ITO, Ward - 12(3), Kolkata v. M/s. Veer Enterprises Ltd., Kolkata

ITA 1448/KOL/2009 | 2006-2007
Pronouncement Date: 11-03-2011

Appeal Details

RSA Number 144823514 RSA 2009
Assessee PAN AAACV1980D
Bench Kolkata
Appeal Number ITA 1448/KOL/2009
Duration Of Justice 1 year(s) 6 month(s) 22 day(s)
Appellant ITO, Ward - 12(3), Kolkata
Respondent M/s. Veer Enterprises Ltd., Kolkata
Appeal Type Income Tax Appeal
Pronouncement Date 11-03-2011
Appeal Filed By Department
Bench Allotted A
Tribunal Order Date 11-03-2011
Date Of Final Hearing 28-04-2011
Next Hearing Date 28-04-2011
Assessment Year 2006-2007
Appeal Filed On 20-08-2009
Judgment Text
1 A IN THE INCOME TAX APPELLATE TRIBUNAL BENCH- A KO LKATA [ . . . . . .. . . .. . ! ! ! !. .. . '# ] BEFORE SHRI B.R.MITTAL JUDICIAL MEMBER & SRI C.D. RAO ACCOUNTANT MEMBER $ $ $ $ / ITA NO. 1448 (KOL) OF 2009 %& '( / ASSESSMENT YEAR 2006-07 INCOME-TAX OFFICER WARD-12(3) KOLKATA. M/S. VEER ENTERPRISES LTD. KOLKATA. (PAN-AAACV1980D) (+ / APPELLANT ) - % - - VERSUS - (/0+ / RESPONDENT ) C.O. NO. 71 (KOL) OF 2009 [IN ITA NO. 1448 (KOL)/2009] ASSESSMENT YEAR 2006-07 M/S. VEER ENTERPRISES LTD. -VS- INCOME-T AX OFFICER WARD-12(3) KOLKATA. (PAN- AAACV1980D) KOLKATA. (CROSS-OBJECTOR) ( RESPONDENT ) DEPARTMENT BY : SRI L.S. NEGI ASSES SEE BY : S/SRI R.SALARPURIA & P.R.KOTHARI '1 / ORDER ( . . . . . .. . ) (B.R.MITTAL) JUDICIAL MEMBER : THE APPEAL BY THE REVENUE AND THE CROSS OBJECTION OF THE ASSESSEE BOTH ARE DIRECTED AGAINST THE ORDER OF THE C.I.T.(A)-XII KO LKATA DATED 27.05.2009 PERTAINING TO ASSESSMENT YEAR 2006-07. FOR THE SAKE OF CONVENIENC E BOTH THIS APPEAL AND THE CROSS OBJECTION ARE DISPOSED OFF BY THIS CONSOLIDATED ORD ER. 2. THE ONLY GROUND IN THIS REVENUES APPEAL READS AS UNDER :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE LD. CIT(A) WAS NOT CORRECT IN DIRECTING THE ASSESSING OFFICER TO TREAT THE NET SU RPLUS OF RS.3 74 97 575/- AS INCOME FROM CAPITAL GAINS INSTEAD OF BUSINESS INC OME. 3. THE ASSESSEE HAS ALSO FILED THE CROSS-OBJECTION ON THE FOLLOWING GROUNDS :- 2 DISALLOWANCE OF EXPENDITURE U/S 14A: A. FOR THAT ON THE FACTS AND IN THE CIRCUMST ANCES OF THE CASE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOLDING THE DISA LLOWANCE OF EXPENSES U/S 14A OF THE INCOME TAX ACT 1961 MADE BY LD. ASSESSI NG OFFICER. B. FOR THAT ON THE FACTS AND IN THE CIRCUMSTA NCES OF THE CASE THE LD. CIT (APPEALS) ERRED IN UPHOLDING THE DISALLOWANCE U/S 14A MADE BY LD. A/O AMOUNTING TO RS.5742/- ON ACCOUNT OF SECURITIES TRANSACTION TAX. C. FOR THAT ON THE FACTS AND IN THE CIRCUMST ANCES OF THE CASE THE LD. CIT (APPEALS) ERRED IN UPHOLDING THE DISALLOWANCE U/S 14A MADE BY LD. A/O AMOUNTING TO RS.13662/- AND RS.2363/- ON ACCOUNT OF DEMAT CHARGE S AND SHARE TRANSFER EXP. RESPECTIVELY. D. FOR THAT ON THE FACTS AND IN THE CIRCUMSTA NCES OF THE CASE THE LD. CIT (APPEALS) ERRED IN UPHOLDING THE DISALLOWANCE U/S 14A MADE BY ID. A/O AMOUNTING TO RS.221623/- ON ACCOUNT OF INTEREST PAID. E) FOR THAT ON THE FACTS AND IN THE CIRCUMSTA NCES OF THE CASE THE LD. CIT (APPEALS) ERRED IN UPHOLDING THE DISALLOWANCE U/S 14A MADE BY ID. A/O SO FAR AS IT CONCERNED TO OTHER EXPENSES CALCULATED @ 0.5% OF TH E AVERAGE VALUE OF TOTAL INVESTMENTS. ALTERNATIVE BUT WITHOUT PREJUDICE TO ABOVE GROUND: FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE LD. CIT(A) ERRED IN NOT ACCEPTING THE APPELLANTS PLEA THAT CLAUSE (III ) OF RULE 8D(2) IS TO BE APPLIED WITH REFERENCE TO THE AVERAGE VALUE OF ONLY THOSE I NVESTMENTS ON WHICH EXEMPTED DIVIDEND IS RECEIVED DURING THE YEAR. 4. THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINES S OF BUYING AND SELLING OF SHARES/ UNITS. DURING THE ASSESSMENT YEAR UNDER CONSIDERATI ON THE ASSESSEE HAD SHOWN DIVIDEND INCOME OF RS.2 87 75 315/- AND NET SURPLUS OF RS.3 74 97 575/- UNDER THE HEAD CAPITAL GAINS ON ACCOUNT OF SALE/REDEMPTION OF SHARES/UNIT S. THE A.O. OBSERVED THAT THE ASSESSEE HAD CARRIED ON IN A SYSTEMATIC AND ORGANIZ ED MANNER NUMEROUS TRANSACTIONS OF BUYING AND SELLING OF SHARES/UNITS WHICH CONSTITUT ED ITS BUSINESS ACTIVITIES. HE THEREFORE HELD THAT THE ASSESSEE-COMPANY WAS CARRY ING ON BUSINESS OF INVESTMENTS (TRADING) AND ACCORDINGLY TREATED ENTIRE NET SURP LUS OF RS.3 74 97 575/- (CAPITAL GAINS) AS INCOME FROM BUSINESS. THE A.O. ALSO MADE A DISAL LOWANCE OF RS.12 44 988/- BEING PROPORTIONATE EXPENSES ATTRIBUTABLE TO DIVIDEND INC OME U/S. 14A OF THE ACT 3 5. THE ASSESSEE CAME IN APPEAL BEFORE THE ID. C.I. T.(A). THE SUBMISSIONS MADE BY THE ASSESSEE AND CASE LAWS RELIED UPON IN SUPPORT O F SUCH SUBMISSIONS HAVE BEEN INCORPORATED ON PAGES 11 TO 15 OF THE APPELLATE ORD ER OF ID. C.I.T.(A). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE JUDICIAL PRONOUNCE MENTS RELIED UPON BY IT AS ALSO THE CASE LAWS RELIED UPON BY THE A.O. AND REJOINDER OF THE ASSESSEE DISTINGUISHING THOSE CASE LAWS HAD DIRECTED THE A.O. TO TREAT THE NET SURPLU S OF RS.3 74 97 575/- AS ASSESSEES INCOME FROM CAPITAL GAINS. WHILE DOING SO THE LD. C.I.T.(A) HAS RELIED ON SEVERAL JUDICIAL PRONOUNCEMENTS INCLUDING THE ORDER OF I.T. A.T. KOLKATA BENCHES IN THE CASE OF DCIT VS. RELIANCE TRADING ENTERPRISES LTD.[(2007) 1 1 SOT 627] AND OBSERVED AS UNDER: 4.4. IN THE LIGHT OF THE DISCUSSION HELD BOTH ON F ACTS AND LAW I AM OF THE OPINION THAT THE ORIGINAL INTENTION OF THE APPELLANT WAS TO TREAT SHARES AS INVESTMENT AND NOT STOCK IN TRADE AS EVIDENT FROM THE ENTRIES MADE IN THE BOOKS OF ACCOUNT AND BALANCE SHEET. THE VOLUME OF TRANSACTIONS FREQUENCY OF TRA NSACTIONS PERIOD OF HOLDING ETC. WOULD NOT ALTER THE NATURE OF TRANSACTION FROM INVE STMENT TO TRADING WHEN THE INITIAL INTENTION OF THE APPELLANT WAS TO HOLD THE SHARES U NDER INVESTMENT AND ACCORDINGLY RECORDED IN THE BOOKS. AS SUCH THE ASSETS (SHARES) CATEGORIZED UNDER THE HEAD INVESTMENT ARE TO BE TREATED AS CAPITAL ASSETS AN D THE PROFIT ON SALE OF SUCH ASSETS ARE TAXABLE UNDER THE HEAD CAPITAL GAINS. IN THE LIGHT OF OBSERVATIONS MADE BY THE HONBLE ITAT KOLKATA BENCH IN THE CASE OF RELIANCE TRADING ENTERPRISES LTD. (SUPRA) I AM OF THE OPINION THAT THE SHARES/UNITS PURCHASED WITH AN INTENTION OF EARNING DIVIDEND IN ADDITION TO THE PROSPECT OF MAK ING PROFIT ON SALE OF SUCH INVESTMENT SHARES AT AN OPPORTUNE MOMENT WITHOUT MA KING ANY HURRY FOR SALE IGNORING DIVIDEND. RESPECTFULLY FOLLOWING THE RATI O LAID DOWN AS ABOVE BY THE ITAT KOLKATA BENCH IN THE CASE OF RELIANCE TRADING ENTERPRISES LTD. AND THE RATIO LAID DOWN IN THE CASES DISCUSSED I ALLOW THE GROUND OF THE APPELLANT RAISED AGAINS T TREATING THE NET SURPLUS AS BUSINESS INCOME. I ACC ORDINGLY DIRECT THE A.O. TO TREAT THE NET SURPLUS AS INCOME FROM CAPITAL GAINS AS CLA IMED BY THE APPELLANT . HENCE THIS APPEAL BY THE DEPARTMENT. 6. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED T HAT LD. C.I.T.(A) RELIED ON THE DECISION OF I.T.A.T. KOLKATA BENCH IN THE CASE OF DCIT VS. RELIANCE TRADING ENTERPRISES LTD. IN ITA NO. 944 (KOL)/2008 DATED 03 /1/2008 IN SPITE OF THE FACT THAT THE SAID CASE DOES NOT APPLY TO THE CASE OF THE ASSESSE E AND SUBMITTED THAT THE SURPLUS AROSE TO THE ASSESSEE ON SALE OF SHARES/UNITS IS NOT CAPI TAL GAIN BUT BUSINESS PROFIT AS HELD BY THE A.O. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMIT TED THAT AS PER OBJECT CLAUSE OF MEMORANDUM OF ASSOCIATION OF THE ASSESSEE THE NATU RE OF BUSINESS OF THE ASSESSEE IS TRADING IN SHARES AND SECURITIES. HE FURTHER SUBMIT TED THAT THE ASSESSEE HAS BORROWED 4 FUNDS TO PURCHASE SHARES AND THEREFORE THE SHARES HAVE TO BE CONSIDERED AS STOCK-IN- TRADE AND NOT AS INVESTMENT. THE LD. DEPARTMENTAL R EPRESENTATIVE FURTHER SUBMITTED THAT THE ASSESSEE DID NOT MAINTAIN SEPARATE ACCOUNTS FOR INVESTMENT MADE IN SHARES AND THE SHARES WERE HELD AS STOCK-IN-TRADE. HE FURTHER SUBM ITTED THAT THE A.O. HAS RIGHTLY OBSERVED THAT THE INTENTION IS TO BE ASCERTAINED FR OM SURROUNDING OF FACTS AND WHEREAS THE LD. C.I.T.(A) HAS CONSIDERED THE FACTS IN ISOLA TION I.E. ENTRIES IN THE BOOKS OF ACCOUNT OF THE ASSESSEE TO HOLD THAT THE SHARES AND UNITS S OLD BY THE ASSESSEE IN THE ASSESSMENT YEAR UNDER CONSIDERATION WERE INVESTMENTS. HE SUBMI TTED THAT THE LD. C.I.T.(A) FAILED TO CONSIDER THE VOLUME OF TRANSACTION AND PERIODS OF H OLDINGS AND ALSO THE FACT THAT THE ASSESSEE WAS DEALING IN SHARES IN AN ORGANIZED AND SYSTEMATIC WAY. THEREFORE THE A.O. HAS RIGHTLY CONSIDERED THAT THE ASSESSEE WAS CARRYI NG ON THE REGULAR BUSINESS OF PURCHASE AND SALE OF SHARES AND UNITS AND THEREFORE THE TR ANSACTIONS IN RESPECT OF WHICH THE ASSESSEE HAS THE SURPLUS ON SALE OF SHARES/UNITS IS THE BUSINESS INCOME OF THE ASSESSEE AND NOT AS CAPITAL GAIN. HE FURTHER SUBMITTED THAT THE LD. C.I.T.(A) IGNORED THE DECISION OF HONBLE APEX COURT IN THE CASE OF CIT VS. DISTRI BUTORS BARODA [83 ITR 377 (SC)]. THE LD. DEPARTMENTAL REPRESENTATIVE THEREFORE SUB MITTED THAT THE ORDER OF THE LD. C.I.T.(A) BE REVERSED BY CONFIRMING THE ORDER OF A. O. 7. ON THE OTHER HAND THE LEARNED AUTHORIZED REPR ESENTATIVE OF THE ASSESSEE SUPPORTED THE ORDER OF ID. C.1.T.(A). HE REFERRED T O PAGE-2 OF THE ORDER OF ID. C.I.T.(A) WHICH CONTAINED THE DETAILS OF THE SURPLUS AROSE TO THE ASSESSEE ON SALE OF SHARES/ REDEMPTION OF UNITS AGGREGATING TO RS.3 74 97 575/- . HE SUBMITTED THAT THE ASSESSEE MAINTAINED SEPARATE ACCOUNTS IN RESPECT OF THE SHAR ES AND UNITS HELD AS INVESTMENT AND THE SHARES HELD AS STOCK-IN-TRADE. IN THIS REGARD HE REFERRED TO PAGES 3 TO 6 OF THE PAPER BOOK WHICH CONTAINED THE DETAILS OF THE UNITS AND SHARES SOLD IN THE ASSESSMENT YEAR UNDER CONSIDERATION. HE SUBMITTED THAT THE SAID STA TEMENT ALSO CONTAINED THE PERIOD OF HOLDING OF THE UNITS AND SHARES. THE LD. A/R SUBMIT TED THAT OUT OF THE TOTAL AMOUNT OF RS.3 74 97 575/- THERE IS A LONG-TERM CAPITAL GAIN ON WHICH STT WAS ALSO PAID AGGREGATING TO RS.2 77 70 029/-. FURTHER THERE WAS ALSO LONG-TERM CAPITAL GAIN OF RS.4629388/- ON WHICH STT WAS NOT PAID AND THE SAID CAPITAL GAIN WAS CLAIMED AFTER TAKING THE BENEFIT OF INDEXING AND OFFERING TAX AT THE RATE OF 20%. THE LD. A/R FURTHER 5 REFERRED PAGE-2 OF THE ORDER OF LD. C.I.T.(A) AND S UBMITTED THAT THERE WAS FURTHER LONG- TERM CAPITAL GAIN OF RS.43 36 475/- ON WHICH ALSO NO STT WAS PAID BUT THE ASSESSEE HAS ALSO NOT CLAIMED THE BENEFIT OF INDEXING AND HAS OF FERED TAX AT THE RATE OF 10%. THE LD. A/R SUBMITTED THAT OUT OF THE TOTAL LONG-TERM CAPIT AL GAIN/SHORT-TERM CAPITA GAIN OF RS.3 74 97 575/- THERE IS A LONG-TERM CAPITAL GAIN OF RS.3.67 CRORES APPROXIMATELY. HE SUBMITTED THAT ON PERUSAL OF THE SAID STATEMENT PLA CED ON PAGES 3 TO 6 OF THE PAPER BOOK IT WOULD BE SEEN THAT THE PERIOD OF HOLDING WAS VAR YING FROM MORE THAN 12 MONTHS TO 5 YEARS. THE LD. A/R FURTHER SUBMITTED THAT ALL THE S AID INVESTMENTS WERE ACCEPTED BY THE A.O. IN THE ASSESSMENT YEAR 2004-05. HE FURTHER REF ERRED TO PAGES 7 TO 35 OF THE PAPER BOOK AND SUBMITTED THAT MOST OF THE MUTUAL FUND UNI TS AND THE SHARES WHICH HAVE BEEN SOLD BY THE ASSESSEE IN THE ASSESSMENT YEAR UNDER C ONSIDERATION WERE ACQUIRED UNDER THE SCHEME OF AMALGAMATION OF THE AMALGAMATING COMPANIE S. HE SUBMITTED THAT THE AMALGAMATING COMPANIES VIZ. HIGH PROFILE INVESTMEN TS LTD. & DRISTI FINANCE LTD. HAD SHOWN THE SAID UNITS/ SHARES UNDER THE HEAD INVEST MENT. THE LD. A./R FURTHER REFERRED COPY OF THE BALANCE SHEET OF THE ASSESSEE-COMPANY P LACED ON PAGES 36 TO 52 OF THE PAPER BOOK. HE REFERRED TO PAGE 39 OF THE PAPER BOOK WHI CH IS A COPY OF THE BALANCE SHEET AS AT 31ST MARCH 2006 AND SUBMITTED THAT THE ASSESSEE HAS SHOWN THE INVESTMENTS OF RS.22 37 20 248/- AND THE DETAILS OF WHICH HE SUBM ITTED ARE CONTAINED AT PAGES 43 & 44 OF THE PAPER BOOK. THE LD. A/R FURTHER SUBMITTED THAT IN THE SAID BALANCE SHEET THE SHARES WHICH WERE HELD AS STOCK-IN-TRADE AS ON 31S T MARCH 2006 WERE SHOWN UNDER THE HEAD INVENTORIES AGGREGATING TO RS.6 01 44 861/- A ND AT PAGE 45 OF THE PAPER BOOK THE DETAILS OF SUCH SHARES ARE CONTAINED. THE LD. A/R F URTHER REFERRED PAGE 48 OF THE PAPER BOOK WHICH CONTAINED NOTES ON ACCOUNTING POLICIES. HE SUBMITTED THAT IN THE SAID NOTE IT IS SPECIFICALLY STATED THAT THE INVESTMENT S ARE STATED AT COST AFTER PROVIDING FOR ANY DIMINUTION IN VALUE IF SUCH DIMINUTION IS OF A PERMANENT NATURE WHEREAS THE STOCK- IN-TRADE OF SHARES ARE VALUED AT COST OR MARKET VAL UE WHICHEVER IS LOWER EXCEPT IN THE CASES OF UNQUOTED SHARES WHERE IT IS VALUED AT LOWE R OF COST OF BREAK-UP VALUE. THE LD. A/R AGAIN REFERRED PAGE 40 OF THE PAPER BOOK WHICH IS A COPY OF PIL ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2006 AND SUBMITTED THAT THE TOTAL INTEREST RECEIVED BY THE ASSESSEE WAS OF RS.11 02 452/- AND WHEREAS THE INTE REST PAID BY THE ASSESSEE WAS ONLY 6 RS.3 15 000/-. HE SUBMITTED THAT THE CONTENTION OF THE ID. DEPARTMENTAL REPRESENTATIVE THAT THE ASSESSEE USED BORROWED FUND FOR INVESTMENT IN SHARES/UNITS IS NOT FACTUALLY CORRECT. THE LD. A/R SUBMITTED THAT THE ORDER OF TH E LD. C.I.T.(A) IS BASED ON FACTS AND THE SAME SHOULD BE CONFIRMED. 8. WE HAVE HEARD THE RIVAL CONTENTIONS OF THE PAR TIES AND PERUSED THE MATERIAL PLACED ON RECORD. THE A.O. OBSERVED THAT THE ASSESS EE HAS SHOWN CAPITAL GAINS ON TRANSACTIONS OF SHARES AND UNITS OF MUTUAL FUNDS AN D THE SURPLUS (NET PROFIT) OF RS.3 74 97 575/- ON SUCH TRANSACTIONS HAS BEEN CLAI MED AS OUT OF SALE OF INVESTMENTS. THE A.O. TREATED THE SAID SURPLUS AS ASSESSEES INC OME FROM SHARE TRADING BUSINESS. THEREFORE THE ISSUE BEFORE US IS WHETHER THE SURPL US EARNED BY THE ASSESSEE OUT OF SALE OF SHARES/UNITS WAS ITS CAPITAL GAIN OR WHETHER THE SAME WAS ASSESSEES BUSINESS INCOME. WE OBSERVE THAT THE A.O. CONSIDERING THE VOLUME OF TRANSACTIONS AND PERIOD OF HOLDING OF THE SHARES/UNITS HELD THAT THE ASSESSEE IN AN OR GANIZED AND SYSTEMATIC MANNER DID SHARE TRANSACTIONS AND INCOME/SURPLUS OUT OF SUCH R EGULAR BUSINESS WAS ASSESSEES BUSINESS INCOME AND NOT CAPITAL GAIN ON SALE OF INV ESTMENTS AS CLAIMED BY THE ASSESSEE. THERE IS NO DISPUTE TO THE FACT AS IS EVIDENT FROM THE BALANCE SHEET AS AT 31/3/2006 (PAGE 39 OF THE PAPER BOOK) THAT THE ASSESSEE DURING THE ASSESSMENT YEAR UNDER CONSIDERATION HAS MAINTAINED TWO SEPARATE ACCOUNTS ONE IN RESPEC T OF SHARES/UNITS HELD AS INVESTMENT (RS.22 37 20 248) AND THE OTHER IN RESPECT OF SHARE S/UNITS HELD AS STOCK-IN-TRADE SHOWN UNDER THE HEAD INVENTORIES (RS.6 01 44 861). IT I S ALSO NOT DISPUTED BY THE DEPARTMENT THAT THE INVESTMENT SHOWN BY THE ASSESSEE HAS ALSO BEEN ACCEPTED IN ASSESSMENT YEAR 2004-05. IT WAS CONTENDED BY THE LD. DEPARTMENTAL R EPRESENTATIVE THAT AS PER OBJECT CLAUSE OF MEMORANDUM OF ASSOCIATION OF THE ASSESSEE THE NATURE OF BUSINESS OF THE ASSESSEE IS TRADING IN SHARES AND SECURITIES. IT IS AN ACCEPTED POSITION THAT THE MEMORANDUM & ARTICLES OF ASSOCIATION OF ANY COMPANY IS DRAFTED IN A VERY WIDE MANNER. MERELY BECAUSE THE MEMORANDUM PERMITS THE A SSESSEE TO UNDERTAKE THE BUSINESS IN SHARES THAT DOES NOT MEAN THAT EVEN WH EN THE ASSESSEE MADE INVESTMENT IN SHARES THAT IS TO BE TREATED AS ADVENTURE IN THE N ATURE OF TRADE. IT HAS TO BE DECIDED ON THE FACTS OF THE CASE THAT WHETHER THE TRANSACTION OF PURCHASE AND SALE OF SHARES WAS BUSINESS OF THE ASSESSEE OR INVESTMENT IN SHARES AN D REALIZATION THEREOF. WE OBSERVE 7 FROM THE BALANCE SHEET AS AT 31/3/2006 PLACED AT P AGE 39 OF THE PAPER BOOK THAT THE ASSESSEES SHARE CAPITAL AND RESERVE & SURPLUS WAS TO THE EXTENT OF RS.30.82 CRORES AS AGAINST WHICH THE LOAN FUND WAS FOR RS.35 00 000/- AND LOANS & ADVANCES UNDER CURRENT ASSETS WERE FOR RS.3 20 40 434/-. FURTHER AS PER P /L ACCOUNT FOR THE YEAR UNDER APPEAL PLACED AT PAGE 40 OF THE PAPER BOOK TOTAL INTEREST RECEIVED BY THE ASSESSEE WAS OF RS.1L 02 452/- AS AGAINST WHICH INTEREST PAID BY T HE ASSESSEE WAS ONLY RS.3 L5 000/-. ON THE ABOVE FACTS THEREFORE WE ARE UNABLE TO END ORSE THE SUBMISSIONS OF THE LD. DEPARTMENTAL REPRESENTATIVE THAT THE ASSESSEE HAD U TILIZED THE BORROWED FUND FOR INVESTMENT IN SHARES/UNITS. WE FURTHER OBSERVE ON P ERUSAL OF PAGE-12 OF THE ORDER OF LD. C.I.T.(A) THAT MAJOR PORTION OF THE SURPLUS ON SALE /REDEMPTION OF SHARES/UNITS I.E. APPROXIMATELY RS.2.08 CRORES WAS IN RESPECT OF THE INVESTMENTS HELD FOR QUITE A LONG PERIOD RANGING FROM 2 YEARS TO 6 YEARS OF 6 SCRIPS/ SCHEME AND LONG-TERM CAPITAL GAIN WAS SHOWN AGAINST SALE OF SUCH SHARES/UNITS SUBJEC T TO STT EXCEPT IN ONE CASE WHERE SIT WAS NOT CHARGED. WE FURTHER OBSERVE FROM PAGE-1 2 OF LD. C.I.T.(A)S ORDER THAT THERE WAS NO PURCHASE OF SHARES/UNITS DURING THE YE AR UNDER CONSIDERATION AND OUT OF THE OPENING INVESTMENT OF SHARES AMOUNTING TO RS.3 53 7 6 654/- THE ASSESSEE SOLD SUCH SHARES/UNITS FOR RS.83 64 275/- WHICH WAS 25% OF T HE OPENING STOCK AND RETAINED THE BALANCE 75%. IN NATURAL COURSE OF SHARE TRADING BUS INESS IN OUR CONSIDERED OPINION THERE MUST BE PURCHASE DURING THE YEAR AND THE TOTA L TURNOVER IS TO BE MUCH MORE OF THE TOTAL HOLDING OF STOCK. THEREFORE THE ALLEGATION O F THE DEPARTMENT THAT THERE WAS HEAVY VOLUME OF TRANSACTION IN RESPECT OF ASSESSEES INVE STMENTS IS NOT FOUND TO BE CORRECT. 9. THE CRUCIAL TEST AS LAID DOWN BY VARIOUS HONB LE COURTS TO DECIDE WHETHER A TRANSACTION IS IN THE NATURE OF INVESTMENT OR TR ADINGIS TO BE JUDGED BY INITIAL INTENTION OF THE PERSON AT THE TIME OF PURCHASES OF SHARES/UN ITS. IN THE CASE OF THE ASSESSEE AS STATED ABOVE WE OBSERVE THAT AT THE TIME OF PURCHA SE OF SHARES/UNITS NECESSARY ENTRIES HAVE BEEN MADE IN THE BOOKS UNDER THE HEAD INVESTM ENT IN SHARES WHICH WAS ALSO DULY REFLECTED IN THE BALANCE SHEET UNDER THE HEAD INVESTMENT. MOST OF THE SHARES/UNITS HAVE BEEN HELD FOR A LONG PERIOD AND GAINS ON SALE OF SUCH SHARES/UNITS HAVE BEEN ACCOUNTED FOR AS CAPITAL GAIN CONSISTENTLY. IN THE INSTANT CASE THE SHARES/UNITS HELD UNDER INVESTMENT HEAD HAVE BEEN SHOWN AT COST AND NOT C OST OR MARKET VALUE WHICHEVER IS 8 LOWER AS IN CASE OF SHARES/UNITS HELD AS STOCK-IN- TRADE. FURTHER THE DEPARTMENT HAS FAILED TO ESTABLISH THAT THE SHARES/UNITS HAVE BEEN ACQUIRED OUT OF BORROWED FUNDS RATHER WE OBSERVE FROM THE BALANCE SHEET FOR THE YEAR UNDE R APPEAL (PAGE-39 OF THE PAPER BOOK) THAT THE ASSESSEES SHARE CAPITAL AND RESERVE & SURPLUS WAS ENOUGH TO LOOK AFTER THE INVESTMENT IN SHARES/UNITS. WE FURTHER OBSERVE THAT DURING THE YEAR UNDER APPEAL THE ASSESSEE HAD SHOWN DIVIDEND INCOME OF RS.2 87 75 31 5/-. THE AUDITED ACCOUNTS FOR THE YEAR UNDER CONSIDERATION AND THE OTHER RECORDS OF E ARLIER YEARS PLACED IN THE PAPER BOOK MADE IT CLEAR THAT DURING THE YEAR UNDER APPEAL THE RE WAS NO PURCHASE OF SHARES/UNITS ACCOUNTED FOR UNDER INVESTMENT PORTFOLIO AND THE SA ME WERE CARRIED FORWARD AT COST FROM EARLIER YEAR WITH AN INTENTION TO EARN DIVIDEN D INCOME IN ADDITION TO THE PROSPECT OF MAKING PROFIT ON SALE OF SUCH INVESTMENTS AT AN APPROPRIATE OPPORTUNE MOMENT. FURTHER THERE IS NO EVIDENCE ON RECORD BEING BROUG HT OUT BY THE DEPARTMENT THAT THERE HAD BEEN ANY TRANSFER OF STOCK-IN-TRADE TO INVESTME NT. THEREFORE IN OUR CONSIDERED OPINION THE DEPARTMENT FAILED TO ESTABLISH THE INT ENTION OF THE ASSESSEE TO INVEST ITS CAPITAL WITH THE ONLY MOTIVE OF EARNING A PROFIT BY PURCHASE AND SALE OF SHARES/UNITS OF MUTUAL FUNDS. THERE IS THEREFORE MERIT IN THE CON TENTION OF THE ASSESSEES LEARNED COUNSEL THAT THE ORIGINAL/INITIAL INTENTION OF THE ASSESSEE WAS TO HOLD THE SHARES/UNITS AS INVESTMENTS AND NOT AS STOCK-IN-TRADE. 10. WE FURTHER OBSERVE THAT IDENTICAL ISSUE HAS B EEN CONSIDERED BY THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT VS. RELI ANCE TRADING ENTERPRISES LTD. (SUPRA) AND THE TRIBUNAL IN PARA-8 OF ITS ORDER HAS HELD AS UNDER :- 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORDS AS WELL AS THE DOCUMENTS CONTAINED IN THE PAPER BOOK FILED BEFORE US. THERE IS NO DENYING THE FACT THAT AC PER THE ACCOUNTS MAINTAINED THE AS SESSEE HAD ACTED BOTH AS A TRADER AS WELL AS INVESTOR IN SHARES AS PER THE MEM ORANDUM AND ARTICLES OF ASSOCIATION. ACCOUNTS WERE MAINTAINED FOR TRADING/ BUSINESS SHARES WHICH ARE HELD AS STOCK-IN-TRADE AND SEPARATELY FOR INVES TMENT SHARES WHICH ARE HELD AND SHOWN IN BALANCE SHEET UNDER THE HEAD INV ESTMENT REPRESENTING CAPITAL ASSETS. THE DECISION USED TO BE TAKEN BY TH E ASSESSEE AT THE TIME OF PURCHASE ITSELF BASED ON DIFFERENT FACTORS WHETHER ANY SHARE & SECURITY WAS TO BE HELD AS INVESTMENT OR TRADING. WHEN THE S HARES ARE ACCOUNTED FOR IN THE BOOKS AS INVESTMENT SHARES THE VOLUME OF TR ANSACTION OF SUCH SHARES CANNOT ALTER ITS STATUS FROM INVESTMENT TO TRADING. PROFIT ON SALE OF SUCH INVESTMENT SHARES HELD AS CAPITAL ASSETS ARE ASSESS ABLE UNDER THE HEAD 9 CAPITAL GAIN. THE PERIOD OF HOLDING SUCH ASSETS CAN NOT DETERMINE 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 P LACED IN THE PAPER BOOK MADE IT CLEAR THAT EVERY YEAR THE ASSESSEE HAD ACQU IRED SHARES FOR TRADING PURPOSE AND SEPARATELY ALSO FOR INVESTMENT PURPOSE WITH AN INTENTION TO EARN DIVIDEND INCOME IN ADDITION TO THE PROSPECT OF MAKI NG PROFIT ON SALE OF SUCH INVESTMENT SHARES AT AN APPROPRIATE OPPORTUNE MOMEN T WITHOUT MAKING ANY HURRY FOR SALE IGNORING DIVIDEND. THE INVESTMENT SH ARES AND SECURITIES PURCHASED AND HELD TILL THEIR SALE HAD DUAL PURPOSE I.E. FOR EARNING DIVIDEND AS AN INCIDENTAL INCOME AS WELL AS TO MAKE PROFIT O N SALE AT APPROPRIATE TIME. THE CONCLUSIONS DRAWN BY THE A.O. BY TREATING THE I NVESTMENT SHARES AS TRADING SHARES WAS BASED PURELY ON ASSUMPTIONS AND PRESUMPTIONS WITHOUT BRINGING ON RECORD ANY MATERIAL OR EVIDENCE IN SUPP ORT THEREOF THE A. 0 DID NOT REJECT THE BOOKS OF A/C. VIS--VIS THE AUDITED ACCOUNTS U/S 145 OF THE I.T. ACT BEFORE ARRIVING AT SUCH A CONCLUSION. THE A.OS FINDING CANNOT THEREFORE BE ACCEPTED. IN VIEW OF THE ABOVE WE AGREE WITH DECISION OF THE LD. CIT(A) THAT THE PROFIT ON SALE OF INVESTMENT SHARES SECURITIES AND MUTUAL FUND IS ASSESSABLE UNDER THE HEAD CAPITAL GAIN . WE HOLD ACCORDINGLY. IN VIEW OF THE ABOVE AND CONSIDERING THE TOTALITY O F THE FACTS AND CIRCUMSTANCES OF THE CASE AND RESPECTFULLY FOLLOWING THE AFORESAID DECIS ION OF I.T.A.T. KOLKATA WE ARE OF THE OPINION THAT SURPLUS ARISING ON THE SALE OF SHA RES/UNITS OF MUTUAL FUNDS HELD AS INVESTMENT IS TO BE TREATED AS CAPITAL GAIN AND NOT THE BUSINESS INCOME. ACCORDINGLY WE UPHOLD THE ORDER OF THE LD. C.I.T.(A) IN SO FAR AS TREATMENT OF RS.3 74 97 525/- AS CAPITAL GAIN IS CONCERNED. THE GROUND OF APPEAL OF THE DEP ARTMENT IS THEREFORE DISMISSED. C.O. NO. 71 (KOL)/2009 : 11. 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 SU BMITTED THAT THE SAID DECISION HAS SINCE BEEN OVERRULED BY THE HONBLE BOMBAY HIGH COU RT IN THE CASE OF GODREJ BOYCE MFG. CO. LTD. VS. DCIT [328 ITR 81 (BOM)] WHEREIN IT HAS BEEN HELD THAT RULE 8D OF THE RULES IS PROSPECTIVE IN NATURE AND IS APPLICABL E 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 CONSID ERING SUCH EVIDENCES AS MAY BE FILED 10 BY THE ASSESSEE. THE LD. DEPARTMENTAL REPRESENTATI VE HAS NO OBJECTION TO RESTORE THE SAID ISSUE TO THE LD. C.I.T.(A). WE THEREFORE SE T ASIDE THE ORDERS OF THE AUTHORITIES BELOW ON THIS ISSUE AND RESTORE THE MATTER TO THE F ILE OF LD. C.I.T.(A) WHO IS DIRECTED TO READJUDICATE THE ISSUE IN TERMS OF DECISION OF HON BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCE MFG. CO. LTD. (SUPRA) AFTER AFFORDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND ACCORDING TO LAW. THE CRO SS-OBJECTION OF THE ASSESSEE IS THEREFORE ALLOWED FOR STATISTICAL PURPOSES. 12. IN THE RESULT THE APPEAL OF THE DEPARTMENT IS DISMISSED AND THE CROSS-OBJECTION OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 2 '1 #3' 4 3% 5 26 THIS ORDER IS PRONOUNCED IN THE OPEN COURT ON 11.03.2011. SD/- SD/- ( . .. . ! ! ! !. .. . ) '# ( . . . . . .. . ) (C.D.RAO) ACCOUNTANT MEMBER (B.R.MITTAL) JUDICIAL MEMBER ( (( (!# !# !# !#) )) ) DATE: 11-03-2011 '1 7 /8 9'8':- COPY OF THE ORDER FORWARDED TO: 1. + / THE APPELLANT : I.T.O. WARD-12(3) KOLKATA. 2 /0+ / THE RESPONDENT : M/S. VEER ENTERPRISES LTD. 707 CENTRAL PLAZA 2/6 SARAT BOSE ROAD KOLKATA-700 020. 3. 1% () : THE CIT(A)-XII KOLKATA. 4. 1%/ THE CIT KOL- 5 >5 /% / DR ITAT KOLKATA BENCHES KOLKATA 6 GUARD FILE . 08 // TRUE COPY '1%3/ BY ORDER (DKP) ? @ / DY/ASSTT. REGISTRAR .