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TMI Blog2007 (11) TMI 439X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. The Assessing Officer completed the assessment under section 143(3) of the Act determining the total income as reported by the assessee. The ld. CIT(A) issued notice under section 263 of the Act on 23-2-2000 for the reasons that the Assessing Officer had allowed interest expenses of Rs. 47,66,271 incurred in connection with purchase of shares which were showed as investment and not as stock in trade, hence, such interest could be allowed at the deduction under section 57( iii ) and not 36(1)( iii ) of the Act. The ld. CIT was also of the opinion that the income from sale of shares was to be taxed as capital gain and not as Income from business as shown by the assessee. The ld. CIT after analyzing the capital structure of the company, formed an opinion that out of total interest of Rs. 47,66,271, proportionate interest allocable towards investment in shares was Rs. 42,93,698, hence, the total returned loss was loss under the head Income from other sources , and, hence, not eligible for carry forward. The assessee submitted that all the details were submitted to the Assessing Officer including Director s report which also threw light on the nature of activities carried on by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns in the year under consideration which would result into profit on sale of shares and dividend income also. The ld. Counsel, thereafter, referred to page 18 Clause 15 of the Auditor s report which also referred to assessee s activity of dealing in shares. The ld. counsel also referred to pages 20 25 of the paper book which contained the composition of income by way of interest, profit on shares and miscellaneous income. The ld. counsel also referred to pages 28 to 32 being reply of the assessee to the Assessing Officer on various points and also referred to further requirements noted by the ld. counsel on the date of hearing. The ld. counsel, thereafter, submitted that such details were furnished by the assessee vide letter dated 20-7-1997. The ld. counsel, particularly emphasized on the fact that details of profit on sale of shares were also called for and submitted. Based upon these details, the ld. counsel contended that the Assessing Officer was having relevant material on record at the time of passing of assessment order and only after thorough examination of the same, assessed the loss as business loss and being eligible for carrying forward, hence, the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t order was brief and cryptic but that fact by itself was not sufficient to treat the assessment order as erroneous and prejudicial to the interests of revenue and for this proposition, the ld. counsel relied on the decision of Hon ble Allahabad High Court in the case of CIT v. Goyal Private Family Specific Trust [1988] 171 ITR 698 and the decision of G Bench of the Mumbai Tribunal in the case of Goman Rustom Irani v. ITO [IT Appeal No. 7986 (Mum.) of 2003, order dated 20-5-2007]. The ld. counsel further contended that interest, in both the situations, interest was allowable and there was no loss to the revenue in this year ultimately, hence, the order was not prejudicial to the interest of the revenue. 6. The ld. D.R. contended that it was a case of investment and not of stock in trade and shares and source of funds, both were related to group concerns. The ld. D.R. further contended that these investments remained as such and referred to page 10 of the assessee s paper book for assessment year 1997-98, hence, the profit on sale of shares shown by the assessee in the year under consideration came from some other shares and, therefore, interest on borrowed funds for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness profit. The department has raised a contention that the same was treated as business profit because the assessee had changed its method of presentation in assessment year 1998-99, however, the department has not invoked the provisions of section 45(2) of the Act so as to follow the stand taken by the department. It is also a settled principle that entries made in the books of account are not conclusive as regards to exact nature of income and in the present case though the assessee has shown certain shares as investment, however, sale of certain shares has always been offered as income from business and which has been accepted by the department also. Hence, both these facts taken together lead to a situation where the intention of the assessee is always to deal in the shares. We further find that the ld. CIT(A) for assessment year 1996-97 has allowed the claim of the assessee as a business loss and the Assessing Officer also subsequently accepted the claim of the assessee as a business loss in other assessment year which has been passed subsequent to the order of the ld. CIT(A) under section 263 of the Act, hence, there is a force in the contention of the assessee that the v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so reassessment proceedings for assessment year 1996-97 initiated consequent to the action of CIT under section 263 of the Act. The Assessing Officer also relied on the decision of Hon ble Gujarat High Court in the case of H.K. (Investment) Co. (P.) Ltd. v. CIT [1995] 211 ITR 511 for the purpose of bifurcating the interest towards earning of dividend. The CIT also confirmed the order of Assessing Officer agreeing with the reasons given by the Assessing Officer. Aggrieved by this, the assessee is in appeal before us. 12. The ld. counsel, besides reiterating the submissions made in respect of assessee s appeal for assessment year 1995-96 further contended that in spite of showing the shares as investment in the books, the income from sale and purchase of shares was offered as income from business or profession and except for assessment years 1995-96, 1997-98, 1998-99, the same had been accepted, hence, the department was taking contradictory stand and that was not permissible in view of principle of consistency. The ld. counsel also pointed out that regular purchase and sale of shares having good volume, hence, assessee was a trader in shares and drew our attention to pages ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 14A are not applicable even otherwise once the assessee is found to be engaged as dealer in shares, hence, interest on borrowed capital which is allowable under section 36(1)( iii ) cannot be again attributed towards such dividend. As far as the revenue s relevance on the decision of Tribunal in the case of Macintosh Finance Estates Ltd. ( supra ) is concerned, we find that the aspect of assessability of dividend income under the head Income from other sources was not brought to the knowledge of the Bench because as per the scheme of the Act, income of one head cannot be set off against the expenditure allowable under different head, hence, this decision does not help the cause of the revenue. In this regard, we would like to further mention that in majority of the cases, the Tribunal is taking a view that in case of dividend received on shares held as stock in trade, no interest should be attributed towards earning of dividend and for this reason also we would like to prefer to follow the majority view on the issue. We are further of the view that as per prevalent pricing practices, the dividend yield on shares is low to such an extent that a person would not make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds earning of dividend income and disallowed the same, hence, the dividend was exempt from tax. The ld. CIT(A), on appeal by the assessee, however, held that interest expenditure related to share acquisition was deductible under section 136(13) of the Act and the profits derived from share trading transactions were chargeable to tax as business profits. The ld. CIT(A) in doing so, drew support from the fact that the profit on sale of shares in assessment year 2000-01 was offered as business profits and which was also accepted by the department and from various judicial decisions regarding the aspect that the presentation of the shares in the balance sheet was not so dominant so as to ignore all other facts supporting the claim of the assessee. Aggrieved by this, the revenue is in appeal before us. 18. Both the parties contended that the facts were almost identical to the facts of earlier years except that the dividend was exempt in the year under consideration. Both the parties, accordingly, reiterated their respect stand taken in earlier years. 19. We have considered the submissions made by both sides, material on record and orders of authorities below. The facts of the i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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