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TMI Blog2018 (6) TMI 405X X X X Extracts X X X X X X X X Extracts X X X X ..... nces of the case, the learned CIT(Appeals), has erred both in law and facts in disallowance on account of 14A of Rs. 6,95,204. 5. That the appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal. 2. The brief facts of the case are that the assessee filed its return of income on 30.10.2007 declaring the income of Rs. 2,39,32,188/-. The case was selected for scrutiny by issue of notice under Section 143(2) and 142(1) of the Income Tax Act, 1961 (hereinafter referred as the Act). During the year, the assessee has earned income by way of capital gain in respect of the investment sold by it. The AO called for the explanation regarding the income earned by the assessee by way of capital gain. The AO however was not satisfied with the reply of the assessee. The AO was of the view that the volume and frequency of transactions were too high and accordingly such income is to be considered as business income as against capital gain declared by the assessee. Accordingly, he taxed the short term capital gain of Rs. 2,79,79,723/- and long term capital loss of Rs. 68,016/- as business income. The AO also made disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttention towards Paper Book Page 27 & 28 which gives details of the short term capital gain and losses. As per this statement, the assessee has made investment only in 9 shares. Out of these 9 shares, the assessee has made losses in 7 shares. The assessee has made gain only in 2 companies' share i.e. of DS Kulkarni Ltd. and Ruchira Papers Ltd. The assessee have made the investment in DS Kulkarni Developers Ltd. when the rate of the shares was Rs. 110/-. The assessee has sold these shares when the rate went up to Rs. 258.70. Thus, it was an investment and prices of the shares have been gone up, the assessee thought it fit to realize the investment which resulted into short term capital gain. These shares have been treated as investment in the books of accounts and as such the assessee was right in computing capital gain on such shares. As regards the allegation made by the AO in the assessment order, it was contended that the AO from page 3 to page 10 of the order has just discussed the various case laws. Further, the AO has not been able to appreciate the facts of the case properly while giving the numbers of purchase and sale transactions. It was submitted that AO has gone wrong i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business income. It was further submitted that principle of res judicata are not applicable to income tax proceedings. In support thereof, the Ld. DR placed reliance on the following case laws:- * Manoj Kumar Samdaria Vs. CIT [2014] 45 Taxmann.com 394 (Delhi) * CIT vs. GopalPurohit 336 ITR 287 (Bomb) * Dalhousie Investment Trust Co. Ltd. Vs. CIT 66 ITR 486 (SC) 5. We have heard both the parties and perused the records, especially the impugned order as well as the case laws cited by both the parties. We find that the main issue is taxing of the income earned by the assessee on the sale of its investment. The AO has taxed the same as business income as against capital gain declared by the assessee. From the facts it is evident that assessee has been making investment in shares. In the past, the income arising on such investment has been accepted as capital gain. However, during the year the AO did not accept the same. It is an admitted fact that assessee has treated such transactions as investments in its books of accounts. This fact also gets supported from the fact that investment carried forward from earlier year was declared as such in the balance sheet of the preceding y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Demat account of the assessee. The AO has drawn adverse inference on the basis that the assessee company has borrowed funds and paid interest thereon. We are of the considered view that borrowed funds can one of the parameter to decide whether the transaction is in the nature of trade but that does not mean that all transactions wherever there is any borrowed funds will be in the nature of trade. The assessee is entitled to make investment out of its own funds and if need be to borrow for the purpose of investment. Borrowing for the purpose of investment is not uncommon. As rightly pointed out by the Ld. Counsel of the assessee that people do borrow funds for purchasing house and it cannot be said that such transaction is in the nature of trade. As stated above, we have looked into the availability of the total funds with the assessee company and the transaction entered into by the assessee company during the year and we are of the view that these transactions are on account of investments. It may be relevant to point out that the assessee has also received dividend of Rs. 15,48,340/- during the year on such investments. Thus, the objective of making investments for realiz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd Circular to hold that transaction is in the nature of investment. In the present case, not only the earlier circular support the case of the assessee but also the later on circular issued by the CBDT no. 6/2016 dated 29.02.2016 clearly supports the case of the assessee in respect of the long term capital gain. Further, the judgment in the case of Vesta Investment and Trading Co. Pvt. Ltd. vs. CIT 70 ITD 200 (Chd.) also support the case of the assessee wherein it has been held that although res judicata is not applicable to income tax proceeding however, for the sake of consistency, the earlier view taken should not be disturbed unless there is a change in facts. In the present case, the assessee all along has been making investment and accounting for the same as investments. This stand has been accepted in the past and there is no reason to differ with the same in the current year. The accounting treatment given in the current year being the same as in the earlier years, the AO was not justified in altering the same. The aforesaid view has also been upheld by the Hon'ble Punjab & Haryana High Court in the case of CIT vs. Girish Mohan Ganeriwala (2003) ITR 417 whereby it was held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same have to be properly allowed as expenses incurred wholly and exclusively for the purpose of business. Following the decision in the case of Hansraj Mathuradas (2012 (10) TMI 300 , ITAT, Mumbai direct the AO delete the disallowance. Issues decides in favour of assessee."
6.2 Respectfully following the aforesaid precedent, we direct the AO to delete the addition in dispute and this ground of appeal is accordingly allowed.
7. As regards Ground No. 4 which is relating to disallowance under Section 14A of the Act. The AO has made the disallowance of Rs. 14,08,542/- by applying Rule 8D. The Ld. CIT(A) has restricted the disallowance to Rs. 6,95,204/-. It has been stated by the Ld.
CIT(A) that this figure has been admitted by the assessee before him in the written submission dated 5.01.2011. The Ld. CIT(A) accordingly has accepted that figure and has restricted the disallowance to Rs. 6,95,204/-. Since, this figure was accepted by the assessee itself before the Ld. CIT(A), we do not find any reason to interfere with the same. Accordingly, this ground is rejected.
8. In the result, the appeal of the assessee is partly allowed.
Order pronounced on 04-06-2018. X X X X Extracts X X X X X X X X Extracts X X X X
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