TMI Blog2020 (1) TMI 290X X X X Extracts X X X X X X X X Extracts X X X X ..... held by assessee since past many years. The investments were long term investments and reflected as such in the financial statements which is further evident from the fact that the assessee never made provision for diminution in value thereof on the Balance Sheet date. In fact, similar gains were accepted by department as Long-Term Capital gains in AYs 2005-06 2008-09 in scrutiny assessments u/s 143(3). Therefore, rule of consistency favored assessee s stand. It is also the factual findings of Ld. CIT(A) that the stated investments were not out of borrowed funds, which fact remain undisputed before us also. The factual findings of Ld. CIT(A) at para 10.24 lead us to inevitable conclusion that the stated gains were rightly held to be assessable as Long-Term Capital gains rather than as business income. Therefore, we concur with the stand of learned first appellate authority, in this respect. Resultantly, the grounds raised by revenue stand dismissed. The revenue s appeal stands dismissed. Short-term capital gains OR business income - HELD THAT:- CIT(A) has clinched this issue also in the right perspective. The average holding period of most of the scrips was found to be b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business income. The appellants contend that on the facts and in the circumstances of the case and in law, the CIT(A) ought not to have upheld the action of the Assessing Officer in considering the capital gains arising on sale of short-term capital assets as business income. 3. The Assessing Officer erred in charging interest under sections 234B and 234C of the Act. The appellants contend that the Assessing Officer ought not to have charged interest under sections 234B inasmuch as the appellants, in terms of section 208, were not liable to pay advance tax. The Grounds raised by Revenue read as under: - 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in restricting the disallowance of expenditure made u/s.14A to ₹ 1,53,828/- against ₹ 7,93,802/- disallowed by the Assessing Officer. 2.1 On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in directing the Assessing Officer to assess the profit gains on sale of shares under the head Capital Gains (₹ 16,56,89,573/- as LTCG ₹ 53,27,430/- as STCG) as against the Business Income assessed by the Assessing Officer. 2.2 Witho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule 8D and therefore, further disallowance would not be warranted. However, not satisfied, Ld. AO worked out aggregate disallowance of ₹ 8.72 Lacs in terms of Rule 8D, which comprised-off of interest disallowance u/r 8D(2)(ii) for ₹ 4.92 Lacs and expense disallowance u/r 8D(2)(iii) for ₹ 3.79 Lacs. Since total expenditure debited to Profit Loss Account was ₹ 7.93 Lacs, the aforesaid disallowance was restricted to ₹ 7.93 Lacs. 3.2 The learned first appellate authority, while confirming the stand of Ld. AO in invoking the provisions of Section 14A, directed Ld. AO to restrict the disallowance to 10% of exempt income and deleted the balance disallowance of ₹ 6.39 Lacs. The same has given rise to one of the grounds of cross-appeals. 3.3 Upon due consideration, we find that as per settled legal position, the provisions of Rule 8D were not applicable to the year under consideration. Therefore, the disallowance was to be computed on some reasonable estimated basis keeping in view the assessee s financials. The estimation of 10% as made by learned first appellate authority could not be said to be unfair or unreasonable, in any manner. From perusa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain elements in the activity of the assessee which would invest it with the character of the business. According to well-established interpretation of word business as found in taxing statutes it is the sense of an occupation or profession which occupies the time, attention and labour of a person normally with the object of making profit. To record an activity as business there must be of course dealings either actually continued or contemplated to be continued with a profit motive. Whether or not a person carries on business in a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and transaction must ordinarily be entered into with a profit motive. Such motive must pervade the whole series of transactions effected by the person in the course of his activity. Hence, in view of the above discussion the income is charged under the head Business Income and not as capital gain. 4.2 The stand of Ld. AO, upon confirmation by learned first appellate authority , in the first round, was assailed by assessee before Tribunal vide ITA No.6936/Mum/2010 order dated 27/01/2012 wherein the matter wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We observe that documents proposed to be filed by assessee are relevant and necessary to be considered to decide the issue as to whether shares were held by assessee as investment or stock-in-trade. It is relevant to state that Hon ble Apex Court has held in the case of CIT Vs Prabhu Dayal 82 ITR 804 that question as to whether receipt is a capital receipt of income, has to be judged from the facts of each case and question of law can be drawn such facts. The Hon ble Apex Court in the case of CIT Vs. H. Holck Larsen 160 ITR 67 also held that whether transaction of sale and purchase of share is a trading transaction or in the nature of investment, is a mixed question of law and facts. Therefore, to decide the question as to whether assessee has to be treated as investor in share or a trader or shares is to be considered, considering totalities of all facts. In view thereof, it is necessary that Ld. CIT(A) should have considered the evidences proposed to be filed by assessee to decide the issue fairly and judiciously. 17. In view thereof, we, in the interest of justice, set aside the order of Ld. CIT(A) and restore the issue to his file with a direction that he should decide it af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee. 4.3 Pursuant to aforesaid directions, Ld. CIT(A) re-examined the claim in the light of additional evidences furnished by the assessee which were already filed before Ld.AO during remand proceedings in the first round of appeal. With respect to Long-term capital gains, the assessee submitted that the shares of two entities under consideration were held since financial year (FY) 2002-03 2003-04 with an intention to earn dividend income. There was no regular sale or purchase of shares of these entities and the investment were long term investment which was evident form the fact that the assessee never made provision for diminution in the value of shares in the books of accounts. Further, the shares were reflected as long-term nontrade investments in the Balance Sheet. In support of the said submissions, the assessee filed financial statement for various years along with copies of relevant purchase bills, delivery challans, ledger account copies, bank statements evidencing payments, confirmation from share transfer agents and demat statements. Regarding, Short-term capital gains of ₹ 53.27 Lacs, the assessee submitted that the income has been treated as bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clusion that the assessee is into trading. A prudent Investor always keeps a watch on the market trends. Thus, the intention can be proved only by way of conduct of the appellant after the purchase. The conduct of the appellant in the present case shows that the intention was to hold the shares for long before disposing off the same which is, discussed in the coming paras. 10.13 The main dispute in this case related to treatment involving 2 scrips viz. M/s.Ruchi Soya and M/s.Ruchi Infra. Page 39 and 40 of the paper book shows the detail of purchase and sale of these 2 scrips Ruchi soya and Ruchi infra during this assessment year. Table containing the details filed by the appellant is enclosed to this order (Enclosure 'A'). A careful analysis of the table reveals the following facts: Details of sale of Ruchi Soya Shares:- Month No of transaction No days Total shares sold April 10 6 77,899 May 16 11 3,40,931 September 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,500 4,28,830 Ruchi Infra Date Quantity 09.01.2004 1,410 09.01.2004 23,602 26.03.2004 3,33,500 26.03.2004 32,13,918 02.04.2004 2,60,386 38,32,816 The above clearly shows that the shares purchased during this assessment year are not part the shares sold and the investment made during the earlier year and held as stock in the investment portfolio only were sold by the appellant during this year. As mentioned above the physical shares purchased were demateriaiized and the appellant maintains it's D-Mat account with Axis Bank. When the dealings are through D-mat a/c the natural corollary is that the shares purchased first are sold first and effectively the FIFO method comes in to play/Hence the method adopted by the appellant is found acceptable It is worth to mention here the circular N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14,38,020 14,32,551 39,636 5,37,712 4,51,190 Amount 2,06,76,858 11,33,19,105 11,36,31,239 12,46,760 2,19,11,251 2,14,15,358 Page No. Paper book 343 345 347 348 349 350 Ruchi Infra March 2000 March 2001 March 2002 March 2003 March 2004 March 2005 Quantity 14,38,120 89,900 77,050 2,39,350 4,06,352 7,78,709 Amount 11,33,26,724 2,20,77,169 1,87,62,283 3,95,09,478 2,67,90,779 4,16,88,350 Page No. Paper book 343 345 347 348 349 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been accepted as investment activity but it has not been shown how the transactions in earlier years were exactly identical and whether the same10 had been accepted after examination. The assessee has also cited some tribunal decisions which in our view are distinguishable as each case has its own peculiar features. In our view, on the facts of the case, the income arising from safe and purchase of shares within the three months period has to be treated as business income. However we make it clear that in case any part of the gain is in respect of sale of shares appearing in the opening balance which has been treated as investment in the earlier year, it has to be treated as capital gain and excluded from the business profit. Subject to above we confirm the order of CIT(A). Thus the ITAT came to a conclusion that shares held for less than 3 months cannot be considered as investment and at the same time shares which were part of opening balance needs to be treated as capital gain and excluded from business profits. 10.20 The ratio laid by the ITAT if applied to the facts in appellant's case then there cannot be a doubt that the appellant is only an investor and not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I am persuade to hold that the surplus on the sale of shares was rightly declared by the appellant as long term capital gains. ; 10.22 In the note below para 8.12, I have mentioned that multiple transaction on a single day is treated as one transaction. Simply there were multiple sale transactions on the same day, it cannot be construed that the appellant is frequently indulging in purchase and sale and hence, it is a trader. For this proposition I place my reliance on the jurisdictional ITAT in the case of Mr.Nehal V. Shah ITA. No. 2733/Mum/2009 dt 15/12/2010. The relevant portion of the finding different paras are reproduced here under :- 5. We have considered the rival submissions and carefully perused the record and find force in the submissions of the learned Counsel for the assessee. /(seems that number of transactions have not been calculated properly by the Assessing Officer because it may happen some time that a single transaction would be split by the computers trading of the stock exchanges into many smaller transactions, but, that does not mean that assessee has carried so many transactions. Let us say, if some one places an order for purchase of 1000 shares o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investments and that they were classified as such in the Balance Sheet. He has also gone on to observe that the assessee had two portfolios, a trade portfolio and an investment portfolio. From the Balance Sheet as on 31.03.2005 it is difficult to find any shares held in the trade portfolio and to this extent the CIT(A) appears to be wrong - i.e., in saying that the assessee had two portfolios. According to the Balance Sheet .as on 31.03.2005 the shares costing ₹ 12,59,85,603/- were shown as shares and the Balance Sheet also contained the list of the shares of the 26 companies held by the assessee. The Balance Sheet also disclosed ₹ 3,79,80,707/- as other investments which consisted mainly of bonds and mutual funds. There were no shares which were shown in the Balance Sheet or the Profit and Loss Account as stock-in-trade. Surplus received on the shares sold during the year were shown as either short term capital gains or as long term capital gains. So far as the long term capital gain is concerned, we have already seen that the AO did not dispute the nature of the gains and made no attempt to treat them as business profits. It is only with regard to the short term ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns furnished in pages 17 to 19 of the Paper Book, which has been explained along with the details contained at page 30 of the Paper Book. These details show that the assessee sold 30 scrips during the year, which gave rise to the short term capita! gains of Rs,2,25,47,9927-. The sales on the same day but in different lots of the shares of the same company cannot be treated, in our opinion, as separate transactions of sale in order to judge the frequency of the sales We have already referred to the argument of the learned representative for the assessee that when the shares of Automo Cor were purchased on 25.11.2004 in three lots, they have to be treated as a single purchase transaction and similarly when the shares of the said company were sold on 29.11.2004 in three separate lots, they have to be taken as a single sale. It seems to us that this is a reasonable way of ascertaining the frequency of the transactions. This is the way in which the statement at page 30 of the Paper Book has been prepared from which it is seen that the transactions of purchases, counted month-wise, came to 49 in number during the year and transactions of sales reckoned in a similar manner came to 43 in n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to costs . 10.23 I have also analysed the sources for purchase of these 2 scrips. It is also worth to mention here the letter filed by the appellant before the CIT(A)-10, Mumbai dated 08.06.2009 wherein it was clarified that the appellant company did not utilise any interest bearing borrowed funds for the purpose of investment in these shares and hence, it was prayed that the income earned should be treated as Long Term Capital Gain/Short Term Capital Gain and not Income from Business. It is the contention of the appellant that the original advances given to M/s.Anand Mangal Investments Pvt. Ltd. and M/s.Jil Investment were returned and these were the sources for the acquisition of these 2 scrips. Copy of the ledger extract of the above 2 concerns are available in pages 363 and 364 of the paper-book. As mentioned already, payment to Priyam Securities towards acquisition of the scrips of Ruchi Soya was made through State Bank of Indore and UTI Bank account maintained by the appellant. Page 52, 53, 78 and 79 of the paper-book clearly shows that, after the receipt of the advance from the above two concerns, the appellant, in turn, had made the payment to Priyam Securities. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 12.1 The additional ground filed is available in page 165 and 166 of the paper-book. The Additional grounds raised are as under :- 1) That the learned Income-tax Officer ought to have considered the short term capital gains claimed by the assessee. 2) That the learned Income-tax Officer has treated short term capital gains of ₹ 53,27,430/- as a business income without giving any reason which is quite illegal, arbitrary, unwarranted unjustified, and bad in law. 3) That the appellant further craves to leave to add and/or to amend aforesaid ground of appeals as and when necessary. 12.2 No new evidences were filed before me except the details already furnished before the AO during the course of remand proceeding. The AO did not give any reason in the assessment order as to why the Short Term Capital Gain disclosed by the appellant is treated as Business Income. The submission of the appellant is as under :- 9. Short-term Capital Gain of ₹ 53,27,430/- The Id. A.O. has treated short-term capital gain as business income without giving any reason In the body of assessment order. During the course of assessment proceedings, the assesses company has filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f shares of Morarjee Textile 10 days 6. MPhasis BFL Soft 12 days 7. National Steel 19 days 6. Rain Commod 14 days 9. McdoweII 42 to 45 days 10. Surya Pharma 10 to 14 days 11. Ucal Fuel Systems 11 days 12, Zenith Computers 45 days 13. Zicom Security Sys 20 to 22 days 12.4 Another feature noticed was all these scrips mentioned above have been bought and sold only once by the appellant. Since the holding period was less than 45 days, the claim of the appellant that gain arising out of these scrips are short term gain cannot be accepted. Further, I find with regard to the scrips of ABC India Ltd. (128 to 133 days), M.P.GIychem (122 to 194 days), Ramco Sys. (76 to 80 days), Ruchi Soya (45 to 185 days) and Ruchi Strips (137 to 159 days), th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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