TMI Blog2017 (4) TMI 1351X X X X Extracts X X X X X X X X Extracts X X X X ..... able. Similarly, regarding the claim of STCG also, we find that (i) the consistency principles; (ii) use of own funds of ₹ 54 Crs; (iii) earning of gross dividend income of ₹ 1.20 Crs or ₹ 30 lakhs on account of short term capital assets; (iv) details given in the contract notes regarding intention of certain shares in physical form etc., suggest that the STCG in question cannot be held as business income. Addition u/s 14A - Held that:- Applying the provisions of Rule 8D(2) of the Rules creates a absurdity to the facts of the present case. Considering the same, in our view, as fairly mentioned by the Ld Counsel for the assessee, disallowing 2%, taking spirit from the said judgment of the Bombay High Court in the case of Godrej Agrovet [2014 (8) TMI 457 - BOMBAY HIGH COURT ] should meet the ends of justice. Accordingly we order and direct the Assessing Officer to restrict the disallowance to 2% of the exempt income. - ITA No.3661/M/2015, C.O. No.12/M/2017 - - - Dated:- 12-4-2017 - SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER Assessee by : Shri Rajan Vora / Mr. Hemen Chandariya Revenue by : Ms. Beena Santosh, DR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of). Relating to the claim of capital gains of income, AO treated the entire capital gains as business income‟ of the assessee. In the process, AO denied the claim of exemption u/s 10(38) of the Act in respect of the said LTCG as well as concessional rate of tax available u/s 111A of the Act available in respect of STCG. AO also made another addition of ₹ 19,07,147/- invoking the provisions of section 14A read with Rule 8D(2)(iii) of the IT Rules, 1962. The above said issues are the subject matter of litigation before the CIT (A). 4. During the first appellate proceedings, CIT (A) granted relief and allowed the claim of the assessee so far as the capital gains related issues are concerned. However, CIT (A) confirmed the disallowance on account of the provisions of section 14A. Aggrieved with the said relief relating to the capital gains issues, the Revenue is in appeal before us. Further, aggrieved with the confirming of the addition of ₹ 19,07,147/- u/s 14A read with Rule 8D(2)(iii) of the Rules, assessee is in appeal before the Tribunal vide its CO (supra). Long Term Capital Gains 5. During the year under consideration, assessee earned STCG and LT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; comprising of securities which are to be treated as capital assets and a 'trading portfolio' comprising of stock in trade which are to be treated as trading assets. Where an Assessee has two portfolios, the Assesse may have income under both heads that is capital gains as well as business income. 13. Further, the CBDT vide circular No. 6/2016 dated 29 February 2016, has stated that in respect of listed shares and securities held for a period of more than 12 months, immediately preceding the date of its transfer, and if the Assessee desires to treat the income arising from the transfer thereof as capital gain, the same shall not be put to dispute by the Assessing Officer. 14. In Assessee's case, as evident from page 44 of the paperbook, long term capital gain has aroused from sale of shares held for more than 2, 3 4 years and hence, the gain on sale of shares held for more than 1 year has to be treated as long term capital gain. 15. Hence, it is respectfully submitted that relying on the above circular and various other decisions referred in legal paperbook, the order of the CIT(A) in respect of capital gain of ₹ 2,65,78,528/- arising on sale of Long t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 42,634 92,44,995 -25,90,801 65,61,654 47.4 6. 180-270 14 91,87,411 1,13,94,111 25,90,614 -3,83,914 22,06,700 15.9 11. From the above table, it is evident that the holding period of the assets vary from 7 days to 365 days. Out of the above said profits, 47% of the same relates to the scrips held by the assessee 90 to 180 days. 16% of the gains has the holding period varying from 180 to 270 days. Merely 20% is relatable to the shares held for a period above 275 days and below 365 days. Relying on the CBDT Circular No.4 (supra), Hon‟ble Supreme Court judgment in the case of CIT vs. Associated Industrial Development Co. Ltd [ITR 586] SC, Gujarat High Court judgment in the case of CIT vs. Rewashanker A Kothari [283 ITR 338], assessee claimed the above gains as STCG and not as business income. The profits earned from the intra trade transactions were separately shown and offered to tax as business income‟. In the remand proceedings, AO rejected the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CBDT and demonstrated that the AO is not justified in disturbing the above claim of the assessee without any sustainable reasons. Ld AR also mentioned that no mistake is found in the entries in the books of accounts regarding relevant shares. Ld AR also relied on the judgment of the Hon‟ble Supreme Court in the case of Gopal Purohit in support of AO‟s failure to follow the principle of consistency. Further, Ld AR mentioned that assessee has not used borrowed funds for the purchase of these shares. Using borrowed funds is a business feature and not an investment one. The fact of earning dividend income of more than ₹ 30 lakhs out of the said short term shares was demonstrated. It again is an investment feature. Ld AR also submitted that assessee earned dividend income of ₹ 1.2 Crs and the said ₹ 30 lakhs constitutes approximately more than 25%. Earning of dividend income supports the investment activity of the assessee. All these shares are delivery based. Ld AR also gave various other reasons to demonstrate the assessee‟s intention to hold the shares as investment. The details are given in para 38 to 47 of the written submissions. Replying to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Crs (rounded of) were shown as Long Term and Short Term capital gains respectively. In addition, assessee also has share trading income amounting to ₹ 3,85,274/-. Ignoring the claim of the assessee, AO treated all these three groups of income as business income‟ of the assessee. There is no incriminating evidence otherwise mentioned in the orders of the lower Authorities to support the above conclusions of the Assessing Officer. We have decided the issue against the Revenue so far as the LTCG are concerned restoring the claim of the assessee. Now, we have to decide if the STCG of ₹ 1.54 Crs (rounded of) constitutes business income as held by the AO. It is a settled issue that the issue has to be decided on case to case basis based on the facts of the each case. In the present case, there is no incriminating material gathered by the AO to conclude that the said short term capital assets constitutes stock-in-trade. It is an undisputed fact that the contract notes clearly demonstrate the original intention of the assessee so far as treating the asset as delivery based or for trading activities. The contract notes furnished before us (1-15) supports the above content ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trader in shares. b. A single sale/purchase order, split into number of transactions by brokers, does not infer that Appellant has carried out that many transactions. Where bulk orders are placed for purchase or sale of a share of a particular company, the brokers/electronic trading system execute the transactions in a number of trenches. This cannot be taken that frequent sale and frequent purchase has taken place of the same share. Investment in Small cap and Mid cap companies, where the volume, liquidity of the shares are too low and the companies capital issue is also very low. Holding of shares under B, T and Z Group would mean that such type of shares once purchased on a particular day, selling of those shares on the same day is not permissible. This is particularly a trait of investor and not a trader. Holding of shares in physical form - suggest that these shares are not marketable. No trader would hold the shares of a company which is not marketable or saleable and that too for such a long period of time Holding of shares of more than 1 % to 5% of share capital of the Company and investment in illiquid or delisted shares, clearly indicates that inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TCG, we are convinced that the views of CIT (A) are sustainable. Similarly, regarding the claim of STCG also, we find that (i) the consistency principles; (ii) use of own funds of ₹ 54 Crs; (iii) earning of gross dividend income of ₹ 1.20 Crs or ₹ 30 lakhs on account of short term capital assets; (iv) details given in the contract notes regarding intention of certain shares in physical form etc., suggest that the STCG in question cannot be held as business income. 19. Therefore, in our opinion, the decision of the CIT (A) on this issue is fair and reasonable and does not call for any interference. Accordingly, grounds raised by the Revenue with regard to both the STCG and LTCG are dismissed. 20. In the result, appeal of the Revenue is dismissed. C.O. No.12/M/2017 (By assessee) 21. This CO filed by the assessee on 20.1.2017 for the AY 2010-2011. This CO relates to the applicability of the provisions of section 14A read with Rule 8D of the Act. In the assessment, AO made addition on this account amounting to ₹ 19,07,147/-. The said disallowance was computed @ 0.5% of the average investment of ₹ 38.14 Crs (rounded of) under clause (iii) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue Authorities as well as the relevant material placed before us. On hearing both the parties, we find, the relevant facts of this issue include earning of exempt income for ₹ 1.20 Crs (rounded of) and the total debits worked out to ₹ 16,92,342/-. AO disallowed ₹ 19,07,147/-, which is far exceeded the said total debits. In our view, by no means, the club subscription amount of ₹ 13,32,012/- cannot be attributable to the earning of the exempt income. Therefore, what remains to be considered for disallowance is only 3,60,330/-, which is the common expenditure for all the activities of the assessee that generated the income. Therefore, part of the said amount can only considered for disallowance. Therefore, applying the provisions of Rule 8D(2) of the Rules creates a absurdity to the facts of the present case. Considering the same, in our view, as fairly mentioned by the Ld Counsel for the assessee, disallowing 2%, taking spirit from the said judgment of the Bombay High Court in the case of Godrej Agrovet should meet the ends of justice. Accordingly we order and direct the Assessing Officer to restrict the disallowance to 2% of the exempt income. This ..... X X X X Extracts X X X X X X X X Extracts X X X X
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