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TMI Blog2012 (5) TMI 310X X X X Extracts X X X X X X X X Extracts X X X X ..... d together and are being disposed of by this common order. ITA No. 6018/Mum/2009 (BY THE REVENUE) 2. The grounds of appeal No. 1 and 5 by the Revenue being general in nature are dismissed. 3. In grounds of appeal No.2 (i), (ii) and (iii) the Revenue has challenged the order of the Ld. CIT(A) in directing the AO to treat the profits of ₹ 64,62,293/- arising out of the sale of shares during the year as Short Term Capital Gain. Similarly, in grounds of appeal No.3 (i), (ii) and (iii) the revenue has challenged the order of the Ld. CIT(A) in directing the AO to treat the profit of ₹ 2,59,57,750/- arising out of the sale of shares purchased during the year as Short Term Capital Gain. For the sake of convenience, both these grounds are considered together. 3.1 The brief facts leading to the above grounds are as under:- The assessee is a Private Limited Company engaged in the business of dealing in shares and securities. It filed its return of income on 28.11.2006 declaring total income of ₹ 3,75,31,627/-. During the course of assessment proceedings the AO noted that the assessee has shown Short Term Capital Gain of ₹ 4,04,31,925/- which was adjusted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting to ₹ 20 crore by a single application utilizing the financial facilities from IL and FS Ltd. and paid an interest of ₹ 10,56,000/-. Similarly, the assessee made an application for Syndicate Bank IPO for ₹ 20 crore by obtaining finance from IL and FS Ltd. and paid interest of ₹ 11,20,000/-. Whatever shares acquired by the assessee through these two IPOs were sold as short term investment and the interest so paid was reduced from the working of such gain. According to the AO, the application in the IPO for such a huge amount incurring huge interest cost cannot be treated as short term investment by any prudent businessman. This clearly shows the assessee's intention of doing business with a camouflage of showing the same as investment activity. 4.1 The AO further noted that the assessee is maintaining a running ledger with the share broker through whom such investments are arranged. The assessee is having running ledger account in reference to loans and advances to various associates and group concerns which shows huge amount of loan has been taken and repaid for the so called activity of investment without any interest having been paid. These acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd security which the A.O. summarised in the assessment order at para 4.1.7 which is as under:- During the previous year the assessee purchased 3659926 nos. of shares and sold the same number of shares with a price consideration under investment at ₹ 37,12,93,513/- and sale of ₹ 41,42,14,152/- resulting into profit of ₹ 5,09,23,323/- and loss of ₹ 80,02,685/- thereby the net profit is of ₹ 4,29,20,638/- . After taking into consideration the miscellaneous expenses in respect of mistake in the calls to the brokers and rounding off figure, the short term capital gain is shown at ₹ 4,26,07,925/-. The assessee reduced the interest paid on two IPO as discussed in previous para of ₹ 21,76,000/- to arrive at the short term capital gain of ₹ 4,04,3l,925/-. It has been clarified that the number of quantity shown under the head purchase also includes the opening balance in respect of investment. In respect of trading summary, out of total opening and further purchases of shares in 929133 nos. valued at ₹ 6,70,52,030/-, the shares in 818533 nos. valued at ₹ 8,73,95,478/- were sold resulting into profit of ₹ 2,23,99,855/- and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the facts of the case it was submitted that the assessee fulfils all the conditions so as to be treated as an investor. 4.6 It was submitted that during the year the assessee has totally been an investor and there is not even a single transaction of trading entered into. The trading profit has arisen during the year only out of sale made from the opening stock of earlier year. From these it can be inferred that the assessee had a conscious decision to be an investor. Referring to various decisions it was submitted that on identical facts and circumstances the profit from purchase and sale of shares has been accepted as short term capital gain as against business income treated by the lower authorities. It was accordingly submitted that in the totality of the case the assessee should not be treated as trader in shares. 5. However, the AO was not satisfied with the explanation given by the assessee for the following reasons which he has summarised at para 4.1.9 and which are as under:- 1. The investment activity of the assessee is not an incidental or occasional activity but a simultaneous and continuous activity. 2. The intention of the investment by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome Tax Department. It was accordingly submitted that the assessee company had sufficient funds in all the years and investments in shares have been made out of own funds. 7. The assessee submitted complete details of STCG which according to him is out of three categories of the details which are as under: 1. STCG on shares allotted in IPO Rs.80,11,882/- 2. STCG out of shares held as investment as on 31.03.05 Rs.64,62,293/- 3. STCG on shares purchased sold during the year Rs.2,59,57,750/- Total STCG Rs.4,04,31,925/- 8. Attention of the Ld. CIT(A) was invited to the Board Resolution passed on 25.03.2005, wherein it was unanimously decided that delivery of shares taken only in respect of shares to be held as Investment and not in respect of trading in shares. Trading in shares if at all to be done is done in Futures and Options segment of NSE and also by way of day trading where purchase and sale is carried out on the same day and no delivery is effecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestment. The Board of Directors in the resolution passed on 25.03.2005 have decided that all the transactions relating to delivery based shares shall be carried out only on investment account. 8.5 The ld. CIT(A) was of the opinion that in view of CBDT Circular No. 4 of 2007 dated 15.06.07 there can be two portfolios i.e. one as 'investment portfolio' and the other as trading portfolio. Therefore, there can be two types of income, i.e. 'investment income' which is to be taxed as capital gain and the other one is 'trading income which is to be taxed as 'business income'. Since in the present case, the Balance Sheet of the assessee company as on 31.03.05 was accepted in the scrutiny assessment and there was no adverse finding, he held that the STCG earned on shares amounting to ₹ 64,62,293/- cannot be taxed as 'business'. He accordingly directed the A.O. to tax the income of ₹ 64,62,293/- as income from 'Short Term Capital Gain' only and subject to tax the same at 10% under section 111A of the Income Tax Act, 1961. 8.6 As regards the STCG on shares purchased and sold during the year of ₹ 2,59,57,750/- he noted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CIT(A). 11.1 According to the A.O. the nature of activity, frequency and magnitude suggest that the profit declared by the assessee on account of transactions in purchase and sale of shares has to be treated as business income. According to the assessee the shares which were sold are treated as investment in the books of the assessee supported by the Board Resolution and therefore has to be treated as sale of investment and the profit of the same has to be treated as short term capital gain which has been upheld by the CIT(A). We find the CBDT vide Circular No. 4/2007 dt. 15.6.2007 has accepted the principles laid down by the Hon'ble Supreme Court in the cases of CIT (Central), Calcutta v/s. Associated Industrial Development Co. (P.) Ltd., 82 ITR 586as well as in CIT v/s. H Holsck Larzen, 160 ITR 67 (SC). In the above referred circular, the Board has issued certain guidelines to the A.O. The Board has accepted that the assessee can have two portfolios simultaneously- (1) an Investment Portfolio comprising of securities which are to be treated as capital asset and (2) Trading portfolio comprising of stock and trade which are to be treated as trading asset. 11.2 We fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e motive of earning a profit, would result in the transaction being in the nature of trade/adventure in the nature of trade; but where the object of the investment in shares of a company is to derive income by way of dividend etc. then the profits accruing by change in such investment (by sale of shares) will yield capital gain and not revenue receipt. 10. CBDT also wishes to emphasise that it is possible for a tax payer to have two portfolios, i.e., an investment portfolio comprising of securities which are to be treated as capital assets and a trading portfolio comprising of stock-in-trade which are to be treated as trading assets. Where an assessee has two portfolios, the assessee may have income under both heads i.e., capital gains as well as business income. 11. Assessing officers are advised that the above principles should guide them in determining whether, in a given case, the shares are held by the assessee as investment (and therefore giving rise to capital gains) or as stock-in-trade (and therefore giving rise to business profits). The assessing officers are further advised that no single principle would be decisive and the total effect of all the principles sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration. It is only a trader who would look for short-term gains from purchase and sale of shares. Therefore, the treatment given by the assessee to the said transactions in the books of account, in our opinion, cannot be the only determinative factor about the nature of the transactions. The submission of the ld. counsel for the assessee that the shares were disclosed as investment in the balance sheet was certainly a factor to be reckoned with but when there were other factors or circumstances which throw some doubt on the motive of the assessee in acquiring the shares, as in the instant case, the entries in the books of account or balance sheet cannot override them and be taken as decisive of the intention of the assessee. Further the submission of the ld. counsel for the assessee that in the preceding two assessment years the short term capital gain has been accepted by the Revenue in scrutiny/summary assessment and therefore the same should be followed in this year, in our opinion, is without much force since it is the settled proposition of law that principles of res judicata do not apply to Income Tax proceedings and every assessment is independent and separate. Further in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision cannot be applied to the facts of the case of the assessee. It has be decided on the basis of its own set of facts and circumstances. As has been mentioned earlier we find the only intention of the assessee in the impugned case is just to reduce the tax liability by treating a part of the profit as short term capital gain. 11.7 As regards the decision of the Tribunal in the case of Gopal Purohit (supra) which has since been upheld by the jurisdictional High Court and as relied on by the learned counsel for the assessee, we find the same is not applicable to the facts of the present case. In that case the Tribunal has given a finding that the assessee was consistently investing in shares and the ratio of sales to investment was very less. The assessee was investing for a long period and offering the long term capital gain which is more than short term capital gain and the period of holding of the shares varied from one year to five years. However, no such facts exist in the present case. The holdings of shares vary between one day to few weeks only. Therefore, the decision in the case of Gopal Purohit (supra) is not applicable to the facts of the present case. The vari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (MUM) 2009] and that the CIT(C)-III, Mumbai has filed appeal u/s 260A before the Bombay High Court on 30.03.2009 vide appeal No. 1630 of 2009 against the said order of the ITAT. 11.1 Facts of the case in brief are that the A.O. held that Shri Rakesh Kathodia is one of the common shareholders in all the companies as he is holding 51.33% in SSSL and 49.73% in the assessee company. He is also holding 46.34% in Sweet Solutions Limited (SSL). On observing that one of the shareholder Mr. Rakesh Kathodia is holding more than 20% share in each of the three companies, the A.O. held that amount received from SSSL and SSL during the year and squared up needs to be taxed as deemed dividend u/s 2(22)(e) of the I.,T. Act, 1961. Holding so, the amount received from SSSL of ₹ 34,08,608/- and amount received from SSL of ₹ 6,69,50,000/- was taxed as deemed dividend u/s 2(22)(e) of the I.T. Act, 1961. 11.2 Before the ld. CIT(A) it was submitted that the assessee has entered into an Inter Corporate Deposit (ICD) agreement dtd. 15.03.2005 with SSL and SSSL (page 53-56 of the compilation). The assessee proposed to acquire Management Control of a listed company in infrastructure secto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a person who is a shareholder of the lender company and not in the hands of a person other than a shareholder. We find the above view of the Tribunal has been approved by the Hon'ble Bombay High Court in the case of CIT vs. Universal Medicap (P.) Ltd. reported in 324 ITR 263. In this view of the matter the order of the ld. CIT(A) is upheld and the grounds raised by the Revenue is dismissed. 12. In the result, the appeal filed by the Revenue is partly allowed. ITA No.: 5902/Mum/2009 (BY THE ASSESSEE) 13. The assessee in its grounds of appeal has challenged the order of the ld. CIT(A) in confirming the action of the A.O. in disallowing an amount of ₹ 13,42,846/- u/s 14A of the Act. 13.1 Facts of the case in brief are that the assessee company has received dividend of ₹ 3,80,137/- which it claimed to be exempt u/s 10(34) of the I.T. Act. Similarly it has also claimed long term capital gain of ₹ 10,14,72,450/- as exempt u/s 10(38) of the Act. The assessee has not allocated any expenditure against the earning of the exempt income. The A.O. following the decision of the Special Bench of the Tribunal in the case of Daga Capital Management Pvt. Ltd. he ..... X X X X Extracts X X X X X X X X Extracts X X X X
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