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2014 (11) TMI 1118 - AT - Income TaxProfit on sale of shares - liable to be taxed as capital gain OR business income - nature of income - Held that - The investments held by the assessee consisted of investment in quoted shares of Rs. 6.60 crores and investment in unquoted shares and shares warrants of Rs. 11.14 crores which were valued at cost. Similarly in assessment year 2007-08 assessee was holding quoted shares at cost of Rs. 7.10 crores and unquoted shares of Rs. 2.26 crores. The disclosure of the investment in the accounts is a material fact to ascertain the intention of the assessee to hold the shares as investment or stock in trade . In the case of Gopal Purohit (2010 (1) TMI 7 - BOMBAY HIGH COURT ) the Tribunal held that presentation in the books of accounts is most crucial source of gathering intention of the assessee with regard to the nature of transaction. It is also not the case of AO that the shares which were held as investment in earlier assessment years i.e. 2005-06 2006-07 & 2007-08 and accepted by the department as investment were converted into stock in trade so as to attract the provisions of Section 43(5) of the Act. Since the shares held as investment in earlier years and also accepted by the department as such the assessee having not converted its shares in stock in trade there was no reason to assess the profit arising out of sale as business income in place of capital gains. Addition u/s 14A - Held that - Assessee has not invested interest bearing funds in the shares and securities in terms of detailed discussion made hereinabove. Since no interest expenditure was incurred during the year in respect of additional investment put in the shares which were fully financed out of the sale proceeds of shares held as long term capital investment and same also offered as long term capital gains there is no reason for disallowance of interest expenditure by invoking provisions of Section 14A read with Rule 8D. With regard to the other expenditure debited in the profit and loss account we found that common expenditure have been debited which are in the nature of insurance expenses bank charges audit fees repairs and maintenance stamp duty etc. which amounts to Rs. 65, 925/-. Since this expenditure was also attributable for the earning of exempt income we direct the AO to confirm the disallowance of these expenditure of Rs. 65, 925/- u/s.14A. Nature of loss - notional loss or business loss - Held that - After considering the actual payment made for shares the CIT(A) held that derivative transactions through a recognized stock exchange have been taken out of the purview of the speculation transaction u/s.43(5) after amendment w.e.f. 1-4-2006. In the instant case relevant assessment year under consideration is 2008-09 to which amended provision is applicable. As in the case of Bharat Ruia (HUF) 2011 (4) TMI 37 - BOMBAY HIGH COURT also considered the amended provisions and held that derivative transactions prior to amendment would come within the ambit of speculation transactions u/s.43(5) of the Act. A categorical finding has also been recorded by the CIT(A) to the effect that these transactions have been carried out through recognized stock exchange accordingly profit/loss on such transactions will be treated as normal business profit/loss and it cannot be treated as notional loss. We do not find any reason to interfere in the findings recorded by the CIT(A) for treating such loss as a normal business loss instead of AO s action of treating the same as notional loss.
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