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TMI Blog2013 (1) TMI 675X X X X Extracts X X X X X X X X Extracts X X X X ..... d sold it at later date after availing the dividend therefrom". 1(C) "On the facts and circumstances of the case and in law, the Ld CIT(A) filed to appreciate that the purchase and sale of mutual funds was short term capital gain but the assessee treated it as business activity to avail the benefit of loss which otherwise would not have been available as otherwise there was no short term capital gain available for set off." 1(D) "On the facts and circumstances of the case and in law, the Ld CIT(A) failed to appreciate the colourble planning of the assessee to evade tax on the business income by wrongly setting off the short term capital loss in guise of business loss." 3. 2(A) "On the facts and circumstances of the case and in law, the Ld CIT(A) failed to appreciate that the assessee has claimed loss on open position F&O contract and did not offer the profit for tax on similar open position of F&O contact on the last day of the previous year." 2(B) On the facts and circumstances of the case and in law, the Ld CIT(A) failed to appreciate the ratio of decision in the case of Woodward Governors Pvt. Ltd. wherein it was held that the notional loss or gain at the end of the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther, the AO picked up the profits and losses declared by the assessee involving the Futures and Options for scrutiny. AO found that the assessee earned and declared profit of Rs. 17,36,09,327/- for the year on transactions relating to Futures & Options (F&O). He also declared the loss on account of ten scrips to the tune of Rs. 3,34,00,286 in the year. However, a sum of Rs. 2,50,32,898/- was earned out of the Cent tex and not offered for tax in the year. On finding that the assessee did not recognize profit of Rs. 2,50,32,898/- as income of the year, AO recognized the same as profit of the assessee in the year under consideration. Otherwise, it is a fact that the assessee offered the same in the next financial year i.e AY 2009-2010. In response, AO rejected the written submissions filed by the assessee. Thus, the addition on this account is Rs. 2,50,32,898/- as profits on outstanding possession in Futures. 6. Further also, AO also made disallowance by invoking the provisions of section 14A of the Act. On finding that assessee earned dividend income of Rs. 31,27,95,594/- (short term and long term units) which was claimed as exemption u/s 10(34), AO proposed to invoke provision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss on the sale of units as the business loss/gains and not as short term capital loss or gains; applicability of the binding Judgment in the case of CIT v. Gopal Purohit [2011] 336 ITR 287 etc. 8. On consideration of the submissions of the assessee, CIT(A) upheld the views of the assessee and held that the loss of Rs. 43,01,31,205/- is the business loss and not the short term capital loss as held by the AO. Relevant discussion is in para 1.3 and gist of the same is given here. CIT(A) held that the case of the assessee does not fall in the category of 'colourable device' and relied on the CBDT circular to hold that the investor has option to do both investor and trader of the units/shares. CIT(A) relied on the books entries of the units held as stock, while mentioning that the same is not conclusive. He also discussed the aspects of applicability of res judicata to the income tax proceedings in the light of the Hon'ble Supreme Court's judgment in the case of Radhasoami Satsang v. CIT [1992] 193 ITR 321. Further, the CIT(A) commented that the department has accepted the assessee dealing in units as the business activity and loss thereof is business loss. As per the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;rule of consistency' in the light of the apex court's judgment in the case of Gopal Purohit (supra). In this regard, ld Counsel filed a copy of the order of the Tribunal which decided the issues of valuation of stock of bonus MF units in connection with the review order passed by the CIT u/s 263 of the Act. It is the argument of Sri Mehta that the Tribunal has not disturbed the case of the assessee ie stock of units of MF is the business stock and the case of investment. In this regard, para 12 and 14 on page 10 of the order of the Tribunal was read to demonstrate the same. Next drawing our attention to the applicable principle of 'res judicata', Sri Mehta mentioned that so long as the facts are identical, this principle has no application and rule of consistency needs to be followed. Ld Counsel relied on the jurisdictional high Court's judgment in the case of CIT v. Darius Pandole [2011] 330 ITR 485. When the facts are identical, change of opinion of the AO is unwarranted. In this regard, Ld Counsel relied on the book entries consistently followed treating the units as stock in trade. Fairly, Sri Mehta also brought to our notice the fact of absence of provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years under the consideration is identical or comparable at least. There are no details on these areas of comparison. It is a settled position that for applying the principle of res judicata as well as the rule consistency, the facts become relevant and the orders of AO/CIT(A) do not contain any whispers on this important aspect. The judgment of Honble High court of Bombay in the case of Gopal Purohit (supra) has set certain guidelines to determine whether shares gains assessable as STCG or business profits. They are : "(a) it was open to an assessee to maintain two separate portfolios, one relating to investment and another relating to business of dealing in shares, (b) that a finding of fact had been arrived at by the Tribunal as regards the two distinct types of transactions namely, those by way of investment and those for the purposes of business, (c) that there should be uniformity in treatment and consistency when facts and circumstances are identical particularly in the case of the assessee and (d) that entries in books of account alone are not conclusive in determining the nature of income though they have a limited role to play." 13. The conclusion portion of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing provisions have been brought into statute in the year 2002 and amended subsequently in the year 2005 and it may contribute against the rule of consistency in matters relating to the "circumstances" discussed above. Of course, the arguments of Ld Counsel relating to entries in the books of account as stock-in-trade consistently may likely go in favour of the assessee. Unfortunately, the fact relating to entries is one of the many parameters set for concluding if a transactions is of business nature or otherwise. Further, Ld Counsel's reliance on the order of the Tribunal on the validity of CIT's order u/s 263 of the Act, in our opinion, is misplaced as the issue in the review order relates to the valuation of the bonus units of MFs and not on if the units are held as stock-in-trade or investments. Then the issues adjudicated in the case of Wallfort Share & Stock Brokers (P.) Ltd. v. ITO [2005] 96 ITD 1 (Mum.) (SB) relates to the AYs 2000-01 and 2001-2002 i.e. prior to the amendment to section 94 of the Act and that means there is change in the legal frame work/'circumstances'. Further, it is also relevant to mention that the assessee claims that he holds the unit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matters of F&O, when debited the notional loss, should have credited the notional gains/profits to the P & L account and made an addition of Rs. 2,50,32,898/-. CIT(A) deleted the addition relying on the order of the Tribunal of Mumbai Bench in the case of Edelweiss Capital Ltd. v. ITO [2010]. Aggrieved with the said order of the CIT(A), the revenue is in appeal before us. Vide the grounds, the Revenue is of the opinion that the CIT(A) failed to appreciate that the assessee has claimed loss on open position of F&O contract and did not offer the profit of Rs. 2,50,32,898/- for taxing on similar open position of F&O contact on the last day of the previous year. We have discussed relevant facts in the preceding paragraphs of this order and mentioned that AO analyzed the profits and losses declared by the assessee involving the Futures and Options. AO noticed that a sum of Rs. 2,50,32,898/- was earned out of the Cent tex and not offered the said profits for tax in this year. On finding that the assessee did not recognize profit of Rs. 2,50,32,898/- as income of the year, AO recognized the same as profit of the assessee in the year under consideration. Assessee submitted that the said pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the revenue could not demonstrate if the profits are realized in this year. Further, he could not file any contrary decisions to prove that the decision of the Tribunal in the case of Edelweiss Capital Ltd, (supra) is not correct law. It is a settled law that the accounting principles, which are applicable to the any stock in trade is equally applicable to the open positions of F&O. Therefore, we are of the firm view that the notional loss is allowable as long as there are no contingencies are attached and the notional gains should be allowed in the year of realization based on the principle of prudence. The question is what if there is difference between the anticipated profits quantified in an year and the actual profits realized thereafter. On finding that there is no dispute on the fact that the appreciated value of stocks is realized and afforded to tax in the next year. Therefore, in our opinion, the order of the CIT(A) on this issue does not call for any interference. Accordingly, the ground 3 is dismissed. 19. Grounds 1 and 4 are general and they do not call for specific adjudication. 20. In the result, the appeal of the revenue is partly allowed for statistical purpose. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure for broking the loans which had been disallowed under Rule 8D by the AO and confirmed by the Ld CIT(A). the Tribunal agreed with the authorities below that the expenditure relatable to earning of dividend income though incidental to the trading in shares was also to be disallowed u/s 14A of the IT Act. The Tribunal however, had observed that the entire broking commission was not relatable to earning of dividend income as the loan had been utilized for the purchase of shares and the profit shown for the sale of shares had been offered as business income. The Tribunal, therefore, directed the AO to bifurcate the expenditure proportionately. The order of the Tribunal was however, not upheld by the Tribunal. The High Court noted that 63% of shares which were purchased were sold and income derived was offered to tax as business income. The remaining 30% of shares which remained unsold had reverted to dividend income for which the assessee had not incurred any expenditure at all. The High Court also observed that the assessee had not retained the shares with the intention of earning dividend income which was incidental due to his sale of shares which remained unsold by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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