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TMI Blog2024 (11) TMI 363X X X X Extracts X X X X X X X X Extracts X X X X ..... s, as per Memorandum of Association, to acquire and hold shares, stocks, debentures, debenture stocks, bonds, obligations and securities issued or guaranteed by any company constituted or carried on business in the Republic of India. After considering the submissions of the assessee, the Assessing Officer proceeded to make the following additions in the assessment completed u/s 143 (3) of the Act :- S.No. Addition Amount Pg. No. in CIT (Appeal) order 1 Capital Gain Income treated as Business Income (Long term capital gain and Short term capital gain) Rs.36,79,65,338/- 67 Long term Capital Gain on sale of HCL Group Shares held in capacity of promoter treated as business income Rs.33,17,66,907/- Long term Capital Gain others treated as business income Rs. 2,24,90,871/- Short term Capital Gain treated as business income Rs. 16,14,264/- 2. Disallowance of Capital loss on transfer of shares of PDK Shenaj Hotels Pvt. Ltd Rs. 40,60,000/- 73 3. Disallowance of all Expenses debited to profit and loss account Rs. 86,04,017/- 58 4. Disallowance of Donation paid u/s 80G Rs. 3,00,000/- 73 4. Aggrieved with the above orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n appeal before the ld. CIT (A) and ld. CIT (A) after considering the detailed submissions of the assessee partly allowed the ground raised by the assessee by observing as under :- "I have carefully considered the appellant submissions, judicial pronouncement quoted by the Appellant and Assessment Order. It is a fact on the record that the Ld. Assessing Officer has contended that various expenses like Salary, Administrative, Depreciation etc. shall not be permissible under the head Capital gain as per the provision of Section 48 of the Income Tax Act, 1961 and only following expenses are eligible to be deducted from the Income Tax Act, 1961 under the head capital gains: 1. Which are incurred wholly and exclusively in connection with the transfer of the Capital assets and 2. The cost of acquisition of the asset and the cost of any improvement thereto. Further, the Ld. Assessing Officer has contended that in the present case, the expenses for which the assessee has claimed deduction from the income under the head capital gain did not fall in any of the above two categories. However, this claim of the assessee has no effect on the computation of income because Ld. AO has treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that similar disallowance was made by the Revenue in assessment year 2007- 08. In first appeal the Commissioner of Income-tax (Appeals) upheld the findings of Assessing Office. The assessee carried the matter in appeal before the Tribunal in ITA NO.102/PN/2012 for assessment year 2007-08 decided on 10.04.2014. The Tribunal after considering the facts of the case and the decision of Coordinate Bench of the Tribunal in the case of KRA Holding & Trading (P.) Ltd. v. Dy. CIT [IT Appeal No. 703 (PN) of 2012, dated 19-9-2013] held that PMS fees paid by the assessee is an allowable deduction from the capital gains. Para 32. Facts in the present assessment year being similar, the ground No. 8 raised by the assessee in its appeal is allowed accordingly." The Hon'ble ITAT Mumbai in case of Nadir A. Modi vs JCIT, Tax 11(3), Mumbai [2017] 88 taxmann.com 868 (Mumbai - Trlb.), wherein held as below: Para 7. However it is also argued that there are some contrary decision of the Tribunal such as Devendra Matial Kothari v. Dy. CIT [2011]13 taxmann.cam 1511321To 173 (Mum.) and Pradeep Kumar Harlalka v. Asstt. CIT [2011] 14 taxmann.com 42147 SOT 204 (URO) and Homi K. Bhabha v. ITO [2011 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above mentioned case i.e. Serum International Ltd. (supra) the view which is in favour of the assessee is liable to be taken. The finding of the said case is based upon the finding of Hon'ble Supreme Court of India in case [CIT v. Vegetable Products Ltd. [1973] 88 ITR 192.(SC)]. In view of the said circumstances we set aside the finding of the CIT(A) on this issue and Assessing Officer is directed to allow the appropriate relief of the assessee in terms of the above said decisions in accordance with law. Accordingly, these issues are decided in favour of the assessee against the revenue. In addition to above judgement, The Hon'ble ITAT Pune in case of KRA Holding & Trading (P.) Ltd. vs Deputy Commissioner of Income-tax, Range 11(1), Pune [2011] 11 taxman.com 250 (Pune), held as under : "Para 41. The second issue relates to the allowability of the fee paid to the M/s, ENAM, the Portfolio manager. This issue is commonly raised in all three appeals of KRA Holding & Trading (P.) Ltd. i. e. ITA 500/PN/08 for AY 2004-05, 1320/P/2008 for AY 2005-06 and ITA 434/P/2009 for A Y 2006-07 and the same is adjudicated in favour of the assessee as discussed in the context of the adjud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and PMS towards maintenance of securities against the income declared under the head Capital Gains. The AO rejected the same with the observation that there is no provisions in the section 48 to claim such expenses. The ld CIT(A) by relying on the decision of ITAT Pune and Mumbai, allowed the claim of the assessee. After careful consideration of the facts on record, we observed that the assessee is dealing in the business of shares and securities, the monitoring of such securities, the assessee has to incur certain expenses on PMS. Therefore, this expenditure is directly relating to the securities transaction. The nature of transaction demands such expenditures, therefore, on the similar facts on record, the ITAT Pune has considered the same and allowed such expenses. After careful consideration of findings of ld CIT(A), he has decided the issue in favour of the assessee and he has also considered the conflicting decisions and came to conclusion based on the Hon'ble Supreme Court decision of Vegetable Products. The decision of Ld CIT(A) is reasonable findings on the issue of allowability of PMS expenses. Therefore, we are not inclined to disturb the same. 13. Coming to the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also covered by the guidelines dt. 18-5-2006 issued by the CBDT for looking into circumstances to determine whether a person is a trader in stocks or investor in stocks. Thus, the facts of the case are fully covered u/s 28 of the Income Tax Act, 1961. In view of the above discussion the profit from sale of shares and mutual funds is treated as business income instead of capital gain as declared by the assessee. The undersigned is also satisfied that the assessee by claiming business income of Rs. 367,965,338/- [368782299 (assessed business income) - 816961 (declared business income)) as income from capital gains, has furnished inaccurate particulars of its income and for that penalty proceedings us 271(1)(c) of the Income Tax Act, 1961 have been initiated separately." 15. Aggrieved with the above order, assessee preferred an appeal before the ld. CIT (A) and before ld. CIT (A), assessee has submitted as under :- "1. Principles laid down in the circular No. 04/2007 dt. 15th June, 2007 are satisfied to treat the income as Short term Capital gain. Following are the principles laid down in the circular - 2. The first principle laid down in the circular is as under :- "Where a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee with the following observations :- "6.5 Further, with regard to finding of the Ld. Assessing Officer that only the profit/loss arisen on sale, purchase of shares of private limited companies can be treated as capital gain/loss, the appellant company has contended that with regard to Long Term Capital. Gain of Rs. 3542.58 lakh, company has earned total long term capital gain of Rs. 3542.58/- Lakhs which include Rs. 3317.67/- Lakhs gains on sale of HCL Group of shares which are listed on recognized stock exchange and the appellant right from the day of purchase had held these shares as investments and not as stock in trade, in its balance sheets, in the support of this, appellant company has submitted Audited Balance Sheet along with schedule. Further, the appellant company has contended that the issue whether the gain from sale of listed shares /securities is to be treated as capital gains or business income has now come to rest after the Hon'ble CBDT came up with the departmental circular No.6, dt. 29th February 2016, relevant provision are as under: 3 (b) In respect of listed shares and securities held for a period of more than 12 months immediately precedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portfolios, the assessee may have income under both heads, i.e., capital gains as well as business income." In support of the above CBDT Circular no. 04/2007 dated 15.06.2007, the appellant company contended that the appellant has held the shares as investments as stock in trade. The appellant company has further contended that appellant earned dividend amounting to Rs. 9,36,470.16 while capital Gain is Rs. 37,15,20,048.10, this shows that dividend is 25.20% of Capital Gain which clearly confirms that the intention at the time of investments was to reap dividend & not to trade in the shares. Further, the appellant company has relied upon various judgements, details of which are as below: The Hon'ble Jurisdictional ITAT, New Delhi, in case of DCIT vs. Hero Investment Pvt. Ltd. ITAT DELHI dated 13/10/2023 [2023] 156 taxmann.com 15 (Delhi - Trib.)(13-10-2023) "where AO treated income from sale of shares and securities as business income, while assessee claimed it as exempt long term capital gains, however, Commissioner (Appeal) reclassified it as 'capital gains' citing CBDT Circular No. 6 dated 29-02-2016. Considering shares as investments balance sheet and their lon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... blish the fact that Directors of the appellant company were also the promotor of the HCL group whose shares were held as investment by the appellant company. Thereafter, as per the Para (f) at page no.16 of written submission dt. 08-12-2023 the appellant has contended that above mentioned additional evidence has become redundant now therefore the appellant withdraws the application under rule 46A and has requested to decide the issue as per the present position of law considering the CBDT circular binding on IT authority. In this connection, it is important to mention here that the above mentioned additional evidence adduced by the appellant company are no more crucial or, relevant now to decide the ground/legal issue in appeal after the issuance of Circular no. 6/2016 dated 29th February, 2016 and CBDT circular no.04/2007' dated 15.06.2007 where specific and unequivocal criteria has been laid down by CBDT to decide the issue in hand. Therefore, above contention of the appellant was carefully considered in the backdrop of the CBDT circular (supra), which is found to be tenable and acceptable. Now, as per discussion in aforesaid paragraphs, with regard to Long Term Capital Gai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rroneously treated the Gain from share/mutual funds as Business Income amounting to Rs. 36,79,65,338/- hence the Ld. Assessing Officer is being directed to treat the Gain from share/mutual funds as Capital Gain instead of Business Income." 17. At the time of hearing, ld. DR for the Revenue vehemently argued and brought to our notice findings of the Assessing Officer and relied on the same. 18. On the other hand, ld. AR for the assessee relied on the detailed submissions made before ld. CIT (A) and relied on the order of ld. CIT(A). 19. Considered the rival submissions and material placed on record. We observed that the assessee has classified the investments made in the various shares including HCL shares for the purpose of investment only. The various circulars issued by the CBDT allows the assessee to choose the method of accounting relating to dealing in securities transactions either on the line of treating the same under the head business income or Capital Gain depending upon the treatment of various shares for the purpose of pure investment or not. Whatever the method adopted by the assessee, the same has to be followed consistently. The ld CIT(A) has considered the variou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter of allotment of shares of PDK Shenaz Hotels (P) Ltd and the copies of agreement of sale it has been noticed that Mr. Adıtya Kanoi to whom shares were sold was none other than the director of PDK Shenaz Hotels (P) Ltd. The revelation of the fact that the shares of PDK Shenaz Hotels (P) Ltd were eventually purchased by the director of PDK Shenaz Hotels (P) Ltd has made it clear that the assessee company has been used as a via media /device for pouring in extra money to reap undue advantage in PDK Shenaz Hotels (P) Ltd and vice versa. Firstly, the shares were issued to the assessee company at a hefty premium of Rs. 90/-per share which constitute the capital receipt in the hands of PDK Shenaz Hotels (P) Ltd. Thereafter, those shares were purchased by the director of PDK Shenaz Hotels (P) Ld. at a much lower price, which resulted in loss in the hands of the assessee company and introduction of unaccounted money (difference between the purchase and sale price) in the books of PK Shenaz Hotels (P) Ltd without suffering any tax. The assessee company too has used this device to reduce its tax liability. Under these circumstances and in the absence of any justification from assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re sold, the assessee furnished the name of one Mr. Aditya Kanoi with address as R/o 13/2, Bally Ganj, Park Road, Kolkata. Further, the AO also asked the justification to for purchase and sale price of share of PDK Shenaz Hotels (P) Ltd. In this connection it is relevant to mention here that the purchase of share of PDK Shenaz Hotels (P) Ltd. was made in the previous year i.e. AY 2003-04, i.e. the year in which detailed Scrutiny Assessment was undertaken by the AO in AY 2003-04 and no adverse view was taken in the relevant year with regard to acquisition of the share of PDK Shenaz Hotels (P) Ltd at Rs. 100/- per share. Therefore, on the basis of facts as emanating from the assessment order, it is established that the assessee has been able to discharge its primary onus cast upon it by furnishing the purchase and sale related documentary evidences containing therein the unit price at which the purchase and sale of share of PDK Shenaz Hotels (P) Ltd. was effected. Further, the assessee has also been .able to discharge its primary onus by furnishing the name and full address of the person to whom the share at the price of Rs. 42/- per share was sold. Therefore, in view of the fact tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the above mentioned criteria or, without bringing any adverse material on record, the price at which the shares were purchased and sold can not be doubted or held as unjustified. Therefore, AO has not been able to bring any material evidence on record to establish that the said company's performance/worth is not commensurate to undertake the transaction of purchase and sale price at the price level on which it has been transacted in the instant case, hence the AO's holding of said transaction being bogus is not based upon any cogent evidence being brought on record and the same is based on conjecture and surmises, which is erroneous and not tenable in law. Further, in this case, the Ld. Assessing Officer has contended that the assessee company did not furnish any documentary evidence justifying the purchase price of Rs. 100/- per share of private limited company. In this regard, the appellant has contended that the company was interested in diversifying its operations into hospitality sector in future. The shares of PDK were purchased in the preceding previous year keeping in mind the said objective of the appellant to enter into hospitality business and it is impor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year under appeal, the Ld. AO did not accept the purchase price of Rs. 100 without any basis and further did riot brought any material evidence to disallow the said loss. In this case, after discussion of aforesaid narrated facts and circumstances of the case, the appellant company has been able to duly discharge its onus by furnishing all documents of sale and purchase, name and address of buyer, name and address of company whose share were transacted and justification that the appellant was interested in diversifying its operations into hospitality sector in future. and the shares of PDK were purchased in the preceding previous year keeping in mind the said objective of the appellant to enter into hospitality business and it is important to note that the appellant as of now is a successful hotelier having three hotels in its group. Further, the entire purchase consideration is paid through Banking channel and same has been verified by Ld. AO and accepted during the assessment proceedings for A Y 2003-04 and has also justified the reasons for distress sale. Further, in the support of above finding, reliance is being placed on following judicial pronouncement: The Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the appellant hence the ground of appeal is allowed and the addition of Rs. 40,60,000/- on account of short term capital loss is accordingly deleted." 23. Aggrieved, Revenue is in appeal before us and at the time of hearing, ld. DR for the Revenue relied on the findings of the Assessing Officer and expressed objections on the findings of the ld. CIT (A) and submitted that ld. CIT (A) merely relied on the submissions of the assessee without verifying proper documents and evidences. 24. On the other hand, ld. AR for the assessee submitted that assessee has sold these shares on distress. In this regard, ld. AR submitted various communications with PDK Shenaz Hotels Pvt. Ltd. from 07.04.2023 to 07.07.2023. He submitted that the issue under consideration is transacted with the intention to expand the business of the assessee in hotel and hospitality industry, however due to non allotment of shares to the assessee to the extent of 51% as per the earlier discussion with the management of PDK so that assessee could control the business of PDK Shenaz Hotels Pvt. Ltd.. Due to disagreement with the parties, the assessee had to exit from this project. Further, he submitted that even ot ..... X X X X Extracts X X X X X X X X Extracts X X X X
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