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TMI Blog2017 (4) TMI 1351X X X X Extracts X X X X X X X X Extracts X X X X ..... ng statutory provisions regarding the definition of LTCG, we are convinced that the views of CIT (A) are sustainable. Similarly, regarding the claim of STCG also, we find that (i) the consistency principles; (ii) use of own funds of 54 Crs; (iii) earning of gross dividend income of 1.20 Crs or 30 lakhs on account of short term capital assets; (iv) details given in the contract notes regarding intention of certain shares in physical form etc., suggest that the STCG in question cannot be held as business income. Addition u/s 14A - Held that:- Applying the provisions of Rule 8D(2) of the Rules creates a absurdity to the facts of the present case. Considering the same, in our view, as fairly mentioned by the Ld Counsel for the assessee, disallowing 2%, taking spirit from the said judgment of the Bombay High Court in the case of Godrej Agrovet [2014 (8) TMI 457 - BOMBAY HIGH COURT ] should meet the ends of justice. Accordingly we order and direct the Assessing Officer to restrict the disallowance to 2% of the exempt income. X X X X Extracts X X X X X X X X Extracts X X X X ..... lating to the claim of capital gains of income, AO treated the entire capital gains as „business income‟ of the assessee. In the process, AO denied the claim of exemption u/s 10(38) of the Act in respect of the said LTCG as well as concessional rate of tax available u/s 111A of the Act available in respect of STCG. AO also made another addition of ₹ 19,07,147/- invoking the provisions of section 14A read with Rule 8D(2)(iii) of the IT Rules, 1962. The above said issues are the subject matter of litigation before the CIT (A). 4. During the first appellate proceedings, CIT (A) granted relief and allowed the claim of the assessee so far as the capital gains related issues are concerned. However, CIT (A) confirmed the disallowance on account of the provisions of section 14A. Aggrieved with the said relief relating to the capital gains issues, the Revenue is in appeal before us. Further, aggrieved with the confirming of the addition of ₹ 19,07,147/- u/s 14A read with Rule 8D(2)(iii) of the Rules, assessee is in appeal before the Tribunal vide its CO (supra). Long Term Capital Gains 5. During the year under consideration, assessee earned STCG and LTCG amountin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 Assesse may have income under both heads that is capital gains as well as business income. 13. Further, the CBDT vide circular No. 6/2016 dated 29 February 2016, has stated that in respect of listed shares and securities held for a period of more than 12 months, immediately preceding the date of its transfer, and if the Assessee desires to treat the income arising from the transfer thereof as capital gain, the same shall not be put to dispute by the Assessing Officer. 14. In Assessee's case, as evident from page 44 of the paperbook, long term capital gain has aroused from sale of shares held for more than 2, 3 & 4 years and hence, the gain on sale of shares held for more than 1 year has to be treated as long term capital gain. 15. Hence, it is respectfully submitted that relying on the above circular and various other decisions referred in legal paperbook, the order of the CIT(A) in respect of capital gain of ₹ 2,65,78,528/- arising on sale of Long term shares may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above gains as STCG and not as business income. The profits earned from the intra trade transactions were separately shown and offered to tax as „business income‟. In the remand proceedings, AO rejected the above claim of the assessee. In the process, the Assessing Officer disregarded the sanctity of the book entries, the Board Circular Nos. 4 and 6 and other material available on the records. 12. During the proceedings before the first appellate authority, AO furnished various documents including the relevant contract notes. Relying on the said contract notes, the assessee demonstrated that the relevant transactions were categorised as business transactions or investment transactions, as the case may be, at the very time of issue of the contract note by the broker. Referring to the expressions TRD and DEL, appearing on the contract notes against each of the transactions, assessee demonstrated that „TRD‟ refers to „trading activity‟ ie non-delivery based and „DEL‟ refers to „delivery based transactions‟. Further, after examining the manner in which the Assessing Officer accepted the claim of the assessee in the past and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. All these shares are delivery based. Ld AR also gave various other reasons to demonstrate the assessee‟s intention to hold the shares as investment. The details are given in para 38 to 47 of the written submissions. Replying to the arguments of the Revenue, Ld AR submitted the following:- (para 53 of the written submissions are relevant). "53.the Department has raised the following objections / arguments which has been dealt by CIT (A) in its order:- Assessee has undertaken 9680 saudas of purchase and sale of 578 companies: CIT (A) has dealt with the same (at page no. 37 - 38 of the CIT (A) order) and has stated that single transaction has been split into multiple transactions by computer and same should be considered as one transaction only. Not maintaining two portfolios ie assessee should have two different Demat account: CIT (A) has dealt with the same (at pae no.40 of the CIT (A) order) and has stated how the assessee is demarcating the share transactions which depends on various factors. Rule of consistency not applicable: CIT (A) has dealt with the same (at page no. 41-42 of the CIT (A) order) and has held that as there is no change in facts of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n undisputed fact that the contract notes clearly demonstrate the original intention of the assessee so far as treating the asset as delivery based or for trading activities. The contract notes furnished before us (1-15) supports the above contention. Further, it is also relevant to mention that the assessee is consistently reflecting three schemes of profits / gains in dealing with / investing the shares viz., business income, STCG and LTCG. This is for the first time Assessing Officer disturbed the claim of the assessee for the AY 2010-2011. Of course, assessment for the AY 2007-2008 was reopened wherein the STCG of ₹ 1.2 Crs is treated as business income and the matter is still pending before the CIT (A) and the same is yet to reach the Tribunal. Otherwise, the claim of the assessee stood undisturbed for the AY 2008-09 to 2011-12 and 2014-15. We find that the AO treated the STCG and LTCG as business income for the AYs 2010-11, 2012-13 and 2013-14. It is finding of fact that no borrowed funds were utilised for purchasing the said short term capital assets. Further, we have also considered the written submissions and the following prayer of the assessee. (para 54 of the writ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... marketable. No trader would hold the shares of a company which is not marketable or saleable and that too for such a long period of time • Holding of shares of more than 1 % to 5% of share capital of the Company and investment in illiquid or delisted shares, clearly indicates that investment in such companies is made with objective of long term investment • Rule of consistency - The Appellant has in past several assessment years has offered to tax the income arising from sale of shares as capital gains in RCI and this position has been accepted by the tax authority without any dispute (except in AY 2007-08 where assessment is reopened to treat Assessee as Trader in shares in respect of sale of short term shares). • Without prejudice to the above, had the motive of the Appellant been of making quick profits by trading in shares, then on computing the income of Appellant as business income, as per the provisions of section 28 to 44 of the Income Tax Act, Appellant would be incurring a loss of ₹ 4,34,45,585/-. " 16. Further, we have also examined the reasoning given by the CIT (A) in his order vide paras 6.21 to 6.29 which relate to STCG and find the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plicability of the provisions of section 14A read with Rule 8D of the Act. In the assessment, AO made addition on this account amounting to ₹ 19,07,147/-. The said disallowance was computed @ 0.5% of the average investment of ₹ 38.14 Crs (rounded of) under clause (iii) of Rule 8D(2) of the IT Rules, 1962. 22. Before us, in connection with the above CO, Ld AR mentioned that the CIT (A) erred in confirming the above addition entirely ignoring the fact that the assessing Officer failed to record the satisfaction to the correctness of the claim of the assessee. Otherwise, on facts, Ld AR submitted that the assessee earned dividend income of ₹ 1,20,33,713/- and the same was claimed as exempt u/s 10(34) of the Act. Assessee did not suo motto disallow any expenditure giving the reasons that no expenditure was incurred for earning the said exempt income. He also justified the claim stating that no part of the expenditure is allocable to the said exempt income. Apart from the legal arguments, Ld Counsel for the assessee brought our attention to the entire expenditure claimed by the assessee in the return of income. According to the books of accounts, the total expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X
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