Veer Enterprises Ltd., Kolkata v. I.T.O. Ward 12(3)/KoL, Kolkata

CO 72/KOL/2009 | 2004-2005
Pronouncement Date: 11-03-2011 | Result: Allowed

Appeal Details

RSA Number 7223523 RSA 2009
Assessee PAN AAACV1980D
Bench Kolkata
Appeal Number CO 72/KOL/2009
Duration Of Justice 1 year(s) 5 month(s) 18 day(s)
Appellant Veer Enterprises Ltd., Kolkata
Respondent I.T.O. Ward 12(3)/KoL, Kolkata
Appeal Type Cross Objection
Pronouncement Date 11-03-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 11-03-2011
Date Of Final Hearing 28-02-2011
Next Hearing Date 28-02-2011
Assessment Year 2004-2005
Appeal Filed On 23-09-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : KOLKATA ( ) . . . . ) [BEFORE HONBLE SRI B.R.MITTAL JM & HONBLE SRI C.D. RAO AM] ! / I.T.A NO. 1544/KOL/2009 '# $% / ASSESSMENT YEAR : 2004-05 INCOME TAX OFFICER WARD-12(3) KOLKATA -VS.- M /S. VEER ENTERPRISES LTD. KOLKATA (PAN : AAACV 1980 D) ( &' /APPELLANT ) ( ()&' / RESPONDENT ) & C.O. NO. 72/KOL./2009 (ARISING OUT OF I.T.A. NO. 1544/KOL./2009) ASSESSMENT YEAR : 2004-2005 MRS. VEER ENTERPRISES LIMITED KOLKATA -VS.- INCO ME TAX OFFICER WARD-12(3) KOLKATA (CROSS OBJECTOR) (RESPONDENT) FOR THE ASSESSEE : S/SHRI R. SALARPURIA AND P.R. KOTHARI A.R. FOR THE DEPARTMENT : SHRI L.S. NEGI D.R. * / ORDER PER SHRI B. R. MITTAL JUDICIAL MEMBER/ . . :- THE APPEAL BEING ITA NO. 1544/KOL./2009 FILED BY T HE REVENUE FOR THE ASSESSMENT YEAR 2004-05 IS AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-XII KOLKATA DATED 10.06.2009 ON THE FOLLOWING GROUNDS :- (1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE LD . CIT(A.) WAS NOT JUSTIFIED IN DIRECTING THE AO TO TREAT THE NET SURP LUS ON ACCOUNT OF SALE OF SHARES AS CAPITAL GAIN INSTEAD OF BUSINESS INCOME. (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE LD. CIT(A.) HAS ERRED IN DIRECTING TO SET OFF THE SHORT-TERM CAPITAL LOSS WITH THE BUSINESS INCOME WHICH SHOULD HAVE BEEN ALLOWED TO BE CARRIED FORWAR D. THE ASSESSEE HAS ALSO FILED CROSS OBJECTION BEING C .O. NO. 72/KOL./2009 ARISING OUT OF ITA NO. 1544/KOL./2009 ON THE FOLLOWING GROUNDS :- (1) DISALLOWANCE OF EXPENDITURE U/S. 14A : (A) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(A) ERRED IN ACCEPTING THE DISALLOWANCE U/S. 14A OF THE INCOME TAX ACT 1961 ITA NO.1544/KOL./2009 & C.O. 72/KOL./2009 2 BY DIRECTING THE LD. A.O TO APPLY RULE 8D OF THE IN COME TAX RULES WHICH ALSO RESULTED IN ENHANCEMENT OF DISALLOWANCE. (B) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) ERRED IN NOT FINDING THAT DISALLOWANCE U/S. 14A IN RESPECT OF INTEREST PAID IS NOT JUSTIFIED. ALTERNATIVE WITH PREJUDICE TO ABOVE GROUND NO. 1(A) AND 1(B) : FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE LD. CIT(APPEALS) ERRED IN NOT ACCEPTING THE ALTERNATIVE PLEA OF THE APPELLANT THAT CLAUSE (III) OF RULE 8D IS TO BE APP LIED WITH REFERENCE TO AVERAGE VALUE OF ONLY THOSE INVESTMENT S ON WHICH EXEMPTED DIVIDEND IS RECEIVED DURING THE YEAR. 2. BRIEF FACTS RELATING TO CONTROVERSY INVOLVED IN THE GROUNDS OF APPEAL ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF TR ADING IN SHARES AND SECURITIES AND FINANCING. DURING THE COURSE OF ASSESSMENT PROCEEDI NGS THE A.O. OBSERVED THAT THE ASSESSEE DISCLOSED SHORT-TERM CAPITAL GAIN OF RS.40 17 299/- FROM SALE OF EQUITY SHARES AND AT THE SAME TIME SHORT TERM CAPITAL LOSS OF RS.41 92 462/- FROM SALE OF MUTUAL FUND. THE A.O. FOUND FROM THE DETAILS OF SHORT-TERM CAPITAL GAIN THAT THE SHA RES OF THE WEST COST PAPER MILL LTD. AND ABB LTD. ACQUIRED ON 25.11.2002 AND 25.02.1993 WERE NOT DECLARED TO BE INVESTMENT AS APPEARING IN INVESTMENTS AS PER SCHEDULE 5 OF THE AUDIT REPORT F ILED WITH THE RETURN OF INCOME. THEREFORE THE SHARES WERE TREATED AS STOCK-IN-TRADE AND NOT AS IN VESTMENT. THE ASSESSEE STATED THAT ALL THE SHARES IN RESPECT OF WHICH SHORT-TERM CAPITAL GAIN DISCLOSED WERE INVESTMENTS AS THE PERIOD OF HOLDING OF SHARES WAS VERY SHORT AND SUCH TRANSACTI ON CAN ONLY BE TREATED AS TRADING AND THE GAIN ARISING THEREFROM IS ONLY TRADING INCOME ESPEC IALLY WHEN THE NATURE OF BUSINESS WAS TRADING IN SHARES SECURITIES AND FINANCING. THE AS SESSEE ALSO STATED THAT BESIDES THE LOSS IN TRADING IN SHARES IN ESSAR STEELS AND UNICHEM LABOR ATORY LTD. REPRESENTED TRADING LOSS AND NOT SHORT-TERM CAPITAL LOSS. THEREFORE THE A.O. TR EATED THE INCOME OF RS.40 17 299/- CLAIMED UNDER THE HEAD OF INCOME FROM CAPITAL GAINS AS BUSI NESS INCOME AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. AT THE SAME TIME THE A.O. DISALLOWED THE SHORT-TERM CAPITAL LOSS OF RS.41 92 462/- TO BE SET OFF AND CARRIED FORWARD FO R FURTHER SET OFF. 2.1. THE ASSESSEE DISCLOSED DIVIDEND INCOME OF RS.2 83 32 362/- AND CLAIMED THE INCOME AS EXEMPT AS PER PROVISIONS OF THE ACT. THE ASSESSEE D EBITED A SUM OF RS.3 73 849/- REPRESENTING INTEREST PAID ON LOANS. THE ASSESSING OFFICER HAS S TATED THAT ASSESSEE WAS REQUESTED TO FILE ITA NO.1544/KOL./2009 & C.O. 72/KOL./2009 3 DETAILS OF SOURCES OF ACQUISITION OF SHARES YIELDIN G DIVIDEND BUT THE ASSESSEE FAILED TO FURNISH THE REQUIRED DETAILS. THE A.O. DISALLOWED AN AMOUNT OF RS.3 73 849/- UNDER SECTION 14A ON ACCOUNT OF INTEREST PAID AND ADDED BACK TO THE TOTA L INCOME OF THE ASSESSEE. BEING AGGRIEVED THE ASSESSEE FILED APPEAL BEFORE THE CIT(A). 3. THE CIT(A) DID NOT TREAT THE SHORT-TERM CAPITAL GAIN ON SALE OF SHARES AMOUNTING TO RS.40 17 299/- AS BUSINESS INCOME BY OBSERVING AT P ARA 4.3 ON PAGES 8-9 OF HIS ORDER AS UNDER :- 4.3. AT THE OUTSET IT IS TO BE MENTIONED THAT A S IMILAR ISSUE HAS BEEN RAISED AS THE MAIN GROUND OF APPEAL IN AY 2006-07 ( APPEAL NO. 293/XII/CIR.12/08-09) IN THE APPELLANTS OWN CASE WHEREIN ON SIMILAR FACTS I HAVE ELABORATELY DISCUSSED THIS ISSUE BOTH ON FACTS AND LAW AND DECIDED IN FAVOUR OF THE APPELLANT. THERE IS A SLIG HT DIFFERENCE WITH THE FACTS OF AY 2006-07 TO THE EXTENT THAT IN THE AY 20 06-07 THE WHOLE SURPLUS ON SALE/ REDEMPTION OF SHARES/ UNITS WHETHER IT IS LONG TERM OR SHORT-TERM OR WHETHER IT IS RELATED TO THE SHARES OR UNITS WAS ASSESSED AS BUSINESS INCOME BY THE AO. HOWEVER IN THE YEAR UNDER CONSID ERATION OF THIS APPEAL THE AO HAD ASSESSED THE SURPLUS ON REDEMPTI ON OF UNITS AS CAPITAL GAIN IRRESPECTIVE OF THE FACT WHETHER IT IS LONG T ERM OR SHORT-TERM AND ALSO THE SURPLUS ON THE SALE OF SHARES WHICH WERE CATEGO RIZED UNDER LONG TERM HAD BEEN ASSESSED AS CAPITAL GAIN. ONLY THE SHORT TERM SURPLUS ON SALE OF SHARES WAS ASSESSED AS BUSINESS INCOME. HOWEVER THE MAIN ISSUE I.E. TREATMENT OF SURPLUS ON SALE/ REDEMPTION OF SHARES/ SECURITIES BEING THE SAME MY OBSERVATIONS AND GROUNDS OF DECISION MADE IN THE AFORESAID APPEAL ORDER FOR AY 2006-07 HOLD GOLD FOR THIS APPE AL ALSO. IN THE AFORESAID APPEAL ORDER I HAVE MAINLY DISCUSSED VAR IOUS FEATURES/ CONDITIONS LAID DOWN BY JUDICIAL FORUMS INCLUDING J URISDICTIONAL KOLKATA TRIBUNAL DISTINGUISHING TRADING ACTIVITY WITH THAT OF INVESTMENT ACTIVITY. THE MAIN CHARACTERISTIC FEATURE THAT IS TO BE SEEN IS THE INTENTION OF THE APPELLANT. THIS MAJORITY DECIDES THE ISSUE AS TO WH ETHER A PARTICULAR TRANSACTION FALLS IN INVESTMENT CATEGORY OR TRADING CATEGORY. IN THE PRESENT CASE APPLYING THE ABOVE RATIO I AM OF THE OPINION THAT THE ORIGINAL INTENTION OF THE APPELLANT WAS TO TREAT SHARES AS I NVESTMENT AND NOT STOCK IN TRADE AS EVIDENT FROM THE ENTRIES MADE IN THE BO OKS OF ACCOUNT AND BALANCE SHEET. THE VOLUME OF TRANSACTIONS FREQUENC Y OF TRANSACTIONS PERIOD OF HOLDING ETC. WOULD NOT ALTER THE NATURE O F TRANSACTION FROM INVESTMENT TO TRADING WHEN THE INITIAL INTENTION OF THE APPELLANT WAS TO HOLD THE SHARES UNDER INVESTMENT AND ACCORDINGLY RE CORDED IN THE BOOKS. AS OBSERVED BY THE HONBLE ITAT KOLKATA BENCH IN T HE CASE OF RELIANCE TRADING ENTERPRISES LTD. (SUPRA) THE SHARES WERE PU RCHASED WITH AN INTENTION OF EARNING DIVIDEND IN ADDITION TO THE PR OSPECT OF MAKING PROFIT ON SALE OF SUCH INVESTMENT SHARES AT AN OPPORTUNE M OMENT WITHOUT MAKING ANY HURRY FOR SALE IGNORING DIVIDEND. RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE ITAT KOLKATA BENCH IN THE CASE OF RELI ANCE TRADING ITA NO.1544/KOL./2009 & C.O. 72/KOL./2009 4 ENTERPRISES LTD. AND THE RATIOS LAID DOWN IN THE CA SES DISCUSSED AND FOLLOWING MY OWN DECISION I ALLOW THE APPELLANTS GROUND ON THIS ISSUE AND DIRECT THE A.O. TO TREAT THE NET SURPLUS ON ACC OUNT OF SALE/ REDEMPTION OF SHARES AS CAPITAL GAIN AND NOT AS BUSINESS INCOM E. THE GROUND OF APPELLANT IS ALLOWED. 3.1. HOWEVER REGARDING DISALLOWANCE UNDER SECTION 14A ON APPEAL THE LD. CIT(A) HAS DIRECTED THE A.O. TO APPLY RULE 8D FOLLOWING THE RA TIO OF DECISION OF ITAT SPECIAL BENCH MUMBAI IN THE CASE OF ITO VS.- DAGA CAPITAL MANAGE MENT IN ITA NO. 8057/MUM./2003 TO RECOMPUTE THE DISALLOWANCE AS PER RULE 8D. 3.2. IN RESPECT OF SETTING OF SHORT-TERM CAPITAL LO SS THE CIT(A) ALLOWED THE GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER :- I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE APPE LLANT. SINCE I HAVE ALLOWED THE GROUND NO. 1 IN FAVOUR OF THE APPELLANT FOR TREATING THE NET SURPLUS ARISING OUT OF SALE OF SHARES AS CAPITAL GA INS INSTEAD OF BUSINESS INCOME THE CONSEQUENTIAL RELIEF CLAIMED BY WAY OF SET OFF OF CURRENT YEARS SHORT TERM CAPITAL LOSS FIRST AGAIN THE CURR ENT YEARS SHORT TERM CAPITAL GAIN AND BALANCE AGAINST SHORT-TERM CAPITAL GAINS AFTER INDEXATION SHOULD BE ALLOWED. ACCORDINGLY MODIFIED GROUND NO. 3 IS ALLOWED . BEING AGGRIEVED BY THE ORDER OF LD. CIT(A) THE REV ENUE IS IN APPEAL BEFORE THE TRIBUNAL. 4. AT THE TIME OF HEARING BEFORE US THE LD. D.R. S UBMITTED THAT THE CIT(A) CONSIDERED THE ORDER DATED 03.01.2008 OF ITAT KOLKATA BENCH IN TH E CASE OF DCIT VS.- RELIANCE TRADING ENTERPRISES LTD. IN ITA NO. 944/KOL./2008 AND DECID ED THE ISSUE IN FAVOUR OF THE ASSESSEE. HE SUBMITTED THAT THE SAID CASE DOES NOT APPLY TO THE FACTS OF THE CASE OF THE ASSESSEE BECAUSE IN THE CASE OF THE ASSESSEE THE OBJECT AS PER MEMORANDUM O F ASSOCIATION OF ASSESSEE-COMPANY IS TO DO BUSINESS OF TRADING IN SHARES AND SECURITIES. TH E LD. D.R. REFERRED PARA 4.3 IN RESPECT OF THE ORDER OF CIT(A) FOR THE ASSESSMENT YEAR 2006-07 AND SUBMITTED THAT THE CIT(A) WHILE DECIDED THE ABOVE ISSUE IN THE ASSESSMENT YEAR UNDER CONSID ERATION HAS CONSIDERED HIS SAID ORDER FOR ASSESSMENT YEAR 2006-07. PARA 4.3 OF THE ORDER OF T HE LD. CIT(A) WE HAVE ALREADY REPRODUCED HEREINABOVE IN PARA 3. 4.1. THE LD. D.R. FURTHER SUBMITTED THAT THE ASSESS EE USED BORROWED FUNDS TO FINANCE THE SHARES AND HENCE IT COULD NOT BE SAID THAT THE ASSE SSEE PURCHASED SHARES FOR THE PURPOSE OF ITA NO.1544/KOL./2009 & C.O. 72/KOL./2009 5 INVESTMENT AND NOT FOR BUSINESS PURPOSES. HE FURTHE R SUBMITTED THAT AS PER THE ACCOUNT MAINTAINED BY THE ASSESSEE THE SHARES ALLEGEDLY PU RCHASED FOR INVESTMENT WERE NOT SEPARATELY SHOWN AND THEREFORE IT IS NOT POSSIBLE TO DISTINGU ISH THE SHARES PURCHASED FOR INVESTMENT AND THE SHARES HELD AS STOCK-IN-TRADE. THE LD. D.R. SUB MITTED THAT THE INTENTION AS TO WHETHER THE SHARES WERE PURCHASED FOR INVESTMENT OR FOR BUSINES S PURPOSES AS STOCK-IN-TRADE ARE TO BE ASCERTAINED FROM SURROUNDING CIRCUMSTANCES AND THE LD. CIT(A) HAS FAILED TO CONSIDER THE SAME. HE SUBMITTED THAT THE LD. CIT(A) HAS NOT CONSIDERED THAT THE ASSESSEE-COMPANY ENTERED INTO A NUMBER OF TRANSACTIONS OF PURCHASES AND SALES OF SH ARES THE PERIOD OF HOLDING WAS ALSO VARYING IN SOME OF THE CASES. HE FURTHER SUBMITTED THAT THE ASSESSEE WAS DOING SHARE TRANSACTIONS IN AN ORGANIZED AND SYSTEMATIC WAY AND THEREFORE ALL TH E SHARE TRANSACTIONS ENTERED INTO BY THE ASSESSEE WERE BUSINESS TRANSACTIONS. THE LD. D.R. F URTHER SUBMITTED THAT THE LD. CIT(A) FAILED TO CONSIDER THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF CIT VS.- DISTRIBUTORS BARODA [83 ITR 377]. THE LD. D.R. SUBMITTED THAT PRIMARY A CTIVITY OF ASSESSEE IS IN SHARE BUSINESS AND THEREFORE THE A.O. WAS JUSTIFIED TO TREAT THE PROF IT ON SALE OF SHARES AS BUSINESS INCOME INSTEAD OF SHORT-TERM CAPITAL GAIN AS CLAIMED BY THE ASSESS EE. THE LD. D.R. SUBMITTED THAT THE GROUND NO. 2 OF THE APPEAL IS CONSEQUENTIAL IF GROUND NO. 1 IS DECIDED IN FAVOUR OF THE DEPARTMENT. 5. ON THE OTHER HAND THE LD. A.R. SUPPORTED THE OR DER OF LD. CIT(A). HE REFERRED TO PAGE 5 OF THE ORDER OF CIT(A) AND SUBMITTED THAT THE ASSES SEE HAS SHOWN THE FOLLOWING FIVE ITEMS STATING THAT THERE IS A NET SURPLUS OF RS.32 84 485 /- ON SALE/ REDEMPTION OF HOLDING OF SHARES/ UNITS WHICH WERE OFFERED UNDER THE HEAD CAPITAL G AINS :- SL. NO. NATURE AMOUNT BOOK PROFIT 1. SHORT TERM CAPITAL GAIN ON SALE OF SHARES 40 17 299 40 17 299 2. SHORT TERM CAPITAL GAIN ON SALE OF SHARES AFTER INDEXED COST 15 341 41 677 3. LONG-TERM CAPITAL GAIN ON SALE OF SHARES LIABLE FOR 10% TAX 21 828 21 828 4. SHORT TERM CAPITAL GAIN ON REDEMPTION OF UNITS 2 30 621 2 30 621 5. LONG TERM CAPITAL LOSS ON REDEMPTION OF UNITS AFTER INDEXING OF COST (-)17 92 572 (-)10 26 940 24 92 517 32 84 485 ITA NO.1544/KOL./2009 & C.O. 72/KOL./2009 6 THE LD. A.R. SUBMITTED THAT THE A.O. ACCEPTED ITEMS NO. 2 TO 5 AS SHOWN HEREINABOVE EXCEPT ITEM NO. 1 AND TREATED THE SAID SHORT-TERM CAPITAL GAIN CLAIMED BY THE ASSESSEE AS BUSINESS INCOME. THE LD. A.R. REFERRED TO PAGES 6 TO 34 OF T HE PAPER BOOK WHICH IS A COPY OF THE ORDER OF THE HONBLE HIGH COURT DATED 29.03.2004 SANCTION ING THE SCHEME OF AMALGAMATION OF SOME OF THE COMPANIES INCLUDING HIGH PROFILE INVESTMENTS LIMITED WITH THE ASSESSEE-COMPANY WITH EFFECT FROM 1 ST APRIL 2003. HE SUBMITTED THAT THE CLAIM OF THE AS SESSEE ON SHORT AND/OR LONG- TERM CAPITAL GAIN AND/OR LOSS RELATES TO THOSE SHAR ES AND UNITS WHICH WERE HELD BY ERSTWHILE AMALGAMATING COMPANY HIGH PROFILE INVESTMENTS LIMIT ED AND TO SUBSTANTIATE HIS SUBMISSIONS REFERRED TO PAGES 22 TO 24 OF THE PAPER BOOK WHICH CONTAINED THE LIST OF EQUITY SHARES OF THE AMALGAMATING COMPANY PRIOR TO THE AMALGAMATION AND CONSEQUENTLY BECAME THE SHARES OF THE ASSESSEE-COMPANY AFTER THE SCHEME OF AMALGAMATION W AS SANCTIONED BY THE HONBLE HIGH COURT. THE LD. A.R. ALSO REFERRED PAGE 35 OF THE PA PER BOOK WHICH IS THE COMPUTATION OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION OF THE ASSESSEE-COMPANY SHOWING THE SHORT-TERM CAPITAL GAIN ON SALE OF SHARES OF RS.40 17 299/- AND ALSO REFERRED PAGE NO. 37 OF THE PAPER BOOK WHICH CONTAINED THE DETAILS OF THE FIGU RE OF SHORT-TERM CAPITAL GAIN OF RS.40 17 299/- ARRIVED AT IN RESPECT OF THE SHARES EARLIER HELD BY HIGH PROFILE INVESTMENTS LTD.. THE LD. A.R. ALSO REFERRED PAGES 74 TO 92 OF THE PA PER BOOK WHICH IS THE COPY OF THE AUDITED BALANCE-SHEET OF HIGH PROFILE INVESTMENTS LTD. AS O N 31.03.2003 AND SUBMITTED THAT AT PAGE 75 OF THE SAID PAPER BOOK WHICH IS A COPY OF THE BALA NCE SHEET OF HIGH PROFILE INVESTMENTS LTD. HAD SHOWN INVESTMENT OF RS.4 01 55 859/- AND REFERR ED PAGES 84-85 OF THE PAPER BOOK WHICH IS GIVING THE DETAILS OF THE INVESTMENT ENDING ON 31.0 3.2003 OF THE AGGREGATED SUM OF RS.4 01 55 859/-. THE LD. A.R. SUBMITTED THAT THE S AID SHARES ON WHICH SHORT-TERM CAPITAL GAIN HAS BEEN CLAIMED BY THE ASSESSEE WERE HELD BY THE A MALGAMATING COMPANY HIGH PROFILE INVESTMENTS LTD. AS INVESTMENT AND THEREFORE THE CONTENTION OF THE LD. D.R. THAT THE SAID SHARES WERE NOT SHOWN AS INVESTMENT BY THE ASSESSEE IN ITS BALANCE-SHEET IS NOT FACTUALLY CORRECT. THE LD. A.R. ALSO REFERRED PAGES 46 TO 66 OF THE PAPER BOOK WHICH IS A COPY OF THE AUDITED BALANCE- SHEET OF THE ASSESSEE-COMPANY FOR THE PERIOD ENDING ON 31.03.2004. HE REFERRED TO PAGE 49 OF THE PAPER BOOK WHICH IS A COPY OF THE BALANCE SHEE T ON 31.03.2004 AND SUBMITTED THAT IN THE SAID BALANCE SHEET IT IS SEPARATELY SHOWN INVESTME NT OF RS.14 16 25 805/- AND THE DETAILS OF THE SAID INVESTMENT IS CONTAINED AT PAGES 53-54 OF THE PAPER BOOK. THE LD. A.R. FURTHER SUBMITTED THAT IN THE SAID BALANCE SHEET AT PAGE 49 OF THE PA PER BOOK THE INVENTORIES OF SHARES ARE SEPARATELY SHOWN AT RS.4 82 17 269/- AND THE DETAIL S OF WHICH ARE SHOWN AT PAGE 55 OF THE PAPER ITA NO.1544/KOL./2009 & C.O. 72/KOL./2009 7 BOOK. HE SUBMITTED THAT THE ASSESSEE HAS SHOWN SEPA RATELY THE SHARES HELD IN INVESTMENT AND SHARES HELD AS STOCK-IN-TRADE. HE FURTHER REFERRED TO PAGE 58 OF THE PAPER BOOK WHICH IS A COPY OF THE NOTES FORMING PART OF THE ACCOUNTING POLICIE S AND SUBMITTED THAT IN THE SAID NOTES IT IS SPECIFICALLY MENTIONED THAT THE INVESTMENTS ARE SHO WN AT COST AFTER PROVIDING FOR ANY DIMINUTION IN VALUE AND WHEREAS THE STOCK-IN-TRADE IN SHARES ARE VALUED AT COST OR MARKET VALUE WHICHEVER IS LOWER EXCEPT IN THE CASE OF UNQUOTED S HARES WHERE IT IS VALUED AT LOWER OF COST OR BREAK-UP VALUE. THE LD. A.R. FURTHER SUBMITTED THAT THE CONTENTION OF THE LD. D.R. THAT THE ASSESSEE HAS BORROWED FUNDS TO FINANCE THE SHARES I S NOT FACTUALLY CORRECT AND REFERRED TO PAGE 50 OF THE PAPER BOOK WHICH IS A COPY OF THE PROFIT & LOSS A/C. FOR THE PERIOD ENDING 31.03.2004. HE SUBMITTED THAT THE ASSESSEE RECEIVED INTEREST OF RS.24 21 113/- AND WHEREAS THE INTEREST PAID WAS ONLY RS.3 73 849/-. HE SUBMITTED THAT MOST OF THE SHARES WERE ACQUIRED BY THE ASSESSEE FROM THE AMALGAMATING COMPANY WHICH WERE SHOWN BY THOSE AMALGAMATING COMPANIES AS INVESTMENTS AND THEREFORE THE LD. CI T(A) HAS RIGHTLY HELD THAT ON SALE OF HOLDING OF SHARES/ REDEMPTION OF SHARES AS SHOWN BY THE ASS ESSEE IS CAPITAL GAIN AND NOT BUSINESS INCOME. THE LD. A.R. FURTHER SUBMITTED THAT IF THE NATURE OF TRANSACTIONS IS ACCEPTED BY CONFIRMING THE ORDER OF THE LD. CIT(A) GROUND NO. 2 OF THE APPEAL DOES NOT REQUIRE ANY ADJUDICATION.. 6. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF AUTHO RITIES BELOW AND THE SUBMISSIONS OF THE LD. REPRESENTATIVES OF THE PARTIES. WE HAVE ALSO CO NSIDERED THE RELEVANT PAGES OF THE PAPER BOOK AND ALSO THE CASES CITED AT THE TIME OF HEARING BY THE LD. REPRESENTATIVES OF THE PARTIES. 7. WE OBSERVE THAT THE STRESS OF THE LD. D.R. TO JU STIFY THE ORDER OF THE ASSESSING OFFICER THAT THE SHORT-TERM CAPITAL GAIN CLAIMED BY THE ASS ESSEE IS TO BE CONSIDERED AS BUSINESS INCOME ONLY BECAUSE THERE IS AN OBJECT CLAUSE OF THE MEMOR ANDUM OF ASSOCIATION OF THE ASSESSEE STATING THE NATURE OF BUSINESS OF THE ASSESSEE IS T RADING IN SHARES AND SECURITIES. IN THIS REGARD IT IS AN ACCEPTED POSITION THAT THE MEMORANDUM AND ART ICLES OF ASSOCIATION OF ANY COMPANY IS PROVIDED IN A WIDE MANNER AND THE SAID OBJECT CLAUS E COULD NOT BE EXCLUSIVELY AND RELIED UPON TO STATE THAT THE NATURE OF BUSINESS OF THE ASSESSE E IS TO BE CONSIDERED AS DEALING IN SHARES AND NOT HOLDING IN SHARES/ UNITS AS AN INVESTMENT. WE A RE OF THE CONSIDERED VIEW THAT IT HAS TO BE DECIDED ON THE FACTS OF THE CASE AS TO WHETHER THE TRANSACTION OF PURCHASE AND SALE OF SHARES WAS IN THE NATURE OF BUSINESS OR INVESTMENTS AND REALIS ATION THEREOF. WE OBSERVE THAT THE SHORT-TERM ITA NO.1544/KOL./2009 & C.O. 72/KOL./2009 8 CAPITAL GAIN OF RS.40 17 299/- CLAIMED BY THE ASSES SEE ON SALE OF SHARES IS IN RESPECT OF THE SHARES WHICH WERE EARLIER HELD BY THE AMALGAMATING COMPANY HIGH PROFILE INVESTMENTS LIMITED AND WERE SHOWN AS INVESTMENT. THE SCHEME OF AMALGAMATION WAS APPROVED BY THE HONBLE HIGH COURT VIDE ORDER DATED 29.03.2004 W.E. F. 01.04.2003. ON PERUSAL OF PAGES 22 TO 24 OF THE PAPER BOOK WHICH CONTAINED THE LIST OF E QUITY SHARES OF THE AMALGAMATING COMPANY HIGH PROFILE INVESTMENTS LTD. WE OBSERVE THAT THE SAID SHARES WERE SHOWN UNDER THE HEAD INVESTMENT PRIOR TO THE SCHEME OF AMALGAMATION WA S APPROVED. WE OBSERVE THAT ON PERUSAL OF COPY OF BALANCE-SHEET OF HIGH PROFILE INVESTMENT S LTD. AN AMALGAMATING COMPANY WITH THE ASSESSEE-COMPANY THE INVESTMENT WAS SHOWN AS ON 31 .03.2003 OF RS.4 01 55 859/- AND THE DETAILS OF THE SAID INVESTMENTS ARE GIVEN AT PAGES 84 TO 85 OF THE PAPER BOOK. THE LD. D.R. HAS NOT DISPUTED THE ABOVE FACTS AT THE TIME OF HEARING . ON PERUSAL OF BALANCE-SHEET OF THE ASSESSEE- COMPANY AS ON 31.03.2004 WE OBSERVE THAT THE ASSES SEE HAS SHOWN SEPARATELY IN THE BALANCE- SHEET INVESTMENT OF RS.14 16 25 805/- AND THE DETA ILS OF THE SAID INVESTMENT ARE CONTAINED AT PAGES 53-54 OF THE PAPER BOOK. BESIDES ABOVE THE A SSESSEE HAS ALSO SHOWN IN THE BALANCE-SHEET AT PAGE 49 OF THE PAPER BOOK THE INVENTORIES OF SH ARES SEPARATELY AT RS.4 82 17 269/- THE DETAILS OF WHICH ARE STATED AT PAGE 55 OF THE PAPER BOOK. THEREFORE THE ASSESSEE HAS SHOWN SEPARATELY THE SHARES HELD IN INVESTMENT AND SHARES HELD AS STOCK-IN-TRADE. IT IS ALSO OBSERVED ON PERUSAL OF COPY OF NOTES FORMING PART OF THE ACCOUN TING POLICIES PLACED AT PAGE 58 OF THE PAPER BOOK IT IS SPECIFICALLY MENTIONED THAT THE INVESTM ENTS ARE SHOWN AT COST AFTER PROVIDING FOR ANY DIMINUTION IN VALUE AND WHEREAS STOCK-IN-TRADE IN S HARES ARE VALUED AT COST OR MARKET VALUE WHICHEVER IS LOWER EXCEPT IN THE CASE OF UNQUOTED S HARES. WE ALSO OBSERVE THAT THE CONTENTION OF THE LD. D.R. THAT THE ASSESSEE HAD UTILIZED THE BORROWED FUNDS FOR INVESTMENT IN SHARES/ UNITS HAS NO MERITS AS WE OBSERVE FROM PAGE 50 OF THE PAP ER BOOK WHICH IS A COPY OF THE PROFIT & LOSS A/C. FOR THE PERIOD ENDING 31.03.2004 THE ASS ESSEE RECEIVED INTEREST OF RS.24 21 113/- AND WHEREAS INTEREST PAID WAS ONLY RS.3 73 849/-. THERE FORE WE ARE UNABLE TO ENDORSE THE SUBMISSIONS OF THE LD. D.R. THAT THE ASSESSEE HAD U TILIZED THE BORROWED FUNDS FOR THE SHARES WHICH ARE CLAIMED AS INVESTMENT. 8. THE CRUCIAL JUDGMENT AS LAID DOWN BY VARIOUS HI GH COURTS TO DECIDE WHETHER A TRANSACTION IS IN THE NATURE OF INVESTMENT OR TRADI NG IS TO BE JUDGED BY INITIAL INTENTION OF THE PERSON AT THE TIME OF PURCHASE OF SHARES/ UNITS. AS WE HAVE ALREADY STATED THAT THE SHORT-TERM CAPITAL GAIN AS CLAIMED BY THE ASSESSEE UNDER CONSI DERATION IS IN RESPECT OF THOSE SHARES WHICH ITA NO.1544/KOL./2009 & C.O. 72/KOL./2009 9 WERE ACQUIRED BY THE ASSESSEE FROM THE AMALGAMATING COMPANY AND THE AMALGAMATING COMPANY HAS SHOWN IN ITS BALANCE-SHEET THE SAID SHA RES UNDER THE HEAD INVESTMENT IN SHARES. FURTHER THERE IS NO DISPUTE TO THE FACT THAT THE S HARES ON WHICH THE SHORT-TERM CAPITAL GAIN IS CLAIMED WERE SHOWN AT COST AND NOT COST OF MARKET VALUE WHICHEVER IS LOWER AS IN THE CASE OF SHARES HELD AS STOCK-IN-TRADE. FURTHER THERE IS NO EVIDENCE ON RECORD BROUGHT BY THE DEPARTMENT THAT THERE HAD BEEN ANY TRANSFER OF STOCK-IN-TRADE TO INVESTMENT. HENCE WE HOLD THAT THERE IS MERIT IN THE CONTENTION OF THE ASSESSEES LD. COUNS EL THAT THE SAID SHARES SOLD BY THE ASSESSEE WERE HELD AS INVESTMENT AND NOT AS STOCK-IN-TRADE. WE ALSO OBSERVE THAT THE SIMILAR ISSUE WAS CONSIDERED BY THE DEPARTMENT IN THE ASSESSMENT YEAR 2006-07 AND THE LD. CIT(A) HELD THAT THE SHARES HELD BY THE ASSESSEE-COMPANY WERE INVESTMENT AND NOT AS STOCK-IN-TRADE AND ACCORDINGLY THE PROFIT ON SALE OF THE SAID SHARES WAS HELD AS C APITAL GAIN AND NOT AS BUSINESS INCOME. THE SAID APPEAL WAS ALSO HEARD BY US ALONGWITH THIS APP EAL AND IN THE SAID APPEAL (BEING I.T.A. NO. 1448/KOL./2009) WE HAVE UPHELD THE FINDING OF THE LD. CIT(A). WE OBSERVE THAT IN THE CASE BEFORE US ALSO THE LD. CIT(A) HAS CONSIDERED THE C ASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2006- 07. WE ALSO OBSERVE THAT THE LD. CIT(A) HAS ALSO CO NSIDERED THE DECISION OF THE COORDINATE BENCH OF ITAT KOLKATA IN THE CASE OF DCIT VS.- RE LIANCE TRADING ENTERPRISES LIMITED IN ITA NO. 944/KOL./2008 DATED 03.10.2008 AND THE TRIB UNAL IN PARA 8 OF ITS ORDER HELD AS UNDER :- 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS AS WELL AS THE DOCUMENTS CONTAINED IN THE PAPER BOOK FILED BEFORE US. THERE IS NO DENYING THE FACT THAT AS PER THE ACCOUNTS MAINTA INED THE ASSESEE HAD ACTED BOTH AS A TRADER AS WELL AS INVESTOR IN SHARE S AS PER THE MEMORANDUM AND ARTICLES OF ASSOCIATION. ACCOUNTS WE RE MAINTAINED FOR TRADING/ BUSINESS SHARES WHICH ARE HELD AS STOCK-IN -TRADE AND SEPARATELY FOR INVESTMENT SHARES WHICH ARE HELD AND SHOWN IN B ALANCE SHEET UNDER THE HEAD INVESTMENT REPRESENTING CAPITAL ASSETS. THE DECISION USED TO BE TAKEN BY THE ASSESSEE AT THE TIME OF PURCHASE IT SELF BASED ON DIFFERENT FACTORS WHETHER ANY SHARE & SECURITY WAS TO BE HELD AS INVESTMENT OR TRADING. WHEN THE SHARES ARE ACCOUNTED FOR IN THE BOOKS AS INVESTMENT SHARES THE VOLUME OF TRANSACTION OF SUC H SHARES CANNOT ALTER ITS STATUS FROM INVESTMENT TO TRADING. PROFIT ON SA LE OF SUCH INVESTMENT SHARES HELD AS CAPITAL ASSETS ARE ASSESSABLE UNDER THE HEAD CAPITAL GAIN. THE PERIOD OF HOLDING SUCH ASSETS CANNOT DET ERMINE ITS STATUS OR CHANGE IT FROM INVESTMENT (CAPITAL) TO TRADING (STO CK-IN-TRADE). THE AUDITED A/CS. FOR THE A.Y. 2004-05 AND THE EARLIER YEARS PLACED IN THE PAPER BOOK MADE IT CLEAR THAT EVERY YEAR THE ASSESS EE HAD ACQUIRED SHARES FOR TRADING PURPOSE AND SEPARATELY ALSO FOR INVESTMENT PURPOSE WITH AN INTENTION TO EARN DIVIDEND INCOME IN ADDITI ON TO THE PROSPECT OF MAKING PROFIT ON SALE OF SUCH INVESTMENT SHARES AT AN APPROPRIATE OPPORTUNE MOMENT WITHOUT MAKING ANY HURRY FOR SALE IGNORING DIVIDEND. THE INVESTMENT SHARES AND SECURITIES PURCHASED AND HELD TILL THEIR SALE ITA NO.1544/KOL./2009 & C.O. 72/KOL./2009 10 HAD DUAL PURPOSE I.E. FOR EARNING DIVIDEND AS AN I NCIDENTAL INCOME AS WELL AS TO MAKE PROFIT ON SALE AT APPROPRIATE TIME. THE CONCLUSIONS DRAWN BY THE A.O. BY TREATING THE INVESTMENT SHARES AS TRADING SHARES WAS BASED PURELY ON ASSUMPTIONS AND PRESUMPTIONS WI THOUT BRINGING ON RECORD ANY MATERIAL OR EVIDENCE IN SUPPORT THEREOF. THE A.O. DID NOT REJECT THE BOOKS OF A/C. VIS--VIS THE AUDITED ACCO UNTS U/S. 145 OF THE I.T. ACT BEFORE ARRIVING AT SUCH A CONCLUSION. THE A.O. S FINDING CANNOT THEREFORE BE ACCEPTED. IN VIEW OF THE ABOVE WE AGREE WITH DECISION OF TH E LD. CIT(A) THAT THE PROFIT ON SALE OF INVESTMENT SHARES SECUR ITIES AND MUTUAL FUND IS ASSESSABLE UNDER THE HEAD CAPITAL GAIN. WE HOLD A CCORDINGLY. GROUND NO. 1 OF THE REVENUES APPEAL IS THEREFORE DISMIS SED. 8.1. IN VIEW OF THE ABOVE AND CONSIDERING THE TOTAL ITY OF THE FACTS OF THE CASE AND RESPECTFULLY FOLLOWING THE DECISION OF ITAT (SUPRA) WE UPHOLD T HE ORDER OF THE LD. CIT(A) THAT GAIN ON SALE OF SHARES OF RS.40 17 299/- IS TREATED AS SHORT-TER M CAPITAL GAIN AND NOT BUSINESS INCOME OF THE ASSESSEE. HENCE GROUND NO. 1 OF THE APPEAL TAKEN B Y THE DEPARTMENT IS REJECTED. 9. AT THE TIME OF HEARING IT WAS MENTIONED THAT IF THE ORDER OF THE LD. CIT(A) IS CONFIRMED IN RESPECT OF GROUND NO. 1 GROUND NO. 2 OF THE APP EAL DOES NOT REQUIRE ANY ADJUDICATION AS IT IS CONSEQUENTIAL IN NATURE. ACCORDINGLY GROUND NO. 2 OF THE APPEAL IS ALSO REJECTED BY UPHOLDING THE ORDER OF THE LD. CIT(A). C.O. NO. 72 (KOL)/2009 : 10. IN RESPECT OF THE CROSS-OBJECTION FILED BY THE ASSESSEE THE LD. A.R. SUBMITTED THAT THE LD. C.I.T.(A) HAS MADE DISALLOWANCES U/S 14A OF THE ACT BY APPLYING RULE 8D OF I.T. RULES BY FOLLOWING THE DECISION OF SPECIAL BENCH OF I.T.A.T. IN THE CASE OF DAGA CAPITAL MANAGEMENT P. LTD. [312 ITR 1 (AT)]. HE SUBMITTED THAT THE SAID DECISION HAS SINCE BEEN OVERRULED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOY CE MFG. CO. LTD. VS. DCIT [328 ITR 81 (BOM)] WHEREIN IT HAS BEEN HELD THAT RULE 8D OF TH E RULES IS PROSPECTIVE IN NATURE AND IS APPLICABLE FROM ASSESSMENT YEAR 2008-09. THE LD. A /R SUBMITTED THAT THE ISSUE COULD BE RESTORED TO THE LD. C.I.T.(A) TO REDECIDE THE SAME AFTER GIVING OPPORTUNITY OF HEARING AND CONSIDERING SUCH EVIDENCES AS MAY BE FILED BY THE A SSESSEE. THE LD. DEPARTMENTAL REPRESENTATIVE HAS NO OBJECTION TO RESTORE THE SAID ISSUE TO THE LD. C.I.T.(A). WE THEREFORE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW ON THIS I SSUE AND RESTORE THE MATTER TO THE FILE OF LD. C.I.T.(A) WHO IS DIRECTED TO READJUDICATE THE ISSU E IN TERMS OF DECISION OF HONBLE BOMBAY ITA NO.1544/KOL./2009 & C.O. 72/KOL./2009 11 HIGH COURT IN THE CASE OF GODREJ BOYCE MFG. CO. LTD . (SUPRA) AFTER AFFORDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND ACCO RDING TO LAW. THE CROSS-OBJECTION OF THE ASSESSEE IS THEREFORE ALLOWED FOR STATISTICAL PUR POSES. 11. IN THE RESULT THE APPEAL OF THE DEPARTMENT IS DISMISSED AND THE CROSS-OBJECTION OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 11.03. 2011. SD/- SD/- [ C. D. RAO/ ( . . ) ] [ B.R. MITTAL / . . ] ACCOUNTANT MEMBER/ JUDICIAL MEMBER/ DATED : 11 / 03 / 2011 COPY OF THE ORDER FORWARDED TO: 1. M/S. VEER ENTERPRISES LTD. 707 CENTRAL PLAZA 2/6 SARAT BOSE ROAD KOLKATA-20 2 ITO WARD-12(3) KOLKATA P-7 CHOWRINGHEE SQUARE KOLKATA-69 3. CIT(A)- KOLKATA 4. CIT KOLKATA- 5. DR KOLKATA BENCHES KOLKATA (TRUE COPY) BY ORDER ASSISTANT REGISTRAR I.T.A.T. KOLKATA LAHA SR. P.S.