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TMI Blog2021 (11) TMI 562X X X X Extracts X X X X X X X X Extracts X X X X ..... abur India Ltd. being a strategic investment would not form part of the total income under the Act? - As in view of the decision of the Hon ble Supreme Court in the case Maxopp Investment Ltd [ 2018 (3) TMI 805 - SUPREME COURT] the issue is covered against the assessee and, therefore, this grounds of appeal is dismissed. Disallowance of business expenses - assessee failed to justify the expenditure by way supporting evidences - HELD THAT:- During the assessment proceedings, the Assessing Officer pointed out various instances of expenditure which were not incurred for the purposes of business and the assessee offered 10% of the total expenditure for taxation. CIT(A) also upheld the disallowance on the ground that the learned Authorized Representation admitted that it was not possible to filter out expenditure which may have been incurred for non-business promotion expenses as disallowance and the said disallowance was made on the agreed basis. Tribunal for assessment year 2013-14 has upheld the disallowance of 10% of the expenses as incurred for non-business purpose, we do not find any infirmity in the order of the Ld. CIT(A) on the issue in dispute and accordingly uphold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t did not find any favour. The appeal was dismissed. Aggrieved with the findings of the learned CIT(A), the assessee is before the Tribunal raising the grounds as reproduced above. 3. Before us, learned Representative of both the parties appeared through Video conferencing facility. The assessee filed a paper-book through email, containing pages 1 to 159. 4. The grounds no. 1 2 of the appeal relate to treating income from long term capital gain declared by the assessee as business income by the Assessing Officer. 4.1 The learned counsel for the assessee before us submitted that the issue in dispute is covered in favour of the assessee by the order of the Tribunal dated 20th August, 2018 for AY 2008-09 to 2011-12; order of Tribunal dated 26th March, 2018 for AY 2012-13; order of the Tribunal dated 29th May, 2020 for AY 2013- 14. 4.2 On the contrary, the learned DR relied on the order of the lower authorities. 4.3 We find that the learned CIT(A) upheld the finding of the Assessing Officer following the decision of the Tribunal in ITA No. 118, 942 943/Del/2010, dated 31.01.2012. However, in subsequent assessment year 2008-09 to 2013-14, the Tribunal has tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arrying on of a business scheme of profit making; huge volume of share transactions, the repetition and continuity of the transactions, give them a flavour of trade ; the magnitude, frequency and the ratio of sales to purchases on the total holdings is evidence that the assessee had not purchased the shares as an investment, but with the intention to trade in such scrips. In the light of view taken in the aforesaid decisions, including in Wallfort Financial Services Ltd.(supra) relied upon by the ld. DR, we are of the opinion that the ld. CIT(A) was not justified in accepting the claim of the assessee as investor in shares ,especially when the nature of transactions in the years under consideration was similar to what the assessee had undertaken hither to and turnover of the assessee continually increased in the years under consideration. Accordingly, we vacate the findings of the ld. CIT(A) and restore the order of the AO. Therefore, ground no.1 in these appeals is allowed. 3.7 Subsequently, the Tribunal in assessment year 2008-09, 2009- 10 and 2011-12 (ITA No.3078/2011, 820/2013 and 5054/2015 in order dated 20/08/2018) analysis of various decisions and the circulars issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income from Capital Gains (B) Income from Capital Assets - Investment in EquitiesLTCG11,48,78,740 (85%) STCG2,02,28,220 (15%) 13,51,06,960 Income from other Sources (C) Dividend earned from investment in equities 8,19,14,172 15. One of the main contentions of the Revenue which has been strongly harped by the Tribunal in the earlier years is that, assessee prior to 31st March, 2004 was holding shares as stock in trade , hence intention was to do business only and mere classification in books as investment by making entries is not decisive factor. It was on 01.04.2004 the shares were converted into investment portfolio and since A.Y. 2005-06; assessee has segregated the income under the head Capital Gains and Business Income . Apart from that, Assessing Officer has noted that magnitude of the transaction and the volume shows that assessee was into sale and purchase of share for the intention of business only and has also referred to the huge turnover and also highlighted various facts it has been discussed and incorporated in detail in the earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uisition, always been kept as investment in the books and later on sold after more than a year on which gain has been shown under the head Long Term Capital Gain . Nowhere it has been laid down that the assessee who is dealing in shares cannot maintain two separate portfolios, one for the trading purpose and other for the investment purpose and there is no provision that shares held in investment portfolio have to be treated as part of stock. The most paramount factor which needs to be examined in such cases is, whether the intention of the assessee while acquiring shares was for investment purpose or for trading in future for profit. However, we find that in the earlier years the Tribunal has taken a different view and held that even if the shares have been held under investment portfolio also, it can be taxed as business income. One of the core reasoning for arriving to this conclusion was that the assessee has been trading in shares and the audit report also suggest that the assessee is dealer in shares and prior to 31st March, 2004 assessee was a full-fledged trader of share. Thus, the intention of the assessee at the time of purchase became the decisive factor to hold that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the years under consideration was similar to what the assessee had undertaken hither to and turnover of the assessee continually increased in the years under consideration. Accordingly, we vacate the findings of the Ld. CIT (A) and restore the order of the AO. Therefore, ground no.1 in these appeals is allowed. If the aforesaid ratio and principle of the Tribunal is to be followed as it is, then as observed in the earlier part of the order, in so far as the transaction of shares of Punjab Tractors Ltd. and ABN Amro are concerned, right from day one it was acquired as a part of investment only and was classified as such in books right from the day of acquisition and it is not the case that these shares were earlier part of stock-in-trade which has been converted into investment after 01.04.2004. We have already held that the shares of Punjab Tractors Ltd. were acquired for controlling interest and ABN Amro shares are not tradeable in stock market and if one goes by the intention part, then these two scrips could never be held to be intended for trading purposes. Thus, the aforesaid decision will not be binding at least for these two scrips. For the other scrips also, if we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o circulars: - Circular No.6/2016; dated 29/02/2016 Sub: Issue of taxability of surplus on sale of shares and securities - Capital Gains or Business Income - Instructions in order to reduce litigation - reg.- Sub-section (14) of Section 2 of the Income-tax Act, 1961 (Act') defines the term capital asset to include property of any kind held by an assessee, whether or not connected with his business or profession, but does not include any stock-in-trade or personal assets subject to certain exceptions. As regards shares and other securities, the same can be held either as capital assets or stock-in-trade/ trading assets or both. Determination of the character of a particular investment in shares or other securities, whether the same is in the nature of a capital asset or stock-in- trade, is essentially a fact-specific determination and has led to a lot of uncertainty and litigation in the past. 2. Over the years, the courts have laid down different parameters to distinguish the shares held as investments from the shares held as stock- in-trade. The Central Board of Direct Taxes ('CBDT') has also, through Instruction No. 1827, dated August 31, 1989 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the sole objective of reducing litigation and maintaining consistency in approach on the issue of treatment of income derived from transfer of shares and securities. All the relevant provisions of the Act shall continue to apply on the transactions involving transfer of shares and securities. 17.1 Later on CBDT again clarified in the following manner:- F. No. 225/12/2016/ITA.II Government of India Ministry of Finance Department of Revenue (CBDT) North Block, New Delhi, dated the 2nd of May, 2016 To Principal Chief-Commissioners of Income-tax/ Principal Directors General of Income-tax Subject: - Consistency in taxability of income/loss arising from transfer of unlisted shares under Income-tax Act, 1961-regd Regarding characterization of income from transactions in listed shares and securities, Central Board of Direct Taxes ( CBDT) had issued a clarificatory Circular no. 6/2016 dated 29th February, 2016, wherein with a view to reduce litigation and maintain consistency in approach in assessments, it was instructed that income arising from transfer of listed shares and securities, which are held for more than twelve month ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... using Corporation Ltd., ITA No.740/2009 (Del.) 18. In the light of the catena of decision Hon'ble Jurisdictional High Court and also some of the judgment affirmed by the Hon'ble Supreme Court and the facts as discussed above, the earlier years Tribunal order cannot be held to have any binding precedence and accordingly, we hold that in so far as transaction in sale of shares shown under the head Long Term Capital Gain same cannot be taxed under the head business income especially in the light of the categorical clarification by the CBDT. 3.8 Further, the Tribunal in the assessee s own case for assessment year 2010-11 (ITA No. 701/2015 in order dated 02/01/2019) following the order of the Tribunal for assessment year 2008-09, 2009-10 in 2011-12 upheld the activity of the parties on sale of the shares assessable under the head capital gain. The relevant finding of the Tribunal reproduced as under: 5. Thus, respectfully following the precedents of the earlier years and as a principle of consistency, we uphold the order of the CIT(A) that long term capital gain/capital loss cannot be treated as business income or loss and also long-term gain cannot be treated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... culation of Expenses U/s 14A (i) Amount of expenditure directed relating to exempt income NIL (ii) Indirect Interest expenses Interest paid Average Value of investment/Average value of total assets NIL (iii) 0.5% of Average value of the investments 10220641 Closing Investments 2506291454 Opening Investments 1581876664 Average investments 2044128159 10220641 Gross disallowance u/s 14A Less: Expenses on account of income on which no activity has done in the previous year Total exempt Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that for computing disallowance under Rule 8D, the only investment which has yielded dividend income should be considered as held in the case of ACIT vs. Vireet Investment (P) Ltd.,165 ITD 27 (Del) (Spl Bench). 5.4 The learned DR, on the other hand, relied on the findings of the learned CIT(A). He further submitted that the Tribunal in assessment year 2013-14 in the case of the assessee has rejected this contention of the assessee. 5.5 We have heard rival submission of the parties and perused the relevant material on record. In the year under consideration also, the assessee himself has computed the disallowance in terms of Rule 8D and thereafter reduced the disallowance corresponding to the dividend income earned from the shares of Dabur India Ltd. The issue in dispute is squarely covered against the assessee with the decision of the Tribunal in ITA No.3785/Del/2017 (supra). The relevant para is reproduced as under: 3.9 Regarding the second contention of the assessee that no dissatisfaction was recorded by the Assessing Officer on the claim of the assessee of expenses toward earning exempt income, we agree with the finding of the Ld. CIT(A), that when the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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