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TMI Blog2019 (7) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... rchase and sale of shares for several years in a light-hearted manner and has ignored the clear commercial motive subsisting in the facts of the case. The assessee has paid substantial professional fees in its endeavour to corner gains from market fluctuations which fact also has not been envisioned in perspective while reversing the action of the AO. The CIT (A) while making reference to the circular of the CBDT has shunned the caution administered by the circular i.e. there cannot be any straightjacket formula and there should not be a sweeping conclusion but a case to case test or approach should be adopted. The issue is essentially factual and is governed by facts of each case. Judicial utterances made in the setting of the facts of a case would not thus apply unless it is shown that the facts are identical. We are thus not required to delineate the nicety of law de hors the facts in such a case. CIT (A) in our view has applied the legal principles in an abstract manner de hors the peculiar facts of the case and therefore, cannot be approved. We accordingly set aside the order of the CIT (A) and restore the action of the AO. - Decided in favour of revenue. Addition u/s 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares offered by the assessee under the head Capital Gains . The AO noted that the assessee has incorrectly declared the gains/losses arising on purchase and sale of shares to be taxable under the head capital gains whereas in reality the profit and gains are liable to be taxed under the head business income being adventure in the nature of trade as defined under s.2(13) of the Act. The AO thus sought to deny the concessional tax treatment available to capital gain transactions on purchase and sale of shares. The AO inter alia summarized the factual position emerging from the facts and material placed on behalf of the assessee which is reproduced as under: (1) Assessee s Principal source of Income is from purchase and sale of shares. (2) Assessee is involved in this share business activities for several years. (3) Assessee is not engaged in any business activities other than purchase and sale of shares/mutual fund units. (4) Assessee was also engaged in speculation activity for severals including the year under consideration. (5) During the current assessment year, the assessee has dealt in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the head capital gains . The AO, in short, denied the benefits of concessional tax treatment on gains/loss arising from sale of shares. 3. Aggrieved, the assessee preferred appeal before the CIT (A). In the first appeal, the CIT (A) however reversed the action of the AO on the ground that the investment in the form of shares were held at the command of fund managers etc. and shown in the books of account as investment. The CIT (A) noted that the assessee has not utilized any borrowed funds for the purposes of investment which established investment activity. It was further noted that there were only 216 transactions of purchase/sale in merely 65 scrips which was not considered very high. It was further observed that many shares were carried forward from earlier years where its declaration as investment was not disputed in earlier years. The CIT (A) also noted that major investment of ₹ 24.04 crores was made through fund managers and therefore, the assessee was not engaged in any organized or systematic activity of purchase or sale of shares by itself. It was further noted that investment in bonds stand at ₹ 15.24 crores and remaining amount of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above mentioned facts and circumstances of the case, thus it emerges that appellant company was not engaged in any business activity of purchase and sale of the shares. This view gets support from the decision of Hon ble Supreme Court in the case of CIT v. Associated Industrial Development Co. (P.) Ltd. (1971) 82 ITR 586. Even the CBDT Circular No. 4/2007 also supports the case of the appellant because the shares/mutual funds were shown as investment in the books of account and the investment was made out of own funds. Accordingly, the AO is directed to treat the transactions of purchase and sale of the shares/mutual funds/bonds as investments only. Thus appellant succeeds in respect of Ground No.2. 4. Aggrieved by the relief granted by CIT (A), the Revenue has preferred appeal before the Tribunal. 4.1 The learned DR for the Revenue strongly contested the process of reasoning adopted by the CIT (A) while granting relief to the assessee. The learned DR for the Revenue relied upon the order of the AO and in furtherance submitted that the assessee is a registered NBFC company and the main object of the assessee is to deploy funds in shares and securiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the context of a given case. The assessee in the instant case has entered into meagre value of transactions of low magnitude and frequency. The learned AR also pointed out that the assessee has engaged deployed its surplus funds with the help of the professionals (PMS) to assist the assessee in wealth creation. The learned AR next submitted that the Revenue itself has accepted the transactions in shares under the head capital gains as declared without any interference in the earlier AY 2010-11 and therefore, doctrine of consistency should apply while adjudicating the issue. On being asked by the bench, the leaned AR for the assessee referred to main objects of the company as recorded in its Memorandum of Association (MoA) whereby the assessee is permitted to carry on the business of investment company which is capable of making investment in shares, bonds etc. The learned AR thus submitted that as per MoA also, the assessee is only an investor. On being further asked by the bench, the learned AR for the assessee clarified that shares are held in the demat account of the assessee-company and the portfolio was not surrendered in custody of PMS professionals and continued to rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore we proceed further, it would be pertinent to note in the context that there is a qualitative difference between profits arising from sale of capital assets and that of trading assets under the Act. Section 2(13) of the Act defining business and Section 2(14) defining capital assets operate in mutual exclusion. To put it differently, capital assets (non-current investment) and trading assets (stock-in-trade or current investment) are treated differently under the scheme of the Act. They cannot be compared on par with which other as similar class of asset. Noticeably, Section 2(13) of the Act defines the expression business in an inclusive manner and even embraces any adventure in the nature of trade or commerce etc. within its sweep. Section 2(13) reads as under: Business, includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. 6.2 We now proceed to deal with the objective facts of the present case in appeal to determine whether the impugned transaction of purchase and sale in shares bear the trappings of adventure in the nature of trade or commerce etc. or not. In this cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is an act of faith in distinction to risk based approach adopted by a trader. The assessee has regularly booked losses at short intervals which underscores a risk based approach. 6.3 We require to note here that definition of business under s.2(13) of the Act is quite elastic and even includes an adventure which is in the nature of trade though strictly such transaction may not bear all the trappings of a trade or commerce. In appropriate circumstances even a solitary transaction may fall within the sweep of adventure in the nature of trade as held in the case of Dalmia Cement Ltd. v. CIT [1976] 105 ITR 633 (SC) and many other judgments. As admitted on behalf of the assessee as per its submission before the CIT (A), object of PMS was to minimize the market risk. It is manifest that purchase and sales are not occasioned in the case of the assessee by any special necessity of time but to maximize the profits. 6.4 As noted by the AO, a large number of scrips were traded which are about 65 across the PMS engaged. It is further noted by the AO that period of holding at times as short as few days in certain transactions. The assessee has reported nearly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in an abstract manner de hors the peculiar facts of the case and therefore, cannot be approved. We accordingly set aside the order of the CIT (A) and restore the action of the AO. 6.7 In the result, appeal of the Revenue for AY 2012-13 is allowed. 7. The grounds of appeal raised by the assessee in IT Appeal No. 1158/Ahd/2016 for AY 2012-13 read as under: 1. The order passed by the ld. CIT (A) is bad in law, contrary to legal pronouncements and same be quashed. The addition is unwarranted and same be deleted now. 2. The ld. CIT (A) has erred in upholding the disallowance of ₹ 66,41,156/- made by the AO u/s. 14A of the Act r.w.r 8D. The ld. CIT (A) has erred in law in upholding the disallowances u/s. 14A which is in excess of the expenses debited to profit loss account. Mechancial application of Section 14A being higher amount than expenditure attributable for earning tax free income is unjust. It is prayed that disallowance u/s. 14A should be restricted to the extent of ₹ 39,32,186/- being claimed as expense and excess Disallowance of ₹ 27,08,970 ought to be deleted. 8. As per grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hase and sale of shares was found to be remarkably high similar to other assessment year 2012-13. The indirect trading through PMS is thus of not much consequence in the light of reasoning noted for the AY 2012-13. We find merit in the plea of the Revenue. The order of the CIT (A) is thus set aside and order of the AO is restored. 15. In the result, appeal of the Revenue for AY 2011-12 is allowed. 16. The grounds of appeal raised by the assessee in IT Appeal No. 1615/Ahd/2016 for AY 2011-12 read as under: 1. The order passed by the ld. CIT (A) is bad in law, contrary to legal pronouncements and same be quashed. The addition is unwarranted and same be deleted now. 2. The ld. CIT (A) has erred in upholding the disallowance of ₹ 81,91,488/- made by the AO u/s. 14A of the Act r.w.r 8D. The ld. CIT (A) has erred in law in upholding the disallowances u/s. 14A which is in excess of the expenses debited to profit loss account. Mechanical application of Section 14A being higher amount than expenditure attributable for earning tax free income is unjust. It is prayed that disallowance u/s. 14A should be restricted to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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