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2013 (4) TMI 38 - AT - Income TaxSurplus from IPO Investment and secondary market investment - Short Term Capital Gains v/s Business Income - Held that - The factual matrix of the case is that the assessee has entered into numerous transactions of purchase and sale of shares. The A.O. has given a finding that the assessee has done transactions through 3 brokers, assessee has dealt in numerous scrips, holding period of shares is very less, the scrips that were purchased have been sold during the year itself. The assessee has also done trading in commodity transactions, derivates and futures and options. A.O. has also observed that assessee had advanced money to relatives and friends who in turn applied for shares in IPOs in their names. On allotment of shares, the shares were transferred by the friends and relatives to the demat account of the assessee and the same were sold immediately by the assessee. In case the shares were not allotted in IPO the friends and relatives refunded the money back to the assessee. These facts could not be controverted by the assessee by bringing any contrary material on record. Considering the totality of the aforesaid facts the systematic activity of purchase and sale of shares, making application in IPOs directly as well as through relatives and on allotment selling them, the volume and frequency of transaction do not appear to be an investment activity but on the contrary appears to be business activity - therefore view that the action of A.O. in treating the activity of purchase and sale of shares as business activity cannot be faulted and therefore the profit and sale of shares were rightly treated by him as business income - against assessee. Dis allowance of depreciation - Held that - The undisputed fact is that the assessee is in the business of oxygen gas since A.Y. 2000-01, there was no business activity of oxygen gas during the year in appeal. The submission of the assessee that the electricity connection was surrendered in January,2006 and till Dec.,2005 the assessee was having electricity connection and no business activity during the year was on account of business conditions has not been controverted by Revenue by bringing any contrary material on record. It is also not in dispute that in earlier year the assessee has been allowed depreciation and during the year under appeal the machinery was kept ready to use. In view of the totality of facts and as decided in CIT vs. Oswal Agro Mills Ltd. 2010 (12) TMI 947 - DELHI HIGH COURT wherein held that the depreciation is allowed on the block of assets, and the Revenue cannot segregate a particular asset therefrom on the ground that it was not put to use - assessee is entitled to depreciation. Disallowance u/s 14A invoking Rule 8D - Held that - In the present appeal the assessment year involved is A.Y. 2006-07. The A.O. has worked out the disallowance by following the method prescribed in Rule 8D. In the case of Godrej & Boyce Mfg.Co. Ltd. (2010 (8) TMI 77 - BOMBAY HIGH COURT) wherein held that the provisions of Rule 8D are applicable from A.Y. 2008-09 thus when provision of Rule 8D were not applicable the A.O. should make reasonable disallowance - the matter be remitted to the file of A.O. to work out a reasonable disallowance - ground of assessee is allowed for statistical purpose. Violation of provisions of Sec. 269T - penalty levied u/s. 271E - assessee had shown receipt of unsecured loan which was adjusted against the sale of shares thus the repayment of loan was otherwise than by an account payee cheque or account payee bank draft as it was by way of journal entry - CIT(A) deleted the penalty levy - Held that - CIT (A) has given a finding that the profit earned on sale of shares were offered to tax and the same was accepted by the Revenue and thus the genuineness of the transaction was not in doubt. He has further held that the amount of advances even if taken as loan have been adjusted by selling of shares and since there was no transfer of money, it cannot be said that such deposit or loan comes within the purview of Sec.269T. The revenue could not controvert the submission of assessee that the disclosure made in the Balance Sheet was contrary to the provisions of Companies Act, 1956. As decided in CIT vs. Saini Medical Stores (2005 (2) TMI 72 - PUNJAB AND HARYANA HIGH COURT ) the deletion of penalty when there was no doubt about the genuineness of transactions which have been fully accepted in the assessment made and when no tax evasion of tax avoidance was involved and when the default was of technical or venial nature - in favour of assessee.
Issues Involved:
1. Treatment of Short Term Capital Gains as Business Income. 2. Disallowance of Depreciation. 3. Disallowance under Section 14A. 4. Penalty under Section 271E for violation of Section 269T. Detailed Analysis: Issue 1: Treatment of Short Term Capital Gains as Business Income The Assessee's appeal contested the treatment of Short Term Capital Gains from shares amounting to Rs. 6,89,223/- as business income. The A.O. observed numerous transactions of purchase and sale of shares, short holding periods, and trading activities in commodities and F&O. The CIT (A) upheld the A.O.'s decision, noting the systematic and frequent nature of transactions, indicating a business activity rather than investment. The Tribunal agreed, emphasizing the volume and frequency of transactions, the use of multiple brokers, and the immediate sale of shares allotted in IPOs. Thus, the treatment of gains as business income was confirmed, and the Assessee's ground was dismissed. Issue 2: Disallowance of Depreciation The A.O. disallowed Rs. 1,46,864/- claimed as depreciation on assets, reasoning that the business of oxygen manufacturing was not carried out during the year, evidenced by the disconnection of the 250KVA HT connection. The CIT (A) upheld this decision, emphasizing that physical use of machinery is required for depreciation claims under Section 32. However, the Tribunal allowed the Assessee's appeal, referencing the Delhi High Court's decision in CIT vs. Oswal Agro Mills Ltd., which held that depreciation on a block of assets is permissible even if individual assets are not used, provided the machinery was ready for use. Thus, the Assessee's claim for depreciation was allowed. Issue 3: Disallowance under Section 14A The A.O. disallowed Rs. 1,47,509/- under Section 14A, applying Rule 8D, for expenses related to earning exempt income. The CIT (A) confirmed this, relying on the Special Bench decision in Daga Capital. However, the Tribunal noted that Rule 8D applies from A.Y. 2008-09 as per the Bombay High Court's decision in Godrej & Boyce Mfg. Co. Ltd. For earlier years, the A.O. must determine a reasonable disallowance. The Tribunal remitted the matter back to the A.O. to compute a reasonable disallowance, providing the Assessee an opportunity to present relevant material. Issue 4: Penalty under Section 271E for violation of Section 269T The A.O. imposed a penalty of Rs. 1,61,70,000/- under Section 271E, asserting that the repayment of an unsecured loan from Wirana Private Ltd. via journal entry violated Section 269T. The Assessee argued the amount was an advance for share sale, not a loan. The CIT (A) deleted the penalty, noting the transaction's genuineness and the absence of cash repayment. The Tribunal upheld this decision, emphasizing no transfer of money occurred, and the transaction did not fall under Section 269T. The Tribunal found no reason to interfere with the CIT (A)'s order, confirming the deletion of the penalty. Conclusion: The Assessee's appeal was partly allowed, specifically on the issue of depreciation. The Revenue's appeal was dismissed, and the Cross Objection by the Assessee was also dismissed.
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