The Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) while making directions to recompute the Short Term Capital Gain( STCG ), held that interest cost can not be claimed as business expenditure when the borrowed amount was utilized for making investment in shares.
The Assessee JPR Investments and Trading Private Limited, after filing the return of income assessee case was selected for scrutiny. During the course of assessment the assessing officer noticed that assessee had obtained loan from Manhar Resorts Ltd. of Rs.23.25 crores on various dates out of which Rs. 22 crores was utilized for purchasing of Rs. 40 lacs shares of IndiaBulls Real Estate Ltd. at Rs.21,93,96,601/- @ Rs.54.985 per shares in June & July 2015.
further noticed that the aforesaid shares were sold in the month of October 2015 for Rs.26,99,35,292/- @ Rs.67.48 per share resulted in gain of Rs.5,05,38,690.48. The assessee has utilized the aforesaid amount of sale consideration for repayment of loan amount of Rs.23.25 crores obtained by it from M/s Manhar Resources Ltd. which was invested in the aforesaid shares.
AO noticed that assessee had shown the above referred gain from the sale of shares as income under the head short Term Capital Gain. After examining the submission of the assessee the AO has treated the said gain from the sale and purchase of the shares to the amount of Rs.505, 38,690/- in the nature of business income.
Aggrieved by the order assesee filed an appeal before the CIT(A). The CIT(A) dismissed the appeal filed by the assessee . Thereafter the assessee filed an appeal before the tribunal.
During the adjudication Rajesh S. Athavale, the counsel for assessee argued that assessee has purchased the shares and hold it as investment, therefore, the gain made on sale of shares is rightly shown by the assessee as short term capital gain on the sale of said shares
Ujjwal Kumar, Department representatives supported the order of lower authorities.
The tribunal observed that the lower authorities have not brought any material on record to prove that the assessee has made trading in the shares of India Bull Real Estate as against claim of the assessee that it has made short investment in the impugned shares.
Hence assessee has debited interest charges of Rs.122,26,476/- to the profit and loss account incurred on the above mentioned loan amount which was invested in purchasing shares of India Bull and not for the purpose of business.
Accordingly the bench determined that assessee couldnt claim the aforesaid interest cost as business expenditure since the borrowed amount was utilized for the purpose of making investment in the impugned shares and the assessee itself had shown the income earned from the sale of said shares as short term capital gain by treating the same as investment in its
After analyzing the submission of both parties, the bench comprising Narender Kumar Choudhry, ( Judicial Member ) & I Amarjit Singh, ( Accountant Member ) directs the assessing officer to treat the interest cost of Rs.122,26,476/- as cost of investment made towards purchasing the shares of M/s India Bull Real Estate Ltd. and re-compute the short term capital gain.
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