9911796707
TMI Blog2024 (7) TMI 1278X X X X Extracts X X X X X X X X Extracts X X X X ..... of investments was accepted by the AO as capital gains and all the transactions was delivery based. Therefore, we are of the considered view that the claim of assessee was investing its own funds which were lying idle is not in itself sufficient to establish that the trading in shares was done as investments to earn capital gain Exemption u/s 80IC for business income - differences in balances of tax audit does not entail a disallowance of claim of Sec 80IC, if all the conditions are fulfilled - as pointed out that Section 80IC claims were accepted in subsequent years - HELD THAT:- CIT(A) has not disputed the fact that the assessee company was located in a geographical area which was covered by the CBDT Notification for the purpose of benefit u/s 80IC of the Act. Before us, the ld. AR has demonstrated on the basis of copies of Notification available with special reference that areas of Salempur Mehdood and Rawli Mehdood fall in the notified industrial areas. As we go through the assessment order for AY 2012-13, copy of which is available, it appears that the manufacturing activity and income of the assessee from the business of manufacture of milk and milk based products is not disp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee company was incorporated on 28.04.2008. The main Business of the company is to manufacture Milk and Milk based products at the industrial area of Haridwar. The assessment year under consideration is the second year of the assessee. Appellant company filed its Income Tax Return declaring Business income of Rs. 8533519.0 which was claimed to be 100% exempt u/s 80IC(2)(a)(ii) of the Act.The other head of income is Short Term Capital Gain of Rs. 15669577.00 which was taxable @ 15% which includes Short Term Capital Gain of Rs 16753970.00 and Short Term Capital Loss Rs 1084393.00. 2.1 The Assessing Officer treated this short term capital gain as Business Income. The Assessing officer denied the deduction u/s 80IC. Further, a 20% disallowance, of Rs 6084325,00 out of total purchases Rs 30421625.00 was made. The appeal of assessee was dismissed by CIT(A), for which assessee is in appeal raising following grounds:- 1. The authorities below have not given proper opportunity to explain the facts and circumstances of the case. 2. The authorities below have erred in law and on facts in treating the Short Term Capital Gain Rs. 15669577.00 as business income. 3. The authorities below have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was taxed by the AO as business income for the year under consideration. The CIT(A) sustained the same with following findings; 4.1.2 AO treated the short term capital gain at Rs 1.56 crores as business income of the assessee following the principles enunciated in CBDT's Circular No.4/2007 dated 15.06.2007. The above Circular No.4/2007 encapsulates the law on the subject as to whether the sale and purchase of transactions of shares are for business purposes and investment. From the P La/c and Balance Sheet of the assessee company it is evident that profit from sale/purchase of shares constitutes about 65% of total income. Out of the total assets of Rs 18.94 crores investment in shares constitute Rs 14.41 crores which is about 76% of total assets. The above figures show voluminous magnitude of share transactions carried out during the year. During the year, the assessee earned dividend income of Rs 7,389/- only as against gain of profit from sale of shares at Rs 1.56 crores. Therefore, it is evident that the share are not purchased as investment to earn dividend income but with the intention to earn profit from resale of shares. The assessee has made 120 transactions from 01.09. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vident in making the transaction. As is apparent from the aforesaid facts, the transactions of purchase of shares, and thereafter selling it within a few days and most of the time within a month, with a view to earn profit, reflects motive of the assessee as a trader and not an investor. 4.1.4 In the case of CIT v. H Holck Larsen [1986] 160 ITR 67, the Hon'ble Supreme Court has held as under: The character of a transaction cannot be determined solely on the application of any abstract test or rule and the cumulative factors affecting the transactions have to be seen. Habitual dealing in a particular item is indicative of the assessee's intention of trading. Merely for taking benefit of provisions of sec. 111A of the Act applicable from the AY 2005-06, the assessee cannot be categorised as an investor especially when the aforesaid facts speak otherwise and lead us to the conclusion that the assessee is indulging in activities of a trader in shares. As observed in Sutlej Cotton Mills Supply Agency Ltd. (supra), it is a manner of first impression with the Court whether a particular transaction is in the nature of trade or not.; it is not even the assessee's case that they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were occasional, with average holding time of 45 days. The weighted period of shares being held is 63 days, which is not typical for a trader. 5.1 Ld. AR submitted that the AO was not able to identify whether any specific expense has been incurred towards shares and has upheld all the expenses to be towards business, meaning thereby, he confirms that the entire activities and the resources where actively deputed for main business activity and not for investment in shares, which is passive in nature and thus investment. 5.2 Ld. AR pointed out that the assessee has shown the shares as investment in the books, which has been accepted by the AO while completing assessment under Sec 143(3) of the Act. 5.3 Distinguishing the judgement relied by CIT(A), Ld. AR submitted that the CIT(A) has relied on the judgement of Manoj Kumar Samdaria vs CIT, 45 Taxmann.com 394 and same is differentiable on the facts of the assessee, since assessee in that case, Manoj Kumar Samdaria, had transacted in shares almost daily, while, in the case of the assessee, average transaction period is 63 days, with there being practically occasional and specified number of occasional transactions. Then in that case a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the ld. tax authorities is the period of holding which is very short in case of a trader as in the instant case. There is no substance in the assertion that period of holding was average to 63 days. It is not the average of the days of holding, but, the frequency which matters coupled with the lots in which the shares are purchased and sold. Furthermore, since the transactions are broadly in just four scrips that all the more shows that the intention was not at all to buy the shares and hold them for a period to earn a capital gain, but, the intention was to leverage in the prices fluctuating in the stock exchange. 7.1 The judgement which the ld. AR has relied are not applicable as the judgement of the Hon ble Gujarat High Court in the case of PCIT vs. Gujarat Fluorochemicals Ltd. (2020) 120 taxmann.com 433 (Guj.) was where the CIT(A) had allowed the claim of the assessee observing that the Memorandum of Association of the Assessee company showed that business of purchase and sale of securities was not the main object and the assessee had maintained distinction between trading assets and non-trading assets in the books of account and only net surplus or loss arising out of shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eparate investment portfolio. In the case of the present assessee, it is second year of the business and half way through the financial year, the trading was initiated in shares. Thus, by merely mentioning the shares to be the investments, benefit of Circular No.4 of 2007 dated 15.06.2007 cannot be granted. Then, in the judgement in the case of Indi Stock (P) Ltd. Vs. CIT (2023) 148 taxmann.com 449 (Cal) again the assessee was found to be maintaining separate account for trading in shares and stock-in-trade and the assessee was found to have purchased shares by way of investments only and debited cost to the investment account. Then in the order in ACIT vs. Jignesh Madhukant Mehta (2017) 83 taxmann.com 349 (Mumbai Trib.), it was found that the assessee had undertaken delivery based transactions. In the order in the case of Second Leasing (P) Ltd. vs. ACIT (2018) 95 taxmann.com 133 (Delhi Trib) again in the preceding years income arising on sale of investments was accepted by the AO as capital gains and all the transactions was delivery based. Therefore, we are of the considered view that the claim of the ld. AR that the assessee was investing its own funds which were lying idle is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not allowable to the assessee. AO was of the view that mere copy of letter from SIDCUL permitting to change in constitution from partnership firm to Pvt. Ltd. Company with permission to change of name from Madura Agro Food Indus, to Madura Biotech (P)Ltd. is not sufficient. AO observed that the assessee has not furnished requisite evidence as to how the firm namely M/s Madura Agro Food Industries was first eligible for deduction u/s 80-IC and how the assessee company subsequently was eligible to continue to get such deduction. AO concluded the assessee has failed to adduce evidence that the undertaking is not formed by the transfer to a new business of machinery or plant previously used for any purpose, as per the provisions of Sec. 80-IC(4)(ii). In view of the above, AO held that the assessee company is not eligible for deduction u/s 80-IC claimed in the return of income at Rs 85,33,519/-. The same was sustained by the CIT(A) with following relevant findings; 4.2.2 During the appellate proceedings I have examined the statutory audit report, tax audit report and audit report in Form No. 10 CCB filed by the assessee. It is seen that in the tax audit report in Form No. 3 CD the audi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see to company from partnership is reconstruction of business. It was submitted that as against the above, before the CIT(A), the assessee submitted the notification [PB Pg No 104-222] stating that it s zone is covered as a designated zone under Sec 80IC. Further it submitted that the conversion of partnership to a company is not reconstruction and thus, Sec 80IC to the assessee deserved to be allowed by CIT(A). Ld. AR submitted that while accepting the above contentions, the CIT(A) changed the basis of disallowance, by pointing the following points: i. That the turnover and stock in Tax Audit Report versus the Financial Statements is different ii. The Form 10CCB mentions the initial assessment year as AY 2009- 10 and not AY 2007-08, being the date of inception of partnership 11.1 As regards the assertion of the AO on change in constitution of partnership firm to private limited company disentitles the assessee to the benefit, we find no substance as the deduction is available to undertaking and not to individual assessee. We are of the considered view that there is a mere change in the status of the company in terms of its composition and that does not brings into action provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the transactions letters were issued by the AO to the above creditors at the addresses as furnished by the assessee. The letters issued to the above creditors were received back with the postal remarks that addresses were incomplete . On being informed by the AO the assessee furnished fresh addresses which were stated to be complete. Letters calling for information u/s 133(6) were again issued by the AO at the given fresh addresses. This time also the letters were received back unserved. The assessee was intimated about this and was asked as to why adverse inference be not drawn in view of this. The assessee was also afforded fresh opportunity by the AO vide note sheet entry dated 18.03.2013 to produce the creditors on 21.03.2013 since letters issued to them had been received back twice. In response assessee furnished letter dtd. 21.03.2013 expressing its inability to produce any of the above creditors for the reasons that they are petty, illiterate villagers/milk vendors who will lose their day earning if they attend the office of the AO and it is not practical and feasible to produce these milk vendors. AO observed that the assessee company has shown sales amounting to Rs 11,4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o provide such, large credit to the assessee without getting payments throughout the entire period. The submission of the appellant that affidavits from the sundry creditors were filed before the AO is without any merit. It is held in plethora of decisions that affidavit cannot be accepted unless corroborated by intrinsic or extrinsic evidence. As the existence of the sundry creditors are not prove, therefore, the genuineness of the affidavits are also not proved. The above view finds support from the decisions in the case of Technical Glass Industries v/s CIT(All) 281 ITR 61, Chowkchand Balabux v/s CIT(Assam)41 ITR 465, Munilal Ramdayal v/s ITO ors. (Ori) 76 ITR 151. From the above it is evident that the assessee failed to prove the genuineness of the milk purchases from the above vendors. In view of the above, AO is fully justified in disallowing 20% of the purchase of milk i.e. of Rs 60,84,325/-. Therefore the disallowance made by the AO is sustained. The appeal fails in this ground. 16. As with regard to this ground no. 4, Ld. AR primarily stressed on the proposition that there cannot be rejection of purchases if sales not doubted and the books of accounts are accepted. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
