9911796707
TMI Blog2012 (9) TMI 441X X X X Extracts X X X X X X X X Extracts X X X X ..... . Disallowance of the claim of loss on share transaction - CIT(A) allowed it - Held that:- On test checking the details and documents pertaining to the claim of loss on future and option shares and the claim of the appellant appears to be supported by vouchers and contract notes which are verifiable with reference to the books of accounts. Therefore, no hesitation to conclude that the assessee has provided the necessary details and discharged the onus cast on it. The Assessing Officer has not brought anything on record to dispute the facts/details furnished by the assessee - as. DR did not place any material controverting the aforesaid findings of facts recorded by the CIT(A) nor brought to our notice any contrary decision the disallowance need to be deleted - decided in favour of assessee. - ITA nos.112 & 1744/Del/2011 and ITA nos.448 &988/Del. /2012 - - - Dated:- 27-7-2012 - SHRI U.B.S. BEDI SHRI A.N. PAHUJA, JJ. Assessee by Shri Rohit Garg,AR Revenue by Shri R. I .S. Gi ll,DR ORDER Per Bench:- These four appeals filed on 10.01.2011 by the Revenue against an order dated 15.10.2010 for the AY 2005-06; on 11.04.2011 against an order dated 12.01. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing in fabric shares, after being processed on 11th March, 2006 u/s 143(1) of the Income-tax Act, 1961 (hereinafter referred to as the Act) was selected for scrutiny with the service of a notice u/s143(2) of the Act, issued on 07.08.2006. During the course of assessment proceedings, the Assessing Officer (A.O. in short) noticed that the assessee was primarily engaged in the business of trading in shares and fabrics. The assessee reflected part of the purchase and sale of shares in P L account while the other part was reflected as capital gain from trading in shares, claiming short term capital gain of Rs.52,49,253/-. The AO was of the opinion that gain from sale of shares and mutual funds was business income of the assessee.To a query by the AO, the assessee explained that it had purchased and sold investment in shares/mutual funds during the year, resulting in capital gains. It was explained that board of directors of the company decided to hold such shares and mutual funds as investments. The relevant details of purchase and sale of shares and mutual funds in these four assessment years is given hereunder: Summary of Investment Portfolio- Shares Mutual Fund Particul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Similarly, in the AY 2006-07, the AO assessed the profit on trading in shares to the extent of Rs.22381485/- as business income instead of capital gains; in assessment year 2007-08, the AO assessed profit of Rs.91,49,936/- as business income as against claim of short term gain and in assessment year 2008-09 assessed profit of Rs.45,65,97,941/- as business income instead of short term capital gains. 4. On appeal, the learned CIT(A) allowed the claim of the assessee in the AY 2005-06 in the following terms:- I have carefully considered the facts of the case, order of the Assessing Officer and submissions made by the AR. The central point of dispute in this ground of appeal is regarding the head of income under which the profit earned on sale of shares/mutual funds is taxable. The appellant has vehemently claimed that as per the policy of the company, the appellant had certain shares portfolio under the category of investments on which long term and short term capital gains have been disclosed as business income. On the other hand, the Assessing Officer is of the view that the entire income earned by the appellant on sale of shares is taxable as business income. After consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd mutual funds held as investment as per the accounts. Dividend has also been received on some of the shares. Copy of resolution of Board of Directors regarding making investment has also been submitted. The shares and mutual funds have been recorded in the investment account in the books of account of the appellant. In the past years the contention of the appellant has also been accepted by the department. The appellant has consistently followed the policy of holding certain shares as investment and some shares as stock in trade. Income from the sale of shares held as stock-in-trade was offered to tax as business income and from those held as investment, was offered to tax as capital gains . The object of investment in shares and mutual funds is duly mentioned in the memorandum and articles of associations of the company. In view of the discussions above and the judicial decisions on the subject, the action of the Assessing Officer in treating the entire income as business income is not justified, hence, addition made by him on this account is deleted. These grounds of appeal are allowed. 4.1 Following his aforesaid order in the AY 2005-06 , the ld. CIT(A) allowed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f shares is to be assessed as business income or as income from capital gain, the most important test is whether the initial acquisition of the shares was with the intention of dealing in the shares or it was made as an investment. The intention of the assessee is best known to him and the dispute comes to the appellate authorities only when the Revenue authorities do not accept the claim of the assessee. The appellate authorities have laid down certain guidelines on the basis of which the intention of the assessee can be inferred. In CIT (Central), Calcutta vs Associated Industrial Development Company (P) Ltd.,82 ITR 586, the Hon'ble Supreme Court held as under: Whether a particular holding of shares is by way of investment or forms part of the stock-in-trade is a matter which is within the knowledge of the assessee who holds the shares and he should, in normal circumstances, be in a position to produce evidence from his records as to whether he has maintained any distinction between those shares which are his stock-intrade and those which are held by way of investment. 6.1 In the case of CIT, Bombay vs H Holck Larsen (160-ITR-67), the Hon'ble Supreme Court has held as under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cate trade whereas low transactions and high holdings indicate investment). (4) Whether purchase and sale are for realizing profit or purchases are made for retention and appreciation in its value? Former will indicate intention of trade and latter, an investment. In the case of shares whether intention was to enjoy dividend and not merely earn profit on sale and purchase of shares. A commercial motive is an essential ingredient of trade. (5) How the value of the items has been taken in the balance sheet ? If the items in question are valued at cost, it would indicate that they are investments or where they are valued at cost or market value or net realizable value (whichever is less), it will indicate that items in question are treated as stock-in-trade. (6) How the company (assessee) is authorized in memorandum of association/articles of association ? Whether for trade or for investment ? If authorized only for trade, then whether there are separate resolutions of the board of directors to carry out investments in that commodity ? And vice versa. (7) It is for the assessee to adduce evidence to show that his holding is for investment or for trading and what distinction he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al asset) and shares held as stock-in-trade (trading asset). In the light of a number of judicial decisions pronounced after the issue of the above instructions, it is proposed to update the above instructions for the information of the assessees as well as for guidance of the Assessing Officers. 5. In the case of CIT v. Associated Industrial Development Company (P) Ltd. [1971] 82 ITR 586, the Supreme Court observed that (headnote) : Whether a particular holding of shares is by way of investment or forms part of the stock-in-trade is a matter which is within the knowledge of the assessee who holds the shares and he should, in normal circumstances, be in a position to produce evidence from his records as to whether he has maintained any distinction between those shares which are his stock-in-trade and those which are held by way of investment. 6. In the case of CIT v. H. Holck Larsen [1986] 160 ITR 67, the Supreme Court observed (page 87) : The High Court, in our opinion, made a mistake in observing whether transactions of sale and purchase of shares were trading transactions or whether these were in the nature of investment was a question of law. This is a mixed question of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tance of initial corpus of buying and selling and realizing capital gains on investments and accounts of remittance to India for investment in India and realizing capital gains on investment from such remittances. The third principle suggests that ordinarily purchases and sales of shares with the motive of realizing profit would lead to inference of trade/adventure in the nature of trade ; where the object of the investment in shares of companies is to derive income by way of dividends etc., the transactions of purchases and sales of shares would yield capital gains and not business profits. 10. The Central Board of Direct Taxes 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. The Assessing Officers are advised that the above principles should guide them in determining whether, in a given case, the shares are held by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icable to assessment proceedings. The Tribunal correctly accepted the position that the principle of res judicata is not attracted since each assessment year is separate in itself. The Tribunal held that there ought to be uniformity in treatment and consistency when the facts and circumstances are identical, particularly in the case of the assessee. This approach of the Tribunal cannot be faulted. The Revenue did not furnish any justification for adopting a divergent approach for the assessment year in question. Question (b), therefore, does not also raise any substantial question. 6.51. On merit also, Their Lordships upheld the findings of the ITAT holding the same to be pure finding of the fact. The Hon ble Supreme Court vide their order dated 15.11.2010 have dismissed SLP filed by the Revenue against the aforesaid decision of Hon ble Bombay High Court. 6.6. We may point out that the Hon ble Gujrat High Court in CIT vs. Reva Shanker A. Kothari 283 ITR 338 (Gujarat ) laid down the following guidelines in order to determine whether profits arising on sale is business income:- The tests laid down by various decisions of the apex court indicate that, in each case, it is the tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant circumstance to be considered in the absence of any satisfactory explanation. (e) The fifth test, normally applied in cases of partnership firms and companies, is whether the deed of partnership or the memorandum of association, as the case may be, authorises such an activity. (f) The last but not the least, rather the most important test, is as to the volume, frequency, continuity and regularity of transactions of purchase and sale of the goods concerned. In a case where there is repetition and continuity, coupled with the magnitude of the transaction, bearing reasonable proportion to the strength of holding, then an inference can readily be drawn that the activity is in the nature of business. 6.7 Following the aforesaid decision, Hon ble jurisdictional High Court in their decision dated 27.4.12, in CIT vs. Vinay Mittal in ITA no.1172 of 2011, upheld the findings of the ITAT ,holding that the gains from sale and purchase of various securities should be treated as long term capital gains or short term capital gains and not business income . 7. In the light of view taken in the aforesaid decisions, we are of the opinion that the mere volume of transactions transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings complete details along with the bills of the broker for loss in share transaction (F O) was produced for verification before the Ld. AO vide letter dated 21.08.2009 (Kindly refer para 3 of letter paper book page 32). However, the contract notes etc were verified by the Ld. AO and were returned back being voluminous. In spite of producing the contract notes, the Ld AO had made a addition of Rs.29097550/- being loss in share transaction (F O) stating it to be bogus. The contract notes issued by Registered brokers and as per Rules Regulations of Stock Exchange/ SEBI for loss in share transactions (F O) are enclosed herewith. In this regard it is further submitted that the appellant company had duly filed the details ledger account of loss in share transactions. Even the contract notes for transactions were produced before the Ld. AO but were not accepted by him as they were very voluminous consisting of 5 Box files. On the date of hearing on 23.10.2009, the Ld. AO has mentioned that Sh. Sanjay Issar, CA, attended and produced extracts of ledger. Case discussed." In case the Ld. AO was not satisfied with the details filed with him, he could have asked for further detai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion/disallowance can be made on suspicion, surmises and conjectures as held by the Hon'ble Supreme Court in Dhakeshwari Cotton Mills Ltd. vs. CIT [1954] 26 ITR 775, Dhirajlal Girdharilal vs. CIT [1954] 26 ITR 736(SC), Omar Salay Mohamed Sait vs. CIT [1959] 37 ITR 151 (SC) and Lalchand Bhagat Ambica Ram vs. CIT (1959) 37 ITR 288. In view of the discussion made above and legal position cited, there is no case for the disallowance of Rs.2,90,97,550/- on account of loss of share transaction. As a result, ground of appeal no. 5 is allowed. 10. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld. DR supported the order of the AO while the ld. AR on behalf of the assessee relied upon the findings of the ld. CIT(A). 11. We have heard both the parties and gone through the facts of the case. We find that on perusal of assessment records for the AY 2007-08, the ld. CIT(A) concluded the details and documents pertaining to loss on future and option shares were supported by vouchers and contract notes which were verifiable with reference to the books of accounts. Accordingly, the ld. CIT(A) deleted the addition. The ld. DR did not place before us ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
