Case Law Details
Mangesh Krishnath Ekbote Vs DCIT (ITAT Pune)
Assessee had shown shares as `Investment’ in its balance sheet as at the end of the year with a nominal balance. The shares purchased and sold during the year indicate that these were held for a very short time before their sale. On a pertinent query, the ld. AR admitted that income from sale and purchase of shares was treated as ‘Business income’ by the assessee in the immediately preceding assessment year. The ld. CIT(A) has also recorded that the assessee offered such income ‘Business income’ in the subsequent year as well, which fact has not been controverted on behalf of the assessee. Since the income from purchase and sale of shares has been treated by the assessee as `Business income’ in the immediately preceding and subsequent assessment years and further nothing has been shown, except their depiction in the balance sheet as Investment, as to how, the shares were so held, we hold that the ld. CIT(A) was justified in treating income from share trading as ‘Business income’.
FULL TEXT OF THE ORDER OF ITAT PUNE
This appeal by the assessee is directed against the order passed by the CIT(A)-2, Pune on 17-03-2017 in relation to the assessment year 2010-11.
2. The first issue raised in this appeal is against the confirmation of disallowance of depreciation amounting to Rs.45,909/- on fixed assets.
3. Briefly stated, the facts of the case are that the assessee is engaged in the business of Software Management consultancy and trading in Futures and Options (F&O). A return was filed declaring total income of Rs.1.23 crore. During the course of assessment proceedings, the Assessing Officer (AO) observed that the assessee claimed depreciation on new additions amounting to Rs.2,08,761/-. Since the assessee failed to furnish proof of the purchase of new fixed assets, the AO disallowed the depreciation on such additions. During the first appellate proceedings, the assessee submitted necessary details of additions to fixed assets, as have been captured at page 7 of the impugned order. The ld. CIT(A) called for the remand report from the AO. One of the additions to the fixed assets was gift of Swift car amounting to Rs.3,06,059/- received from the assessee’s brother, Sh. Rajesh Ekbote. The assessee submitted that the gift of car was recorded in his books at the written down value (WDV) in the hands of his brother. The ld. CIT(A) affirmed the action of the AO on the ground that no depreciation could be allowed as the assessee had not spent any amount on its purchase.
4. We have heard the rival submissions and gone through the relevant material on record. Section 43(1) defines the term ‘actual cost’ in relation to assets. Explanation 2 to section 43(1) states that where an asset is acquired by the assessee by way of gift, the actual cost of the asset to the assessee shall be the actual cost to the previous owner, as reduced by the amount of depreciation actually allowed in respect of any previous year commencing before the 01-04-1988 and the amount of depreciation that would have been allowable to the assessee if the asset was the only asset in the assessment year commencing on or after 01-04-1988. This shows that the written down value of the asset in the hands of the donor is considered as the `actual cost’ of the asset in the hands of the donee for the purpose of allowing depreciation. The assessee furnished necessary details before the ld. CIT(A) to the effect that the actual cost of the car received as gift from his brother was recorded at its written down value in the hands of the donor. The ld. CIT(A) has admitted this fact but refused to allow depreciation on the ground that there was no `actual cost’ as the car was received in Gift. In view of the clear mandate of Explanation 2 to section 43(1), we hold that the authorities below were not justified in disallowing depreciation on fixed assets to the extent of Rs.45,909/-. The impugned order is overturned to this extent.
5. The only other issue which survives in this appeal is against treating profit on sale and purchase of shares amounting to Rs.34,62,194/- as ‘Business income’. The AO observed that the assessee had shown short term capital gain of Rs.34,62,194/-. On being called upon to justify the amount of capital gain, the assessee did not furnish any explanation, which led to the passing of the assessment order u/s.144 of the Act. In view of the fact that the assessee could not justify its claim of short term capital gain, the AO treated the same as unexplained cash credit u/s.68 of the Act. During the course of the first appellate proceedings, the assessee furnished necessary details of share-wise purchase and sale and the resultant capital gain which has been set out at page 19 of the impugned order. The ld. CIT(A) observed that the assessee had himself treated income from share trading as ‘Business income’ in the subsequent assessment year. In view of the fact that there were frequent transactions of purchase and sale within a very short span of time, the ld. CIT(A) treated the sum under consideration as ‘Business income’. Aggrieved thereby, the assessee has come up in appeal before the Tribunal.
6. Having heard the rival submissions and gone through the relevant material on record, it is seen as an admitted position that the assessee had shown shares as `Investment’ in its balance sheet as at the end of the year with a nominal balance. The shares purchased and sold during the year indicate that these were held for a very short time before their sale. On a pertinent query, the ld. AR admitted that income from sale and purchase of shares was treated as ‘Business income’ by the assessee in the immediately preceding assessment year. The ld. CIT(A) has also recorded that the assessee offered such income ‘Business income’ in the subsequent year as well, which fact has not been controverted on behalf of the assessee. Since the income from purchase and sale of shares has been treated by the assessee as `Business income’ in the immediately preceding and subsequent assessment years and further nothing has been shown, except their depiction in the balance sheet as Investment, as to how, the shares were so held, we hold that the ld. CIT(A) was justified in treating income from share trading as ‘Business income’. This ground fails.
7. In the result, the appeal is partly allowed.
Order pronounced in the Open Court on 25th May, 2022.
