M/S. AXIS CAPITAL MARKETS (INDIA) TD, MUMBAI V. THE ITO 4(1)(1), MUMBAI

ITA 4098/MUM/2007

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1544 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 03-09-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 29-05-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIKRAM GAUR
• Assessee Lawyers: SHEETAL SH AH
• Keywords: Capital asset; Business income; Business expenditure; Speculation loss; Speculative transactions; Set aside; Capital Gains
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI N.V. VASUDEVAN, JM & SHRI R.K. PANDA, A M I.T.A. NO. 4098/MUM/2007 (ASSESSMENT YEAR 2004-05) M/S. AXIS CAPITAL MARKETS (INDIA) LTD. 508, APEEJAY HOUSE, 130, BOMBAY SAMACHAR MARG, MUMBAI-400 023 PAN: AAACA4352J VS. I.T.O. 4(1)(1) AAYAKAR BHAVAN, M.K. ROAD, NEW MARINE LINES, MUMBAI-400 020 APPELLANT RESPONDENT APPELLANT BY: SHRI RAJAN R. VORA AND MS. SHEETAL SHAH RESPONDENT BY: SHRI VIKRAM GAUR O R D E R DATE OF HEARING: 08.09.2009 DATE OF ORDER: 30.11.2009 PER R.K. PANDA, AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 7 TH MARCH, 2007 OF THE CIT(A)-IV, MUMBAI RELATING TO A SSESSMENT YEAR 2004-05. 2. AT THE TIME OF HEARING THE LEARNED COUNSEL FOR THE ASSESSEE DID NOT PRESS GROUNDS OF APPEAL NOS. 5 AND 6, FOR WHICH THE LEARNED DR HAS NO OBJECTION. ACCORDINGLY GROUNDS OF APPEAL NOS. 5 AN D 6 ARE DISMISSED NOT PRESSED. 3. GROUNDS OF APPEAL NO. 1 BY THE ASSESSEE READS AS UN DER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME-TAX (IV, MUMBAI ERRE D IN CONFIRMING THE ACTION OF THE AO IN TREATING THE NET LONG TERM CAPITAL GAINS OF RS.41,78,910/- (RS.41,85,744/- OF LTCG RS.6,834/- OF SHORT TERM CAPITAL LOSS ON SHARES) ON EQUITY SHARES AS SHARE TRADING INCOME AND ALSO TREATING SU CH INCOME AS SPECULATION INCOME Y INVOKING THE PROVISIONS OF EXPLANATION TO SEC. 73 OF THE INCOME TAX ACT, 1961. I.T.A. NO. 4098/MUM/2007 M/S. AXIS CAPITAL MARKETS (INDIA) LTD. ========================= 2 4. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A PUBLIC LIMITED COMPANY ENGAGED IN THE BUSINESS OF INVESTMENT, DEAL ING IN SHARES/ SECURITIES/BONDS, ETC. THE ASSESSEE DURING THE IMP UGNED ASSESSMENT YEAR HAD SHOWN INCOME UNDER THE HEAD CAPITAL GAIN AT RS. 22,98,229 THE BREAK UP WHICH IS AS UNDER: RS. LONG TERM CAPITAL GAINS - 41,85,744 LESS: ADJUSTED B/F LONG TERM CAPITAL LOSS - 18,80, 681 LESS: SHORT TERM CAPITAL LOSS - 6,834 ------------- 22,98,229 ======== 5. THE ASSESSEE ALSO SUBMITTED THE STATEMENT SHOWING C OMPUTATION OF CAPITAL GAIN, SEGREGATING THE SAME INTO LONG TER M CAPITAL GAIN AND SHORT TERM CAPITAL GAIN. ON BEING QUESTIONED BY THE ASSE SSING OFFICER AS TO WHY THE TRANSACTIONS SHALL NOT BE TREATED AS SPECULATIV E IN NATURE AND WHY THE PROVISIONS OF EXPLANATION TO SECTION 73 OF THE ACT WILL NOT BE APPLICABLE, THE ASSESSEE SUBMITTED THAT IN THE PRECEDING YEAR A S WELL AS IN THE SUBSEQUENT YEAR IT HAD DEALT IN THE SHARE TRADING B USINESS. HOWEVER, IN THE CURRENT YEAR NO SHARES WERE PURCHASED OR SOLD A S STOCK IN TRADE. IT WAS ONLY THE SHARES HELD AS INVESTMENT THAT WERE SO LD DURING THE YEAR. 5.1 HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT T HE CONTENTION OF THE ASSESSEE ON ACCOUNT OF THE FOLLOWING REASONS: A) THE ASSESSEE HAD CLAIMED DEDUCTION OF ENTIRE EXPENS ES ON SHARE DEALINGS AS BUSINESS EXPENSES THOUGH THE TRANSACTIONS SHOWN WERE FOR SALE OF INVESTMENTS; B) THE ASSESSEE HAD CARRIED ON THE SHARE DEALINGS THRO UGH SISTER CONCERN AND RELATED PARTY WHO WAS A STOCK BR OKER. C) THE ASSESSEE HAD NOT SHOWN ANY STOCK IN TRADE IN EA RLIER YEARS ALSO EVEN THOUGH SHARES WERE ACQUIRED FOR RES ALE AND ASSESSEE WAS FORMED FOR DEALING IN SHARES; D) THE ASSESSEE HAD TAKEN LOAN OF RS. 9 LACS WHICH WAS USED FOR PURCHASE OF SHARES FOR SELF; E) MEMORANDUM OF UNDERSTANDING AND ARTICLES OF ASSOCIA TION OF THE ASSESSEE COMPANY SHOWED THAT IT WAS FORMED W ITH THE MAIN OBJECTIVE OF CARRYING ON THE BUSINESS OF S HARE TRADING ALONG WITH OTHER ACTIVITIES MENTIONED THERE IN. I.T.A. NO. 4098/MUM/2007 M/S. AXIS CAPITAL MARKETS (INDIA) LTD. ========================= 3 F) REFERRING TO CLAUSE 1 BELOW THE FORM OF BALANCE S HEET GIVEN IN PART 1 OF SCHEDULE VI OF THE COMPANIES ACT , THE AO HELD THAT FOR AN INVESTMENT COMPANY, SHARE TAKE CHA RACTER OF STOCK IN TRADE AND AS SUCH, SHARES SHOWN AS INVE STMENT IN THE BALANCE SHEET COULD BE STOCK IN TRADE ALSO. TH E COMPANIES LAW DOES NOT DIFFERENTIATE BETWEEN THE CA PITAL OR REVENUE NATURE OF TRANSACTIONS OF INVESTMENTS AN D STOCK IN TRADE. 6. RELYING ON A COUPLE OF DECISIONS THE ASSESSING OFFI CER CONCLUDED THAT EXPLANATION TO SECTION 73 OF THE ACT WAS APPLI CABLE TO THE TRANSACTIONS IN QUESTION. HE ACCORDINGLY TREATED T HE NET RESULT OF THE PROFIT AND LOSS OF SUCH TRANSACTIONS AS ARISING OUT OF SPECULATION BUSINESS. HE FURTHER DID NOT ALLOW ANY SET OFF OF THE BROUGHT FORWARD LONG TERM CAPITAL LOSS OF THE PRECEDING YEAR AGAINST THIS INC OME OF THE CURRENT YEAR. 7. BEFORE THE CIT(A) THE ASSESSEE REITERATED THE SAME SUBMISSIONS AS MADE BEFORE THE ASSESSING OFFICER. IT WAS FURTHER SUBMITTED THAT THE ORIGINAL INTENTION OF THE ASSESSEE AT THE TIME OF E NTERING INTO SHARE TRANSACTIONS WAS TO EARN DIVIDEND AND HOLD THEM FOR APPRECIATION IN VALUE. THE SHARES WERE HELD AS INVESTMENT AND NOT AS STOCK IN TRADE. RELYING ON VARIOUS DECISIONS, IT WAS SUBMITTED THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN APPLYING THE PROVISIONS OF EXP LANATION TO SECTION 73 OF THE ACT. IN HIS ALTERNATE SUBMISSIONS, IT WAS SUBM ITTED THAT IF THE TRANSACTIONS IN INVESTMENT ARE TREATED AS SPECULATI VE BUSINESS THEN THE LOSS OF RS.18,80,681 INCURRED BY THE ASSESSEE IN TH E PRECEDING YEAR AND CLAIMED AS LONG TERM CAPITAL LOSS FROM SIMILAR TRAN SACTION SHOULD ALSO BE TREATED AS SPECULATION LOSS AND SET OFF AGAINST SPE CULATION PROFIT OF THE CURRENT YEAR BE ALLOWED. 8. HOWEVER, THE CIT(A) WAS NOT CONVINCED WITH THE ARGU MENTS ADVANCED BY THE ASSESSEE. HE HELD THAT THE CLAIM O F THE ASSESSEE CANNOT BE SUSTAINED ON THE FOLLOWING REASONS: A) ALTHOUGH THE APPELLANT ADMITTED THAT IN THE EARLIER YEARS AS WELL AS IN THE SUBSEQUENT YEAR, TRANSACTIONS IN SHA RE TRADING WERE CARRIED OUT BUT NOT DURING THE CURRENT YEAR, I N EARLIER YEARS ALSO NO STOCK IN TRADE OF SHARES WAS SHOWN. SHARES WERE ALWAYS SHOWN AS INVESTMENTS ONLY; I.T.A. NO. 4098/MUM/2007 M/S. AXIS CAPITAL MARKETS (INDIA) LTD. ========================= 4 B) ALL THE EXPENSES INCURRED ON TRANSACTIONS IN SHARE INVESTMENTS WERE CLAIMED AS BUSINESS EXPENSES IN TH E PROFIT AND LOSS A/C. IF THE SHARES WERE PURCHASED AND SOLD AS INVESTMENTS, THE EXPENSES SHOULD HAVE BEEN CAPIT ALISED WHILE COMPUTING THE PROFIT OR LOSS UNDER THE HEAD CAPITAL GAINS OR LOSS AND NOT UNDER THE HEAD INCO ME FROM BUSINESS; C) THE APPELLANT HAD SHOWN SHORT TERM CAPITAL LOSS OF RS.6,834/-. IT MEANS THAT IT WAS ENGAGED IN FREQUE NT PURCHASE AND SALE OF SHARES DURING THE YEAR UNDER CONSIDERATION WHICH FACT CLEARLY PROVES THE INTENTI ON OF THE APPELLANT FOR DEALING IN SHARES AS STOCK IN TRADE. 9. HE OBSERVED THAT THE ABOVE FACTS CLEARLY INDICATE T HAT THE ASSESSEE ENTERED INTO THESE TRANSACTIONS WITH A VIEW TO DEAL IN SHARES AS STOCK IN TRADE. THEREFORE, THE ASSESSING OFFICER WAS JUSTI FIED IN TREATING THE PROFIT FROM SUCH TRANSACTIONS AS BUSINESS TRANSACTIONS AND APPLYING THE PROVISIONS OF EXPLANATION TO SECTION 73. HE HOWEVE R, ACCEPTED THE ALTERNATE PLEA OF THE ASSESSEE THAT IF THE PROFITS FROM LONG TERM CAPITAL GAIN HAVE TO BE TREATED AS SPECULATIVE INCOME WITHI N THE MEANING OF EXPLANATION TO SECTION 73, THEN BROUGHT FORWARD LON G TERM CAPITAL LOSS ON SIMILAR TRANSACTION SHOULD BE ALLOWED AS SET OFF AS SPECULATIVE LOSS BY THE ASSESSING OFFICER. HE ACCORDINGLY DIRECTED THE ASS ESSING OFFICER TO VERIFY THE RECORDS OF THE PRECEDING YEAR AND FIND OUT IF T HE LOSS WAS FROM SIMILAR TRANSACTION. IF YES, HE SHOULD ASCERTAIN THE INCOM E OF SUCH LOSS AND SET OFF THE SAME AGAINST THE SPECULATIVE INCOME FOR THE CUR RENT YEAR. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASSESSEE IS IN A PPEAL BEFORE US. 10. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SAME SUBMISSIONS AS MADE BEFORE THE ASSESSING OFFICER AN D THE CIT(A). REFERRING TO COPY OF THE ASSESSMENT ORDER FOR A.Y. 2006-07 HE SUBMITTED THAT THE ASSESSING OFFICER IN THE SAID ASSESSMENT O RDER HAS HELD THAT THE COMPANY IS MAINLY AN INVESTMENT COMPANY BUYING AND SELLING OF INVESTMENTS AND EARNING LONG TERM/SHORT TERM CAPITA L GAIN AND DIVIDEND INCOME. REFERRING TO THE ASSESSMENT ORDER PASSED U /S. 143(3) OF THE ACT, HE SUBMITTED THAT INCOME FROM CAPITAL GAIN SHOWN BY THE ASSESSEE WAS ACCEPTED AS SUCH AND IT WAS NOT DISTURBED. REFERRI NG TO COPY OF THE I.T.A. NO. 4098/MUM/2007 M/S. AXIS CAPITAL MARKETS (INDIA) LTD. ========================= 5 ASSESSMENT ORDER FOR A.Y. 2005-06 PLACED AT PAPER B OOK PAGES 89 TO 92, HE DREW THE ATTENTION OF THE BENCH TO THE ORDER PAS SED U/S. 143(3) AND SUBMITTED THAT IN PARA 5.3 OF THE ORDER, THE ASSESS ING OFFICER HIMSELF HAS MENTIONED THAT THE ASSESSEE HAS INVESTED FUNDS IN S HARES AND IN THE ORDER THE ASSESSING OFFICER HAS ACCEPTED THE LONG TERM AN D SHORT TERM CAPITAL GAIN. REFERRING TO PAGES 29 TO 35, HE DREW THE ATT ENTION OF THE BENCH TO THE FACT SHEET. HE SUBMITTED THAT CBDT CIRCULAR NO . 4/2007 DATED 151/2007 AS WELL AS THE VARIOUS DECISIONS OF THE CO URTS AND TRIBUNALS HAVE HELD THAT IT IS NOT POSSIBLE TO EVOLVE A SINGL E TEST TO DETERMINE WHETHER A TRANSACTION IS ADVENTURE IN THE NATURE OF TRADE OR AN INVESTMENT ACCOUNT. RELYING ON A COUPLE OF DECISIO NS, HE SUBMITTED THAT THE FOLLOWING TASKS ARE NECESSARY TO DETERMINE THE NATURE OF A TRANSACTION: A) INTENTION AT THE TIME OF BUYING CAPITAL ASSET; B) THE NATURE OF BUSINESS CARRIED ON BY THE ASSESSEE; C) UTILISATION OF FUNDS FOR BUYING THE SHARES; AND D) TREATMENT OF SHARES IN THE BOOKS OF ACCOUNT. 11. HE SUBMITTED THAT THE INVESTMENT IN SHARES WAS MADE TO HOLD THEM AS INVESTMENT AND TO EARN INCOME BY WAY OF DIVIDEND AND APPRECIATION IN VALUE OF SHARES AND NOT TO TRADE IN THEM. HE SUBMI TTED THAT THE NSE CARD WAS SURRENDERED DURING THE A.Y. 2003-03 AND SINCE T HEN THERE WAS NO TRADING ACTIVITY UNDERTAKEN BY THE ASSESSEE EVEN ON CLIENTS ACCOUNT. EVEN DURING THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE HA S NOT EARNED ANY INCOME FROM BROKERAGE WHICH SHOWS THAT THE ASSESSEE IS NOT INVOLVED IN TRADING IN SHARES AND ALL THE SHARES PURCHASED AND SOLD WERE WITH THE INTENTION TO HOLD AS INVESTMENT. THEREFORE, THE GA IN ARISING FROM TRANSFER OF SUCH INVESTMENT SHOULD BE TREATED AS INCOME FROM CAPITAL GAIN AND NOT BUSINESS INCOME. HE FURTHER SUBMITTED THAT THOUGH ONE OF THE OBJECT AS PER THE MEMORANDUM OF ASSOCIATION WAS TO DEAL IN SH ARES, SECURITIES, BONDS, ETC., OR TO ACT AS A BROKER, IT HAS NOT CARR IED ON ANY SUCH ACTIVITY SINCE PAST TWO YEARS. HE SUBMITTED THAT THE SHARES PURCHASED WERE FOR APPRECIATION IN VALUE AND NOT FOR REGULAR TRADING I N VALUE. HE SUBMITTED THAT THE INVESTMENTS PERTAINING TO THE YEAR HAVE BE EN MADE BY THE ASSESSEE FROM ITS OWN FUNDS WITH AN INTENTION OF CA PITAL APPRECIATION AND I.T.A. NO. 4098/MUM/2007 M/S. AXIS CAPITAL MARKETS (INDIA) LTD. ========================= 6 FOR EARNING DIVIDEND. THEREFORE, THE INVESTMENT BE ING MADE OUT OF OWN FUNDS HAS TO BE TREATED AS INVESTMENT AND NOT FOR T RADING IN SHARES. FOR THIS PROPOSITION HE RELIED ON THE DECISION OF THE T RIBUNAL IN THE CASE OF NEERJA BIRLA REPORTED IN 66 ITD 148. HE SUBMITTED THAT THE ASSESSEE HAS ALSO INVESTED ITS OWN FUNDS IN THE MUTUAL FUNDS WHI CH CANNOT BE SOLD IN MARKET BUT CAN ONLY BE SURRENDERED. THEREFORE, THE RE IS NO QUESTION OF TREATING THE SAME AS TRADING TRANSACTIONS. THE UNI TS HAVE TO BE PURCHASED FROM THE MUTUAL FUNDS AND HAVE TO BE SURRENDERED BA CK TO THE FUND. REFERRING TO THE DECISION OF THE TRIBUNAL IN THE CA SE OF BOMBAY GYMKHANA REPORTED IN 115 TTJ 639, HE SUBMITTED THAT WHEN THE PURCHASE OF MUTUAL FUND UNITS BY THE ASSESSEE WAS HELD AS INVESTMENT A ND SHOWN IN THE BOOKS OF ACCOUNT AS SUCH, THE PROFIT ON SALE OF THE SAME WAS HELD TO BE TREATED AS INCOME FROM CAPITAL GAIN AND NOT FROM BUSINESS INCO ME. 12. HE FURTHER SUBMITTED THAT THE ASSESSEE COMPANY IS C ONSISTENTLY FOLLOWING THE ACCOUNTING OF INVESTMENT AND RECOGNIS ES ITS SHARE TRANSACTIONS AS INVESTMENT AT THE TIME OF ENTERING INTO THE TRANSACTION ITSELF BY ACCOUNTING THE TRANSACTION AS INVESTMENT. HE ACCORDINGLY SUBMITTED THAT THE ACTIVITY OF THE ASSESSEE COMPANY WAS THAT OF AN INVESTOR AND NOT TRADER AND THE GAIN ON TRANSACTION OF SHARES/MUTUAL FUNDS COULD NOT BE TREATED AS BUSINESS INCOME. THE REFORE, THE ASSESSEE HAS RIGHTLY DISCLOSED THE PROFIT ON SALE OF THE INV ESTMENT AS CAPITAL GAIN. REFERRING TO A NUMBER OF DECISIONS HE SUBMITTED THA T EVEN IN THE CASE OF A SHARE BROKER THE TRANSACTIONS OF DEALING IN SHARES ON HIS OWN ACCOUNT SHOULD NOT BE TREATED AS BUSINESS TRANSACTIONS. H E SUBMITTED THAT IT HAS BEEN FURTHER HELD THAT MERELY THE MAGNITUDE OF TRAN SACTIONS CANNOT BE THE DECISIVE FACTOR FOR TREATING THE TRANSACTIONS AS TR ADING AS AGAINST INVESTMENT. 13. IN HIS ALTERNATE SUBMISSION HE SUBMITTED THAT EVEN IF THE INCOME FROM SALE OF SHARES IS TREATED AS BUSINESS INCOME I T CANNOT BE HELD AS A SPECULATION INCOME SINCE THE ASSESSEE HAS OBTAINED THE DELIVERY OF THE SHARES. HE SUBMITTED THAT THE SHARES WHICH WERE SO LD DURING THE YEAR WERE LYING IN THE DEMAT ACCOUNT OF THE ASSESSEE AT THE BEGINNING OF THE I.T.A. NO. 4098/MUM/2007 M/S. AXIS CAPITAL MARKETS (INDIA) LTD. ========================= 7 YEAR. THEREFORE, THE TRANSACTIONS CANNOT BE TREATE D AS SPECULATIVE TRANSACTIONS. HE SUBMITTED THAT THE EXPLANATION TO SECTION 73 WOULD COME INTO PLAY ONLY IN CASE THE ASSESSEE HAS LOSS FROM T HE SPECULATION BUSINESS AND HAS CLAIMED SET OFF OF THE SAME AGAINST OTHER B USINESS PROFIT. HOWEVER, IN THE INSTANT CASE THE ASSESSEE HAS INCOM E FROM THE TRANSFER OF SHARES AND SECURITIES AND HAS NOT CLAIMED ANY SET O FF OF THE LOSS AGAINST ANY OTHER INCOME. THEREFORE, IT IS NOT CORRECT TO SAY THAT THE ASSESSEE WAS CARRYING OUT THE SPECULATION BUSINESS. IN HIS SECO ND ALTERNATE ARGUMENTS, HE SUBMITTED THAT IF IT IS HELD THAT THE ASSESSEE I S CARRYING OUT THE SPECULATION BUSINESS THE BROUGHT FORWARD LOSS OF TH E EARLIER YEAR SHOULD ALSO PARTAKE THE NATURE OF BROUGHT FORWARD SPECULAT ION BUSINESS LOSS AND SHOULD BE ADJUSTED AGAINST THE INCOME OF THE CURREN T ASSESSMENT YEAR. HE ALSO RELIED ON A NUMBER OF DECISIONS. 14. THE LEARNED DR, ON THE OTHER HAND, HEAVILY RELIED O N THE ORDER OF THE CIT(A). 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BO TH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS RELIED ON BY BOTH THE SIDES. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE DURING THE IMPUGNED ASSESSMENT YEAR H AS EARNED A PROFIT OF RS.41,85,744 ON ACCOUNT OF SALE OF SHARES AND THE U NITS OF MUTUAL FUNDS., THERE IS ALSO NO DISPUTE TO THE FACT THAT THE ASSES SEE HAS DECLARED THE SAME AS LONG TERM CAPITAL GAIN AND AFTER ADJUSTING THE BROUGHT FORWARD LONG TERM CAPITAL LOSS OF RS.18,80,681 AND SHORT TE RM CAPITAL LOSS OF RS.6,834 HAS DECLARED A NET LONG TERM CAPITAL GAIN OF RS.22,98,229. IT IS THE CONTENTION OF THE REVENUE THAT THE LONG TERM CA PITAL GAIN OF RS.41,85,744 HAS TO BE TREATED AS INCOME FORM SHARE TRADING AND HAS TO BE TREATED AS SPECULATION INCOME IN VIEW OF THE PROVIS IONS OF EXPLANATION TO SECTION 73 OF THE ACT. HOWEVER, IT IS THE SUBMISSI ON OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE PROFIT ON SALE OF SHARES/ UNITS OF MUTUAL FUNDS HAS TO BE TREATED AS LONG TERM CAPITAL GAIN. WE FIND F ROM THE COPY OF THE ASSESSMENT ORDER FOR THE A.YS. 2005-06 AND 2006-07 THAT THE ASSESSING I.T.A. NO. 4098/MUM/2007 M/S. AXIS CAPITAL MARKETS (INDIA) LTD. ========================= 8 OFFICER IN THE ORDERS PASSED U/S. 143(3) OF THE ACT HAS CONSIDERED THE INCOME FROM SALE OF SHARES AS INCOME FROM LONG TERM CAPITAL GAIN/SHORT TERM CAPITAL GAIN AND NOT AS SPECULATION BUSINESS. WE FURTHER FIND THERE IS NO PURCHASE OR SALE OF SHARES DURING THE YEAR AND T HE ASSESSEE HAS SOLD THE SHARES/UNITS OF MUTUAL FUNDS WHICH WERE SHOWN U NDER THE HEAD INVESTMENT. THE SHARES WERE HELD FOR A LONG PERIOD AND NO BORROWED FUND HAS BEEN UTILISED BY THE ASSESSEE FOR PURCHASE OF SHARES/ UNITS WHICH IS EVIDENT FROM PAPER BOOK PAGE 11 AND NOT DISPUTED BY THE LEARNED DR SINCE ADMITTEDLY THERE IS NO SECURED OR UNSECURED L OANS APPEARING IN THE BALANCE SHEET. WE, THEREFORE, FIND MERIT IN THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE PROVISIONS OF EXP LANATION TO SECTION 73 ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE ON ACCOUNT OF PROFIT ON SALE OF MUTUAL FUNDS AND SHARES SINCE THESE WERE HE LD BY THE ASSESSEE FOR CONSIDERABLY LONG PERIOD AND SHOWN UNDER THE HEAD I NVESTMENT WITHOUT OBTAINING ANY BORROWED FUND FOR PURCHASE OF THE SAM E. FURTHER THE ASSESSING OFFICER HAS ACCEPTED SIMILAR TREATMENT IN THE SUBSEQUENT YEARS WITHOUT HOLDING THE SAME AS SPECULATION INCOME. IN THIS VIEW OF THE MATTER WE SET ASIDE THE ORDER OF THE CIT(A) AND DIR ECT THE ASSESSING OFFICER TO TREAT THE PROFIT OF RS.41,85,744 AS LONG TERM CAPITAL GAIN AS AGAINST SPECULATION INCOME TREATED BY HIM. THIS GR OUND BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 16. IN GROUNDS OF APPEAL NO. 2, 3 AND 4, THE ASSESSEE H AS CHALLENGED THE ORDER OF THE CIT(A) IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN TREATING THE EXPENSES OF RS.4 LAKHS AS RELATED TO S HARE TRADING/SPECULATION BUSINESS. 17. AFTER HEARING BOTH THE SIDES, WE FIND THE ASSESSING OFFICER DISALLOWED THE EXPENSES OF RS. 4 LAKHS OUT OF THE T OTAL EXPENSES OF RS.6,16,104 ON THE GROUND THAT THE SAME COULD HAVE BEEN INCURRED FOR EARNING OF SPECULATION INCOME. WE FIND WE HAVE ALR EADY HELD THE PROFIT ON SALE OF SHARES OF RS.41,78,910 AS INCOME FROM LONG TERM CAPITAL GAIN AND THEREFORE, THERE IS NO QUESTION OF HOLDING THE ASSE SSEE AS INVOLVED IN SPECULATION TRANSACTIONS. THEREFORE, WE FIND MER IT IN THE SUBMISSION OF I.T.A. NO. 4098/MUM/2007 M/S. AXIS CAPITAL MARKETS (INDIA) LTD. ========================= 9 THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE ENTIR E EXPENDITURE RELATES TO MAINTAINING THE CORPORATE ENTITY OF THE ASSESSEE. ACCORDINGLY WE HOLD THAT NO PART OF EXPENDITURE IS DISALLOWABLE. ACCOR DINGLY THESE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 18. GROUNDS OF APPEAL NO. 7 RELATES TO LEVY OF INTEREST U/S. 234B, 234C AND 234D OF THE ACT. IN OUR OPINION CHARGING OF IN TEREST ON THE ABOVE SECTIONS IS MANDATORY AND CONSEQUENTIAL IN NATURE. THEREFORE, THIS GROUND BY THE ASSESSEE IS DISMISSED. 19. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 30 TH NOVEMBER, 2009. SD/- (N.V. VASUDEVAN) JUDICIAL MEMBER SD/- (R.K. PANDA) ACCOUNTANT MEMBER MUMBAI, DATED 30 TH NOVEMBER, 2009 COPY TO: (1) THE APPELLANT, (2) THE RESPONDENT, (3) THE CIT(A)-IV, MUMBAI, (4) THE CIT-4, MUMBAI, (5) THE DR, A BENCH, ITAT, MUMBAI. //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI TPRAO