TMI Blog2017 (8) TMI 1711X X X X Extracts X X X X X X X X Extracts X X X X ..... n the AO would be entitled to examine other issues also in the course of the re-opened assessment. In these circumstances, as the assessee has withdrawn the ground in respect of the challenge to the disallowance made u/s.14A, we are of the view that the re-opening is valid. In these circumstances, Ground Nos.1 2 of the assessee s concise grounds stands dismissed. Claim u/s.10(38) in respect of the long term capital gains - A perusal of the Assessment Orders for the earlier years clearly shows that the Revenue has recognized that the assessee is in the business of Derivative, Future Options in shares and the assessee is having investments in shares which has given rise to long term capital gains and short term capital gains which are being assessed as offered. It is only during this year that the Revenue has shifted its stand and has attempted to tax the long term capital gains disclosed by the assessee and claimed as exempt u/s.10(38) as a business income of the assessee. Circular issued by the CBDT in Circular No.6/2016 in F.No.225/12/2016-ITA-II clearly shows that In respect of listed shares and securities held for a period of more than 12 months immediately prece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant is not entitled exemption under for section 10(38) of the Income Tax Act 1961. Further, the Assessee has shown the purchase of shares as investment in his balance sheet, which reflects the intention of the Assessee. 4. The CIT (Appeals) ought to have seen that a share purchased on a particular day which came to be sold on the very same day is shown as short term capital gains by the Assessee himself and in respect of the shares held beyond 12 months was shown as long term capital gains. 5. The CIT (Appeals) ignored the scope and purport of the CBDT circular bearing no.6 of 2016 dated 29th February 2016, wherein the Assessee desire to treat the transactions as capital gains would not be open to question by the Assessing Officer. 6. The CIT (Appeals) ought to have appreciated that the Assessee has treated the income derived from the transfer of share as capital gain which the revenue had so accepted and hence there is consistency on the part of the Assessee in line with the spirit of the circular. 7. The CIT (Appeals) ought to have appreciated that most of the shares sold during the accounting year were held for more than 2 years. 8. The CIT (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year the assessee had liquidated substantial portions of investments which were held for period of varying more than one year to nearly five years. The Ld.AR also drew our attention to Page No.15 of the Paper Book which was a copy of the Form No.3CD report, wherein the Auditors have reported the nature of the business of the assessee as Derivative, Future Options in shares. It was a submission that at Page No.21 in respect of clause No.28(a) of the Form No.3CD report, Auditors have also mentioned that the assessee is carrying on the business of Derivative, Future Options in shares. The consolidated balance sheet of the assessee was shown at Page No.26 of the Paper Book to show the investments as separately disclosed and the current assets in respect of Derivative business. He further drew our attention to Page No.62 of the Paper Book which is a copy of the 143(2) notice dated 16.09.2009 and the replies at Page No.63, 66 68 wherein the details of the investment and the details of the assessee s business of dealing in Derivative, Future Options in shares was also clearly explained. It was a submission that further verifying the said details, the assessment had been completed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance u/s.14A. 8. In reply, the Ld.DR vehemently supported the order of the AO and CIT(A) in respect of re-opening. 9. We have considered the rival submissions. A perusal of the reasons recorded at Page No.84 of the Paper Book shows that the re-opening is on two grounds. The first one is in regard to the withdrawal of the exemptions granted u/s.10(38) of the Act and the second one is in regard to the disallowance u/s.14A r/w Rule 8D. Admittedly, the re-opening has been done beyond the period of four years from the end of the relevant assessment year and consequently, the reasons recorded must disclose the failure on the part of the assessee to disclose fully and truly all material facts required for assessment. In the present case, the reasons recorded do not specify the failure on the part of the assessee to disclose truly and fully all the material facts in respect of the assessment. Further, a perusal of the reasons recorded clearly shows that the same is a verbatim extract of the audit objection. On both these grounds, the reopening is bad in law. However, as the assessee has withdrawn the ground in respect of the challenge to the disallowance u/s.14A, we are unabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0(38) to submit that out of the shares sold 77.12% of the shares was held for more than five years, 11.57% was held for a period of 3 to 5 years, 6.75% for a period of 2 to 3 years and 4.5% for a period of 1 to 2 years. It was a further submission that one single holding of M/s.Parry Agro Industries Ltd. which constituted nearly 63.38% of the entire capital given offer by the assessee during the relevant previous year was held as investment for substantial more than five years. The breakup of the shares holding as investment was shown at Page No.97 of the Paper Book. It was a submission that the shares having been held as investment continuously and the same have also been accepted by the Revenue for the earlier years it was not open to the Revenue to turn around and treat the long term capital gains disclosed by the assessee as the business income of the assessee. It was a submission that the assessee may be granted benefit of deduction u/s.10(38) as claimed. 11. In reply, the Ld.DR vehemently supported the orders of the AO the CIT(A). It was a submission that the Ld.CIT(A) has also examined the claim u/s.10(38). It was a submission that the volume of transaction itself clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve, Future Options in shares and the assessee is having investments in shares which has given rise to long term capital gains and short term capital gains which are being assessed as offered. It is only during this year that the Revenue has shifted its stand and has attempted to tax the long term capital gains disclosed by the assessee and claimed as exempt u/s.10(38) as a business income of the assessee. A perusal of the Circular issued by the CBDT in Circular No.6/2016 in F.No.225/12/2016-ITA-II which is extracted below:- Circular No.6/2016 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes North Block, New Delhi, the 29th of February, 2016 Sub: Issue of taxability of surplus on sale of shares and securities Capital Gains or Business Income Instructions in order to reduce litigation - reg. Sub-section (14) of Section 2 of the Income-tax Act, 1961 ( Act ) defines the term capital asset to include property of any kind held by an assessee, whether or not connected with his business or profession, but does not include any stock-in-trade or personal assets subject to certain exceptions. As regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e allowed to adopt a different/contrary stand in this regard in subsequent years; c) In all other cases, the nature of transaction (i.e. whether the same is in the nature of capital gain or business income) shall continue to be decided keeping in view the aforesaid Circulars issued by the CBDT. 4. It is, however, clarified that the above shall not apply in respect of such transactions in shares/securities where the genuineness of the transaction itself is questionable, such as bogus claims of Long Term Capital Gain / Short Term Capital Loss or any other sham transactions. 5. It is reiterated that the above principles have been formulated with the sole objective of reducing litigation and maintaining consistency in approach on the issue of treatment of income derived from transfer of shares and securities. All the relevant provisions of the Act shall continue to apply on the transactions involving transfer of shares and securities . Sd/- (Rohit Garg) Deputy Secretary Government of India F.No.225/12/2016-ITA-lI Copy to: 1) Chairman. CBD1 and all Members, CI3L) I 2) OSD to Revenue Secretary 3) All Pr. CCsIT/Pr. DsGIT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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