TMI Blog2011 (9) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... Member. The revenue filed the appeals while the assessee filed the cross objections. 2.1 The first grievance of the revenue in all the assessment years is that the ld. CIT(A) has erred in directing the AO not to treat the income from share dealing as business income. 2.2 The assessee filed the return of income for the assessment year 2003-04 on 01-09-2006 vide which income of ₹ 3,18,699 was returned. The return of income for the assessment year 2004-05 was filed on 20-08-06 vide which income of ₹ 5,68,238/- was disclosed and the return of income for the assessment year 2005-06 was filed on 24-08-2006 vide which income of ₹ 9,56,781/- was disclosed. The returns for the assessment years 2003-04 and 2004-05 were filed beyond the period allowable under Income-tax Act, 1961, hence, the AO issued notice u/s 148 of the Act for both the assessment years and the assessee vide letter dated 12th Dec., 2006 submitted that the return filed earlier year be treated as return in compliance to notice u/s 148 of the Act. The return for the assessment year 2005-06 was filed within the time limit provided under the Act and the case was selected for scrutiny. Since notices ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares lying in the D-MAT account of the assessee on 31-03-03 was at ₹ 34,72,240/- and the number of scripts was 809 shares. During the year, the assessee earned a dividend of ₹ 2,05,240/-. 2.5 The AO vide letter No. 1142, dated 16-1-07 required the assessee to explain the following issues. 1. Looking to the fact that the transaction in the shares being done on daily basis and considering the volume of nature of the transaction, it is proposed to hold that you had done such transactions as a trader and not as an investor. 2. Why square up/non-delivery based transaction be not treated as speculative business. 2.6 The assessee vide letter dated 7th Dec., 2007 replied that the assessee is not a trader. The assessee is investing her own savings and family corpus since 1974. The allotments have been made in the name of various members of the family. The assessee got bonus shares and also got opportunities for obtaining right issue. The assessee is not maintaining any books of account. The income-tax return has been filed on the basis of the statement received from the broker and other information available in the bank statements. The surplus/loss generated on the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment order and noticed that such type of transactions are occurring on each day. 6. If the purchases is made for the purpose of investment then there should be time lag between purchase and sale. If a particular share is purchased on a day, it is sold and again purchased within a very short span then it is in the nature of business. Coming to the conclusion that such transactions are to be considered as business, the AO relied upon the following decisions : 1. Nalinikant Ambalal Mody v. S.A.L. Narayan Row, CIT [1966] 61 ITR 428 (SC) 2. CIT v. National Storage (P) Ltd. [1967] 66 ITR 596 (SC) 3. CIT v. Cocanada Radhaswami Bank Ltd. [1965] 57 ITR 306 (SC) 4. G. Venkataswami Naidu Co. v. CIT [1959] 35 ITR 594 (SC) The AO accordingly estimated the income from business on account of sale and purchase of shares at ₹ 25 lakhs for the assessment year 2003-04. 2.10 Before the ld. CIT(A), assessee furnished the additional evidence in the shape statement of shareholding, copies of billing statement of depositors , copies of statement of shareholding with the depositors and other documents to establish his claim of an investor . The assessee also filed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isition of shares and sale of shares has been taken by the assessee in computing the capital gain. He further observed that in A.Ys. 2004-05 and 2005-06, the assessee himself has accepted the squared up transactions as business income and therefore justified his order assessing the income as business income. The assessee filed counter comment on the remand report of the AO which is reproduced at page 15 of the order. These counter comments were sent to the AO for his comments but he relied on his earlier report. Thereafter assessee again made detailed submission countering the various objections of the AO which is reproduced on pages 17 to 21 of the order. Considering the entire facts and circumstances of the case, the ld. CIT(A) on pages 21 to 28 of his order held that assessee is an investor in shares and accordingly directed to compute the capital gain. The summary of his findings are as under: - It is a fact that the appellant did not maintain any books of account in respect of these transactions and therefore, it cannot be held that appellant was maintaining books of account for any of the A Y and under these circumstances there is no question of any rejection of books of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l the 3 years under consideration the appellant was not engaged in the trading activity of the shares except the profit arisen on squared up transactions which is already upheld as speculative business profit and resultant income on sale of the other shares has to be assessed as capital gains [CIT(A) page 26]. '' 2.11 Before us, the ld. AR submitted that the assessee and her family members were holding share of more than 500 companies. The total number of transactions carried out were hardly 325 (approx.) and that too in the family of 05 members including the assessee. There were 30 squared up transactions. In assessment years 2004-05 and 2005-06, there were only 700 transactions in a year. It was stated that there may be transaction on each and every day but to judge the frequency/regularity and long holding, it has to be seen with respect to a particular company. The assessee has not maintained any books and the assessee is not having any infrastructure. The assessee earned dividend income of ₹ 2,05,240/-, ₹ 6,01,725/- and ₹ 7,78,754/- for the assessment year 2003-04, 2004-05 and 2005-06 respectively. The ld. AR has relied upon the following decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . ACIT [2011] 137 TTJ 173 has briefly narrated the principles applicable in deciding the issue as to whether the profit arising from purchase and sale of transaction is to be considered as business or capital gain. The principles as laid down and considered by the Mumbai Tribunal are as under:- (a) Whether transactions of sale and purchase of shares were trading transactions or whether they were in the nature of investments are mixed question of law and fact - CIT v. H. Holck Larsen [1986] 58 CTR (SC) 53: [1986] 160 ITR 67 (SC). (b) It is possible for an assessee to be both an investor as well as a dealer in shares. Whether a particular holding is by way of investment or formed part of stock in trade is a matter which is within the knowledge of the assessee and it is for the assessee to produce evidence from his records as to whether he maintained any distinction between shares which were hold by him as investments and those as stock in trade - CIT v. Associated Industrial Development Co. Ltd. 1972 CTR/[1971] 82 ITR 586 (SC). (c) Treatment in the books by an assessee will not be conclusive. If the volume, frequency and regularity with which transactions are carried out ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble at different websites or at the websites of the company whose shares have been purchased or sold. Thus the capital gain or profit from shares can be ascertained if one ascertains the cost. The AO has estimated the income for all three assessment years. The AO will make an exercise to ascertain the income which is to be taxed under the head capital gain, profit or loss or speculative business or profit from shares. The second grievance of the revenue that the ld. CIT(A) has deleted the addition on account of estimated income is also restored back on the file of the AO. 3.1 In the cross objections, the assessee is aggrieved in not accepting the revised computation of income by the ld. CIT(A) on account of decision of the Hon'ble Supreme Court of India in the case of Goetze India Ltd. v. CIT [2006] 284 ITR 323/157 Taxman 1. 3.2 The AO has no power to allow the deduction unless the same is claimed in the return of income or in the revised return of income. However, the assessee can claim deduction before the appellate authorities by filing an additional ground. Thus the appellate authorities can consider such deduction. Since the claim has been made before the ld. CIT(A), ..... X X X X Extracts X X X X X X X X Extracts X X X X
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