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2015 (3) TMI 798 - AT - Income TaxProfit earned on sale of shares - Capital gains v/s business income - Held that - After going through the order of the Tribunal in assessee's own case for the immediately preceding assessment year, wherein facts and circumstances were the same, we direct the AO to treat the profit on sale of shares as short term and long term capital gains depending on the period of holding of shares. -Decided in favour of assessee. Undisclosed sale of shares - CIT(A) deleted addition - Held that - After recording the finding to the effect that sale proceeds of 5000 shares of M/s Rajesh Exports have been credited by the assessee in its books of accounts on 21-8-2008 i.e. before the end of the financial year, the CIT(A) held that there was no escapement of sale proceeds of 5000 shares. The finding recorded by CIT(A) has not been controverted by ld. DR. It is pertinent to mention here that no ground has been taken by the Revenue with regard to violation of Rule 46A by the CIT(A) in respect of any additional documents considered by him while deleting the addition. Accordingly, there is no infirmity in the order of CIT(A) deleting addition made on account of 5000 shares of Rajesh Exports. - Decided in favour of assessee. Addition made on account of undisclosed shares of M/s Hindustan Organic Chemicals ltd has been deleted by the CIT(A) after observing that there was typographical mistake with regard to purchase of shares of Hindustan Organics on 28-2-2007, which was actually 15,000 shares and not 2,17,761 shares. Since the addition was made by AO only on the basis of typographical mistake, which has been detected by CIT(A) and after considering the correct nos. of shares purchased on 28-2-2007 we do not find any infirmity in the order of CIT(A) for deleting the addition made on account of shares of M/s Hindustan Organics Chemicals Ltd. - Decided in favour of assessee. Addition made on account of deemed dividend u/s.2(22)(e) - addition was made by the AO in respect of loan taken by the assessee firm from M/s Koradia Construction Pvt. Ltd. - addition deleted by the CIT(A) - Held that - It is not disputed that assessee is not shareholder of M/s Koradia Construction Pvt. Ltd, therefore, the amount of loan received by the assessee not in the capacity of shareholder, is not liable to be treated as deemed dividend u/s.2(22)(e) in the hands of assessee firm in view of the decision of Hon‟ble Bombay High Court in the case of Universal Medicare Pvt. Ltd., 2010 (3) TMI 323 - BOMBAY HIGH COURT . The issue is also squarely covered by the decision of Bhaumik Colour Paint Pvt. Ltd., 2008 (11) TMI 273 - ITAT BOMBAY-E . Accordingly, we do not find any reason to interfere in the order of CIT(A) for deleting the addition made u/s.2(22)(e) of the Act. - Decided in favour of assessee. Disallowance u/s 14A - CIT(A) deleted disallowance - Held that - As per our considered view while computing disallowance under Rule 8D only those investments which are made for earning exempt income is to be taken into account and other investments which fetches taxable income are to be excluded. Keeping in view the fact that assessee has offered taxable income in respect of its investment in future and options business as well as capital gains, we restore the computation of disallowance under Rule 8D. We direct accordingly. - Decided in favour of revenue for statistical purposes. Disallowance on account of undisclosed income under the head other sources i.e. sale of shares - AO has made the addition on the plea that assessee has sold 25000 shares of Karuturi Communication on behalf of Koradia Construction, which is reflected in the ledger account - Held that - From the record we found that during the year assessee has purchased 15401 shares of Karuturi Communication and sold the same. M/s Koradia Construction have shares 25000 shares of the Karuturi Communication. When the order for sale of shares on 13.07.2007 was placed by assessee for 15401 shares and M/s Koradia Construction (sister concern) placed order for sale of 25000 shares to Khandwala Integrated Financial Services Ltd., who was common broker for assessee and sister concern, by mistakenly broker issued contract memo in the name of assessee for sale of 40401 shares. As the amount of sale proceeds of 25,000 shares is belong to Koradia Construction, therefore, the same was credited to their account which was reflected in confirmation of account. After considering all these facts of the case, the CIT(A) vide para 7.3 held that assessee sold only 15401 share which has also been offered for tax, and 25000 shares belonged to M/s Koradia Construction which was confirmed by them. Therefore, addition for sale of 25,000 shares cannot be made in the hands of assessee. The finding recorded by the CIT(A) is as per material on record. Accordingly, we do not find any reason to interfere in the order of CIT(A) for deleting the addition made with regard to sale of 25000 shares of Karuturi Communication Ltd. - Decided in favour of assessee.
Issues Involved:
1. Treatment of capital gains as business income. 2. Addition of undisclosed sale of shares of M/s Rajesh Exports Ltd. 3. Addition of undisclosed sale of shares of M/s Hindustan Organics Ltd. 4. Addition of deemed dividend u/s.2(22)(e) of the I.T. Act. 5. Disallowance u/s.14A of the I.T. Act. 6. Addition of unexplained cash credit u/s.68 of the I.T. Act. Issue-wise Detailed Analysis: 1. Treatment of Capital Gains as Business Income: The primary grievance of the assessee was the treatment of capital gains as business income by the AO. The assessee, engaged in building and construction, began investing in shares and securities from 2006-07. The AO treated the capital gains as business income due to the frequency, regularity, and volume of transactions. However, the Tribunal, referencing the case of CIT Vs. S. Ramaamirtham and Mumbai Bench of the Tribunal in Gopal Purohit, held that the intention of the assessee was to invest and not trade. The Tribunal observed that the assessee maintained separate portfolios for investment and trading, and the sale of shares was due to a fall in the stock market. Consequently, the Tribunal directed the AO to treat the profits as short-term and long-term capital gains based on the holding period. 2. Addition of Undisclosed Sale of Shares of M/s Rajesh Exports Ltd.: The AO added Rs. 45,60,000 on the assumption that the assessee sold 5000 shares of M/s Rajesh Exports outside the books. The CIT(A) deleted the addition, noting that the assessee sold the shares through M/s Koradia Construction and credited the sale proceeds in its books. The Tribunal upheld the CIT(A)'s decision, finding no evidence of undisclosed sales and confirming that the shares were sold and accounted for correctly. 3. Addition of Undisclosed Sale of Shares of M/s Hindustan Organics Ltd.: The AO added Rs. 76,13,675 based on a typographical error in the assessee's records, assuming undisclosed sales. The CIT(A) deleted the addition, explaining that the error involved the number of shares purchased, not sold. The Tribunal confirmed this, noting that the correct number of shares was accounted for, and the addition was based on a mistaken assumption. 4. Addition of Deemed Dividend u/s.2(22)(e) of the I.T. Act: The AO added Rs. 5,78,70,000 as deemed dividend for loans received from M/s Koradia Construction Pvt. Ltd. The CIT(A) deleted the addition, citing the assessee was not a shareholder of the lending company, referencing the ITAT Special Bench in Bhaumik Colour Paint Pvt. Ltd. and the jurisdictional High Court in Universal Medicare Pvt. Ltd. The Tribunal upheld this, confirming that deemed dividends can only be taxed in the hands of shareholders. 5. Disallowance u/s.14A of the I.T. Act: The AO disallowed Rs. 13,11,123 u/s.14A, applying Rule 8D. The CIT(A) deleted the disallowance, and the Tribunal restored the computation under Rule 8D, emphasizing that only investments generating exempt income should be considered. The Tribunal directed the AO to recompute the disallowance, considering the taxable income from future and options business and capital gains. 6. Addition of Unexplained Cash Credit u/s.68 of the I.T. Act: The AO added Rs. 56,54,598 for the sale of 25,000 shares of Karuturi Communication, assuming undisclosed income. The CIT(A) deleted the addition, explaining that the sale was on behalf of M/s Koradia Construction, and the proceeds were credited to their account. The Tribunal confirmed this, finding that the shares belonged to the sister concern and the sale proceeds were correctly accounted for. Conclusion: The Tribunal allowed the assessee's appeal, directing the AO to treat the profits from share transactions as capital gains. The Tribunal upheld the CIT(A)'s deletion of additions related to undisclosed sales and deemed dividends, while partially allowing the Revenue's appeal for recomputation of disallowance under Rule 8D. The Tribunal's order was pronounced on 11th March 2015.
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