PMS for short). The AO called upon the assessee to explain whether this can be treated as business income. In compliance thereto, assessee submitted that the investment was made through PMS out of its surplus fund. All the transactions of purchase-sale were classified under the head investment which was shown in the balance-sheet by assessee all along. The income / .....

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fit of business. Further, AO observed that the main activity of assessee is that of mining processing and export of chrome ore & other mineral. Therefore, the provision as contained in Explanation to Sec. 73 of the Act is applicable to the assessee. The above transactions do not fall in the exception provided under Explanation to Sec. 73 of the Act. Accordingly, AO treated the income from the sale-purchase of share as speculation business of assessee. 6. Aggrieved, assessee preferred an appe .....

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assessment stage that the appellant had parked its surplus fund in PMS with a view to maximize the profit on such investment; and, the same was shown as investment in the balance sheet. The AO did not accept the explanation. The AO noted that the issue has to be decided on the basis of the volume and frequency of transactions. The AO noted that the appellant has shown during the year total purchases of ₹ 89,30,116/- and total sales of ₹ 1,45,62,970/-. The Assessing Officer held that .....

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As the principal business of the appellant is not that of granting of loans and advances, and, as the gross total income of the appellant company does not consist mainly of income which is chargeable under the heads interest on securities, income from house property, capital gain or income from other sources; the provisions of section 73 were applicable. The AO then concluded that the loss arising out of share transactions through PMS had to be treated as speculation loss. Aggrieved by this, as .....

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urther submitted that in earlier A.Y. 2009-10, the income from sale-purchase of share was accepted under the head capital gains . The ld. AR in support of assessee s claim submitted copy of assessment order for AY 2009-10 which is placed on pages 76 to 79 of the paper book. On the other hand, Ld. DR stated that all the transactions of sale-purchase of share were carried out through PMS in order to maximize its profit. He further submitted that considering the volume, frequency and quantum of tra .....

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ed the material on record including the judicial pronouncements cited and placed reliance upon. The issue in the instant case relates to the treatment of capital gains income by Authorities Below as income from business . After considering the volume, frequency and quantum of transactions, Authorities Below presumed that assessee was carrying out the activity of business. Therefore the profit and loss on such transactions should be treated as under the head business . Admittedly, we find that th .....

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sued Circular No. 6 of 2016 on 29.02.2016 which states as under:- a) Where the assessee itself, irrespective of the period of holding the listed shares and securities, opts to treat them as stock-in trade, the income arising from transfer of such shares/securities would be treated as its business income, 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 th .....

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ng treatment made by the assessee with regard to the share transactions. The assessee has shown LTCG and LTCL which indicates the period of holding more than 12 months and there is no dispute on the period of holding. So the stand taken by the assessee cannot be challenged. The similar analogy can also be applied to the STCL. 8.2 We also find in similar facts and circumstances the Hon'ble Delhi High Court has decided the issue in favour of assessee in the case of Radials International vs. AC .....

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e the substantial nature of the transactions, frequency, volume etc. must be taken into account to evaluate whether the transactions are adventure in the nature of trade 18. Therefore the block of transactions entered into by the portfolio manager must be tested against the principles laid down, in order to evaluate whether they are investments or adventures in the nature of trade. From the above, it is very clear that the activities through PMS cannot be regarded as business activities on stand .....

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tal gains only. Similarly, the transactions for the sale-purchase shares carried out through PMS cannot be regarded as business transactions for the reasons discussed above. Therefore, we are inclined to reverse the order of Authorities Below and this ground of assessee is allowed. 9. Next issue raised by assessee in ground No.2 is that Ld. CIT(A) erred in confirming the order of AO by sustaining the disallowance of ₹ 60,53,495/- u/s 14A r.w.s. 8D of the IT Rules, 1962 (hereinafter referre .....

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in share / mutual fund for ₹ 158,12,49,403/- and to maintain such volume of investment assessee has to incur expenditure for the maintenance and keeping of accounts of such investment. Therefore, to maintain the accounts, assessee needs manpower and expertise for holding such huge portfolio of investment. It was also observed that it is the duty of assessee to demonstrate the expenditure incurred in connection with the dividend income as all the material facts are in its exclusive knowled .....

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of investment Rs.142,88,76,462/- Average value of investment Rs.121,04,01,164/- 0.5% thereof comes to ₹ 60,52,006/- Total disallowance u/s. 14 read with Rule-8D ₹ 60,53,495/- 11. Aggrieved, assessee preferred an appeal before Ld. CIT(A) who confirmed the order of AO by observing as under:- 5. Ground no 2 relates to the disallowance of ₹ 60,53,495/- by applying the provisions of section 14A. The AO found that the appellant has received dividend income of ₹ 3,99,72,709/- du .....

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le to income tax at the distribution stage and cannot be treated as exempt income. I do not find substance in the submissions. The dividend income is not chargeable to tax in the hands of the appellant; and consequently, it has to be treated as exempt income. The AO has made the disallowance in accordance with the provisions of section 14A read with Rule 8D which is not in dispute. In view of the above, the order of the AO calls for no interference. Ground no 2 is dismissed. Aggrieved by this, a .....

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nagerial remuneration to its Director. Therefore, no expenses can be attributed to the exempted income. Ld. AR further submitted that there a Notification with respect to provision of Rule 8D of the Rule and as per the Notification 1% of the annual average of monthly averages of the opening and closing balance of the value of investment needs to be disallowed. On the other hand, Ld. DR emphatically supported the orders of Authorities Below. 13. We have heard the rival contentions of both the par .....

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it was the duty of the assessee to maintain such details and it is not for the Revenue to work out the expenses incurred in relation to exempted income. The action of the AO was subsequently confirmed by the learned CIT(A). Now in the context of above arguments and facts, the point that arises for our consideration is whether the authorities below are justified in disallowing a sum of ₹ 60,53,495.00 over and above which was offered by the assessee under section 14A of the Act. At the outs .....

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material facts are in his special & exclusive knowledge. If the assessee fails to prove so adverse inference is liable to draw against him. It is not for the revenue to prove that the expenditure incurred by the assessee was in relation to non-exempted income. It is for the assessee either to prepare separate accounts of expenditure for exempted income and non-exempted income, or alternatively, to substantiate as to how much of the composite expenditure incurred in relation to non-exempted i .....

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