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2016 (9) TMI 902 - AT - Income TaxProfit arising out of sale & purchase of shares - business income OR short term capital gain - Held that:- We find that the assessee has maintained the investment portfolio and all the sales and purchase of shares are routed through the same portfolio as noted above. The assessee has kept the entire investment of shares as an investment and not in the trading account. The assessee is not in the business of share trading rather he is partner in firm and doing share transactions as part time. We find that the AO considering the volume and frequency and considering that the assessee has applied for borrowed funds for making investment in shares, treated the activity of purchase and sale of shares as business activity and assessed the profits arising there from as business income as against declared by the assessee as Short Term Capital Gain. We find that the allegation of Revenue that the assessee is indulging into high frequency transactions but this itself could not mean that the trading activity has been carried out by the assessee because the assessee has kept the entire investment in shares in investment portfolio and his intention is clear that he has to earn capital appreciation on the same. The assessee acted accordingly. The assessee has also kept these shares in DEMAT after taking delivery of the same. Even otherwise in earlier years and future years the assesses transaction of sale and purchase of shares was treated by Revenue as investment and profit or loss arising out of the same was assessed as capital gain i.e; either Long Term Capital Gain or Short Term Capital Gain as the case may be. In view of the precedent cited by Ld. Counsel in the case of Gopal Purohit [2010 (1) TMI 7 - BOMBAY HIGH COURT] we allow the claim of the assessee holding that the income / profit arising out of sale purchase of shares is capital gains and not business income. - Decided in favour of assessee Disallowance of interest expenditure - Held that:- We have gone through the documents and noticed that assessee has earned interest income on the FDR’s, which were made out of loan taken from Deepika Dharia. There is a direct nexus between the loan taken and amount invested in FDR’s and it has not gone into interest free advances. Once it is a case, the disallowance made by AO cannot be sustained. Accordingly, we are of the view that the assessee has explained the nexus of interest bearing loans invested in income earning instruments and not in the interest free advances. In view of this fact, we delete the disallowance and allow this issue of assessee’s appeal.
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