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TMI Blog2017 (4) TMI 403X X X X Extracts X X X X X X X X Extracts X X X X ..... . 6. 72 lakhs) profit on sale of shares (speculative transaction) of Rs. 21. 5 lakhs, Short-Term Capital Gains (STCG)taxable under section 111A (Rs. 2. 39 crores) Long-Term Capital Gains(LTCG) (Rs. 13. 16 lakhs), that he had claimed exemption of Rs. 4. 46 lakhs under section 10 (36)/10 (38) of the Act, that he had claimed loss in F&O segment of Rs. 3. 23 crores. After considering the chart showing LTCG, STCG and other transactions, the AO held that the number and frequency of transactions in share trading were to taken as business, that the assessee could not be treated a mere investor, that he himself had made out a profit and loss account showing all his share business activity under the same had, that no separate portfolio for longterm investment and short-term investment was maintained, that the purchase and sale of shares was the major activity of the assessee, that substantial time was devoted by the assessee to the activity of purchase and sale of shares, that he had earned meagre dividend income, that he had heavily borrowed for investing in the shares, that the entire sale purchases had been funded by unsecured interest-bearing loans, that he had paid interest of Rs. 28. 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orrowed funds even at the start of the year, that the amount of borrowed funds had been reduced substantially to about 20% during the year. He also took judicial note of the cases relied upon by the assessee and held that the delivery of the shares was not in doubt, that the assessee was an investor in shares and had been so recorded by the AO for the last several years, that even in the preceding year his predecessor has decided the issue in favour of the assessee, that in the balance sheet he had shown share investment and no closing stock of shares were shown in the books of accounts, that the investment in shares had been shown that purchase price. Referring to the case of Manish Karwa & others(ITA/307/Ind/2009- dated 20/12/2013), the FAA held that the income from delivery be a share transaction could not be assessed as business income, that same was to be assessed under the head capital gains. 2. 2. During the course of hearing before us, the Departmental Representative (DR) supported the order of the AO and stated that. The Authorised Representative (AR) stated that identical issue had been decided in favour of the assessee by the Tribunal in favour of the assessee, while de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rary material, the AO cannot change the intention and manner of investment being made by the assessee. Had the assessee valued the shares at cost or market price whichever is lower, the gain arising out of sale of shares could easily be treated as business income. Assessee had not valued the shares as stock but valued the same as investment. Thus, what was a capital asset will remain a capital asset unless a person holding the asset himself changes the nature by a specific action like conversion of capital asset into stock in trade. In the instant cases before us, the assessee has not treated the investment in equity shares of Indian Companies as stock in trade. In view of the decision of Hon'ble Supreme Court in the case of Ram Kumar Agarwal & Brothers, 205 ITR 251, the AO was not justified in treating the capital gain earned from sale of these shares, as business profits, which were entered by the assessee as investment in books of account. There is also no dispute to the well settled legal proposition that res judicata do not strictly apply to the income tax proceedings, but at the very same time, it is well settled that principle of consistency under the same facts and circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia. This tax is collected by the stock exchange from the purchaser of such securities and paid to the exchequer. The provisions relating to the securities transactions tax are contained in Chapter VII of the Finance (No. 2) Bill, 2004, and came into effect from 01. 10. 2004. Further, clause (38) has been inserted in section 10 of the Income-tax Act, so as to provide exemption from longterm capital gains arising out of securities sold on the stock exchange. A new section 111A has also been inserted and section l15AD is amended, so as to provide that short-term capital gains arising from sale of such securities to an investor including FIIs shall be charged at the rate of ten per cent. These amendments apply to AY. 2005-2006 and subsequent years. Through Finance Act, 2008, sections 111A and 115AD have further been amended whereby the rate of tax on such short-term capital gain has been raised to fifteen percent. Thus, w. e. f. 01. 10. 2004; on the share transactions subjected to STT; concessional tax rate of 10% (which has been increased to 15% from AY 2009-10) are applicable in respect of STCG whereas no tax is chargeable in respect of LTCG. It is also noted that the CBDT vide its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here must be material change in the facts. 13. The Mumbai Bench of the Tribunal in the case of Shantilal M Jain vs ACIT vide order dated 27-04-2011 (ITA No. 269/Mum/2010) held that despite large volume of shares transactions, the Assessing Officer cannot ignore the rule of consistency to treat the gains on sale of shares as STCG. In that case, the assessee was engaged in the business of trading of investment in shares and securities offered Rs. 1. 54 croress as short term capital gain and Rs. 2. 91 croress from long term capital gain. The long term capital gain was accepted whereas short term capital gain was held to be business profit. Since in earlier AY. s the claim of the assessee was consistently accepted as short term capital gain, it was held that the rule of consistency as propounded by Hon'ble Bombay High Court in the case of Gopal Purohit (supra), it is fairly applicable and the income has to be treated as short term capital gain. Identically in the case of Nagindas P Seth (ITA No. 961/Mum/2010) it was held that despite large number of transactions in shares, the profit can be assessed as capital gains under the facts of the case. The case of the assessee is furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 croress and short term capital gain of Rs. 1. 78 croress was accepted by the department. During the year under consideration also the assessee has shown long term capital gains of Rs. 10. 91 croress and short term capital loss of Rs. 1. 47 croress, however, without indicating any change in the facts and circumstances, the AO changed his view and held the same as business income. We found that there is no change in the circumstances in the current year, therefore, having regard to the principle of consistency profit on realization of investment is required to be assessed as capital gains. In this regard, reliance may be placed on the decision of the Mumbai Bench of the Tribunal in the case of Gopal Purohit, reported in 122 TTJ 87, which was confirmed by the Hon‟ble High Court, reported in 228 CTR 582 and the SLP filed by the department before the hon‟ble Supreme Court was also dismissed vide order dated 15. 11. 2010. There is no dispute to the fact that in its books of accounts also the assessee has treated the same as investment by proper disclosure in its audited balance sheet. The investments held by the assessee consisted of investment in quoted shares of Rs. 6. 60 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances were much more than increase in unsecured loans. Accordingly, we do not find any infirmity in the order of CIT(A) for holding these shares as investment giving rise to the capital gain. The CIT(A) has properly appreciated the volume and frequency of the transaction, the assessee's intention of investing in shares as well as department‟s conclusion of treating these shares as investment in the scrutiny assessment framed in earlier years. 16. If the conclusion drawn in the impugned order, observations made from the assessment order, assertions made by respective counsel and the material available on record are kept in juxtaposition and analyzed, we find that the assessee had been consistently investing in shares and income arising from sale and purchase of shares had been shown and accepted as capital gains. " Respectfully following the above order of the Tribunal, we decide the effective ground of appeal against the AO. ITA/3150/Mum/2014 3. In the appeal filed by the assessee, effective ground of appeal is about disallowance made u/s. 14A of the Act. During the assessment proceedings, the AO found that the assessee had paid and interest of Rs. 28, 78, 444/-, that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove. Since no interest expenditure was incurred during the year in respect of additional investment put in the shares which were fully financed out of the sale proceeds of shares held as long term capital investment and same also offered as long term capital gains, there is no reason for disallowance of interest expenditure by invoking provisions of Section 14A read with Rule 8D. 18. With regard to the other expenditure debited in the profit and loss account, we found that common expenditure have been debited which are in the nature of insurance expenses, bank charges, audit fees, repairs and maintenance, stamp duty, etc. , which amounts to Rs. 65, 925/-. Since this expenditure was also attributable for the earning of exempt income, we direct the AO to confirm the disallowance of these expenditure of Rs. 65, 925/- u/s. 14A. " Respectfully following the above , we hold that no disallowance should be made under the head interest expenditure. Disallowance under Rule 8D (2) (iii) should be restricted to the expenses claimed in the P&L account, as disallowed in earlier year. Effective ground of appeal is allowed in favour of the assessee, in part. As a result, appeal filed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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