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TMI Blog2018 (8) TMI 1417X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst the order dated 16.3.2015 passed by the Ld. Commissioner of Income Tax (Appeals)-18, New Delhi for assessment year 2010-11. ITA 4106/Del/2015 is the department s cross appeal for the same year. 2. Brief facts of the case are that the assessee is engaged in the business of trading in shares, mutual funds and derivatives through the Portfolio Management Services of M/s Globe Capital Ltd. The return of income was filed showing an income of ₹ 1,69,80,958/-. Initially, the return was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter called 'the Act') and, subsequently, the case was selected for scrutiny assessment. A perusal of the profit and loss account of the assessee showed that the assessee had declared sales of equity amounting to ₹ 17,20,09,797/- and of mutual funds amounting to ₹ 12,06,18,410/-. Profit of ₹ 1,13,332/- was shown on derivates and a gain of ₹ 53,495/- was disclosed on options. Further, the assessee had shown total profit of ₹ 98,16,506/- and after reducing the exempt income of ₹ 3,72,151/- and after making a suo moto disallowance of ₹ 1,89,897/-, being expenses attributable towards earning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .10,04,210 minus ₹ 1,89,897) u/s 14A of the I.T. Act as sustained by the Ld. CIT(A) is arbitrary, unjust, illegal and at any rate, without prejudice, very excessive. Various observations made by the authorities below in their respective orders are either incorrect or legally untenable. The submissions as made supported by documentary evidence and the case laws have either been ignored or have not been properly appreciated. ITA No. 4106/Del/2015 (Department s Appeal): The CIT(A) has erred in directing to assess the income of ₹ 65,38,895/- under the head capital gains which was rightly treated as business income by the AO. The CIT(A) has erred in deleting the addition of ₹ 32,00,463/- by allowing indexation whereas the same was treated rightly as business income by the AO. The CIT(A) has erred in not appreciating the fact that the quantum and dates of transactions in shares and mutual funds clearly indicates that the transactions are entered into continuously and regularly during the year under consideration and hence it is nothing other than business activity of the assessee. 3.0 The Ld. Authorised Representative (AR) subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vide order dated 12.2.2015 and was now placed at pages 54 63 of the Paper Book. It was further submitted that the revenue had not filed any appeal against this order of the Ld. CIT (A) deleting the disallowance. 4. In response, the Ld. Senior Departmental Representative (Sr. DR) placed reliance on the concurrent findings of the Assessing Officer and the Ld. CIT (A) with respect to disallowance made u/s 14A of the Act. The Ld. Sr. DR also submitted that although the assessee is claiming that she is maintaining two portfolios with respect to the investments, provisions of section 14A do not differentiate between two portfolios and, therefore, the disallowance made and as sustained by the Ld. CIT (A) was in order. 5. Arguing for the department s appeal, the Ld. Sr. DR supported the assessment order with respect to the capital gains having been treated as business income by the Assessing Officer. The Ld. Sr. DR submitted that it is undisputed that the business of the assessee is purchase and sale of equity, securities and future options. It was submitted that the same assessee is carrying out the same business with her own funds and the only difference is that the income from sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t a contrary stand. Reliance was further placed on CBDT Press release dated 5th May 2016 wherein it has been stated that CBDT, vide order dated 2nd May, 2016, has given direction to the Field Formation to maintain uniform approach that the income arising from transfer of unlisted shares, irrespective of period of holding, would be taxable under the head Capital Gain . The Ld. AR also submitted that the profits on sale of mutual funds etc. held by the assessee as investment have been assessed to tax as short term/long term capital gain in the immediately preceding year 2009-10 as well as in subsequent assessment years 2011-12 and 2012-13 and, therefore, in view of rule of consistency also, the short term and long term capital gain declared during the year under consideration deserved to be accepted. Ld. AR also placed reliance on numerous case laws in support of his contention. 7. We have heard the rival submissions and perused the material available on record. We take up the assessee s appeal first. The sole issue being disputed by the assessee is the sustenance of disallowance of ₹ 8,14,313/- u/s 14A of the Act. It is undisputed that the assessee had suo moto made a disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvisaged by the Hon ble Apex Court in the case of Godrej Boyce vs. DCIT (supra) and, therefore, in view of the ratio of the judgment of the Hon ble Apex Court as aforesaid, we are of the considered opinion that the disallowance could not have been made in absence of proper recording of satisfaction by the Assessing Officer. We have no other option but to direct the deletion of this disallowance. We also note that the Ld. CIT (A) in hos first appellate order for assessment year 2009-10 had deleted a similar disallowance made u/s 14A which has not been challenged by the department. Therefore, in view of the factual as well as the settled legal position, we set aside the order of the Ld. CIT (A) on this issue and direct the deletion of this disallowance. 8. In the result, the appeal of the assessee stands allowed. 9. Coming to the department s appeal, the issue in dispute before us is whether the income from capital gains as claimed by the assessee is to be treated as income from capital gains or is it to be charged to tax as business income as claimed by the department. The answer to this question will necessarily decide the second question before us is as to whether the bene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aintained two portfolios, one relating to investments and the other relating to stock-intrade. Profits and losses from investments were shown as capital gains either long-term or short-term and profits and losses from stock-intrade were shown as business income . This position was also accepted in earlier assessment years, i.e., 2002-03 onwards. The assessee had turnover of more than ₹ 4697.23 crores, whereas investment in shares in comparison was a small amount of ₹ 2.95 crores. The assessee declared business income of ₹ 63.77 crores in respect of transactions as a member of the stock exchange and as a result of carrying on trade in shares. The shares held as investment were kept in a separate portfolio. The shares related to only three companies and were not treated as stockin-trade. These shares were sold after a gap of four months or more. Hence, the profits were assessable as short-term capital gains . 9.2 Therefore, in view of the settled legal position and in view of the ratio of judgments as aforementioned, we find no reason to interfere with the findings of the Ld. CIT (A) wherein he has directed to treat the impugned income as income from ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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