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2019 (6) TMI 432

the assessee to maintain two separate portfolios-one for investment and one for trading See GOPAL PUROHIT [2010 (11) TMI 222 - SC ORDER] The perusal of assessee’s personal Balance Sheet as placed on record would reveal that majority of the investments have been funded out of assessee’s own capital. The assessee has earned dividend income of ₹ 34.45 Lacs during impugned AY. Another pertinent fact to be noted that the assessee has income from garment business to the tune of ₹ 47.30 Lacs which would prima-facie, establish that share trading was not the only activity carried out by the assessee during impugned AY. Apart from this, the assessee was also carrying on the business of finance & investment in another proprietorship concern during impugned AY. The average holding period is more than 100 days. Further, the long-term gains earned on similar activity has been accepted by the revenue as Capital Gains only. Moreover, latest CBDT Circular No.6/2016, which is clarificatory in nature, applies to listed securities and directs AO not to disturb the stand taken by assessee provided the same is applied consistently. Hence, we find that there could not be any s .....

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minous and the period of holding is meagre. 2. He failed to appreciate and ought to have held that: a. The Appellant had maintained two separate portfolios for shares, one as investment and the other for the purpose of trading; b. In the earlier as well as future assessment years, the Ld. AO had consistently accepted the short-term capital gains arising on the sale of shares held as investment as shown by the Appellant. 3. The Appellant, therefore, prays that the Ld. AO be directed to treat the amount of ₹ 51,70,511 as short-term capital gains and not as a business income. GROUND II: DISALLOWANCE OF INTEREST EXPENSE U/S. 14A OF THE ACT R.W. RULE 8D OF THE INCOME-TAX RULES, 1962 ("THE RULES") AMOUNTING TO RS. 5,42,245: 1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the actions of the Ld. AO in disallowing interest expense amounting to ₹ 5,42,245 on the alleged ground that the Appellant has not proved the nexus of funds utilised for making investments. 2. He failed to appreciate and ought to have held that: i. For computing the disallowance u/s 14A of the Act, only expenditure 'in relation to' earning divid .....

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before Ld. first appellate authority vide impugned order dated 30/11/2016. The assessee agitated the stand of Ld. AO qua treatment of gains on shares by reiterating that similar claim has been accepted by the revenue in assessments framed u/s 143(3) for AYs 2007-08, 2008-09 & 2009-10. Even in AY 2013-14, income from shares was assessed as Capital Gains. Reliance was placed on certain judicial pronouncements and CBDT circulars issued on the subject from time to time to support the submissions. However, the same could not convince first appellate authority who observed that the assessee was involved in the activity of investments & finance as a business in his proprietary concern namely M/s Rupam Investment & Finance and the share transactions were allied to the activity of finance and investment. Further, the number of transactions was high, there was repetition of transactions and frequency of trading was also high. It was also held that the motive of investment was not to earn dividends but to earn the profit. In the aforesaid background, the ground was dismissed. Similarly, the disallowance u/s 14A as made by Ld. AO was confirmed. Aggrieved, the assessee is in further .....

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g was not the only activity carried out by the assessee during impugned AY. Apart from this, the assessee was also carrying on the business of finance & investment in another proprietorship concern during impugned AY. 6.3 It has been submitted by Ld. AR that the assessee is a conventional investor in shares & securities and the gains / loss on shares was always offered under the head Capital Gains only and the same has always been accepted by the revenue in all the earlier years. In particular, similar treatment given by the assessee to such income in AYs 2007-08, 2008-09, 2009-10 was accepted by the revenue in assessments framed u/s 143(3) and the gains / losses were assessed under the head Capital Gains only. Similar claim has been accepted for AY 2010-11 u/s 143(1). Even in subsequent AYs 2013-14 to 2016-17, the assessment was framed u/s 143(3) wherein similar gains / losses were accepted under the head Capital Gains Only. The assessee s claim has been disturbed only for impugned AY as well as in AY 2012-13. The aforesaid facts remain uncontroverted before us. 6.4 Although we are conscious of the fact that principle of res-judicata do not apply to Income Tax proceedings, .....

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e assessment year to the same opinion in a subsequent year is not because of any principle of res judicata but because of the theory of precedent or the precedential value of the earlier pronouncement. Where facts and law in a subsequent assessment year are the same, no authority whether quasi judicial or judicial can generally be permitted to take a different view. This mandate is subject only to the usual gateways of distinguishing the earlier decision of where the earlier decision is per incuriam. However, these are fetters only on a coordinate Bench which, failing the possibility of availing of either of these gateways, may yet differ with the view expressed and refer the matter to a Bench of superior strength or in some cases to a Bench of superior jurisdiction. (emphasis supplied) 9. The principle accepted by the Revenue for 10 earlier years and 4 subsequent years to the Assessment Years 2007-08 and 2008-09 was that the entire expenditure is to be allowed against business income and no expenditure is to be allocated to capital gains. Once this principle was accepted and consistently applied and followed, the Revenue was bound by it. Unless of course it wanted to change the pr .....

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tivity and the extent to which it is the means of livelihood. (x) The characterization of securities in the books of account and balance sheet as stock-intrade or investment. (xi) Whether the securities purchased or sold are listed or unlisted. (xii) Whether investment is in sister/related concerns or independent companies. (xiii) Whether transaction is by promoters of the company. (xiv) Total number of stock dealt in (xv) Whether money has been paid or received or whether these are only book entries". As per Circular No. 4/2007 it is possible for a taxpayer to have two portfolios, i.e., an investment portfolio comprising of securities which are to be treated a capital asset and a trading portfolio comprising of stock-in-trade which are to be treated as trading assets. The above instructions have partially been modified with respect to listed securities in recent CBDT circular No. 6/2016 dated 29/02/2016 which lays down following factors to be considered for listed securities: - a) Where the assessee itself, irrespective of the period of holding of the listed shares and securities, opts to treat them as stock-in-trade, the income arising from transfer of such shares/securities .....

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therefore, inclined to hold that the impugned gains were rightly offered as Capital Gains. By reversing the stand of lower authorities, we allow this ground of appeal. Our view is fortified by the cited decision of Hon ble Bombay High Court rendered in CIT V/s Gopal Purohit which has subsequently been followed in recent decision titled as Pr.CIT V/s Vikshit Engineering Ltd. [100 Taxmann.com 436 26/11/2018]. 6.6 The Ld. DR has placed reliance on the decision of Hon ble Bombay High Court rendered in Ramilaben D. Jain V/s ACIT [supra]. We find the same to be distinguishable on facts since in that case, the holding period of majority of share was within one week only. The case law of Ratanlal J.Oswal V/s CIT [supra] deals with a situation wherein the assessee made investments out of borrowed funds and the transactions were classified as Share Trading in the Tax Audit Report. In the case law of Sanjeev Bajaj V/s CIT [supra], the shares were held as stock-in-trade. In Equity Intelligence India Pvt. Ltd. Vs. ACIT [supra], the share trading activity was found to be carried in systematic manner and average holding period was found to be as low as 3 days. In the case law of CIT V/s Pooja In .....

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