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Income Tax Appellate Tribunal, KOLKATA BENCH “A” KOLKATA
Before: Shri Aby.T Varkey & Shri Waseem Ahmed
आदेश /O R D E R
PER Waseem Ahmed, Accountant Member:-
This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-XII, Kolkata dated 23.07.2013. Assessment was framed by ITO Ward-12(3), Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 30.11.2010 for assessment year 2008-09.
Shri Sallong Yaden, Ld. Departmental Representative represented on behalf of Revenue and Shri Manish Tiwari, Ld. Authorized Representative appeared on behalf of assessee.
ITO Wd-12(3) Kol. Vs. M/s Aashyana Goods (P) Ltd. Page 2 2. Facts in brief are that assessee in the present case is a Private Limited Company dealing in share and mutual funds. The assessee for the year under consideration has filed its return of income declaring loss of ₹41,46,668/- which was processed u/s. 143(1) of the Act. Thereafter the case was selected under scrutiny and accordingly notice u/s 143(2)/142(1) of the Act was issued upon assessee. The assessment was framed u/s. 143(3) of the Act at a total income of ₹1,03,26,550/- after making certain additions / disallowances.
Solitary issue raised by Revenue in this appeal is that Ld. CIT(A) erred in treating the loss of ₹1,40,12,844/- as ‘business loss’ instead of ‘capital loss’.
3.1 The assessee in the year under consideration has claimed loss on sale of investment in its mutual fund and future option for ₹1,40,12,844/- as ‘business loss’. The AO, during the course of assessment proceedings observed that there was no transaction in future option and therefore the whole loss represented the loss from transactions in mutual funds. It was also further observed that there was investment in quoted share as well but there was no transactions in those quoted share. The quoted share was of lesser value in comparison to investment in mutual fund. AO also observed that the intention of assessee in dealing of mutual fund was earning capital gains. Further, AO observed that in preceding assessment year 2006-07 the loss from transactions in mutual fund was treated as ‘capital loss’. Accordingly, AO called upon assessee for treating the aforesaid loss of ₹1,40,12,844/- from mutual fund as capital loss. The assessee in compliance thereto submitted that it is Non-Banking Finance Company duly registered with Reserve Bank of India with the main object of business as loan / advance and investment. The assessee, further submitted that loss incurred in mutual fund is an adventure in the nature of trade, which can be verified from the frequency and quantum of transactions related to investment. The assessee further submitted that in the books of account it has been shown as business income in the earlier years and subsequent year to the year under consideration. The transactions ITO Wd-12(3) Kol. Vs. M/s Aashyana Goods (P) Ltd. Page 3 from the sale-purchase of mutual fund were treated as business income which was duly accepted by Revenue. However, AO disregarded the claim of assessee by observing as under:- i) The substantial share capital of the assessee is invested in mutual fund in comparison to the activities of granting of loan and advance. Therefore the major activities of assessee are in the nature of investment only. ii) The assessee itself has shown the loss on the transactions of mutual fund as loss of investment and no turnover of the sale-purchase of share has been reported in Tax Audit Report u/s. 44AB of the Act. iii) In the earlier AY 2006-07 loss from the transactions to mutual fund has been treated as capital loss. iv) The assessee is not maintaining two port-folio one for investment and other for stock in trade, therefore assessee was intending to make investment in mutual fund. v) The assessee received dividend of ₹59,43,930/- of mutual fund and received dividend income of ₹1,36,800/- from shares. Therefore, intention of assessee was very clear that it wanted to have long term profits by way of earning of exempt income in the form of dividend. In view of above, AO treated the loss of mutual fund of Rs.1,40,12,844/- as capital loss.
Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before the learned CIT(A) submitted that it is NBFC company registered with RBI and its objects permits to carry on the business of investment, acquire, hold and dispose of or otherwise invest in shares, debentures, bonds, obligations and securities. In the earlier assessment years for 2005-06 to 2007-08 the activities of the assessee was accepted as in the nature of business.
ITO Wd-12(3) Kol. Vs. M/s Aashyana Goods (P) Ltd. Page 4 4.1 The AO himself in the assessment order has noted that the assessee has invested substantial capital in mutual funds. The learned CIT-A after considering the submission of the assessee has treated the impugned loss as business loss by observing as under:- “I have carefully considered the submission put forth on behalf of the appellant along with the case laws relied upon, perused the facts of the cases including the findings of the assessing officer and other materials brought on record. It is noted the identical issue has come up for adjudication before my predecessor while disposing the appeal of the appellant for the assessment year 2006-07. The AO has treated the business loss claim on sale of units in Mutual Fund of Rs.2,97,332/- as capital loss. On appeal, the Ld. CIT(A) vide order dated 17.10.2012 allowed the appellant’s claim of treating such loss on Mutual Funds as business loss in place of short term capital loss. It is also seen that the contention of the AO for making the disallowance of the loss on sale of mutual funds by treating as capital loss was based on similar treatment of the claim of loss from transactions in Mutual Fund in the assessment for Assessment Year 2006-07 which was in appeal decided in favour of the appellant. It is submitted that the quantum and frequency of investments in mutual funds was more than investment in shares, wherein the appellant dealt in 43 scripts with transaction for purchases of around Rs.4.84 Cr. and sales of Rs.2.12 Cr. profit on sale of such shares/investments amounting to Rs.10,379,807/- has been accepted by the AO as business income. Hence, it is submitted that if profit on sale of investments is accepted as business profit, the loss arising from sale of similar investments should also be considered as business loss. I find force in the argument of the appellant that the nature of business of the Company remains the same as in the past except in quantum/volume of business and the assessments for 2005-06 to 2007-08 were completed by accepting the nature of profits from investments as business income. In the light of the above discussion and findings, after perusing the entire facts of the case and following the decision of my predecessor on the issue while adjudicating the appeal of the appellant for assessment year 2006-07, I am of the view that the AO was not justified in treating the business/treating loss claim of the appellant on sale of units in Mutual Fund of Rs.1,40,12,844/- as capital loss and therefore he is directed to allow the appellant’s claim of loss as trading loss. Thus, this ground of appeal of the appellant is allowed accordingly.”
Aggrieved by this, Revenue has come up in appeal before us.
Before us Ld. DR relied on the order of AO. On the other hand the ld. AR submitted that the AO has accepted the activity of sale purchase of the shares as business transactions but loss arising out of ITO Wd-12(3) Kol. Vs. M/s Aashyana Goods (P) Ltd. Page 5 mutual fund has been treated as capital loss without any cogent reasons. The learned AR reiterated the submission as made before the learned CIT(A) and he supported the order of ld CIT(A).
We have heard rival contentions of both the parties and perused the materials available on record. The issue in the case relates to the treatment made by the AO for the loss claimed by the assessee for its mutual fund transactions as capital loss. However the ld CIT(A) treated the same as business loss and allow the appeal in favour of assessee. At the outset, we find that the assessee has been showing the transactions from the aforesaid activities as business transaction which were accepted by the Revenue in earlier assessment years. On examination of the order of lower authorities, we find that there was no change in the factual position of the assessee. The assessee has also been showing such transactions as business transactions in its books of accounts. Of late the CBDT has issued Circular No. 6/2016 dated 29.2.2016 to avoid the litigation between the assessee and the Revenue. The relevant contents are extracted below: “Disputes, however, continue to exist on the application of these principles to the facts of an individual case since the taxpayers find it difficult to prove the intention in acquiring such shares/securities. In this background, while recognizing that no universal principal in absolute terms can be laid down to decide the character of income from sale of shares and securities (Le. whether the same is in the nature of capital gain or business income), CBDT realizing that major part of shares/securities transactions takes place in respect of the listed ones and with a view to reduce litigation and uncertainty in the matter, in partial modification to the aforesaid Circulars, further instructs that the Assessing Officers in holding whether the surplus generated from sale of listed shares or other securities would be treated as Capital Gain or Business Income, shall take into account the following:- a) Where the assessee itself, irrespective of the period of holding the listed shares and securities, opts to treat them as stock-in-trade, the income arising from transfer of such shares/securities would be treated as its business income, b) In respect of listed shares and securities held for a period of more than 12 months immediately preceding the date of its transfer, if the assessee desires to treat the income arising from the transfer thereof as Capital Gain, the same shall not be put to dispute by the Assessing Officer. However, this stand, once taken by the assessee in a particular Assessment Year, shall remain applicable in subsequent Assessment Years also and the taxpayers shall not ITO Wd-12(3) Kol. Vs. M/s Aashyana Goods (P) Ltd. Page 6 be allowed to adopt a different/contrary stand in this regard in subsequent years; c) In all other cases, the nature of transaction (i.e. whether the same is in the nature of capital gain or business income) shall continue to be decided keeping in view the aforesaid Circulars issued by the CBDT.”