D.C.I.T Cir - 1,kolkata, Kolkata V. M/s A.K.G Finvest Ltd, Kolkata

ITA 1341/KOL/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4920 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 9 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2016
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 03-03-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 17-05-2013
• Court: TRIBUNAL
• Department Lawyers: RAJENDRA PRASAD
• Keywords: Capital asset; Business income; Depreciation; Earning of tax free income; Proportionate interest; Speculation loss
• Section: 143(3); 14A; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOL KATA [BEFORE SHRI MAHAVIR SINGH, JM & SHRI M. BALAGANES H, AM] I.T.A NO.1341/KOL/2013 ASSESSMENT YEAR: 2009-10 DEPUTY COMMISSIONER OF INCOME-TAX, VS. M/S. A. K. G. FINVEST LTD. CIRCLE-1, KOLKATA. (PAN:AADCA8306P) ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 03.03.2016 DATE OF PRONOUNCEMENT: 16.03.2016 FOR THE APPELLANT: SHRI RAJENDRA PRASAD, JCIT FOR THE RESPONDENT: SHRI RAVI TULSIYAN, FCA ORDER PER SHRI MAHAVIR SINGH, JM: THIS APPEAL BY REVENUE IS ARISING OUT OF ORDER OF C IT(A)-I, KOLKATA VIDE APPEAL NO. 748/CIT(A)-I/C-1/11-12 DATED 20.02.2013. ASSESSMENT WAS FRAMED BY DCIT, CIRCLE-1, KOLKATA U/S. 143(3) OF THE INCOME TAX ACT, 1961 (HE REINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEAR 2009-10 VIDE HIS ORDER DATED 23.11. 2011. 2. THE FIRST ISSUE IN THIS APPEAL OF REVENUE IS AG AINST THE ORDER OF CIT(A) DIRECTING THE AO TO TREAT THE LOSS FROM SPECULATION BUSINESS OF S ALE OF SHARES AS LONG TERM CAPITAL GAIN OR SHORT TERM CAPITAL GAIN, AS THE CASE MAY BE. FOR T HIS, REVENUE HAS RAISED FOLLOWING GROUND NO.1: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) WAS NOT JUSTIFIED IN TREATING THE SPECULATIVE BUSINESS LOSS FROM SALE OF SHARE OF RS.39,74,24,220/- AS LONG TERM CAPITAL LOSS AND SHORT TERM CAPITAL LOSS. 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS A PUBLIC SUBSTANTIALLY INTEREST COMPANY FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THE ASS ESSEE COMPANY IS A NON-BANKING FINANCIAL COMPANY U/S. 45(1A) OF THE RBI ACT, 1934, . THE ASSESSEE IS AN INVESTMENT COMPANY HAVING MAIN OBJECT OF INVESTMENT IN SHARES. ACCORDING TO AO, THE ASSESSEE HAS DISCLOSED LONG TERM CAPITAL LOSS TO THE TUNE OF RS. 3,34,30,136/- IN ITS P&L ACCOUNT FOR THE YEAR ENDED 31.03.2009. ASSESSEE ALSO DISCLOSED SHO RT TERM CAPITAL LOSS OF RS.36,39,94,084/- IN COMPUTATION OF INCOME SHOWN UNDER THE HEAD CAPIT AL GAINS. ACCORDING TO AO, THE ENTIRE LOSS WAS CLAIMED TO BE CARRIED FORWARD IN THE NEXT YEAR. DURING THE COURSE OF ASSESSMENT 2 ITA NO.1341/KOL/2013 AKG FINVEST LTD. , AY 2009-10 PROCEEDINGS, THE AO REQUIRED THE ASSESSEE TO PRODUC E THE CONTRACT NOTES FOR VERIFICATION OF LONG TERM CAPITAL LOSS AND SHORT TERM CAPITAL LOSS. THE AO ON VERIFICATION OF THESE CONTRACT NOTES NOTED THAT THE PURCHASE AND SALE OF SHARES WE RE MADE ON FREQUENT DATES AND ALSO UTILIZATION OF INTEREST BEARING BORROWED FUNDS IN P URCHASE OF SHARES AND ACCORDINGLY, HE TREATED THE LONG TERM CAPITAL LOSS AND SHORT TERM C APITAL LOSS AS BUSINESS LOSS BY TREATING THE SHARE TRANSACTION BUSINESS AS REGULAR BUSINESS BY O BSERVING AS UNDER: FREQUENCY AND TRANSACTIONS TOWARDS PURCHASES AND SALES OF SHARES/SECURITIES IS A STRONG CASE OF TRADING IN SHARES. HON'BLE SUPREME COURT IN THE CASE OF RAJA BHANDHUR VISHASWARA SINGH CIT (411 ITR 685) HAS ALSO EXPRESSED THE SAME VIEW. THE ACTIVITIES OF THE ASSESSEE IN THE INSTANT CASE ARE PURELY OF PURCHASE AND SALES O F SHARES AND THAT TOO AT FREQUENT INTERVALS. ON PERUSAL OF STATEMENT OF SHORT TERM CAPITAL GAIN & LONG TERM CAPITAL GAIN, IT IS OBSERVED THAT PURCHASE OF SHARES OF OBC IN LARGE VOLUMES HAV E TAKEN PLACE ALMOST CONTINUOUSLY FROM 12.10.2007 TO 31.03.2008 ON 65 DIFFERENT DATES AND SALE TOOK PLACE ALMOST CONTINUOUSLY IN THE MONTH OF OCTOBER, 2008 ON 13 DIFFERENT DATES. IN CASE OF TRANSACTIONS SHOWN TO HAVE BEEN RESULTIN G INTO LTCG ALSO, IT IS FOUND THAT SHARES OF OBC WERE ACQUIRED IN BIGGER VOLUMES ON 22 DIFFERENT DATES AND SOLD ON 5 DIFFERENT DATES. (II) UTILIZATION OF INTEREST BEARING BORROWED FUND IN PURCHASE OF SHARES IS A STRONG CIRCUMSTANCES OF TRADING IN SHARES. THE HON'BLE MAD HAYA PRADESH HIGH COURT IN THE CASE OF CIT VS GODABARI CORP. LTD. (156 ITR 835) HAS SUPPOR TED THIS VIEW. ON PERUSAL OF P&L A/C., IT IS FOUND THAT THE ASSESSEE HAS PAID INTEREST OF RS. 20.6 6LAKHS. (III) THE PURCHASE AND SALE OF SHARE IS NOT AN ISOL ATED INCIDENT IN ASSESSEE'S CASE. THE ASSESSEE IS ENGAGED IN PURCHASE AND SALE OF SHARES IN REGULA R COURSE AND THAT TOO IN A BULK. IN FACT, THE MAIN AND SOLE ACTIVITY OF THE ASSESSEE IS IN THE FI ELD OF PURCHASE AND SALE OF SHARES SHOWN AS INVESTMENT. HON'BLE SUPREME COURT IN THE CASE OF SA ROJ KUMAR MAJUMDER (37 ITR 242) HELD THAT PURCHASE AND SALE OF SHARES NOT IN AN ISOLATED MANNER IS A STRONG CASE OF TRADING ACTIVITIES. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, THE LOSS DISCLOSED UNDER THE HEADS 'L T C LOSS' FOR RS. (-) 3,34,30,136/- AND 'STC LOSS' FOR RS. (-)36,39,94,084/ IS TREATED AS BUSINESS LOSS. THEREFORE, THE SHARE TRANSACTION BUS INESS IS TREATED AS REGULAR BUSINESS AND THE TOTAL LOSS FROM THE BUSINESS IS ARRIVED AT - RS. [(-)3,34,30,136.00 + (-) 36,39,94,084.00] I.E. RS. (-) 39,74,24,220/-. NOW TO EXAMINE APPLICABILITY OF EXPLANATION TO SECT ION 73, HEAD-WISE ANALYSIS OF INCOME AND DEPLOYMENT OF FUND IS REQUIRED TO BE DONE. ON EXAMINATION OF THE BALANCE SHEET FOR THE YEAR IT IS FOUND THAT TOTAL INVESTMENT INTO SHARES/SECURITIES IS RS. 89.33 CRORES FOR THE CURRE NT YEAR AND IN THE EARLIER YEAR IS WAS RS.128.53 CRORES. WHEREAS TOTAL INVESTMENTS INTO LOANS & ADVANCES IS RS. 5.91 CRORES FOR THE CURRENT YEAR EARLIER YEAR IT WAS NIL. SO THE MA IN BUSINESS OF THE ASSESSEE IS DEFINITELY IN DEALING SHARES NOT GIVING LOANS & ADVANCE. IN ADDITION TO THE PROFIT ON SALE OF SHARES, THE AS SESSEE HAS INCOME FROM ON SECURITIES RS.L,33,91,344.64 & DIVIDEND INCOME OF RS.2.87 CROR E AND DIVIDEND HAS BEEN CLAIMED EXEMPTION. INTEREST INCOME HAS BEEN OFFERED UNDER T HE HEAD INCOME FROM BUSINESS & PROFESSION' THERE IS NO OTHER INCOME FROM 'HOUSE PR OPERTY', OTHER SOURCE' OR 'CAPITAL GAINS'. THEREFORE, THE ASSESSEE HAS THE MAIN INCOME/LOSS FR OM BUSINESS AS DISCUSSED ABOVE. AS SUCH EXPLANATION BELOW SECTION 73 OF THE INCOME TAX ACT APPLICABLE IN ASSESSEE'S CASE WHICH STATES THAT WHERE ANY PART OF THE BUSINESS OF A COMPANY CO NSISTS IN THE PURCHASE AND SALE OF SHARES 3 ITA NO.1341/KOL/2013 AKG FINVEST LTD. , AY 2009-10 OF OTHER COMPANIES, SUCH COMPANY, SHALL FOR THE PUR POSE OF THIS SECTION, BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF THE PURCHASE AND SALE OF SUCH SHARES. IN VIEW OF THE ABOVE DISCUSSION THE BUSINESS LOSS O F RS.(-)39,74,24,220/- IS TREATED AS SPECULATIVE LOSS AS PER EXPLANATION OF SEC. 73 OF T HE ACT. 4. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT( A), WHO DELETED THE ADDITION BY OBSERVING AS UNDER: AFTER CAREFUL CONSIDERATION OF THE ASSESSMENT ORD ER AND WRITTEN SUBMISSION IT IS NOTICED THAT THE AO TREATED THE LONG TERM CAPITAL LOSS OF RS.3,3 4,30,136/- AND SHORT TERM CAPITAL LOSS OF RS.36,39,94,084/- IN SHARES CLAIMED BY ASSESSEE AS BUSINESS LOSS AND APPLIED EXPLANATION TO SECTION 73 OF THE INCOME TAX ACT AND TREATED THE WH OLE LOSS OF RS.39,74,24,220/- AS SPECULATIVE LOSS WHICH WAS ALLOWED TO BE CARRIED FO RWARD. THE ASSESSEE WAS A NBFC U/S 45 OF RBI ACT HAVING INCOME FROM INTEREST, DIVIDEND AN D CAPITAL GAINS AND WAS MAINTAINING PORTFOLIO IN INVESTMENT OF SHARES CATEGORISED AS IN VESTMENT IN THIS FINANCIAL YEAR. IN EARLIER YEARS ASSESSEE WAS MAINTAINING TWO SEPARATE PORTFOL IOS IN FORM OF STOCK-IN-TRADE AND INVESTMENTS. THE INVESTMENT WAS MADE OUT OF SUBSTAN TIAL INTEREST FREE FUNDS AVAILABLE AS RESERVE AND SURPLUSES AND EQUITY. IN THE FINANCIAL YEAR UNDER CONSIDERATION ASSESSEE HAS CREDITED INTEREST OF RS.1,33,91,334/- FROM LOAN AND ADVANCES GIVEN AND DEBITED INTEREST OF RS.20,66,968/- IN THE P&L A/C AND ASSESSEE HAD ALSO RECEIVED A DIVIDEND OF RS.2,87,49,680/- ON THESE INVESTMENTS. IN THE COMPUTATION OF INCOME ASSESSEE HAD DISALLOWED EXPENSES OF RS.33,57,610/- ON ACCOUNT OF TAX-FREE INCOME, WHILE THE SHORT TERM CAPITAL LOSS WAS CARRIED FORWARD. IN THE FINANCIAL UNDER CONSIDERATION ASSES SEE HAD SOLD OF RS.44,08,300/- SHARES OF ORIENTAL BANK OF COMMERCE (OBC) WHICH WAS PURCHASED IN LAST YEAR'S AND SHOWN AS INVESTMENTS AND HOLDING PERIOD WAS MORE THAN 12 MON THS RESULTING LONG TERM CAPITAL LOSS OF RS.3,34,30,136/- WHICH WAS NOT CLAIMED IN THE COMPU TATION OF INCOME AND THE SHORT TERM CAPITAL LOSS ON THE SALE OF SHARES OF OBC WAS RS.36 ,39,94,084/- AND ASSESSEE HAD EARNED A DIVIDEND OF RS.2,07,19,010/- ON THE SHARES OF OBC. THE AVERAGE HOLDING PERIOD OF THE SAID SHARES OBC WAS BETWEEN 7 MONTHS AND 18 MONTHS. THES E TRANSACTIONS OF SALE OF OBC SHARES WERE DONE THROUGH RECOGNISED STOCK EXCHANGE AND WER E SUBJECTED TO STT. THE APPELLANT IN THE WRITTEN SUBMISSION RELIED UPON THE JUDGMENT OF BOMBAY HIGH COURT IN THE CASE OF GOPAL PUROHIT 228 ITR 582 (BOMBAY) AND THE CASE OF CIT VS . CONSOLIDATED INVEST HOLDING LTD. 337 ITR 264 DELHI HIGH COURT TO SUPPORT HIS CONTENT ION THE PURCHASE OF SHARES OF OBC WAS IN NATURE OF INVESTMENT RATHER THAN IN NATURE OF BU SINESS AND EXPLAINED THAT THE SHARES WERE SOLD AS THE PRICES STARTED DECLINING AND THE APPELL ANT WANTED TO STOP ITS LOSS. THERE WERE NO INTRADAY TRANSACTIONS. THE APPELLANT HAD CLAIMED S HORT TERM CAPITAL GAINS ON THE INVESTMENTS IN SHARES AY 2007-08 AND THE SAME WAS A CCEPTED BY THE AO FOR AY 2007-08. KEEPING IN VIEW OF THESE FACTS AND CIRCUMSTANCES TH E LOSS ARISING FROM SALE OF SHARES WAS IN THE NATURE OF LONG TERM CAPITAL LOSS AND SHORT TERM CAPITAL LOSS RATHER THAN BUSINESS LOSS AND ACCORDINGLY SECTION 73 CANNOT BE INVOKED. THEREFOR E THE GROUND NO.2 AND 3 ARE ALLOWED. AGGRIEVED AGAINST THE ORDER OF CIT(A) REVENUE IS NO W IN APPEAL BEFORE TRIBUNAL. 5. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSEE FILED ITS RETURN O F INCOME BY DECLARING LONG TERM CAPITAL LOSS OF RS.3,34,30,136/- AND SHORT TERM CAPITAL LOSS OF RS.36,39,94,084/-. THE ASSESSEE IS A NON- BANKING FINANCE COMPANY AND BY ITS NATURE MAKING IN VESTMENTS AND THIS FACT REPORTED BY ASSESSEE IN FORM NO. 3CD PARA B CLAUSE 8(A). THE A SSESSEE BEFORE AO AND BEFORE CIT(A) CLAIMED THAT IT HAS INVESTED IN SHARES AND THE OBJE CT OF THE ASSESSEE ALSO INCLUDES INVESTMENT 4 ITA NO.1341/KOL/2013 AKG FINVEST LTD. , AY 2009-10 IN SHARES. THE ASSESSEE EXPLAINED THAT ITS SOURCE OF INCOME COMPRISES OF INTEREST, CAPITAL GAINS AND DIVIDEND. THE ASSESSEE CLAIMED THAT INVES TMENTS MADE IN SHARES BY THE ASSESSEE ARE CATEGORIZED AS INVESTMENT IN SHARE NOT CURRENT ASSET OF THE ASSESSEE. ACCORDING TO HIM, THE INVESTMENTS, AS AND WHEN DISPOSED OFF FROM TIME TO TIME, RESULTING IN SHORT TERM AND LONG TERM CAPITAL GAINS/LOSS DEPENDING UPON THE HOL DING PERIOD. ACCORDINGLY, THE GAINS OR LOSS WAS OFFERED TO TAX AND THE SAME WAS ACCEPTED I N EARLIER YEARS AND FUTURE YEARS. ACCORDING TO AO, THE ASSESSEES MAIN BUSINESS IS DE ALING IN SHARES. THUS HE INVOKED EXPLANATION TO SECTION 73 OF THE ACT AND TREATED TH E GAINS/LOSS ARISING OUT OF SALE OF SHARES, NUMBERING 44, 08, 300, OF ORIENTAL BANK OF COMMERCE FOR THE CONSIDERATION AMOUNTING TO RS.65,56,30,091/- AND LOSS ARISING OUT OF THE SAME WAS TREATED AS BUSINESS LOSS INSTEAD OF CAPITAL GAINS DECLARED BY THE ASSESSEE. THE AO HEL D THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SHARES FOR THE REASON THAT THERE IS FRE QUENCY OF TRANSACTIONS AND ALSO THE INVESTMENT IN SHARES OUT OF BORROWED FUNDS ON WHICH INTEREST WAS PAID. BEFORE US, THE ASSESSEE CONTENDED THAT IT HAD INVESTED ONLY IN FIV E SCRIP BEING INVESTOR IN SHARES WITH THE MOTIVE OF EARNING DIVIDEND INCOME. ACCORDING TO AS SESSEE, IT HAS EARNED DIVIDEND INCOME OF RS.2,87,49,680/- DURING THE YEAR, WHICH WAS CLAI MED AS EXEMPT U/S. 10(34) OF THE ACT. LD. COUNSEL FOR THE ASSESSEE BEFORE US STATED THAT THE SHARES OF ORIENTAL BANK OF COMMERCE HAVE BEEN SHOWN IN THE BALANCE SHEET UNDER THE HEAD INVESTMENTS AND NOT AS STOCK IN TRADE UNDER THE CURRENT ASSETS. ACCORDING TO HIM, AS PER THE SCHEDULE TO THE BALANCE SHEET OF A NON BANKING FINANCIAL COMPANY PRUDENTIAL NORMS, NO SHARES ARE TO BE HELD BY ASSESSEE AS CURRENT INVESTMENT AND ALL THE INVESTMENTS ARE IN T HE NATURE OF LONG TERM INVESTMENTS. THE ASSESSEE EXPLAINED THE FACT THAT THE PRICE OF SCRIP FELL FROM RS.180.87 PER SHARE, AS ON THE LAST DATE OF PURCHASE OF SHARES ON 28.03.2008 TO RS .162.39 PER SHARE, AS ON THE FIRST DATE OF SALE ON 25.09.2008 AND FURTHER DECLINED TO RS.112.2 4 PER SHARE AS ON 27.10.2008 TO THE LAST SALE WAS MADE. ACCORDING TO ASSESSEE, IN THE 6 TH MONTH THE PRICE OF SHARE FELL BY 38% AND HENCE, IT HAS TO SELL THE SHARES TO LIQUIDATE ITS H OLDING IN THE SCRIP OF ORIENTAL BANK OF COMMERCE AND INVEST IN SOME OTHER SHARES OWING TO S TEEP DECLINE IN THE PRICE OF THESE SHARES. LD. COUNSEL FOR THE ASSESSEE ALSO ARGUED A ND DREW OUR ATTENTION TO PAGES 71 TO 76 WHEREIN IT CAN BE SEEN THAT THE PERIOD OF HOLDING O R ORIENTAL BANK OF COMMERCES SHARES BY ASSESSEE RANGING BETWEEN 556 DAYS TO 213 DAYS I.E. BETWEEN 18 MONTHS TO 7 MONTHS. IN VIEW OF THESE FACTS, LD. COUNSEL FOR THE ASSESSEE S TATED THAT THE EVIDENCE AND SUBMISSIONS 5 ITA NO.1341/KOL/2013 AKG FINVEST LTD. , AY 2009-10 CLEARLY PROVE THAT THE ASSESSEE WAS NOT A DEALER IN SHARES BUT ONLY IN INVESTOR AND DURING THE RELEVANT ASSESSMENT YEAR IT HAS LIQUIDATED THE SHAR ES OF ORIENTAL BANK OF COMMERCE HELD BY IT, PURCHASED IN AY 2007-08 AND 2008-09, AND DUE TO STEEP DECLINE IN PRICE OF SHARES RESULTING IN HUGE LONG TERM AND SHORT TERM CAPITAL LOSS. IN TERM OF THE ABOVE ARGUMENTS, LD. COUNSEL FOR THE ASSESSEE STATED THAT THE LOSS ARISI NG OUT OF SALE OF SHARES OF ORIENTAL BANK OF COMMERCE IS LONG TERM AND SHORT TERM AND NOT BUSINE SS LOSS AS HELD BY AO DEPENDING UPON PERIOD OF HOLDING. ACCORDING TO HIM, THERE IS NO F REQUENCY IN TRANSACTION AS IS EVIDENT FROM PAGES 71 TO 76 OF ASSESSEES PAPER BOOK WHEREIN COM PLETE DETAILS OF HOLDING OF SHARES OF ORIENTAL BANK OF COMMERCE AS WELL AS GAINS OR LOSS IS DISCLOSED. ON THE OTHER HAND, LD. SR. DR RELIED ON THE ORDER OF AO. 6. WE FIND FROM THE FACTS OF THE CASE THAT THE ASSE SSEE IS NBFC AS PER SECTION 45-IA OF THE RBI ACT, 1934. THE ASSESSEE HAS ALWAYS TAKEN T HE VALUE OF INVESTMENT AT COST AND CATEGORIZED THE INVESTMENT IN SHARES UNDER THE HEAD INVESTMENT AND NOT AS CURRENT ASSETS. THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.2,87, 49,687/- DURING THE YEAR AND THE SAME WAS CLAIMED AS EXEMPT U/S. 10(34) OF THE ACT. THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS PRODUCED CONTRACT NOTES FOR SALE AS WEL L AS FOR PURCHASE OF SHARES OF ORIENTAL BANK OF COMMERCE FROM WHERE THE ASSESSEE HAS EARNED SUBSTANTIAL LOSS ON ACCOUNT OF SHORT TERM AND LONG TERM. THE ASSESSEES DETAILS IN RESP ECT OF HOLDING PERIOD, PURCHASE PRICE, SALE PRICE, DATE OF SALE, DATE OF PURCHASE IS ENCLOSED I N ASSESSEES PAPER BOOK AT PAGES 71 TO 76 WHEREIN IT CAN BE SEEN THAT THE PERIOD OF HOLDING B Y THE ASSESSEE OF SHARES OF OBC RANGED BETWEEN 556 DAYS TO 213 DAYS I.E. BETWEEN 18 MONTHS TO 7 MONTHS. WE ALSO FIND FROM THE ORDERS OF THE LOWER AUTHORITIES THAT NONE OF THE AU THORITIES BELOW HAS DOUBTED THE GENUINENESS OF SALES OR PURCHASES OR GENUINENESS OF TRANSACTION AND SOURCE OF PAYMENT, WHETHER RECEIVED OR PAID. FROM THESE FACTS WE CAN ANALYZE THAT THE ASSESSEE BY VIRTUE OF BEING AN NBFC IS AUTHORISED TO INVEST IN SHARES AND SUCH A TERMINOLOGY DOES NOT INDICATE THAT THE LOSS OR GAINS FROM INVESTMENTS MADE BY ASS ESSEE IS TO BE TREATED AS BUSINESS INCOME. FOLLOWING ARE THE FEATURES OF THE TRANSACTION: THE INVESTMENTS MADE BY THE RESPONDENT ASSESSEE A RE CATEGORIZED AS INVESTMENT AND THEY ARE NOT THE CURRENT ASSETS OF THE COMPANY. SHORT T ERM AND LONG TERM IS JUDGED ON THE BASIS OF THE PERIOD OF HOLDING OF INVESTMENT FOR THE PURPOSE OF INCOME TAX RETURN. THE INVESTMENTS MADE BY THE RESPONDENT ASSESSEE HA VE ALWAYS BEEN VALUED AT COST, THEREFORE, THE INVESTMENTS MADE BY THE ASSESSEE CAN BE SAID TO BE LONG TERM INVESTMENTS. 6 ITA NO.1341/KOL/2013 AKG FINVEST LTD. , AY 2009-10 THE RESPONDENT ASSESSEE IS DEALING ONLY AS AN INVE STOR AND HAS NEVER DEALT AS A TRADER IN SHARE TRANSACTIONS. ALL THE INVESTMENTS HAVE BEEN MADE UNDER DELIVERY BASED SEGMENT. 7. IN VIEW OF THE ABOVE FACTS, WE ARE OF THE VIEW T HAT THE ASSESSEE HAS ESTABLISHED THAT THE SHARES HELD BY IT AS INVESTMENT ARE CAPITAL ASS ET AND SALE OF CAPITAL ASSET BEING SHARES HELD AS INVESTMENT FOR A CONSIDERABLE PERIOD I.E. E ITHER LITTLE LESS THAN ONE YEAR OR MORE THAN ONE YEAR ARE ASSESSABLE AS SHORT TERM CAPITAL GAIN/ LOSS OR LONG TERM CAPITAL GAIN/LOSS AND NOT BUSINESS INCOME. SIMILAR VIEW IS TAKEN BY HONBLE B OMBAY HIGH COURT IN THE CASE OF CIT VS. GOPAL PUROHIT (2011) 336 ITR 287 (BOM.), WHEREI N IT HAS BEEN HELD AS UNDER: HELD, DISMISSING THE APPEAL, (I) THAT IT WAS OPEN T O THE ASSESSEE TO MAINTAIN TWO SEPARATE PORTFOLIOS, ONE RELATING TO INVESTMENT AND ANOTHER RELATING TO BUSINESS OF DEALING IN SHARES, THAT A FINDING OF FACT HAD BEEN ARRIVED AT BY THE TRIBUNAL AS REGARDS THE TWO DISTINCT TYPES OF TRANSACTIONS, NAMELY, THOSE BY WAY OF INVESTMENT AND THOSE FOR TH E PURPOSES OF BUSINESS, AND THIS WARRANTED NO INTERFERENCE. (II) THAT THERE SHOULD BE UNIFORMITY IN TREATMENT A ND CONSISTENCY WHEN FACTS AND CIRCUMSTANCES FOR DIFFERENT YEARS WERE IDENTICAL PARTICULARLY IN THE CASE OF THE SAME ASSESSEE. (III) THAT ENTRIES IN THE BOOKS OF ACCOUNT ALONE AR E NOT CONCLUSIVE IN DETERMINING THE NATURE OF INCOME. 8. WE ALSO FIND FROM THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. CONSOLIDATED FINVEST & HOLDING LTD. (2011) 337 ITR 264 (DEL.), WHEREIN THE ISSUE WAS AS REGARDS TO PURCHASE OF SHARES NOT HELD FOR LONG PER IOD OF TIME, HONBLE DELHI HIGH COURT HELD AS UNDER: 3. WE HAVE HEARD THE LEARNED COUNSEL FOR THE REVEN UE AND ALSO THE ASSESSEE AND PERUSED THE RECORDS. THERE IS NO DISPUTE THAT THE SHARES WHICH WERE ACQUIRED WERE SOLD WITHIN A SHORT SPAN OF 7 TO 10 MONTHS BY THE ASSESSEE. THERE IS ALSO NO DISPUTE THAT THE ASSESSEE HAD ALSO ASSERTED TO BE NON-BANKING FINANCIAL COMPANY HAVING BUSINESS OF INVESTMENTS AND DEALING IN SHARES. HOWEVER, THE FACTS WHICH WERE NOTED BY THE CIT(A) A ND ALSO THE TRIBUNAL ARE WORTH CONSIDERING. THE ASSESSEE WAS, IN FACT, ENGAGED IN MANUFACTURE OF PHOTOGRAPHIC GOODS HAVING MANUFACTURING UNITS AT DIFFERENT PLACES PRIOR TO TH E DE- MERGER OF THE PHOTOGRAPHIC GOODS BUSINESS INTO SEPARATE COMPANY W.E.F. 1ST APRIL, 20 04 ON THE SCHEME OF DE-MERGER OF THE COMPANY APPROVED BY THE HIGH COURT OF UTTARANCHAL. THOUGH THE DE-MERGER TOOK PLACE W.E.F. 1ST APRIL, 2004, THE ASSESSEE CONTINUED TO CARRY ON THE PHOTOGRAPHIC GOODS MANUFACTURING UNTIL THE DATE OF THE ORDER OF THE HIGH COURT OF UTTARANC HAL APPROVING SCHEME OF THE DE-MERGER ON 1ST NOVEMBER, 2004. THE ASSESSEE ALSO HELD LONG-TER M INVESTMENTS IN VARIOUS OTHER SHARES. THE AFORESAID SHARES OF ONGC WERE PURCHASED BY THE ASSE SSEE WHEN IT WAS A MANUFACTURING COMPANY AND THE AFORESAID SHARES WERE NOT PURCHASED AS PART OF ANY BUSINESS ACTIVITY OF DEALING IN SHARES AT THE TIME OF PURCHASE. THE ASSE SSEE WAS NEITHER IN THE BUSINESS OF INVESTMENTS NOR DEALING IN SHARES, THOUGH IT HELD S HARES OF DIFFERENT COMPANIES AT THE BEGINNING OF THE RELEVANT PREVIOUS YEAR. THE ASSESSEE HAD ACQ UIRED THOSE SHARES IN A PUBLIC ISSUE AND HAD, IN FACT, SHOWN THEM IN THE BOOKS OF ACCOUNTS AS INV ESTMENT AND WERE BOOKED UNDER THE HEAD 'NON-TRADE' AND NOT 'TRADING' INVESTMENT. THE INTEN TION TO ACQUIRE THOSE SHARES AS INVESTMENT CAN BE REFLECTED FROM THE FACT THAT IT WAS HOLDING MOST OF THE SHARES OF OTHER COMPANIES SINCE LONG PERIOD OF TIME AND WAS NOT ENTERING INTO FREQU ENT BUSINESS OF SALE AND PURCHASE OF SHARES. 7 ITA NO.1341/KOL/2013 AKG FINVEST LTD. , AY 2009-10 FROM THE FACTS, THE CIT(A) AND THE TRIBUNAL ARRIVED AT A FINDING OF FACT THAT THE ACQUISITION OF SUCH SHARES IN PUBLIC ISSUE WITH THE INTENT OF HOLD ING THEM FOR A LONG PERIOD OF TIME TO ACHIEVE LONG-TERM APPRECIATION AND THE MERE FACT THAT THE S HARES WERE SOLD IN A SHORT SPAN OF TIME OF ITS ACQUISITION DUE TO STEEP AND UNANTICIPATED RISE IN STOCK MARKET DOES NOT MEAN THAT THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE OF SHARES W AS NOT TO HOLD THEM FOR A LONG PERIOD OF TIME OR TO DEAL IN THEM. THIS WAS A PURE QUESTION OF FAC T ARRIVED AT BY CIT(A) AND THE TRIBUNAL, AND RIGHTLY SO THAT THE PROFIT ARISEN FROM SALE OF SHAR ES OF ONGC DURING THE RELEVANT PREVIOUS YEAR WAS TO BE TREATED UNDER THE HEAD CAPITAL GAIN AND NOT PROFIT OR GAIN OF BUSINESS AND PROFESSION . 9. ANOTHER ASPECT DISCUSSED BY AO AS REGARDS TO FRE QUENCY OF TRANSACTION, THE INVESTOR AIMS AT WEALTH MAXIMIZATION AND HAS TO DIVEST THE S HARES AT THE OPPORTUNE TIME TO PREVENT DEPRECIATION IN INVESTMENT. AND INVESTOR HAS TO TA KE APPROPRIATE DECISION AFTER WEIGHING THE RISK OF CARRYING THE INVESTMENT WITH THE RETURN THE REON. IN THE PROCESS, THE ASSESSEE MAY REQUIRED TO SELL OFF PART OF HIS INVESTMENTS AT APP ROPRIATE INTERVALS WHICH MAY LEAD TO HIGH TURNOVER IN THE INVESTMENT ACCOUNT. HOWEVER, IT DO ES NOT MEAN THAT THE INVESTMENTS ARE ACTUALLY HELD AS STOCK IN TRADE. AN INVESTOR MAY FR EQUENTLY BUYING OR SELLING SHARES, BUT SHARES PURCHASED DURING A PARTICULAR YEAR MAY NOT B E SOLD IN THE SAME YEAR AND SHARES SOLD DURING THE YEAR WHICH HAVE BEEN PURCHASED MORE THAN A YEAR AGO. THIS WILL BE TREATED AS INVESTMENT AND NOT TRADING. 10. IN VIEW OF THESE FACTS, WE ARE OF THE CONSIDERE D VIEW THAT THE CIT(A) HAS RIGHTLY DELETED THE DISALLOWANCE OF LOSS BY HOLDING THE ASS ESSEE AS INVESTOR AND WE CONFIRM THE SAME. THIS ISSUE OF REVENUES APPEAL IS DISMISSED. 11. THE NEXT ISSUE IN THIS APPEAL OF ASSESSEE IS AG AINST THE ORDER OF CIT(A) DELETING THE DISALLOWANCE OF EXPENSES QUA EXEMPTED INCOME BY INV OKING THE PROVISIONS OF SECTION 14A OF THE ACT. FOR THIS, REVENUE HAS RAISED FOLLOWING GROUND NO.2: 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) WAS NOT JUSTIFIED IN RESTRICTING THE DISALLOWANCE U/S. 14A TO RS.34,63,1 14/- INSTEAD OF RS.71,20,710/- 12. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE HAS EARNED EXEMPTED INCOME I.E. DIVIDEND OF RS.2,87,49,680/- AND CLAIMED THE SAME AS EXEMPT U/S . 10(34) OF THE ACT. THE ASSESSEE ITSELF COMPUTED DISALLOWANCE U/S. 14A OF THE ACT AT RS.33, 57,610/-. BUT THE AO COMPUTED THE DISALLOWANCE BY INVOKING RULE 8D OF THE I. T. RULES , 1962 AT RS.71,20,710/- BY COMPUTING AS UNDER: (I) DIRECT EXPENSES NIL (II) PROPORTIONATE INTEREST PAID RS.16,73,997/ - (III) ONE HALF PERCENT OF AVERAGE VALUE OF INVESTM ENTS RS.54,46,713/- RS.71,20,710/- 8 ITA NO.1341/KOL/2013 AKG FINVEST LTD. , AY 2009-10 13. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT (A), WHO DELETED THE DISALLOWANCE BY OBSERVING AS UNDER: NEXT GROUND OF APPEAL NO. 3 RELATES TO DISALLOWAN CE OF RS.37,63,100/- U/S. 14A READ WITH RULE 8D. ASSESSEE HAD EARNED TAX FREE DIVIDEND INCOME F OR RS.2,87,49,680/- THE ASSESSEE HAD ALREADY DISALLOWED A SUM OF RS.33,57,610/- IN RELAT ION TO EARNING OF ABOVE DIVIDEND INCOME AS PER THE COMPUTATION OF INCOME FILED ALONG WITH OF R ETURN. THE NATURE OF EXPENSES DEBITED IN P&L A/C WAS ON ACCOUNT OF INTEREST PAID FOR RS.20,6 6,969/- AND RS.13,96,145/- ON ACCOUNT OF ADMINISTRATIVE AND OTHER EXPENSES. WHILE THE AO CO MPUTED THE PROPORTIONATE INTEREST PAID FOR RS.16,73,997/- AND % OF THE AVERAGE INVESTMENT FOR RS.54,46,713/- U/S. 14A READ WITH RULE 8D AND NET AMOUNT OF RS.37,63,100/- OVER AND A BOVE THE PROPORTIONATE DISALLOWANCE MADE BY ASSESSEE WAS FURTHER DISALLOWED. THE TOTAL EXPENDITURE DEBITED IN P&L A/C FOR THE WHOLE FINANCIAL YEAR AS PER P&L A/C WAS RS.34,63,11 4/- ONLY. THEREFORE, THE DISALLOWANCE MADE U/S. 14A READ WITH RULE 8D BE RESTRICTED TO A TOTAL OF RS.34,63,144/- AS AGAINST RS.71,20,710/- DETERMINED BY THE AO I.E. THE DISALL OWANCE SHOULD BE RESTRICTED TO ACTUAL EXPENDITURE DEBITED IN P&L A/C IN RELATION TO EARNI NG OF TAX FREE DIVIDEND INCOME CREDITED IN P&L A/C. THEREFORE THIS GROUND IS PARTLY ALLOWED. AGGRIEVED, REVENUE PREFERRED SECOND APPEAL BEFORE T RIBUNAL ON THIS ISSUE. 14. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUG H FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSEE HAS EARNED DIVIDEN D OF RS.2,87,49,680/- ON A TOTAL INVESTMENT IN SHARES AT A FIGURE OF RS.127,68,82,65 4/- AS ON 31.03.2008 AND OF RS.28,62,60,276/- AS ON 31.03.2009. THE ASSESSEE H AS EXPLAINED THAT ITS OWN FUNDS COMPRISING OF SHAREHOLDERS FUND AND RESERVE AND SU RPLUS STOOD AT RS.142,17,62,794/- AS ON 31.03.2008 AND AT RS.106,30,12,044/- AS ON 31.03.20 09. THE ASSESSEE EXPLAINED THAT THE ASSESSEES OWN FUNDS DURING THE RELEVANT ASSESSMENT YEAR WERE SUFFICIENT TO MAKE THE ABOVE INVESTMENT. THE ASSESSEE STATED THAT IT HAS NOT IN VESTED ANY BORROWED FUNDS IN PURCHASE OF SHARES RATHER IT IS ESTABLISHED THAT THE INVESTMENT S WERE MADE BY UTILIZING ASSESSEES OWN FUNDS. FOR THIS PROPOSITION, THE ASSESSEE RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. WALFORT SHARES & STOCK BROKERS PVT. LTD. (2010) 326 ITR 1 (SC) WHEREIN HONBLE SUPREME COURT HAS LAID DOWN THE FOL LOWING PRINCIPLE FOR INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE I. T. RULES, BY HOLDING AS UNDER: FOR ATTRACTING SECTION 14A, THERE HAS TO BE A PROX IMATE CAUSE FOR DISALLOWANCE, WHICH IS ITS RELATIONSHIP WITH THE TAX EXEMPT INCOME. PAY-BACK O R RETURN OF INVESTMENT IS NOT SUCH PROXIMATE CAUSE, HENCE, SECTION 14A IS NOT APPLICAB LE IN THE PRESENT CASE. THUS, IN THE ABSENCE OF SUCH PROXIMATE CAUSE FOR DISALLOWANCE, S ECTION 14A CANNOT BE INVOKED. IN OUR VIEW, RETURN OF INVESTMENT CANNOT BE CONSTRUED TO M EAN EXPENDITURE AND IF IT IS CONSTRUED TO MEAN EXPENDITURE IN THE SENSE OF PHYSICAL SPEN DING STILL THE EXPENDITURE WAS NOT SUCH AS COULD BE CLAIMED AS AN ALLOWANCE AGAINST THE P ROFITS OF THE RELEVANT ACCOUNTING YEAR UNDER SECTIONS 30 TO 37 OF THE ACT AND, THEREFORE, SECTION 14A CANNOT BE INVOKED. HENCE, THE 9 ITA NO.1341/KOL/2013 AKG FINVEST LTD. , AY 2009-10 TWO ASSET THEORY IS NOT APPLICABLE IN THIS CASE AS THERE IS NO EXPENDITURE INCURRED IN TERMS OF SECTION 14A. 15. FURTHER HONBLE P&H HIGH COURT IN THE CASE OF C IT VS. HERO CYCLES 323 ITR 518 HELD THAT IN VIEW OF FINDING REPRODUCED ABOVE, IT IS CLEAR T HAT THE EXPENDITURE ON INTEREST WAS SET OFF AGAINST THE INCOME FROM INTEREST AND THE INVESTMENT IN THE SHARE AND FUNDS WERE OUT OF THE DIVIDEND PROCEEDS. IN VIEW OF THIS FINDING OF FACT, DISALLOWANCE UNDER SECTION 14A WAS NOT SUSTAINABLE. WHETHER, IN A GIVEN SITUATION, ANY EXP ENDITURE WAS INCURRED WHICH WAS TO BE DISALLOWED, IS A QUESTION OF FACT. THE CONTENTION O F THE REVENUE THAT DIRECTLY OR INDIRECTLY SOME EXPENDITURE IS ALWAYS INCURRED WHICH MUST BE D ISALLOWED UNDER SECTION 14A AND THE IMPACT OF EXPENDITURE SO INCURRED CANNOT BE ALLOWED TO BE SET OFF AGAINST THE BUSINESS INCOME WHICH MAY NULLIFY THE MANDATE OF SECTION 14A , CANNOT BE ACCEPTED. DISALLOWANCE UNDER SECTION 14A REQUIRES FINDING OF INCURRING OF EXPENDITURE WHERE IT IS FOUND THAT FOR EARNING EXEMPTED INCOME NO EXPENDITURE HAS BEEN INC URRED, DISALLOWANCE UNDER SECTION 14A CANNOT STAND. IN THE PRESENT CASE FINDING ON TH IS ASPECT, AGAINST THE REVENUE, IS NOT SHOWN TO BE PERVERSE. CONSEQUENTLY, DISALLOWANCE IS NOT PERMISSIBLE. 16. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, W E FIND NO INFIRMITY IN THE ORDER OF CIT(A) IN DELETING THE DISALLOWANCE AND HENCE, THE SAME IS CONFIRMED. THIS ISSUE OF REVENUES APPEAL IS DISMISSED. 17. IN THE RESULT, APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16.03.2016. SD/- SD/- (M. BALAGANESH) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 16TH MARCH , 2016 JD. SR. P.S COPY OF THE ORDER FORWARDED TO: 1. APPELLANT DCIT, CIRCLE-1, KOLKATA. 2. RESPONDENT M/S. A. K. G. FINVEST LTD., 3 RD FLOOR, 17, C. R. AVENUE, KOLKATA-72. 3. CIT(A) , KOLKATA 4. CIT , KOLKATA 5. DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .