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TMI Blog2017 (11) TMI 372X X X X Extracts X X X X X X X X Extracts X X X X ..... hich means that there was no churning of shares. Besides, the assessee has accumulated past losses, that is, short term/long term capital losses, and as per the assessment done by the Department in past years, he is entitled to set-off these losses form short term/long term capital gain in subsequent years, if the Department is changing its stand and treat the assessee as a trader in shares then assessee would not be able to set off these losses and this would be an harassment to the assessee, which is not acceptable. We note that the Department has been consistently accepting the assessee as an Investor in scrutiny proceedings, therefore, we do not uphold the order of the ld. CIT(A) following the Rule of consistency. See RadhasoamiSatsang vs. CIT (1991 (11) TMI 2 - SUPREME Court ). Thus no reason to treat the assessee as a trader. Direct the AO to treat the short-term capital gain / long-term capital gain as income under the head capital gain and treat the assessee as an Investor. - Decided in favour of assessee Disallowance of interest as cost of acquisition in computing the short-term capital gain - Held that:- We are of the view that the assessee under consideration is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shreyas M. Jhaveri under ITA No. 2437/Mum/2010, dated 2nd January 2013 in sustaining the addition, which is distinguishable on facts and issue of law. 4. Because that the ld. Commissioner of lncome Tax (Appeals), in the given facts of the case, ought to have accepted the argument on facts and the ratio of the judgement as relied upon by the appellant before him and should have reversed the judgement of the ld. A.O. in treating the short-term capital gains income of ₹ 1,95,94,294/- as income under the head, Business. 5. Because that the ld. Commissioner of lncome Tax (Appeals) was erred in law as well as in facts in upholding the disallowance made by the ld A.O. on account of interest of ₹ 24,87,354/- on the alleged ground that the same was prior period expenses and as such his conclusions are based on his surmises and guesses and are contrary to the facts and material on record. 6. Because that the ld. Commissioner of lncome Tax (Appeals) was erred in law as well as in facts in not accepting the arguments in the given facts of the case before him that the interest of ₹ 24,87,354/- was allowable while computing the cost of 51382 Equity Shares of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y such companies and the financing arrangement was limited to only the amount required for applying in such initial public offer, which also only till the date of allotment. Once such shares were allotted, the function of the financer was over. This fact is evident from the fact that the assessee had paid interest to the financer only for eight days and eleven days for the financed amount of Coal India Ltd. and DQ Entertainment (lntl) Ltd. respectively. It is a well known fact that whenever there are IPO of reputed companies, the applicants to such IPO are allotted either nil or a fraction of shares applied for. Therefore, a number of investors who wish to invest in the shares of such companies make large share application and for this purpose the assessee approached finance companies and enter into an arrangement whereby the financer finances the application on behalf of the investor in consideration of finance charges. Besides, the shares mentioned above, the assessee has not acquired any shares through any financing arrangement. During the assessment proceedings, the assessee submitted before the AO that, under the facts and circumstances of the case such as method of valuati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the terms and conditions of the agreement was that the financing company had kept the interest rate floating as well as there was a minimum interest period and had sought mortgage in the form of collateral securities and most importantly it had reserved the right to dispose of the securities both bought from its finance and further collaterals in case of default. Therefore, the AO rightly concluded that the transactions in these shares of the company were in the nature of trade and not capital gain as shown by the assessee. The Ld. CIT(A) observed that the shares were purchased through IPO. The entire shares were purchased out of the loan fund on which huge interest was being paid by the assessee. The holding period of shares of Coal India Ltd. was 3 to 9 days and DQ (Entertainment) International was 197 days. The rate of interest on the loan related to shares of Coal India Ltd. was at 15% and on DQ (Entertainment) International was of 8%. Therefore, the CIT(A) noted that the facts show that the intention of the assessee was not to hold the shares but to sale them immediately after allotment to get minimum profit. Therefore, based on these facts, the Ld. CIT(A) held that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the risk of losing its investment. In some cases, the assessee was suddenly faced with the risk of losing its investment. In some cases, the sudden rise in share prices was such that it would have been imprudent to hold on to the shares in the expectation that long term holding may fetch a better return. In such cases, the assessee considered it prudent to sell the shares. The ld. Counsel further submitted that it would be evident from the records that there was no regular, systematic and organized activity of purchase and sale which can indicate that the same were by way of business. Such purchase and sales are investments made in usual course. Therefore, the Ld. Counsel stated that the activities of the assessee in shares and stocks are that of an investor and not of a trader. The ld Counsel relied on the judgment of Hon ble ITAT Mumbai in the case of Shri Dhruv H. Patel, ITA No.7587/Mum/2010, A.Y.2006-07, wherein it was held that the assessee had applied in the shares of the IPO of the a company from borrowed capital. Merely because the shares were applied through borrowed capital cannot be a ground for treating the capital gains as business income. The IPO funding availe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness income. The fact that the assessee paid interest on borrowings cannot be held against him, treating it business income, when there are other predominating natures which give clear impression that the assessee intended only to invest on shares and not to hold them as stock-in-trade. Therefore, we are of the view that assessee has worked as an Investor and not Trader.The IPO funding availed by the assessee was to get more allotment but the fact of the matter is that the assessee was an investor and the sole intention of applying in the shares through IPO was to get higher allotment of shares. There were no repetitive purchase and sale of the same script in the assessee s case under consideration, which means that there was no churning of shares. Besides, the assessee has accumulated past losses, that is, short term/long term capital losses, and as per the assessment done by the Department in past years, he is entitled to set-off these losses form short term/long term capital gain in subsequent years, if the Department is changing its stand and treat the assessee as a trader in shares then assessee would not be able to set off these losses and this would be an harassment to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest on borrowed fund of ₹ 24,87,354/- which was capitalized by the assessee, the Ld. CIT(A) held that the shares were purchased through borrowed funds on which interest was paid by the assessee. The assessee purchased shares of Coal India Ltd. and the DQ (Entertainment) International. However, the AO while treating the income as income from business allowed the interest on the transaction of shares of Coal India Ltd. as the interest on the same accrued during the year. However, the interest on the loan for shares of DQ(Entertainment) International was disallowed on the ground that the interest thereon had accrued during the previous year and not during the current year. The Ld. CIT(A) held that AO was justified to disallow the part of interest related to the loan which was utilized for purchase of shares of DQ (Entertainment) International as the interest had accrued in the previous year, being prior period expenses, the A.O had rightly disallowed the same. Therefore, the Ld. CIT(A) confirmed the addition made by the AO. 13. Not being satisfied with the order of CIT(A), the assessee is in appeal before us.The Ld. Counsel for the assessee has stated that AO wrongly treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares was allotted and balance amount was refunded to the assessee in respect of non-allotment of shares. The assessee has to pay the interest on the entire finance which was borrowed for making the payment with the application money. It has been observed by the Tribunal that the entire money has been borrowed by the assessee with the sole purpose of acquiring the shares of Punjab National Bank and NTPC Ltd. Though the applied shares were not allotted in full that will not deprive the assessee from claiming the entire interest paid as part of the cost of acquisition of the shares allotted as the money borrowed has direct nexus with the acquisition of the shares. It was held by the Tribunal that the interest paid by the assessee to both the financiers as part of cost of acquisition of the shares be allowed as deduction. 14. On the other hand, ld DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our above para and is not being repeated for the sake of brevity. 15.Having heard the rival submissions and perused the materials on record, we are of the view that the assessee under consideration is an investor and t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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