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2015 (2) TMI 1124 - AT - Income TaxTransaction of shares - business income or capital gain - CIT(A) deleting the addition made by the AO of net short term capital gain as assessee s business income - Held that - We find that the FAA has analysed the share transactions at length in light of the CBDT circular and has arrived at the conclusion that the assessee was a investor for most of the share transactions.He found that except for the shares of ADL and SIL the assessee had behaved as an investor.He found that the assessee had not borrowed any money for purchasing the shares,that except for the shares of ADL and SIL he had held the other shares for a very long period,that he was engaged in the business of computers.Not only this unsold shares were valued at cost.Considering these factors we are of the opinion that the assessee could not be taxed under the head business income for the entire share transactions.CBDT circular has recognised the principle that a person can have two portfolios- he can be an investor and a trader at the same time. After in depth analysis of the facts the FAA had rightly held that for the assessee was doing business of purchase and sale of shares of ADL and SIL,that in other cases he was only investor.We do not find any infirmity in his order - Decided against revenue Addition u/s 68 - CIT(A) deleting the addition - Held that - We have perused the material on record.We find that the FAA has given categorical finding of facts about filing of confirmation letters of the creditors,copies of their bank accounts, acknowledgments of returns of income filed by them.In our opinion,these documents were sufficient to prove the genuineness of the transactions as well as the creditworthiness of the lenders.In our opinion the assessee had discharged the onus cast upon him,but the AO had not brought any evidence on record to negate the evidences produced by the assessee.In our opinion,the AO was not justified in invoking the provisions of section 68 for the loans taken in earlier assessment years.Considering the facts and circumstances of the case,we are of the opinion that the order of the FAA does not suffer from any legal of factual infirmity - Decided against revenue. Share transactions incomeof ADL and SIL as business income - Held that - While deciding the appeal filed by the AO about STCG with regard to shares,we have discussed the facts in length. As stated earlier the FAA had held that the transactions undertaken by the assessee for those two companies could not be taxed under the head STCG. The FAA has given finding of fact that the assessee was buying and selling shares of ADL and SIL in a systematic and organised manner,that he traded in such transaction regularly and repeatedly.It is also clear from the order of the FAA that the assessee was a frequent purchaser and seller of the shares of both the companies.These facts clearly prove that the assessee could not be treated an investor as far as share transactions of these two companies are concerned.Therefore,confirming the well reasoned order of the FAA - Decided against the assessee. Disallowance u/s 14A - CIT(A) directed the AO to verify the claim of the assessee about common expenses incurred for earning exempt income and a make a proportionate disallowance - Held that - The assessee had not filed any details before the AO and the FAA had asked the AO to make verification of the expenses and decide the issue of proportionate disallowance. In our opinion,the order of the FAA does not suffer from any legal infirmity.He has directed the AO to verify the claim made by the assessee about not incurring expenditure for earning exempt income and then take a decision.His order is legal and justifiable. So we confirm the same - Decided against assessee
Issues Involved:
1. Deletion of addition of net short-term capital gain (STCG) as business income. 2. Deletion of addition of Rs. 40,95,178 under Section 68 of the Income Tax Act. 3. Treatment of net gain on sale of shares of specific companies as business income. 4. Disallowance of proportionate expenses related to dividend income under Section 14A. Comprehensive Issue-Wise Detailed Analysis: 1. Deletion of Addition of Net Short-Term Capital Gain (STCG) as Business Income: The Assessing Officer (AO) had classified the net short-term capital gain (STCG) of Rs. 26,71,611 as business income based on the frequency and volume of share transactions, holding periods, and the use of borrowed funds. The AO argued that the assessee's activities resembled trading rather than investment. However, the First Appellate Authority (FAA) found that the assessee had a history of treating share transactions as investments, had maintained separate books of accounts, and did not use borrowed funds for purchasing shares. The FAA concluded that except for shares of Ankur Drugs and Pharma Ltd. (ADL) and Srei International Ltd. (SIL), the transactions were investments. The Income Tax Appellate Tribunal (ITAT) upheld the FAA's decision, recognizing that a person can have both investment and trading portfolios, thus deciding against the AO. 2. Deletion of Addition of Rs. 40,95,178 under Section 68 of the Income Tax Act: The AO added Rs. 40,95,178 as unexplained cash credits under Section 68, stating that the assessee only provided confirmation letters without proving the creditworthiness of the lenders. The FAA, however, noted that the assessee had furnished necessary confirmations, bank statements, and income tax returns of the creditors, which were not disproved by the AO. The FAA concluded that the transactions were genuine and made through regular banking channels. The ITAT agreed with the FAA, stating that the assessee had discharged the burden of proof and the AO failed to provide contrary evidence. Thus, the addition under Section 68 was not justified. 3. Treatment of Net Gain on Sale of Shares of Specific Companies as Business Income: The assessee contested the FAA's decision to treat the net gain on sale of shares of ADL and SIL as business income. The FAA had found that the assessee engaged in systematic and frequent trading of these shares, indicating a trading activity rather than investment. The ITAT upheld this decision, agreeing that the frequent and organized manner of transactions in ADL and SIL shares proved the assessee was a trader for these specific shares. Therefore, the ITAT confirmed the FAA's order, treating the gains from ADL and SIL as business income. 4. Disallowance of Proportionate Expenses Related to Dividend Income under Section 14A: The AO had treated the entire dividend income of Rs. 2.30 lakhs as business income due to the absence of a response from the assessee regarding disallowance under Section 14A. The FAA, however, directed the AO to verify the common expenses incurred for earning exempt income and make a proportionate disallowance, referring to the decision in Godrej & Boyce. The ITAT found the FAA's direction to be justified, as it required verification of the assessee's claim of not incurring any expenditure for earning the exempt income. The ITAT upheld the FAA's order, confirming the need for proportionate disallowance after verification. Conclusion: The ITAT dismissed the appeal filed by the AO and the cross-objections filed by the assessee, upholding the FAA's decisions on all issues. The judgment emphasized the importance of distinguishing between investment and trading activities, the burden of proof in cash credit cases, and the necessity of verifying claims related to exempt income and associated expenses.
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