TMI Blog2012 (9) TMI 685X X X X Extracts X X X X X X X X Extracts X X X X ..... from which assessee has earned short term capital gains were in the nature of trading activity of the assessee. Decision in favour of revenue. Addition on adhoc basis treating share transaction as trading activity – CIT(A) upheld the 17% addition out of transaction in shares treated as investment – And balance as trading activity on basis of opening & closing stock, shares turnover – Held that:- As the part of the profit should be considered in the nature of short term capital gains but no reason has been given which could be set to fit in the principles laid down in judgement of various cases of Hon’ble Supreme Court as well as Hon’ble High Courts to support the said observation of ld CIT(A). Therefore, hold that the entire profits shown by the assessee on purchase and sale of shares has rightly been considered by AO as profit from business and not short term capital gains. Decision in favour of revenue - ITA No.802/Mum/2010 & ITA No.607/Mum/2010 - - - Dated:- 4-7-2012 - SHRI B.R.MITTAL AND SHRI N.K.BILLAIYA, JJ. Asseee by : Shri Keshav B. Bhujle Revenue by: Parthasarthi Naik ORDER Per B.R.Mittal, JM: These cross appeals are filed by departmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to the draft instruction of the CBDT dtd. 16.5.06 [ Instruction No.149/287/2005 TPL dtd. 16.5.06] and claimed that points discussed therein are applicable in her case. 7. The assessee also referred to the Tax Audit Report and claimed that in Column 12(a) of the said tax audit report it has been stated that shares shown as investment are valued at cost . However, it is seen that no tax audit report has been attached with the Return of income. 8. The decision of the Bombay High Court in the case of H.Hoick Larsen Vs V1T 85 ITR 285 (Born) which was affirmed by the Supreme Court in 1 60 ITR 67 (SC) is also quoted by the assessee wherein the Courts have held that whether transactions of sale and purchase of shares are trading transactions or whether they are in the nature of investment is a question of law. It was highlighted that the problem whether a transaction is a trading transaction must be approached in the light of the assessee s intention having regard to the legal requirements which are associated with the concept of trade and business 9. The guidelines issued by the Authority for Advance Rulings in the case of Fidelity Advisor Series such as the substanti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee purchased 500 shares of GNFC on 2.1.2006 and sold 250 shares on the same day and declared speculative gains. The balance 250 shares were sold after two days i.e. on 4.1.06 and the profit out of that sale on 4.1.06 is claimed as Short Term Capital Gain. Further, there were series of purchase of Karuturi shares on 17.1.06, 18.01.06, 19.01.06, 20.01.06, 25.01.06 and 30.01.06. The first four purchases were sold after 10 to 15 days. The last two purchases were sold on the same day. On the first four transactions , it is STCG and in the last two transactions, it is speculation. He has stated that most of the shares on which the assessee has claimed STCG were also dealt with by her under speculation. The logic is simple. When the shares are sold on the same day it is shown as speculation income, when sold on the next day and so on, it takes the form of STCG. (ii) The AO has stated that the statement will show how the assessee has indulged in the frequent purchase and sale of the same scrips which clearly focus that the intention was only trading and not to hold as investments. In this regard, he has given at page 6 of the assessment order a few examples as under: a) Scrips of M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto speculative and STCG and investment out of single purchase, where assessee has sold the shares without taking delivery, they have been shown as speculative gains and where the part of delivery has been taken, the same has been shown as short term capital gains. Thus, assessee divided the transactions into speculative and investment out of single purchase made by her while filing the return. The AO has further stated that investments requires a particular kind of laid back or stable/static type of attitude where the decision making is not a frequent and as dynamic as a trade/business or adventure in the nature of trade. He has stated that, assessee has not only entered directly in the market but also indulged in frequent share trading securities and also indulged in speculation. Considering the above facts, in the light of decision of Hon ble Supreme Court in the case of Dalmia Cements vs CIT, 105 ITR 633(SC), G.Venkatswami Naidu Co. vs CIT, 35 ITR 594(SC), CIT vs. Sugar Dealers, 100 ITR 424 (All), the AO held that gain of Rs.54,82,838 is not short term capital gain but profits and gains from business. Being aggrieved, assessee filed appeal before ld CIT(A). 6. Ld CIT(A) aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment. He submitted that ld CIT(A) only adopted an adhoc basis which is not justified to treat only a part of the profit as short term capital gain i.e. Rs.10 lakhs and to consider the balance amount as business income of the assessee. Ld A.R. relied on the decision of Hon ble apex court in the case of CIT vs. H. Holck Larsen, 160 ITR 67(SC) and submitted that if the assessee is basically an investor, there is no justification to treat the profit as business income. He submitted that assessee has not used any borrowed funds in investment of shares. Ld A.R. further filed a chart and stated that the profit of Rs.8,78,382 relates to those shares in which period of holding was less than 30 days, and that majority profits of Rs.14,72,353 is in respect of those shares, where holding is for more than 30 days but less than 60 days. The assessee has also given a break-up of the profit and period of holding of shares as under: Period of holding Amount(Rs.) 1 -30 days 8,78,382 31-60 days 14,72,353 61 90 days 8,68,688 91 120 days 8,07,462 121 -150 days 2,45,509 151 180 days 1,86,589 181 210 days 1,29,687 211 240 days ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that it was stated that if there is repetition and continuity coupled with the magnitude of the transaction, bearing reasonable proportion to the strength of holding, then an inference can be drawn that the activity is in the nature of business. Ld D.R. submitted that in the case of the assessee all the above criteria are satisfied that there are number of transactions which are running more than 15 pages of the statement, there are repetitive transactions and the same fund has been rotated by the assessee for purchase and sale of shares in the assessment year under consideration. To substantiate his submission, ld D.R. further referred page 2 of the assessment order, wherein, AO has stated that there were 1228 transactions of purchase and sale of shares involving the share purchase transactions of Rs.3,01,60,968 and sale of shares to the tune of Rs.3,56,43,806, against the liquidy funds available with the assessee of Rs.40 lakhs only. He submitted that AO has stated that assessee has ploughed back or rolled back the available capital almost 7 to 8 times in order to earn income out of purchase and sale of shares. He submitted that the order of AO should be confirmed that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ased 500 shares of GNFC on 2.1 .2006 and sold 250 shares on the same day and declared speculative gains. Further, in respect of balance 250 days shares, they were sold after 2 days i.e. on 4.1.2006 and profit out of the same has been claimed as short term capital gains. The AO has given in the assessment order the specific instances that assessee had made purchases and sales of shares repetitively in respect of same scrips. It is not disputed by ld A.R. that assessee sold 91.6% shares purchased during the year. However, 40% of over all transactions are those scrips in which the holding period was 30 days or less. Ld A.R. has not disputed the fact that there are 10% of over all transactions where the period of holding is more than 6 months. Considering all these facts, it shows that assessee is a trader in shares and not an investor as the frequency and volume are not only quite high, but the intention is clear that assessee was trading in shares and not purchasing the shares with an intention as an investor. The case of CIT vs. H. Holck Larsen (supra) cited by ld A.R. has clearly mentioned that the issue as to whether a person is an investor or a dealer is a mixed question of law a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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