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TMI Blog2016 (4) TMI 1050X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 months. We also find from the orders of the lower authorities that none of the authorities below has doubted the genuineness of sales or purchases or genuineness of transaction and source of payment, whether received or paid. From these facts we can analyze that the assessee by virtue of being an NBFC is authorised to invest in shares and such a terminology does not indicate that the loss or gains from investments made by assessee is to be treated as business income. The assessee has established that the shares held by it as investment are capital asset and sale of capital asset being shares held as investment for a considerable period i.e. either little less than one year or more than one year are assessable as short term capital gain/loss or long term capital gain/loss and not business income. CIT(A) has rightly deleted the disallowance of loss by holding the assessee as investor and we confirm the same. - Decided against revenue Disallowance u/s. 14A - Held that:- For attracting Section 14A, there has to be a proximate cause for disallowance, which is its relationship with the tax exempt income. Pay-back or return of investment is not such proximate cause, hence, Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the next year. During the course of assessment proceedings, the AO required the assessee to produce the contract notes for verification of long term capital loss and short term capital loss. The AO on verification of these contract notes noted that the purchase and sale of shares were made on frequent dates and also utilization of interest bearing borrowed funds in purchase of shares and accordingly, he treated the long term capital loss and short term capital loss as business loss by treating the share transaction business as regular business by observing as under: Frequency and transactions towards purchases and sales of shares/securities is a strong case of trading in shares. Hon'ble Supreme Court in the case of Raja Bhandhur Vishaswara Singh CIT (411 ITR 685) has also expressed the same view. The activities of the assessee in the instant case are purely of purchase and sales of shares and that too at frequent intervals. On perusal of statement of Short Term Capital Gain Long Term Capital Gain, it is observed that purchase of shares of OBC in large volumes have taken place almost continuously from 12.10.2007 to 31.03.2008 on 65 different dates and sale took place ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from 'House Property', Other Source' or 'Capital Gains'. Therefore, the assessee has the main Income/Loss from Business as discussed above. As such Explanation below section 73 of the Income Tax Act applicable in assessee's case which states that Where any part of the business of a company consists in the purchase and sale of shares of other companies, such company, shall for the purpose of this section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares. In view of the above discussion the business loss of Rs.(-)39,74,24,220/- is treated as speculative loss as per explanation of Sec. 73 of the Act. 4. Aggrieved, assessee preferred appeal before CIT(A), who deleted the addition by observing as under: After careful consideration of the assessment order and written submission it is noticed that the AO treated the long term capital loss of ₹ 3,34,30,136/- and short term capital loss of ₹ 36,39,94,084/- in shares claimed by assessee as business loss and applied explanation to section 73 of the Income tax Act and treated the whole loss of ₹ 39, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal loss and short term capital loss rather than business loss and accordingly section 73 cannot be invoked. Therefore the ground no.2 and 3 are allowed. Aggrieved against the order of CIT(A) revenue is now in appeal before Tribunal. 5. We have heard rival submissions and gone through facts and circumstances of the case. We find that the assessee filed its return of income by declaring long term capital loss of ₹ 3,34,30,136/- and short term capital loss of ₹ 36,39,94,084/-. The assessee is a nonbanking finance company and by its nature making investments and this fact reported by assessee in Form No. 3CD Para B clause 8(a). The assessee before AO and before CIT(A) claimed that it has invested in shares and the object of the assessee also includes investment in shares. The assessee explained that its source of income comprises of interest, capital gains and dividend. The assessee claimed that investments made in shares by the assessee are categorized as investment in share not current asset of the assessee. According to him, the investments, as and when disposed off from time to time, resulting in short term and long term capital gains/loss depending upon the h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prove that the assessee was not a dealer in shares but only in investor and during the relevant assessment year it has liquidated the shares of Oriental Bank of Commerce held by it, purchased in AY 2007-08 and 2008-09, and due to steep decline in price of shares resulting in huge long term and short term capital loss. In term of the above arguments, ld. Counsel for the assessee stated that the loss arising out of sale of shares of Oriental Bank of Commerce is long term and short term and not business loss as held by AO depending upon period of holding. According to him, there is no frequency in transaction as is evident from pages 71 to 76 of assessee s paper book wherein complete details of holding of shares of Oriental Bank of Commerce as well as gains or loss is disclosed. On the other hand, Ld. Sr. DR relied on the order of AO. 6. We find from the facts of the case that the assessee is NBFC as per section 45-IA of the RBI Act, 1934. The assessee has always taken the value of investment at cost and categorized the investment in shares under the head investment and not as current assets. The assessee has earned dividend income of ₹ 2,87,49,687/- during the year and the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ios, one relating to investment and another relating to business of dealing in shares, 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, and this warranted no interference. (ii) That there should be uniformity in treatment and consistency when facts and circumstances for different years were identical particularly in the case of the same assessee. (iii) That entries in the books of account alone are not conclusive in determining the nature of income. 8. We also find from the decision of Hon ble Delhi High Court in the case of CIT Vs. Consolidated Finvest Holding Ltd. (2011) 337 ITR 264 (Del.), wherein the issue was as regards to purchase of shares not held for long period of time, Hon ble Delhi High Court held as under: 3. We have heard the learned counsel for the Revenue and also the assessee and perused the records. There is no dispute that the shares which were acquired were sold within a short span of 7 to 10 months by the assessee. There is also no dispute that the assessee had also asserted to be non-banking financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3;. 9. Another aspect discussed by AO as regards to frequency of transaction, the investor aims at wealth maximization and has to divest the shares at the opportune time to prevent depreciation in investment. And Investor has to take appropriate decision after weighing the risk of carrying the investment with the return thereon. In the process, the assessee may required to sell off part of his investments at appropriate intervals which may lead to high turnover in the investment account. However, it does not mean that the investments are actually held as stock in trade. An investor may frequently buying or selling shares, but shares purchased during a particular year may not be sold in the same year and shares sold during the year which have been purchased more than a year ago. This will be treated as investment and not trading. 10. In view of these facts, we are of the considered view that the CIT(A) has rightly deleted the disallowance of loss by holding the assessee as investor and we confirm the same. This issue of revenue s appeal is dismissed. 11. The next issue in this appeal of assessee is against the order of CIT(A) deleting the disallowance of expenses qua exem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ree dividend income credited in P L a/c. Therefore this ground is partly allowed. Aggrieved, revenue preferred second appeal before Tribunal on this issue. 14. We have heard rival submissions and gone through facts and circumstances of the case. We find that the assessee has earned dividend of ₹ 2,87,49,680/- on a total investment in shares at a figure of ₹ 127,68,82,654/- as on 31.03.2008 and of ₹ 28,62,60,276/- as on 31.03.2009. The assessee has explained that its own funds comprising of shareholders fund and reserve and surplus stood at ₹ 142,17,62,794/- as on 31.03.2008 and at ₹ 106,30,12,044/- as on 31.03.2009. The assessee explained that the assessee s own funds during the relevant assessment year were sufficient to make the above investment. The assessee stated that it has not invested any borrowed funds in purchase of shares rather it is established that the investments were made by utilizing assessee s own funds. For this proposition, the assessee relied on the decision of Hon ble Supreme Court in the case of CIT Vs. Walfort Shares Stock Brokers Pvt. Ltd. (2010) 326 ITR 1 (SC) wherein Hon ble Supreme Court has laid down the followi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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